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New Approach to Estimating the Standard Deviations of Lognormal Cost Variables in the Monte Carlo Analysis of Construction Risks

Chang, C; Ko, JW; (2017) New Approach to Estimating the Standard Deviations of Lognormal Cost Variables in the Monte Carlo Analysis of Construction Risks. Journal of Construction Engineering and Management , 143 (1) , Article 06016006. 10.1061/(ASCE)CO.1943-7862.0001207. Green open access

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Abstract

If soundly conducted, risk assessment could yield considerable savings for project investors. Monte Carlo Simulation (MCS) has been widely embraced by risk management guides as an instrumental tool for this purpose. This research aims to develop a new method to improve the rigor of MCS by establishing the link between parameter estimation and assessment of individual risk sources. The method is validated by virtue of its predictive power for the likelihood of a project being successful in securing investors. Eight Taiwanese sewerage Build-Operate-Transfer projects are investigated. Compared to the discounted cash flow approach, this new method can provide a more accurate prediction using the expert’s assessment as input of financial impact and occurrence likelihood of individual risks. This finding furnishes solid empirical evidence for the value MCS might add to project appraisal.

Type: Article
Title: New Approach to Estimating the Standard Deviations of Lognormal Cost Variables in the Monte Carlo Analysis of Construction Risks
Open access status: An open access version is available from UCL Discovery
DOI: 10.1061/(ASCE)CO.1943-7862.0001207
Publisher version: http://doi.org/10.1061/(ASCE)CO.1943-7862.0001207
Language: English
Additional information: © 2016 American Society of Civil Engineers
Keywords: Monte Carlo simulation, Risk allocation, Risk modeling, Public-private partnership (PPP)/build-operate-transfer (BOT), Sewerage system, Organizational issues
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
URI: https://discovery.ucl.ac.uk/id/eprint/1443284
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