This paper uses real option methodology to compare the cost of a long-term contract with a price cap to that of spot purchases in construction material procurement. In construction, material procurements are usually short-term, project-based and subject to high price volatility. These...

Many architecture, engineering and construction (AEC) professionals would like to use real option (RO) and decision analysis (DA) to evaluate alternatives in investment in the face of uncertainty. However, they have difficulty deciding which one to use and many are not aware of the subtle...