Pricing Construction Risk: Fuzzy Set Application

Abstract

Contractors may be faced with the problem of deciding the bidding price of a construction project, when the likelihood of the occurrence of risk events and the risk‐associated consequences (monetary loss and gain) are uncertain. If the monetary loss resulting from risk events is not considered or is underestimated due to associated uncertainties, a construction enterprise may suffer a tremendous loss and eventually fail. In this paper, a risk‐pricing method is proposed for analyzing and pricing construction project risk. The method consists of identifying risk elements and quantifying risk‐associated consequences. The uncertainty in the values of the quantified consequences are represented by using a fuzzy set approach and incorporated directly into the bidding price decision process. The proposed risk‐pricing method will assist contractors in the process of estimation under uncertainty. A real construction project is selected to illustrate how the proposed method can be put into practice.