Pricing construction risk: Fuzzy set application

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.