Construction Project Selection and Bernoulli Utility

A method to estimate the value of construction projects is illustrated that in an uncertain environment will result in the maximization of long-run profits to the construction firm. The risk of a project is valued relative to the size of the firm and to the relations between current and proposed projects. The information used is obtained from a subjective or statistical evaluation of the estimates for construction projects and from the balance sheet of the firm. The ways in which the risk of a project changes with diversification and with the progress of current projects are illustrated. An example shows how a firm can apply these methods to select portfolios of construction projects. The computational aspects are stressed.