Evaluating flexibility in railroad construction projects

This thesis aims to valuate flexibilities in a large-scale railroad construction project. In general, a railroad construction project involves a large amount of flexibilities due to its long construction period and conflicts among various participants. Therefore, railroad construction projects require investors to examine the feasibility of the project, taking into account managers' ability to make strategic decisions to deal with flexibilities during the construction. However. this important value is not considered in conventional valuation methods, such as Net Present Value (NPV) or Internal Rate of Return (IRR) analysis. This study introduces methods to identify and valuate the flexibilities involved in a project. Decision Tree Analysis (DTA) and Real Option Analysis (ROA) are mainly discussed as primary methods to avoid pitfalls of the conventional valuation methods. DTA helps managers to make future decisions in an effective way by providing graphical diagrams of decision opportunities. ROA appraises the value of mitigating risks by allowing managers to defer investing decisions until a situation that affects a project's success seriously becomes obvious. As a case study, the additional station construction projects in Incheon International Airport Railroad (IIAR) are analyzed to apply the methodologies to valuate the flexibilities. The case study shows that the use of DTA and ROA enables us to visualize the risks, and to quantify the value of flexibilities in the project.

Department dc:contributor.department

Massachusetts Institute of Technology. Dept. of Civil and Environmental Engineering.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2005

Author dc:creator

• Oh, Choong Ryun, 1972-

Advisor dc:contributor.advisor

• Fred Moavenzadeh.

• Civil and Environmental Engineering.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/31146

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/31146