Multicriteria Financial Protfolio Risk Management for International Projects

Multicriteria Financial Portfolio Risk Management for International Projects

Seung H. Han1; James E. Diekmann2; Young Lee3; and Jong H. Ock4

Abstract: While opportunities for international construction firms have been growing with globalization, the risks involved with international construction projects are increasing significantly. However, due to the complex skein of various risks, it is difficult to evaluate the severity of risk variables at the corporate level and to examine key success factors in an attempt to maximize a firm’s value under the challenging global business environment. This paper focuses on a financial portfolio risk management for international projects to integrate the risk hierarchy of both individual projects and at the corporate level, which applies a multicriteria decision making method to maximize the total value of firms. To demonstrate the approach, a case study is conducted based on real projects collected from a multinational general contractor. Finally, we present lessons learned as well as guidelines for the application of these lessons to future projects through a workshop with industry practitioners. DOI: 10.1061/ ASCE 0733-9364 2004 130:3 346 CE Database subject headings: International development; Corporate planning; Risk management; Financial management; Bids; Construction industry.

Introduction

International construction firms have increased their profit through overseas projects. However, the risk on international projects has also been increasing. Larger contract amounts, longer return periods of investment, and higher burdens of financing than those found in domestic markets are the major threats on international construction projects. In addition, international construction firms are exposed to a complex skein of risks such as currency and interest rates, inflation, credit, and other business risks Lee and Walters 1989; He 1995; Han 1999 . However, it is difficult to identify the risk variables affecting the bottom line and to...