Risk Measurement, Allocation, and Pricing in Network Schedule Systems
Construction risk management, controlling the probability and/or severity of potential adverse events so that the consequences are within acceptable limits, is examined relative to network schedule systems. Three analogies are explored for risk related to schedule elasticity and structure, a schedule's participants, and risk's cost; each of which is rooted in related research beyond the bounds of the construction and engineering disciplines.The inherent risk presented by those operating within the network system, referred to as schedule risk, the likelihood of failing to meet schedule plans and the effect of such failure, is examined with the use of beta (β), the risk correlation of an individual stock to that of the entire market from the Capital Asset Pricing Model (CAPM) of financial portfolio theory, to determine parallels with respect to the inner workings and risks represented by each entity or activity within a schedule to that of the total system or project.Risk is also viewed through a networks flexibility, herein represented as schedule float, the aggregate time an activity may be extended or delayed without impeding overall outcome, and is explored using the Social Choice voting allocation models and voting power research from the Penrose square root law and the Banzhaf power index.Float consumption is analyzed via the binomial valuation variation of real options, defined as non-financial options (not derivative-based traded instruments) surrounding tangible assets that creates a future right of choice but not an obligation to pursue a decision, and has its origin in the capital budgeting and financial decision-making process. This forms the basis upon which float is priced.The long-term goal of this research is to lend insight into schedule volatility, how systematic risk can be quantified, priced, diversified and/or mitigated, and the development of a prediction method for where risk is likely to reside; to provide an alternative to the limitations of soft logic evaluation techniques such as GERT, VERT, and PERT, Graphical, Venture, and Program Evaluation and Review Techniques respectively, and a vehicle for pricing tradable float, all in fulfillment of de la Garza, Vorster and Parvin's unrequited Total Float Traded as Commodity.
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