Risk is inherent in construction projects of all types and sizes. It has many causes and its effects manifest themselves in various forms. Most recognizable are impacts on the schedule, where they reduce float, i.e. its flexibility to absorb delays and thus mitigate risk. Regardless of the nature of risk, it is measurable by its effect. Several important issues arise, including how to allocate float fairly and equitably among subcontractors, valuing it for trading it before it expires, and using so that optimally mitigates the risk of the overall project. This research therefore explores one of these three parts of an improved risk management methodology, valuation. It uses real options, which model opportunities - not obligations - for decisions on tangible assets, to price allocated float for trade among critical project participants. The binomial decision tree or lattice of real options is analogous to junctures within network schedules. At such points participants may use or trade non-expired float to reduce delays along or near a critical path, or reserve it to hedge against future risk until it expires. In other words, it functions like put and call options. Overall, this study extends theory in construction risk management by pricing tradable float.
