An AHP-Based Selection Model for Ranking Potential Strategies for Managing Construction's Cost Volatilities

The existence of material price volatility in construction projects puts forward substantial risks for all parties involved. In particular, long-term construction projects. Depending on the parties involved in the project, types of contracts and state of the market, various strategies are practiced by contracting parties to manage project risks related to price volatility (e.g., price adjustment clauses, alternative project delivery methods, price cap contracts, contingency, early material procurement, quantitative methods of risk management, and etc.). Unfortunately, in many cases companies fail to select an adequate approach to better manage volatilities of material prices. The aim of this study is to identify critical project factors and align them to documented strategies to manage price volatility, based on an extensive literature review and industry interviews. Furthermore, analytic hierarchy process (AHP) is used as a selection tool to prioritize the top identified strategies with respect to various criteria (e.g., risk sharing, cost, schedule, scope, and type of the project). This study provides a selection tool along with practical guidelines to help various parties to make consistent, logical decisions for mitigating the risk of material price volatility.