Risk Element in Profit Planning under Inflation

by A. Warszawski, (M.ASCE), Head, Bldg. Res. Station; Technion - Israel Inst. of Tech., Haifa, Israel,

Serial Information: Journal of the Construction Division, 1982, Vol. 108, Issue 4, Pg. 624-638

Document Type: Journal Paper


The paper deals with the influence of inflation on profit from construction ventures, and on contractors price determination. First the effect of price escalation on profit is examined under two types of contracts: a fixed price contract and a contract with a compensation clause. Then, the influence of inflation risk on construction price of contractors with different attitudes towards risk taking is explored. The risk is represented by a range of possible inflation rates with different statistical distributions. Finally, the influence of inflation on return from long range investment in equipment and facilities is examined.

Subject Headings: Pricing | Risk management | Profits | Contractors and subcontractors | Statistics | Investments | Construction equipment

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