Engineering and contracting projects: A value at risk based approach to portfolio balancing

The approach proposed focuses on the bid/no bid decision linked to the portfolio management issue for an Engineering and Contracting company. A first step is the transposition of the financial concept of Value at Risk to the world of Engineering and Contracting projects. The distribution of the project Net Present Value over the project lifecycle has been considered, in a similar way as the distribution of return for a portfolio of financial assets over a specified time horizon, in order to define a synthetic measure of risk for an Engineering and Contracting project. The second step is the use of measures of risk based on the Value at Risk concept to support bid no bid decision-making processes in order to obtain a better balancing of the overall portfolio of projects for a company operating in the Engineering and Contracting industry. The proposed framework has been tested as a decision support tool on a power plant project. © 2007 Elsevier Ltd and IPMA.