Facilitating risky project negotiation: An integrated approach using fuzzy real options, multicriteria analysis, and conflict analysis

This paper proposes a risky project negotiation framework, comprising fuzzy real options, ordered weighted averaging (OWA), and the graph model of conflict resolution (GMCR). Fuzzy real options analysis is employed to evaluate risky projects where the value of managerial flexibility cannot be overlooked. For civil engineering project evaluation, OWA is used to estimate the parameters of the fuzzy real options model, such as initial values and volatilities, to reflect the risk preference of decision makers (DMs). Because it can take into account DMs’ values and preferences for a risky project, GMCR is utilized to identify equilibria, or potential resolutions of the conflict, among all possible states, or combinations of DMs’ choices. While an option pricing model is employed to estimate the values of decision makers (DMs) toward a risky project, all parts are integrated via fuzzy functions in this framework. A brownfield redevelopment case, the Ralgreen Community in Kitchener, Ontario, Canada, is used as a typical risky project to demonstrate how to apply this integrated approach. The main contribution of this paper is to demonstrate the comprehensive use of fuzzy methods to assess brownfield projects. For this purpose, stochastic methods face difficulties because risks cannot be fully reflected in market prices. Expert knowledge that is descriptive, multi-attribute, or subjective in nature can be effectively quantified using fuzzy representations.