Title: Stochastic dominance in projects

Authors: Amaka Ogwueleka

Addresses: Department of Quantity Surveying, Faculty of Environmental Studies, University of Uyo, Akwa Ibom State, Nigeria

Abstract: In 21st century, the success criteria have shifted from conformance to performance which necessitates a new approach to project management practice. The demand for a new approach requires a technique which is driven towards maximum investors| delight. The application of stochastic dominance enables projects to be ranked based on investors| preferences which will incorporate investors| voices in decision making. The paper discusses types of stochastic dominance such as first, second, third or higher degree stochastic dominance and also rules governing their applications. FDSD is based on the assumptions that individuals prefer more to less returns and realisations. SDSD prefers less risky distributions while third or higher degree stochastic dominance deals with decreasing risk-averse by accepting little or more risk in decision making. The paper studies the application of stochastic dominance in a construction project using two different project networks A and B designed for the project. The two networks are analysed using SDSD, the results show schedule A is less risky to B while A dominates B under time-cost constraint and also A is more spread out than B. Based on the investors| policy and priorities less risk is preferred to cost and time minimisation.

Keywords: stochastic dominance; FDSD; SDSD; decision alternatives; expected utility maximisation; probability functions; project management; construction projects; project networks; risk taking; risk averse.

DOI: 10.1504/IJPOM.2010.033663

International Journal of Project Organisation and Management, 2010 Vol.2 No.2, pp.208 - 217

Received: 18 May 2009
Accepted: 27 Oct 2009
Published online: 15 Jun 2010 *

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