Investment Decision-Making of Construction Projects Based on Modified Risk-Adjusted Discount Rate

A fundamental tool used to optimize investment decision-making of projects with different construction periods and risks is risk-adjusted discount rate. However, there are some shortcomings of this method, such as difficulty in adjust the discount rates and exaggeration of long-term risks. The objective of this paper is to modify it and to find a better way to assist investment decision-making of construction projects. Firstly, factors contributing to risks of construction projects will be listed and scored by experts, according to which the total degree of risks that will be determined by Analytic Hierarchy Process. Secondly, risk-adjusted discount rate(r)=risk-free rate of return(i) +unit risk premium(b)×total degree of risks(Q). In addition, the critical point of decision-making will be brought in and there is an real-life example to illustrate this decision-making process.