RISK ELEMENT IN PROFIT PLANNING UNDER INFLATION.

The paper deals with the influence of inflation on profit from construction ventures, and on contractors price determination. 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. 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. The influence of inflation on return from long range investment in equipment and facilities is examined.