A quantitative risk assessment methodology for construction project
- Published: 26 June 2018
- Volume 43 , article number 116 , ( 2018 )
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- Vishal Kumar Gupta ORCID: orcid.org/0000-0003-3240-5531 1 &
- Jitesh J Thakkar 2
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It is observed that most of the infrastructure projects fail to meet their cost and time constraints, which will lead to a low return on investment. The paper highlights that the present risk management tools and techniques do not provide an adequate basis for response selection in managing critical risks specific to infrastructure projects. This paper proposes a risk quantification methodology and demonstrates its application for an industrial construction project. A case study is used to present an application of the proposed risk management methodology to help organisations efficiently choose risk response strategy and allocate limited resources. The research adopts an integrated approach to prioritize risks using Group Technique for Order Preference by Similarity to Ideal Solution (GTOPSIS) and to quantify risks in terms of overall project delays using Judgemental Risk Analysis Process (JRAP), and Monte Carlo Simulation (MCS). A comparison between the results of qualitative risk analysis using GTOPSIS and quantitative risk analysis i.e., JRAP and MCS is presented. It is found that JRAP along with MCS could provide some powerful results which could help the management control project risks. The crux of this paper is that the risks are highly dependent on project schedule and the proposed methodology could give a better risk priority list because it considers slackness associated with the project activities. The analysis can help improve the understanding of implications of specific risk factors on project completion time and cost, while it attempts to quantify risks. In turn, this enables the project manager to devise a suitable strategy for risk response and mitigation.
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Vishal Kumar Gupta
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Gupta, V.K., Thakkar, J.J. A quantitative risk assessment methodology for construction project. Sādhanā 43 , 116 (2018). https://doi.org/10.1007/s12046-018-0846-6
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Received : 13 July 2017
Revised : 05 November 2017
Accepted : 18 January 2018
Published : 26 June 2018
DOI : https://doi.org/10.1007/s12046-018-0846-6
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A quantitative risk assessment methodology for construction project
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05 December 2022
The value of scheduling and quantitative risk analysis for your construction project
Navigating the multiple, and often complex, moving parts of any construction project is essential to its timely completion. In a previous article relating to scheduling and project controls fundamentals , it was established that project planning is key to managing uncertainties and risks, especially those resulting from global, geo-political events, such as border closures and labour shortages as a result of the pandemic, or the volatility of commodity prices and construction materials off the back of the Russia-Ukraine conflict.
In this insight article, John Carleton (Director – ANZ) and Dean Nicholson (Senior Planner) put further emphasis on the value of in-depth scheduling and how this helps to mitigate and minimise risks in your construction project.
Project lifecycle constraints
Linesight’s latest commodity report (Q3 2022) highlights that supply chain disruptions resulting from COVID and geopolitical instability issues, combined with high interest rates, inflation and increasing energy costs, continue to impact construction costs and overall viability of some projects. As an example, procurement of certain equipment or materials may now take up to 24 months, which is a huge leap from the usual 12 months or less.
Similarly, the shortage of skilled labour, particularly of construction workers, continue to result in slower delivery times, thus leading to increased costs for major builds.[1] In fact, skills shortages have been referred to as the ‘Challenge of the Decade’ for the construction industry in Australia, with an anticipated more than 100,000 unfilled roles by next year.[2]
In addition, construction clients, developers, or general contractors are oftentimes involved in multiple construction projects with simultaneous deadlines, and delays in project delivery timelines will ultimately result in unnecessary costs.
In-depth scheduling and quantitative risk analysis
An effective way to ensure a construction project stays on track is through in-depth scheduling through quantitative risk analysis (QRA). The type of information and outputs generated from a QRA can be used to inform key stakeholders of the threats to timelines and enables close and regular monitoring of project risks throughout the project life cycle. [3] However, it is important to note that the QRA will be most effective if the appropriate pre-requisite steps are completed in collaboration with all stakeholders involved in the construction project (clients, contractors, suppliers, consultants, etc.) to ensure all potential risks are accounted for.
One of the most effective ways to do this is to hold QRA workshops involving all stakeholders to determine and agree the risks, the likelihood of risk occurrence, the potential impact to schedule, cost and performance, and the required strategies to manage these risks. This type of approach allows for quantitative analysis with a probabilistic outcome of the project, based on the qualitative inputs of the wider project team.
The first step involved is creating a schedule for all stages and aspects of the project, from the procurement of materials and equipment to obtaining the necessary construction permits and approvals, some of which may be subject to the site location. The objective is to create a schedule that provides transparency in terms of the project status, actions required and timeline to achieve completion. The schedule should be developed with the project team through integrated planning sessions, ensuring the steps involved in each stage are fully understood and timelines and durations are validated and agreed by all parties. This allows the identification of high-level pinch points for all stakeholders.
Once the schedule and timeframes are set, the third step is to capture all potential risks that can impact a project into a risk register. The goal is to identify as many risks as possible, regardless of how critical these are. The best way to achieve this is by running a risk workshop with all project stakeholders in attendance to ensure local expertise, subject matter expert insight, and lessons learned are captured as part of the process. Each risk identified is assigned an owner with responsibility for monitoring the risk and its potential impact on schedule and cost and developing risk mitigation and management solutions.
Finally, metrics are applied to quantify the risk. Each risk is assessed in terms of the likelihood of it occurring and the level of impact on the project. For example, 5% chance of occurrence but with high impact to delay timeline by X months. Risk ranging is an integral part of the qualitative process within the workshop. It is imperative that the estimated cost and time impact is discussed and agreed with all stakeholders ensuring that the project team ‘owns’ the risk ranging.
Once all the workshop results are collated, a quantitative analysis on both cost and schedule is conducted using the Monte Carlo simulation using industry-standard risk software applications, to provide a probable statistical outcome of project success against the input dates and costs. Here, we can establish the likelihood of when the project will finish, and how much it is likely to cost when taking account of all the input data from the workshop.
This process delivers a quantifiable analysis that enables clients to make more informed decisions on how to proceed with the project. Clients can consider whether a different methodology needs to be put in place, whether the team needs to be expanded or indeed whether alternative materials should be considered for the construction.
QRA workshops should be run at the end of each execution phase or at least on a quarterly basis, to effectively monitor and assess existing and emerging risks and in conjunction with any re-baselining of the project. This type of consistent monitoring and realignment throughout the project life cycle creates a better and more comprehensive understanding of the impact and probability of risks enabling the necessary adjustments and contingencies and overall delivery of certainty in project outcome for the client.
References:
[1] Infrastructure Magazine: Skilled construction worker shortage to reach critical levels - https://infrastructuremagazine.com.au/2022/08/19/skilled-construction-worker-shortage-to-reach-critical-levels/
[2] The Urban Developer: Skills Shortages ‘Challenge of the Decade’ for Australia’s Construction Industry - https://www.theurbandeveloper.com/articles/skills-shortages-challenge-of-the-decade-for-australia-s-construction-industry
[3] Project Management Institute: Quantifying risk - https://www.pmi.org/learning/library/quantitative-risk-assessment-methods-9929
COMMENTS
Some of the limitations of the present project risk management processes are reported in the literature are as follows: The most risk assessment studies focused mainly on delivering risk ratings, and there is a need of comprehensive methodology that could help the management in avoiding construction time overrun [].Risks are different for a different phase of the project, so, one-time risk ...
This paper proposes a risk quantification methodology and demonstrates its application for an industrial construction project. A case study is used to present an application of the proposed risk management methodology to help organisations efficiently choose risk response strategy and allocate limited resources.
A quantitative risk assessment methodology for construction project. The crux of this paper is that the risks are highly dependent on project schedule and the proposed methodology could give a better risk priority list because it considers slackness associated with the project activities. Expand.
A quantitative risk assessment methodology for construction project. July 2018. Sadhana 43 (7) DOI: 10.1007/s12046-018-0846-6. Authors: Vishal Gupta. Indian Institute of Technology Kharagpur ...
A quantitative risk assessment methodology for construction project. V. Gupta, J. Thakkar. Published in Sādhanā 26 June 2018. Engineering. Sādhanā. It is observed that most of the infrastructure projects fail to meet their cost and time constraints, which will lead to a low return on investment. The paper highlights that the present risk ...
Significant universal research regarding causes of delay in road projects has been carried out based on expert opinion. This study classifies and standardizes all road construction delay factors found in the literature by developing a common risk breakdown structure (RBS) to allow for comparison between real project delay factors, and the study also proposes two delay risk assessment models ...
Abstract: In the past decades, artificial intelligence (AI)-based hybrid methods have been increasingly applied in construction risk management practices. The purpose of this paper is to review and compile the current AI methods used for cost-risk assessment in the construction management domain in order to capture complexity and risk interdependencies under high uncertainty.,This paper makes ...
Matrix analysis is then followed which include description for techniques, and to account for the most efficient technique regarding the practice of quantitative risk analysis process in construction of mega projects. Step 5 include a review of worldwide mega projects which practice the process of quantitative risk analysis, Fig. 1.
Quantitative risk management in project management is the process of converting the impact of risk on the project into numerical terms. This numerical information is frequently used to determine the cost and time contingencies of the project. This paper discusses some of the principles of quantitative risk assessment methods, and how these were ...
Hsueh et al. (2007) research a risk assessment prac-tice is found on the cases studied and suggests a risk assessment model for construction projects utilizing several risk factors such as specific project information, inside and outside factors of a construction project (Hsueh et al. 2007). Akintoye and MacLeod (1997) propose risk manage-
Quantitative risk analysis is performed on the risks that have been prioritized by the qualitative risk analysis process. In the quantitative risk analysis, the overall impact of risks on project objectives is numerically analyzed. ... Nasirzadeh et al. introduced a system dynamics approach to construction project risk assessment that accounted ...
To conduct a quantitative risk analysis on a business process or project, high-quality data, a definite business plan, a well-developed project model and a prioritized list of business/project risk are necessary. Quantitative risk assessment is based on realistic and measurable data to calculate the impact values that the risk will create with ...
This paper focuses on the qualitative techniques for the assessment of project risk. 3. Quantitative risk analysis and methods. A quantitative risk analysis technique is a scientific, logical analysis technique that analyses the sophisticated and complicated numerical and data sets and provides the conclusion to the analysis.
Abstract . Quantitative Risk Management and Decision Making in Construction introduces valuable techniques for weighing and evaluation alternatives in decision making with a focus on quantitative risk analysis for identifying, quantifying, and mitigating risks associated with construction projects.. Singh addresses such topics as probabilistic cost estimating, contingency analysis, cause ...
The construction industry has extensively applied the fast-tracking approach to the demanding need for the fast delivery of infrastructure projects. However, the fast-track strategy might be threatened by distinctive risks or changes in risk characteristics that emerge when activities are overlapped (overlapping risks). This article proposes a risk assessment simulation model to quantify the ...
other earlier works combined other methods to propose a quantitative risk analysis for construction projects. One of these works proposed a methodology applying Group Tech-nique for Order Preference by Similarity to Ideal Solution (GTOPSIS) with a Judgemental Risk Analysis Process (JRAP) and Monte Carlo simulation to quantify duration delays [22].
STATE OF THE ART. This chapter has drawn together a brief history of quantitative project risk analysis, together with a description of the current techniques and review of the empirical justification for their use. For schedules the current method of choice is stochastic (Monte Carlo) CPM as we have defined it here.
Abstract. Construction industry is at the forefront of risk: it involves situations where uncertainty is a. norm. Based on the volatili ty built into t he very nat ure of this industry, risk m ...
An effective way to ensure a construction project stays on track is through in-depth scheduling through quantitative risk analysis (QRA). The type of information and outputs generated from a QRA can be used to inform key stakeholders of the threats to timelines and enables close and regular monitoring of project risks throughout the project ...
Risk assessment in construction project The quantification stage (assessment, analysis) will help to determine the importance of selected factors, the probability of their occurrence and the degree of impact on a construction project. ... At the same for this method the quantitative data are preferred. Thus, it was adopted the numerical scales ...
There is no universal method of project risk as-sessment which is commonly used. In particular, this applies to risk assessment of works on the construction sites. The method of construction risk assessment that is proposed in this paper is an attempt to address this gap. Based on the construction risk identification the schedules and cost es-
1. Abstract: Construction risk assessment is the final and decisive stage of risk analysis. When highly changeable. conditions of works execution are p redicted, risk should be evaluated in the ...
3.1 Review of the Project Before the quantitative risk assessment process can begin, it is essential that all the members of the risk assessment team come to a mutual understanding of the most up-to-date version of the scope, status and delivery strategy for the project in a project review. The project review team
The complexity of the wharf components and the harshness of the offshore construction environment increase the safety risk of hazards, which has highlighted the importance and urgency of safety risk management in high-pile wharf constructions. This paper established a visualized digital construction safety risk model for high-pile wharf based on a so-called FAHP method (the combination of ...
quantitative risk assessment Submitted by Anonymous (not verified) on Thu, 04/25/2024 - 01:43 Quantitative risk assessments provide a method by which we can calculate risk based on measurements or estimates of various risk components such as likelihood of fire occurrence, intensity of fire should it occur, and susceptibility to fire of the ...