Probabilistic Risk Management in Design and Construction Projects, Version 1.1

Organizations can use three processes to implement more advanced project risk management approaches, including probabilistic analysis. These procesess comprise three levels, each of which offers clear benefits: risk identification, deterministic analysis, and probabilistic analysis.

Probabilistic methods manage project risk and uncertainty in cost, scope, and schedule by taking into account known and unknown events or conditions that cannot be adequately identified or defined, either independently or comprehensively.

The team deterimined that four project attributes or “triggers” lend themselves to a probabilistic approach to risk management:

• Project Cost – Projects tended to utilize a Level 3 approach when costs exceeded $10 million to $15 million.
• Delivery Method – Projects that fell outside a company’s “typical” delivery method
• Novelty – New project, new technology, or a new market
• Location – Considerations of geographical landscape, governmental regulations, and government instability

Over 70% of all respondants noted “Significant” or greater impact across six measureable benefits (RS280-1, p. 22).

“Organizations and project teams benefit from the implementation of probabilistic approaches at all phases in a project’s life cycle, starting at the beginning of the front end planning (FEP) phase and continuing through detailed design, construction, and operations. Both owners and contractors indicated that the use of probabilistic simulation outputs 1) helps them decide which projects to pursue, 2) strengthens their ability to establish contingency levels and realistic schedule durations, and 3) improves their skills at identifying and prioritizing risks.” (RS280-1, p.30)