Probabilistic Risk Management in Design and Construction Projects (Best Practice)

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)
 

IR280-2, Applying Probable Risk Management to Design and Construction Projects

A comprehensive guide to probabilistic risk analysis, first to help organizations determine whether the probabilistic approach is appropriate for their projects, and, if appropriate, to help them implement it. The guide takes the user through the typical steps of adopting probabilistic risk analysis, from identifying risks to interpreting a probability distribution. The guide also provides an overview of the interactive risk register tool, also developed by the research team.
 

IR280-2, Risk Register Tool (Excel Spreadsheet)

Helps project personnel create project risk registers and selecting the appropriate risk management level.

IR280-3, “What’s the Risk”   

This quick reference guide is presented as a two-sided, laminated reference sheet. It explains the appropriate uses and interpretations of the three levels of project risk analysis. It also includes descriptive samples of probabilistic risk analysis outputs, e.g., heat maps and tornado charts.