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Construction Projects: Assessing the Risks


Risk is an important aspect to consider when running any business, and the construction business is no different.


Every project, whether large or small, will have some risk associated with it. In fact, the risk starts at the time of first contact with a client. From that point on, the progress and eventual successful completion depend on how well risks are identified, evaluated, and mitigated. The two primary ways of identifying effects of risks is through quantitative and qualitative risk analysis. Using these two methods will give any construction business an excellent method to determine how a risk can benefit or hurt the company or the success of a project.Photo: proed.erau.edu


Fixed Value


Quantitative risk analysis is a method for determining a fixed value to represent the likelihood of loss based on the known risks and collected data from the project that is being completed. These values can be used to show impacts to the direct and indirect costs the construction firm may face for normal operation or from a specific project. These values will stay constant for items such as owned equipment or supply from sub contractors.


Other good examples of items to assign fixed values to are the risks and costs associated with output from employees, or how the risk may impact brand recognition and reputation. The US Army corps of engineers provides examples of models that can be used to conduct quantitative risk analysis.



Scale Value


Qualitative risk analysis represents both the likelihood and benefit of a risk’s effect using a scale. Typically a three-interval scale is used in this method, where each interval would encompass a range of values. Each interval is then defined by a non-numerical word or phrase that is not associated with the numerical range it has been assigned when the risk analysis is performed.


For instance, a risk range of zero to three may be represented by the word “Low,” four to seven by the word “Medium,” and eight to ten by the word “High.” By using these words to represent the risk, it provides a way to help assign risks to the unknowns that may be lurking in a project. For example, in underground construction through already developed land there is a chance of hitting unknown utilities. It is difficult to identify a specific value for this risk, but safety consultants evaluating risk would be able to say that there is a high likelihood and consequence of this happening, and therefore assign a high risk.


RELATED: Analyze Your Property For Safety Before Leasing


What Each Method Can Do


Each method of risk analysis has its benefits and drawbacks. In general, quantitative risk analysis is used when the risks are well defined, or if precise data could be obtained from historical projects. Whereas, qualitative risk analysis would be used when the risks can be defined, but not as specifically. The benefit of a quantitative analysis is that more defined impacts to cost, labor, equipment, etc. can be assigned for use in planning and carrying out the project. This comes at a higher cost to the user due to the amount of data and input which are necessary. Quantitative analysis will use some form of model to conduct the risk analysis, which adds another level of fidelity and accuracy to the analysis.


However, the benefit of the qualitative analysis is that it makes it easy to identify risk when theory, data, time or expertise is limited or when quantitative analysis would lead to questionable results. The drawback to a qualitative analysis is that it does not have a very high fidelity. Using both in conjunction, though, will provide the highest level of fidelity for the whole project from start to finish.


It is important to use either, or both, quantitative and qualitative risk analysis on construction projects once the risks have been identified. By completing these analyses, it will allow any construction business truly evaluate which risks will help or hinder the schedule, as well as the bottom line. In some instances, it may even help to identify those higher risks items, so that they can be mitigated early enough in the contract to prevent any harm to profits or company reputation.   

Lee Flynn is from the Wasatch Mountains near Salt Lake City, UT. After Lee spent years preparing himself, his home and his family, he decided he had to do more. In his free time, Lee helps educate those who want to do the same. Through small local workshops and articles, Lee trains and teaches others on home preparation, food storage techniques, wilderness survival and self reliance. After obtaining a bachelors degree from the University of Utah, Lee moved to the Salt Lake Valley where he now lives with his wife and daughter.

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Photo: proed.erau.edu