Techniques for the analysis of risks in major projects
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Techniques for the analysis of risks in major projects S Baker, D Ponniah and S Smith University of Edinburgh Risk management currently has an important bearing on the outcomes of major projects. It usually consists of three core areas: analysis, evaluation and control. One of the vital decisions to be made within the area of risk analysis is the choice of techniques to be used which are broadly classi®ed under qualitative and quantitative methods. Through a questionnaire, this paper identi®es the most successful risk analysis techniques within both categories. Over one hundred large companies within the construction industry, and every oil and gas operator in the UK were approached. The areas surveyed on were: risk analysis techniques employed by the companies; the relative success of the techniques; the size and range of activities of the company and the company's policy on identifying and responding to speci®c risks encountered during any particular project. The main conclusions are that personal and corporate experience, and engineering judgement are the most successful qualitative techniques; scenario analysis, EMV, ENPV, and break-even analysis being the principal quantitative techniques. Keywords: risk; risk analysis techniques; qualitative; quantitative
Introduction
Methodology
Construction work is often hazardous undertaking, particularly with many current projects being so large and complex. This, coupled with increased technological advances and a more competitive ®nancial environment, leads to a greater dependence on risk management in determining the outcome of a project.1 While risk management has been routinely carried out, the importance of it has never been greater. Furthermore, the consequencies of an accident are now perceived to be signi®cantly greater, such as in the Piper Alpha disaster in the North Sea.2 It is within the context of large projects in two industry sectors, construction and oil, that the use of the various techniques of risk analysis within risk management, have been investigated. Within these industry sectors, detailed risk management is routinely carried out at all stages of a project life-cycle, from feasibility to decommissioning. However, despite being a growing and important element of these major projects, there is no standardisation within the sectors, hence numerous techniques, factors and approaches to risk analysis are currently deployed. This has led to the present investigation: to identify the extent to which qualitative and quantitative methods were being used within the construction and oil industries; to identify, if any, differences in the approaches between the two sectors; and to assess the relative success of the various techniques.
Risk management consists of risk analysis, evaluation and control3 and the overall goal of this investigation was to obtain and understand details of risk management carried out within the construction and oil
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