Practical Multifactor Approach to Evaluating Risk of Investment in Engineering Projects

Abstract

Risk analysis is crucial in enabling management to make informed decisions regarding the economic viability of engineering projects. In most building construction projects, sophisticated risk assessment methods are not used because the detailed input information they require is unavailable to the average project owner or manager. As a result, risk assessment is often limited to simple sensitivity analyses. This paper presents a practical yet thorough method in which the economic risk inherent in a construction project can be calculated with input information of varying levels of detail. The proposed “multifactor” method includes consideration of interdependence between a project’s risk factors. The principles of the method are explained, its application to a large construction project is illustrated, and the findings are discussed.