Qualitative and Quantitative Risk Assessment

Risk Management in Construction
Qualitative and Quantitative
Risk Assessment
Professor Kamel Hawwash
Review- Output of Hazard Identification
Hazards in a construction project
Types of Hazard
Financial hazards
Legal hazards
Political hazards
Social hazards
Environmental hazards
Communications hazards
Geographical hazards
Geotechnical hazards
Design hazards
Construction hazards
Technological hazards
Risk information produced from hazard identification will be provided for further
investigation and analysis by using risk assessment techniques.
The level of risk combined with the probability of occurrence and possible impact need
to be realised.

Content
1. Introduction to qualitative method – Risk
Matrix technique
2. Introduction to quantitative methods – Cash
Flow, Fault Tree Analysis & Event Tree Analysis
3. Outputs of risk assessment

Learning outcomes
The Learning outcomes are:
Understanding of qualitative analysis method, particularly,
Risk Matrix Method
Understanding of quantitative analysis methods- Cash
flow, Fault tree analysis, and event tree analysis.
Understanding of outputs from risk analysis.
Being able to apply risk assessment methods in dealing
with project risks.

Content
1. Introduction to qualitative method – Risk
Matrix technique
2. Introduction to quantitative methods – Cash
Flow, Fault Tree Analysis & Event Tree Analysis
3. Outputs of risk assessment

Risk assessment element in risk
management system

Qualitative Risk Assessment (page 50)
A qualitative risk assessment applies the basic
techniques (for example, risk matrix) to identify
risks and their potential consequence.
Tasks in qualitative risk analysis include:
• Review of project programmes and budgets
• Identification of project interfaces
• Use of a risk matrix to present the output of risk
analysis

Example –Project Programme and
Budget
(page 50)
Several factors will influence a project’s programme and budget
including:
The experience of the project management organisation,
The amount of relevant data from closely similar projects which
form the basis of performance specifications, estimates and
programmes,
The extent of innovation, and
The size and complexity of the project
The relationships among budget, programme, time and risks:
Budget should be based on a realistic programme for the work
taking into account resource provision, productivity, time-related costs
and risks.

Example – Identification of project
interfaces

Qualitative Risk Assessment (page 50)
A typical qualitative risk assessment usually includes the
following issues:
A brief description of the risk;
The stages of the project when it may occur;
The elements of work/sub-projects of the project that
could be affected;
The factors that influence its occurance;
The relationship with other risks;
The likelihood of it occurring (probability of occurrence);
How it could affect the project (impact or consequence).
A useful qualitative method – The Risk
Matrix (Log)
(page 51)
A risk matrix (log) of a project will contain:
the information and data for all the identified risks,
assessments of risk’s potential impact on the budget, programme and
quality/performance aspects of the project,
the information on actions to avoid, mitigate or transfer risks.
Functions of a risk matrix
To produce a database to facilitate ranking of risks according to qualitative
assessment (for example, high, medium and low).
To show the output produced in the risk map (or matrix) format to ease
understanding of the results.
To prompt risk owners to take action as a management tool.
An example of a risk matrix (log) is shown in Figure 6.1 on page 52 regarding
main categories of risk.

Example – Risk Matrix
Very low impact Very high impact

Example(page 47)
Example (page 47)
Probability- Impact Risk Matrix (ARUP)
Project Risk Classification Scheme (ARUP)
Risk Matrix + Classification Scheme
Highways Agency (Nov 2008)
Risk Matrix + Classification Scheme
Highways Agency (Nov 2008)
Risk Control
Risk Control
Case study
• Chapter 6 – Qualitative Methods for Risk
Management
• Case study – Qualitative risk analysis in the use
of the placement of a construction project
(Section 6.7)

Qualitative Risk Assessment
Advantages:
Simple – it is useful for relatively simple projects
Easy to prepare and understand – For short-time /small projects.
Good for showing risks – it is particular useful at early stage of
project where the risk data and information are incomplete or
unavailable.
Disadvantages:
One major disadvantage is that it fails to provide numerical
information to help judge the overall implications on investment
decisions.
Does not deal well with complicated projects.
To solve the above problems, therefore, quantitative methods are required.
Example (page 47)
Content
1. Introduction to qualitative method – Risk
Matrix technique
2
. Introduction to quantitative methods – Cash
Flow, Fault Tree Analysis & Event Tree Analysis
3. Outputs of risk assessment
Quantitative Risk Assessment (Page 62)
By application of quantitative risk assessment, the possible
consequences of risks occurring can be defined and
quantified in terms of:
Increased cost; i.e. additional cost above the estimate of
the final cost of the project;
Increased time. i.e. additional time beyond the completion
date of the project through delays in construction;
Reduced quality and performance. i.e. the extent to which
the project would fail to meet the performance based on
quality, standards and specification.
Introduction to project cash flow analysis
Introduction to probabilistic risk assessment techniques,
e.g. Fault Tree Analysis (FTA) and Event Tree Analysis (ETA)

Cash flow
Cash flow
Background
• Many projects show massive cost and time
overruns.
• These are frequently caused by
underestimates rather than failures of project
management.

Cash flow
Cash flow
Cash Flow
A cash flow is a financial model of the project or
contract and even in its simplest basic form will
provide vital information for the project manager.
Cash flow concerns the flow of money in and out of
the account per time period during the project.

Project cash flow –1 (General)
Project cash flow –2 (Delayed completion)
Project cash flow –3 (Delayed
Sanction)

Project cash flow –3 (Delayed
Completion)

Cash Flow – Risk Prediction
Introduction Quantitative Risk
Analysis –Fault Tree Analysis
(FTA),
Event Tree Analysis (ETA)
Probabilistic Risk Analysis
In order to apply the probabilistic risk assessment methods
• It is necessary to determine the risk level of the hazard by
examining both
consequence and probability of occurrence.
• In each case a
numerical value will be derived, and these
will be combined to yield the risk level, also in
numerical
terms
.
• These may be analysed using
Fault Tree Analysis (FTA),
Event Tree Analysis (ETA) and probability analysis.
Other Probabilistic Analysis
Techniques
Fault Tree Analysis (FTA)
Event Tree Analysis (ETA)
Private study (Lecture notes):
• Monte Carlo Technique (page 74)
• Portfolio Theory (Page 77)
• Delphi Method (page 77)
• Influence Diagrams (78)
• Decision Trees (page 78)
• Latin hyper-cube sampling (page 79)

Probabilistic Risk Analysis-FTA (page 73)
happen.
Probabilistic Risk Analysis-FTA
AND gate
Probabilistic Risk Analysis-FTA
OR gate
happens
Probabilistic Risk Analysis-FTA
Example:
Series and parallel structures
Probabilistic Risk Analysis-FTA
Top event probability
Example (page 44) –FTA
A project engineer has to visit the country’s capital city.
Two factors to be taken into consideration are:
Trip opportunity: The main reasons for the trip are to
take part in committee meetings, conferences, contract
discussions, training courses.
Being able to go: The factor comprises the time
available for the trip and the existence of funds
allocated for travel.

Example (page 60) –FTA
Any one basic event happened, the top
event Will be happen.

Example -FTA
Fault Tree Method Software
Probabilistic Risk Analysis-FTA(page 73)
What is an Event Tree Analysis?
An Event Tree Analysis is a visual representation of
all the events which can occur in a project.
The goal of an event tree is to determine the
probability of an event based on the outcomes of
each event in the chronological sequence of events
leading up to it. By analysing all possible outcomes,
The percentage of outcomes which lead to the
desired result can be determined.

Probabilistic Risk Analysis-FTA (page 73)
Why Use Event Tree Analysis?
Fault Tree analysis is probably the most widely used technique for
quantitative analysis, it is limited to AND/OR logical combinations of
events which contribute to a single defined failure (i.e. one top event);
• Projects where the same failures occur in different sequences can
result in different outcomes which cannot so easily be modelled by
fault trees; and
• The fault tree approach is likely to be pessimistic since a fault tree
acknowledges the occurrence of both combinations of the inputs to an
AND gate whereas an Event Tree model can permit only one sequence
of the input.

Event Tree Method
Software

Differences between FTA and ETA

Event Tree Fault Tree
Easier to follow for non-specialist Less obvious logic
Permits several outcomes Permits one top event
Permits sequential events Static logic (implies sequence is
irrelevant)
Permits intuitive exploration outcomes Requires inference
Permits feedback (e.g. waiting
states)
No feedback
Fixed probabilities Fixed probabilities and rates and
times

Other Probabilistic Analysis
Techniques
Private study (Lecture notes):
• Monte Carlo Technique (page 74)
• Portfolio Theory (Page 77)
• Delphi Method (page 77)
• Influence Diagrams (78)
• Decision Trees (page 78)
• Latin hyper-cube sampling (page 79)

Content
1. Introduction to qualitative method – Risk
Matrix technique
2. Introduction to quantitative methods – Cash
Flow, Fault Tree Analysis & Event Tree Analysis
3.
Outputs of risk assessment
Learning Outcomes
The Learning outcomes are:
Understanding of top-down and bottom-up Risk
Analysis process,
Understanding of hazard(/risk) identification methods,
Understanding of outputs from hazard(/risk)
identification
Being able to use these techniques in risk analysis.
Output from Risk Assessment (page 70)
Summary
Qualitative analysis method, particularly, Risk Matrix Method
Quantitative analysis methods- Cash flow, Fault tree analysis, and
event tree analysis
Outputs from risk analysis.
Private study
Chapter 6-Qualitative Methods for Risk Management
Case Study – Section 6.7
Chapter 7 –Quantitative Methods for Risk Management
Chapter 10 –Case study: The Channel Tunnel Rail Link
Next – Risk Reduction/Response,
Emergency plan and H&S risk Management

The effects of principal factors on the choice of risk
analysis techniques –qualitative and quantitative
methods
The principal factors of the choice of risk
analysis technique should depend on:
Type of the project
Size of the project
Information available
Cost of the analysis
Time available
Experience and expertise of the risk
analysts