Risk Assessment in Major Projects

Are you a risk taker or a risk avoider?

Much is written and discussed about risk allocation in major projects and in contract forms like FIDIC’s suite. But, relatively little is published on the role and influence of the individuals who make decisions to accept or avoid project risks, and whether their psychological disposition towards risk might steer a company to take, or avoid, a particular risk or risk profile.

For example, studies in the area of human behaviour in decision making, show that risk-related decisions by a group can be “riskier” than if made by an individual. As in groups, an individual’s reluctance to take a particular risk is masked by being one in many making the decision. The attached note is an (up-dated) analysis of how “risk” is perceived by society in everyday life, and how our personal attitude to risk plays a critical role in business decision making.

Business success is built on successful risk taking. Similarly for construction projects, success is not simply about risk allocation or assessment, it is the successful management of project risks that makes the difference between profit and loss.

Using as an example, the risk assessment criteria and analysis for the decision on the form of the UK Channel Crossing, you will see that, in the end, the decision on the form of the project’s delivery was reduced to a basic risk-ranking methodology.

Finally, attached to the paper is an example of a major contractor’s in-house risk analysis template, used for the purpose of bidding. It illustrates the type of risk-benchmarking experienced contractors use in formulating bids. It also shows that, in most cases, the somewhat basic risk allocations in, say, the FIDIC forms of contract are just the starting point for a contractor’s bid.

Read the full technical note here.