Heathrow Airport Expansion – Construction Risk Analysis and Management
3.1.1: Probabilistic reasoning
Assuming that enough is known about the risk variable to go beyond the techniques of uncertainty reasoning discussed earlier the next stage is to analyze the scope and impact of that risk. This will focus on two issues:
i. The probability of occurrence
ii. The impact of the risk
Quantitative approaches to risk analysis are formal and clearly depend on the existence of data to enable probabilities and consequences to be quantified. The key elements required in a quantitative analysis include an estimate of the likely risks, the characteristics of the key risks including variability and the maximum likely risk estimate. Quantitative risk analysis relies on the principles of probability as an indicator of the degree of certainty that an event will happen but equally important is the possible impact of that risk on the project. It could result in:
i. Increased cost
ii. Extended time
iii. Reduced quality or performance
The first two – time and cost – are generally easier to quantify than quality or performance.
3.1.2: Methods of analyzing risk
The approaches used in this context
a. Sensitivity analysis is an approach that seeks to identify the impact of change on the project out– turn (time, cost, or quality) of a change in assumption for each of a range of key risks. This will help to isolate the risk items that have a real impact from those which do not.
b. Utility theory that seeks to quantify the impact of risk by assessing various outcomes weighted by the probability of their occurrence. This was introduced in the Unit of Decision Analysis above.
c. Confidence intervals where the maximum and minimum values of a particular risk variable are identified to a given level of significance.
