Level: Intermediate
TCM Section(s):
7.6. Risk Management
Venue: 2023 AACE International Conference & Expo
Abstract: A survey of current literature pertaining to risk analysis reveals consensus that integration of cost and schedule is essential to reliable assessment of the risk to the time and cost objectives on construction projects.
There are, however, major differences of opinion regarding how cost and schedule should be integrated into risk analysis. At one extreme, it is argued that statistical or parametric techniques are superior to CPM schedule analysis. Adherents of a more “traditional” approach do use a CPM schedule, but insist the contractor’s detailed execution schedule is unnecessary. Instead, a summary level schedule is validated by “plenary stakeholders”. Acknowledging that the methods both have advantages and disadvantages, risk analysts are counseled to use two or more methods (a hybrid approach).
This paper identifies fundamental flaws in risk theory and practice. A worked example is used to critique the integrated cost and schedule risk analysis method using risk drivers and Monte Carlo (“MC”) CPM simulation. A primary problem is that the analysis is not causal; it doesn’t account for the deterministic connection between output (effect) and input (the causal productivity and resource supply factors). Moreover, assumptions about the connection of labor cost and time are incorrect.
As a corrective, new performance formulas and analytical approaches successfully used on major construction programs are introduced. Ideas are proposed for future research and development pursuant to improving the reliability of risk and schedule analysis.
TCM Section(s):
7.6. Risk Management
Venue: 2023 AACE International Conference & Expo
Abstract: A survey of current literature pertaining to risk analysis reveals consensus that integration of cost and schedule is essential to reliable assessment of the risk to the time and cost objectives on construction projects.
There are, however, major differences of opinion regarding how cost and schedule should be integrated into risk analysis. At one extreme, it is argued that statistical or parametric techniques are superior to CPM schedule analysis. Adherents of a more “traditional” approach do use a CPM schedule, but insist the contractor’s detailed execution schedule is unnecessary. Instead, a summary level schedule is validated by “plenary stakeholders”. Acknowledging that the methods both have advantages and disadvantages, risk analysts are counseled to use two or more methods (a hybrid approach).
This paper identifies fundamental flaws in risk theory and practice. A worked example is used to critique the integrated cost and schedule risk analysis method using risk drivers and Monte Carlo (“MC”) CPM simulation. A primary problem is that the analysis is not causal; it doesn’t account for the deterministic connection between output (effect) and input (the causal productivity and resource supply factors). Moreover, assumptions about the connection of labor cost and time are incorrect.
As a corrective, new performance formulas and analytical approaches successfully used on major construction programs are introduced. Ideas are proposed for future research and development pursuant to improving the reliability of risk and schedule analysis.