Today, aims are set high for the construction industry on several fronts. Adopting a better risk management practice ranks consistently high on the list of focal points.
Whether your organization has experience with Quantitative Risk Assessments (QRAs) and looks to improve, or you are currently searching for a place to begin, one crucial topic of conversation is how to practically apply these processes and principles.
Let’s shine a guiding light on a few key suggestions to get you and your construction business risk management where it needs to go now.
Alignment
QRAs are a critical piece of broader risk management practices. Though it may seem like common sense, experience has shown the single starting point for any QRA is defining what and why we expend resources on it in the first place.
And if your definition doesn’t begin with something akin to “increasing the likelihood of project success,” then it’s time to recalibrate now.
Direction and a clear definition can certainly come from a third-party expert, but it’s also critical to align with leadership’s messaging. In this case, the primary role of leaders is to foster a culture of constant curiosity and data-supported decision making, meaning buy-in must be present at the top as a precursor to everything.
Garbage x Garbage = Garbage2
Running directly into a QRA without an understanding of prerequisites can at best be inefficient and at worst be outright dangerous. Take for instance a QRA on a project schedule (SQRA). Proper schedule mechanics with clearly defined critical and near-critical paths coupled with the proper level of detail will ensure you begin with a solid foundation for a risk model and don’t build your plan on a landfill, so to speak. You’ll want to certify that your company has a comprehensive schedule health check method. Because if you have too many loose ends present, you could be wasting your time.
The likelihood your team has put in effort into developing a risk register prior to a QRA is high. Because items on the register will be associated to your Cost Breakdown Structure (CBS) and/or Work Breakdown Structure (WBS), scrutiny of this register is critical.
Aside from confirming the register is a comprehensive set of project risks, you’ll want to understand basic types of risks. These types will vary slightly depending on which software you select, but a practical place to begin is the distinction between uncertainty and discrete risks. Explain these to your teams upfront and you may avoid the common spat of “double-dipping” risks.
Outputs and Outcomes
Many QRA software options in the marketplace use what is called a Critical Path Method (CPM)-based approach to modeling. Like nearly everything in life, there are pros and cons to this selected method but for construction organizations, it’s a practical place to begin.
After a team decorates project risks across a schedule, a Monte Carlo simulation is then run, and two key outputs come to light — what is our risk exposure and why are we exposed. It’s important to note, this point in the process mostly likely holds a close second place to method selection when discussing the potential depth and sophistication of theory and available avenues for a QRA.
So, if you are just starting out, focus your attention on the top drivers of your risk exposure and iterate on options to cover it, rather than obsessing about covering every QRA method — it’s simply not practical.
Differing goals and objectives are expected in this process and are dependent on several variables including: Type of organization or entities involved, phase of the project, and even heuristics and bias creep. It’s important to maintain the proper level of analysis to avoid the gravitational force of the potential complexity QRAs may contain. Remember, practicality requires tradeoffs. When this alignment takes shape and is executed well, teams can begin to trend toward expectations equaling outcomes.
The Sky’s The Limit, But Proceed with Caution
As the rapid advancement of technology takes place before our eyes, particularly in the advancement of Artificial Intelligence (AI) and Large Language Models (LLMs), many types of companies are finding their way into the construction industry. We are seeing teams with greater data science experience as opposed to traditional construction backgrounds, focusing their efforts on quantifying outcomes to expose hidden risks. Overall, this advancement is a great movement, but proceeding with caution is still recommended.
While setting off on your organization’s journey of better risk practice may be best served with an experienced expert, maintaining focus on developing a self-perpetuating risk culture is vitally important. The layer of sophistication runs deep when it comes to QRAs, and calibrating the proper fit for your usage is therefore critical.
Avoiding the sense of being overwhelmed by what has been historically perceived as highly academic, or some sort of magical exercise is a key part of democratizing risk knowledge. Luckily, there are plenty of people and software options available to aid in the practical application of QRAs. Finding the right solutions for your organization is the key to better project outcomes more often.
Ready to take a deeper dive? Schedule a one-on-one consultation to find out how InEight can help you succeed in your construction risk reduction journey.
