Risk Assessment Model

For Construction
Projects
Michael V. Almeida
Holy Angel University, Angeles City, Pampanga,
Philippines

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8:00am - 9:00am Technical Session (PMCE) 1
 The aim of this presentation is to
introduce the application of analytic
network process (ANP) as a new tool
in analyzing and assessing
construction project risks.

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Outline of Presentation

 Introduction
 Methodology
 Results and Discussion
 Conclusions
 References

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 INTRODUCTION

 Definition of key terms

 Problem statement
 Objective
 Significance
 Historical background

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Definitions of Key Terms

 Construction Project is the

Process
overall planning, coordination and control
of a project from inception to completion
aimed at meeting a client’s requirements
in order to produce a functionally and
financially viable project that will be
completed on time within authorized cost
and to the required quality standards
(Chartered Institute of Building 2003)
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Definitions of Key Terms
 Project Risk Assessment has been used to
describe the attempts undertaken to identify,
understand and respond to risk (Hillson, 2006).

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Definitions of Key Terms

 Analytic Network Process (ANP) is a

general theory of relative measurement used
to derive composite priority ratio scales from
individual ratio scales that represent relative
measurements of the influence of elements
that interact with respect to control criteria
(Thomas L. Saaty).

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 Problem: Assessing the Riskiness of
Construction Projects

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8:00am - 9:00am Technical Session (PMCE) 8
 Problem: Assessing the Riskiness of
Construction Projects
 Construction is undeniably a risky
business for many reasons (Cooke and
William, 2009)

 Often risk is either ignored or dealt with in

an arbitrary way in construction projects and
adding a 10% contingency is typical industry
practice (Thompson and Perry, 1992)

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 Problem: Assessing the Riskiness of
Construction Projects
 Risks due to unforeseen events can have
the most significant impact (Thompson and
Perry, 1992; Edwards, 1995).

 Risk has to be recognized, assessed and

managed and avoidance leads to over
caution and negative attitudes (Raftery,
1994).

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Objective

 Introduce the application of Analytic

Network Process (ANP) on risk
management process.

 To overcome the gaps of traditional risk

assessment

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Significance
 ANP model improves the risk assessment
process by considering the interdependent
influences among risk factors and feedback
dependence from level of severity.
 The use of ANP allows options for owner,
construction project manager and contractor
a flexible and easily understood way in
formulating solution for both anticipated
and unanticipated project risks in a logical
and rational manner
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Historical Background

RISK ASSESSMENT MODELS PROPOSED

YEAR METHODS BY RESEARCHERS

Years Classical Models (i.e., Probabilistic analysis, Monte Carlo

before Simulation, Influence Diagram); Conceptual Models (i.e, fuzzy set
1990 analysis)

Between Multi-criteria decision analysis (AHP)

years 1990
and 2007

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Methodology
 Revises the original hierarchical model (AHP) by
adding interdependent influences at the risk level and
feedback dependence from elements in level of
severity (High, Medium and Low).
 Used data gathered from interviews and survey
questionnaires.
 Develope pair-wise comparison matrices (Saaty 1980)
 Determine the relative weights of elements and
consistency ration of matrices (Saaty 1994)
 Develop the supermatrix and limit matrix (Saaty, 1996;
Meade and Sarkis, 1998)

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General Form of the AHP- the ANP
 The analytic network process (ANP) was
proposed to overcome the MCDM problems
with interdependence and feedback effects.
 Step 1- To derive the local weights using the
AHP.
 Step 2- To formulate the supermatrix
according to the results of the local weights
and the network structure.
 Step 3- To raise the supermatrix to limiting
powers for obtaining the final results.

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 Proposed ANP Risk Assessment Model

Feedback
Interdependencies

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 Pair-wise questions

1. Which factors between Feasibility Risk and

Design Risk do you think produces
significant impact?

2. Which category do you think Funding Risk

best falls?

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Results and Discussion
 Comparison of Criteria with relation to Goal
 Comparison of Alternatives with relation to Criteria
 Composition and Synthesis
 Comparison of Criteria with relation to Criterion
(Interdependencies)
 Comparison of Criteria with relation to Alternative
(Feedback)
 Supermatrix for the Alternative Hierarchy
 Normalized Supermatrix for the Alternative Hierarchy
 Limit Supermatrix for the Alternative Hierarchy
 Comparison of Priority Weights of each Contractor
between AHP and ANP.
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Results and Discussion
 F1 (Acts of God Risks) – The risk of acts of God, or
sometimes referred to as force majeure is a term
appropriated. The common risks under this category are
those related to physical damages and personal injuries
due to earthquakes, floods, fires, landslides, etc.

 F2 (Physical Risks) – are associated with damage of a

property or asset that the contractor owns or has under
his possession. Such risks include: damage to structure
or property; damage to equipment and material; labor
injuries and death; and forcible prevention of work or
access to work;

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Results and Discussion

 F3 (Financial and Economic Risks) –

Most risks that evolve in construction
projects are financially related. Project
funding is obviously a potential economic
risk for contractors.

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Results and Discussion
 F4 (Political and Environmental Risks) –The main
risks in this area include: expropriation of the contractor’s
equipment by the host government; customs and
export/import restrictions on imported materials; and
local laws and environmental control regulations;

 F5 (Design Risks) – Risks normally incurred by the

design professional include defective design, ambiguous
specifications and plans, errors and omissions in design,
inaccurate geological and geotechnical exploration, and
interaction of design with methods of construction.;

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Results and Discussion

 F6 (Job Site-Related Risks) - site-related

risks such as different site conditions,
availability and productivity of labor; soil,
site and other changed conditions;
material shortages and quality;

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 Comparison of Risk Factors with relation to Goal
Financial & Political &
Risk Factors Acts of God Physical Design Job Site-Related Priorties C.R.
Economic Environmental

Acts of God 1 0.2 0.111 1 0.166 0.142 .0297

Physical 5 1 0.125 5 0.500 0.250 .0951

Financial &
9 8 1 9 7 4 .5345
Economic
9.7%
Political &
1 0.2 0.111 1 0.333 0.500 .0420
Environmental

Design 6 2 0.142 3 1 1 .1316

Job
1/5 4 0.250 2 1 1 .1672
Site-Related

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Comparison of Severity Level with relation
to Risk factors
HIGH MEDIUM LOW
F1 (0.0297) 0.1692 0.3874 0.4434
F2 (0.0951) 0.1311 0.6608 0.2081
F3 (0.5345) 0.7928 0.1312 0.0760
F4 (0.0420) 0.0890 0.3234 0.5876
F5 (0.1316) 0.0881 0.7172 0.1947
F6 (0.1672) 0.7626 0.1662 0.0726
Overall Level of
Severity 0.5840 0.2802 0.1360

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 Comparison of Risk Factors with relation to each
other (Interdependencies)

F1 F2 F3 F4 F5 F6

F1 15.15 50.50 12.28 11.78 10.29

F2 13.39 24.24 19.12 27.65 15.60

F3 42.30 11.91 16.32 12.56 16.90

F4 53.65 21.21 11.00 8.05 6.10

F5 12.00 49.70 13.32 12.49 12.49

F6 21.41 16.42 35.52 13.16 13.49

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 Comparison of Risk Factor with relation to Level
of Severity (Feedback)

HIGH MEDIUM LOW

F1 (Acts of God) 3.0 3.1 3.2

F2 (Physical) 9.0 8.7 8.9

F3 (Financial & 53.6 53.7 52.7
Economic)
F4( Political & 4.4 4.4 4.5
Environmental)

F5 (Design) 13.4 13.5 13.8

F6 (Job 16.3 16.3 16.6
Site-Related)

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 Supermatrix for the Alternative Hierarchy
SUPERMATRIX

SUPERMATRIX RISK FACTORS LEVEL OF RISK

GOAL
F1 F2 F3 F4 F5 F6 HIGH MED LOW

GOAL 1.0000
1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
F1
0.0297 0.1339 0.4230 0.5365 0.1200 0.2141 0.0303 0.0312 0.0326
0.0000
F2
0.0951 0.1515 0.1191 0.2121 0.4970 0.1642 0.0908 0.0871 0.0899
0.0000
F3
0.5345 0.5050 0.2424 0.1100 0.1332 0.3552 0.5365 0.5379 0.5271
0.0000
RISK FACTORS
F4
0.0420 0.1228 0.1912 0.1632 0.1249 0.1316 0.0444 0.0448 0.0453
0.0000
F5
0.1316 0.1178 0.2765 0.1256 0.0805 0.1349 0.1349 0.1358 0.1384
0.0000
F6
0.1672 0.1029 0.1560 0.1690 0.0610 0.1249 0.1632 0.1632 0.1667
0.0000
HIGH
0.1692 0.1311 0.7928 0.0890 0.0881 0.7612
0.0000 1.0000 0.0000 0.0000
LEVEL OF MED
0.3874 0.6608 0.1312 0.3234 0.7172 0.1662
RISK 0.0000 0.0000 1.0000 0.0000
LOW
0.4434 0.2081 0.0760 0.5876 0.1947 0.0726
0.0000 0.0000 0.0000 1.0000

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Limit Supermatrix for the Alternative Hierarchy
LIMIT MATRIX

RISK FACTORS LEVEL OF RISK

LIMIT MATRIX
F1 F2 F3 F4 F5 F6 HIGH MID LOW

GOAL 0.3986 0.3986 0.3986 0.3986 0.3986 0.3986 0.3986 0.3986 0.3986

F1
0.0449 0.0449 0.0449 0.0449 0.0449 0.0449 0.0449 0.0449 0.0449

F2
0.0476 0.0476 0.0476 0.0476 0.0476 0.0476 0.0476 0.0476 0.0476

F3
0.1640 0.1640 0.1640 0.1640 0.1640 0.1640 0.1640 0.1640 0.1640
RISK FACTORS
F4
0.0299 0.0299 0.0299 0.0299 0.0299 0.0299 0.0299 0.0299 0.0299

F5
0.0518 0.0518 0.0518 0.0518 0.0518 0.0518 0.0518 0.0518 0.0518

F6
0.0602 0.0602 0.0602 0.0602 0.0602 0.0602 0.0602 0.0602 0.0602

HIGH
0.0985 0.0985 0.0985 0.0985 0.0985 0.0985 0.0985 0.0985 0.0985

MED
LEVEL OF RISK 0.0636 0.0636 0.0636 0.0636 0.0636 0.0636 0.06364 0.0636 0.0636

LOW
0.0371 0.0371 0.0371 0.0371 0.0371 0.0371 0.0371 0.0371 0.0371

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Final Relative Dominance Weights

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Interpretation of results
 Financial risk factor has the highest relative
importance (0.1646), followed by job site-
related risk (0.0604) and design risk (0.0520).
 Results shows the project is high risk level
(0.5840) when all factors are not considered
by the management.
 Results shows the project is low risk level
(0.040) when all factors are considered in the
risk management process.
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Conclusions
 ANP as an improved decision-making tool compared to
traditional risk assessment tool in determining not only
hierarchical order of each risk factors but also the
interdependent relationship and feedback dependence
used to categorized level of risk.
 This enhanced risk assessment method which may
result to problems if not properly identified, analyzed and
assessed.
 Managing complex projects involves complex decision
making abilities.
 Project failures result to poor risk management process.
 The method can also be used in procurement process
assessing the riskiness of contract award methods.
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The End

Thank you!
Questions and Comments are Welcome

E-mail: malmeida@hau.edu.ph

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