The Bnancial bene6t &own a site rate and may not be apparent in the cash flows.
may not be apparent in the cash flows. The risks are
investigation strategy
by IL Whyte, Department of civil and
structural engineering, UMIST, UK
Introduction
In general construction, including land reclamation, the site
investigation component often suffers &om an ill-defined
management strategy and a lack of resources in terms of time
and money. In a proper strategy adequate resources would be
provided. In practice this is likely to require an increase in
finance and time allowed beyond the amounts traditionally
allocated. For such increases to be sanctioned, then it essential
that the benefits be realised, particularly cost benefit.
The paper presents data &om risk modelling of two sites
where the ground hazards are 'high'nd 'low', a reclamation
development is included. The modelling produces information
which is indicative of the range of financial effects rather than
absolute and accurate data. This is due to a combination of the
uncertainties inherent in the figures and elements of subjective
judgement.
Historic data on the cost uncertainties associated with the
ground is given. When these are combined with the results of
the risk models, then the financial argument for a proper site
investigation strategy is clear. Investment in good planning,
management and communications produces sound economic
benefit and return; this is particularly true for estimates and for
the levels of financial risks to which a developer becomes
exposed.
Examining the risks
The perception of risk varies according to viewpoint —one
man's loss may be another's gain. Engineers and professionals
in construction tend to view hazards and risk &om
technological and environmental viewpoints. Developers and
financiers view events in terms of their economic power and the
market. There is a problem in relation to ground conditions in
that these have both technical and financial consequences.
These are exacerbated by the often low standards used, a
recent survey'eports that 80% of specialists are not satisfied
with the general standards of SI in construction.
The main concerns of developers and financiers in terms of
project security and finance include:
~ Capital over-runs: mainly due to inadequate preliminary
engineering and poor estimating procedures.
~ Completion delays: almost as common as capital over-runs.
~Cash flow variations: operating costs, productivity, currency
fluctuations, etc.
~Market difficulties.
~Resource risks.
~Political actions.
~Project inefficiency.
~ Environmental risks.
~ Casualties.
~ Insolvency.
Proposals for development are subject to risk analysis. The
principles are:
~Risks attributable to investment issues, eg political and
general risks. These can be covered by an increased discount
ENGINEERING ~ OCTOBER 1995
primarily taken by the banker or investor.
~Insurable risks, eg technical risks connected with project
construction and operation. These can be covered by a
premium payable to cover the risks. The premium is normally
considered to be insurance but it can equally be the cost of
necessary planning and investigations.
~ Specific risks. These reflect the uncertainty in the
assumptions used to estimate the cash flow.
Ideally, the risks should be borne by the partly most able to
control the event. In traditional forms of contract the employer
does not have a strong motive to do enough site investigation to
establish the effect of ground conditions upon construction cost
(the contractor is assumed to have inspected the site and to
have carried out his own site assessment). Thus if only a
minimal investigation has been conducted, the prices may be
based on a wrong view of the subsurface conditions and the
risk to the employer of later delays and cost escalation
increases. The employer should be more motivated to do
enough investigations, thus ensuring the contractor does not
carry a large risk for which he can do little to reduce.
The perception of what constitutes a substantial loss is not
easy. The evidence suggests that variations in cost and time
beyond about 10% to 15% are not acceptable. It would be of
great interest to know in greater detail what level of loss or cost
escalation is considered to be unacceptable.
The available evidence suggests the ground risk to be one of
the largest uncertainties to the construction process. Ground
hazards often influence activities on the critical path and are a
significant feature of cost over-runs and delays. Over the past
30 years, geotechnical engineers have made significant efforts
to improve their work. Often this is to little avail. Under market
conditions, the retail price index has increased to about 240%
since 1979. The ground investigation price index has gradually
fallen by about 25% to 30% over the same time period (taking
the RPI and GIPI to be 100% in 1979)'. Insufficient resources
produce inadequate investigations. A coherent strategy is
necessary, this will inevitably lead to higher cost for
investigation. Is this cost increase worthwhile?
Ground risks
The most serious effects of risk events to construction are:
OFailure to keep to cost estimate.
OFailure to achieve the completion date.
OFailure to meet quality and operational requirements.
Identi6cation of ground risk
Ground investigation is a low cost activity. Data over many
years suggest costs to rarely exceed 1% of contract value and
typically the cost may range &om 0.2% to 0.5%. (The full SI
cost is rarely reported but may be realistically estimated to be
no more than double the ground investigation cost). The cost
of 'unforeseen'round events can exceed 10% of contract value
and on occasion can exceed 100%. Data is sparse but has been
summarised in an ICE report'. More detailed information is
available &om tunnelling contracts in America4 and for
highways in the UK'.
The American report on 87 tunnel projects showed a direct
correlation between the accuracy of cost estimate and the level
of SI cost. The average cost of investigation (probably the
ground investigation) was 0.44% of estimate cost; it was
33'ROUND
GROUND ENGINEERING ~ OCTOBER ~ 1995
 recommended that this be increased to 3%. This was based on
an analysis of cost increases and claims. About 60% of the
claims were for large amounts with the level and number of
claims rising exponentially as the amount of investigation
decreased. It was concluded that the more that was known
about the ground in advance of construction reduced the level
of uncertainty. This leads to better planning and estimating
with a reduction in the number and degree of severity of
claims.
The UK report'n 58 highway projects (of which 21 were
subject to detailed analysis) showed the average SI cost to be
1.2% of tender value and 0.9% of out-turn cost (ground
investigation cost is probably about 50% of these figures). The
cost increase above tender on the 21 projects ranged &om 7%
to 61% with an average of 30%. About 54% of the cost
increase was due to geotechnical origins (ie. about 16% of the
total cost increase). The range of uncertainty over the total
increase in construction cost related to SI cost is broadly as
follows (58 project analysis):
li liiio;:u i 5I
»»i; II I " Ik
but this was not on the critical path. There was a three week
delay in the activity at an extra cost of $22,000. SI costs were
not reported but are estimated at about $ 10,000 (some 0.5%
of civil tender).
OA commercial development on a 'brownfield'ite. The
estimate costs were $4.3M. Serious obstructions to piling (on
the critical path) caused an eight week delay and costs
increased by $0.9M. SI costs are not known in detail but
probably were less than 0.5% of the estimate. It is believed that
subsequent industrial archive researches indicated the probable
existence of the obstructions.
The analysis consisted of two components: calculation of the
influence of ground uncertainty on estimated costs and
durations for each project; and to quantify the efFects of costs
and delays &om unforeseen ground conditions when these are
encountered during construction.
Details of the analysis are presented elsewhere".
Ground uncertainty and estimates
The influence of uncertainties in the knowledge of ground
I I I S ltl I,'II' II II conditions on project estimates were modelled for five levels of
ilIIIlrii Irinmili@

"%!i!~III"-'=P.-:::-'::~-:
iI r;
i i i
site investigation: very good, good, fair, poor and very poor.
-'--': Results are summarised below (the analysis for delays is not
presented):
0-100 26 <1
TilT'HiiF, I iWWiiii
SIL'Z:--::::;:;:---'-:::-:-:.':"'":-:'F~-'-":
i:-----':::!'--:-:-- ''ii B I Is l,li Igl I I

0-30 15 3-4 , Bi 'li III

II
'
i RYi ~ ~ Is i! li%

Note average geotechnical cost increase is 54% of the total.

Table 1. Good 5.8 0.8 - 9.9 3.2 0.6 - 8.0

While there is no direct relationship between SI and

increase in construction costs, the data clearly shows that Poor 11.6 2.5 - 22.0 8.8 1.4 - 15.6
low levels of investigation result in a large range of
uncertainty. This uncertainty reduces with investment in site
investigation. Table 2.
The limited published data for roads confirms the cost of site
investigation to be low and the level of investment (an The following can be noted:
'insurance'remium) relates to final construction cost. Low (i) The greater is the uncertainty over ground conditions then
premiums (<3%) are taken by gamblers since the final out-turn the more likely is the risk of cost escalation (and delay) to a
is uncertain —a few contracts will meet estimates and a few will project.
experience capital over-runs of perhaps 100%. The most likely (ii) It is significant that the range of uncertainty on an
out-turn is likely then to be a cost escalation of about 25% to estimated cost decreases with improved site investigation. The
30%. factual data on tunnels and highways confirm such ranges of
cost uncertainty do exist in construction.
Evaluating the ground risk (iii) For a project to have a cost estimate which is unlikely to be
Ground risks have been evaluated in financial terms using the exceeded by 10% due to ground conditions then at least a good
CASPAR program (Computer Aided Simulation for Project site investigation is required. A very good investigation
Appraisal and Review). This is based on a precedence network produces the most reliable estimate.
with time, resources, costs and revenues attached to each (iv) The benefit (in cost terms) &om a site investigation can be
activity in the network and time related charges are handled by quantified, the return &om good practice is the probability that
means of a hammock. The cost model allows risks and cost estimates are more reliable: financial uncertainty is
uncertainties to be assigned with results in terms of parameters reduced.
such as NPV, IRR etc. The results are derived in the form of
probability distributions. Effect of 'unforeseen'round in
Two projects analysed are outlined below: construction
OIndustrial development on a 'greenfield'ite. The It was assumed in the model that a 'good'ite investigation has
tendered target cost for the civil works was $ 1.8M and this was been commissioned. Designs are completed and construction is
34 effectively met. Ground problems did occur during earthworks, in progress. During groundworks activities (eg piling,

GROUND ENGINEERING OCTOBER ~ 1995

 IS )rid)
I'I a
II I) ii al I: ' its~ ~ II '' Ill ~ lI
l ll
i i
li
1 6.6
9.9
Table 3. Results for site investigation 'good'.
muck-shifting), 'unforeseen'onditions are encountered which
lead to delay. The financial effects of the delays are calculated
using probability analysis. Results are summarised in Table 3.
The following can be noted:
(i) The cost variations for no delay reproduce the data Rom
Table 2 and represent the baseline uncertainty in cost estimate
as apparent at the planning stage for the projects.
(ii) Should delay occur due to 'unforeseen'round during
construction then the cost efi'ects are significant and of a
greater order than cost escalations envisaged at planning. This
is particularly the case for groundworks on the critical path of
an activity schedule.
(iii) In practice, most 'unforeseen'round events are capable
of detection by best SI practice and management strategy.
Planning estimates are then more reliable and cost uncertainty
is reduced by up to a factor of 10. Best practice in SI has
measurable and significant financial benefit to developers and
financiers.
(iv) The cost to these projects for a delay of one week is about
0.8% for the industrial development (on a low risk
and about 2.7% for the commercial development (on a
high risk 'brownfield* site). Such costs would be likely to
purchase a 'very good'ite investigation for both these
developments.
For planning and estimating, therefore, a realistic guide
figure for costing a SI is likely to be the cost of a one week
delay. This produces the benefit that such a delay would have a
low probability of occurrence and thus be avoided at a net
financial balance. More importantly, the risk of severe cost
escalation due to ground uncertainty is reduced to low and
acceptable levels.
(v) The model analysis can be compared to events at the
prototype works. The industrial development had the
earthworks delay of three weeks at a reported $22,000 cost.
This activity was not on the critical path and the development
was completed almost to cost and time. The additional cost
and delays were within the range Rom the model but at a
calculated low probability. The site investigation was 'good't a
low ground risk greenfield development.
The commercial development experienced eight weeks delay
on a critical path activity with a reported $900,000 cost. This
cost is within the range &om the model and is close to the most
likely value (note $900,000 = 21% of estimate). The site
investigation was 'good'ut it has been reported that
subsequent investigation of the site history may have identified
the extent of the obstructions, these may have been
predicted.
GROUND ENGINEERING ~ OCTOBER '995
I) tl rI I I I Wlliilt I )I gl'I I I I
'. I'1
I
l ' II III iii
iljTI I| I I)RIIII)w a; ~ ill FIN )Mil ' llll'Kji
li,
III~—
l I
1.1- 10.5 2 8.3 5.3 - 13.9
4.1 - 14.9 19.0 13.7- 23.8
Controlling the ground risk
Ground risks can be controlled by reducing the uncertainties
associated with knowledge on the ground hazards. Knowledge
is obtained &om investigation: the better the investigation the
less the uncertainty. Site investigation consists of the following
essential components:
~ Desk top study and walk-over survey.
~ Ground investigations.
~ Construction monitoring and feedback.
~Performance observations and feedback.
The main difficulties are the development of an effective
management system, strategies for investigation and provision
of resources. An outline strategy considering levels of ground
risk and development complexity has been suggested'.
For good practice in SI, resource has to be available. These
consist of time and money. Time is required to carry out full
desk top studies, plan the explorations, to specify reliable and
representative levels of drilling, sampling and testing and to
report the data. Money is necessary to fund works of the right
'greenfield'ite)
extent and quality. Time and money should be considered as
equals, time does not necessarily relate directly to cost. It is to
be noted that additional time risks relating to the programme
can occur where a site investigation is subject to a form of
regulatory appraisal, for example on contaminated land sites
and highway schemes (particularly in Scotland).
Management structures and strategies have to be planned
and co-ordinated, preferable by an appointed geotechnical
advisor'. Experience shows two major management problems
have to be addressed:
~A lack of appreciation or awareness of the potential ground
hazards leads to wrong questions being asked leading to
incorrect or inappropriate answers. This is particularly true in
planning investigations, defining objectives and preparing
specifications. The consequences of a lack of awareness can be
severe, not only in technical terms but also financially.
~ If ground hazards are suspected, or known, then the problems
are not communicated to other stages in a development,
eg design, construction and monitoring. Poor communication
can lead to hazards being overlooked or neglected as projects
progress.
A problem exists within the site investigation industry in
relation to the quantity of information and data produced.
When conventional methods are used the quality of the data
can be poor and can be erroneous or contradictory. For
example, on a recent contract a borehole log described 'Firm
Peat'et the soil description from test samples reported 'StifF
Clay'or the same horizon. Out of 81 strength tests, 40 tests 35
GROUND ENGINEERING ~ OCTOBER ~
1995
 were described as being stronger than the borehole log stated
(eg stiff clay on the test sheet, soft clay on the log), five tests
described samples as being weaker than the log record and in a
further six cases there were direct contradictions between
sample description and log record —a total of 51 anomalies
fiom 81 results, only 27% were consistent! Under commercial
pressures of tendering and fee bidding it is difficult to maintain
standards and detect and correct quality deficiencies when
these occur. Major ground risks may not be detected under
such circumstances.
The high level of dissatisfaction with standards amongst site
investigation companies is of concern. They blame clients, or
those procuring services, for a reluctance to spend a realistic
amount on SI services and the acceptance of lowest tenders
without checking quality of service or product. Equally,
perhaps, the SI companies can be blamed for deficiencies in
marketing their services and product, not surprising when they
appear to have little faith in their standards. Clients have to be
convinced of the need for a planned and managed SI strategy
and the geotechnical engineer is in the only position to do this
in an informed manner. Argument has to be not just on
technical and quality grounds but also has to be based on
sound financial and commercial sense.
References
'non. 'SI Psyche'. Ground Engineering, Vol28, No2, pp22-28 March 1995.
'ott MacDonald & Soil Mechanics Ltd. 'Study of the efficiency of site
investigation practices'. Proj Rep 60, TRI Crowthorne, 54pp, 1994.
'CE. 'Without site investigation ground is a hazard'. Report 1, Site Inv Steering
Gp, Ground Eng Board. Thomas Telford Ltd, London 1994.
'ational Research CounciL 'Geotechnical site investigations for underground
projects'. Vols 1, 2. Nat Ac Press, Washington DC, 1984.
'lhalaby NMH & Whyte IL 'The impact of ground risks in construction on
project finance'. Risk and reliability in eng. (BO Skipp Ed). Proceedings Conf
ICE, Thomas Telford Ltd, London, 54.67, 1994.
'hyte IL. 'Site investigation and construction project risks'. Final report, SERC
Bldg Des, Tech and Management, Ref GR/G55682, 1994.
'onks D & Whyte IL. 'Site investigation strategy for contaminated land'. Proc
Conf Polluted & Marginal Land '94: Re-use of contaminated land and land fills,
Brunel Univ, ECS Publications, Edinburgh, June 1994.

Conclusions
OGround hazards give rise to risks of cost escalation and delay
to construction projects. Evidence &om tunnel contracts in
USA and highway schemes in Britain shows the levels of
financial uncertainty on out-turn costs to decrease rapidly with
increased investment in site investigation, ie. better knowledge
leads to better planning. Low levels of site investigation can
lead to cost over-runs of between 0% and 100% (or more) of
the tender amount.
OSite investigation is a low cost activity and good practice
requires increased levels of resources compared to general past
practice. It is to be noted that the GIPI has fallen by about
25% to 30% since 1979.
OTwo development projects, one on a 'greenfield'ite and the
other on 'brownfield'and, provided data for a probability risk
analysis of the potential ground hazards. At the
planning/estimating stage, good SI practice can be expected to
produce estimates with an acceptable range of uncertainty.
Should development proceed with a lack of knowledge on
ground conditions then 'unforeseen'vents can cause delay
leading to unacceptable levels of cost escalation. It is suggested
that a suitable measure for a site investigation could be the cost
of a one week delay to a development.
OGround risks can be at acceptable levels with effective site
investigation. This requires management, communication and
resources of time and money.

Acknowledgement
The author acknowledges the work of Dr WS Peacock and Dr
NMH Alhalaby. Research was funded by SERG and thanks are
given to those individuals and companies that provided
information for the case studies.

36
GROUND ENGINEERING ~ OCTOBER ~ 1995