ABSTRACT
The choice of approach for dealing with the analysis depends on the size, type and general nature of the project or the problem being modelled, the amount and reliability of information available and the nature of the output required. The nature of the output needed will depend on the type of decisions to be made and on the particular needs of the client. Given the introductory material in the other chapters covering risk exposure, risk attitude, probability and utility, we present below examples of seven different ways of dealing with the analysis, plus a section on stochastic dominance, which is a method of assessing the results. There is some overlap among these approaches and some are unsuitable for particular situations; that is, for any given decision on a particular project at a particular point in the project schedule, there may be quite a limited choice of approach to the analysis. • The risk premium; • Sensitivity testing; • Expected monetary value (EMV); • Expected net present value (ENPV); • EMV using a Delphi peer group; • Risk-adjusted discount rate (RADR); • Detailed analysis and simulation; • Stochastic dominance. Experienced practitioners of risk analysis and construction risk management are, rightly, quick to point out that the technique of analysis is a very small part of the overall process. Just as there is no such thing as a software-only solution to the problem of dealing rigorously with risk and uncertainty, so the technique used for analysis must be viewed in the context of an overall attitude of mind, which is the framework for risk management.
