First International Conference for PhD students in Civil Engineering

CE-PhD 2012, 4-7 November 2012,Cluj-Napoca, Romania

www.sens-group.ro/ce2012

Advantages in using risk analysis in the management process of

transport infrastructure projects
Andrei Bobu *1
1

Technical University Gheorghe Asachi of Iai,Faculty of Civil Engineering and Building Services, 46th D.
Mangeron Bvd., 700050, Iai, Romnia

Abstract
Looking back at the past of some western European events such as: the Wall Street crash in the
1930s, the oil crisis in the 70s, the most recent world crises from 2008 there can be no doubt in
saying that the future is characterized by risks and uncertainties. The risk and uncertainties are key
features of most business and government problems and needs to be assessed before any decision
rational or not is applied the business. When assessing any decision support problems it is
important to bear in mind, that any results stemming from the Risk Analysis are definitely a help for
decision-makers. In the appraisal and planning of transport infrastructure projects the examination
should be based on all relevant impacts, which are depending on the type and size of the project
viewed upon. The focus in this paper is an outlining of the principal advantages in incorporating
risk analysis in the management process of transport infrastructure projects.
Keywords: transport, infrastructure, management, risk, analysis.

1. Terms and definitions

Transport infrastructure it is about all the networks and fix installations of those three means of
transport: railway, roads and inland waterways when they are needed for movement and traffic
safety [1].
Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a
loss (an undesirable outcome). The notion implies that a choice having an influence on the outcome
exists (or existed). Potential losses themselves may also be called "risks". Almost any human
endeavor carries some risk, but some are much more risky than others [2].
Risk analysis is a technique to identify and assess factors that may jeopardize the success of
a project or achieving a goal.
This technique also helps to define preventive measures to reduce the probability of these factors
from occurring and identify countermeasures to successfully deal with these constraints when they
develop to avert possible negative effects on the competitiveness of the company [2].
Risk management is the identification, assessment, and prioritization of risks (defined in ISO
31000 as the effect of uncertainty on objectives, whether positive or negative) followed by
coordinated and economical application of resources to minimize, monitor, and control the
*

Corresponding author: Tel./ Fax.: 004 0749070323

E-mail address: andrei_bobu_c@yahoo.com

First International Conference for PhD students in Civil Engineering

CE-PhD 2012, 4-7 November 2012,Cluj-Napoca, Romania
www.sens-group.ro/ce2012

probability and/or impact of unfortunate events or to maximize the realization of opportunities.

Risks can come from uncertainty in financial markets, project failures (at any phase in design,
development, production, or sustainment life-cycles), legal liabilities, credit risk, accidents, natural
causes and disasters as well as deliberate attack from an adversary, or events of uncertain or
unpredictable root-cause [2].

2. Risk analysis process

There is work going on in many countries with regard to risk analysis and the need to improve the
decision making process regarding the management of infrastructural projects. The puprpose of this
work is to take better decisions and improve the accuracy regarding costs and time estimation.
As an example the statistical data shows that in almost 9 out of 10 projects costs are
underestimated. For a randomly selected project, the likelihood of actual costs being larger than
estimated costs is 86%. Table 1 shows the differences between actual and estimated costs in these
three areas for rail, fixed-link, and road projects. There is no indication of statistical interaction
between geographical area and type of project. Therefore in can be considered the effects from
these variables on cost underestimation separately. For all projects, the difference between
geographical areas in terms of underestimation is highly significant (p<0.001) [3].
Table 1: Inaccuracy of transportation project cost estimates by geographical location (fixed prices)
[3]
Europe
Project
type

North America

Other regions

Number
Average cost Number
Average cost Number
of projects escalation (%) of projects escalation (%) of
projects

Average cost
escalation (%)

Rail

23

34,2

19

40,8

16

64,6

Fixed-link

15

43,4

18

25,7

Road

143

22,4

24

8,4

All
projects

181

25,7

61

23,6

16

64,6

The concept of risk is generally understood as a set of three questions:

1. What can happen?
2. How likely is that to happen?
3. If it does happen, what are the consequences?
Risk analysis is normally said to include risk identification and risk evaluation. Identification is the
scanning of the project for possible hazards pertinent to whatever interests might be involved.
Evaluation is the more sophisticated step where we expect to use our decision-making science or
methodology.

First International Conference for PhD students in Civil Engineering

CE-PhD 2012, 4-7 November 2012,Cluj-Napoca, Romania
www.sens-group.ro/ce2012

Figure 1. Risk process schema [4]

A detailed risk analysis is always preceded by a rough risk assessment. The problems identification
is already carried out in the rough risk assessment and does not have to be remade. The results from
the rough risk assessment form the basis for the detailed risk analysis.
In the risk analysis process the most delicate step is risk evaluation. In the most cases risk is
measured by two variables: frequency and severity. Those variables are joined into mutually interrelated couples of numbers. At least in science and technology the risk evaluation needs to be based
on calculations or estimations of size and frequency of hazards and the combinations of the two.
Usually it is easier to assess the consequences of a hazard than its frequency.
Now we can see that in one-off situations, deprived of the privilege of large numbers and risk
portfolios, we have to make decisions based on nothing else than our present knowledge, resulting
in Bayesian probabilities. Furthermore, we have to deal with perceptions of different interest groups
that have nothing but their own conviction in mind. Happily enough, there are now very
sophisticated tools to be used even in such situations.
The objective is to calculate the combined impact of the variability and uncertainty in the models
parameters in order to determine a total probability distribution of the model. The resulting point
estimate is then transformed into an interval estimate illustrated in terms of a probability
distribution. The technique used in most of the cases is the Monte Carlo simulation which involves
a random sampling method concerning each different probability distribution selected for the actual
model set-up. As these distributions are defined hundreds or even thousands of different scenarios
can be produced in the following, these types of scenarios are referred to as iterations. Each
probability distribution is sampled in a manner such that it reproduces the original shape of the
distribution meaning that the actual model outcome reflects the probability of the values
occurrence. The five types of probability distributions that are most common used and applicable
are the Uniform, Triangular, PERT, Normal and Erlang distribution. The set of probability

First International Conference for PhD students in Civil Engineering

CE-PhD 2012, 4-7 November 2012,Cluj-Napoca, Romania
www.sens-group.ro/ce2012

distribution is ranging from open ended distributions to close ended distributions applied where
needed and the intervals defined are all determined on basis of literature studies and tests [5].
The risk assessment methods can be divided into groups based on data type, ranging from
qualitative to quantitative analysis [6]. Quantitative methods focus on numbers and frequencies
rather than on meaning and experience. The calculations include statistics to address inevitable
uncertainties in models and raw data and the results are presented in probability functions or risk
curves. Examples of quantitative methods are Quantitative Risk Assessment and Probabilistic Risk
Assessment.
Qualitative methods are ways of collecting data which are concerned with describing meaning,
rather than with drawing conclusions from statistics. Qualitative methods are primarily used to
identify risks and can be used to rank the risks on an ordinal scale, e.g. from low to high.
Examples of qualitative methods are HazOp, What if? analysis and checklists.
Semi-quantitative methods lead to some kind of quantification of risks without using for example
probability distributions or data analysis as described at the quantitative method. The quantification
is reached by using meaning and experience for scoring the probabilities and consequences. Semiquantitative methods are useful when on the one hand not many data are available but still a
detailed and well thought of classification is necessary with somewhat quantitative content.
Quantitative risk analysis is based on a simultaneous evaluation of the impacts of all identified and
quantified risks. Hereby, the uncertainty or actual sensitivity is performed on the model to
determine how much such an outcome might vary from the point estimate calculated earlier. These
variations are often referred to as what if scenarios where the advantage of using Quantitative
Risk Analysis is that instead of only creating a number of possible scenarios it effectively accounts
for every possible value that each variable within the model can take by use of various continuous
probability distributions. Each variable/parameter assigned a probability distribution result in
different scenarios that are weight together by the probability of occurrence.

3. Main advantages of using risk analysis in the management process of

transport infrastructure projects
Using any risk analysis approach represents an advantage for the decision makers in helping them
to take better informed decision.
By applying risk analysis to projects it helps to define preventive measures and identify
countermeasures to successfully deal with risk constraints.
Risk analysis gives the possibility of differentiating the feature of risk information in terms of
outcome criteria such as net present value, the internal rate of return or the benefit/cost rate. This
differentiation is made by using probability distributions.
Risk can be represented in a risk matrix showing the assessment of how often an unwanted event is
expected to happen and what impact it will have. This gives an overview of the risk picture of the
whole analysis object.

First International Conference for PhD students in Civil Engineering

CE-PhD 2012, 4-7 November 2012,Cluj-Napoca, Romania
www.sens-group.ro/ce2012

Another advantage in using risk analysis approach is that he gave to decision maker a mean by
which he can look ahead to the totality of any future outcome.
The outcome of the risk analysis would be the creation or review of the risk register to identify and
quantify risk elements to the project and their potential impact.
Given that risk management is a continuous and iterative process, the risk analysts can review the
risk register mitigation plans, make changes to it as appropriate and following those changes re-run
the risk model. By constantly monitoring risks these can be successfully mitigated resulting in a
cost and schedule savings with a positive impact on the project.

4. Conclusions
Risk analysis and management allows construction professionals to identify the risks inherent in all
projects and to provide tools to evaluate and mitigate them. The overall aim is to improve the
analysis of transport initiatives.
Till now, in Romania, during the process of construction of road infrastructure projects, the
forecasting of the future construction costs has been achieved basically by computing a unit rate, a
price, per kilometer highway of a predefined road type. This method is, however, in many circles
considered unreliable due to site conditions such as typography, in situ soil, land prices, market
prices of materials, environment, traffic loads vary sufficiently from location to location etc.
General tendency of underestimation of costs investments and overestimation of benefits (demand
forecast/prognosis) reveals that socio-economic analysis become over-optimistic leading to
wrongful decision support. To deal with this the risk analysis together with other simulation (i.e.
Monte Carlo Simulation) based on reference class forecasting is applied for determining the output
distribution for benefit cost ratio instead of conventional single point estimate. This is presented by
the certainty values and graphs or probability distributions.
In recent literature it is therefore clear that estimating construction costs and time during
infrastructure appraisal has assigned a relatively high degree of uncertainty. Further on the
examination of projects the transport infrastructure planning should be based on a well applied risk
analysis and decisional models. These may have a principal influence on the decisions to be made
further during the whole life cycle of the project.
Using and incorporating risk analysis together with other approaches in a unitary and well
structured decisional model the evaluation and management process of infrastructural projects will
become better.

5. References
[1] European Commission Regulation (CE) no. 851/2006
[2] http://en.wikipedia.org, last date accessed 05.09.2012
[3] Flyvbjerg B., Bruzelius N, Rothengatter W, Mega projects and risk. Cambridge University Press; pp. 1521, 2003.

First International Conference for PhD students in Civil Engineering

CE-PhD 2012, 4-7 November 2012,Cluj-Napoca, Romania
www.sens-group.ro/ce2012

[4] The World Road Association-PIARC, Technical Committee T.C-3.2 Final report Risk Management for
roads, pp. 12-14 2008.

[5] Salling KB, Risk analysis and Monte Carlo Simulation within Transport Appraisal, Center of traffic and
Transport CCT-DTU, 2008.

[6] Staveren MT, Uncertainty and Ground Conditions: A Risk Management Approach, Elsevier Ltd, 2006.