Last reviewed 16 Sept 2026 · 5 min read
Risk and uncertainty
- Risk — an uncertain event or condition that, if it occurs, has a positive (opportunity) or negative (threat) effect on project objectives (time, cost, quality, safety).
- Uncertainty — lack of complete knowledge; strictly, risk is sometimes described as measurable (known probabilities) and uncertainty as unmeasurable.
- Risk has two dimensions: probability of occurrence and impact (consequence).
Sources of risk in construction
| Category | Examples |
|---|---|
| Technical / design | Design errors, incomplete drawings, new technology, changes in scope |
| Site / ground | Unforeseen soil or rock conditions, groundwater, underground utilities |
| Construction | Low productivity, equipment breakdown, quality failures, rework, accidents |
| Financial / economic | Inflation and price escalation, interest rates, delayed payments, funding shortage, exchange rates |
| Contractual / legal | Ambiguous clauses, disputes, claims, contractor insolvency, permits and approvals |
| Political / regulatory | Policy changes, taxes, land acquisition, public opposition |
| Environmental / natural | Floods, heavy monsoon, earthquakes, environmental clearance |
| Safety and health | Falls, collapses, fire |
| Force majeure | Events beyond control — war, natural disasters, epidemics |
| Market / demand | Traffic or revenue shortfall in PPP projects |
Risk management process
- Plan risk management — approach, roles, budgets, risk categories.
- Identify risks — brainstorming, checklists, expert judgement, Delphi technique, SWOT analysis, site visits, lessons learnt, assumption analysis.
- Qualitative analysis — rank risks by probability and impact (probability–impact matrix).
- Quantitative analysis — numerical estimates of effect on cost and time: expected monetary value, sensitivity analysis (tornado diagrams), decision trees, Monte Carlo simulation.
- Plan responses — actions to reduce threats and enhance opportunities; assign risk owners.
- Monitor and control — track identified risks, identify new risks, review effectiveness; update the risk register.
Probability–impact matrix
Risks are plotted on a grid (e.g. 5 × 5) and classified as high (red), medium (amber) or low (green) for prioritisation.
FormulaExpected monetary value (EMV)
Threats have negative impacts; opportunities positive impacts. EMV is used to set contingency reserves and to compare alternatives in decision trees.