Ispa sheets jvd m 20120406 basic

PROBABILISTIC
RISK
ANALYSIS
ISPA/SCEA
Joint International Conference
Brussels 14-16 may 2012

Joep van der Meer

PROBABILISTIC
RISK
ANALYSIS
• Civil Engineering
• The Dutch way
• Risk analysis
• Probabilistic results • Residual risks
• Risks > 50%
• Dependencies

s.v. ConcepT
Masterclass Risicomanagement
- 5- Risicomanagement
s.v. ConcepT

RISMAN
(Riskmanagement)
1. Set goal
2. Define risks
3. Most important risks
4. Measures/management

SSK
Cost calculation
• Format & Definitions
• Probabilistic analysis
• Monte Carlo, 10000 x

Great Crested Newt
Triturus Cristatus

RISK !

Risk = % x €
Potential
Probability of
Magnitude severity of
occurance
impact

€ 5.000 = 5% x € 100.000

os sjtl Qspcbcjmjuz Tfwfsjuz !Nbhojuvef!
2 Vtf!pg!fyjtujoh!dpotusvdujpot!jt!opu!qpttjcmf 51-1& !26/111/111 €!!!!!!!!7/111/111
3 Opjtf!cbssjfst!nvtu!cf!dibohfe!up!usbotqbsbou 51-1& !21/111/111 €!!!!!!!!5/111/111
4 Dpohftujpo!evsjoh!cvjmejoh!sjtft!up!vobddfqubcmf!mfwfm 41-1& !21/111/111 €!!!!!!!!4/111/111
5 Fnfhfsdz.tfswjdft!xbou!qmboojoh!up!cf!bekvtufe 41-1& !!!6/111/111 €!!!!!!!!2/611/111
6 Nvojdjqbmjuz!hsbout!op!cvjmejoh!qfsnjttjpo 51-1& !!!4/111/111 €!!!!!!!!2/311/111
7 Qpmjujdbm!qsfttvsf!up!bekvtu!qmbot!)ofx!jefbt-!sfrvftut* 31-1& !!!6/111/111 €!!!!!!!!2/111/111
8 Qspcmfnt!jo!mboe!bdrvjtjujpo-!fyqspqsjbujpo!ofdfttbsz 31-1& !!!6/111/111 €!!!!!!!!2/111/111
9 Fodpvoufsjoh!pg!vofyqfdufe!gmpsb!boe!gbvob 51-1& !!!2/611/111 €!!!!!!!!!!!711/111
: Vofyqfdufe!tpjm!qpmmvujpo 41-1& !!!2/611/111 €!!!!!!!!!!!561/111
21 Xbufsesbjobhf!evsjoh!dpotusvdujpo!jotvggjdjfou 21-1& !!!6/111/111 €!!!!!!!!!!!611/111
SJTL!UPUBM €!!2:/361/111

os sjtl Qspcbcjmjuz Tfwfsjuz !Nbhojuvef!
2 Vtf!pg!fyjtujoh!dpotusvdujpot!jt!opu!qpttjcmf 51-1& !26/111/111 €!!!!!!!!7/111/111

RISK TOTAL (Deterministic) € 19.250.000

RISK TOTAL (Probabilistic) € 25.075.000

Contingencies

IDENTIFIED
RISKS

Contingencies
50%
UN-IDENTIFIED
RISKS

IDENTIFIED
RISKS
50%

BASIC COST
BREAKDOWN

Risks >50%

RISK TOTAL (Deterministic) € 19.250.000

RISK TOTAL RISK TOTAL
(Probabilistic, NO corr) (Probabilistic, CORR)
€ 25.075.000 € 25.365.000

AB STRACT:
Probabilistic risk analysis, more insight into contingencies
The financial consequences of uncertainties and risks which occur during the design of a project are
very hard to predict. This makes it difficult to calculate the amount of contingencies needed.
This presentation discusses how probabilistic risk analysis (PRA) can assist in improving the financial
design of projects. The PRA method shown here is based on my experience with cost and risk
calculations in civil engineering projects for the Dutch government.
Financial risks
During the implementation of infrastructural projects we often face unexpected events which may
result in substantial financial setbacks. .
In the calculation of the required financial reservations subjective judgements and assumptions often
play an important role.
A more objective and reliable tool for identifying and managing these risks is to perform a probabilistic
risk analysis.
PRA
A common way to start a financial risk analysis is a session with all the stakeholders. This should lead
to an inventory of all the relevant risks. Each risk is assigned to a stakeholder and the magnitude is
quantified by the formula “Probability of Occurrence (%) x Severity of impact (€) “. The required
contingencies for the project are basically the summation of all the individual outcomes.
Adding a probabilistic calculation, PRA, leads to an even better estimation of the financial risks. Here,
the risks are calculated 10,000 times by a Monte Carlo simulation. In each iteration the risk will occur
or not occur based on a discrete probability function.In addition, the financial effect of the risk is
provided with a bandwidth with a highest and lowest value, which leads to a triangular distribution.
A PRA produces the following results:
1) A probability distribution of possible outcomes of the required risk reserve.
2) A tornado chart in which risks are appointed by their contribution to the amount of uncertainty.
These results may lead to adjustment of the amount of contingencies and also show which risks
should get the highest attention in the risk management process.

Discussions
The PRA method gives reliable results but there are some comments to be made.
1. Dependencies
Risks are usually considered as independent events. This assumes that there is no
correlation in
the odds of occurrence of the various risks.
Using examples I show that risks may not be independent , and that the occurrence of one
particular risk may increase the probability that another risk will occur.
2. Risks are greater than 50%
Risks with a probability of occurrence greater than 50% are in the Dutch practice not
considered
as risks but as certainties. Consequently, these risks (certainties) are included for 100% in
the
cost estimation.
3. Residual Risks
It’s impossible, even using a well developed risk analysis tool such as PRA, to cover all
risks.
Practice has shown us that unpredicted, unidentified risks will always occur. Therefore a
surcharge is necessary. This can be calculated in several ways.

Biography

Ing. Joep F. van der Meer (BSc)

Joep van der Meer is a Senior consultant/construction economist at
Arcadis for civil and infrastructural projects.
He specializes in cost calculation, risk management, life cycle costing
and contracting. In addition he is a teacher/trainer in courses for Project
Management, Risk Management and Cost Management.
He also contributed to the SSK, the Dutch Standard System for
Estimating Costs in the Civil Engineering Sector. In this widely spread
system the probabilistic approach of estimating costs is fully
integrated.
In many projects, concerning the building of news roads, railroads and
other infrastructural constructions he was responsible for cost
calculation, cost control and risk analysis.
Currently he is working at the Dutch Flood Protection Program, a € 3
billion project to protect Holland against the sea level rise.

Email: joepvandermeer@kostenenkennis.nl

Ispa sheets jvd m 20120406 basic

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