How can you integrate risk and uncertainty analysis into the construction procurement process?

1 Risk and uncertainty analysis

Risk and uncertainty analysis is a systematic process of identifying, quantifying, and evaluating the possible outcomes and consequences of different scenarios and events that may affect the project objectives. Risk analysis focuses on the known or predictable factors that can be measured and assigned probabilities, such as market fluctuations, design errors, or material shortages. Uncertainty analysis, on the other hand, deals with the unknown or unpredictable factors that cannot be easily quantified or estimated, such as political instability, environmental changes, or technological innovations.

3 Delivery method selection

The delivery method is the way the project is organized and delivered by the project owner, the design team, and the construction team. There are various delivery methods available, such as design-bid-build, design-build, construction management at risk, or integrated project delivery. Each delivery method has its own advantages and disadvantages in terms of risk and uncertainty allocation, control, and coordination among the project parties. Therefore, it is essential to analyze the risk and uncertainty profiles of each delivery method and select the one that best suits the project scope, budget, schedule, and quality requirements.

4 Contract type selection

The contract type is the legal agreement that defines the rights and obligations of the project owner and the contractor, as well as the payment terms and conditions. There are different contract types available, such as lump sum, cost plus, unit price, or target cost. Each contract type has its own implications for risk and uncertainty sharing, incentive, and flexibility among the project parties. Therefore, it is important to analyze the risk and uncertainty factors of each contract type and select the one that best aligns with the project objectives, risks, and uncertainties.

5 Contractor selection

The contractor is the entity that performs the construction work and delivers the project according to the contract specifications. There are different criteria for selecting the contractor, such as qualification, experience, reputation, or price. However, these criteria may not reflect the contractor's ability to handle risk and uncertainty in the project environment. Therefore, it is advisable to include risk and uncertainty analysis in the contractor selection process and evaluate the contractor's risk and uncertainty management capabilities, performance, and culture.

6 Benefits of integrating risk and uncertainty analysis

Integrating risk and uncertainty analysis into the construction procurement process can bring many benefits to the project, such as improving the feasibility and viability of the project by identifying potential threats and opportunities, enhancing performance and value by selecting the most suitable delivery method, contract type, and contractor, reducing project cost and time overruns by minimizing risk and uncertainty impacts, increasing project quality and satisfaction by meeting or exceeding expectations, and strengthening project relationships and collaboration by establishing a clear risk and uncertainty allocation mechanism.

7 Here’s what else to consider

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