Quantifying the Monetary Impact of Schedule and Cost Risks in Construction Projects

The competitive nature of construction projects coupled with the tight budgets and limited resources make them good candidates for failure if not managed properly. This is in addition to the complex, fragmented, and multidisciplinary nature of projects involving thousands of tasks and details and many participants. These immanent facts promote the emergence of risks in every single construction project. These risks should be effectively managed to mitigate their impact and avoid or reduce delays and cost overruns. While risk management is a difficult and challenging task and requires careful considerations throughout the life cycle of a project, it is important to be proactive and have a risk management plan to tackle this crucial issue by regularly monitoring risk events with an effective communication mechanism among the various project stakeholders, despite the high cost associated with the risk managing process. The majority of research efforts focused on the identification and assessment of risk events with limited efforts addressing the issue of quantifying the effect of these risk events and suggesting effective responses to them. This paper focusses on the use of the program evaluation and review technique (PERT) and the earned value analysis to quantify the impact of the severity of risk events and estimate the expected cost at completion. The study also suggests practical responses to mitigate the impact of risk events. A spreadsheet is developed to help project managers manage risk events and estimate their monetary impact on the project’s duration and cost. The developed spreadsheet is expected to help construction contractors mitigate risks in construction projects and be more competitive.