Analytical approach for economic risk quantification of large engineering projects

Abstract

A consistent,four moment based approach for quantifying time and economic risks is presented. The goal is to produce a computationally efficient tool that can be used to explore economic feasibility and tradeoffs between cost and time performance versus risk as a function of various strategies for executing and sequencing major work packages. A three level hierarchy of parameters is used, starting with time, cost and revenue performance at the work package/revenue stream level to rate of return at the overall project level. Use of a four moment approach and Pearson distributions at all levels of the hierarchy permit the formulation of a consistent and readily automated approach to risk measurement. Treatment of correlations is included. A modified form of PNET is presented for quantifying time uncertainty. Use of limiting values (0, 1) of the PNET transitional correlation provide bounds for decision parameters.