Early cost estimating has often become a major challenge in large projects. Budget overruns occur time and again, which leads regularly to conflicts between investors, project teams, contractors, and other stakeholders. The cause for these are several factors such as inadequate consideration of project risks, insufficient project information and an unclear project scope, or unforeseen project complexities. The following literature review, therefore, observes the risk identification of major construction and infrastructure projects as one of the major reasons for cost overruns. This review aims to deliver an overview of the different approaches to the identification of risks during the early stage of large projects. In this context, however, no rigid definition of the term "major project" has yet emerged. There is no fixed rule when a project is a major project and should be organized likewise. A major project is characterized by the fact that it differs from the client's usual projects in terms of its planning and implementation duration, its complexity, the large number of participants, or its high social significance. In contrast to small and medium-sized construction projects, where routine can be applied, extensive infrastructure and construction projects are often a multitude of different tasks with several interconnections and interfaces. They often require more complicated organizational structures, and accordingly many risk management requirements. Whether a project is considered a major project depends on the specific individual case. In these projects, decision-makers often rely on intuition, judgment, and their personal experiences to conduct risk assessments and cost estimates. Although various risk assessment models have been developed in recent years, the lack of precise and general data to examine risk effects usually leads to inconsistencies and inaccuracies in risk assessment. This often results in significant budget overruns for large construction and infrastructure projects.
Table of Contents
1. INTRODUCTION
2. COST ESTIMATION AND RISK ASSESSMENT
3. RISK IDENTIFICATION
4. RISK ANALYSIS
5. CONCLUSION
Research Objectives and Key Themes
The primary objective of this research is to analyze the critical risks associated with large-scale construction and infrastructure projects and to examine how these risks are integrated into early-stage cost estimation processes. The paper explores why budget overruns are frequent in such projects and evaluates various methodologies used to identify and quantify potential risks to improve financial accuracy.
- Causes and impacts of budget overruns in major construction projects.
- Challenges in defining and categorizing risks in complex infrastructure developments.
- Methods for risk identification, including brainstorming, checklists, and expert assessments.
- Quantitative and qualitative approaches to risk analysis and cost forecasting.
- The role of project-specific management strategies in mitigating financial uncertainties.
Excerpt from the Book
RISK IDENTIFICATION
For a precise cost estimate, it is important to consider risks as well. First of all, a risk in the sense of a cost estimate, i.e., as a cost component of the total costs forecast, should be seen as an opportunity as well as a threat. Depending on the project’s progress, appropriate provisions must be made in the project forecast. If a risk is identified in advance, it can be planned for. This means that it is included in the bill of quantities and is thus allocated to the corresponding cost component of the base costs. In return, the cost component of the risk is reduced. For a clean forecast, the risk assessment must be carried out in a structured manner. Various approaches can be found in the literature and several guidelines, to the question of which and how risks must be considered in large construction projects. For Example, the ISO 31000 divides risks first into two parts:
Identified Risks
Unknown Risks
If both parts are added together, the result is the risk costs. The first point contains those risks identified in the course of a risk analysis. They depend on the quality and scope of the risk analysis, as well as on the level of project knowledge. The second point, the unknown, is again divided into two different components:
Unidentified risks
Non-identifiable risks
The unidentified risks are those parts of the risk that have not been included during the risk analysis. They also depend on the project knowledge status, as well as the scope and quality of the analysis. The unidentifiable risks become known only when the risk occurs. They cannot be detected by any risk analysis. Risk identification is one of the tasks to be performed continuously. For this purpose, all potential risks are recorded in risk workshops, for example. The risk manager defines risk categories, which provide an overview of the potential risk areas and form the basis for classifying or allocating the respective individual risks.
Summary of Chapters
INTRODUCTION: This chapter defines the scope of major projects and identifies the persistent challenge of budget overruns caused by unforeseen complexities and inadequate risk assessment during early planning phases.
COST ESTIMATION AND RISK ASSESSMENT: This section discusses the reality of budget failures in large international projects and explains why accurate early-stage estimation is difficult due to political pressure and inherent project uncertainties.
RISK IDENTIFICATION: This chapter details various frameworks for categorizing project risks—including planning, execution, and legal risks—and outlines methodologies such as brainstorming and checklists to detect potential hazards.
RISK ANALYSIS: This chapter focuses on the systematic evaluation of identified risks using qualitative and quantitative methods, such as the Monte Carlo simulation, to establish realistic financial risk profiles.
CONCLUSION: This final section synthesizes the findings, noting that while many frameworks exist, their effective application requires adaptation to the unique requirements of individual large-scale construction projects.
Keywords
Construction projects, Infrastructure, Risk management, Cost estimation, Budget overruns, Risk identification, Risk analysis, ISO 31000, Financial management, Project planning, Uncertainty, Quantitative assessment, Qualitative assessment, Stakeholders, Large-scale projects.
Frequently Asked Questions
What is the core subject of this research?
The research focuses on the management of financial risks in large-scale construction and infrastructure projects, specifically exploring how to improve the accuracy of early cost estimations.
What are the primary areas covered in this paper?
The paper covers the identification of risk categories, methods for risk assessment, the impact of stakeholder influence, and various quantitative techniques used to mitigate financial uncertainty.
What is the main goal of the study?
The primary goal is to identify why major projects consistently suffer from budget overruns and to provide an overview of industry-standard approaches for incorporating risk analysis into project budgeting.
Which scientific methods are analyzed?
The paper examines qualitative methods like brainstorming and expert surveys, alongside quantitative approaches such as Monte Carlo simulations and probabilistic risk analysis models.
What is discussed in the main body of the work?
The main body details the transition from initial cost estimation to structured risk identification and finally to the systematic analysis of risks using statistical and empirical data.
Which keywords best characterize this research?
Key terms include construction projects, risk management, cost estimation, budget overruns, and project complexity.
How does the author define a "major project"?
A major project is characterized by significant differences from standard tasks in terms of complexity, planning duration, a large number of participants, and high social or public significance.
Why does the author argue that early cost estimations often lack accuracy?
The author notes that inaccuracies often stem from insufficient project data, the pressure from political figures for low-cost presentations to secure funding, and the inherent difficulty of predicting future design changes.
What role does ISO 31000 play in this study?
ISO 31000 serves as a foundational framework used throughout the research to categorize risks into identified and unknown types, helping to structure the risk management process.
What is the author's final conclusion regarding practical application?
The author concludes that while standardized models provide a framework, they must be customized to the individual project's specific constraints, as large projects are often too unique for one-size-fits-all solutions.
- Arbeit zitieren
- Martin Henschelchen (Autor:in), 2022, Critical risks in large construction projects and their consideration in cost estimation, München, GRIN Verlag, https://www.hausarbeiten.de/document/1217284
