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Expert elicitation and Bayesian analysis of construction contract risks: an investigation

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  • Francis Adams

Abstract

Formal risk analysis techniques applied in managing construction project risks tend to focus on risks that lend themselves to 'objective' methods of economic analysis. Although subjective probabilities and Bayesian methods are applied successfully in other industries to manage 'subjective' risks similar to those encountered in construction contracts, very little is reported on the application of such methods for analysing risks in construction contracts. An investigation has been carried out into using subjective expert opinions and Bayesian methods in construction contract risk analysis. The elicitation of expert opinions about the risk of encountering adverse ground conditions on construction sites is examined. Prior distributions of expert opinions about the risk form the critical component in the Bayesian analysis of risk. The conclusion of this is that although construction professionals have difficulty estimating intermediate and tail values of probability distributions, elicitation techniques can be used to develop prior distributions of contract risks which, coupled with sample information on the risks, would enable the Bayesian analysis of risks. Effective strategies for systematically analysing significant individual contract risks often covered under an 'arbitrary' project contingency sum can now be developed to enhance the risk management efforts of contractors and construction experts.

Suggested Citation

  • Francis Adams, 2006. "Expert elicitation and Bayesian analysis of construction contract risks: an investigation," Construction Management and Economics, Taylor & Francis Journals, vol. 24(1), pages 81-96.
    • Handle: RePEc:taf:conmgt:v:24:y:2006:i:1:p:81-96
    DOI: 10.1080/01446190500310254
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    Citations

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    Cited by:

    1. Ibsen Chivatá Cárdenas & Saad S. H. Al‐Jibouri & Johannes I. M. Halman & Wim van de Linde & Frank Kaalberg, 2014. "Using Prior Risk‐Related Knowledge to Support Risk Management Decisions: Lessons Learnt from a Tunneling Project," Risk Analysis, John Wiley & Sons, vol. 34(10), pages 1923-1943, October.
    2. Jacqueline Anne MacDonald & Mitchell J. Small & M. G. Morgan, 2008. "Explosion Probability of Unexploded Ordnance: Expert Beliefs," Risk Analysis, John Wiley & Sons, vol. 28(4), pages 825-841, August.
    3. Ibsen Chivatá Cárdenas & Saad S.H. Al‐Jibouri & Johannes I.M. Halman & Frits A. van Tol, 2014. "Modeling Risk‐Related Knowledge in Tunneling Projects," Risk Analysis, John Wiley & Sons, vol. 34(2), pages 323-339, February.
    4. Sandra Hoffmann & Paul Fischbeck & Alan Krupnick & Michael McWilliams, 2007. "Elicitation from Large, Heterogeneous Expert Panels: Using Multiple Uncertainty Measures to Characterize Information Quality for Decision Analysis," Decision Analysis, INFORMS, vol. 4(2), pages 91-109, June.
    5. Ibsen Chivatá Cárdenas & Saad S.H. Al‐jibouri & Johannes I.M. Halman & Frits A. van Tol, 2013. "Capturing and Integrating Knowledge for Managing Risks in Tunnel Works," Risk Analysis, John Wiley & Sons, vol. 33(1), pages 92-108, January.

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