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Applying a risk assessment approach for cost analysis and decision-making: a case study for a basic design engineering project

Abstract Many uncertainties and cost variations occur in the work activities of a project, thereby causing many possibilities of under-estimating or over-estimating for a bid price. A comprehensive study for each process of risk management should be investigated to achieve project objectives. However, a limited number of studies have a comprehensive viewpoint to indicate the benefits of risk management and the effect on project performance for the engineering design stage of engineering–procurement–construction (EPC) projects, especially in the basic design stage. This research was conducted to identify and analyze the risks associated with a Basic Design Engineering (BDE) project for a high value-added petrochemical plant in Taiwan. First, a project risk management work flow was proposed as an effective tool to minimize the project risks and maximize the management capacity of practitioners. Second, the cost effect of project risks was described by conducting a case study for the design process of a high value-added petrochemical plant using a Monte Carlo simulation. A risk register was identified to support the data required for conducting simulation analysis. The results of this paper provide reference points for risk management planning of project execution and help project managers evaluate particular risks at the engineering design stage of EPC projects to avoid cost overruns.