Risk Management in the Infrastructure Industry How Can Monte Carlo Simulations Reduce Uncertainty in Infrastructure Projects?

Abstract

The infrastructure industry is known for underestimating project risks. Monte Carlo simulation is a probabilistic risk analysis method that can quantify consequences of risks but is not frequently used in the infrastructure industry even though the method has been available for decades. The aim of this thesis was to investigate to what extent Monte Carlo simulations are used and how these simulations can be implemented into the risk management process in the Swedish infrastructure industry. The thesis is based on a literature study and an interview study with five consultants and three experts from the Swedish Transport Administration. The main findings are that Monte Carlo simulations seldom are used in the Swedish infrastructure industry today and that there is a difference between consultants and clients in perception of the benefits of Monte Carlo simulations. Consultants mostly appreciate the Monte Carlo method while the government client experts do not believe the benefits outweigh the added costs. Furthermore, the study indicates that Monte Carlo simulations can improve the risk management process by clearly visualizing and communicating risks to project participants, and that it should be possible to implement Monte Carlo simulations in many projects even without extensive knowledge of the method