# How to calculate risk impact on construction project?

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How can the project manager calculate the risk impact for a construction project? For example, how can we calculate the impact of a risk that incorrect material is delivered by the supplier instead of the correct material (this happens quite often in our case)?
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There is no formula for calculating the risk impact, the risk impact is evaluated based on the financial loss, the negative impact on the project schedule, and the negative impact on the project scope.

Let's analyze your example where you're saying that the risk is incorrect material delivered by the supplier. What will happen to your project if this risk occurs?

- Schedule

- Will the project stop to a halt? If yes then the risk impact is 5.
- Will the project be slightly delayed? If yes, then the risk impact on the project schedule is 1.

- Budget

- Will the project be subject to a huge fine because of the delay? If yes, then the risk impact is 5.
- Will the project's monetary losses are restricted to the salaries of a day's labor? If yes, then the risk impact is 1 (it might be higher if the duration is long and the labor cost is high)

- Scope

- Will the quality be greatly affected (using one low quality material instead of the other)? If yes, then the risk impact is 5.
- Will the quality be slightly affected? If yes, then the risk impact is 1.

Now, in order to calculate the risk impact for the whole project, then  you need to multiple the risk impact for the schedule, the budget, and the scope by their respective "weight" (importance) in the project. For example, if the weight of the cost/budget is 0.5, and that of the schedule is 0.3, and that of the scope is 0.2 and if the risk impact for the cost, schedule, and scope is 5, 2, 3 respectively, then the overall risk impact is:

RI = RI(Schedule) x W(Schedule) + RI(Cost) x W(Cost) + RI(Scope) x W(Scope) = 2 x 0.3 + 5 x 0.5  + 3 x 0.2 = 0.6 + 2.5 + 0.6 = 3.7 ≈ 4

Where RI stands for Risk Impact and W stands for Weight.
answered 7 years ago by (46,940 points)

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