Impact of Correlation on Cost-Risk Analysis for Construction Highway Projects

Major construction projects are often constructed by dividing the project into smaller, more manageable segments. Managing these projects is a complex task due to risk and uncertainty. Many studies have proposed risk analysis frameworks to analyze the impact of risk on project outcomes. However, a limited study has addressed the effect of considering correlations on the cost-risk analysis frameworks. Capturing correlation between variables during the risk analysis process is an important, but a challenging task. This paper examines the impact of correlation between project phases/segments on total project cost. The Federal Highway Administrative cost-risk analysis framework was investigated. The correlation coefficient assessment was determined based on a comprehensive review of literature and several risk management frameworks used in transportation and transit sectors. The paper includes a case example that discusses the impact of correlation on the total project cost uncertainty in detail. The findings from this paper contribute to a construction risk analysis and management domain by showing the effect of considering correlation on the cost-risk analysis process. The results from this paper also help the highway industry to better manage their projects by performing a more accurate risk cost estimate.