Risk and uncertainty analysis
One statement that can confidently be made about any transport project is that the costs and benefits are uncertain. An important question is ‘how uncertain’? By analysing the risk and uncertainty which surrounds the project the probability of a poor outcome can be assessed. In addition, it is often possible to identify ways in which the project can be made more robust, and to ensure that the risks that remain are well managed. Risk and uncertainty analysis is therefore a standard component in the project reporting requirements for World Bank projects.
This note reviews the general principles of risk and uncertainty analysis in transport (Section 1); and outlines the three principal methods which may be used – sensitivity analysis (Section 2), switching values (Section 3) and Monte Carlo simulation (Section 4). Implications for risk management are given in Section 5 and Further Reading is referenced at the end.
World Bank, Washington D.C., USA. Transport Note No. TRN-7, 7 pp.