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Challenges of Dealing with Uncertainty

FEATURED PAPER

Bob Prieto

Princeton, NJ, USA
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Let me begin by saying that the scope of this subject is well beyond adequate treatment in any one paper. Having done a necessary disclaimer, this paper will take a look at uncertainty as it relates to the economics of investments in community resilience. I have chosen to focus my consideration of how one deals with uncertainty in this area since it presents several characteristics which I find to be of value when considering the subject of uncertainty in dealing with a broader array of programs and projects. These characteristics include:

  • The long term nature of both initial investments but also utility and “return on investment”
    • Increasingly we find this consideration of extended timeframes in both large scale public as well as private programs
  • The need to meet the long term needs of multiple, interlocking stakeholder groups, with potentially differing views of risk, investment horizons and potential futures
  • Consequences of getting it materially wrong.
    • These consequences can include loss of life, economic impacts at scale and even lost generations. In many ways these consequences are growing concerns even in more “traditional” large scale programs we are increasingly undertaking.
  • The programmatic nature at scale, dealing with whole communities, broader than even many of today’s giga-programs consisting of handfuls of projects
  • Complexity, that only allows insights into how to prepare for tomorrow through almost unweighted consideration of scenarios
  • The emerging nature of the problem and its likely relationship to many of the future projects we will undertake.

In this paper I will try to provide a framework for the economics of community resilience and touch upon some of the uncertainty factors. Both the framework laid out and the factors highlighted are incomplete but are intended to help advance our understanding of the uncertainties involved and suggest opportunities to address some of our data and knowledge gaps.

I would ask the reader to think of the appropriate analogs in their own project “space”. I consider this paper as exploratory in many ways and actively solicit its reader’s feedback and thoughts as I will co-chair a panel on this subject shortly and I believe the subject would benefit from broader thoughts and insights than I have laid out here.

Uncertainty and Economics

“Uncertainty, as opposed to mathematical risk, is a pervasive fact of life” (6). Perhaps this is nowhere more true than in the area of economics where despite Keynes’ contributions on the subject an undue predisposition persists that we can have some degree of certainty in projecting the future. In reality we know less about the future than we typically assume and this uncertainty opens the door to multiple potential futures limited only by the way we think about the world. Uncertain futures must not be confused with improbable futures since the relative probabilities of each of these futures is numerically indeterminate and therefore does not allow potential futures to be compared.

In much of what we do we focus on determining the probability and consequences of the various estimates and events that we believe we may reasonably experience in a project context. Yet at the same time we know that the “tails” of the Monte Carlo analysis we typically use are too thin, underestimating rare events and perhaps failing to consider uncertain futures at all.

More…

To read entire paper (click here)

About the Author

bob prietoBob Prietoflag-usa

Senior Vice President

Fluor

Princeton, NJ, USA

Bob Prieto is a senior vice president of Fluor, one of the largest, publicly traded engineering and construction companies in the world. He focuses on the development and delivery of large, complex projects worldwide. Bob consults with owners of large capital construction programs across all market sectors in the development of programmatic delivery strategies encompassing planning, engineering, procurement, construction and financing. He is author of “Strategic Program Management”, “The Giga Factor: Program Management in the Engineering and Construction Industry” , “Application of Life Cycle Analysis in the Capital Assets Industry” and “Capital Efficiency: Pull All the Levers” published by the Construction Management Association of America (CMAA) and “Topics in Strategic Program Management” as well as over 500 other papers and presentations.

Bob is a member of the ASCE Industry Leaders Council, National Academy of Construction, a Fellow of the Construction Management Association of America, a member of the World Economic Forum Global Agenda Council and several university departmental and campus advisory boards. Bob served until 2006 as a U.S. presidential appointees to the Asia Pacific Economic Cooperation (APEC) Business Advisory Council (ABAC), working with U.S. and Asia-Pacific business leaders to shape the framework for trade and economic growth and had previously served as both as Chairman of the Engineering and Construction Governors of the World Economic Forum and co-chair of the infrastructure task force formed after September 11th by the New York City Chamber of Commerce. Previously, he served as Chairman at Parsons Brinckerhoff (PB). Bob can be contacted at [email protected].