Scenario modelling can change how organisations evaluate investment in mitigation. Measures that appear too expensive for a single project may become commercially justified when assessed across an entire portfolio.
Large-scale construction and infrastructure projects have long struggled with the gap between forecasts and reality. Cost and schedule overruns of 30% to 50% are not uncommon, and even a 20% increase in costs can erode a project’s expected returns.
Today, geopolitical tensions, supply chain disruptions and volatile input prices are adding to these challenges. The recent conflict in the Middle East illustrates how quickly conditions can change. According to a MEED survey, within a month of the conflict’s start, 36% of projects in the UAE reported unforeseen logistics delays. Elsewhere, rising material and diesel costs have put pressure on project viability, contributing in some cases to deferrals, cancellations and contract terminations.
Similar disruptions have followed the conflict in Ukraine, which drove up costs on European projects in 2022, and unpredictable US trade policies that have affected material prices and supply chains.
These events are difficult to forecast because their timing, scale and wider consequences are uncertain. Traditional risk models, which rely on historical data and estimates of the probability and impact of known risks, can struggle to account for such unprecedented events.
Scenario modelling offers a complementary approach, helping project leaders assess how different potential futures could affect delivery, costs and commercial viability.
The limits of traditional risk modelling
Conventional risk modelling is effective when projects face familiar risks with established historical patterns. By analysing data from comparable projects, teams can estimate likely cost and schedule outcomes and set appropriate contingencies.
However, geopolitical developments and sudden policy changes are harder to quantify. Project teams may struggle to estimate the likelihood of new tariffs on steel, prolonged interruptions to façade panel supplies or sharp increases in fuel prices. Adding these uncertainties to conventional models can reduce their accuracy and make projects appear increasingly unaffordable.
Scenario modelling addresses this challenge by examining a range of plausible outcomes rather than relying solely on probabilities derived from past events.
Strengthening decisions through scenario modelling
Organisations can strengthen their response to uncertainty by incorporating several practices into their project and portfolio planning.
Scenario selection
Teams should establish credible best- and worst-case scenarios based on available analysis, expert opinions and the organisation’s risk appetite. Defining a credible worst case is particularly important: an overly pessimistic assumption can lead to disproportionately expensive mitigation measures, while an overly optimistic one leaves projects exposed.
Comparing multiple analyses and assessing confidence levels can help leaders determine which scenarios warrant preparation.
Portfolio-level risk assessment
Global disruptions rarely affect only one project. A shortage of steel, for example, may increase costs and delay several developments across the same business.
Assessing risks across an entire portfolio helps organisations understand how impacts are connected and coordinate mitigation. This could include purchasing or stockpiling critical materials centrally, allocating resources to priority projects and deciding how to manage delays across the portfolio. A coordinated response can reduce overall exposure and make better use of available resources.
Stress-testing
Instead of asking only what a worst-case event might cost, project leaders should determine how severe an event would need to become before a project loses its commercial viability.
This helps identify tipping points for decisions such as bidding for contracts, suspending site operations or securing additional credit. While rising material and fuel costs may be manageable on one project, they could make another loss-making. Understanding these thresholds allows businesses to act before conditions deteriorate further.
Decision trees and early-warning triggers
Pre-agreed response plans can help organisations act quickly when conditions change. Triggers might include material prices exceeding a defined threshold or supplier lead times reaching a critical level.
Regular horizon-scanning is essential to ensure assumptions remain current and response plans reflect changing market conditions.
Assessing wider impacts
Scenario modelling should consider more than cost and schedule. Disruptions can also affect workforce availability, supplier relationships and corporate reputation. These consequences become particularly significant when multiple projects are exposed to the same event.
From project-level risks to business-wide resilience
Scenario modelling can also change how organisations evaluate investment in mitigation. Measures that appear too expensive for a single project may become commercially justified when assessed across an entire portfolio.
Options such as purchasing plant instead of hiring it, stockpiling essential materials or increasing working capital may provide broader protection when risks affect several projects simultaneously.
Traditionally, many construction and infrastructure businesses have approached risk from the bottom up, focusing on individual events and their impact on specific projects. In an increasingly volatile environment, combining conventional risk modelling with scenario-based planning can provide a more comprehensive view of potential outcomes.
The aim is not to predict every disruption, but to understand how different scenarios could affect projects, identify when action is needed and prepare responses before a crisis escalates. For project leaders, the critical question is no longer whether another disruption will occur, but whether their organisations will be ready to respond.
Mathew Hazenberg – Director, Accuracy
Scenario modelling: Accuracy on forecasting project outcomes in times of great uncertainty