Rare-event risks make or break any capital project because we manage them poorly. By contrast, traditional project risks are handled well in the engineering and construction industry. Reliability engineers employ systems thinking to address tasks ranging from root cause analysis to forecasting future trends. A few key issues are important for understanding when and how to handle rare events.

Five Years as a Breakpoint for Minor and Major Projects

Project risks are inherent to every major facility and infrastructure project. Five years from engineering through construction is a good breakpoint for the difference between minor and major projects. Project risk modeling is typically performed using probability distributions derived from historical data on cost and schedule.

Seven Types of Rare Events

Rare event categories include Economic, Informational, Physical (key equipment), Human Resource, Reputational, Psychopathic Acts, and Natural Disasters. Another description can be extreme events. The thought process for including them is “externally driven.” Modeling of rare events is performed with a Bernoulli distribution (occurring over the project life cycle or not, on a one-time basis) or a Poisson distribution (occurring over the project life cycle or not, potentially more than once).