A Risk-Based Model for Optimizing the Construction Method Mix under Enterprise Risk Management

Abstract

This paper proposes a quantitative framework for optimizing the construction method mix between onsite and offsite (prefabrication) construction under an Enterprise Risk Management (ERM) framework. Based on expert interviews, the study models loss events using Poisson (frequency) and Pareto (severity) distributions for each method's risk factors. Monte Carlo simulations are employed to compute risk indices, which are then used to define an optimal construction mix aligned with management's risk tolerance and aversion. A penalty function, derived from management input, ensures practical allocations by penalizing excessive deviations from the existing mix. The model identifies a 54% Onsite allocation as optimal under defined constraints. This approach offers a systematic, risk-aligned method for strategic construction planning.