Entropy and Risk Management for Construction Companies in the Face of Uncertainty

Abstract

A company’s activities, in a complex and multifaceted field such as the construction industry, are always fraught with risks and uncertainties. Uncertainty, a deficit of information about the possible states of a system, requires a special approach. Aim. The purpose of this article is to explain the necessity of using special methods to determine the possible outcomes of a company’s activity. Methods. The author proposes using entropy as a method to calculate the possible outcomes of construction projects and business activities and to determine the degree to which specific business practices influence the outcome of a project. Results. Entropy reveals problem areas in a project and prevents the emergence of possible risk situations. Systematization of the principal risks of construction enterprises, analysis of their position in the structure of a construction project’s life cycle, and an examination of the nature of their relationship with industry characteristics suggest the optimal way to manage risk. A company has a number of risk management options: prevention, elimination, reduction, acceptance, and transfer. This study presents the best ways to overcome these risk situations, considering specific conditions of the construction industry.