A Look at Builder’s Risk and the Theory of System Reliability


General contractors and home builders are subject to a lot of risks just as anyone does in the construction industry. If these risks occur while the contractor is working on the property, the general contractor or home builder might end up facing tremendous losses.

It’s important for contractors and home remodelers to have a builder’s risk insurance policy to protect the property while it’s under construction.

Builder’s risk insurance is coverage for the property while it’s under construction. Some would say that construction risks are based on the concept of system reliability. System reliability is generally the ability to maintain quality-engineered systems for a predetermined time.

With regard to the construction production, the ability, or rather the probability of the projected decision is an important factor.

The decisions related to labor costs, the duration of the individual works, the construction of a separate facility or system as a whole. In terms of construction, representing a complex set of processes, the concept of reliability can only be applied to the result of the system.

The basis of reliability theory is the notion of failure – failure within the system in part or in full. Complete failures are possible in systems. The construction industry is characterized not by complete failures, but by partial failures.

System reliability is quantified as the ratio of up-time to time by the builder’s risk insurance providers. This is the operation time during the reporting period. It ranges from 0 (complete failure) to 1 (operation without failure). The reliability of the system depends upon the reliability of its constituent elements.

If considered as a system, the reliability of work depends directly on related elements like erection cranes, supply structures, etc.

The enlargement of the elements within the construction process takes labor and material resources. Reliability is depending upon the number and frequency of failures and can be determined from data reported by the workers, by an expert (opinion poll workers and specialists). Builder’s risk insurance providing companies assess construction projects as the basis of system reliability.

Reliability is based upon the theory of probability and mathematical statistics. As with any statistical studies, calculations are made with assumptions about the nature of the distribution of various kinds of failures that affect the reliability of the system.

These calculations help builder’s risk insurance providers design policies. The values obtained from calculations are close to the true values when the correct assumptions are made with respect to the form of the distribution.

However, in all cases, only the reliability of the formula approximately reflects the real conditions. This reflects the extent of the actual allocation approach. Builder’s risk insurance can have different premium options and coverage options based upon the reliability of a particular project.

An educator many years ago, first proposed the development of builder’s risk insurance for the constructions. He said that the dramatic complexity of building production leads to a dramatic complication of relations between the elements, which reduces the reliability of the system.

This is proportional to a geometric progression of the number of elements. According to the theory of reliability, even with a relatively small number of elements (100) and the high average strength of each element (0.99), the building system as a whole will have a reliability of 0.4 and fail in more than half the cases (0.6). Practice shows that the actual reliability of the system is much higher though the number of interconnected elements is higher too.

A builder’s risk insurance policy could protect you against the reliability factor.