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RISK MANAGEMENT
Risks have a significant impact on a construction project’s performance in terms of:
cost Time quality Size and complexity of the projects have
increased over the past 30 years. The ability to manage risks throughout the
construction process has become a major factor for preventing risk.
RISK MANAGEMENT
Supply chain must share the risk. Risk to a large extent is governed by the
procurement option and the content of the related contract documents.
Selecting an appropriate project procurement option is a key issue for risk reduction.
RISK MANAGEMENT
A systematic process of: identifying assessing and responding to project risk The aims and objectives of the risk
management process is to maximize the opportunities and minimize the consequences of a risk event.
A variety of risk management models with different numbers of stages can be obtained.
RISK MANAGEMENT The international standard “Project risk
management – Application guidelines” (IEC 2001) is a good source for risk management.
IEC suggest a model with 5 steps: 1. risk identification 2. risk assessment 3. risk treatment 4. risk review5. monitoring
RISK MANAGEMENT PMBOK’s model (PMI 2000) is similar
but divides risk assessment into two processes. They are:
1. qualitative risk analysis2. quantitative risk analysis Baloi and Price (2003) include an
additional step of risk management process it is:
communication.
RISK MANAGEMENT
Risk Transfer & Indemnification Two most problematic areas for
construction management teams are:
1.contractual risks2.the insurability of projects.
RISK MANAGEMENT Risk management can reduce risk in the
different procurement options. Design and build contracts and collaborative
form of partnering. Better understanding is expected to contribute to
a more effective risk management. Therefore, a better project output and better
value for both clients and contractors.
RISK MANAGEMENT A clear link between the procurement
option and risk management Design-build projects offer better
cooperative work by the architects and contractors in early phases
Therefore, more thorough risk management.
RISK MANAGEMENTPartnering helps to establish good supply chain
relationships partners work together throughout the
project each partner participates in joint risk
management share information to reduce risk
RISK MANAGEMENTeffective communication; information exchange;open attitudes and good
relationship;all have open discussion of
project risk and a strong determinant for project success.
RISK MANAGEMENTRISK ASSESSMENT-SUPPLY CHAIN1. identify risks2. evaluated risks3. ranked risks4. use both qualitative and quantitative methods
for assessment5. based on fuzzy estimates of risk components
or a better option 6. Identify risk to cover all KPI’s (TIME-COST-
QUALITY-CUSTOMER SATIFACTION-SAFTEY)
RISK MANAGEMENT
Risk Response Process There are four main risk response
strategies. They are: 1. risk avoidance; 2. risk reduction; 3. risk transfer;4. risk retention (IEC 2001, PMI 2000,
Smith et al. 2006).
RISK MANAGEMENT
Risk avoidanceby changing the project planby finding methods to eliminate all
risks. Risk reductionby reducing the probability and/or
consequences of a risk event
RISK MANAGEMENT
After risk avoidance andreductionAny other risk may be shared
amongst supply chainRisk retention or acceptance it is an indication that the risk
remains present in the project
RISK MANAGEMENTTwo options are available when retaining the risk: 1. To develop a contingency plan in case a risk
occurs2. To make no actions until the risk is triggered
Risk reduction as the most commonMethod usaed.Baker et al. 1999,Lyons and Skitmore 2004,Tanget al. 2007
RISK MANAGEMENTConstruction Risks-Technical Risks Incomplete design Inadequate site investigation Uncertainty over the source and
availability of materials Appropriateness of specifications
RISK MANAGEMENTLogistical Risks
Availability of resources1. construction equipments2. spare parts3. fuel and labour4. Transportation facilities5. Etc.
RISK MANAGEMENT
Construction RisksUncertain productivity of
resources Adverse Weather Industrial relations problems
RISK MANAGEMENT
Financial Risks Inflation. Availability and fluctuation in foreign
exchange Delay in Payment Repatriation of funds Local taxes
RISK MANAGEMENT
Political Risks Constraints on the availability and
employment of expatriate staff Customs and import restrictions and
procedures Difficulties in disposing of plant and
equipment Insistence on use of local firms and agents
RISK MANAGEMENT
So far: A risk management should cover the
entire project life cycle. Uncertainty and risk can be experienced at
any stage from inception to completion. Understanding of risk by everyone
involved in the delivery of the project.
RISK MANAGEMENT This will lead to a more controllable risk
management. Poor risk management increases the
project total cost by 8-20%. Risk happens when there are changes to
original plan.
RISK MANAGEMENT
RiskMetrics
SupportLarge
Objectives
Influencebehaviour
Assetgood
decision making
Other
RISK MANAGEMENT
RiskMetrics
Predictivemetrics
Retrospectivemetrics
y Diagnosticmetrics
yes
yes
Forward-looking,based on
expectations.Y
Drawn fromcurrent project
status-throughoutthe work
Y
Backward-lookingderived from
resultsY
RISK METRICS:RELATES TO DISCOVERY ANDMINIMIZATION OF RISK
RISK MANAGEMENT
RISK MANAGEMENTRisk Response Process-RRP
PredictiveMetrics
DiagnosticMetrics
RetrospectiveMetrics
RISKIDENTIFYASSESS
TREATMENTREVIEW
MONITOREtc.
Risk sharing-a practical method
Partnering
Cited- Professor A.A Akintola
1. Allocation of risk2. There must be significant transfer of risk to
the private sector3. Risk with procurement4. Risk transfer5. Cost reduction6. sustainability
Y
ResourcesLabour
MaterialsMachinery
Etc
N
Microin UK-Public
orPrivate
Civil EngineeringBuildingHousingschools
hospitalsother
Level of Risk with:
Projects in EUProjects in UAE
Projects elsewhere
Is itMacro
Identifyrisk
DemandFluctuationFinance
Weather
Use ofnew construction
methods
Designcomplexity
