Risk & Risk Management in Construction.ppt

1. Syed M. Ahmed, Ph.D.
Department of Construction Management
Risk Management in Construction

2. Syed M. Ahmed, Ph.D.
Department of Construction Management
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3. Syed M. Ahmed, Ph.D.
Department of Construction Management
Introduction
Time
Quality
Cost
Project
Constraints
Success

4. Syed M. Ahmed, Ph.D.
Department of Construction Management
Introduction
Delays
Poor
Quality
Cost
overrun
Project
Constraints
Risks

5. Syed M. Ahmed, Ph.D.
Department of Construction Management
What is a Risk?
Risk
Unknown
Unexpected
Undesirable
Unpredictable
endeavor
action

6. Syed M. Ahmed, Ph.D.
Department of Construction Management
 Project risk is an uncertain event or condition that,
if it occurs, has a positive or a negative effect on a
project’s objectives.(PMBOK4, PMI, USA)
 A risk is an uncertain event which may occur in the
future
 A risk may prevent or delay the achievement of an
organization’s or units objectives or goals
A risk is not certain – Its likelihood can only be
estimated

7. Syed M. Ahmed, Ph.D.
Department of Construction Management
• Risk: Risk is the probability that an
incident will occur and the severity of
the outcome. Risk is graded into low,
medium and high.
• Hazard: Hazard is anything, situation or
condition which has the potential to
cause harm to people, equipment and
environment.
• Accident: Accident is an unexpected
and unwanted occurrence which could
result to injury to persons, damage to
equipment, materials or environment
7

8. Syed M. Ahmed, Ph.D.
Department of Construction Management
Risks in Construction
Contractor Supplier
Project
Manager
Engineer
Architect
Client
Quantity
Survey
Inspector`
Social
Factors
Political Factors
Economic Factors
Environmental
Factors

9. Syed M. Ahmed, Ph.D.
Department of Construction Management
Types of Risks in Construction
Physical
Risks
Financial
Economic
&
Acts
of
God
Political
Environ.
&
Design
Const.
Related

10. Syed M. Ahmed, Ph.D.
Department of Construction Management
Types of Risks in Construction
Physical
Risks
Financial
Economic
&
Acts
of
God
Political
Environ.
&
Design
Const.
Related
Acts of God
 Flood
 Earthquake
 Landslide
 Fire
 Wind damage

11. Syed M. Ahmed, Ph.D.
Department of Construction Management
Types of Risks in Construction
Physical
Risks
Financial
Economic
&
Acts
of
God
Political
Environ.
&
Design
Const.
Related
Physical
 Damage to structure
 Damage to
equipment
 Labor injuries
 Fire
 Theft

12. Syed M. Ahmed, Ph.D.
Department of Construction Management
Types of Risks in Construction
Physical
Risks
Financial
Economic
&
Acts
of
God
Political
Environ.
&
Design
Const.
Related
Financial &
Economic
 Inflation
 Availability of funds
 Exchange rate
fluctuations
 Financial default

13. Syed M. Ahmed, Ph.D.
Department of Construction Management
Types of Risks in Construction
Physical
Risks
Financial
Economic
&
Acts
of
God
Political
Environ.
&
Design
Const.
Related
Political &
Environmental
 Changes in laws
and regulations
 Requirement for
permits
 Law & order
 Pollution and safety
rules

14. Syed M. Ahmed, Ph.D.
Department of Construction Management
Types of Risks in Construction
Physical
Risks
Financial
Economic
&
Acts
of
God
Political
Environ.
&
Design
Const.
Related
Design
 Incomplete design
scope
 Defective design
 Errors & omissions
 Inadequate
specifications

15. Syed M. Ahmed, Ph.D.
Department of Construction Management
Types of Risks in Construction
Physical
Risks
Financial
Economic
&
Acts
of
God
Political
Environ.
&
Design
Const.
Related
Construction
Related
 Labor disputes
 Labor productivity
 Different site
conditions
 Design changes
 Equipment failure

16. Syed M. Ahmed, Ph.D.
Department of Construction Management
RISK MANAGEMENT
 Risk Management is the process of identifying and mitigating risk.
 Risk management is the process of identifying, assessing and
controlling threats to an organization's capital and earnings. These
threats, or risks, could stem from a wide variety of sources, including
financial uncertainty, legal liabilities, strategic management errors,
accidents and natural disasters.
• Why is it important?
 Risk affects all aspects of your project – your budget, your schedule,
your scope, the agreed level of quality, and so on
 Increase probability of positive event.
 Reduce the occurrence of negative event.
Risk Management

17. Syed M. Ahmed, Ph.D.
Department of Construction Management
Risk Management
A systematic approach to control the level of risk to
mitigate its effects.
Risk Identification
Risk Identification
Risk Estimation
Risk Estimation
Risk Evaluation
Risk Evaluation
Risk Response
Risk Response
Risk Monitoring
Risk Monitoring
Controlled
Risk
Environment
Risk Identification
Risk Identification
Risk Estimation
Risk Estimation
Risk Evaluation
Risk Evaluation
Risk Response
Risk Response
Risk Monitoring
Risk Monitoring
Controlled
Risk
Environment
Risk
Analysis
Risk Management Life Cycle

18. Syed M. Ahmed, Ph.D.
Department of Construction Management
• Risk management strategies and processes
• All risk management plans follow the same steps that combine to
make up the overall risk management process:
Risk identification. A risk cannot be managed unless it is first
identified. The company identifies and defines potential risks that may
negatively influence a specific company process or project.
Risk analysis. Once specific types of risk are identified, the company
then determines the odds of it occurring, as well as its consequences.
The goal of the analysis is to further understand each specific instance
of risk, and how it could influence the company's projects and
objectives.
Risk Management

19. Syed M. Ahmed, Ph.D.
Department of Construction Management
• Risk management strategies and processes
Risk assessment and evaluation.
 The risk is then further evaluated after determining the risk's overall likelihood of
occurrence combined with its overall consequence. The company can then make decisions
on whether the risk is acceptable and whether the company is willing to take it on based on
its risk srength
Risk mitigation.
 During this step, companies assess their highest-ranked risks and develop a plan to
alleviate them using specific risk controls. These plans include risk mitigation processes,
risk prevention tactics and contingency plans in the event the risk comes to fruition.
Risk monitoring.
 Part of the mitigation plan includes following up on both the risks and the overall plan
to continuously monitor and track new and existing risks. The overall risk
management process should also be reviewed and updated accordingly.
Risk Management

20. Syed M. Ahmed, Ph.D.
Department of Construction Management
Risk Analysis
Estimating the potential impacts of risk to decide what risks to
retain and what risks to transfer to other parties
Ranking options
Comparing options
Descriptive analysis
Qualitative
Risk Analysis
Techniques
Probability analysis
Sensitivity analysis
Simulation techniques
Quantitative

21. Syed M. Ahmed, Ph.D.
Department of Construction Management
Risk Response
Risk Response Methods
Elimination Transfer Reduction
Retention

22. Syed M. Ahmed, Ph.D.
Department of Construction Management
Risk Response
Risk Response Methods
Elimination Transfer Reduction
Retention
Risk Elimination Practices
 Tendering a very high bid
 Placing conditions on the bid
 Pre-contract negotiations as to which party takes certain risks
 Not biding on the high risk portion of the contract

23. Syed M. Ahmed, Ph.D.
Department of Construction Management
Risk Response
Risk Response Methods
Elimination Transfer Reduction
Retention
Risk Transfer
 Two basic forms.
 (a) The activity responsible for the risk may be transferred, i.e.
hire a subcontractor to work on a hazardous process
 (b) The activity may be retained, but the financial risk
transferred, i.e. methods such as insurance.

24. Syed M. Ahmed, Ph.D.
Department of Construction Management
Risk Response
Risk Response Methods
Elimination Transfer Reduction
Retention
Risk Retention
 Handling risks by the company who is undertaking the project.
 Two retention methods, active and passive.
 Active retention is a deliberate management strategy after a
conscious evaluation of the possible losses and costs of
alternative ways of handling risks.
 Passive retention occurs through negligence, ignorance or
absence of decision.

25. Syed M. Ahmed, Ph.D.
Department of Construction Management
Risk Response
Risk Response Methods
Elimination Transfer Reduction
Retention
Risk Reduction
 Continuous effort.
 Related with improvements of a company’s physical, procedural,
educational, and training devices.
 Improving housekeeping, maintenance, first aid procedures and
security.
 Education and training within every department .

26. Syed M. Ahmed, Ph.D.
Department of Construction Management
Thank You