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INTRODUCTION TO

RISK MANAGEMENT
FOR
CONSTRUCTION PROJECTS

Prof. Reda Abdulaal


Vice Presidency for Projects

December 2009
Objectives & Outcomes of this Presentation

Objectives
Enrich the participants with:

1- Some definitions related to risk management

2- The project risk management cycle

3- The techniques of project risk identification

December 2009 Introduction to Risk Managment for Construction Projects 2


Objectives & Outcomes of this Seminar

Outcomes

1- We will agree that identifying & managing project


risks are so important

2- We will identify a preliminary list of risks in the


construction projects at KAU

December 2009 Introduction to Risk Managment for Construction Projects 3


Stages of Project Risk Management

Start here

Define types of risks Define probability &


Project frequency of risks
Risk
Management

Develope risk
management policies Rank risks to
management priority

December 2009 Introduction to Risk Managment for Construction Projects 4


First of all

What
do we
? mean? ?

Risk
Management

?
December 2009 Introduction to Risk Managment for Construction Projects 5
What do we mean?

December 2009 Introduction to Risk Managment for Construction Projects 6


If you didYou will get !

When you see the following caution signs;


Give your comments in
one word or one statement

December 2009 Introduction to Risk Managment for Construction Projects 7


What is Risk?

The likelihood (probability) of occurrence of an


undesirable event that will have an impact (positive or
negative) on objectives

A possibility of loss not the loss itself!

December 2009 Introduction to Risk Managment for Construction Projects 8


FACT

There is no human activity which does not have risks

December 2009 Introduction to Risk Managment for Construction Projects 9


What we know so far?

Some
definitions
?

Risk
Management

?
December 2009 Introduction to Risk Managment for Construction Projects 10
What do we mean?

Risk
Management

December 2009 Introduction to Risk Managment for Construction Projects 11


December 2009 Introduction to Risk Managment for Construction Projects 12
What is Risk Management?

Is a systematic method of identifying, analyzing,


treating, and monitoring the risks involved in any
activity or process.

Is to a methodology that minimize the risks of not


achieving the objectives.

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Who is involved in Risk Management?

Customer .. Students
End-User .. KAU
Project Team .. .. ..
Manager .. .. ..
Contractor .. .. ..
Subcontractor.. .. ..
Consultants .. ZFP
Suppliers .. .. ..
Workers .. .. ..

December 2009 Introduction to Risk Managment for Construction Projects 14


FACT

Risk management is communication!


December 2009 Introduction to Risk Managment for Construction Projects 15
What we know so far?

Some
definitions
?

Risk
Management


December 2009 Introduction to Risk Managment for Construction Projects 16
What do we mean?

December 2009 Introduction to Risk Managment for Construction Projects 17


What is Project Risk?

It is an event or condition that, if it occurs, has a


positive or negative effect on at least one project
objective, such as time, cost, scope, or quality.

What is Project Risk Management?

A process that assists project managers in setting


priorities, allocating resources and implementing
actions that reduce the risk of the project not
achieving its objectives.
December 2009 Introduction to Risk Managment for Construction Projects 18
Is it important to managing project risks?

Research highlights that only one in eight information


technology projects can be considered truly successful
failure being described as those projects that do not
meet the original time, cost and (quality) requirements
criteria
the cost of project failure across the European Union
was 142 billion in 2004.

http://www.bcs.org/server.php?show=ConWebDoc.19584

December 2009 Introduction to Risk Managment for Construction Projects 19


FACT
If you act, manage and report regularly on risks and
issues, you will have substantially improved your
chances of project success!

December 2009 Introduction to Risk Managment for Construction Projects 20


What we know so far?

Some
definitions

Risk
Management


December 2009 Introduction to Risk Managment for Construction Projects 21
Cycle of Project Risk Management

Start here

Define types of risks Define probability &


Project frequency of risks
Risk
Management

Develop risk
management policies Rank risks to
management priority

December 2009 Introduction to Risk Managment for Construction Projects 22


Project Risk Management STAGE #1

Internal ~ External
Project Life Cycle
Risk Classification Project Requirements
Project participants
STAGE #1
Risk Identification ----------
----------
----------
----------
----------
----------

Let us take some examples


December 2009 Introduction to Risk Managment for Construction Projects 23
Example 1

Project Risks

Internal Risks External Risks

Owner Designer Contractor Economic Political Natural

Delayed Defective Construction Inflation rate War Unexpected


payment to design accidents threats inclement
contractor weather

Unreasonably Deficiency in Poor quality Currency Labor Unforeseen


imposed tight drawings fluctuation sticks site
in schedule conditions

December 2009 Introduction to Risk Managment for Construction Projects 24


Example 2

Project Risks

Owner Contractor Shared

Delayed payment on contract Labor and equipment availability War threats


Changes in work Productivity of labor & equipment Acts of God
Lack of scope of work Accidents & Safety Financial failure
Improper intervention Accuracy of work Changes in laws
Delays in obtaining site access Contractors incompetence Culture differences

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What is after Risk Identification?

December 2009 Introduction to Risk Managment for Construction Projects 26


Risk Assessment (data collection on Probability & Impact)
Probability of occurance Magnitude of impact
Risk Identification
Low Medium High Low Medium High
1 Owner's delayed payment to contractor
2 Owner's unresonably imposed tight schedule
3 Change of design required by owner
4 Lack of work definition by owner
5 Low productivity of labor & equipment
6 Delay of material supply by suppliers
7 Changes in laws and regulation

December 2009 Introduction to Risk Managment for Construction Projects 27


Risk Evaluation (data analysis)

Risk Control (actions to be taken)

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So, What is the next step?
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Fill out the two risk forms given to you and
return them back within two days to the
project manager

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Risk Form Section #1

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Risk Form Section #2

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THANK YOU
Q&A