REPUBLIC OF THE PHILIPPINES

BATANGAS STATE UNIVERSITY

PABLO BORBON - MAIN II
ALANGILAN, BATANGAS CITY

CONSTRUCTION MANAGEMENT ENGINEERING:

Project Risk Management in
Construction Industry

(Assignment No. 2)

CE 401 – CIVIL ENGINEERING ORIENTATION

Sangalang, Jocel T.
18-56183
CE 2103

September 12, 2019

 TABLE OF CONTENTS

Page

LIST OF TABLES ………………......…………………………………………………,…..….……. i

LIST OF FIGURES …...……………………………………………………….……………..……... i

1.0 OBJECTIVES …………………………………………………………………….………........ 1

2.0 INTRODUCTION ………………............................………………………………….……...... 1

3.0 PROJECT RISK MANAGEMENT ............................................................................................ 1

3.1 Project Risks ...................................................................................................................... 2

3.2 Risk Assessment ................................................................................................................ 4

3.3 Defining Risk Using Quantitative Risk Assessment ......................................................... 4
3.4 Qualitative Risk Assessment ............................................................................................. 7
3.5 Difference Between Qualitative and Quantitative Risk Assessment …………,,,………. 7

4.0 REFERENCES ...….………….…………...……………………………………..………….......9

 LIST OF FIGURES

Figure 1. Construction Project Planning and Managemen ………………………………………… 2

Figure 2. Point of project success …………………………………….……………………………. 3

Figure 3. Change in staff volume during the project …………...………………………………….. 4

Figure 4. Risk assessment tools ……………………………………………………………….…… 4

Figure 5. Steps in controlling risks ……………………...……………………………….…............ 6

LIST OF TABLES

Table 1. Lists of Project Risks …………………………………………………………….……… 5

Table 2. Risk Assessment Matrix …………………………………………………………………. 6

Table 3. Risk Management ……………………………….………………………………..……… 7

Table 4. Qualitative vs. Quantitative Risk Assessment ……………...………………………….… 8

i
1.0 Objectives:

 To point out the importance of risk management in the construction industry.

 To identify the potential risks on a construction project.
 To learn ways on how to manage project construction risks.

2.0 Introduction

Construction projects are exposed to risks at the time of their coming into existence. In the various
stages, it must first of all be considered what risks the principal would like to counter with measures and
how costly these measures are. For this, risks, possible risk costs, measures and costs of the measures
must be identified and suitable measures must be found in order to avoid errors in the future.

The willingness of the real estate developers to take a risk that causes costs is common to all
construction projects. The costs for risks are mostly not allowed for beforehand and thus reduce its profit
margin. A consideration of the topic of risk management is worthwhile therefore and hence also the
attempt to minimise costs due a failure to take precautions or avoid these completely.

Construction projects vary with the course of development, planning, realization and operating.
Despite their uniqueness, recurrent processes of these phases can serve as a cornerstone for the
recognition of risks in order to consider project-specific and known risks more closely. In this, particular
importance is attached to the implementation and realization phase. While in the past claims for damages
were regularly presented subject to the precondition that an actual or rather obvious damage or loss at
the structure had occurred, in the meantime the claim is increasingly asserted in the case of defects that
have not (or not yet) led to damage or loss at structures. The claims for damages for resulting costs and
other pecuniary prejudices incurred by the contractor are increasing, e.g. ineffective regulations
regarding contractual penalties, errors in the collaboration in the award of the contract, errors in the
checking of invoices.

Risk management in the architects and engineers office should thus establish itself an essential
part of project management.

3.0 Project Risk Management

Risk management of a project is the process of identifying risks that could affect the project and
determining how to control them. We must trust that we can overcome these risks. In general, risks are
the events that, if they occur, will affect the outcome of the project and result in the dissatisfaction of the
stakeholder. To be more specific, they are the events or activities that can affect performance negatively
and increase project costs or time.

Risk management in construction industry is an important part of the project planning and
management. Various risks associated with construction projects such as financial risks, environmental
risks, socio-economic and construction related risks are studied and dealt in risk management.

The volatility and capriciousness of the environment in the construction industry was never
hidden from anyone. It’s easily influenced by external factors (technical, design, logistics, physical,

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operating, environmental, socio-political, force majeure et cetera) which are capable of not only derailing
projects but can also create an irreparable aberration. Risk management, therefore, becomes a pivotal
instrument that helps us deal with the culling out of various risks, their analyses, and the remedial steps
that could be taken to avert them in a particular project.

Figure 6. Construction Project Planning and Management

Risk management is an ongoing process, from the implementation of the project to the end of the
project, which has substantially fewer pontential risk. Risks can be classified into two categories:

• Project risks—risks that can happen because of technical mistakes that occur during construction.

• Process risks—risks that can occur because of procedural mistakes, lack of communication between
the project team, or bad team performance.

3.1 Project Risks

The completion of the time schedule will show the risks more clearly. Knowledge of the risks
that may hamper the project is extremely important for the project manager, as this person is responsible
for identifying the activities with higher risk impact on the overall project implementation, by increasing
either the duration or the cost. Therefore, the project manager should review the planning schedule and
identify areas of planning that contain activities at high risk:

• Tasks on the critical path

• Tasks requiring long periods to execute

• Activities that start at the beginning of other activities

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 • Tasks requiring many individuals for their execution

• Complex tasks

• Activities and tasks requiring condensed training

• Tasks requiring advanced new technology

After you select the tasks that pose a risk to the project and determine their position relative to
other high-risk tasks, you will need to identify and plan the necessary steps to implement those tasks,
follow up on them from day to day, and be aware of the person responsible for that stage of the project.
To get a sense of high-risk activities, let us think together of the case of the pouring concrete example
and answer the question, “What are the risk activities?” We find that the more serious ones are the
excavation activities, which require a long time to complete as they are in the critical path, and there is a
high probability of delay, in addition to their potential impact on the entire project.

In the case of the second project, the construction of the pipeline, one finds that the excavation
activity is critical as well. It takes 60 days, the longest period for any activity and is located on the critical
path, but when you study the project from another point of view, the activity of the arrival of materials
is more risky, as most of the materials are from abroad and, therefore, outside of full control. Therefore,
the probability is high for their delay and that will have a direct impact on the project completion time.

The project’s success is in achieving the objectives of the project on time and budget. It is known
that there is nothing specific in nature, for example, specific costs can increase and decrease and the time
length and objectives of the project can change as well. It is worth noting that these three elements affect
each other so the success of the project requires a good control of each element of the project as presented
in Figure 2.

Figure 7. Point of project success

There are many areas in the project that are not specific and these are sources of risks, which
include the following:

• Activities on the critical path that require long periods to complete

• Lack of identification of the project objectives

• Incompetent project management

• Inaccurate cost estimate

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 • General lack of a positive atmosphere

• Achieving customer satisfaction

• Rapid change in a resource (see Figure 3)

3.2 Risk Assessment

Each project has risks, no matter what the project is. Here we focus on the risks affecting the
management of the project, and by knowing the risks, we can set priorities to develop solutions or
mitigations. To assess the risks, we must answer the following questions accurately and impartially:

• What is the exact risk?

• How does the risk affect the project?

• What can be done to reduce the impact of the risk?

Figure 8. Change in staff volume during the project

3.3 Defining Risk Using Quantitative Risk Assessment

There is another method for determining risks. First, as before, assess the risk of the project as a
whole by a qualitative risk assessment methodology as part of the feasibility study (Figure 4).

Figure 9. Risk assessment tools

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 At this stage, risks are assessed based on their effect on objectives, time, and cost. We need an
easy way to assess the risks practically. This method is called quantitative risk assessment.

Initially, you want to determine the risks and you can do that by inviting the working group in
the project to a special meeting to determine the potential risks to the project. At this meeting, use the
brainstorming method so that each individual can share his/her thoughts regarding project risks. The
second step is to collect all the ideas and then write them in the order shown in Table 1, which is an
example of the basic document for listing project risks.

Table 5. Lists of Project Risks

Now that all possible risks to the project have been listed, we want to determine the priorities of
those risks. We will again use the experience of the team in risk assessment. This will be a two-stage
evaluation process. For the first phase, determine the likelihood of a risk on a scale from 1 to 9, with 1
being the least likelihood of the event and 9 being the greatest probability of the event. The second stage
will require the team to determine the outcome of an event occurring on the project and the expected
losses due to this event. This is divided into the following categories:

• High: The event has a significant impact on the time schedule or cost of the project.

• Medium: The event has a medium amount of impact on the time schedule or cost of the project.

• Low: The event has a little impact on the time schedule and cost of the project.

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 Table 6. Risk Assessment Matrix

Table 2 may be used to determine the risks priorities.

The team must know the probability of the event occurring and what its impact would be. From
the previous matrix shown in Table 2, you can determine the risk category. In a case where there is an
unacceptable risk, that event should be analyzed with high accuracy and there should be a thorough
examination, focusing on finding solutions to the risks, as they will cause the failure of the whole project
if they occur. This means that the project cannot be carried out as planned because the risks are
unacceptable and must be resolved.

Risks are designated as high in a situation when the event would have a significant impact on the
project schedule and cost. Therefore, it is necessary to proceed with sustained monitoring and great care.

Medium-risk events, if they occur, will have a medium-level impact on the project but are not
expected to affect the key points. Therefore, they must be reviewed at each meeting of the project team
and with periodic follow-up. Low-risk events are not expected to have a significant impact on the project,
if they occur, but should be followed up from time to time (Figure 5).

Figure 10. Steps in controlling risks

The risks that have been assessed as high risk during follow-up may change due to some work
being done that reduces or increases the probability of the event’s occurrence.

After identifying the risks, order them from high- to low-risk levels. For every item, find a
solution and identify accurately who has the responsibility for the activities that reduce the risk of those
events. This is illustrated in Table 3.

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 Table 7. Risk Management

3.4 Qualitative Risk Assessment

A recognized method for calculating risks is the probability of the event occurring with
knowledge of the impact of that event on the project as a whole. The importance is calculated by means
of monetary value and, from that, the degree of the event impact on the project will be defined. Some
modern views inevitably take into account the ability to manage the event and understand that there are
some pitfalls that can be solved easily managerially. For example, discrepancies between departments
can be solved through the convening of a meeting between the departments from time to time. Therefore,
because this event is very easy to manage, it receives a lower score (to decrease the whole risk-score
value) for the manageability of the event. On the other hand, if the problem is related to contact with an
outside organization (a clear example of this is a deal with the government), it would be difficult to
manage the event as it is remote from the project and cannot be easily controlled. Therefore, this event
receives a higher score. The ability to manage the situation so as to avoid the occurrence of a risky event
is very important. It is also crucial to appoint competent person who can manage the event if it happens
because in some cases, the barriers to success are incompetence and lack of skills of the person
responsible.

3.5 Difference Between Qualitative and Quantitative Risk Assessment

Project managers should always perform qualitative risk analysis which is quicker than the
quantitative risk analysis. Quantitative risk analysis is optional but merited in some cases. When
should you perform quantitative risk analysis? When you need to quantify the risks and understand the
risks at a deeper level. Think of a physical health exam. The doctor may ask you questions (qualitative
analysis), but he or she may also choose to do blood work (qualitative analysis) to get a deeper
understanding of what’s going on.

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 When we quantify a risk, we might say something like: There is a 10% probability of a design
defect causing $12,000 of rework. This numeric analysis is different than just saying the risk is medium
or the risk has a risk score of 10. See the difference?

Table 8. Qualitative vs. Quantitative Risk Assessment

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4.0 References

 CRC Press. 2011. El – Reedy, M. Construction Management and Design of Industrial Concrete
and Steel Structures.
 Dashore, A. (2016, June 29). Risk Management in Construction Projects. Retrieved from
https://theconstructor.org/construction/risk-management-construction-projects
 Martin Schieg (2006) Risk management in construction project management, Journal of Business
Economics and Management, pg.77
 PMP Guide Book. 2000. Tricker, R. 1997. ISO 9000 for Small Business: A Guide to Cost-
Effective Compliance. Butterworth-Heinemann.
 The Project Risk Coach (2019). How to Actually Perform a Qualitative Risk Analysis. Retrieved
from https://projectriskcoach.com/perform-qualitative-risk-analysis/

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