What is Risk?

RISK IS ANY UNWANTED RISK IS THE MAIN CAUSE

EVENT OR SITUATION THAT OF UNCERTAINTY IN
CAN LEAD TO THE FAILURE OF
YOUR PROJECT. ANY ORGANIZATION.
 WHAT IS A RISK?
◦ Risk (‘risqué‘) is defined as an exposure to the possibility of loss,
injury, or other adverse or unwelcome circumstance.
◦ Risk is also defined as an uncertain event or condition that, if it
occurs, has a positive or negative effect on at least one project
objective.
◦ We all take risks everyday quite happily. We do things knowingly
that there is a risk involved. For example, we know that there is a
risk involved in driving a car, or riding a bike. We accept the level
of risk because in our minds, although the potential
consequences can be death or serious injury, we think that if we
are careful, the chances of something dreadful happening is very
low.
◦ When we evaluate a risk, therefore, we take into account two
factors - the probability of something happening that we don't
want, and the consequences if it does.
 Nature of Risk
Pure and speculative Fundamental and
Personal risks
risk particular risk

Risk arising from

Property risks Liability risks failure on part of
others

Risks due to
Fidelity risks ownership and use
of transport vehicle
 CATEGORIES OF RISK:
◦ Identifying, evaluating and understanding risks is a very important aspect in
construction management. A construction project may suffer dreadful
consequences if risks are not appropriately managed. The most widely
understood risks synonymous to project management is occupational health
and safety risks. Most people generally associate the word 'risk' with injury,
health risks and death, but there are many other types of risk faced in a
construction project.
Risk generally has two categories:
 Risk of harm
 Risk of detriment
 RISK OF HARM:
◦ The risk of "harm" is the type of risk that we mostly think about. The word
'harm' is employed in relation to something living, usually a person or the
natural environment. In construction management, the risk of harm would
include injury to a foreman, electrician, plumber or laborer as a result of:
• Falls from high heights or scaffolding • Fires and explosions
• Slips and falls • Overexertion
• Electrocutions • Machinery accidents
• Falling debris, materials or objects • Getting hit by a vehicle
• Getting caught in-between objects or • Trench collapses
materials • Fires and explosions
 RISK OF DETRIMENT
◦ The risk of "detriment" does not involve injury to something living. It
generally means some form of economic loss, which might indeed include a
valuation of harm to living things but which also includes damage of a much
wider kind. In a In construction management, the risk of harm could involve:
• Damage or theft to equipment and • Poorly written contracts
tools
• Managing change orders
• Unexpected increases in material
costs • Availability of building materials
• Availability of building materials • Natural disasters
• Poor project management • Incomplete drawings and poorly
• Issues with subcontractors and defined scope
suppliers
• Unknown site conditions
• Labor shortages
We can look at risk in the following manner
 Personal Risk

PREMATURE DEPENDENT SICKNESS OR UNEMPLOYMENT

DEATH OLD AGE DISABILITY
 Property Risks

LOSS OR DAMAGED LOSS OF USE OF ADDITIONAL EXPENSES

PROPERTIES PROPERTIES OCCASIONED BY THE LOSS
OF PROPERTY
Liability Risks

◦The arise out of human mistakes often

termed as civil wrongs committed by a
person resulting in injury and/or death to
another person, and/or loss of damaged
property
Risk arising from failure on
part of others
◦Risk arising due to failure on part of
another person to meet a specified
obligation.
Fidelity Risks

◦Risks arising due to dishonesty of

employees and others in course of
performance of their duties causing loss of
money and stocks to the owner.
Construction project risk management
◦ No construction project is risk free but can be risk proof.
◦ Risks in a construction project has an effect to the ff:
◦ Time
◦ Cost
◦ Quality
◦ Risks can be managed, minimized, shared, transferred, or accepted but can
never be ignored.

◦ What happens if it is ignored?

◦ Increased costs
◦ Loss or reduction in profit
◦ Damage to brand / reputation; and worse
◦ Disposal of the business or insolvency
What is Risk Management?
◦ Risk management is an action plan that consists of
various steps which are done to ensure the removal of
risk. If you are dealing with uncontrollable risk then
you may set such action plan that can minimize the
effect of these risks as you cannot fully get rid of such
risks.
◦ Risk management is basically an approach in
which we identify, analyze and mitigate the risks in
an organization.
Concept of Risk management
◦ In the Construction Project Management context, it is a
comprehensive and systematic way of identifying, analysing and
responding to risks to achieve the project objectives.

◦ In order to manage risks effectively and efficiently, the parties

involved in a project must understand the risk responsibilities, event
conditions, preferences, and management capabilities.
◦ When risks come to fruition, they can have a
serious impact on costs, schedules and
performance of a project which will lead to
delays and disputes down the road. The good
news is most of these risks can be managed and
mitigated with proper planning and good project
management.

◦ Risk Management procedure:

◦ Identifying the Risk
◦ Managing the Risk
◦ Avoiding the Risk
◦ Transferring the Risk
◦ Risk Mitigation
◦ Accepting the Risk
◦ Monitoring and Controlling Risk
 1.) IDENTIFYING THE RISK:
◦ Should be done as early as possible during the preconstruction
phase of the project. Remember, if you fail to identify and manage
a potential risk you are basically accepting it to present itself during
your project.
◦ Hold brainstorming sessions with the project team and
stakeholders to identify risks.
◦ Identify as many possible scenarios that could negatively impact the
project.
◦ Review past projects with similar size, scope and location you’ve
completed to better understand the risks your current project is
facing.
◦ A good way to prevent risks from sneaking up on you as the
project progresses is to hold regular meetings with your project
team and stakeholders.
 2.) MANAGING THE RISK:
◦ Once you’ve identified the potential risks to your project, sit down and
assess each risk based on the probability of becoming reality and the
impact they will have on the project if they occur. Rank the impact and
probability of each risk as high, medium or low.

◦ High impact, high probability risks should be handled first, while risks with
al low probability and low impact can be tackled last. Factor in the amount
of time, money and work each risk will require to effectively manage.

◦ Now that you’ve ranked each risk, carefully review each one and determine
if you can avoid, eliminate, reduce, transfer or accept each risk.
2.1.) AVOIDING THE RISK:

◦ This may mean turning down a project or negotiating the contract to

remove the risks. There’s no shame in walking away from a project if
the risks outweigh the potential rewards.

◦ In some cases, risk avoidance is possible by making a change to the

project management plan.

◦ Some examples includes extending or shortening the schedule,

changing the project strategy, or reducing scope.
2.2.) TRANSFERRING
THE RISK:
◦ Risk transfer involves passing the risk to a another party. This
doesn't change or eliminate the risk, it simply gives another party
the responsibility to manage the risk either by insurance or by
contract.
◦ Contractors usually use three methods to transfer risk in
construction projects:
◦ Through Insurance
◦ Through Subcontracting
◦ Through Modifying the Contract terms and conditions to client or
other parties
3.) RISK
MITIGATION
◦ means to reduce the probability and/or impact of a risk event.

◦ Eliminating, reducing and accepting risks takes careful planning.

◦ Break down each risk into actionable items.

◦ Don’t overcommit your resources to handling multiple risks. You may

need to bring in additional resources, such as hiring more workers or
renting additional equipment, to manage all your risks effectively.

◦ Examples of risk mitigation include safety training, simplifying

processes, choosing a stable supplier, and redundant activities.
3.1.) ACCEPTING
THE RISK
◦ Risk acceptance is when the project team decides not to change the project
management plan to deal with the risk or is unable to identify any other risk
response strategies for a risk event.

◦ This strategy can be passive where the project team decides to just deal with the risk
if it occurs.

◦ Accepting risk mostly happen if the project team has a contingency reserve allocated
and plan in place in case the risk occurs.

◦ Agreeing to accept a risk is a decision that shouldn’t be taken lightly. It might be fine
to accept a few low probability, low impact risks. Agreeing to accept a high
probability, high impact risk without any type of management or mitigation could be
detrimental to the project.
4.) MONITORING
AND CONTROLLING
RISK

◦ Monitoring and controlling your project risks

involves implementing your risk response strategies,
tracking identified risks, monitoring triggering
events, and identifying new risks. This should be
done throughout your project.
RISK ANALYSIS:
◦ Once you have identified the risks that could
affect your project, you need to determine which
ones you will spend time and money on.

◦ Risk analysis is the process of prioritizing risks

based on the probability of the risk occurring
and the impact it would have on the project.

◦ There are two primary methods of risk analysis

you can use on your project.
1.) Qualitative Risk Analysis
2.)Quantitative Risk Analysis
METHOD OF RISK
ANALYSIS
◦ Qualitative Risk Analysis - uses a relative or descriptive scale to
measure the probability of occurrence. It uses a scale of "Low,
Medium, High" to indicate the likelihood of a risk event
occurring.

◦ Quantitative Risk Analysis - uses a numerical scale to determine

the probability of each risk event occurring. For example, Risk #1
has an 80% chance of occurring, Risk #2 has a 27% chance of
occurring, and so on.