CM 659

CONSTRUCTI
ON RISK
MANAGEMEN
T
 Introduction

Cost Success

Project
Constraints
Quality Time
Introduction

Cost
overrun

Risks
Poor
Quality
Project
Constraints Delays
What is a Risk?

Unknown

Unexpected
endeavor
Risk
action
Undesirable

Unpredictable
 Risks in Construction
Economic Factors
Client

Environmental Factors
Contractor Supplier
Social Factors
Architect Quantity
Survey

Engineer Project
Manager

Inspector`

Political Factors
 Types of Risks in Construction

Physical
Acts Financial
of &
God Economic

Risks

Political
Const.
&
Related
Environ.
Design
 Types of Risks in Construction

Physical
Acts Financial
of & Acts of God
God Economic
 Flood
 Earthquake

Risks  Landslide
 Fire
 Wind damage
Political
Const.
&
Related
Environ.
Design
 Types of Risks in Construction

Physical
Acts Financial
of & Physical
God Economic
 Damage to structure
 Damage to
equipment
Risks  Labor injuries
 Fire
Political
Const.
 Theft
&
Related
Environ.
Design
 Types of Risks in Construction

Physical
Acts Financial
of & Financial &
Economic
God Economic
 Inflation
 Availability of funds
Risks
 Exchange rate
fluctuations

Political
 Financial default
Const.
&
Related
Environ.
Design
 Types of Risks in Construction

Physical
Acts Financial
of & Political &
Economic
God Environmental
 Changes in laws
and regulations
Risks  Requirement for
permits
 Law & order
Political
Const.
&  Pollution and safety
Related
Environ. rules
Design
 Types of Risks in Construction

Physical
Acts Financial
of & Design
God Economic
 Incomplete design
scope
 Defective design
Risks
 Errors & omissions
 Inadequate
Political specifications
Const.
&
Related
Environ.
Design
 Types of Risks in Construction

Physical
Acts Financial
of & Construction
Economic
God Related
 Labor disputes
 Labor productivity
Risks  Different site
conditions
 Design changes
Political
Const.
&
Related  Equipment failure
Environ.
Design
 Risk Management
A systematic approach to control the level of risk to mitigate its effects.

Risk
Risk Identification
Identification
Risk
RiskMonitoring
Monitoring

Controlled
Risk Risk
RiskEstimation
Estimation Risk
Analysis Environment

Risk
Risk Response
Response
Risk
RiskEvaluation
Evaluation

Risk Management Life Cycle

 Risk Analysis
Estimating the potential impacts of risk to decide what risks to retain and what risks
to transfer to other parties

Risk Analysis
Techniques

Quantitative Qualitative

Probability analysis Ranking options

Sensitivity analysis Comparing options

Simulation techniques Descriptive analysis

 Risk Response

Risk Response Methods

Elimination Transfer Retention Reduction

 Risk Response

Risk Response Methods

Elimination Transfer Retention Reduction

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
 Risk Response

Risk Response Methods

Elimination Transfer Retention Reduction

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.
 Risk Response

Risk Response Methods

Elimination Transfer Retention Reduction

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.
 Risk Response

Risk Response Methods

Elimination Transfer Retention Reduction

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 .