by ABILASH G.

V S7 CE ROLL NO#1
1

INDEX
- INTRODUCTION - WHAT IS RISK

- RISK MANAGEMENT CYCLE A) Risk Identification B) Risk Analysis and Evaluation C) Risk Response D) Risk Monitoring
- CONCLUSIONS - REFERENCES
2

INTRODUCTION
Risk Management is a means of identifying, analyzing,

evaluating, responding and monitoring risks within an industry more coherently, accurately and timely...
Its handled by a team comprising of analysts,

engineers, researchers spearheaded by the project manager.

To approach complex problems in construction

management, decision makers should follow a systematic and professional approach in 'RISK MANAGEMENT'.

WHAT IS RISK?
We can define risk as :

The exposure to the chance of occurrences of events adversely or favorably affecting project objectives as a consequence of uncertainty.
Risk is characterized by the following components:
Risk event Uncertainty of the event Potential loss /gain

RISK MANAGEMENT CYCLE

The CYCLE consists of four processes: Risk Identification Risk Analysis and Evaluation Risk Response Risk Monitoring

Risk Management Cycle

5

Risk Identification Phase

Risk Identification Process Framework

6

The proposed classification scheme is composed of six risk categories:

RISK CLASSIFICATION

HRBS
8

The HRBS shown in figure provides the basis for classifying risks within a project. These are broadly classified into 2:
1. 2.

External risks Internal risks

1.EXTERNAL RISKS: External risks are relatively uncontrollable; thus, there is a need for the continued scanning and forecasting of risks and a company strategy for managing their effects. 2.INTERNAL RISKS: Internal factors are more controllable and vary between projects.

a) LOCAL: -are local to individual work packages within a project. b) GLOBAL: -global to an individual project and cannot be associated with any particular work package.
FRAMEWORK OF COMMON LANGUAGE DESCRIBING CONSTRUCTION PROJECT RISKS

10

RISK ANALYSIS AND EVALUATION

Its defined as: "A process which incorporates uncertainty in a quantitative manner, using probability theory, to evaluate the potential impact of risk."

Risk analysis techniques are broadly grouped into 2 categories:

1.Qualitative 2.Quantitative

11

1.QUALITATIVE:
To identify the risks and to assess in relative terms of the outcome and

probability of a risk (e.g., a high risk compared with a medium or low risk).
It depends on the experience of the analyst allied to engineering judgment and

thus prone to inconsistencies.

Those risks with a high or intermediate rank are then forwarded to a

quantitative assessment.

12

2.QUANTITATIVE:

Applied to obtain numerical probabilities, or frequencies, of the consequences and likelihoods of those risks occurring. Methods used...mathematically and/or computationally based.

Qualitative and quantitative techniques are generally accepted to be best used as a

combination.

Evaluation of Potential Impact:

Overall impact of these risks are evaluated in a single global picture. Many analysts use the expected value theory for evaluation. Provides sufficient input for decision making .

13

RISK RESPONSE

The fourth stage of the life cycle is risk response. The main objective is twofold:
1. 2.

To remove as much as possible the potential impact. Increase control of risk.

OBJECTIVES OF RESPONSE MANAGEMENT STRATEGIES

14

Within the framework of risk management, there are five techniques:

1. Risk avoidance. 2. Loss reduction and risk prevention. 3. Risk retention. 4. Risk transfer (no insurance or contractual). 5. Insurance.

1.RISK AVOIDANCE:
Avoidance is a useful, fairly common strategy to manage risks. For example:a) If a contractor is concerned about potential liability losses associated with 'asbestos' material or hazardous waste, he could avoid the risk by never acquiring any project that involves operations with such materials. b) Similarly, a contractor may avoid the political and financial risks associated with a project in a particular unstable country by not bidding on projects in this country.

15

2. LOSS REDUCTION AND RISK PREVENTION:

These programs are directed towards decreasing the contractor's exposure to

potential risk by two ways:(1) Reducing the probability of a risk. (2) Reducing the financial severity of risk if it does occur.

For example:a) The installation of 'antitheft device' on construction equipment may reduce the chances of theft in a building. b) 'Sprinkler system' can reduce the financial severity caused by fire.

16

3. RISK RETENTION:
Risk retention is the internal assumption, partially or completely, of the financial

impact of risk by the firm. Two different types of retention:

(a) Planned (b) Unplanned (a) PLANNED:

Planned risk retention is a conscious and deliberate assumption of recognized or

identified risks by the contractor.

(b) UNPLANNED:

Unplanned risk retention exists when a contractor does not recognize

or identify the existence of a risk and unwittingly or unconsciously assumes the loss that could occur.
17

4. RISK TRANSFER (no insurance or contractual): Risk transfers are possible, through negotiations, whenever the contractor enters into a contractual arrangement with various parties such as an owner, subcontractors, or material and equipment suppliers.
5. INSURANCE: -Commercial insurance is probably the most important and frequently used method of handling risk that is employed by contractors.

METHODS USED WHEN RESPONDING TO RISK

18

RISK MONITORING
It is a deterministic method of comparing the risk levels to an accepted

figure.
Need to monitor the risk is to make sure that it agrees with the companys

acceptance criteria throughout its existence.

If the levels are too high then risk reduction measures require implementation. The risks should be at their minimal levels i.e., as low as reasonably

practicable.

19

CONCLUSIONS
Risk Management is an important concept for every construction enterprise.

Thereby its a useful tool to help implement projects smoothly and achieve the project objectives.
The requirements for integrated risk management are growing and with an

increasingly complex and rapid changing business environment, more comprehensive and systematic study is needed in the near future...

20

REFERENCES
Systematic risk management approach for construction projects, Jamal F. Al-Bahar and Keith C. Crandall, member, asce, journal of construction engineering and management, vol. 116, no. 3, september, 1990.
Knowledge-based approach to construction project risk management, J. H. M. Tah and V. Carr, Journal of computing in civil engineering / July 2001.

An integrated risk management for construction projects ,Zhen-Yu Zhao, Lin-Ling Duan, Picmet 2008 proceedings, 27-31 July, cape town, south africa 2008 picmet.
Survey of risk management in major U.K. Companies , Scott Baker, David Ponniah, and Simon Smith, Journal of professional issues in engineering education and pratice / july 1999.

Construction project risk assessment using existing database and project-specific information , Hyun-ho Choi1 and Sankaran Mahadevan, Journal of construction engineering and management asce / november 2008.

21

22