Risk Management in Construction

Syed M. Ahmed, Ph.D.

Department of Construction Management
 Introduction

Cost Success

Project
Constraints
Quality Time

Syed M. Ahmed, Ph.D.

Department of Construction Management
Introduction

Cost
overrun

Risks
Poor
Quality
Project
Constraints Delays

Syed M. Ahmed, Ph.D.

Department of Construction Management
What is a Risk?

Unknown

Unexpected
endeavor
Risk
action
Undesirable

Unpredictable

Syed M. Ahmed, Ph.D.

Department of Construction Management
 Risks in Construction
Economic Factors
Client

Environmental Factors
Supplier
Social Factors

Contractor

Architect Quantity
Survey

Engineer Project
Manager

Inspector`

Political Factors
Syed M. Ahmed, Ph.D.
Department of Construction Management
 Types of Risks in Construction

Physical
Acts Financial
of &
God Economic

Risks

Political
Const.
&
Related
Environ.
Design

Syed M. Ahmed, Ph.D.

Department of Construction Management
 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

Syed M. Ahmed, Ph.D.

Department of Construction Management
 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

Syed M. Ahmed, Ph.D.

Department of Construction Management
 Types of Risks in Construction

Physical
Acts Financial
of & Financial &
Economic
God Economic
 Inflation
 Availability of funds
Risks
 Exchange rate
fluctuations
Political
Const.
 Financial default
&
Related
Environ.
Design

Syed M. Ahmed, Ph.D.

Department of Construction Management
 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.
&
Related  Pollution and safety
Environ.
rules
Design

Syed M. Ahmed, Ph.D.

Department of Construction Management
 Types of Risks in Construction

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

Syed M. Ahmed, Ph.D.

Department of Construction Management
 Types of Risks in Construction

Physical
Acts Financial
of & Construction
Economic
God Related
 Labor disputes
 Labor productivity
Risks  Different site
conditions

Political
 Design changes
Const.
&
Environ.
Related  Equipment failure
Design

Syed M. Ahmed, Ph.D.

Department of Construction Management
 Risk Management
A systematic approach to control the level of risk to
mitigate its effects.

Risk
RiskIdentification
Identification
Risk
RiskMonitoring
Monitoring
Controlled
Risk Risk
RiskEstimation
Estimation Risk
Analysis Environment

Risk
RiskResponse
Response
Risk
RiskEvaluation
Evaluation

Risk Management Life Cycle

Syed M. Ahmed, Ph.D.

Department of Construction Management
 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

Syed M. Ahmed, Ph.D.

Department of Construction Management
 Risk Response

Risk Response Methods

Elimination Transfer Retention Reduction

Syed M. Ahmed, Ph.D.

Department of Construction Management
 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

Syed M. Ahmed, Ph.D.

Department of Construction Management
 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.

Syed M. Ahmed, Ph.D.

Department of Construction Management
 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.

Syed M. Ahmed, Ph.D.

Department of Construction Management
 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 .

Syed M. Ahmed, Ph.D.

Department of Construction Management
Thank You

Syed M. Ahmed, Ph.D.

Department of Construction Management