Looking At The Risks Of Doing Construction Work Construction Essay

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In order for us to fully understand what is involved in the process of carrying out risk management on a construction project, and how the performance and outcome of risk management can be improved, it is of prime importance for us to gain sufficient understanding about the basic concept of risk. To begin with, the word risk is quite modern , it entered English language in the mid of 17 th century coming from French word "risqué" (Flanagan.R and Norman.G, 1999 )there is one definition of construction risk, which is;

"a concept that denotes a potential negative impact to an asset or some characteristic of value that may arise from some present process or future event. It can be defined as the combination of the probability of an event and its consequences"

(IRM, 2002)

When undertaking a project of any type there is the potential for events and consequences that form risk, whether these are opportunities for benefit, known as the 'upside' to a project, or threats to success 'downside'(IRM,2002)

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Other sources point to a slightly different definition of project risk. For example, in broader terms, risk can be defined as "the implications of the existence of significant uncertainty about the level of project performance achievable" (Chapman C. and Ward S., 1997).

Another definition of risk, one which further suggests the concept of cause and consequence is that "risk characterizes situations where the actual outcome for a particular event or activity is likely to deviate from the estimate or forecast value" (Raftery, 1994).

Finally risk has also been described more specifically as the "exposure to the possibility of economic and financial loss or gain, physical damage or injury, or delay as a consequence of the uncertainty associated with pursuing a particular course of action" (Chapman, 1991).

In M. An's notes on risk (2010:26) it was noted in particular that there are several popular explanations of "risk". Firstly that it represents the consequence of an "unwelcome outcome or failure". Moreover, it can also refer to the "chances of achieving a given outcome" or "taking a chance in an activity". Therefore, he states that risk, in its literal sense can signify "danger".

From the abovementioned description of risk we note that the author cites that risk consists of essential characteristics, mainly the following three:

1. Risk is an undesirable event

2. Risk equates to expected loss

3. Risk, as a probability function is the probability of serious adverse outcomes occurring

Furthermore, it can be clearly distinguished from these risk definitions that it depends on the specific application and situational contexts in which the development resides which affects the performance of the project. Frequently, risk is considered as an indicator of threat. Therefore it is an established fact that when managing risk the two major objectives are:

1. To avoid the drawback risks

2. To exploit opportunities (where they exist)

3.2 Risk, hazard and uncertainty

According to M. An, a hazard is "an undesirable outcome in the process of meeting an objective, performing a task or engaging in an activity". Similarly Ayyub B M defined a hazard as "an act or phenomenon posing potential harm to some person(s) or thing(s) that is, a source of harm and its potential consequences."

Research into risk by CIRIA in the mid 90's delimited a hazard as an action which "has the potential to do harm or cause a loss. Degree of risk from hazard depends on the circumstances". Furthermore they defined uncertainty as a "vagueness or ambiguity inside or outside the project that leads to insecurity about values or risks or project objectives".

Uncertainty arises when a consensus agreement amongst the set of experts consulted for the project cannot be achieved, i.e. there is an unknown, undefined probability distribution on the set of outcomes. Risk is "one in which a probability distribution for outcomes is made on a meaningful basis, agreed upon by the set of relevant experts."( Hertz and Thomas 1983)

But simply, "risk is measurable uncertainty; uncertainty is immeasurable risk." (RIBA, 2002)

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Uncertainty signifies a lack of information. Uncertainty is central to risk management, "under uncertainty meaningful assignments of probabilities are not possible".

3.2 Risk classification

In this way, M. An defined the following classifications of risk:

1. Known risks: these include small variations in productivity and variations in material costs

2. Known-unknowns: the risk events whose occurrence is predictable or foreseeable

3. Unknown-unknowns: those whose probabilities of occurrence and effect are not foreseeable by even the most experienced staff

Risk can be subdivided into three distinct phases:

Phase i: Latency - at this stage, risk does not cause damage, but it will develop and as such outbreak gradually

Phase ii: Explosion - the risk is concurrent and the outcome is still uncertain. If risk is not dealt with properly, a risk can explode with bad consequences or lose the opportunity altogether. This stage is usually very short in duration

Phase iii: When the risk has occurred, the outcome cannot be changed. So the only mitigation step available is risk isolation and damage reduction.

3.2 Definition of Risk Management

Risk management is a natural human activity which combines the recognition of a risk itself, risk assessment, the development of strategies to manage it, and the possible mitigation of risk using managerial resources. Risk management is a very important part of the entire project life. It is a new subject nowadays which has developed from the combination of traditional management and modern scientific theory. Several definitions of risk management found in this study are presented below:

The complete process involved in identifying risks, and assessing them for the likelihood and potential impact. This includes the development of suitable strategies to mitigate the impacts and the activities involved in budgeting for risk, controlling and reporting risk status, and the management of risks until consequences are fully resolved (Introducing riskman, 1994)

This process involves the formulation of management responses to the main risks. It may start during the qualitative analysis phase, as the need to respond to some risks may be urgent and the solution fairly obvious. Interaction between the risk analysis and management is common. Risk management will not remove all risk from projects; its principal aim is to ensure that risks are managed most effectively. The client and his project manager must recognise that certain risks will remain to be carried by the client. The residual risk must be allowed for in the client's estimate of time and cost

(Thompson and Perry, 1992).

The essential purpose of risk management is to improve project performance via systematic identification, appraisal and management of project related risk. A focus of reducing threats or adverse outcomes, what we might call 'downside' risk misses a key part of the overall picture

(Chapman and Ward, 1997).

Risk management is the process by which an organisation reaches decisions on the steps it needs to take to adequately control the risks which it generates or to which it is exposed, and by which it ensures those steps are taken

(HSE, 2001)

According to M. An (2010) "Risk management is the measurement of a hazard's occurrence and associated consequences which could be a condition, an event or a result".

These definitions extend the description of the role of risk management in the construction industry which is primarily to identify and prevent unpleasant possible outcomes and exploit opportunities of actions which can affect the primary objectives of the project: Time, Cost and Quality.

3.4 A Framework of risk management

Construction risk management is a process to measure and evaluate the risk, then design, choose and manage the risk plan. So the project risk management should be a systematic and consummate process. Figure 3.1 illustrates the relationship of the different elements of the risk management expressed in scientific terminology. Risk identification, risk assessment, risk reduction and emergency preparedness are the main content of the risk management.

Measure

Review

Policy

Organize

Implement

Risk Identification

Risk Assessment

Risk Reduction

Emergency Preparedness

Risk Management System

Figure 3.1 A Framework of Construction Project Risk Management (source: An, 2010)

It can be seen in Figure 3.1 there are five main elements in the framework of risk management system: policy, organise, implement, measure and review.

Policy

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Policy formulation, which is to decide whether it is used for the company or institution related to construction.

Organise

Organise resources and the communication of information to ensure the risk policy can be implemented.

Implement

Implement the agreed policies and actions to provide a direct link with four other phases -hazard identification, risk assessment, risk reduction and emergency preparedness.

Measure

Measure that the required standards are being met by checking how far the different elements of risk policy have actually been implemented in the context of the company activities.

Review

Review performance and make appropriate enhancement for further improvement.

The other four essential elements of the concept are:

Risk Identification

Risk Assessment

Risk Reduction (Risk Response)

Emergency Preparedness (Site Safety)

Construction project risk management is a process of defining the need for risk identifying, estimating and evaluation risks; and conducting review in order to managing risk properly. The process provides a systematic approach to the identification and control of high-risk areas. (M. An, 2010, Page 13)

As used to assess risks associated with a construction project, risk process simply works to respond five questions which are shown in table 3.1:

Table 3.1

No

Question

Task and Scientific Terms

1

What can go wrong?

Identify hazards systematically

(Hazard Identification)

2

What are the consequences?

Assess the risk levels of hazards

(Risk Assessment)

3

What often they occur?

Reduce risk levels of selected hazards

(Risk Reduction)

4

What measures must be taken to reduce risks?

Be prepared to respond to emergencies

(Emergency Preparedness)

5

How can this be achieved?

Manage and control risk levels of hazards

(Risk Management System)

Table 3.1 summarises the five questions and the appropriate tasks that require to be done to answer them, a long with the relevant scientific terminology (An, 2010).

3.4 Risk Sources

Projects are widely associated with a high degree of risk due to the nature of the activities and processes. Project contracts itself are a means of deflecting risk, usually away from the client to the contractor (Burke, R 2003). Risk can be managed, minimised, shared, transferred or accepted; it cannot be ignored (Latham 1992). Edwards and Bowen (1998) categorized risks as natural and human. Natural risks are those from sources beyond human control such as weather, geological, biological and extraterrestrial systems. Risks from humans include political, social, economic, cultural, financial, legal, health, technical, managerial systems. The Project management institute (2005) classifies risks into internal and external. Internal risks relate to labour, materials, site conditions, cash flow, etc., while external risks include governmental regulations, vandalism, sabotage, environmental factors, market forces, inflation, etc.

CIRIA (1996) have identified the following risks in a construction project as shown in Table 3.2

Table 3.6.2: Sources of risks to business from construction projects (CIRIA 1996)

Source of risks to business from construction projects

Heading

Change and Uncertainty in or due to

Political

Government policy, public opinion, change in ideology, dogma, legislation, disorder (war, terrorism, riots)

Environmental

Contaminated land or pollution liability, nuisance (e.g. noise), permissions, public opinion, internal/corporate policy, environmental law or regulations or practice or "impact requirements

Planning

Permission requirements, policy and practice, land use, socio-economic impacts, public opinion

Market

Demand (forecasts), competition, customer satisfaction, fashion

Economic

Treasury policy, taxation, cost inflation, interest rates, exchange rates

Financial

Bankruptcy, margins, insurance, risk share

Natural

Unforeseen ground conditions, weather, earthquake, fire or explosion, archaeological discovery

Project

Definition, procurement strategy, performance requirements, standards, leadership, organization (maturity, commitment, competence, and experience), planning and quality control, program, labour and resources, communication and culture

Technical

Design adequacy, operational efficiency, reliability

Human

Error, incompetence, ignorance, tiredness, communication ability, culture, work in the dark or at night

Criminal

Lack of security, vandalism, theft, fraud, corruption

Safety

Regulation (CDM Health and safety at work), Hazardous substances, collision, collapse, flooding, fire and explosion

3.5 Risk assessment

Risk Assessment is a process to determine the level of risk, in terms of probability of occurrence and severity of consequences. Both quantitative and qualitative analysis methods can be applied. The goal of risk assessment is to provide relevant information for placing each hazard identified at the last phase into one of the three risk regions ("intolerable", "tolerable" and "negligible" regions) and to decide whether the level of each risk is acceptable or not by using cost-effective analysis. The definition of three risk regions is as following (An, 2010):

Intolerable risk region: The presence of the hazard in the situation cannot be justified and this is the intolerable region.

Tolerable risk region: The hazard in the situation may give rise to accidents, and if it is possible to reduce their risk level cost-effectively then an effort should be made to do so. However, if the effort required far outweighs the benefits, the risk level should not be reduced and the hazard remains in the tolerable risk region.

Negligible risk region: Certain hazards will exist in the situation but are most unlikely to lead top events, for example, project failure and no effort should be expended on reducing their risk levels. These hazards are in the negligible risk region.

Once the hazards are identified, the importance of each hazard can be determined by classifying the hazards as "intolerable", "tolerable" and "negligible" (An M 2006). This is illustrated in Figure 3.8.

Figure 3.8.2.1 Risk Regions (Source: An M., 2006)

More often the link between risk (R), probability of occurrence (P) and Consequences (C) would be written in the following format:

Risk= Probability of occurrence Ã- Consequence

Fig3.1: risk formula source (M. An, 2010, Page 27)

The consequence of any given hazard will depend on the nature of the project concerned and the activities involved (An M., 2006). In practice, it is required to assign weight factors for each of the consequences as shown in Table 3.8.2.1

Table 3.8. Weight factors (Source: An M., 2010)

Description

Weighting Factor

Catastrophic

Z

Hazardous effect

Y

Major effect

X

Minor effect

W

An (2006) scaled the probability of occurrence and assigned numbered scale to show how much high or low is the risk or hazard. Table 3 shows probability scaling as cited in An (2006)

Table 3Probability of occurrence scale and range (Source: An M., 2006)

Description

Scale

Range

Frequent

5

10 -0 to 10 -3

Reasonably probable

4

10 -3to 10 -5

Remote

3

10 -5 to 10 -7

Extremely remote

2

10 -7 to 10 -9

Extremely improbable

1

Below 10 -9

3.5 Techniques for Risk Management

The techniques which can be utilised for risk identification and analysis can be separated into three groups:

1. Qualitative - identifying, describing, assessing and understanding risks

2. Quantitative - modelling risk in order to quantify its overall consequence

3. Control - retorting an identified risk in order to minimise risk exposure

Techniques for Risk Management

Qualitative

Control

Quantitative

Risk Avoidance

Decision Trees

Assumptions Analysis

Risk Transfer

Risk Reduction

Influence Diagrams

Check Lists

Prompt Lists

Monte Carlo Simulation

Risk Absorption

Brainstorming

Delphi Technique

Sensitivity analysis

(PERT) Technique

Probability-Impact

Interviews

Controlled Interval and Memory (CIM)

Risk Register

3.5.1 Qualitative Techniques

3.5.1.1 Assumptions Analysis

Successive projects have shown that the process of project definition or initial scoping can help identify a number of key assumptions. These are often formally recorded in an Assumptions Register.

The list of assumptions can be used as a good means of flagging up potential risks to the risk manager, by assessing both the likelihood of the assumption proving false (i.e. probability) and the potential effect of a false assumption on the project (i.e. impact).

3.5.1.2 Check Lists

Check lists are an essential component for identifying risk issues as they are a failsafe means of testing. These proforma documents are usually generated from previous experience on similar projects. Each form is made up of a series of specific criteria to be considered such as whether the project contains unknown factors. The answers are used as a basis for further evaluation of risks. Some check lists are specific to a particular part of the project. These may be used to develop a project-specific list or one reflecting the needs of a particular organisation, e.g. if the company specialises in a particular type of construction or engineering services.

3.5.1.3 Prompt Lists

For a set list of criteria to assess in bullet format then prompt lists represent the perfect risk identification solution. Prompt lists cannot be exhaustive in length, and tend to be less project-specific than check lists in their content.

A checklist of hazard drivers which can be used as a prompt list is shown in Figure 1:

Financial Hazards

 Legal Hazards

ï‚Ž Political Hazards

Social Hazards

Environmental Hazards

ï‚‘ Communications Hazards

Geographical Hazards

Geotechnical Hazards

Construction Hazards

Technological Hazards

Fig 1: Checklist of construction hazard drivers (Source: An M 2010)

3.5.1.4 Brainstorming

Brainstorming is a used effectively both inside and outside of the construction industry as means of recording ideas in paper form. The technique involves gathering the interested and relevant stakeholders, namely the project team and encouraging the identification of risk issues in a non-critical way, with no blame culture attached to the risk identification process. The risk manager would lead the meeting and encourage all attendees to participate fully, irrespective of their job title. S/he should outline the briefing by defining the objectives, identification of risk issues which can be structured by a Work Breakdown Structure, for example, group these risk issues, re-working them if necessary, reviewing the issues at the end and assigning owners and follow-up actions to each task accordingly.

3.5.1.5 Delphi Technique

The Delphi technique infamously originated at the Rand Corporation who developed it as a means of predicting future consequences of their then-current policy decisions. The technique is figuratively applicable to risk identification by using the project meeting to identify risks, or estimate the impact and the probability of a specific risk. Opinions are given without a bearing on the individual. It also frees the meeting from taking place in a physical context should individuals be based in another location or reluctant to raise the issues in person.

The risk manager summarises the responses and elicits further considerations based on the results of the previous round. The process continues for a number of rounds until a stable opinion is reached by the consensus.

3.5.1.6 Probability-Impact (P-I) Tables

P-I tables can be applied to assess the relative importance and ranking of risks. For each risk, an assessment of both the probability of occurrence (P) and the potential impact (I) is calculated, selecting from a range of High/Medium/Low or similar. These assessments are then matched together to formulate a general measure of the severity of the risk using a predefined PI algorithm. The measurement has no definite result but provides an objective and consistent basis for ranking risk issues and in determining priority lists for the risk manager to provide the project manager to note when working on the project development. The probability and impact of the risk must be clearly defined before translating these requirements into the tables (Simon et al, 2001).

3.5.1.7 Interviews

Structured conversations with individual stakeholders associated with the project can be a hugely rewarding task in terms of risk identification.

Individuals from site and others within the firm who can provide expertise relevant to a particular risk issue are interviewed to assess risk factors, to point out potential mitigation and contingency measures, and to elicit key data as a precursor to any quantitative analysis.

3.5.1.8 Risk Register

One of the most effective means of recording information about identified construction risk is in the form of a risk register. These documents enable various data criteria to be stored for each individual risk issue, including its description, any causes, ownership, probability, impacts, mitigation and fallback plans. In its most basic form, the risk register can be designed as a single page per risk item, which is useful when monitoring risk and providing regular updates. In other scenarios it can be in a more extensive format which caters for a more comprehensive assessment, including such details as secondary risks, contingency plans and quantitative parameters (Simon et al, 2001).

3.5.2 Quantitative Risk Techniques

By employing these forms of risk management techniques the risk manager is creating a model view of the project overall. The design can then be remodelled to quantify the impacts on the project of specific risks identified via qualitative techniques. It also represents the effect of general uncertainty.

This model view of the design may be developed on the basis of project planning tools such as an activity on arrow network, spreadsheet, or a diagrammatic tool. Regardless of the modelling method which is implemented, the model will cite every component of the project operations (tasks, costs, resources etc.) which are relevant to the risk analysis. These components can then be defined as uncertain variables rather than elements with precisely defined values which in turn will signify their uncertain nature.

3.5.2.1 Decision Trees

Design trees are another graphical model type. They can be used to show the potential results of each project planning decision against the existing determined course of action. Each possible product is assigned a probability of occurrence allowing the most probable effect to be calculated. Furthermore it gives scope for another course of action to be evaluated so that the optimum outcome of the project can be achieved.

3.5.2.2 Influence Diagrams

Influence diagrams are particularly pertinent to risk management modelling as you can view the multitude of influences upon a project goal. For example it can be influenced by market price, market price itself by market share and so forth. The model brings out the key influences and allows the effect of uncertainty to be charted. In fact these forms of modelling can prove themselves to be very complex in design, leading to the need for effective graphical presentation of the output data.

3.5.2.3 Monte Carlo Simulation

Monte Carlo simulation is a widely applied technique in project management. The theory is that where single value estimates of core elements including duration, resource, cost and logic are replaced by a distribution this will reflect the perceived uncertainty in those estimates. In turn a random number is generated and a corresponding value is gathered from the distribution. Once samples have been taken from all variables in the model, a single value is calculated for each target (e.g. milestone or out-turn cost).

As this is part of an iterative process it can produce a set of simulations. The resulting figure are plotted and an S-Curve is formulated with varying critical paths which can be calculated using a criticality index applicable to the type of project. (Simon et al, 2001).

3.5.2.4 Sensitivity Analysis

Sensitivity analysis is applicable in risk management as it facilitates the examination of the sensitivity of a risk model to individual risks. This is calculated by varying a single parameter around the modelled value to show the perceived boundaries of uncertainty (e.g. change revenue to +/-10%, +/-20%, +/-3o% of the deterministic value). Indeed, in this way, the sensitivity of the outcome to that variable is identified

Sensitivity analysis can be used to calculate risk in both deterministic and probabilistic models, including decision trees, influence diagrams and Monte Carlo simulation models.

3.5.2.5 Project Evaluation and Review Technique (PERT)

PERT is similar to Critical Path Analysis whereby three values are estimated for activity duration criteria. These include optimistic then most likely and also pessimistic. These are used to calculate a weighted average value. Critically speaking the PERT technique has been somewhat superseded by the more robust Monte Carlo simulation method. Both are more efficient when supported by computer-based tools, and all experts indicate that PERT is no longer considered to be a very effective risk identification technique.

3.5.2.6 Controlled Interval and Memory (CIM)

Controlled Interval and Memory, or CIM, is a mathematical method used to combine the sum of the probabilities of individual risks. Moreover by means of an incremental build-up of risks, CIM can indicate the relative effects of different risks, and it allows the development of simple decision rules as the analysis progresses. This technique cannot compete with simulation techniques and is not widely used in the industry(Simon et al, 2001)..

3.5.3 Risk Control Techniques

As soon as risks have been identified, their individual relative importance is assessed and then their combined effect on project progress is calculated. During this process it is necessary to decide how to respond appropriately. There are chiefly four risk control techniques, each aiming to avoid uncertainty, transfer ownership, exposure or residual risk. These are as follows:

3.5.3.1 Risk Avoidance

To avoid risk it is necessary to introduce measures designed to avoid uncertainty which include the following:

1 Clarifying requirements and objectives

2 Improving channels of communication

3 Acquiring expertise

4 Obtaining information from external sources

5 Changing the direction or strategy for project implementation

6 Reducing the scope of the project

7 Adopting a familiar approach for implementation

8 Using proven methods, tools and techniques

3.5.3.2 Risk Transfer

To mitigate the effects of risk it may be necessary to pass ownership and consequently liability for a particular risk to a 3rd party individual or organisation. It should be recognised that it may not be possible to transfer all aspects of a risk. For example, financial liability may be transferred to a supplier via cost penalties, but the project will still be dependent on the on-time arrival of materials, labour and conditions. Methods for risk transfer include:

1 Financial instruments such as insurance, performance bonds, warranties or guarantees

2 Renegotiation of contract conditions to pass the risk back to the customer.

3 Subcontracting risks to suppliers

4 Entering into risk-sharing joint ventures or client-contractor teaming arrangements

5 Considering other contractual forms such as target-cost (Simon et al, 2001).

3.5.3.3 Risk Reduction

There are many strategies which can be implemented for reducing risk, and the main task involved with risk control is focused on this objective. Risk reduction involves:

1 Reducing the probability of occurrence by targeting trigger conditions

2 Decreasing the potential severity of impact by targeting impact drivers

3 Tackling the common causes of risk by identifying generic responses

4 Including targeted contingency or risk budgets, applied to high-risk areas and with identification of specific release conditions when the contingency amount may be used

3.5.3.4 Risk Absorption

By absorbing risks which cannot be avoided, transferred or cost-effectively reduced you are presented with a range of benefits such as:

1 Routine risk monitoring and reporting

2 Regular risk reviews and updates

3 Feedback of risk information into project planning and strategy

4 Efficient infrastructure support for the risk process

5 Continued commitment to proactive risk management

3.5.4 Recording and Reporting

When dealing with such copious amounts of very detailed data this needs to be recorded and reported in an appropriate fashion. This information can be gathered from a risk assessment tool. Effective data management is of vital importance if indeed the significance is to be determined, and using risk database can assist in this task. It facilitates the presentation of data in various formats as well as automating the calculation of risk measures (P-I tables, Top Ten lists, etc.). Using computationally calculated proprietary risk database tools to handle complex requirements; smaller or simpler databases may easily be built using database programs.

The advantage of using a risk database is that it can also be used to combine all the risks in a company's portfolio, allowing risk data to be analysed across a range of projects, and it also allows for identification of inter-project and programme risks.

As with any complex technique, risk techniques are worthless if the results cannot be communicated effectively to stakeholders. It allows for greater communication and if correctly used is very useful for managing risk. The following tools may be useful for presentation of qualitative and quantitative risk information.

3.5.4.1 Qualitative Presentation

This can be achieved by using a risk map which is essentially a grid categorising risks by source and area affected or by probability and impact, allowing the distribution of risk exposure to be assessed.

Instead it is also possibly to deploy risk registers which are effective in presenting details of all current risks in a standard format. Furthermore a top ten risk list is the most effective way of presenting the most significant risks requiring priority management attention, usually ranked by probability and impact (Simon et al, 2001).

3.5.4.2 Quantitative Presentation

Cumulative frequency curves (S-curves) - where plotting the probability of achieving particular values of variables such as duration, end date or cost presents data effectively

Criticality diagrams allow the risk manger to identify activities with the potential of appearing on the critical path in a simulation model, together with the chance of their being critical

Risk metrics - examples include the current risks, P-I score analysis, average severity, and relative measures of risk exposure and trend analysis

3.5.5 Risk Identification Matrix

Risk experts, Thompson and Perry have developed a matrix for identifying risks based on their likelihood of occurring and their associated impact

.

In Figure 3.5.5.1 we see this in action:

Likelihood

Consequences

Insignificant

Minor

Moderate

Major

Severe

Almost certain

M

H

H

E

E

Likely

M

M

H

H

E

Possible

L

M

M

H

E

Unlikely

L

M

M

M

H

Rare

L

L

M

M

H

E = Extreme; H = High; M = Medium; L = Low

This shows us that the more likely the occurrence of the risk and the greater the severity of consequences which could ensue.

3.7 Benefits of risk management.

Rickman (1994) identifies strategic, financial, marketing and tactical benefits such as:

1 Corporate decision making is improved through the high visibility of risk exposure and also risk opportunity, both for individual major projects, and across the whole of the company's project portfolio.

2 The company's image in the eyes of clients, partners, suppliers and competitors is enhanced through visible and highly professional approach to the crucial subject of risk.

3 Provides financial benefit to the organization through improved profit potential.

4 Provides visibility and strict management of risk contingency.

5 Improves the likelihood of winning additional business.

6 Creates an environment for the conscious acceptance of business risks on an informed basis.

7 Reduces the likelihood of overpricing by giving confidence that all risk elements have been addressed.

8 Ensures 'ownership' of both risks and their causes, so that they are effectively monitored, and pro actively managed.

9 Enables decision making to be more systematic and less subjective.

10 Assists in creating a 'no surprises' environment.

PRAM (1997) describes the benefits under two categories: the hard benefits which are tangible and the soft benefits which are intangible as illustrated in Table 3.7.2.1 below:

3.6 Safety Procedures devolved from Risk Management

In previous chapters we have dealt with the concepts and methodologies adopted by the construction industry when dealing with risk management. We looked at these issues in a more generalised approach. Therefore in this section we will look more closely at risk management in relation to health and safety site procedures which is the most crucial element of this study.

A good starting point is to spend time identifying and evaluating the potential hazards and risks involved with safety management for the project. According to Chao and Henshaw, "Job Safety Analysis (JSA), also known as Job Hazard Analysis (JHA), is a practical method for identifying, evaluating and controlling risks in industrial procedures". [1] There is a vast difference between the type of analysis required when performed this on a construction site compared to, for example manufacturing facilities. It has given rise to a growing requirement for a specialised method tailored for construction.

Chao and Henshaw defined the process of Job Safety Analysis into the following three stages:

Identification - choosing a specific job or activity and breaking it down into a sequence of stages, and then, identifying all possible loss-of-control incidents that may occur during the work

i.e. proactively discovering the potential risk areas for the project and documenting these in an organised manner

Assessment - evaluating the relative level of risk for all the identified incidents

i.e. making a value judgement regarding the risk analysis

Action - controlling the risk by taking sufficient measures to reduce or eliminate it

i.e. making provision for some form of mitigation to manage the risk

3.6.1 Identifying risks onsite and workplace areas

There are a wide range of methodologies which can be employed to identify risks within any given construction company and project work, chiefly:

1. Physical inspection of workplace environment

2. Discussions with staff / key stakeholders

3. Audits carried out by independent bodies

4. Analyses performed on health and safety criteria

5. Hazard Analysis Investigations affecting operability

6. Compiled statistics on accident data

To describe the functionality of these methodologies we will look more closely at their properties and role within the risk management processes:

1. Physical inspection of workplace environment

The vast majority of workplace inspections are focused on applying the 'safe place' principle. In other words, the process of identifying conditions which can be deemed to be unsafe thereby contravening the safe place approach. This approach is what governs safety of all areas of the workplace.

In a recent study Heinrich stated that only 10% of accidents are caused by unsafe mechanical and physical conditions, whereas 88% of accidents are caused by unsafe acts of persons. (The other 2% are classed as unpreventable, or acts of God).

Therefore when dealing with workplace inspections for it to be beneficial in terms of risk identification and accident prevention, emphasis must be placed on the positive safe person approach, using techniques such as the following:

MBWA - Managing By Walking About

i.e. performing a visual inspection

Site Visits

i.e. by attending site and talking to employees

Praising Success

i.e. celebrating what is performed correctly onsite rather than focusing purely on negative aspects

Reinforcing positive behaviour

i.e. individual members working together as one team

One to One training opportunities

i.e. providing individual support to workers

2.Staff / Stakeholder Discussions

Such discussions are an important component of risk management. Formal discussions can take place in the form of recorded meetings with the safety committee. Alternatively more informal discussions can take place whilst onsite and provide a useful tool for dealing with safety on a day-to-day basis.

3.Independent Auditing

This form of evaluation allows a divide between company processes and protocol and employee safety to be formed. This important wall affords the employee the opportunity for their employers safety procedures to be reviewed and can also be used to identify risks. The term 'independent' here refers to those who are not employees of the organisation, but who - from time to time - undertake either general or specific workplace audits or inspections. Such independent persons may include:

Engineer surveyors - insurance company personnel undertaking statutory inspections of boilers, pressure vessels, lifting tackle etc.

They are employed by the organisation as 'competent persons'.

Employers' liability surveyors - insurance company personnel undertaking general health and safety inspections in connection with employers' liability insurance.

Claims investigators - insurance company personnel investigating either accidents in connection with injury or damage claims under insurance policies.

Insurance brokers personnel - risk management or technical consultants undertaking inspections in connection with health and safety, fire, or engineering insurance as part of client servicing.

External consultants - undertaking specific investigations on a fee-paying basis. For example, noise or environmental surveys may be commissioned, if the expertise is not available within the organisation. Trade associations may be of assistance in this area.

Health and Safety Executive - factory (and other) inspectors undertaking either general surveys or specific accident investigations.

4.Job Safety Analyses

In order to prevent accidents on site a number of analyses can be performed. One critical analysis is JSA, or Job safety Analysis which can used to prevent harmful accidents occurring. To carry this out risk managers employee a technique known as the SREDIM principle:

Select (work to be studied);

Record (how work is done);

Examine (the total situation);

Develop (best method for doing work);

Install (this method into the company's operations);

Maintain (this defined and measured method).

The basic procedure for job safety analysis is as follows:

Select the job to be analysed

(SELECT)

Break the job down into its component parts in an orderly and chronological sequence of job steps

(RECORD)

Critically observe and examine each component part of the job to determine the risk of accident

(EXAMINE)

Develop control measures to eliminate or reduce the risk of accident

(DEVELOP)

Formulate written and safe systems of work and job safety instructions for the job

(INSTALL)

Review safe systems of work and job safe practices at regular intervals to ensure their utilisation

(MAINTAIN)

5. Hazard Analysis / Operability Studies

When dealing with new designs and processes it is critical to safety to include an analysis of the potential hazard / operability considerations. The technique was first developed in the chemical process industries, and essentially it is a structured, multi-disciplinary brainstorming session involving chemists, engineers, production management, safety advisers, designers etc. Critically examining each stage of the design/process by asking a series of 'what if?' questions. The prime aim is to design out risk at the early stages of a new project, rather than have to enter into high-cost modifications once the process is up and running.

6. Accident statistics

This form of statistical analysis helps identify uncontrolled risks which could enter occur regarding safety. By looking at historical data the risk manager can build up an accurate picture of weak points in construction processes working towards a more sustainable model.

Ideally, an analysis of each and every form of injury, damage and near-miss accidents should be undertaken, so that underlying trends may be highlighted and effective control action - both organisational and physical in nature be implemented

It is essential to bear in mind that the use of accident statistics is classed as reactive monitoring, whereas the use of audits and inspections is classed as active (or proactive) monitoring.

3.7Assessment

Quantitative risk assessment is a complex and hotly debated subject. Practitioners use techniques such as Event Tree Analysis or Fault Tree Analysis to give estimated failure rates to key actions in the sequence of events

The fundamental equation in any risk assessment exercise is:

Risk magnitude _ Frequency (how often?) _ Consequence (how big?)

In general:

_ Low-frequency, low-consequence risks should be retained (i.e. self financed) within the organisation. Examples include the failure of small electric motors, plate-glass breakages, and possibly motor vehicle damage accidents (via retention of comprehensive aspects of insurance cover).

_ Low-frequency, high-consequence risks should be transferred (usually via insurance contracts). Examples include explosions, and environmental impairment.

_ High-frequency, low-consequence risks should be reduced via effective loss control management. Examples include minor injury accidents; pilfering; and damage accidents.

_ High-frequency, high-consequence risks should (ideally) be avoided by managing them out of the organisation's risks portfolio. If this appears to be an uneconomic (or unpalatable) solution, then adequate insurance -i.e. the risk transfer option - must be arranged.

3.8 Control

The four risk control strategies - avoidance, retention, transfer and reduction

The bulk of the risks identified by regular safety inspections will require some form of risk reduction (or avoidance) through effective loss control management. The control of risks within an organisation requires careful planning, and its achievement will involve both short-term (temporary) and long-term (permanent) measures. These measures can be graded thus:

LONG TERM (1) Eliminate/avoid risk at source

(2) Reduce risk at source

(3) Contain risk by enclosure

(4) Remove employee from risk

(5) Reduce employee's exposure to risk

SHORT TERM (6) Utilise protective equipment

Conclusion

One of the objectives of this dissertation is to review the literature regarding risk management as a systematic approach for the . In this chapter, the author has reviewed the risk and the risk management system. The definition of risk and risk management has been introduced. The principles and techniques of risk management are discussed in detail to make it easy to apply. Also, ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,been reviewed. This chapter is also a base for chapter 5. In chapter5, the author will apply the risk management system ……………………………………………

Cost, time and quality are the main three subjects in a construction project. To achieve these aims, it is suggested that a systematic approach is followed: to identify the risk sources, then to quantify their effect (risk analysis), hence to develop management responses to risk (risk control), and finally to provide for residual risk in the project estimates. These four stages comprise the process of risk management. Risk management can be one of the most creative tasks of project management.

3.4.1 Risk management tools

By deploying effective risk management tools this can contribute significantly towards the success for the project. When completing a construction project the main<< is to develop a project on time, on or under budget and conforming to the client specification.

To achieve these targets the risk management team should concentrate on the following which contribute significantly to the project success:

Thorough stage by stage study of risk and uncertainty

Using estimates of cost and time including contingency allowances and unforeseen conditions

Thorough record keeping

Monitoring the risks during the project life cycle

Adoption of methods for allocating remaining risks to the various parties in a way which will optimize the result for the project

Recognition that risk and reward go hand-in-hand and that the allocation of a risk to a party should accompanied by a motivation for a good management

Regular and independent reviews of project proposals and conceptual design to reduce misunderstanding and try to insure that all potential uncertainties are exposed

Earlier risk identification and risk assessment contributes considerably to the efficiency of risk management tools. When risks are assessed during the project appraisal stage there can be greater flexibility in design and planning. Therefore the results of risk analysis can "influence on the contract strategy, estimates of the costs, predict a cash flow and assess the finances needed". (Thomson, Perry, 1992, p.12).

However, in operational terms risk can be used to direct the process of business risk management for the entire project. The risk components can either be assessed qualitatively or quantitatively. From the above description, the author draw out that the definition of risk consists of three essential elements:

1. Defining the existence of risk factors

2. Considering the uncertainty of risk occurring

3. Assessing the outcome of the risk management process