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The meaning of risk changes when time goes on and the meanings differ when they are at the specific socio-cultural and historical contexts which we are located in. (Deborah Lupton, 1999) Risk is exposure to the possibility of economic or financial loss or gain, physical damage or injury, or delay, as a consequence of the uncertainty associated with pursuing a particular course of action (Cooper, Chapman, 1987).According to Cornelius Keating, risk is not the present problem which should be immediately addressed, but it is considered as future issues that can be avoided or mitigated. Risk is considered as a situation which may lead to negative consequences. Generally, six major categories of risk can be identified as the most important concerns for the majority. They are:
The construction industry experienced a wide variety of risks which may occur in financing, designing, constructing and managing facilities of a project. There are different definitions of risk in construction industry. In order to understand the process of risk management, it is important to understand the basic concept of risk in all aspects. The international standard "Project risk management - Application guidelines" holds the theory of probability and consequence and defines risk as a combination of probability of an event which is occurring and its consequences to project objectives (IEC 2001). Ward and Chapman (2003) have made a broader definition of risk and suggest using a more general concept of uncertainty. They argue that risk is considered as threats but not opportunities and when it occurs it affects the project performance. Edwards (1995) points out that risks have a negative impact on the project's cost, quality or time in most situations. These definitions have a common feature: they define risk in terms of uncertain events and may have positive or negative impact on a project's objectives.
Change is inherent in construction work. When an uncertain event occurs, it will impact some of objectives such as the cost, schedule, and quality of the project. Construction projects often have a poor performance due to a lack of reasonable risk management process. (Liu Renhu, 2005) Many projects fail to meet deadline or cost and quality targets. As a result, risk management becomes an important part of construction management. Risk management intends to identify and manage those potential and unforeseen problems that might probably occur during the project implementation. And also, it tries to identify as many risk event as possible minimize their impact on the project, manage the responses to those events that are probably to materialize, and provide contingence funds to cover risk event that actually materialize. The essential purpose of risk management is to improve project performance via systematic identification, appraisal and management of project related risks. The focus on reducing threats or adverse outcomes, which we might call 'downside' risk, misses a key part of the overall picture. (Chapman, Ward, 2003) Changes cannot be eliminated, however, by applying risk management in project construction participates are able to improve the construction management. The benefit of risk management can be concluded as follows:
Risk identification is one of the most important steps of risk management because it makes the risks clearer. As a result, Chapman (2001) points out that the success of later risk management phases is directly affected by the quality of the identification phase. Risk identification procedure identifies and categorizes risks that could affect the project. This procedure includes discovering, defining, describing, documenting and communicating risks before they become problems and affect a project. (Barati, S., Mohammadi, S., 2008) Risk identification is a tool for identifying all the significant sources and causes of risk and hazards in a project. Numbers of methods and techniques are used in identifying the project risks (IEC 2001), including brainstorming, expert opinion, structured interviews, questionnaires, checklists, historical data, previous experience, testing and modelling and evaluating other projects.
Once the risks are identified and assessed, the next step of the risk management procedure is to response to these risks. The nature of the response depends on the decisions made by the management team. In order to respond correctly, the team has to process the information available for the risk. There are two types of responses to risks: immediate response and contingency response. The immediate response mitigates or eliminates the risks through alterations of the project plan. The nature of contingency response is preparing a plan for an alternative course of action and implementing it when the risk arises. (An, 2010)
Risk management intends to identify and manage those potential and unforeseen problems that might probably occur during the project implementation. And it could identify as many risk event as possible, minimize their impact to the project, manage the responses to those events that are probably to materialize, and provide contingence funds to cover risk event that actually materialize. "Precaution is better than cure." The same principle can be applied to risk management which should be a proactive approach rather than a reactive one. Risk management is a preventive process to ensure that negative impacts are reduced and that harmful consequences associated with undesirable events are minimized. Generally, the risk management process should include: risk identification, risk assessments, risk response and emergency preparedness. Once risk has been identified, they must then be accessed on their potential severity of loss and the probability of occurrence. Then through the following stages such as risk avoidance, reduction, retention or risk transfer, the risks can be dealt with and its impact can be decreased to a certain extent.