The Theory Of Risk Management In Construction Construction Essay

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The construction industry has many uncertainties and it is risky by its nature. Some of the factors usually carrying risks are the size and complexity of the project, location, design change, uncertainty of the ground condition and familiarity with type of the work. Some of the risks have significant effect on the projects’ targets such as cost, time and quality. The major role of the project management is the management of risk towards the successful completion of the project.

To mention some of the risks associated to the road construction are inflation, design problem, delayed decisions, unexpected ground condition. It is not difficult to anticipate the typical and common risks of the project based on the previous experience, but their likely hood and impact hard to predict with any precision. Hence it is necessary to identify the source of the risks and analyze it for every project since it is specific to the projects. It is also useful to group risks according to simple measures of probability and likely impact.

The effect of the risk on the project can be minimized as appropriate risk management is applied for every project based on the information from risk analysis. This process include the identification of source of the risk, analysis of their impacts to the project target and then the adoption of the appropriate response to reduce and control the significant risks.

Risk analysis can be qualitative and quantitative. Mostly the result of the qualitative analysis lead to quantitative analysis. The objective of the qualitative risk analysis is to compile a list of the main risk sources and the description of their likely consequences, perhaps including a first approximation of their potential effect on estimate of cost and time.

However, if risks eventuate on a major construction contract, the cost in time or money can be significant to any of the parties involved. If the employer is unable to give possession of site when required, it will be exposed to claims for extension of time and compensation. The same applies if there are changes to the design during construction. The engineer and contractor also face the possibility of significant losses or damage to their reputation if they do not recognise and manage the risks that might impact upon them.

Evaluating the probability of a risk occurring and its potential impact are an essential part of risk analysis. The probability of a risk event happening can be described as not at all likely through to extremely likely. Various steps between these two extremes can be assigned numerical values. The potential impact of a risk event can be classified in the same way. These values can be used to create a matrix that presents risks in an order of priority.

Various project documents and reports should also be made available to the monitoring process. These would include variation orders as they change the scope and thus the exposure to risks; quality control reports as they are indicative of whether the specified quality objectives are being met and how much rework and corrective action is being carried out; performance and progress reports show problems that arise and progress against the programme; and payment certificates record cash flow against anticipated expenditure as well as revealing areas of over expenditure.

There has been an increase in research on risk management practice in the construction industry. However, little research has been conducted to systematically investigate the overall aspects of risk management on the perspectives of various project participants. This paper reports the findings of an empirical Chinese industry survey on the importance of project risks, application of risk management techniques, status of the risk management system, and the barriers to risk management, which were perceived by the main project participants. The risk management strategies adopted in the Three Gorges Project were also studied. The study reveals that: Most project risks are commonly of concern to project participants; the industry has shifted from risk transfer to risk reduction; current risk management systems are inadequate to manage project risks; and lack of joint risk management mechanisms is the key barrier to adequate risk management. Future studies should be conducted to systematically improve the risk management in construction by different approaches that facilitate equitable sharing of rewards through effective risk management among participants. Such studies should also consider the establishment of an open communication risk management process to permit the corporate experience of all participants, as well as their personal knowledge and judgment, to be effectively utilized.