Research Paper on "Construction Project Risk Management"

Research Paper 8 pages (2429 words) Sources: 8

[EXCERPT] . . . .

Construction Project Risk Management

Objective of this course work is to explore the strategy to be used for the risk identification and risk management within the construction project. The study discusses risk identification, risk management, data collection and risk analysis. The study uses a case study to demonstrate the importance of risk management within the construction industry. The findings of the case study reveal that risk plan is critical before the project implementation. The risk plan will be used to identify the known and unknown risks during the project lifecycle and the method to manage these risks. The study suggests for further research on the risk management procedure within a complex construction project.

Project Outline

Introduction

: Risk Management Requirements in a Construction Project/sub-project

:Risk Identification:

: Risks Definition

: Quantifying the risks

: Plan

: Risk Information and Data Collection

: Risk Identification .

Risk analysis

1.7: Case Study: Sydney Opera House

1.8: Recommendations for Improvement

2: Future Work and Conclusion

1: Introduction

Construction projects are initiated within a dynamic and complex environment where uncertainty and risks could come from different sources. Time, costs, and technological constraints in the construction project could lead to uncertainty. Due to several constraints such as technological constraints, constant stakeholders involvement, large capital requirements and improper project scope definition, project managers could encounter series of risks and uncertainties which may lead to the construction setbacks. "Risk is by nature subjective and managing these risks subjectively could pose the danger of non-achievement of project goals. Moreover, risk analysis of the overall project also poses the danger of developing inappropriate responses." (Dey, 2002, P 13).

Over the past years, construction industry has changed significantly where complex projects are being driven by technical and business risks. Identification of those risks is very critical to manage these risks, and risk assessment is a tool that a project manager could employ to identify and manage these risks based on the project treatment. (Klemetti, 2006). Risk management is one of the tangible project management practices that enhance successful completion of a project. Risk management is directly related to the project success where hazard risk identification; risk response, risk estimation, planning and execution have been identified as widely risk management process.

Objective of this study is to explore the risk management process within the construction project and application of risk analysis technique to enhance risk management within the construction industry.

1.2: Risk Management Requirements in a Construction Project/sub-project

Risk has been defined as consequence of uncertainty where its exposure to a project could lead to project uncertainty. Risk management is an inherent part of a complex project and managing these risks is an integral part of good construction management. Typically, risk management is fundamental to achieve good project and business outcome .Risk management provides a structure method of assessing and dealing with the future uncertainty that might have arisen within the construction project. Risk management includes identifying, analyzing and managing the uncertainty within the construction project.

In a construction industry, there are various risk management requirements and identification of these requirements is critical for the successful project implementation. (El-Gafy, 2008). The requirements for the risk management in a construction industry are risk identification, risk assessment and risk control.

1.2.1:Risk Identification:

Risk identification is very critical for the risk management. Identification of risk assists project managers to assess the opportunities and threats associated with a project. Brainstorming is one of the important tools that could be employed for the risk identification. Through brainstorming, it will be possible to view the risks in its broad spectrum and this will assist stakeholders to identify the known and unknown risks that are likely to occur. Unknown risks are the risks that project manager and stakeholders do not envisage. For example, sudden rise of inflation could bring the project into a stop since this would lead to a sudden increase in the amount budgeted for the project. If a project owner could not be able to raise another fund to complete the project, the whole project could be brought into a standstill. Natural disaster and outbreak of fire are other unknown risks that could affect project success.

Contrarily, known risks are the risks that project stakeholders already know that it would happen. For example, the change in the scope of project is a known risk that stakeholders already know it would happen. After the risks identification, other risk management requirement is a risk definition.

1.2.2: Risks Definition

Risk definitions refer to the probability of the risks to occur, and its effect on the project. Using Risk Rating Matrix is a basic risks management requirement that could assist project manager to define the magnitude of the risks. Table 1 provides the Risk Rating Matrix. As being revealed in Table 1, categorizing risks using Risk Rating Matrix assists a project manager to identify high risks, medium risks and low risks and their probability to occur.

Table 1: Risk Rating Matrix

Probability

No Impact

Minimal

Moderate

Major

Critical

0-10%

Low

Low

Low

Medium

Medium

11-40%

Low

Low

Medium

Medium

High

41-60%

Low

Medium

Medium

Medium

High

61-90%

Medium

Medium

Medium

Medium

High

91-100%

Medium

High

High

High

High

1.3: Quantifying the risks

Assigning a value to the risks is one of the importantly part of the risk management requirement. Assigning possible costs to the risks will assist stakeholders to estimate the impact and severity of the risks. Table 2 provides the financial impact of project risks.

Table 2: Quantifying the Costs associated with Risks

No

Risk Event

Estimated Impact

Probability

Risk Amount

1

Funding not approved for next year project plan

$160,000

38%

$135,500

2

Engineering design not compatible with the existing system

$460,000

62%

$290,000

3

End users not adapting to new processes

$250,000

45%

$150,000

1.4: Plan

The next step in the risk management is to develop a risk plan in the following format:

Avoid: A project owner needs to avoid the risks with high impacts and high probabilities. There is a need to change the project plan to avoid the high impact risks.

Accept: Risk having low probability should be accepted with the need to change the project plan.

Mitigate: Risks carrying high probabilities and having low impact are accepted without changing the project plan.

Transfer: Risks having low probability and high impact should be transferred to insurer. For example, a project owner needs to insure the assets carrying these risks.

1.5: Risk Information and Data Collection

The key to cost effective project lies on the accurate and quality data. The starting point in the risk management is good data, and accumulation of good data enhances decision making. Data accuracy, data quality, complete, correct and traceable data are very critical in risk management. (IBM, 2009). Quality and accurate data could assist stakeholders to calculate and estimate the likelihood of a project risks and the method to manage the risks.

Within a project, data collection should focus on the primary and secondary data to enhance the risk management within the project lifecycle. Data collection involves searching the relevant information from the database to identify the causes of the risks within a project and the methodology to identify the risks and a cost effective method to manage the risks. There are various methods that could be used to collect secondary data. First, there is a need to search the electronic database such as Emerald Insight database, EBSCO database, and Science Direct database. This electronic database contains journals and research articles that contain wide range of information on risk identification and various strategies to manage the risks. Information collected through primary data is also very important in the risk management. Both quantitative and qualitative methods are very importantly in the data collection. The survey method is very important in the data collection. One of the advantages of using survey method for data collection is that a researcher could collect large amount of data to evaluate the project risk requirement and the strategy to manage these risks. Additional method that could be used for data collection is through interview. Typically, data collected through interview is very important for the risk management. Information collected through data collection will assist in the risk identification and management.

1.6: Risk Identification

Risk identification is very important in the risk management procedure. Without clearly identifying the risks within the project lifecycle, it will be impossible to manage such risks. Risk management process is built upon risk identification and the success of risk management phase is comparable to the quality of risk identification phase. Klemetti, (2006) reveals the detail steps in identifying the risks, which "generally include brainstorming, risk checklists, expert analysis/interviews, modelling and analyzing different scenarios and analysing project plans." (P 25). More importantly, the risk identification process varies depending on the nature of the project. Risks identification process starts from the examination of the issues being created by project team. The issues basically concern with examining the project description, cost estimate, work breakdown, construction schedule and construction design. Examining the specific project documents is… READ MORE

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