Risk Management In Construction Industry

  • December 2019
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Unit-06 Risk Management

 Risk has been defined as a measure of probability,





 

the severity, and the exposure of all hazards of an activity. (Osama Jannadi) Hertz and Thomos (1983) defined risk as uncertainty and result of uncertainty. It refers to lack of probability about the structure, outcome or consequences in planning or decision or situation. Risk analysis involves estimating the probabilities needed as input data for the evaluation of decision alternatives. (Lifson and Shaifar 1982) Risk= Probability of an accident x Losses per accident. (or) Probability of an event occurring x Impact of event occurring

Risk versus uncertainty  Uncertainty: The lack of complete certainty, that is,

the existence of more than one possibility. The "true" outcome/state/result/value is not known.  Measurement of uncertainty: A set of probabilities assigned to a set of possibilities. Example: "There is a 60% chance this market will double in five years"  Risk: A state of uncertainty where some of the possibilities involve a loss, catastrophe, or other undesirable outcome.  Measurement of risk: A set of possibilities each with quantified probabilities and quantified losses. Example: "There is a 40% chance the proposed oil well will be dry with a loss of 12 million Rs. in exploratory drilling costs".

Factors responsible for Risk and uncertainty  







Place - Ground strata Dewatering conditions at site beyond control Vastu shastram etc Entrepreneur/management/organization - Relation ship between Contractor / engineer-in-charge and owner Frequent changes in designs/planning/execution instructions etc Financial and economical risk (e.g. inflation, unavailability of funds) Change in orders) (Al Bahar 1990) Construction machinery/labor Availability or paucity of Materials of construction / labors/ machinery Fluctuation in cost of material or labor Theft of materials at crucial time Run away of labor at crucial time Injury & failure Construction activities/processes/environment- Environmental conditions / Seasonal restraints and constraints Rehabilitation X factor -Act of God, (e.g. Earthquake, Flood, Fire, Cyclone, & Unknown factor) International / local market conditions Political risks. (e.g. changes in rules and regulations, War or political uncertainty).

Type of Risk  Risk can be of different types.  They may be  Physical Causing direct harm or damage,  Psychological Causing damage to self-

esteem  Social Causing loss of reputation  Contagious Causing infectious, communicable, transmittable losses

Risk management  Risk management is concerned with

identifying risks and drawing up plans to minimise their effect on a project.  A risk is a probability that some adverse circumstance will occur Project risks affect schedule or resources;  Product risks affect the quality or performance of the software being developed;  Business risks affect the organisation developing or procuring the software. 

The risk management process  Risk identification  Identify project, product and business risks;  Risk analysis 

Assess the likelihood and consequences of these risks;

 Risk planning  Draw up plans to avoid or minimise the effects of the risk;  Risk monitoring 

Monitor the risks throughout the project;

Risk identification & Methods for identifying risks  Risk identification (What they are, when, what effect and what measures)

 Technology risks.- The RCC design, Quality of materials, New    

Technologies used People risks: Skill level of people. Organisational risks: Requirements risks. Estimation risks.

 Methods for identifying risks     

Brainstorming- session attended by the client, PM, RM and design team Interviews- The Delphi technique Questionnaires- Combination of previous experience and specific project criteria. Use of specialists Pervious experience

Risk Assessment  Qualitative assessment • Classification of reference-

environmental: site condition health and safety contractual: client, contractor, third party. Design: planning permission

• Description of the risk • Relationship of risk to other risks • Potential impact • Probability of occurrence • Response/ mitigation strategyRisk responsibility

• Risk responsibility/ owner

Avoidance, Transfer, Reduction,

Risk Assessment  Quantitative assessment• Simple assessment • Probabilistic analysis • Multiple estimating using risk analysis • Sensitivity analysis • Decision trees • Monte Carlo simulation.

Risk management strategies (i) Risk 

Strategy 

Organisational &  financial problems 

Prepare a briefing document for senior management  showing how the project is making a very important  contribution to the goals of the business. 

Recruitment  problems 

Alert customer of potential difficulties and the  possibility of delays, investigate buying­in  components. 

Staff illness 

Reorganise team so that there is more overlap of work  and people therefore understand each other’s jobs. 

Defective  components 

Replace potentially defective components  

 

Risk 

Strategy 

Requirements  changes 

Derive traceability information to assess requirements  change impact, maximise information hiding in the  design.  

Organisational  restructuring 

Prepare a briefing document for senior management  showing how the project is making a very important  contribution to the goals of the business.  

Database  performance 

Investigate the possibility of buying a higher­ performance database.  

Underestimated  development time 

Investigate buying in components, investigate use of a  program generator 

 

The Cost of Risk The total direct and indirect cost of risk

The Nature of cost

The distribution of cost

Costs incurred in handling risk

Cost of losses that occurs

Private cost

Cost due to the existence of risk

Social cost

 Risk Handling Cost Insurance premium, charges for loss prevention devices, and fees for consulting services.

 Loss cost Direct costs to a firm of industrial accidents include the compensation payable to injured employees, damage to machinery, loss of production Indirect costs

 Private and social costs

Role of Risk Manager

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