Risk Management In Construction Industry
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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
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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