Risk Management in Construction Projects



No construction project is risk free. Risk can be managed, minimised, shared, transferred or accepted. It cannot be ignored. – Sir Michael Latham, Risk Management- The Commercial Importance, 1994

Risks have a significant impact on construction projects. Construction projects
are always unique and one of their kind. Risk in construction industry rise from different sources through the life cycle of a project.Risks and uncertainties are inherent to construction industry and particularly so in India.
Risk management (RM) must become a part of construction management process.By adopting risk management, savings potentials can be realised in construction projects. For this reason, it is beneficial for project managers to apply risk management processes for their projects.
Risk management process consists of identification of risks, assessment of its
quantitative and qualitative impact, method of response and monitoring and control.
What is ‘Risk’?
Risk has been defined in many ways. In theory ‘Risk’ is defined as a positive or a negative deviation of a variable from its expected value. Mostly, in general parlance, risk is expected to have only a negative impact. Not necessarily so. Consider the following: you are an entrepreneur and you invest in a venture.
You are then taking a risk. The outcome of the risk could be positive when your venture turns out to be very profitable. You find that the energy and money you spent was worth the while.
The benefits of risk management in projects are immense. The impact of project threats is minimised. This allows the project to be delivered on time, as per specifications and within cost.

Classification of Risks
In construction, many types of risks occur,they may be broadly classified into:
Technical risks (eg. insufficient data about soil and surroundings, change in scope, etc.)
Construction Risks (eg. labour productivity,shortage of required skilled labour, etc.)

Physical Risks (eg. damage to structure, injury to workmen, etc.)
Organisational Risks (eg. change in management, lack of good communication,
Financial Risks (eg. large fluctuation in prices, etc.)
Socio-economic Risks (eg. bribery/corruption,change in tax structure, change in political scenario, etc.)
Environmental Risks (eg. natural disasters, etc.)
Risk Management Process (RMP)
Managers can plan their strategy through a four-step risk management process.
Risk identification
Risk quantification
Risk response
Risk monitoring and control

Risk Identification may be done by the following methods:
Delphi techniques
Expert opinion
Past experience/lessons learned
Risk Assessment is done based on its impact, which could be either qualitative or quantitative, and the probability of the risk recurring. The following table may be used to assess the category to which a risk falls and the further action taken.
Risk Responses
Risk Avoidance: As you may have already guessed, if one is very sure that a particular risk is taking place, avoid the risk by changing
the course of action.

Risk transfer: Risk can be transferred as is done when someone takes an insurance or goes for outsourcing.
Risk mitigation: Attempt to reduce the impact of the risk by taking an early action.
Risk acceptance: The impact of the risk is accepted and a contingency plan is arrived at to deal with the consequences.
Risk Management and control
Needless to say, after the above steps are implemented, it is imperative that the implementation is closely monitored and also controlled.
Case study:
Here is a building the architectural design of which was unique in the sense that it had large central atrium which was covered by tensile fabric and steel space frame at the terrace level as the final design requirement.

We conducted a risk analysis of the project as part of the risk management plan. We started identifying the risks that may hamper the progress of the work.
Risk identification:
While going through the building, we realised that the large atrium at the centre of the mall will remain open until the roof slab is cast and
subsequently covered by spare frame and tensile fabric. This means that the building will remain open to the fury of the elements.
Having identified the risk, we had to quantify the impact of the risk. Considering that the atrium will be open for at least two rainy
seasons (monsoons) during the construction phase, the impact of the rain coming into the Building would be HIGH, It would hamper the civil work and services work that would be in progress in that part, particularly because the probability of monsoon rains was very high.

Therefore, the risk was identified as high probability and high risk.
Risk response
Our response to the risk was:
To ensure that the ‘open to sky’ area is adequately covered temporarily and entry of water into the building was prevented. We also found the need to allow enough natural light into the building so that the work inside the building can be done without having to resort to artificial lighting.
The temporary rain cover had to stay in place until the final structure was erected in place.Therefore, we covered the ‘open to sky area’
with waterproof plastic sheets and made arrangements to collect the rain water
through a network of PVC pipes at the valley and discharged the rain water outside the building.
Risk Monitoring and Control

The temporary plastic sheet cover was subject to constant wind and also rain. The cover had to be constantly monitored to ensure that the sheets don’t give away and cause damage to work that is already completed.
Had it not been for a formal risk management analysis, probably the open sky area could have sustained immense damage, resulting in loss of money and also putting the project several months behind schedule.
This also helped in gaining confidence of the many vendors (stakeholders) and motivate them in executing their work in all earnestness.
It will certainly not be possible to fully identify and eliminate all risks. However, the risk management process should not be ignored or neglected. There is always the potential of

the ‘unknown unknowns’ impacting the project. The more risks you identify, quantify, respond and manage, the better placed you will be to complete the project successfully.
A Study of Risk Management Techniques for Construction Project in Developing Countries (IITJEE) –5 Oct 2013 by Mr. Patel Ankit Mahendra, Mr. Jayakumar R Pitroda and Mr. J.J. Bhavsar Project Manager’s Spotlight on Risk Management by Mr. Kim Heldman, PMP Business Risk Management of Project Leaders
“Managing Project Risk” by Mr. Yen Yee Chong and Mr.Evelyn May Brown.

Er. A.N. Prakash is Managing Director, A. N. Prakash Construction Project Management Consultants Pvt. Ltd.