Large construction projects can be unpredictable. Risk management in construction projects has been widely considered as a key process that plays a critical role in achieving project goals in terms of cost, time, safety, quality and environmental sustainability. It is an iterative process that needs to be implemented in a systematic way throughout the life cycle of a project.
The construction industry has changed significantly over the last decade; companies have to deal with more uncertainty and risk than ever before. Project owners do not absorb surprises and are likely to engage in litigation when things go wrong.
Construction projects keep varying with the course of planning, development, operating and realization. Effective risk identification and management keep things on track throughout the construction process. Observing adherence to a well-thought-out risk management process from the initial stage of a project is essential.
Risk management process
Risk management process is about maximizing the chances and the impact of positive events while minimizing the probability and the impact of negative events so that project objectives can easily be achieved. The following are three stages and the methods used to manage risk in the construction industry:
1. Risk identification
Risk identification is the first and usually most crucial step in the risk management process that focuses on identifying the type and resource of risks. It lays the foundation for the next steps that deal with the analysis and risk control strategies. The right approach towards risk identification ensures the effectiveness of the entire process.
2. Risk analysis
Risk analysis is a procedure to arrange, prioritize, and critically evaluate prospective risks. It helps to assess the probability of various events and their impact on a project’s objectives. We can define it as a transitional process between risk identification and management. Qualitative and quantitative are two approaches broadly used to carry out risk analysis.
3. Risk response
Once the project risks are known and analyzed, managers should employ acceptable mitigation techniques to treat the risk. The mitigation techniques are applied based on the nature and potential consequences of the risk. The focus should be to reduce the negative impact as much as possible. The selection of risk response strategy is made considering the cost and significance of the risk.
Types of risks
Risks associated with a construction project can be divided into three categories: external risks, project risks, and internal risks. External factors such as weather, politics and economics are extremely difficult, if not impossible, to control. For instance, a project management team cannot deal with the inconsistent economy or abnormal weather conditions.
As the complexity and size of a project increases, the ability to manage risk throughout the construction process becomes essential to preventing unwanted consequences. The most significant risk factors which can have an impact on the successful completion of a project can only be identified and classified through innovative and advanced project control methods.
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