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Managing Risk and Value

Managing Risk and Value

Risk and value management are strongly connected with each other because enhancing value for client also means ensuring that risk is minimized or at least planned and managed. An intention to produce best value for the client must be implemented by identifying and managing risk.

Managing Risk and Value

Managing Risk and Value

The main objectives are:

Consider the concept of risk and value, people values and attitudes and their connection with decision making and business planning.

  • Appraise the responses available for dealing with risk.
  • Demonstrate how risk and opportunity are assessed and managed, reduce uncertainty in construction projects and evaluate the tools and techniques.
  • Investigate the influence of procurement routes on managing risk and value and supporting best practice in the appointment of the supply team managing risk and value and deriving an ethical approach.
  • Understand good practice for change management procedures.

Twenty years ago the application of risk and value management was very limited in construction projects and the industry has lagged behind others in recognizing how critical they are to building client confidence and in meeting their requirements. Traditionally risk control in the construction stage was based on implicit heuristic assumptions and allowed for in the budget or the programme as a pragmatic contingency or, in the case of the contractor’s tender, as a risk premium.  Value was considered to be lowest tender cost.

As clients have become more sophisticated they have made more demanding targets, which have left less room for maneuver.  These have led to tighter budgets, more innovative technology and less tolerance of time slippage, which is often connected to more onerous penalties for lack of performance.

In achieving their business clients have expected more innovative technologies and design to achieve more for less. The industry has looked at enhancing value for clients and managing their risks better by the use of more advanced techniques. It is now recognized that the scope for changes in design to give significant improvements in value come mainly at the feasibility and strategy stages and that it becomes more difficult as the design is progressed to change previous decisions without disruption and the cost of doing so is greater.

Definition and evaluation of risk

Risk arises out of uncertainty. Risk in the context of project management is a realistic approach to thngs that may go wrong on the site and is used in the context of decision making and in answer to the question, “ what happens if … ? “ once a risk has been identified and defined it ceases to be a risk and becomes a management problem. In this context it needs to be analyses and a response made usually to accept the risk, mitigate it, reduce it or transfer it.

Risk response and management

Risk response occurs to eliminate, mitigate, deflect or accept the risk, and logically will reflect the cost benefit of the risk management process. Mitigation is action taken to reduce the risk and deflection is action taken to transfer the risk. They are not mutually exclusive, but deflection alone is not a way of reducing the probability. Mitigation may have the effect of reducing probability and impact. Eliminating risks is often not economic, or creates too many other risk.

Risk management in Construction Project

A Key Component of Project Planning and Management

Construction projects are complex and involve a variety of risks that need to be identified, analyzed, and mitigated to ensure successful project completion. Effective risk management is crucial in the construction industry, as it can help to reduce the impact of potential risks and ensure that projects are completed on time, within budget, and to the required quality standards.

Identifying and Analyzing Risks in Construction Projects

There are various types of risks associated with construction projects, including financial risks, environmental risks, socio-economic risks, and construction-related risks. Each of these risks needs to be analyzed and assessed to determine its potential impact on the project.

Financial Risks: These risks are associated with budgeting and financing issues, such as cost overruns, changes in project scope, or fluctuations in material prices.

Environmental Risks: These risks are associated with the natural environment and can include weather events, natural disasters, and other environmental factors that could impact the project.

Socio-Economic Risks: These risks are associated with the social and economic conditions of the project site and can include issues such as labor disputes, political instability, and economic downturns.

Construction-related Risks: These risks are associated with the construction process itself, such as design flaws, construction defects, and equipment failure.

Mitigating Risks in Construction Projects

Once the risks have been identified and analyzed, it is important to develop a risk mitigation plan. This plan should outline the steps that will be taken to reduce the impact of potential risks and ensure that the project is completed successfully.

Risk mitigation strategies can include a range of measures, such as contingency planning, risk transfer, and risk avoidance. Contingency planning involves developing a plan to address potential risks if they do occur, such as developing alternative sourcing options for materials or equipment. Risk transfer involves transferring the risk to another party, such as through insurance or contractual agreements. Risk avoidance involves taking steps to avoid potential risks altogether, such as selecting a different project site or altering the project design.

Types of Risks in Construction Project Management

Identifying and Managing Risks to Ensure Project Success

Construction project management involves managing a wide range of tasks and stakeholders to ensure successful project delivery. However, there are several risks that can threaten the success of a construction project. In this article, we’ll explore the different types of risks in construction project management and how to effectively manage them.

Financial Risks in Construction Project Management

One of the most common risks in construction project management is financial risk. This includes risks related to the financial stability of the contractor, changes in material costs, market demand, inflation, and payment delays. The inability to properly estimate project costs and manage cash flow can also pose a significant financial risk.

To mitigate financial risks, project managers need to establish effective financial management systems, develop detailed cost estimates, and maintain accurate records of all financial transactions. It’s also important to carefully select contractors and suppliers with a proven track record of financial stability and reliability.

Socio-Political Risks in Construction Project Management

Socio-political risks are another type of risk that can impact construction projects. These risks include changes in governmental laws and regulations, law and order, bribery, payment failure by the government, increase in taxes, and change in government form.

To mitigate socio-political risks, project managers need to stay informed of changes in laws and regulations and establish effective communication channels with relevant government agencies. Developing strong relationships with stakeholders such as local communities and government officials can also help to mitigate socio-political risks.

Environmental Risks in Construction Project Management

Environmental risks can also impact construction projects. These risks include inclement weather conditions, natural disasters, accessibility to the site, pollution, and safety norms. Failure to properly address environmental risks can result in costly project delays and safety hazards for workers and the public.

To mitigate environmental risks, project managers need to conduct thorough environmental impact assessments and develop effective environmental management plans. This includes establishing procedures for waste management, pollution control, and safety protocols.

Construction-Related Risks in Construction Project Management

Finally, construction-related risks are another major type of risk in construction project management. These risks include failure of logistics, labor disputes, design changes, labor productivity, rush bidding, time-gap for revision of drawings, and shoddy work quality due to time constraints.

To mitigate construction-related risks, project managers need to establish effective project planning and scheduling systems, develop detailed project plans, and maintain open communication channels with all stakeholders. It’s also important to conduct regular quality control inspections and ensure that all workers receive appropriate training and support.


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