IDENTIFYING RISKS AND ADDRESSING/MANAGING THEM

Construction projects are very complex and can pose various internal and external
risks. A strict set of codes, laws, and regulations must be followed during the
construction process to best avoid these risks. Unfortunately, there is no way to
completely avoid risks as there are bound to be unknown factors that arise over the
course of a project. One of the best ways to manage risks is to know the various
types and how you can manage them. If you can identify and categorize risks
before you start a project, you can optimize your risk management and avoid any
possible losses.

Managing risks on projects is a process that includes risk assessment and a

mitigation strategy for those risks. Risk assessment includes both the identification
of potential risk and the evaluation of the potential impact of the risk.

Risk Identification

A more disciplined process involves using checklists of potential risks and

evaluating the likelihood that those events might happen on the project. Some
companies and industries develop risk checklists based on experience from past
projects. These checklists can be helpful to the project manager and project team in
identifying both specific risks on the checklist and expanding the thinking of the
team. The past experience of the project team, project experience within the
company, and experts in the industry can be valuable resources for identifying
potential risk on a project.

Risk Evaluation

After the potential risks have been identified, the project team then evaluates
each risk based on the probability that a risk event will occur and the potential loss
associated with it. Not all risks are equal. Some risk events are more likely to
happen than others, and the cost of a risk can vary greatly. Evaluating the risk for
probability of occurrence and the severity or the potential loss to the project is the
next step in the risk management process.
Construction risks can be categorized into these six categories:

Technical Risks

Technical risks include anything that restricts you from creating the product that
your customer wants. This can include uncertainty of resources and availability of
materials, inadequate site investigation, or incomplete design. These risks can
commonly occur when there are changes in project scope and requirements, and if
there are design errors or omissions.

Logistical Risks

There are various logistical risks that need to be addressed before beginning a
project. These risks include the availability of transportation facilities and
availability of equipment such as spare parts, fuel, and labor. Without addressing
these logistical issues, you risk huge project delays and losses.

Environmental risks

Environmental risks include natural disasters, weather, and seasonal implications.

These risks are commonly overlooked when people are unfamiliar with local
conditions. If you are going to be working on a project in a new city, you need to
become familiar with that region’s weather patterns. If you prepare for possible
weather risks, you are much more likely to avoid potential delays and losses.

Management related risks

The most common management related risk is uncertain productivity of resources.

Before you begin a project you need to be sure that you have sufficiently skilled
staff and that you have adequately defined their roles and responsibilities. Failing
to do this can lead to disastrous losses.
Financial risks

Inflation, local taxes, and availability and fluctuation in foreign exchange are a few
of the possible financial risks you might incur during a construction project. If you
are working on a project internationally, it is important that you understand how
the foreign currency will be exchanged. Different countries have drastically
different taxes as well, so you need to take this into account before starting a
project. Your finances are going to look a lot different if you are working in a tax-
free city versus a high-tax city.

Socio-political risks

Customs and import restrictions and difficulties disposing of equipment are a few
of the socio-political risks you may face during a construction project. Depending
on where your project is, there are going to be different regulations and codes that
you must abide by. If you assume that each project is going to have the same codes
and regulations, you will be in for a rude awakening.

MANAGING RISKS
High impact, high probability risks should be handled first, while risks with al low
probability and low impact can be tackled last. Factor in the amount of time,
money and work each risk will require to effectively manage.

Avoid the risks. This may mean turning down a project or negotiating the contract
to remove the risks. There’s no shame in walking away from a project if the risks
outweigh the potential rewards.

Transfer the risks. Your company might not be the right fit to manage a particular
risk. Work with the other stakeholders to determine who on the project team is best
suited to assume each risk.
Discuss with the client what risks they will assume and which ones you will be
responsible for managing. Work with your insurance provider to determine which
risks are covered under your current policies along with other options for
protecting your company against risks.

Mitigate the risks. Eliminating, reducing and accepting risks takes careful
planning. Break down each risk into actionable items. Don’t overcommit your
resources to handling multiple risks. You may need to bring in additional
resources, such as hiring more workers or renting additional equipment, to manage
all your risks effectively.

Accept the risks. Agreeing to accept a risk is a decision that shouldn’t be taken
lightly. It might be fine to accept a few low probability, low impact risks. Agreeing
to accept a high probability, high impact risk without any type of management or
mitigation could be detrimental to the project and your bottom line.

Good risk management requires a high level of collaboration and communication

with all parties involved. Keeping everyone on the same page and working
together will allow you to identify and manage risks before they become a
problem. Remember, risks can lead to great rewards when effectively managed.

PROJECT RISK BY PHASES

Project risk is dealt with in different ways depending on the phase of the project.

Initiation

Risk is associated with things that are unknown. More things are unknown at the
beginning of a project, but risk must be considered in the initiation phase and weighed
against the potential benefit of the project’s success in order to decide if the project
should be chosen.
Planning Phase

Once the project is approved and it moves into the planning stage, risks are identified
with each major group of activities. A risk breakdown structure (RBS) can be used to
identify increasing levels of detailed risk analysis.

Implementation Phase

As the project progresses and more information becomes available to the project team,
the total risk on the project typically reduces, as activities are performed without loss.
The risk plan needs to be updated with new information and risks checked off that are
related to activities that have been performed.

Closeout Phase

During the closeout phase, agreements for risk sharing and risk transfer need to be
concluded and the risk breakdown structure examined to be sure all the risk events have
been avoided or mitigated. The final estimate of loss due to risk can be made and
recorded as part of the project documentation.