De La Salle University – Dasmariñas

College of Engineering, Architecture and

Technology
Architecture Department

CONSTRUCTION MANAGEMENT:
RISK MANAGEMENT

Submitted by:
DE PEDRO, MA. ARNIE ANN P.
ARC 52

Submitted to:
ARCH. JUANITO Y. SY, uap, aacep, earoph, same

October 20, 2020

I. Introduction

In this time there is no way not to talk about risk that has been indispensable part
of everyday life. The risk is present everywhere, in every area of life. One area is the
construction industry, where risk is ever present element of a great puzzle. Risk
management is an important field in construction industry that requires more attention
to bring some benefit (Shahib Iqbal et al 2014). It involves protection against the risk of
negative side, by means of detailed identification and classification on risk, resulted in a
comprehensive analysis (Pawel Szymanski 2017). Successes and implementation in
construction industry depends on the level of risk (Paslawski 2013). That considered the
importance of risks, their current management techniques, the existing status of risk
management systems in organizations, and barriers to effective risk management from
the perspective of key stakeholders.

II. Risk Assessment

Construction industry in general as well as construction project activity are risky

(Zavadskas et al. 2010a). Risk has an impact on objectives that have a positive and
negative outcome which aims to identify and quantify all risks, to which a business or
project is exposed that needs conscious decisions to manage the risks. Based on the list
of Project Management Body of Knowledge guide risk management is one of the nine
focuses in project management and explains as a systematic process of identifying,
analyzing, and responding to project risks. It includes maximization of the probability
and consequences of positive events and minimization of the probability and
consequences of events adverse to project objectives. In construction industry, risk
related to Build Operate-Transfer (BOT) should be considered depending on the impact
of enterprise activity and the organization system. As shown in Figure 1 that presents
the researcher investigative approach in different risk management used in different
countries between stakeholders in several projects (El-Sayegh 2007; Bon-Gang et al.
2014).
 Figure 1. Risk Model in Construction Industry

The risk assessment in construction projects has been applied differently from
project to project, using various models of risk assessment to evaluate the risk in
certain activities of the projects (Yafai et al. 2014). According to the article from
ScienceDirect, there are different risk types that most common risk division is classified
in terms of occurrence frequency and the scope of impact. For risk in terms of
frequency, there are systematic risk where the market risk independent of entity control
and specific risk that relates to a specific project that goes along with all variants. In the
risk of impact scope are fixed risk which concerns the whole economic system and
variable risk that concerns otherwise a non-fixed in given enterprise. Besides those risks
there are also financial risk, time-related risk wherein risks is connected with failure to
implement the undertaking or individual activities, technical risks that is connected with
failure to provide quality of the finished project, market risk that arising from market
reaction to the course and outcome of the project, nature risk resulting from the
environment in which an area is not able to anticipate, external risk arising from the
socio-economic environment, and risk related to the human factor and workplace safety
that inherent in executive teams.
 In construction project risk division, they classified five main groups that contribute
to the risks in a construction management.

1. Preliminary Design wherein in the rejection of the project may result in loss of
expenditures incurred during implementation. That might result to risk of poorly
recognized competition, risk of poorly recognized preferences of the investors,
risk of poor self-esteem and risk of overestimating the costs of the project that
must obligatory be taken by the enterprise.
2. Tender that is prerequisite for the commencement of the project. Where risk of
corruption, risk of tender cancellation, risk of bad quote for the project that
defines the limits of profitability, risk of using predatory pricing by competitors,
risk of incurring excessive costs if it is too low for marketing and client’s reliability
risk that determines the need for a specific approach on the construction process
or it may burdened this stage by those risks aforementioned.
3. Detailed Design which forms the backbone of the final project that have a risk of
improper design team selection, risk of overestimating the cost of the project,
risk of decrease of aesthetic level that requires knowledge of investor
preferences, and risk of improper technology selection in terms of construction
and materials types.
4. Construction that shapes the implemented project and construction works
associated with risk of protest, risk of badly recognized soil structure, risk of bad
work schedule, risk of equipment failure, risk of employees’ absence and
qualifications, risk of poor management of material resources, supplies and
personnel, risk of timely supply of constructions materials and its quality, risk of
maintaining standards, risk of insufficient control, risk of extending the scope of
work, and risk of poor work organization.
5. Financing the investment which covered greatest risk of political and economic
instability of the country, risk of inflation, risk of improper cost plan, risk of
recession in the industry, risk of client credibility, risk of contract precision in
change of objectives during the project, lack of precise preliminary objectives,
 badly defined scope of work and subject for commissioning and risk of law
compliance and enforcement.

III. Risk Management

According to research by Brown and Chong the management process can be carried
out in four different ways that respond to risk management that minimizing, controlling,
and sharing of risks rather than merely passing them on to another party. The four
different types of risk management techniques are risk avoidance, risk retention, risk
reduction or mitigation and retention and risk transfer (Shahib Iqbal et al 2014).
Avoiding risk is an attempt to change the current partner for the project to avoid the
expected risk. Avoidance may also manifest itself in resigning from investing in
endangered process. On the other side risk mitigation is a reduction of risk by limiting
exposure to it or simply by minimizing the anticipated damage. While dispersion risk is
the creation of such environment for the investment in which the potential risk will be
able to disperse, and thus, minimize the negative effects. The example for this action
may be to create a consortium to carry out the planned project. And absorbing risk is
an action to strengthen own position to be able to bear shock associated with
occurrence of certain events, risks, etc. This can be done by increasing the number of
personnel, changing the location of the project, creating time buffer to undertake key
actions, or creating capital reserves. Table 1 shows the management process that
consists of six phases.
 Table 1. Phases of Risk Management Process

Thoughtful and strategic risk management primarily maximizes the effect of positive
events and minimizes the negative effects, thus increasing the chance of project’s
success. Effective actions are possible if we have developed a proper project
management cycle. Properly adopted scheme not only help make difficult and
controversial decisions but above all provide invaluable information to investors on what
action to take and according to which scheme to achieve the best results with minimal
effects of ‘negative’ risk (Paweł Szymański 2017). Figure 2 presented example risk
management cycle that consists of four main stages according to ScienceDirect article.

Figure 2. Risk
Management Cycle
According to an article by Procedia Engineering 208 (2017), The management process
would not be possible without the help of methods that are commonly available on the
market. Selection of the correct method is the key action in risk management. The most
common methods include Brain storming, Delphi method, SWOT analysis, Ichikawa
method, Sensitivity method, Modelling and Computer simulations and Risk matrix.

IV. Conclusion

Various studies, both scientific research as well as derived strictly from everyday life
have shown that risk is a measurable entity and therefore predictable. Modern science
provides us with many tools and methods to identify and measure risk such as newer
and more perfect programs and systems to calculate the scale and magnitude of risk
occurrence. In conclusion, risk management in a project is not limited to noting down
all the pros and cons or putting a label ‘negative risk’ on each disturbing and causing
thrill of positive emotions event. Management is a complex, long lasting and far-
reaching process that begins long before the investment and sometimes lasts even after
its completion. To wisely manage risk does not mean to avoid it but to identify it
correctly and determine all associated opportunities and hazards.

References:

Kapliński O.: Risk Management of Construction Works by Means of the Utility Theory: a
Case Study. Procedia Engineering. - 2013, 57, 533- 539.

Abbasianjahromi, H.; Rajaie, H. 2012. Developing a project portfolio selection model for
contractor firms considering the risk factor, Journal of Civil Engineering and
Management 18(6): 879–889. Http://dx.doi.org/10.3846/13923730.2012.734856

Abdul-Rahman, H.; Wang, C.; Lee, Y. L. 2013. Design and pilot run of fuzzy synthetic
model (FSM) for risk evaluation in civil engineering, Journal of Civil Engineering and
Management 19(2): 217–238. Http://dx.doi.org/10.3846/13923730.2012.743926

Poznań University of Technology, Plac Marii Skłodowskiej-Curie 5, 60-965 Poznań,

Poland Risk management in construction projects Paweł Szymańskia
http://sciencedirect.com/ 1-s2.0-S1877705817360290-main.pdf
Shahid iqbala, Rafiq M. Choudhryb, Klaus holschemacherc, Ahsan alid, Jolanta
tamošaitienėe RISK MANAGEMENT IN CONSTRUCTION PROJECTS. Technological and
Economic Development OF ECONOMY ISSN 2029-4913 / eissn 2029-4921 2015 Volume
21(1): 65–78 doi:10.3846/20294913.2014.994582