Risk Management in Construction

Syed M. Ahmed, Ph.D.

Department of Construction Management Florida International University, Miami, Florida Syed M. Ahmed, Ph.D.
Department of Construction Management

Introduction

Cost

Success

Project Constraints

Quality

Time

Syed M. Ahmed, Ph.D.

Department of Construction Management

Introduction

Cost overrun

Risks
Poor Quality
Project Constraints

Delays

Syed M. Ahmed, Ph.D.

Department of Construction Management

What is a Risk?

Unknown Unexpected Undesirable Unpredictable

Risk

endeavor

action

Syed M. Ahmed, Ph.D.

Department of Construction Management

Risks in Construction
Economic Factors
Client

Social Factors

Contractor

Supplier

Architect

Quantity Survey Project Manager

Engineer

Inspector`

Political Factors
Syed M. Ahmed, Ph.D.
Department of Construction Management

Environmental Factors

Types of Risks in Construction

Physical Acts of God Financial & Economic

Risks
Political & Environ. Design Const. Related

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical Acts of God Financial & Economic

Acts of God
Flood Earthquake

Risks
Political & Environ. Design Const. Related

Landslide

Fire
Wind damage

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical Acts of God Financial & Economic

Physical
Damage to structure Damage to equipment Labor injuries Fire Theft

Risks
Political & Environ. Design Const. Related

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical Acts of God Financial & Economic

Financial & Economic

Inflation Availability of funds Exchange rate fluctuations

Risks
Political & Environ. Design Const. Related

Financial default

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical Acts of God Financial & Economic

Political & Environmental

Changes in laws and regulations Requirement for permits Law & order

Risks
Political & Environ. Design Const. Related

Pollution and safety rules

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical Acts of God Financial & Economic

Design
Incomplete design scope

Risks
Political & Environ. Design Const. Related

Defective design Errors & omissions Inadequate specifications

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical Acts of God Financial & Economic

Construction Related
Labor disputes Labor productivity Different site conditions Design changes

Risks
Political & Environ. Design Const. Related

Equipment failure

Syed M. Ahmed, Ph.D.

Department of Construction Management

Risk Management
A systematic approach to control the level of risk to mitigate its effects.

Risk RiskIdentification Identification Risk RiskMonitoring Monitoring Controlled Risk Environment Risk RiskResponse Response Risk RiskEvaluation Evaluation

Risk Analysis

Risk RiskEstimation Estimation

Risk Management Life Cycle

Syed M. Ahmed, Ph.D.
Department of Construction Management

Risk Analysis
Estimating the potential impacts of risk to decide what risks to retain and what risks to transfer to other parties
Risk Analysis Techniques

Quantitative
Probability analysis
Sensitivity analysis

Qualitative
Ranking options Comparing options Descriptive analysis

Simulation techniques

Syed M. Ahmed, Ph.D.

Department of Construction Management

Risk Response
Risk Response Methods
Elimination Transfer Retention Reduction

Syed M. Ahmed, Ph.D.

Department of Construction Management

Risk Response
Risk Response Methods
Elimination Transfer Retention Reduction

Risk Elimination Practices

Tendering a very high bid Placing conditions on the bid Pre-contract negotiations as to which party takes certain risks Not biding on the high risk portion of the contract

Syed M. Ahmed, Ph.D.

Department of Construction Management

Risk Response
Risk Response Methods
Elimination Transfer Retention Reduction

Risk Transfer
Two basic forms. (a) The activity responsible for the risk may be transferred, i.e. hire a subcontractor to work on a hazardous process (b) The activity may be retained, but the financial risk transferred, i.e. methods such as insurance.

Syed M. Ahmed, Ph.D.

Department of Construction Management

Risk Response
Risk Response Methods
Elimination Transfer Retention Reduction

Risk Retention
Handling risks by the company who is undertaking the project.

Two retention methods, active and passive.

Active retention is a deliberate management strategy after a conscious evaluation of the possible losses and costs of alternative ways of handling risks. Passive retention occurs through negligence, ignorance or absence of decision.
Syed M. Ahmed, Ph.D.
Department of Construction Management

Risk Response
Risk Response Methods
Elimination Transfer Retention Reduction

Risk Reduction
Continuous effort.

Related with improvements of a companys physical, procedural, educational, and training devices.
Improving housekeeping, maintenance, first aid procedures and security. Education and training within every department .

Syed M. Ahmed, Ph.D.

Department of Construction Management

Thank You
Syed M. Ahmed, Ph.D.
Department of Construction Management