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

Success

Cost

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

Risk

endeavor

action

Unexpected
Undesirable
Unpredictable

Syed M. Ahmed, Ph.D.

Department of Construction Management

Risks in Construction
Economic Factors

Supplier

Contractor

Quantity
Survey

Architect

Project
Manager

Engineer

Environmental Factors

Social Factors

Client

Inspector`

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

Types of Risks in Construction

Physical
Financial
&
Economic

Acts
of
God

Risks
Political
&
Environ.

Const.
Related
Design

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical
Financial
&
Economic

Acts
of
God

Acts of God
Flood
Earthquake

Risks

Landslide

Fire
Wind damage
Political
&
Environ.

Const.
Related
Design

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical
Financial
&
Economic

Acts
of
God

Physical
Damage to structure
Damage to
equipment

Risks

Labor injuries
Fire

Political
&
Environ.

Const.
Related

Theft

Design

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical
Financial
&
Economic

Acts
of
God

Financial &
Economic
Inflation
Availability of funds

Risks
Political
&
Environ.

Exchange rate
fluctuations
Const.
Related

Financial default

Design

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical
Financial
&
Economic

Acts
of
God

Political &
Environmental
Changes in laws
and regulations

Risks

Requirement for
permits
Law & order

Political
&
Environ.

Const.
Related

Pollution and safety

rules

Design

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical
Financial
&
Economic

Acts
of
God

Design
Incomplete design
scope
Defective design

Risks
Political
&
Environ.

Errors & omissions

Const.
Related

Inadequate
specifications

Design

Syed M. Ahmed, Ph.D.

Department of Construction Management

Types of Risks in Construction

Physical
Financial
&
Economic

Acts
of
God

Construction
Related
Labor disputes
Labor productivity

Risks

Different site
conditions
Design changes

Political
&
Environ.

Const.
Related

Equipment failure

Design

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

Risk
Analysis

Controlled
Risk
Environment

Risk
RiskEstimation
Estimation
Risk
RiskResponse
Response
Risk
RiskEvaluation
Evaluation

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

Qualitative

Probability analysis

Ranking options

Sensitivity analysis

Comparing options

Simulation techniques

Descriptive analysis

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