Transcript Lecture-7: - Pakistan Engineering Council

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 company’s 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