Construction Projects Whole Life Analysis Risk Management in Construction Projects
Learning outcomes To identify the difference between risk and uncertainty To explain the risk management process To identify the lifecycle risks of construction projects
Construction projects Each project is different (one off) They are complex Products are designed for long life cycles The future cannot be forecasted Construction is a high risk business
Risk The event/ condition its occurrence is identifiable (known unknowns) it brings negative effect to project objective the probability distribution of outcome of the event is quantifiable it is controllable by one or all parties
Uncertainty The event/ condition its occurrence is unidentifiable (unknown unknowns) the probability distribution of outcome of the event is unquantifiable it is uncontrollable by one party.
Uncertainty cont.. Uncertainty cannot be mathematically predicted When there are no data on previous performance on which to base a judgement
Risk and returns Greater the risk greater the return A risk without return is a suicide Risk can be managed to keep it at lower side
Types of Risks
Project risks include Quality and safety Cost management Time management (programme/ schedule) Scope & change management Procurement & contracts People management Information management External influences
Example: HS2
Risk factors (HS2) Affordability (passenger) Social and environmental risk Impact to the southern part of the country Employment flows (London North or other way round)
Risk and Uncertainty Every plan/decision for future involves risk and uncertainty However, large amounts of effort go into generating the plan/ decision/ expected value but very little time is spent understanding the uncertainty around that plan/ decision/ value.
Risk and Uncertainty cont.. Past experience can be used to assess the confidence of these predictions Techniques for dealing with risk and uncertainty must use both judgement and analysis
Preliminary questions? What sort of risks are there in construction? What practical ways do people use to deal with these risks? Why is it that some people are willing to take on risks that others are not?
Assess and prioritise (probability of occurring) 2 Potential risks need to be identified 1 3 How and what methods to be used to control risk 4 Re-evaluate
Risk Management cont.. Forecasting possible events is normally an integral part of the decision-making process It is also the subject of considerable uncertainty and exposure to risk
Risk and uncertainty factors
Client/Owner risk Decision to build Team selection Briefing Time, cost and quality Failure to find sufficient tenants
Site risk Choice of site Ground condition Existing buildings Access and boundaries Availability of services
Planning risk Planning restrictions Environment concerns Legal requirements
Design risk Interpretation of brief Design variations Unrealistic estimates (cost / time) Lack of stakeholder engagement Appointment of contractors/sub contractors Unreliable Lack capacity to do work Lack availability to do work Financially unstable
Construction risk Site management Delays and disputes Variations and cost overruns Health and safety Liquidation and bankruptcy
External risk Market condition Political consideration Government legislations Weather conditions
Dealing with risk Avoid Accept Reduce Ignore Share
Techniques for dealing with risks Brainstorming Sensitivity analysis Decision tree analysis Simulation (Monte Carlo) Probability analysis Scenario analysis Real option analysis
Additional reading Questions?