1. Construction Projects
Whole Life Analysis
Risk Management in
Construction Projects

2. Learning outcomes
To identify the difference between risk and uncertainty
To explain the risk management process
To identify the lifecycle risks of construction projects

3. 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

4. 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

5. 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.

6. Uncertainty cont.. Uncertainty cannot be mathematically predicted
When there are no data on previous performance on which to base a judgement

7. 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

8. Types of Risks

9. Project risks include Quality and safety Cost management
Time management (programme/ schedule)
Scope & change management
Procurement & contracts
People management
Information management
External influences

10. Example: HS2

11. 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)

12. 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.

13. 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

14. 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?

15. 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

16. 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

17. Risk and uncertainty factors

18. Client/Owner risk Decision to build Team selection Briefing
Time, cost and quality
Failure to find sufficient tenants

19. Site risk Choice of site Ground condition Existing buildings
Access and boundaries
Availability of services

20. Planning risk Planning restrictions Environment concerns
Legal requirements

21. 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

22. Construction risk Site management Delays and disputes
Variations and cost overruns
Health and safety
Liquidation and bankruptcy

23. External risk Market condition Political consideration
Government legislations
Weather conditions

24. Dealing with risk
Avoid
Accept
Reduce
Ignore
Share

25. Techniques for dealing with risks
Brainstorming
Sensitivity analysis
Decision tree analysis
Simulation (Monte Carlo)
Probability analysis
Scenario analysis
Real option analysis

26. Additional reading
Questions?