In life there are risks: in driving a car, crossing the road or playing various sports. Everything we do can be associated with risk in the form of events that might prevent the achievement of stated objectives if they occur. So too in business although in many cases such risk uncertainties are naturally associated with a financial risk compared to the market volatility and hence the ability to realistically provide expectations based upon a risk versus reward trade off. Whilst the management of corporate financial risk is undertaken through a very specialist risk discipline, this article examines the subject of risk management from a project, business or operational viewpoint where such risks can be internally or externally driven and may impact on the project’s stated scope, schedule and cost objectives.
In the dynamic and complex world of construction projects, developing risk foresight is a critical aspect of successful project management. By proactively identifying, assessing, and mitigating potential risks, project teams can navigate uncertainties and enhance project outcomes, ultimately leading to increased stakeholder satisfaction.
The importance of risk foresight cannot be overstated. It empowers project managers and teams to take a proactive approach to risk management, rather than reacting to issues as they arise. By anticipating risks early on, project managers can implement appropriate strategies to mitigate their impact and minimize disruptions to the project schedule, budget, and quality.
The objectives of risk management are to ensure the rapid identification of
risks within the business and to establish a clear process of assessment, action
planning and reporting of the risks identified. In addition, it is important that
focus and attention is given to the identification of opportunities as this will
enable effective decision making to ensure that:
Business opportunities can be quickly assessed at an appropriate
level in order to decide whether and how it might proceed with
such opportunities.
Threats to the project or other parts of the company’s operations
can be eliminated or at least reduced to an acceptable level.
All decisions take account of contributing to sustainable shareholder
value.
The underlying principle is that key risks and the appropriate control measures
are kept under regular review and reported to project participants, project
sponsors and key client representatives.
In focusing on typical construction projects, the topic of risk management can be seen in Figure I.2 to impact on many facets of the project. Whilst the traditional view is that risk management is a part of the project management function, carried out by the project manager or delegated project team member, an alternative view is that if there were no risks in a project there would be no need for project management and that the main purpose of project management is to manage the risks and hence the term Risk-Driven Project Management has started to come into being. From this understanding, risk management should
consider all aspects of the project and begin early in the life of a construction project continuing through until project closure.
Source: Project Management Institute, Project & Program Risk Management: A Guide
to Managing Project Risks and Opportunities, Project Management Institute, Inc., 1992.
Copyright and all rights reserved. Material from this publication has been reproduced with the
permission of PMI.
A project by definition is trying to introduce some form of change – a new
production system or way of working, a new building, and so on. Change
involves uncertainty, which in turn means that projects are more likely to
be ‘blown off course’ by a potential future event. In other words, projects in
themselves are inherently risky undertakings. Dennis Lock, in introducing the
topic of risk management in his book, Project Management, proposes that:
’It is not surprising that projects, which metaphorically (and sometimes
literally) break new ground, attract project risk. Project risks can be
predictable or completely unforeseeable. They might be caused by the
physical elements or they could be political, economic, commercial,
technical or operational in origin. Freak events have been known
to disrupt projects, such as the unexpected discovery of important
archaeological remains or the decision by a few members of a rare
protected species to establish their family home on what should have
been the site of the project.’
There is widespread agreement within the project management community
that a project risk is any event or series of events, whether internally or
externally driven, that on occurring will have negative consequences on the
project or business opportunity in terms of performance, functionality, time
of delivery, acceptance or cost. There are, however, strong views that project
risks are always those risks that impact on one or more of the project baseline
elements – time, cost or quality (note that quality is sometimes referred to as
technical).
A common definition of risk and one frequently used is:
’the threat or possibility that an action or event will adversely or
beneficially affect an organization’s ability to achieve its objectives.’
Overall, there are many potential benefits to the effective use of risk management
techniques, the longer you stay in the industry the more you’ll learn there is an endless chasm of variables to create risk in construction. The trick is management..Manage the risk with good communication, proper supervision, a good understanding of the project requirements, and a strong work ethic.
A common method to manage risk is to break the risk management process into multiple stages:
Identify Risks
Investigate every nook and cranny of your project to look for potential problems. With construction risk management solutions, you can proactively recognize and resolve issues by systematically evaluating all types of risks.
Analyze the Impact
You can get the data needed to explore various possibilities by conducting thorough risk assessments using risk management tools and data analytics platforms. Determine the likelihood and severity of each risk, as well as their impact on your project’s success. This analysis serves as your guiding compass, directing you toward the optimal course of action.
Prepare Mitigation Strategies
After identifying and analyzing risks, create a well-structured plan that includes risk mitigation tactics to neutralize or minimize potential dangers. Prepare all your defenses, from contingency plans to insurance coverage, to ensure comprehensive protection.
Communicate and Collaborate
Risk management is a team sport, so you must ensure all stakeholders are on the same page by encouraging open communication and seamless collaboration. Share knowledge, gain understanding and work together to achieve a common goal.
Monitor Strategies
As your project progresses, keep a close eye on the horizon. Construction risk management is a continuous process that evolves with new challenges. To stay one step ahead, maintain agility by making real-time adjustments and fine-tuning your strategies.
Learn and Improve
No quest is complete without lessons to be learned. Gather your experiences and insights from each project, reflecting on what worked and what could be improved. With each venture, your journey becomes a cycle of improvement, continually evolving and growing stronger.