RISK MANAGEMENT IN

CONSTRUCTION
MBA 3 SEMESTER
LECTURES 24 AUG 15 & 25 AUG 15

APPROACHES TO RISK IDENTIFICATION

TOP DOWN
BOTTOM UP

RISK MANAGEMENT-STEPS?

WHAT DOES RISK MANAGEMENT

INVOLVE?
IDENTIFICATION
ANALYSIS/ASSESSMENTPRIORITIZATION OF RISKS
ACTION PLAN
MONITORING &
CONTROL

WHAT DOES RISK IDENTIFICATION INVOLVE?

1. PROCESS (??) OF DETERMINING:
WHICH RISKS MAY AFFECT PROJECT
OBJECTIVES?
WHAT THEIR CHARACTERISTICS COULD BE?

2. KEY BENEFIT:?

DOCUMENTATION OF EXISTING RISKS

PROVIDES KNOWLEDGE AND ABILITY TO ANTICIPATE
EVENTS/FUTURE RISKS.

ITERATIVE PROCESS ??

NEW RISKS MAY EVOLVE DURING

PROJECT LIFE CYCLE.

FREQUENCY & DURATION VARIES

WITH SITUATION.

KEY PARTICIPANTS-RISK IDENTIFICATION ACTIVITIES??

PROJECT MANAGER
PROJECT TEAM MEMBERS
RISK MANAGEMENT STAFF (IF ASSIGNED)
CUSTOMERS
SUBJECT MATTER EXPERTS (EXTERNAL & INTERNAL)
END USERS
OTHER PROJECT MANAGERS
OTHER STAKEHOLDERS
RISK MANAGEMENT EXPERTS

1. TOP DOWN APPROACH-Contd..

OUTPUT OF OTHER PROCESSES TO
BE REVIEWED TO IDENTIFY
POSSIBLE RISKS ACROSS THE
PROJECT
PROVIDES RAPID START TO THE
ASSESSMENT.

1. TOP DOWN APPROACH

STARTS WITH AN OVERALL VIEW
OF PROGRAMME.
REQUIRES UNDERSTANDING OF
PROJECTS MISSION, SCOPE AND
OBJECTIVES OF OWNER, SPONSOR,
AND/OR STAKEHOLDERS.

IMPLICATIONS-TOP DOWN APPROACH

ALL DIRECTIONS COME FROM THE TOP & PROJECT OBJECTIVES ARE
ESTABLISHED BY THE TOP MANAGEMENT.
TOP MANAGERS PROVIDE RISK GUIDELINES, INFORMATION, PLANS
AND FUND PROCESSES.
ALL OF THE PROJECT MANAGERS EXPECTATIONS ARE CLEARLY
COMMUNICATED TO EACH PROJECT PARTICIPANT.
FOLLOWING THIS APPROACH, AMBIGUITY OPENS THE DOOR FOR
POTENTIAL FAILURE-OFTEN RESULTS IN REDUCED
PRODUCTIVITY AND CAUSES BOTTLENECKS.
THERE WAS NO EFFECTIVE COLLABORATION BETWEEN THE TEAM
MEMBERS. THEY WERE NOT MORALLY MOTIVATED TO DO THEIR
JOBS

2. BOTTOM UP APPROACH
SYSTEMATIC AND COMPREHENSIVE
CONSIDERATION OF PROJECT MANAGEMENT
AND TECHNICAL DELIVERABLES.
EXAMINES THE PROJECT REQUIREMENTS,
PLANS, SPECIFICATIONS, RESOURCES,
CONTRACTS, CONTRACTOR, SUB CONTRACTOR
CHARACTERISTICS AND PROJECT INTERFACES
AND INTERACTIONS TO IDENTIFY RISKS.

IMPLICATIONS OF BOTTOM UP APPROACH

TEAM MEMBERS INVITED TO PARTICIPATE IN EVERY STEP
OF RISK IDENTIFICATION PROCESS.
THE DECISION ON A COURSE OF ACTION IS TAKEN BY THE
WHOLE TEAM.
IT ALLOWS MANAGERS TO COMMUNICATE GOALS AND
VALUE, E.G. THROUGH MILESTONE PLANNING.
TEAM MEMBERS ENCOURAGED TO DEVELOP PERSONAL TODO LISTS WITH STEPS NECESSARY TO REACH MILESTONES
ON THEIR OWN.

IMPLICATIONS OF BOTTOM UP APPROACH

THE CHOICE OF METHODS & WAYS TO PERFORM THEIR TASKS IS UP
TO THE TEAM.
ADVANTAGE OF THIS APPROACH- EMPOWERS TEAM MEMBERS TO
THINK MORE CREATIVELY.
THE TEAM MEMBERS MOTIVATION TO WORK AND MAKE THE RISK
MANAGEMENT OF PROJECT A SUCCESS IS DOUBLED.
THE PLANNING PROCESS IS FACILITATED BY A NUMBER OF PEOPLE,
WHICH MAKES IT FLOW SIGNIFICANTLY FASTER

THE BEST WAY IS TO FIND

A BALANCE BETWEEN THE TWO

OPPOSITE APPROACHES AND TAKE
THE BEST PRACTICES FROM BOTH OF
THEM

COMMON FORM OF RISKS

ABSENCE OF LABOUR/STAFF
SUDDEN RESIGNATION OF KEY STAFF
STAFF DIVERTED BY ORGANISATION
ADDITIONAL STAFF/SKILLS NOT AVAILABLE
TRAINING NOT EFFECTIVE
INITIAL SPECS OR DRAWINGS INCOMPLETE/POORLY DRAFTED
WORK ON CHANGE ORDERS MULTIPLY DUE TO PROBLEMS
ENHANCEMENT OF WORK TAKES LONGER THAN EXPECTED

CLASSIFICATION OF RISKS (FINTECO EXCOL)

FINANCIAL
TECHNICAL
COMMERCIAL
EXECUTION
CONTRACTUAL OR LEGAL

FINANCIAL RISK
FINANCIAL EXPOSURE-EG. LARGE CAPITAL
INVESTMENT REQUIRED TO DEVELOP
PROJECT
WITHOUT CONTRACTED BUYER PRIOR TO
CONSTRUCTION-MAJOR FINANCIAL RISK IN THE
HOPE OF SELLING OFFICE SPACE OR BUILDING
AFTER IT IS COMPLETED

TECHNICAL RISK
MAXIMUM RISK-UNIQUE TECHNICAL
ELEMENTS OR UNPROVEN TECHNILOGY
MINIMUM RISK- IF ONLY MODIFICATION TO
ALREADY DEVELOPED DESIGN
LEVEL OF TECHNICAL RISK DIRECTLY
PROPORTIONAL TO UNDERPERFORMANCE IN
MEETING SPECIFIED REQUIREMENTS

COMMERCIAL RISKS
PROJECTS DEVELOPED FOR COMMERCIAL
PURPOSE-EG. RECEIVING REVENUES-DEGREE OF
COMMERCIAL SUCCESS IS UNKNOWN ONCE
INTRODUCED IN MARKET
UNCERTAINTY, COMPANIES WILLINGLY ACCEPT
AS IT IS VIRTUALLY IMPOSSIBLE TO PREDICT
CUSTOMER ACCEPTANCE/DEMAND OF NEW
SERVICE/PRODUCT

EXECUTION RISK
GEOGRAPHICAL OR PHYSICAL CONDITIONS/UNKNOWNS
POORLY TRAINED OR INSUFFICIENT PROJECT TEAM PERSONNEL
UNCERTAINTY OF SUFFICIENT LOCAL MATERIALS OR OPPOSITE
(ABUNDANCE OF )-AN OPPORTUNITY!!
UNCERTAINTY ABOUT AVAILABILITY/BREAKDOWN OF CRITICAL
PLANT OR EQUIPMENT
UNCERTAIN WEATHER/ADVERSE CLIMATE OR ENVIRONMEN
ADVERSE TRAFFIC CONDITIONS/LAW & ORDER

CONTRACTUAL/LEGAL RISKS
SUCH RISKS CONSISTENT WITH STRICT TERMS
AND CONDITIONS DRAWN UP IN ADVANCE.
LIQUIDATED DAMAGES/FIXED COST TYPE OF
CONTRACTUAL CONDITIONS/STRUCTURES
SIGNIFICANT RISKS FOR CONTRACTORS
UNCERTAINTY OF HANDING OVER
LAND/ENVIRONMENTAL CLEARANCES