RISK MANAGEMENT

P R O F. R AV I N D R A S H R I VA S TAVA , N I C M A R D E L H I N C R
SESSION 01

AGENDA
To understand the risk in construction projects.
WHAT IS RISK?
DEFINITIONS

Cambridge  As the possibility of

Dictionary something bad happening

 A Project risk is an
 Risk is effect of uncertain event or condition
ISO
uncertainty on objectives PMI that, if it occurs, has a
31000 positive or negative effect on
project objectives
WHAT IS PROJECT?
A project consists of a temporary
endeavor undertaken to create a
Success unique product under certain
constraints
At engineering phase a lot of
efforts putted for future prediction

Cost

Project
Constraints

Quality Time
WHY PROJECTS ARE RISKY?
 Complexity and uniqueness
 Dynamic arrangements of different stakeholders leads to have
significant interface risk
 Financial intensity
 Complex procedures
 Lengthy duration
 Offensive environment
 Some external factors which are beyond the control of project team
such as situation of market, level of competition, size of the project,
political and economic variations, expertise of parties
Construction is one of the most dynamic, risky, and challenging industry
CONSTRUCTION PROJECTS
 Changes are inherent in construction projects
 Perception from past performance is
No known perfect engineer
No known perfect design
No known behavior of force of nature

Cost Loss
Changes
overrun making unit

7/10/2019
 Cost
overrun

Risks
Project
Poor Constraints Delays
Quality
What is Risk in Projects?
Phenomenon closely associated with uncertain events.
– It is a chance of risk. It may be either frequency or a probability of
occurrence or likelihood of occurrence.
– The size of the ensuing loss.

Probability of occurrence of event

X
Consequence or (Amount of loss)
 COMPONENTS OF RISK

RISK EVENTS EVENT

Cause/Source Lawsuit filed in Public Interest

LIKELIHOOD Probability Probability Probability Probability Probability

of 5% of 15% of 60% of 75% of 95%

Potential Potential Potential Potential Potential

IMPACT Outcome Outcome Outcome Outcome Outcome
#1 #2 #3 #4 #5
[minor nuisance] [Medium ] [High] [Very High] [catastrophic]

Range of likelihood & Impact

 COMPONENTS OF RISK – PROBABILITY
Probability is a measure of the likelihood that the Risk Event will occur,
e.g., 30% chance of flood due to heavy rains

100

80
Percent

60

40

20
C B A
0
THE RELATIONSHIP OF RISKS PROBABILITY AND IMPACT ACROSS THE PLC

Initiating Planning Executing Controlling Closing

Probability
 The greatest degree of risk exist in the earliest phase of the project when
available information about the project is the least.
 Hence, risk is at its peak in the conceptual phase.
Components of Risk – Undesirable Outcome
Put simply, the Undesirable Outcome is what hurts!
- lower than expected production
- catastrophically lower production
- inability to meet cash flow
- loss of income
- catastrophic loss of income
- loss of life
- loss of buildings & other resources
- inability to get a permit or loan
Components of Risk – Event (Cause/Source of
Risk)

The Event is what caused the hurt:

- weather event
- injury/death of an employee
- neighbors action against you
- lower output
- low quality inputs
- downward slide in general economy
- and countless more!!!
Risk Increases the More You Don’t Know

All The Potential Outcomes The Probability of

Occurrence Cost of an Undesirable Outcome
RISK IN CONSTRUCTION PROJECTS
• Project Risk is the cumulative effect of the chances of an
uncertain occurrence that will affect project objectives.
• A risk event implies that there is a range of outcomes and also
there will be range of probability of occurrence.
• Difficult to predict all risk in a project but equally important to
identify all risk and there root cause.
• A realistic estimate which make appropriate allowances for the
risk.
RISK IN CONSTRUCTION PROJECTS

• The firm must decide the maximum size of an acceptable

risk which it can absorb. Beyond this size, ways will be
sought to avoid/ reduce/ transfer the risk
• Risk Management is concerned with the planning,
arranging and controlling of activities and resources in order to
minimize the impact of uncertain events
• The key to a successful project is the fair perception of risks by
each of the parties and the adequate management.
DECISION MAKING

 RM is a form of decision making in projects.

 Deals with better understanding of project/issues/risk and making
better management of your project, future.
 Decision should be based on data, information, Knowledge and
experience of project manager.
BENEFITS OF RISK MANAGEMENT
 Project issues are clarified, understood and considered from the start
 Decisions are supported by thoroughly analysis
 The definition and structure of projects continually monitored
 Clearly understanding of specific risk associated with the project
 Build up of historical data to assist the future