Understanding the Importance of Risk

CONTRACTING IN ROMANIA NOWADAYS RISKS, ADVANTAGES, CONSTRAINTS, CONTRACT MANAGEMENT, CONSTRUCTION LAW AND

GUIDANCE BEST PRACTICE

Understanding the

Importance of RiskPresented by James Wood

Claims Manager & Head of Quantity Surveying & Quantum

Techno Engineering & Associates

Workshop ASEMER – 29 November 2016

Understanding the Importance of Riskwww.technoeng.com

http://www.technoeng.com/

What is

Risk?

A potential event, either internal or external to a project, that, if it

occurs, may cause the project to fail to meet one or more of its

objectives.




The Financial Implications

of Risk ?

Risks and uncertainties, involved in construction projects, cause

cost overrun, delay and lack of quality during the progression of

the projects.




Concept many construction companies give too

little thought to

Economic downturn = increased competition and

pressure

Construction projects are unpredictable




Managing Risk

Recognised as being very important process

Try to eliminate the unexpected, by thinking about all

the things that might happen to deflect a project from

its objectives

Achievement of project objectives:

Time

Cost

Quality

Safety




The main aims of risk management are to:

• Identify potential risks

• Assess the probability and impact of each risk

• Identify alternative actions that may prevent the risk from happening

(avoidance), or if it does happen ameliorate the impact (reduction), or

provide a strategy for dealing with the accepted consequences

(acceptance)

• Implement and monitor those actions that are cost effective and

necessary to the successful delivery of the project objectives




The proper management of risks requires that they

be identified and allocated in a well-defined

manner.

This can only be achieved if contracting parties

comprehend their risk responsibilities, risk event

conditions, and risk handling capabilities.




Which method

technique to

choose?

How to measure

a risk?

How to identify

risk in construction

projects?




Qualitative

Assessment

Identification of risk

Evaluation process

Assess the impact and

likelihood




Quantitative Assessment

Magnitude of consequences

Monte Carlo Simulation

Modelling

Quantifies probability of

occurrence

Estimate frequency of risks




QUALITATIVE QUANTITATIVE

risk-level project-level

subjective evaluation of

probability and impact

probabilistic estimates of

time and cost

quick and easy to perform time consuming

no special software or tools

required

may require specialized tools




Ten potential delay

factors

Contractors’ financial difficulties

Client cash flow problems

Engineer’s incomplete drawings

Subcontractors’ slow mobilisation

Late delivery of ordered materials

Incomplete structural drawings

Contractors’ planning and scheduling problems

Price escalation

Subcontractors’ financial difficulties

Expropriation issues




Summary




Effective risk management process encourages the

construction company to identify and quantify risks and

to consider risk containment and risk reduction policies.

Construction companies that manage risk effectively and

efficiently enjoy

financial savings, and

greater productivity,

improved success rates of new projects and better

decision making.




Risk Management in the construction project

management context is a comprehensive and

systematic way of identifying, analysing and

responding to risks to achieve the project

objectives.




Thank you for your time!




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Understanding the Importance of Risk