Financial Risks in Construction

Working to understand the risks a project may endure along with the cost associated is critical in every project management plan. Understanding potential risks based on the project type, resources needed, timeline and budget still leaves gaps that creates uncertainty for actually predicating the outcome of the project. There is not a true way to predict when and where a project risk will occur but designing a plan to properly address and manage those risks will increase confidence while eliminating the element of surprise.

risks and determine the likelihood and consequence of that risk occurring during the project. The

Indeed, Project Risk Management includes the processes of conducting risk management planning, identification, analysis, response planning, and controlling risk on a project. (PMBOK Guide - Fifth Edition, 2013).

Risk identification more disciplined process involves using checklists of potential risks and evaluating the likelihood that those events might happen on the project. Some companies and industries develop risk checklists based on experience from past projects. These checklists can be helpful to the project manager and project team in identifying both specific risks on the checklist and expanding the thinking of the team. The past experience of the project team, project experience within the company, and experts in the industry can be valuable resources for identifying.

Risks management is an important step during the process of a project. Failing to manage a risk may result in unforeseen event happening and a project’s failure. For example, with limited budget, an unforeseen event or an accident occurs in the middle of a project and this matter has not been considered and needs a big sum of expense, then the project may be stopped because of this unexpected event. We should know it is necessary to understand how to identify risks and assumptions based on the information. After identifying risks, it is important for project managers to set contingency plans to prevent and deal with these risks when they occur. Of course, several problems may happen during considering

Risk or threat is common and found in various fields of daily life and business. This concept of risk is found in various stages of development and execution of a project. Risks in a project can mean there is a chance that the project will result in total failure, increase of project costs, and an extension in project duration which means a great deal of setbacks for the company. The process of risk management is composed of identifying, assessing, mitigating, and managing the risks of the project. It

The term risk has been defined in so many ways by many scholars. The term ‘risk’ itself is very broad to interpret. However, risk is often defined as a threat and it usually brings negative impacts to a person or an organisation. Hansson (2005) claims that many attempts have been made to define risk in a single meaning and eliminate other definitions which are futile and a form of ‘linguistic imperialism’. Since there is no exact meaning of risk, people describe risk based on their own perceptions and purposes. Perminova et al. (2008) and the Association of Project Management (APM) define risk as an uncertain event and exclusively negative (APM, 2006). Ward and Chapman (2003) recommend that project risk management (PRM) is categorized as project uncertainty management. Nonetheless, the term ‘uncertainty’ again brings confusion as there is no single meaning that can successfully define it (Perminova et al., 2008). On the contrary, Kaplan and Garrick (1981) define risk according to public’s risk perception. There are three criteria suggested by the authors such as the failure of that particular event, its tendency as well as the impact of the failure. Although there have been countless struggles to picture risk in a proper way, it is best that the focus should be diverted to a more important issue which is how to manage risk instead of defining it as time may not be on our side.

Defined by Coopers textbook, risk is the exposure to the consequences of uncertainty and has two elements: the likelihood of something happening that has an impact on the project objectives, and the positive or negative consequences of something impacting the project objectives (Cooper, Grey, Raymond, & Walker, 2005)

Construction projects can be extremely complex and fraught with uncertainty. Risk and uncertainty can potentially have damaging consequences for the construction projects. Therefore nowadays, the risk analysis and management continue to be a major feature of the project management of construction projects in an attempt to deal effectively with uncertainty and unexpected events and to achieve project success. Risk is inherent on construction projects and disputes frequently arise. One in four construction projects results in a dispute that leads to arbitration or litigation. With large scale, complex projects the likelihood of serious, time-consuming and expensive claims increases.

In building and construction, there are risks associated with estimating a home building project. These risks in construction are all the same across the board regardless the construction. Therefore, a home building projects is confronted with the same risks as any other project in the construction industry. The risks involved are such as; project management risks. The project management risks are mainly because of improper schedule. The improper schedule may be caused by poor allocation of time

Project Risk Management – identifies potential risks (good and bad) that can affect the objectives of the project.

In order to perform project risk management effectively, the organization or the department must know the meaning of the risk clearly. With regards to a project, the management must focus on the potential effects on the objectives of the project, for example, cost and time (Loosemore, Raftery and Reilly, 2006). Risk is a vulnerability that really matters; it can influence the objectives of the project

Risk allocation is performed as part of the development of the project structure, which takes into account the distribution of responsibilities and risks during the planning, construction, financing and operating phases (Corner, 2006). The aim is to identify an efficient and effective structure that optimises the costs of the project and ensures that the risk occurrences do not damage the project (Delmon, 2009). According to Grimsey and Lewis (2007) risk allocation has two elements: optimal risk management and value for money. The first implies that the

This assignment is included in the 2014 session of the Risk Management module of the MSc in Project Management course at University of Aberdeen. The main purpose of the assignment is to demonstrate my understanding of the issues involved in Risk Management and how they are applied in my current Project environment. The assignment is split in to two questions as detailed below.

The project manager working with the project team and project client will ensure risks are actively identified, analyzed and managed throughout the life of the project. Risks will be identified as early as possible to minimize their impact. This can be done using several ways like