RISK MANAGEMENT ESSAY
The following essay has been written by analyzing the risks associated from the construction managers/ project managers’ point of view. Citing the possible risks associated while working on international or varied geographical location. Risks are associated with almost all levels of the project life cycle and is mutually shared and mitigated by all parties employed within the construction industry. There are many evidences to state that poor risk mitigation leads to poor performance and hence establish risk management processes and practices are required to be adhered to in order to turn any project’s outcome into a success.
The 2000 edition of the Guide to the Project Management Body of Knowledge (PMI,2000) states
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New entrants who set up similar projects may have access to long term loans at the prevailing rate of interest which may be cheaper. In such a situation, projects that were implemented with high cost borrowings will find it difficult to compete with the new entrants.
On the other hand if the interest rate increases in the future, the interest on working capital finance (which normally carries a floating interest rate) increases which will result in lower profit margins than estimated at the time of project appraisal. interest rate risks can be managed to some extent by entering into interest rate hedging agreements like ‘interest cap’, ‘interest swap’ etc.
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EXCHANGE RATE RISK
Exchange rate risk, also called as ‘currency risk’ is the risk arising from currency fluctuations. Volatile exchange rates can reduce cost and productivity advantages gained over years of hard work. Firms exposed to international economy face this risk. When a firm has already committed to a foreign currency denominated transaction, the firm is exposed to a exchange rate risk. The firm will incur a
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.
The exchange rates risk that is associated with economic, transaction, and translation exposure in Indian market. From the analysis, anticipate the fluctuations that seem to occur in the next 24 months
The following short case will give you a good idea of how risks surface in business and project planning and what companies do about it. Consider that you are the Risk Manager as you look at this case, as it will be a good exercise for the time when you will be that Risk Manager!
2.There are three different types of foreign exchange risk: transaction exposure, economic exposure, and translation exposure. Transaction exposure refers to the extent to which transactions are liable to be affected by the exchange rate at a given moment. Because of the constant fluctuations of the exchange rate, the profits garnered from a given transaction can be greatly affected. Economic exposure refers to the tendency that a change in exchange rate can have on a party's cash supply and earnings. This has similar consequences to those of transaction exposure, except that it is not directly related to a specific transaction. Translation exposure relates to the impact that changes in exchange rates can have on the financial statements of a country; they differ from the other types of foreign exchange risk in that they have less relation to transactions.
According to A Guide to the Project Management Body of Knowledge (PMBOK® Guide), - Third Edition,
After considering my above feelings and thoughts I realised that by being aware of the time I spent on the risk assessment, I was able to keep it as necessary and as concise as I had hoped for. Previously I have ran out of time completing the full assessment, meaning that the ending of the assessment is typically missed off. According to Westbrook et al (2007) five or ten minutes is required at the end of treatment to conclude and set up a homework task. Although at the time I was feeling anxious and nervous; attempting to keep track of the time allowed me to achieve the assessment in the time I had allocated myself.
Backup copies of appropriate vital records must be maintained in a secure off-site storage location. The off-site storage location has been selected due to its location which will ensure it is unaffected by the disaster since distance and accessibility were considered in site selection.
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
Each flowchart step is placed in the “Lane” for the group responsible for completing the task (Marketing, Sales, HR, etc.).
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 order for a home building project to survive its purpose, risk analysis is essential so that occurrences that may affect the projects in the end can be identified, analyzed, assessed, managed and monitored. Because of the risky processes that are involved in the projects of home building construction, risk analysis and mitigation is the most useful tool in achieving good project and planning in home buildings as well as other constructions. If good risks management procedures are well conducted, the team’s level of confidence will be boosted, and this will enable or project to run and smoothly achieve its goals while facing and tackling each risk. Risk management will also come in handy as time will be saved as well as the
Surveys of various projects under different stage of progress through reports and interaction with teams associated with project shall be used to collect information. Initial assessment identifies about twenty major risk factors likely to occurrence in majority of construction projects. This project proceeds further its study into the likely impacts of the risk factors on the project objectives. Risk management may be described as “a systematic way of looking at areas of risk and consciously determining how each should be treated. It is a management tool that aims at identifying sources of risk and uncertainty, determining their impact, and developing appropriate management responses. A systematic process of risk management has been divided into risk classification, risk identification, risk analysis and risk response, where risk response has been further divided into four actions, i.e. retention, reduction, transfer and avoidance. An effective risk management method can help to understand not only what kinds of risks are faced, but also how to manage these risks in different phases of a project. Owing to its increasing importance, risk management has been recognized as a necessity in most industries today, and a set of techniques have been developed to control the influences brought by potential risks compared with many other industries, the construction industry is subject to more risks due to the unique
develop a methodology for quantifying risks, or should each situation be addressed individually? Can we have both a quantitative and qualitative risk evaluation system in place at the same time?
In this paper, an extensive literature review is undertaken to evaluate the importance of risk allocation to project stakeholders and discuss current practices. However, the complexity of this topic is beyond the scope of this paper. Hence, the attention is towards the direct participants, even though other stakeholders will also be tangentially mentioned. Also, as PPP is developing fast in the area of project finance and its importance is increasing, I have used it to illustrate some of the points made in the current risk allocation practices.