Risks Associated With Construction Project And Different Risk Mitigation Techniques

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Construction projects are characterized as very complex projects, where uncertainty comes from various sources. This paper deals with the identification of risk by different methods, types of risks associated with construction project and different risk mitigation techniques. In the construction industry, risk is often referred to as the presence of potential or actual threats or opportunities that influence the objectives of a project during construction, commissioning, or at time of use. Risk is also defined as the exposure to the chance of occurrences of events adversely or favorably affecting project objectives as a consequence of uncertainty. Pure risk in which there is the possibility of financial loss but no possibility of financial…show more content…
This risk may be considerable, since exchange rates are particularly unstable in many developing countries or countries whose economies are in transition. In addition to exchange rate fluctuations, the project company may face the risk that foreign exchange control or lowering reserves of foreign exchange may limit the availability in the local market of foreign currency needed by the project company to service its debt or repay the original investment. Interest rate risk forces the project to bear additional financing costs. This risk may be significant in infrastructure projects given the usually large sums borrowed and the long duration of projects, with some loans extending over a period of several years. The project company and the lenders also face the risk that the project execution may be negatively affected by acts of the contracting authority (Government), another agency of the government or the host country’s legislature. Such risks are often referred to as political risks. Political risk faced by firms can be defined as “the risk of a strategic, financial, or personnel loss for a firm because of such nonmarket factors as macroeconomic and social policies. Political risk includes risk such as change in law, payment failure by government, increase in taxes and change in government. Legal risks is the risk of non-compliance with legal or regulatory requirements.
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