Concept of Risk in Construction Industry

supposition of run a encounter in Construction intentness3.1 General lucksThe meaning of jeopardize of exposure forms when time goes on and the meanings resist when they argon at the specific socio-cultural and diachronic contexts which we argon located in. (Deborah Lupton, 1999) jeopardize is exposure to the possibility of economic or financial loss or gain, physical damage or injury, or delay, as a core of the shyty associated with pursuing a specific course of activeness (Cooper, Chapman, 1987). match to Cornelius Keating, put on the line is non the present problem which should be immediately addressed, but it is considered as future issues that toilet be b ard or mitigated. Risk is considered as a situation which whitethorn consider to contradict consequences. Gener solelyy, six major(ip) categories of find scum bag be de frontierine as the more or less momentant concerns for the majority. They atomic teleph oneness number 18environmental lucks, inc luding pollution, radiation, chemicals, floods, fires, dangerous passage conditions and so onLifestyle trys, which re previous(a)d to the consumption of such(prenominal) commodities as food and drugs, engagement in sexual activities, driving practices, stress, leisure and so onMedical jeopardizes, which related to experiencing medical c be or discourse. much(prenominal) as drug therapy, surgery, childbirth, reproductive technologies and diagnostic testsInterpersonal attempts, related to paint a picture relationships, social interactions, love sexuality, gender roles, friendship, marriage and pargonntingstinting run a lucks implicated in unemployment or under-employment, borrowing money, investment bankruptcy, destruction of property, also-ran of a trading and so on andCriminal jeopardizes atomic number 18 those put on the lines emerging from being a participant in or effectiveness victim of illegal activities.(Deborah Lupton, 1999)3.2 Risks in Construction assiduit y3.2.1 The Concept of Risk in Construction IndustryThe crook industry experienced a wide variety of run a attempts which whitethorn reach in financing, boding, constructing and managing facilities of a bug knocked out(p). There be different definitions of lay on the line in eddy industry. In determine to understand the serve well of risk precaution, it is classic to understand the basic construct of risk in all aspects. The international standard tolerate risk focus Application guidelines? holds the guess of luck and consequence and defines risk as a combination of luck of an event which is occurring and its consequences to confuse headings (IEC 2001). Ward and Chapman (2003) shoot do a broader definition of risk and suggest employ a much general concept of misgiving. They argue that risk is considered as threats but not opportunities and when it occurs it affects the mould capital punishment. Edwards (1995) points pop out that risks have a negative pe rtain on the expulsions cost, quality or time in most situations. These definitions have a common feature they define risk in ground of uncertain events and may have positive or negative impact on a understands objectives.According to An (2010), risk interpretations fag be considered as the nextThe same as the word approximateThe consequence of an unwelcome import or failureChances of achieving a given government issueSignifies dangerTaking a chance in an activityAn (2010) argues the term risk traverse be defined in the two components the probability of occurrence of the risk and the magnitude of the consequences if the risk happened. And the relationship is written in the formula Risk = consequences x probability. The general trend of risks is shown in the strain 3.1 below. When the probability of occurrence is gamy, the consequences of risks seem to be low and vice versa. Risks with major or severity consequences r bely happen, but risks which atomic number 18 or have low consequences tend to happen frequently.Figure 3.1 Consequences versus probability trend (An, 2010)As mentioned above, the equation seems to be simple, however, the most alpha thing is to understand and front the probability of occurrence and the severity of consequences and express those using returns.3.2.2 Risk mixtureProject risks gage be categorized in a number of substances by considering the level of detail or a selected viewpoint. (Anna Klemetti, 2006) Categorizing risks pull up stakes do help in identifying risks.According to the study of National Economic Development Office, construction risks can be broadly rooted in the following categoriesTechnical Risks include poor design, inadequate point investigation, and uncertainty over the source and handiness of materials and appropriateness of preconditions.Logistical Risks include availableness of resources such as construction equipments, spare parts, fuel and labour and availability of sufficient transportat ion facilities.Construction Risks include uncertain productivity of resources, conditions or seasonal implications and industrial relations problems.Financial Risks include inflation, availability and fluctuation of foreign exchange, delay in payment, repatriation of coin and local taxes. regimenal Risks include constraints on the availability and employment of expatriate staff, customs and import restrictions and social functions, difficulties in disposing of aimt and equipment and insistence on using of local firms and agents. twain Smith (2006) and An (2010) argue that all despatch risks can be split up into exact main categories known risks, known unknowns and unknown unknowns. The difference amidst the categories is the decreasing ability to predict or foresee the risks. Table 3.1 presents a drawing ex inventation nearly these three categories of risks.Table 3.1 Categories of risks (An, 2010)Known risksIncluding electric shaver variations in productivity and swings i n material costs. These occur frequently and are an inevitable feature of all construction contrives.Known unknownsIncluding the risk events whose occurrence is predictable. Either their probability of occurrence or their likely effect is known. extraterrestrial being unknownsThose events whose probability of occurrence or their likely effect is unknown.Risk resources can as well be divided into quad elements trivial, expected, punt and risk watchfulness. flatts with a low impact are not serious and can be divided into the elements of trivial and expected. For the high impact and low probability, these events are hazards which office occur but are too remote to be considered. (An, 2010)Taking into retainer of the probability of the occurrence and the consequence for aim objectives, those events that have high probability and high impact are subjected to risk attention. Figure 3.2 shows the classification of risk resources.Figure 3.2 Classification of risk sources (Smith, 20 06)The causes of risk are various and depending on the size, complexity, novelty, location of the forecast as well as on the hotfoot of construction and political or commercial plan. Long-term jumps are thought to be more risky because the possibility of something going wrong is large to appear and the need for immediate plans of action that allow change is fundamental. The sources of risk are presented in Table 3.2.Table 3.2 Sources of risk (Thompson, Perry, 1992)Source moralClient, Government, regulatory agenciesBureaucratic delays, changes in local regulationsFunding, fiscal transmutes in government funding policy, liaison betwixt several fundersDefinition of imageChange in project scopeProject organisationAuthority of project manager, involvement of outside bodiesDesignAdequacy to meet need, realism of design programmeLocal conditionsLocal customs, weather windowsPermanent plant interpretDegree of novelty, damage or loss during transportationConstruction contractorsExperi ence, financial stabilityConstruction materialsExcessive wastage, quality, deliveryConstruction labourindustrial relations, multi-racial labour forceConstruction plantResale value, spares availabilityLogisticsRemoteness, access to siteEstimating dataRelevance to specific project availabilityInflation tack ratesForce majeureIt is important to use the table as the eldest note in risk assessment process in locate to identify all the relevant risks of the construction project. By identifying all the construction risks in the early stage of risk assessment process, successful risk counsel can be earnd. Failing to identify risks in the risk recognition stage is a hazard to the risk management process. (Perry and Thompson, 1992)Moreover, risks can be classified based on the ability of the project to condition them. A separation of risk as a local, global and native is based on the controlling ability of project parties on risks. As a result, this rule acting helps to identify 80% of the risk, the last may not be worthwhile looking for, and a few of these risks could not be reasonably foreseen. (Smith, 2006) Figure 3.3 shows the hierarchy of set risks.Figure3.3 Hierarchy of set risks (Smith, 2006)Project parties have to manage the manageable risks by the settled found and attain to feature the challenges of the unmanageable risks. The preparation can get the losses ca utilise by the unmanageable risks. Besides, some global risks can be compactd for sure. mixed bag of risks would definitely help to identify risks. No matter what method is used to identify the risks, it is important that risks should be set and assessed carefully, which is even more important in the early stages of the project since it impart affect the decision devising of the project participants.3.2.3 Importance of Risk prudence in the Construction IndustryChange is inherent in construction work. When an uncertain event occurs, it will impact some of objectives such as the cost, schedule, and quality of the project. Construction projects practically have a poor performance due to a privation of reasonable risk management process. (Liu Renhu, 2005) Many projects fail to meet deadline or cost and quality targets. As a result, risk management becomes an important part of construction management. Risk management intends to identify and manage those possible and unforeseen problems that might probably occur during the project implementation. And also, it tries to identify as many risk event as possible minimize their impact on the project, manage the resolutions to those events that are probably to materialize, and provide contingence funds to cover risk event that actually materialize. The essential purpose of risk management is to improve project performance via clayatic assignment, appraisal and management of project related risks. The focus on reducing threats or ill outcomes, which we might call downside risk, misses a key part of the overall pictur e. (Chapman, Ward, 2003) Changes cannot be eliminated, however, by applying risk management in project construction participates are able to improve the construction management. The gather of risk management can be concluded as followsProject issues are clarified, understood and considered from ariseDecisions are supported by thorough analysisThe definition and twist of the project are continually monitoredClear understanding of specific risks associated with a projectBuild-up of historical data to dish up future risk management procedures. (An, 2010)3.2.4 Project PlanningThe control of time cannot be affected insularism from resources and costs. Project planning methods should consider the communication with all the parties in a project in order to identify sequences of activates and draw attention to say-so problem areas. Careful and continuous planning contributes to successful construction project. Sequences of activities will be defined and linked to a time-scale to ensur e that priorities are identified and efficient use of costly or scare resources. However, since the uncertainty occurs during construction, the plan will always change and it must be updated quickly and regularly in order to maintain the most efficient way of terminate the project. In developing a controlling plan, it is vital to distinguish between different categories of change and to fully instigate the formal aspect of the project. (An, 2010) alone the parties and resources involved in construction have influences on project plan. However, project plan will change when uncertainty occurs. The purpose of planning is to stoop slew to perform proletariats before they delay. A framework of decision make in case of change occurs should be included in project planning. (Smith, 2006)3.3 Risk circumspection in the Construction Industry3.3.1 Risk watchfulness schemeBoth client and contractor are concerned about the projects risk allocation. Generally, the client or the project owner has an overall risk management strategy and policy included in the strategic documents and quality management system. Risk management strategy is shown in encipher 3.4. vigilance of project riskFigure 3.4 Risk Management Strategy (Smith, 2006)The most important issues which the project owner concerned in risk strategy are risk ownership and risk financing. Risk ownership is explained as which party owns the risks and risks expose and transfer. Risk financing can be explained as how to include and use budget of risk payment or contingency. The participants make decisions, which affect the responsibilities of the parties, to define the organization and procedures of a project. (An, 2010) It influences the construction, commissioning, change and risk of a project and this is how it affects the construction processes. (Smith, 2006)3.3.2 Process of Risk Management3.3.2.1 IntroductionRisk management is one of the most critical project management practices to ensure a project is s uccessfully completed. (Chapman, 1997) The purpose of risk management in construction industry can be verbalise as followingTo be competitive in meeting the clients specifications with solutions that are cost-effective at an acceptable level of risk (An, 2010).To successfully achieve the goals in any projects, the following four aspects need to be met scrapSpecificationCost-effectiveRisksIt is important to consider the four criteria as a whole. There are two major objectives managing risk one is to avoid the downside risks and the new(prenominal) is to exploit opportunities. Risk management is a process of delimitate the need for identifying, estimating and evaluating risks in order to control them at an acceptable level. (An, 2010) The risk management system is shown is figure 3.5.Figure 3.5 risk management frame work (An, 2010)Four aspects are involved in risk management, which are hazard identification, risk assessment, risk cut back or risk response and tinge preparedness. These will be introduced in the following paragraphs.3.3.4.2 Hazard appellationHazard identification is the first-year tone of the risk management process. It is aimed at determining probable risks which may affect the project. Ideally, all the potential risks and hazards should be identified when the decision is being made so that the participants can deal with before they occur. However, although prevention is let on than cure, no risk management system can identify all the risks and hazards in advance. (Martin Loosemore, 2006) In this way, hazard identification needs to be carried out carefully in order to reduce the potential risks in the project.As the first step of risk analysis, hazard identification is the most important one as it helps to identify the potential risks whose effects act as an impediment to the project, and this process will also help with risk mitigation and control. A general definition of hazard is stated as followingA hazard is an undesirable outcome in the process of meeting ant objective, performing a task or engaging in an activity (An, 2010).The undesirable outcome of a hazard could involveInjury to personnelDamage to property contaminant to the environment andA combination of all the above (An, 2010)Risk identification is one of the most important steps of risk management because it makes the risks clearer. As a result, Chapman (2001) points out that the success of later risk management phases is nowadays affected by the quality of the identification phase. Risk identification procedure identifies and categorizes risks that could affect the project. This procedure includes discovering, defining, describing, documenting and communicating risks before they become problems and affect a project. (Barati, S.,Mohammadi, S., 2008) Risk identification is a tool for identifying all the significant sources and causes of risk and hazards in a project. Numbers of methods and proficiencys are used in identifying the project risks (IEC 2001), including brainstorming, expert opinion, structured interviews, questionnaires, checklists, historical data, previous experience, testing and modelling and evaluating other projects.Perry (1992) points out the most popular methods of hazard identification. They areChecklists prepared by experienced people that are involved in the project.Brainstorming sessions where groups of people are trying to come up with potential risks through communion and exchange of ideas.Historical data of previous similar projects that can assist in the portraying of risks.Interviews of key participants of the project or experts involved with it.These techniques are to provide a systematic approach for identifying potential hazards in construction industry. (An, 2010) Empirical studies of risk management practice (Lyons, Skitmore2004) show that the checklists and brainstorming are the most useful techniques in risk identification. And they also point out that risk identification often rely on ind ividual judgments of the project participants.Another method applied for the identifying risk events is the HAZOP study (Hazard and Operability). This is a technique using guide-words? in order to study deviation from the design objective of a project and its elements. (An, 2010)A helpful action would be to group the risks and separate them into specific categories afterwards the first stage of risk identification. This would benefit the risk assessment process by applying a satisfactory technique to each category and furthermore in the selection of a risk management response for each type. (An, 2010) in construction industry three main types of hazards which need to be interpreted into account are the followingsManagement Hazards Associated with management and organizational issues, such as policy, commitment of funds for training, and the project of specific equipment and schedules to be met.Commercial Hazards Arise from commercial considerations, and particularly associated wit h decisions on spending. A typical example is the selection of a less expensive material that just meets the minimum standard required instead of opting for the more expensive item with huge specification and a track get down of high quality. whatsoevertimes a contract is accepted as a cost below the desired level, and savings have to be made in order to complete the work. This in turn may lead to potential hazards due to commercial factors.Time Hazards Many projects need to be completed by an agreed date. Delays due to the factors such as late delivery of materials, unforeseen production difficulties or failure to meet specification would affect the ability to meet deadline. As a consequence of failure to meet the deadline, it could affect future contracts and disrupt the schedules. All these events can be considered as hazards or time hazards.Each project has different associated hazards, which differ from various technology or organizations or anything else applied in the proje cts. A checklist of construction hazard drivers is shownFinancial HazardsLegal HazardsPolitical HazardsSocial HazardsEnvironmental HazardsCommunications HazardsGeographical HazardsGeotechnical HazardsConstruction HazardsTechnological HazardsDemand/product Hazards (An, 2010)after hazard identification, the potential hazards can be listed and grouped. Then, risk assessment method can be applied to build the risk level.3.3.4.3 Risk discernmentOnce risks have been identified, they must then be accessed. The sources of risks should be identified first, and then the effects of the risks should be assessed or analyzed. Risks can be assessed any using a quantitative or qualitative analysis. (Thompson, Perry, 1992)Qualitative Methods The first step of the qualitative analysis is also the first step of risk assessment risk identification, which is described above as the first step of risk management. Then, an assessment of the probability of occurrence and impact of the risks should be tak en out. Qualitative risk assessment usually includes the following issuesA brief description of the riskThe stage of the project when it may occurThe elements of the project that could be affectedThe factors that influence its occurrenceThe relationship with other risksThe likeliness of its occurrenceHow it could affect the project (Smith, 2006)Using qualitative methods is the first step of risk assessment. Then, a quantitative assessment is only for the risks whose further culture is required. These risks are usually serious and can jeopardise the project.Quantitative Methods According to Barrow (2007), there are four reasons why risk should be managed to minimize delays, to reduce cost, to improve return on investment, to increase the number of opportunity. Possible consequences of risk occurring are defined and qualified in terms ofIncreased cost such as superfluous cost above the estimate of the final cost of the projectIncreased time such as additional time beyond the comple tion data of the project through delays in construction decreased quality and performance such as the extent to which the project would fail to meet the user performance based on quality, standards and specification. (Smith, 2006)Several methods can be used in risk assessment and risk metrics method is going to be introduced. Risk metric is a two-dimensional presentation of likelihood and consequences using qualitative for both dimensions, event modelling is a systematic way to identify accident scenarios and quantify risk. (Ayyub, 2005)Estimating the probability and impact of risk in simple scales, such as from 1 to 5 or from high to low, is the most common way, and boundaries can also be numerically defined. Risk can be characterized by probability and consequence, and examples are given in table 3.3 and table 3.4.Probability of OccurrenceScaleDescriptor1Rare2Unlikely3Possible4 in all likelihood5Almost CertainTable 3.3 Probability of Occurrence (An, 2010) pass judgment of conseque ncesScaleDescriptor1Insignificant2Minor3Moderate4Major5SevereTable 3.4 rank of consequences (An, 2010)As mentioned in pervious paragraph, Table 3.5 shows that risks can be allocated in three regions.Table 3.5 Risk Matrix (An, 2010)ConsequenceProbability123455 bearable permissible impossibleIntolerableIntolerable4Negligible adequateTolerableIntolerableIntolerable3NegligibleTolerableTolerableTolerableIntolerable2NegligibleNegligibleTolerableTolerableIntolerable1NegligibleNegligibleNegligibleTolerableTolerableAnd this can also be replaced by two curves, as its shown in figure 3.6.Figure 3.6 Graphical presentation of risk regions (An, 2010)During risk assessment, identified risks are evaluated and ranked. The goal is to prioritise risks for management. The assessment of the risks leads the hazards to be classified in a region, which would determine the importance (risk level) of each hazard, and the possible regions are the unacceptable, tolerable or the negligible region. Figure 3.7 shows the risks listed in the appropriate regions.Figure 3.7 Output of risk assessment element (An, 2010)The risks are allocated in three regions, after that, the risks should be selected the risk response to them.3.3.4.4 Risk ResponseOnce the risks are identified and assessed, the next step of the risk management procedure is to response to these risks. The spirit of the response depends on the decisions made by the management team. In order to respond correctly, the team has to process the information available for the risk. There are two types of responses to risks immediate response and contingency response. The immediate response mitigates or eliminates the risks through alterations of the project plan. The nature of contingency response is preparing a plan for an alternative course of action and implementing it when the risk arises. (An, 2010)There are four basic ways of responding to risk and they are risk retention, risk transfer, risk reduction and risk turning away. In o rder to effectively manage a risk, it is necessary to adopt a combination of strategies to treat it. The selection process can be iterative until the most effective treatment strategy is developed. (Smith, 2006)AvoidanceRisk avoidance deals with the risks by eliminating the risks through changing the project plan or certain features. Another way of risk avoidance or reduction is re-design or changing the method of construction. (Perry, Hayes, 1985) However, there are only a few situations this response can be used.ReduceRisk reduction aims at reducing the probability and consequences of a risk event. The measures should be taken with consideration of the value for money. Reducing the level of risks could boot the cost. Only when the value of the reduced risk is beyond the cost it caused, this method can be taken. Risks can be reduced byObtaining additional informationPerforming additional tests/simulationsAllocating additional resourcesImproving communication and managing organisat ional interfaces(An, 2010) afterwards risk assessment, hazards are allocated in the intolerable, tolerable and negligible regions. There are some guidelines for risk reducing.Hazard in the intolerable region risks in this level should be eliminated or cost-effective cannot be achieved. As a result, the project should be considered for abandoning.Hazard in the tolerable region to reduce risks in this region, two aspects should be considered. One is whether the risk is close to the intolerable region, the other one is whether it is a cost-effective reduction process. It is better to reduce the risk no matter how expensive it might cost in dealing with the first situation. For the second consideration, it is better to reduce the risk and checking carefully of its allocation.Hazard in the negligible region it is recommended that these hazards should be left alone, since they are not worth to reduce. (An, 2010)TransferRisk transfer is to transfer risks from one party to another. This wou ld happen between parties in a project or between one party in the project and one outside. (An, 2010) Some contractual obligation can also be used as risk transfer method, because no one is willing to accept a risk without any form of compensation. Generally, it is better to transfer the risks to the parties who can go around control them.Acceptance or RetentionIf the other methods fail to adequately or fully treat the risk, the project has to be prepared to accept the risk or any residual risk remaining after some initial treatment. The party which is holding a risk may be the only one that can manage the risk or accept the consequences. If the risk is under control of this party, the likelihood of happening or inform the impact of the risk could be reduced.It is possible for a risk to have a number of potential treatment equally suitable but varying in cost. The selection of a final treatment must be made as cost-effective. The cost of managing the risk should be commensurate w ith the benefits obtained. The risk response process is directed at identifying a way of dealing with the identified and assessed project risks. Risk reduction is the most frequently used technique within the construction industry. Managing the risks of a project is a rather difficult task. Choosing any form of treatment may itself expose the project to additional risks. In this way, attention should be nonrecreational to ensure that the treatment strategy does not expose the project to greater risk than what the original risk was designed to treat.3.3.4.5 Emergency PreparednessEven when the pervious risk management processes have been well applied, accidents happen occasionally. The goal of compulsion preparedness can be concluded as the followingTo be prepared to take the most appropriate action in the event that hazard becomes a reality so as to minimise its effects and, if necessary, to transfer personal from a location with a higher(prenominal) level to one with a lower risk level. (An, 2010)Regarding the management of risk, an emergency preparedness is the preparation of contingency plans and courses of action in case the risk arises during construction. The emergency preparedness could also be an alternative course of action prepared as a contingency plan.3.4 ConclusionRisk management intends to identify and manage those potential and unforeseen problems that might probably occur during the project implementation. And it could identify as many risk event as possible, minimize their impact to the project, manage the responses to those events that are probably to materialize, and provide contingence funds to cover risk event that actually materialize. Precaution is better than cure. The same principle can be applied to risk management which should be a proactive approach rather than a reactive one. Risk management is a preventive process to ensure that negative impacts are reduced and that harmful consequences associated with undesirable events are min imized. Generally, the risk management process should include risk identification, risk assessments, risk response and emergency preparedness. Once risk has been identified, they must then be accessed on their potential severity of loss and the probability of occurrence. Then through the following stages such as risk avoidance, reduction, retention or risk transfer, the risks can be dealt with and its impact can be decreased to a certain extent.