Management of Risk in Construction

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• Management of Risk in Construction
• By Professor Simon Burtonshaw-Gunn licensed
  under the Creative Commons Attribution
  Non-Commercial Share Alike License
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School of the Built Environment MSc Construction
Management Risk Management in the Built
Environment Presentation 1 Introduction to Risk
Management Professor Simon Burtonshaw-Gunn
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Introducing Construction Risk Management
So to start, what are risks?
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In life there are risks
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In life there are risks
- in driving a car
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In life there are risks
- or even parking it
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In life there are risks
- in flying a light aircraft
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In life there are risks
- or in playing various sports
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So too in business . . . .
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So too in business . . . . although such risks
are naturally associated with a financial risk
compared to the market volatility and hence the
ability to realistically provide expectations
based upon a risk versus reward trade off.
Whilst the management of corporate financial risk
is undertaken through a very specialist risk
discipline this presentation looks at the subject
of risk management from a project, business or
operational viewpoint where such risks can be
internally or externally driven and may impact on
the projects objectives.
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• Risks and uncertainty occur in all construction
  projects and traditionally centre on the three
  project management constraints of
• time,
• quality and
• cost
• More recent authors also note that project
  managers need to meet or exceed customer
  expectations and needs.

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Dennis Lock, in his book, on Project Management
proposes that It is not surprising that
projects, which metaphorically (and sometimes
literally) break new ground, attract project
risk. Project risks can be predictable or
completely unforeseeable. They might be caused
by the physical elements or they could be
political, economic, commercial, technical or
operational is origin. Freak events have been
known to disrupt projects, such as the unexpected
discovery of important archaeological remains or
the decision by a few members of a rare protected
species to establish their family home on what
should have been the site of the project.
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The Natterjack Toad - Epidalea calamita
Threatened by habitat loss and the scrubbing up
of its open habitats (often caused by changes in
management such as the reduction in grazing) and
suffering from competition from the commoner
amphibian species the Natterjack is threatened in
Britain  Because it is so threatened the
Natterjack is strictly protected by British and
European law which makes it an offence to

• kill, injure or capture them
• disturb them in any way
• damage or destroy their habitat
• possess them or sell or trade them in any way.

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So, what then is the purpose of Risk Management
and what are the consequences of not doing it ?
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• The objectives of risk management are to ensure
  the rapid identification of risks within the
  business and to establish a clear process of
  assessment, action planning and reporting of the
  risks identified.

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• The objectives of risk management are to ensure
  the rapid identification of risks within the
  business and to establish a clear process of
  assessment, action planning and reporting of the
  risks identified.
• It is important that focus and attention is given
  to the identification of opportunities as this
  will enable effective decision making to ensure
  that

• Business opportunities can be quickly assessed at
  an appropriate level in order to decide if and
  how it might proceed with such opportunities.
• Threats to the project or other parts of the
  companys operations can be eliminated or reduced
  to an acceptable level.
• All decisions take account of contributing to
  sustainable shareholder value.
• Key risks and the appropriate control measures
  are kept under regular review and reported

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Why reduce risk?
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Why reduce risk?

• To ultimately reduce the likelihood of
  people/environment being exposed to a hazard and
  therefore harm
• To make the company more efficient by reducing
  accidents and the cost associated with them, i.e.
  lost time, legal actions by either individuals or
  the Regulator, profits, share price, etc.. . . .
  See also next slide
• The net benefit is that people feel safer in
  their work and therefore work more efficiently
  and productively

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The accident iceberg . . .
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• INSURED COSTS
• Covering injury, ill health, damage.

• UNINSURED COSTS
• Product and material damage
• Plant and building damage
• Tool and equipment damage
• Legal costs
• Expenditure on emergency supplies
• Clearing site
• Production delays
• Overtime working and temporary labour
• Investigation time
• Supervisors time diverted
• Clerical effort
• Fines and Reputation
• Loss of expertise / experience

What amount this ??
Source UK Health Safety Executive
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The accident iceberg . . .
1

• INSURED COSTS
• Covering injury, ill health, damage.

• UNINSURED COSTS
• Product and material damage
• Plant and building damage
• Tool and equipment damage
• Legal costs
• Expenditure on emergency supplies
• Clearing site
• Production delays
• Overtime working and temporary labour
• Investigation time
• Supervisors time diverted
• Clerical effort
• Fines and Reputation
• Loss of expertise / experience

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Source UK Health Safety Executive
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Insurance and Risk in Project Management .
Source UK Health Safety Executive
From Project Management by Dennis Lock,
Published by Gower, 2007
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Indeed The Institute of Chartered Accounts report
that They, (project staff) collectively,
should have the necessary knowledge, skills,
information and authority to establish, operate
and monitor the system of internal control. This
will require an understanding of the company, its
objectives, the industries and markets in which
it operates and the risks that it faces.
Internal Control, Guidance for Directors on
the Combined Code on the Committee on Corporate
Governance, The Institute of Chartered
Accountants
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Looking at Risk Management from the most senior
level of the organization . . . . from December
2000 all London Stock Exchange listed companies
have been required to comply fully with the
Turnbull Report on Corporate Governance which
notes that Risk management is essential for
reducing the probability that corporate
objectives are jeopardised by unforeseen events.
All that the company is trying to achieve can be
affected by risk exposure. They should be
proactively managed Implementing Turnbull, A
Boardroom Briefing The Institute of Chartered
Accountants
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Given the importance of Corporate Governance and
its relationship to being able to demonstrate
responsible Risk Management many of the larger
organizations in the UK have embed Risk
Management as part of their corporate governance
approach.
Senior Management Accountabilities
Control Framework
Risk Framework
Typical Corporate Governance Model
General and Business Ethics
Policies
Behaviours
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The balance between the organizations ability to
take risks for business purposes and that of risk
management in the form of corporate governance
and a management process illustrates the
difficulty of balancing risk taking with risk
management, in reality this two forces cause the
project to osculate around the optimum approach.
Risk
Out of Control
Taking
-

fire fighting

-


-
crisis management
-
Theory
Practice
Over Control
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red tape

-


-
loss of quality
-
Risk Management
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The right amount of control
Risk
Cost of risk occurring
Unstructured Ill-defined Superficial
Complex Unworkable Theoretical
Optimum balance for risk control
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The right amount of control
Risk
Cost of controlling risks
Cost of risk occurring
Unstructured Ill-defined Superficial
Complex Unworkable Theoretical
Optimum balance for risk control
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The right amount of control
Risk
Total cost
Cost of controlling risks
Cost of risk occurring
Unstructured Ill-defined Superficial
Complex Unworkable Theoretical
Optimum balance for risk control
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• By proactively addressing risks correctly the
  project should
• cost less,
• be completed more quickly, and
• produce products more likely to meet the clients
  requirements.
• As such the test of an organizations commitment
  to achieving effective Risk Management is the
  visible willingness to allocate budget or other
  resources to risk actions at each stage of the
  project (see also later slides).
• This implies that all the actions are on the
  senior management of the organization but
  responsibilities for Risk Management are far
  wider than this as both the Project Manager and
  Project Teams have direct project and governance
  responsibilities.

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Integrating Risk Management with other Project
Management Functions
In focusing on typical construction projects, the
topic of Risk Management can be seen to impact on
its many facets of the project.
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Integrating Risk Management with other Project
Management Functions
In focusing on typical construction projects, the
topic of Risk Management can be seen to impact on
its many facets of the project.
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Integrating Risk Management with other Project
Management Functions
In construction, what are the relationships
between the Prime Contractor and other management
disciplines
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Integrating Risk Management with other Project
Management Functions
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The British Standard on Project Management (EN BS
6079-32000) defines this as uncertainty
inherent in plans and the possibility of
something happening (ie a contingency) that can
affect the prospect of achieving business or
project goals.
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The British Standard on Project Management (EN BS
6079-32000) defines this as uncertainty
inherent in plans and the possibility of
something happening (ie a contingency) that can
affect the prospect of achieving business or
project goals. In the Vocabulary of the
Standard a further definition is also provided as
a combination of the probability or frequency
of occurrence of a defined threat or opportunity
and the magnitude of the consequences of the
occurrence.
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The British Standard on Project Management (EN BS
6079-32000) defines this as uncertainty
inherent in plans and the possibility of
something happening (ie a contingency) that can
affect the prospect of achieving business or
project goals. In the Vocabulary of the
Standard a further definition is also provided as
a combination of the probability or frequency
of occurrence of a defined threat or opportunity
and the magnitude of the consequences of the
occurrence.
the process whereby responses to the risks are
formulated, justified, planned, initiated,
progressed, monitored, measured for success,
reviewed, adjusted and (hopefully) closed (The
Association of Project Management 1997).
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School of the Built Environment MSc Construction
Management Risk Management in the Built
Environment Presentation 1 Introduction to Risk
Management Professor Simon Burtonshaw-Gunn