Risk Management and Decision Making for Construction Projects

This report discusses the importance of risk management in construction projects and provides a risk management plan for an excavation work. It includes a risk matrix, consequence table, likelihood table, escalation table, and contingency plans for time and cost. The subject is relevant to construction management and the course code and college/university are not mentioned.

Running Head: RISK MANAGEMENT AND DECISION MAKING
Risk management
September 12
2018
Risk management and
decision making

RISK MANAGEMENT AND DECISION MAKING
1
Table of Contents
Introduction................................................................................................................................2
Case............................................................................................................................................2
Risk management.......................................................................................................................3
Risk analysis...........................................................................................................................4
Risk evaluation.......................................................................................................................5
Likelihood table.................................................................................................................5
Consequence table..............................................................................................................6
Risk matrix.........................................................................................................................7
Time contingency...............................................................................................................8
Cost contingency................................................................................................................8
Risk response.........................................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

RISK MANAGEMENT AND DECISION MAKING
2
Introduction
Construction projects being complex in nature comprises of different interrelated operations.
These operations are separately associated with a number of risks that need to be assessed
and minimised to make the construction project more efficient and successful. Risks
associated with construction operations are dependent on different factors like their
interrelation with other activities and complexity of the activity as well (Serpella, Ferrada,
Howard, & Rubio, 2014). These risks are hazardous for workers making a serious concern for
managers as well. Therefore a proper risk management system has to be developed to manage
and control construction risks at the construction site.
In this report a brief risk management plan is discussed including a risk matrix, consequence
table for cost as well time, likelihood table, escalation table, and assessing the contingency of
time and cost for an excavation work of the given case.
Case
In the given case XYZ company is preparing to dig an underground hole of given
specifications. The given specifications for the excavation work are:
 10m x 10m x 5m – Concept Design
 No geotechnical data, assume 80% soil, 20% rock
 Productivity rate in soil: 20m3/d
 Productivity rate in rock: 10m3/d
 Excavator: $2000/d
 Labor: $500/d
 Overhead including profit: $200/d
In this case total excavation has to be made is calculated as
Total excavation = volume of the dig

RISK MANAGEMENT AND DECISION MAKING
3
= 10*10*5=500m3
Total soil excavation = 500*80/100
=400m3
Total rock excavation = 500*20/100
=100m3
Time for soil excavation = total soil excavation/efficiency of soil excavation
= 400/20
= 20 days
Time for rock excavation = total rock excavation/efficiency of rock excavation
= 100/10
= 10 days
Total time required for excavation work = 20+10 = 30 days
Company requires the labour and excavator for 30 days which will cost separately as:
Excavator’s cost for 30 days = 30*cost of excavator for 1 day
= 30*2000
= $60000/
Labor’s cost for 30 days = 30*cost of labor for 1 day
= 30*500
= $15000/
Overhead charges including company profit = $200 per day
Total overhead charge = 30*200
= $6000/
Total cost of excavation = cost of excavator + cost of labor + overhead charges
= 60000+15000+6000
= $81000/
This given case has to several risks associated with it which has to be analysed and controlled
by the company.
Risk management
While executing any activity of construction project risks associated with that particular
activity have to be assessed and analysed. In this order different risk management tools are

RISK MANAGEMENT AND DECISION MAKING
4
used by organizations. Among these, XYZ Company uses risk matrix, consequence table,
likelihood table, escalation table, and assess the contingencies of time and cost for the given
excavation work. This management system of the company follows the typical process of risk
management including all the three stages of risk management that are: Risk Analysis or
Identification, Risk Assessment or Evaluation, and Risk Treatment or Response.
Risk analysis
At this stage risks are identifies or analysed at levels of hazardousness. In excavation work at
a construction site there are different risks that develop a hazardous situation and harm
workers at the operational site of excavation work (Boehe, 2016). At the excavation site,
there may be several hazardous like:
 Workers may fall into the excavations or trenches
 Tripping over debris, equipment and spoil
 Falling objects from excavated material and other objects on workers
 Unstable adjacent structures
 Exposure to overhead cables of electricity or underground services
 Poorly placed or mishandled material at the excavation trenches
 Exposure to the hazardous atmosphere or gases
 Exposure to the underground sources of irritating, toxic or inflammable and explosive
gases while excavating
 Accidents due to excavators or other mobile vehicles
These identified risks associated with the excavation work at site have to be evaluated
efficiently at the next stage (Cooper, et al, 2014).

RISK MANAGEMENT AND DECISION MAKING
5
Risk evaluation
Risk evaluation is the process of prioritizing risks based on different criteria like
hazardousness of risk, probability or likelihood of risk occurrence and many more (Hwang,
Zhao, & Chin, 2017). Managers at the site make decisions on the basis of risk evaluation
done by the risk management team. Risk evaluation uses different tools to prioritize or
categorise the risks identified in the previous step of irk analysis or identification (Albery,
Borys, & Tepe, 2016). These tools are key elements of risk evaluation at the time of making
decision for taking right decision for risk management strategy formation (Kerzner, &
Kerzner, 2017). Some of the risk evaluation tools used by the XYZ Company are Risk
matrix, consequence table for cost as well time, likelihood table, escalation table, and
assessing the contingency of time and cost for an excavation work of the given case (Baron-
Puda, 2015).
Likelihood table
Likelihood table defines the frequency or probability of an incident or accident at the site
location. This frequency helps to determine the risk matrix value for risk analysis or
evaluation at the time of assessing a risk (Salah, & Moselhi, 2015). For the given case
scenario of digging an underground hole of given dimensions the likelihood table to prepare a
4*4 risk matrix can be seen below:
Level Likelihood Expected or actual frequency experienced
1 Unlikely This indicates a rarely occurring risk that has the probability of occurrence
<20%. Risks of this likelihood are of non-complex nature.
2 Moderate These risks have moderate probability of occurrence: 20-40%. Maximum
probability of 40% can only be seen in very complex projects.
3 Likely These risks are very like to take place at any stage of the work. organizations

RISK MANAGEMENT AND DECISION MAKING
6
face these risks frequently in almost every project or work at the site.
4 Very Likely Risks that are of no control or very certain to occure in every task of
construction project.
Consequence table
Consequence table defines the severity of an incident or accident at the site location. This
level of severity or hazardousness of an incident at the site location multiplying with the
likelihood values of an incide3nt gives the overall value of risk for risk matric for individual
incident (Peterson, Lerman, & Nissen, 2016). For the give case scenario, in which XYZ
company is excavating an underground hole of the given dimensions, consequence table can
be prepared as below:
Level &
descriptor
Health
Impacts
Critical
services
interruption
Organizational
outcomes/
objectives
Reputation and
image per issue
Non-compliance
Minor
(1)
Routine
health
check-ups
required (up
to 1 week
incapacity)
Short term
temporary
suspension –
backlog
cleared < 1
day
Inconvenient
delays
Non-headline
exposure, clear
fault settled
quickly;
negligible
impact
Breach;
objection/complaint
lodged; minor harm
with investigation
Moderate (2) Increased
level
medical
attention (2
wks to 3
mths
Medium term
temporary
suspension –
backlog
cleared by
additional
Material delays;
marginal under-
achievement of
target
performance
Repeated non-
headline
exposure; slow
resolution;
Ministerial
Negligent breach;
lack of good faith
evident; performance
review initiated

RISK MANAGEMENT AND DECISION MAKING
7
incapacity) resources enquiry/briefing
Major
(3)
Severe
health crisis
(incapacity
beyond 3
mths)
Prolonged
suspension of
work –
additional
resources
required;
performance
affected
Significant
delays;
performance
significantly
under target
Headline
profile; repeated
exposure; at
fault or
unresolved
complexities;
ministerial
involvement
Deliberate breach or
gross negligence;
formal investigation;
disciplinary action;
ministerial
involvement
Catastrophic
(4)
Multiple
severe
health
crises/injury
or death
Indeterminate
prolonged
suspension of
work; non
performance
Non
achievement of
objective/
outcome;
performance
failure
Maximum high
level headline
exposure;
Ministerial
censure; loss of
credibility
Serious, wilful
breach; criminal
negligence or act;
prosecution;
dismissal; ministerial
censure
Risk matrix
It is a matrix used at the time of risk assessment in order to define the level of risk in terms or
its hazardousness considering the probability or likelihood of a risk against its respective
consequences or hazards (Quintus, & Ladefoged, 2016). This mechanism of the tool
enhances the visibility or risk hazards and assists mangers in making right decision for the
risk management plan for the site work. In this matrix level of risk hazards is calculate by
multiplying the probability of risk occurrence and its severity (Qian, & Lin, 2016). Although
standard risk matrices are available in certain contexts like US DoD, NASA, and ISO, risk
matrices can be formed for individual projects or activities as per their own risks associated
with the particular activity (Taylan, Bafail, Abdulaal, & Kabli, 2014).

RISK MANAGEMENT AND DECISION MAKING
8
In order to prepare a 4*4 risk matrix for the given case severity can be taken as Minor,
Moderate, Major, and Extreme, whereas the likelihood or probability can be taken as
Unlikely, Moderate, Likely, and Very Likely.
For the given case scenario of excavation work of 500m3 of soil and rock risk matrix is
formed as below:
Severity
Minor Moderate Major Extreme
Likelihood
Unlikely Low Low Low Low
Moderate Low Medium Medium Medium
Likely Low Medium Medium High
Very
Likely
Low Medium High High
Using these tools for the given excavation work XYZ Company has found that the excavation
work is associated with medium level of risks. These risks that are found to be of medium
level are like: falling of objects on workers, falling of trench earth and similar other risks.
These risks will affect the estimated price as well.
Time contingency
Contingency allowance is the allocation of extra time or cost for the project activity. Time
contingency is defined as the extra time allowance for both the labor as well as excavator in
case of any delay due to an accidental incident at the site location. In the given case scenario
excavation work is of 30 days only but accidents can occurs at any stage of the work.
therefore to minimize the over cost in the planning process an extra time allowance is
provided to overcome the delay charges for the project.

RISK MANAGEMENT AND DECISION MAKING
9
Cost contingency
Along with the extra time allowed for minimizing the time consequences extra cost
allowances are also provided for the same work. These allowances are for the repairing of
any damage in the machinery or expenses for the health care of workers at the site (Yildiz,
Dikmen, Birgonul, Ercoskun, & Alten, 2014).
Risk response
At this stage response plans or strategies are prepared for the work. XYZ Company really
look after its employees or site workers and always make more strategic in the response of
any type of risks. The risk response strategy of XYZ Company can be seen in below given
table:
For Threats For Opportunities
Avoid. Best option for any risk identified at
the initial stage is avoiding it by making
suitable changes in the execution plan.
Generally threats of a construction work are
good to avoid.
Exploit. In excavation work there are some
opportunities that can help the work in
making it more efficient and safe for the
company. In case if there is already a pit at the
excavation site this can be used to reduce the
efforts of both the labor as well as machinery.
Transfer. In construction projects there are
some risks that are difficult to deal with by
the company therefore such risks are
transferred to a third party assigning
complete responsibility of that particular
risk. In this process organization is free from
dealing with that particular risk.
Share. Sharing and transferring a risk are
similar up to some extent. In sharing
company grabs the opportunity of sharing
the work and benefits with the third party.

RISK MANAGEMENT AND DECISION MAKING
10
Mitigate. In order to reduce the probability
or likelihood and/or impact of an incident
mitigation is the best strategy suitable for
the organization.
Enhance. In this strategy XYZ organization
try to enhance every opportunity available
from risk as a perk.
Acceptance. In some case it is not possible to deal with the risks with the help of any other
strategy or it can be stated that there are risks that cannot be mitigated, transferred, or
shared. In such cases organization has to accept the situation and deal with it.
Conclusion
XYZ Company will execute the excavation work with minimum risks ensuring a better safety
for workers and making the work both the time efficient as well as cost efficient. The above
risk management methodology will help the organization to understand different risks at
different stages and will also help the organization to prepare best suitable strategy for the
risk management. The excavation work is quite long and risks are likely to occur therefore
this risk assessment will help the organization really and will surely make the work efficient.

RISK MANAGEMENT AND DECISION MAKING
11
References
Serpella, A. F., Ferrada, X., Howard, R., & Rubio, L. (2014). Risk management in
construction projects: a knowledge-based approach. Procedia-Social and Behavioral
Sciences, 119, pp. 653-662.
Cooper, D., Bosnich, P., Grey, S., Purdy, G., Raymond, G., Walker, P., & Wood, M.
(2014). Project Risk Management Guidelines: Managing Risk with ISO 31000 and
IEC 62198. US: Wiley Global Education.
Kerzner, H., & Kerzner, H. R. (2017). Project management: a systems approach to planning,
scheduling, and controlling. US: John Wiley & Sons.
Boehe, D. M. (2016). Supervisory styles: A contingency framework. Studies in Higher
Education, 41(3), pp. 399-414.
Hwang, B. G., Zhao, X., & Chin, E. W. Y. (2017). International construction joint ventures
between Singapore and developing countries: Risk assessment and allocation
preferences. Engineering, Construction and Architectural Management, 24(2), pp.
209-228.
Albery, S., Borys, D., & Tepe, S. (2016). Advantages for risk assessment: Evaluating
learnings from question sets inspired by the FRAM and the risk matrix in a
manufacturing environment. Safety science, 89, pp. 180-189.
Baron-Puda, M. (2015). Occupational risk asssessment in management of health and safety in
workplaces. Zarządzanie Przedsiębiorstwem, 18(3), pp. 2-10.
Peterson, C., Lerman, D. C., & Nissen, M. A. (2016). Reinforcer choice as an antecedent
versus consequence. Journal of applied behavior analysis, 49(2), pp. 286-293.

RISK MANAGEMENT AND DECISION MAKING
12
Taylan, O., Bafail, A. O., Abdulaal, R. M., & Kabli, M. R. (2014). Construction projects
selection and risk assessment by fuzzy AHP and fuzzy TOPSIS
methodologies. Applied Soft Computing, 17, pp. 105-116.
Salah, A., & Moselhi, O. (2015). Contingency modelling for construction projects using
fuzzy-set theory. Engineering, Construction and Architectural Management, 22(2),
pp. 214-241.
Yildiz, A. E., Dikmen, I., Birgonul, M. T., Ercoskun, K., & Alten, S. (2014). A knowledge-
based risk mapping tool for cost estimation of international construction
projects. Automation in Construction, 43, pp. 144-155.
Quintus, S., & Ladefoged, T. N. (2016). In surplus and in scarcity: agricultural development,
risk management, and political economy on Ofu Island, American Samoa. American
Antiquity, 81(2), pp. 273-293.
Qian, Q., & Lin, P. (2016). Safety risk management of underground engineering in China:
Progress, challenges and strategies. Journal of Rock Mechanics and Geotechnical
Engineering, 8(4), pp. 423-442.