Risk Management in Construction Projects

This article discusses the importance of risk management in construction projects and explores strategies to mitigate risks. It covers topics such as communication and consultation, establishing the context, identifying stakeholders, risk assessment, risk treatment, and monitoring and review. The article also provides a case study on the construction of a two-storied building in Australia. Suitable for students studying construction management or related subjects.

Running head: RISK MANAGEMENT
RISK MANAGEMENT
Name of the Student:
Name of the University:
Author Note:

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Table of Contents
Executive Summary:........................................................................................................................3
Introduction:....................................................................................................................................5
Communication and consultation:...................................................................................................6
Establishing the context:..................................................................................................................6
Identifying all relevant stakeholders:...........................................................................................6
Internal stakeholders................................................................................................................6
External stakeholders:..............................................................................................................7
Clients:.....................................................................................................................................7
Rules, roles and responsibilities:.................................................................................................8
Processes and tools:.....................................................................................................................9
Risk register:............................................................................................................................9
Training of employees:............................................................................................................9
Definition of risk criteria:............................................................................................................9

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Risk assessment:............................................................................................................................10
Risk tolerance table:..................................................................................................................10
Risk treatment:...............................................................................................................................10
Monitoring and review:.................................................................................................................10
Discussion:.....................................................................................................................................11
Conclusion:....................................................................................................................................11
References:....................................................................................................................................12

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Executive Summary:
The discussion below shows that risks are inherent parts of construction projects. The risks which construction projects face stem from
factors like changes in laws and technology. The construction projects come under direct influences like dangers like natural
calamities and hostile political situations. It can be inferred from the attachments and the report that construction companies have no
control over these risks. However, it has already been pointed out that these companies have to take mitigation steps to avoid or at
least minimize the risks. Finally, it can be concluded that risk management strategies of companies should include supply chains as
well. We will apply
AS/NZS ISO 31000:2009 in the assessment.
Scope of the assignment:
 Construction of a two storied building
 Assessment of the risks the building project during and after construction.
 Recognizing the stakeholders and the impact of the risks on them.
 Formulation of risk management techniques.
Purpose of the construction of buildings
 To use them as commercial buildings

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 To use them as residential buildings
 To use them as both residential and commercial buildings
Risk management method applied:
The risk management methods applied would according to the AS/NZS ISO 31000:2009 and failure mode, effect and critical
analysis framework or FMEA.

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Figure 1. Risk management process according to AS/NZS ISO 31000:2009 (6)

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Introduction:
Engineering processes attract diverse types of risks and require adoption of risk management plan (RMP) to mitigate these
risks. Engineering projects aim to construct assets like bridges, buildings and roads. Risks to these assets pose risk to their users as
well. Breakdown of buildings and bridges can lead to devastating results including fatalities. Their breakdowns result in loss of
colossal amount of investments which go into their construction. Building construction projects are undertaken to erect buildings to
meet commercial or residential purposes. Damage of buildings either due to internal construction faults or due to external forces like
natural calamities result in death of people and loss of the assets stored in the buildings. Buildings can face risks due to several factors.
The British Broadcasting Channel reported in a 2016 article that several buildings in Africa collapsed due to several factors killing
several people. The article then goes on to mention that factors like weak foundation, counterfeit materials and improper usage are
responsible for breakdown of buildings [1]. This clearly points out that construction of buildings attract immense risks which have to
be addressed by taking proper risk management plans. The aim of the paper is to assess the risks and explore the RMP pertaining to
building construction projects. The task would first go on to explore the engineering specifications, timeline, financial budgeting and
external constraint to build the RMP. The research would also include the role of stakeholders in the RMP and the consequences as
well as likelihood of the identified risks. This would lead to development of risk treatment options and risk tolerability. The entire task
would be based on construction of a two storied building in Australia. The paper would also take into account frameworks according
to AS/NZS ISO 31000:2009, ISO 31010:2018 and FMEA.

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Communication and consultation:
The engineering company involved in the construction of buildings should provide consultation and communication strategies
to their clients. The communication strategy should enable continuous flow of the construction related information between the
company involved in the construction of the buildings and the clients. The construction company should communicate the information
regarding the progress in the construction work. Either of the parties should communicate the risks which they might recognize during
and after the construction project. The construction company should provide its specialist knowledge to provide consultation services
to the clients to enable them to mitigate the risks. The two parties my mutual consent can appoint a third party consultant to provide
consultation about risk management plan or RMP1.
Establishing the context:
Identifying all relevant stakeholders:
The construction company involved in the construction of the building should identify all the relevant stakeholders which
should be considered in order to form risk management plan mitigate or at least minimize the risks. The company should divide its
stakeholders into two groups namely, internal and external stakeholders.
Internal stakeholders
The internal stakeholders which should be involved in the RMP are the management bodies and the employees. The apex
management of the company would play the important role in taking decisions regarding the risk management plan. The interests of
1 Iqbal, Shahid, et al. "Risk management in construction projects." Technological and Economic Development of Economy 21.1 (2015): 65-78.

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the management lies in earning higher profits. The constraints of the management lie in that factors that all the members of the apex
management do not have direct access to the clients and they are dependent on the support of the employees, both middle ;level
employees and lower level employees to execute their orders2.
The next group of internal stakeholders are employees of the construction companies. Their main responsibilities lie in
recognizing the risk factors since they are in more direct contact with the market. Their main constraint lies in the fact that they have
no decision making power.
External stakeholders:
The following are the main stakeholders of the construction company involved in the construction of the buildings:
Clients:
The clients consists of the firms and government bodies to enter into contracts with the construction companies to build houses
for them. The main constraints of the clients are they usually lack knowledge of civil construction and lack of proper supervision of
over the activities of the clients [3].
2 Qazi, Abroon, et al. "Project Complexity and Risk Management (ProCRiM): Towards modelling project complexity driven risk paths in construction
projects." International Journal of Project Management 34.7 (2016): 1183-1198.

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Government bodies:
The government bodies are the key stakeholders since they provide approvals and sanctions. The government bodies form laws
and policies which the construction companies have to comply with in order to undertake and execute projects.

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High
KEEP SATISFIED(government)
MANAGE
CLOSELY(management,
employees, Business customers,
individual consumers, investors)
Low
MONITOR (minimum effort) KEEP INFORMED(media,
society)
Low High
INTEREST
Figure 2. Stakeholder Grid
(Source:Author)
Stakeholders Interests
Management of the
construction
companies
Maximum profits, new project acquisitions,
business expansion
Employees Higher compensation, appraisals, promotions,
career development opportunities
Government taxes
Suppliers Maximum revenue by repeat orders for materials,
plants and labour
Financial institutions Purchase of more financial products
Investors Higher returns on invetsments

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Society More affordable and sustainable construction
projects and resultant housing facilities
Rules, roles and responsibilities:
The risk management plan of the construction companies should under the roles and the responsibilities of the key stakeholders
both internal and external in mitigation of risks [2]. For example, the risk management plan would be based on the participation of all
the employees. The lower level employees would be responsible for reporting any identified risks to their middle level managers.
Similarly, the middle level managers would be responsible for communicating the risks up the hierarchy and instructions of the apex
managers to the lower level employees.
Processes and tools:
The following are the processes which the construction companies should apply to mitigate or at least minimize risks:
Risk register:
The management of the construction companies should maintain risk register to record accidents, employee injuries and even
fatalities. The companies should submit the risk register to the relevant authorizes like government bodies on demand.

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Training of employees:
The apex management bodies should train the employees to recognize and report risks. The employees should also be trained
to manage risks which would enable them to participate in risk mitigation more actively. Training of employees would empower the
employees to manage the risks more efficiently which on the whole would minimize the risk incidences[4].
Definition of risk criteria:
The management of the construction companies should take steps to define the risk criteria and the tolerable extent of risks.

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Risk assessment:
Risk tolerance table:
Risk treatment:
The construction company should use failure mode, effect and critical analysis framework or FMEA. The analysis would
enable the construction company to recognize the inherent risks and point out strategies to mitigate them. The mitigation strategies
have been inserted against the identified risks.
Ri
sk
Risk
Category
Risk
Incident
Risk
Descripti
Current
Controls
Compliance
Controls/Aw
Likeli
hood
Conseq
uence
Rati
ng
Accept/
Reject
If
Reje
Likeli
hood
Conseq
uence
Rati
ng Owner

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N
o on areness
ct -
furth
er
contr
ols
1 Political
Changes
in
governm
ent
legislatio
ns
Govern
ment
policies
require
the
Fannie
Mae to
change
its
modes of
operatio
ns. The
company
even
suffers
losses
failing to
comply
with the
new
policies.
The
company
cannot
take any
action to
prevent
changes
in the
laws.
The apex
manage
ment of
the
company
have to
incorpor
ate the
new
laws in
its mode
of
operatio
ns.
A 4 E Accept NA C 4 E CEO/
Owners
2 Political Weakeni
ng
internati
onal
relations
hips of
the US
Cancella
tion of
contracts
to invest
in the
mortgag
e
schemes
by rich
foreign
clients
The
company
cannot
take any
action to
prevent
changes
in the
laws.
The apex
manage
ment of
D 4 H Accept NA C 4 E CEO/
Owners

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RISK MANAGEMENT
the
company
have to
incorpor
ate the
new
laws in
its mode
of
operatio
ns.
3 Economic
Weekeni
ng of
USD in
the
internati
onal
currency
market
Fannie
Mae
generate
s lower
ROI on
its
foreign
investme
nts
Efficient
fund
manager
s
A 5 E Accept NA B 3 H Manage
rs
4 Economic
Economi
c
weakeni
ng of the
America
n market
Fannie
Mae
generate
s lower
reveneu
due to
lack of
investors
Efficient
fund
manager
s
c 4 E Accept NA C 3 H CEO/
Owners
5 Social
Falling
per
capita
income
in the US
Fannie
Mae
generate
s lower
business,
thus
suffering
revenue
risks
Efficient
fund
manager
s
N/A c 4 E Accept NA C 3 H Manage
rs
6 Social
Shifting
of
investme
The
investors
may
Efficient
fund
manager
B 3 H Accept NA C 3 H Manage
rs

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nt
pattern
of
investors
shift to
more
secured
mode of
investme
nts like
bonds
and
saving
account
s
7 Technologic
al
Advance
d
technolo
gy
renders
current
technolo
gy
redundan
t
The
capital
which
Fannie
Mae
invests
in
technolg
y goes to
waste
Efficient
fund
manager
s
A 4 E Accept NA C 3 H Manage
rs
8 Technologic
al
Data
thefts
Loss of
sensetive
data
pertainin
g to
investors
includin
g
financial
data
Technol
ogical
departme
nt
A 5 E Accept NA A 5 E Manage
rs
9 Environment
al
Rising
natural
calamitie
s
Loss of
property
and
manpow
er
All the
departme
nt
A 5 E Accept NA C 5 E CEO/
Owners
10 Environment
al
Rising
envrion
mental
pollution
Installati
on of
technolo
gy using
less
All the
departme
nt
B 3 H Accept NA C 2 M CEO/
Owners

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electricit
y
11 Legal Changes
in laws
Change
of
organisat
ional
policies
All the
departme
nt
B 3 H Accept NA C 4 E CEO/
Owners
12 Legal Crime legal
charges
All the
departme
nt
C 3 H Accept NA C 4 E CEO/
Owners
13 Operational
Higher
turnover
of
employe
es
Disrupti
on of
producti
vity
All the
departme
nt
C 3 H Accept NA C 4 E CEO/
Owners
14 Operational
Resistan
ce to
changes
Disrupti
on of
producti
vity
All the
departme
nt
C 4 E Accept NA C 4 E CEO/
Owners
15
Threat of
new entering
company
Investor
poaching
and
falling
revenue
Reductio
n of
revenue
All the
departme
nt
C 4 E Accept NA C 5 E CEO/
Owners
16
Risk of
employee
theft(Operati
onal)
Loss of
assets
including
informati
on
Reductio
n of
revenue
All the
departme
nt
C E Accept NA C 6 E CEO/
Owners
17 Fire(Operati
onal)
Loss of
assets
including
informati
on
Massive
loss of
revenue
and
business
data
All the
departme
nt
C E Accept NA C 7 E CEO/
Owners
18
WHS
risks(Operati
onal)
Loss of
producti
vity due
Legal
actions
from
All the
departme
nt
C E Accept NA C 8 E CEO/
Owners

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to
injuries/d
eath of
employe
es
governm
ents
19
Risk due to
political
corruption(P
olitical)
Loss of
resources
and
revenue,
inhibitio
n in
getting
approval
s and
sabctions
from the
governm
ent
Business
opportun
ity loss
All the
departme
nt
C E Accept NA C 9 E CEO/
Owners
20
Risk due to
IPR
infringment(l
egal risks)
Loss of
resources
and
revenue,
inhibitio
n in
getting
approval
s and
sabctions
from the
governm
ent
Business
opportun
ity loss
All the
departme
nt
C E Accept NA C 10 E CEO/
Owners

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Figure 3. Risk matrix
(Source: Author)
The lower level employees should report the risks and the management should take strategies of managing the risks according
to its position the risk matrix. The company should consult risk management firms to pave ways for more effective risk management.

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Monitoring and review:
The management of the construction company should frame monitoring strategies and review the risk mitigation strategies.
The management must train the employees would enable them to take steps to mitigate risks more efficiently.
Actions to be taken Consultation
times(days)
Resources Evaluate and
monitoring
Risk training to
avoid cuts
7
Training rooms,
financial
resources,
training
materials,
trainers
Management
Risk management
of collision
7
Risk management
of foreign body in
the eye
7
Muscle injury 7
Monitoring 30
Further action 30
Discussion:
It is clear from the discussion that the management of the construction companies should take steps to mitigate risks. The apex
managers should form risk management policies which should be abided by all the employees.

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Conclusion:
It can be concluded that construction companies building houses should adopt risk management strategies to minimize
accidents. They should conduct the building projects ethically and ensure use of high quality raw materials to ensure safety of the
clients. They should also act in responsible ways to consider the environmental aspects while and after construction of the projects.

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References:
1. BBC.com. 2016. BBC.com. [online] Available at: https://www.bbc.com/news/world-africa-36205324 [Accessed 8 Apr. 2019].
2. Iqbal, Shahid, et al. "Risk management in construction projects." Technological and Economic Development of Economy 21.1
(2015): 65-78.
3. Qazi, Abroon, et al. "Project Complexity and Risk Management (ProCRiM): Towards modelling project complexity driven
risk paths in construction projects." International Journal of Project Management 34.7 (2016): 1183-1198.
4. Gendron, Yves, Marion Brivot, and Henri Guénin-Paracini. "The construction of risk management credibility within corporate
boardrooms." European Accounting Review 25.3 (2016): 549-578.
5. Finance.gov.au. 2019. Finance.gov.au. [online] Available at:
https://www.finance.gov.au/sites/default/files/COV_216905_Risk_Management_Fact_Sheet_FA3_23082010_0.pdf [Accessed
17 Apr. 2019].
6. Treasury.act.gov.au. 2019. Treasury.act.gov.au. [online] Available at: http://www.treasury.act.gov.au/actia/RMISO.htm
[Accessed 17 Apr. 2019].