Risk Management in Construction Projects

This article discusses the significance of risk management in construction projects and how it helps in identifying, assessing, and controlling threats. It also explores the impact of external and internal factors on project success.

Financial Reporting

TABLE OF CONTENTS
Risk analysis....................................................................................................................................1
External factors...........................................................................................................................1
Internal factors............................................................................................................................9
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

Risk analysis
External factors
Serial
number
Risk incurred
by
Risk
description
Risk level Mitigation Risk after
mitigation
1 Legal and
ethical risk
In UK under
Building act
1984 multiples
rules and
regulations are
prepared which
need to be
followed while
constructing a
building
(Wang, Zou,
and Li, 2016).
As per
guidelines
every company
that is
operating in
construction
industry must
follow rules
related to
workmanship,
adequate
materials,
structure,
waterproofing
and
4 Project manager
before starting any
construction project
must gather
information about
rules and
regulations. Many
times, it happened
that new rules are
prepared but
manager is not
aware of it and
make a mistake.
Ultimately,
Government
department take
action against
business firm.
There must be a
separate team
whose main work
must be to identify
rules and
regulations and
accordingly made
recommendation to
the project manager
1
1

weatherisation,
fire safety and
means of
escape, sound
isolation,
ventilation,
safe (potable)
water,
protection
from falling,
drainage,
sanitary
facilities,
accessibility
and facilities
for the
disabled,
electrical
safety, security
of a building,
and high-speed
broadband
infrastructure
(Malekitabar
and et.al.,
2016). In case
firm failed to
take action,
strict action is
taken against it
in the UK.
in respect to
operating entire
construction
project.
2

2 Social risk Many time
local people
object
construction of
building on
specific area.
Number of
cases are
observed
where business
firm pay
people to
vacant land
they own but
due to some
reasons
conflict arises
between firm
and people
(Jarkas and
Haupt, 2015).
In such cases
at end
Government
intervene
which directly
affect firm
interest.
3
In order to mitigate
social risk project
manager must
identify any reason
due to which local
people can oppose
implementation of
the project. For
example suppose
there are trees in
the land area where
building is
proposed to build
then local residents
may oppose it
(Dzhandzhugazova,
and et.al., 2015
(Dzhandzhugazova,
E.A. and et.al.,
2015). In such kind
of situation
alternative option
can be selected like
cropping of new
plant in nearby area
so that people
opposition can be
controlled. Thus,
project manager
must try to identify
factors due to
1
3

which people may
oppose project so
that action can be
taken on time to
handle such kind of
situation in easy
and effective way.
3 Political risk There are
number of
Government
departments
that operate
within a city
(Wang, 2015).
When any
business firm
intend to
construct a
building, it
need to obtain
clearance from
4 In order to mitigate
such kind of risk
before choosing
any location project
manager must
contact with the
Government
department officers
and must identify
reasons due to
which building can
be or not
constructed in
specific geographic
2
4

multiple
departments.
For example, if
there is
proposal to
construct
building
nearby to
forest area then
Forest
department
may not give
clearance
because
construction of
building lead
to increase in
pollution in
forest area
which may
lead to extinct
of varied
unique species.
Thus, due to
such kind of
reasons some
of Government
department
does not give
clearance for
building
area. On the basis
of information firm
can choose better
location for
building
construction
(Hwang., Zhao and
Yu,, 2016).
5

construction.
4 Technological
risk
Technology
risk is also one
of the external
factor that
need to be
considered by
the project
manager
(Burtonshaw-
Gunn, 2017).
If firm is
making use of
outdated
technology
then project
may stretch to
long time
period and cost
may increase
2 It can be observed
that in respect to
construction
industry technology
does not change at
rapid pace and due
to this reason, there
is not much risk on
this front.
However, project
manager must time
to time identify
new approaches
that are used for
building
construction so that
efficiency can be
improved
(Kvorning, Hasle
and Christensen,
2015).
1
5 Economical
risk
Economical
risk is one of
the highest
risky external
factors. In
many
construction
project banks
agree to
4 In order to mitigate
such kind of risk
business firm can
follow consortium
finance approach
under which
multiple banks
altogether finance a
specific project and
1
6

finance project
on varied
stages of
development
but due to cash
crunch they
further deny
from financing
a project
(Fang, Zhao
and Zhang,
2016). Such
kind of things
lead to delay in
performance of
the project and
elevation in
cost.
they altogether
review project
before financing it.
In this approach
risk is less for
banks and due to
this reason, they
easily finance
project.
6 Environmental
risk
Such kind of
factor must
also be taken
in to account
and under this
project must
not be started
in rainy
seasons etc.
4 In order to avoid
risk project must be
commence after
elimination of
environment risk
and must be
completed as soon
as possible so that
project can be
completed
successfully
without any
problem.
2
7

7 Logistical risk Logistical risk
may come in
existence due
to bitterness in
relation with
supplier
(Williams,
2016).
3
In order to avoid
such kind of
problems firm must
establish contact
with multiple
suppliers and
through them must
purchase products
time to time. So
that if any suppliers
do not supply
product or not able
to supply required
items due to some
reasons then in that
case firm operation
will not delayed.
1
8 Inflation of
tax
Some time
Government
increase tax
because of
which
suddenly cash
outflow burden
increase on the
business firm.
2 Project manager in
advance put
sufficient amount
aside so that
whenever required
it can be used in
such kind of
situation. relevant
planning lead to
smooth
performance of
1
8

business
operations.
9 Highest
interest rate
Highest
interest rate
affects firm net
cash inflow.
Many time
central bank
increase
interest rate
due to which
loan become
dearer and
firms have to
pay more
interest then
before. This
lead to
additional cash
outflow.
4 In order to mitigate
risk firm must take
loan at fixed
interest rate so that
if central bank
change interest rate
cost of debt for the
firm remain same
(Wu and et.al.,
2015). Apart from
this, investment can
be made on
derivative
instruments and by
doing loss faced on
bank loan can be
offset from the gain
made on the
derivative
instruments.
1
Internal factors
Serial
number
Risk incurred Risk description Risk
level
Mitigation Risk after
mitigation
1 Lack of
coordination
Many times,
between
employees there is 4 In order to
mitigate such
kind of risk 2 9

lack of
coordination and
due to this reason
conflicts happened
among them and
this lead to delay
in the project. It
can be said that
such kind of
incidents lead to
decline in
efficiency and
effectiveness of the
employees (Kliem.
and Ludin, 2019).
Lack of clarity of
roles and
responsibility and
employee’s
behaviour are the
main reasons
behind less
coordination
among employees.
chain of
authority and
responsibility
must be
clearly defined
so that one can
not make an
excuse and
perform all
responsibilities
in proper
manner. Apart
from this, in
order to
mitigate risk
time to time
meeting can be
organized by
the project
manager so
that on time
action can be
taken before
any problem
start develop
on large scale.
10

2 Lack of consensus Some times on any
decision lack of
consensus comes
in existence among
employees at the
workplace. M any
time such kind of
situation lead to
conflict among
employees which
ultimately affect
project growth.
Thus, it become
important for the
manager to guide
its subordinates in
proper manner so
that consensus can
be developed
among employees.
3 In order to
avoid such
kind of risk
business firm
manager must
negotiate with
its
subordinate’s
and must
identify their
concerns (Do
and et.al.,
2017). After
listening
employees
concern
manager must
take
appropriate
action so that
confidence can
be build up
among
2
11

employees and
consensus can
be developed
between them
in respect to
any issue. It
can be said
that by
following such
kind of
approach in
better way
situation can
be managed.
3 Miscommunication Miscommunication
often happened
between
employees and due
to this reason
specific tasks get
delayed or not
performed in
proper manner
(Fang, Zhao and
Zhang, 2016). This
happened due to
poor structure or
people does not
follow structure
while
communicating
4 In order to
manage such
kind of
scenario there
must be
quality
department.
Main work of
quality
department
must be to
check level of
quality of
work delivered
by the
employees at
workplace. If
2
12

with each other. any error will
be identified it
must be fixed
immediately.
4 Strike In few firm’s
employees have
union and they
strike in front of
management to
place their demand
and get fulfilled it
from management
side. Strike make
project delay and
this lead to
elevation in cost.
4 Management
must organize
meeting time
to time with
the union
members and
must solve
their problem
(Kvorning,
Hasle and
Christensen,
2015) .
1
CONCLUSION
It is concluded that there are many external and internal factors that have impact on the
project. Business firm project manager must closely evaluate a project and accordingly must take
immediate actions so that external and internal factor affecting project can be handled in proper
manner. There are number of factors that have huge impact on the business project like tax rate,
logistic and environment risk etc. Business firm must prepare proper plan and by doing so each
and problem can be addressed in proper manner.
13

Risk Management essay
Risk management is the process that basically identifies, assessing and controlling the
threats of the organization. Such that every business are faces unexpected risk and harmful
effects that also affect the overall project in opposite way (Aven, 2016). Further, IT security
threats and data related risk are also alleviate them which is consider one of the top risk among
construction sector. Therefore, risk management plan is increasingly includes the companies
while developing new project and also modify the same one. Therefore, by implementing risk
management plan company may prevent itself from different potential risk as well as save the
money too. The chosen company for this is Balfour Beatty which is the multinational
infrastructure group that is based upon UK with the capabilities in construction services as well
as support.
Therefore, there are different types of risk that is associated with the construction sector
and some of them Technical risk which is includes all the that may restrict the products which
the user needs. Therefore, it includes the uncertainty of resources and availability of material, not
having enough site investigation and incomplete design is also included under technical risk
which is faced by Balfour Beatty. These type of risk generally occur when the project manager
makes changes in the project scope or there may be any design error or an omission. Another is,
Logistical Risk which needs to be addressed before beginning any project (Huq and et.al.,
2016). Thus, it includes the availability of transportation facilities as well as equipment such as
spare parts, fuel and labour. Therefore, without using high quality of equipment, the project
manager delay the overall project and bears losses as well. On the other side, Environmental
Risk, which actually includes natural disaster. Further, this risk are commonly overlooked when
the people are actually did not know about the projects as well as local conditions. Such that
while constructing the new project, project manager has to make sure that they are familiar with
the new sites so that they may be determine ways to overcome the problem and did not face any
challenges as well.
Moreover, another type is management related risk which are also affect the uncertain
productivity of the resources. Such that when the project is begin, project manager has to make
sure that they have a sufficient skilled staff and have majorly roles and responsibilities so that
this may not cause any losses. In addition to this, it is also analysed that when the project
manager did not able to take better decision in order to meet the aim and objectives then it affect
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the overall working environment in opposite way. On the other side, Financial risk is also
consider another risk that Balfour Beatty may faces at the time of construction. Such that it
involves inflation, local taxes as well as availability and fluctuation in the foreign exchange that
may incur during the construction project (Van Staveren, 2018). This type of risk generally
faces when the company is deal at international level in which the firm faces issue related to
foreign currency exchange. As every country have their own laws and regulation, that is why, the
project manager should be more focused while selecting best financial resources for the
company.
On the other side, it is analysed that financial risk and environment risk is consider one of
the biggest affecting risk that affect the overall project and also leads to decrease the overall
project in opposite way as well. Moreover, in order to mitigate the project risk, project manager
have to develop strategies that also helps to lead a project in better way. Further, data breaches is
also consider one of the biggest risk that affect the management into opposite way. It is so
because due t technical issue, most of the data are shared by the third part and as a result, it affect
the overall working environment (Ignatieva and Trück, 2016). In this situation, almost all the
data are shared by third party and as a result, they share the personal information with another
one.
Therefore, with the help of effective communication with the stakeholders, and even,
project manager of the construction companies should make sure that they uses best variety of
resources in order to complete the project and they must be make sure that they have an
alternative strategies so that they may easily complete the result in better way (Panychev and
et.al., 2017). In addition to this, in this modern world, the project manager also uses advance
technologies in order to manage the project such that they use enterprise class automated
application risk as a management software that helps to manage the work and improve the
system performance as well as reliability. Further, it also reduce technical debt as well as
increases the vendor value too.
Hence, it is clearly reflect that in order to manage the risk up to some level, the
companies deal in construction sector used many new model that helps to complete the project
without any delay or losses. Otherwise, most of the companies faces issue that affect the overall
project in opposite way because of safety issue, technical risk, logistic risk and management
related issues (Hopkin, 2018). That is why, by developing effective communication between all
15

the stakeholders, project manager may easily complete the entire project and attain the defined
aim and objectives as well. Thus, it is analysed that project manager may also uses risk register
in order to determine the probability of the risk with different mitigation strategies as well.
Type of risk management processes and parties involved in managing risk.
In order to avoid risk management processes the company should focus on eliminating
the risk associated with the Balfour Beatty company. This helps in managing risk and is very
useful in taking remedial action in order to achieve higher operational goals within construction
sector. Risk management techniques mainly comprises of avoidance, mitigation, transfer and
acceptance. Risk management process is considered to be as a strategic framework which helps
in taking necessary action in order to achieve set goals (Cagliano, Grimaldi and Rafele, 2015).
Step 1: Identification of risk.
` The first step is to identifying various risk that business is exposed at the time of business
operations (Kliem and Ludin, 2019). This helps internal stakeholders of the organization to
evaluate the risk such as legal, technical, environmental, legal, regulatory, market risk, etc. in a
systematic and appropriate manner.
Step 2: Analysing the risk.
This step is useful in analysing the seriousness and severity of the risk in order to take
necessary action and effectively determine the scope of the risk.
Step 3: Evaluating the risk.
This helps in prioritizing and ranking the risk of the construction sector. Risk which in
turn result in catastrophic loss tend to be treated first. But on the contrary, risk which mainly
cause inconvenience to the company are ranked lowest. High level of risk tend to require
immediate intervention by the upper level management or supervisors.
Step 4: Treating the risk.
This step mainly focuses on eliminating the risk by finding the best solution and remedial
action by the stakeholders of the organization (Clayton 2016). This helps organization to
function with higher operational efficiency.
Step 5: Monitoring and reviewing risk.
This helps in monitoring and ensuring that the risk is eliminated. In case proper remedial
action is not taken, then this in turn results in taking alternative solution practice for resolving
risk.
16

Parties involves in risk management
Board of directors: They are responsible for controlling and managing risk within the
organization. They focus on reviewing the main risk which is mainly faced by the company
(Manotas-Duque, Osorio-Gómez, J and Rivera, 2016). They are also mainly responsible for
overseeing the functions of risk management system and internal control management system in
order to control risk.
Risk officer: This person is mainly responsible for defining the risk policies and strategy
within the organization (Kliem and Ludin, 2019). Risk officer is mainly responsible for
identifying risk, evaluation of risk, analysis and management of risk, reporting, monitoring and
reviewing risk.
Control and risk committee: They are mainly responsible for managing and assessing
decision in order to control the risk within the construction sector. This is an independent
committee who is responsible for risk management policies.
Internal auditing department: This department is mainly responsible for performing
several internal audits with the key goal to have correct implementation in order to achieve goals
of the company (Cagliano, Grimaldi and Rafele,2015). It helps in ensuring adequacy in the risk
management process effectively and efficiently.
CONCLUSION
From the above it has been concluded that there are basically many types of risk such that
Technical risk, Logistical Risk, Environmental Risk, management related risk, Financial risk
which affect the construction sector in opposite way. Therefore, it is concluded that risk
management is the mainly used to identify the potential problem which may before occur so that
all the risk handling activities may be planned and it must involve across the life and project
manager should used proper techniques in order to mitigate its adverse impact as well. Further, it
is also concluded that in order to mitigate the risk, 5 stages are used and there are various parties
involved such that Board of directors, Risk officer, Control and risk committee, Internal auditing
department in order to handle any risk and develop mitigate strategies.
17

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