Risk Management in Construction: Political, Stakeholder & Resource

This report provides an analysis of project risk management, focusing on strategies and techniques applicable to construction projects. It emphasizes the importance of understanding and integrating risk management into an organization's culture, particularly in international construction projects where political risks are prominent. The report discusses various risk management methodologies and approaches, including risk assessment and management processes. It examines political risk management techniques, highlighting qualitative and quantitative methods, with a focus on stakeholder and resource management. The report also provides examples and case studies to illustrate the application of these strategies, emphasizing the need for effective resource planning and stakeholder engagement to mitigate project risks. Desklib offers a wealth of resources, including past papers and solved assignments, to further support students in mastering these concepts.

Introduction
Project risk management
Project risk management is defined as a structural process that deal with project risks in order to
provide satisfactory balance between prospects and threats risks ( Oztas and Okmen, 2010; ISO
31000, 2009). The success implementation of risk management is banked on understanding the
organization frame work or the respective project and integrates it into a culture of an
organization (ISO 31000, 2009). Positive risk management is more essential when it comes to
international construction projects as compared to the construction projects that are internally
within a country, this is due to the complexity risks the project may be prone to, which may
include political risks that always stand in for any business truncations that are international.
Furthermore, it is openly clear that practicing of project risk management will highly improve
the project performance (Bakker et al, 2012), by focusing on more uncertainty in order to deliver
prosperously project.
The process of managing project risks is dated back as from 1980s when it achieved its
prominence (Bredillet, 2010). The late approval of project risk management on construction
industry has really contributed on the project personnel not practicing effectively the risk
management and that is why the full benefit of risk management on construction projects have
not yet been achieved.
Risk management methodologies
There several outlines of risk management that are used for systematic risk management (Bu-
qammaz et al, 2009), this includes management of risk management of office, project risk
assessment and management, risk analysis of management for project and finally guidelines
principles of risk management (ISO 31000, 2009).
Risk management approach
Assessment of risks involves steps of identifying the risks, analyzing the risks, evaluating the
risk, whereas risk management will involve a processing of planning strategies, implementation,
monitoring and a review to countercheck if the strategies used are effectively working ( ISO
31000, 2009, PMI, 2013). In accordance with Wang et al, (2010), the process of managing the
risk should help the project manager to answer questions that will arise on identifying the risks,
analyzing the risks, evaluating the risk, whereas risk management will involve a processing of
planning strategies, implementation, monitoring and a review to countercheck if the strategies
used are effectively working.
1

Political risk management techniques
The outline approaches are achieved effectively by implementing methods that may prioritize
risk management on micro – politics. The assessment risk associated with politics are classified
on two wide categories which includes qualitative which may also be called heuristic and
quantitative which is also referred as scientific method ( Al Khattab, 2011). The category of
qualitative is further subdivided into unstructured method and structured method, more analysis
has shown that while focusing on political risks, the executive practices qualitative technique as
compared to the application of quantitative method (Al Khattab, 2011), this is because the
heuristic method is simple, flexible and requires moderate cost for its implementation as will be
compared to quantitative techniques that will require statistical and modeling training for their
effectiveness in application.
The strategically methods applied on the unstructured qualitative technique while solving risks
associated with politics, the first one is the use of judgment and intuition of the project managers,
where an approach of executive visiting another country for benchmarking is applied. The
construction project managers then direct their identification on political risks and analyses the
risks based on their knowledge they acquired during the benchmarking. The process of judging
and intuition of the management was the best and preferred method in Jordanian multi- national
construction projects (Al Khattab et al, 2011) and also a higher percentage of about 80% was
also applied by the Canadian.
The second approach strategies of unstructured qualitative technique is through applying experts
directives, which will relies on academics, banks, officials from local government and advisory
from foreign construction project management teams, but this is prone with disadvantages from
the experts being bias, the application to this was also used by the Jordanian.
The third method is standardizing by use of checklist which will be used for identifying and
analyzing the risks, where the project manager reviews the risk elements using the lists and
ranking them, but the method too faces some disadvantages where it will ignore other future
events, prevents creativity that could be applied by the decision maker, and the idea of ranking
the risks can be subjective.
The quantitative techniques applies the use of software and input data, where the data will be
derived from statistical of the benchmarked country which will comprise all the construction
expenditures, therefore the experts will be required to run the data on the software and
interpreted them effectively, the main advantage of this method is that they are precise and
depend less on the subjective data.
2

Example
In 2004 a foreign company with a given mandate to construct hydroelectric power plant was affected
by hostility and protest by the Brazilians groups under environment, the head of the company who
was a U.S with the responsibilities assign to them, decided to spend more money by compensating
the people who were being resettled and also involved in the mitigation of the environment, in the
process the hostility and protest was stopped.
Stakeholder’s identification on risk management
The term stakeholders involves a group or an individual or organizations who have direct actual
stake and are interested in the performance of the construction project. The stakeholders may
constitute different objectives which may be conflicting to the construction project, it is also
known that the stakeholders decisions may be subjected to their distinctive profiles of risks,
appetite on risks and risks attitudes (Hillson and Murray, 2011).
One of the methods used by the stakeholders on identification of risk management is the use of
SSM (soft system methodology) that applies customer, actor, transformation, worldview, owner
and environmental constrains that is denoted as CATWOE.
Customers The residents or neighborhood communities
that may be affected
Actors This include all individuals that will participate
on the constructions, for example contactors,
consultants and suppliers of the construction
project
Transformation This involves the construction of the respective
project
Worldwide Raising living standard to people by providing
infrastructures
Owners This involves the decision makers
Environmental Reason as to why the project is done
Objective of stakeholders on risk managements
Management of risks is based on ensuring that all the objectives of the proposed construction
project are fulfilled ( ISO 31000, 2009). The objective of the construction project may include
net profit, cash flows, completion time, quality standard and safety. In construction the document
of the contract will specify the risks that each and every party will be responsible for, and in that
context the contract document is a source for achieving the objectives. Since construction project
have several stakeholders and consensus of reaching to a one risk management system of the
3

construction project is impracticable, therefore it will be advisable for all their stakeholders to
manage their own risks.
Examples
The largest British Library which was opened in 1998, its cost was projected to three time the initial
budgeted cost of construction and a blame was placed on the shareholders who were politicians and
government agency, to solve the issue the government agency were advised not to change the project
personnel, and the initial budget was objectively adhered to.
Resource management
The process of assessing the risk is done in order to ensure that resource managers to the
construction projects have choices for will have to prevent and compensate the activities that will
improve opportunities and be able to reduce all the threats of risk management that may arise
(Howell, 2014). After the essential elements of risks have been determined then a planning on
the risk will be followed and its development will be done in order to minimize the risk threats
and be able to maximize the opportunities (ISO 31000, 2009). The threats which are ranked high
will require spontaneous responses and actions on them, while those rank least will require only
monitoring, this is similar to the opportunities which will require least energy to be realized will
be considered immediately, while the least opportunities will require monitoring only (PMI,
2013).
The construction projects have argued upon that for their risks to be efficiently managed then
they will require allocation of risks to all the parties having the abilities and expertise to effective
act and solve the risks. Based on the recent research the owner have been seen transferring most
of the project risks to the contractors, where the contractors now will eventually lay outlines to
mitigate the risks or transfer the risks to the subcontractors who end up carrying the burden of
this project construction risks
Examples
The largest British Library which was opened in 1998, its cost was projected to three time the initial
budgeted cost of construction this was due in effective cost planning on every resources that were
required, to solve the issue the construction personnel were required to come up with appropriate and
detailed resource planning in order to manage it and reduce the tripled cost back to the feasibility cost
that was initially done but was not effectively used.
4

Conclusion
The report finding proposes that the main strategies to risk management on construction projects
includes, stakeholders, politics and resource managements, which will help to solve the project
threats like contract problems, unrest on labour, opportunity risks, experts restriction of labours.
The assessment techniques involved the construction managers to adhere to qualitative method
techniques, which included judgment and intuition.
The resource management required that the risks are subdivided into portions to each and every
parties that will be involved since dealing with apportion of risk will encourage and enhance
proper actions to resolve them.
5

References
Al Khattab A., Awwad A., Anchor J. and Davies E., 2011. The use of political risk assessment
techniques in Jordanian multinational corporations : Journal of Risk Research 14(1): pp.97–109.
Bredillet C.N., 2010. Blowing Hot and Cold on Project Management : Project Management
Journal 41(3): pp.4–20.
Bu-qammaz A.S., Dikmen I. and Birgonul M.T., 2009. Risk assessment of international
construction projects using the analytic network process : Can. J. Civ, Eng 36: pp.1170–1181.
de Bakker K., Boonstra A. and Wortmann H., 2012. Risk managements’ communicative effects
influencing IT project success : International Journal of Project Management 30(4): pp.444–
457.
Hillson D. and Murray-Webster R., 2011. Using risk appetite and risk attitude to support
appropriate risk taking : a new taxonomy and model : Journal of project, Program & Portfolio
Management 2(1): pp.29–46.
Howell L.D., 2014. Evaluating Political Risk Forecasting Models: What Works? : Thunderbird
International Business Review 56(4): pp.305–316.
ISO 31000, 2009. Risk managemnt-Principles and guidelines Geneva: ISO.
Oztas A. and Okmen O., 2010. Risk analysis in fixed-price design–build construction projects :
Building and Environment 39: pp.229–237
PMI, 2013. A Guide to the project management body of knowledge (PMBOK Guide) 5th ed.
Newton Square, PA: Project Management Institute.
Wang, J., Lin, W. and Huang, Y.H., 2010. A performance-oriented risk management framework
for innovative R&D projects. Technovation, 30(11-12), pp.601-611.
6