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Construction Risk Management

Construction Risk Management – Introduction

In theory, risk is usually defined as a positive or negative deviation of a variable from its expected value or status. But, generally risk is understood only as a loss. Risk is defined as a potential future event which is uncertain in likelihood and consequence and if it occurs could affect your company’s ability to achieve its project objectives. In order to turn risks into chances, the Risk Manager must first know his risk sufficiently well.
Risk management focuses to avoid losses and seize available chances from risks. Effective risk management strategies allow identifying project’s strengths, weaknesses, opportunities and threats. Risk management is important in construction projects, because achieving a project’s goals on quality; cost and time shall be heavily affected by risks.

Risk Management – Step by step illustration

Step 01 – Identification of Risk
This phase shall be done by primary data collection or secondary data collection depends on the requirement. Identification can be categorized into following types.
⦁ Generic Risks – Present irrespective of project type or nature
⦁ Specific risks – Particular to the project
⦁ Residual risks – Remaining risks after mitigation has taken place

Risk Assessment & Risk Evaluation

Risk Assessment & Risk Evaluation

Step 02 – Risk Assessment & Risk Evaluation

Once risks are identified, it is examined the likelihood (Probability) and impact of each risk. This is the very vital step for the successful risk management decisions. Risk Evaluation is done by rank the risk by determining the risk magnitude, which is the combination of likelihood and consequence.

Step 03 – Risk Response

It is based on the previous step, risk response strategy shall be chosen. They are TRANSFER, REDUCE, ACCEPT & AVOID. (TARA Method).
Risk Acceptance: Risk acceptance does not reduce any effects however it is still considered a strategy. A construction company that doesn’t want to spend a lot of money on avoiding risks that do not have a high possibility of occurring will use the risk acceptance strategy. (Low probability & Low Impact)
Risk Avoidance: Risk avoidance is the opposite of risk acceptance. It is the action that avoids any exposure to the risk whatsoever. Risk avoidance is usually the most expensive of all risk mitigation options. (High probability & High Impact)
Risk Reduction: This strategy is implemented by reducing probability of the risk occurrence. For implement this decision commitment and coordination amongst team members is very vital. (High probability & Low Impact)
Risk Transference: Risk transference is the involvement of handing risk off to a willing third party for certain benefits. For example, numerous construction companies outsource certain operations to sub-contractors. (Low probability & High Impact)

Step 04 – Risk Monitor & Review

It is about to monitor, track and review risks. Risk management process shall be carried out again from first step if any significant changes identified.


1. Tight Project Schedules
2. Design Variations
3. Serious noise pollution
4. High performance/quality expectations
5. Inadequate programme scheduling
6. Unsuitable construction programme planning
7. Unavailability of sufficient professionals, managers & Skilled Labor
8. Low management competency of sub-contractors
9. General safety accident occurrence
10. Price inflation of construction Materials
11. Variation by client
Construction Industry Risks
⦁ Tight Project Schedules.
⦁ Design Variations & Variation by client
⦁ Serious noise pollution
⦁ High performance/quality expectations
⦁ Inadequate programme scheduling & Unsuitable construction programme planning
⦁ Unavailability of sufficient professionals, managers & Skilled Labour
⦁ Low management competency of sub-contractors
⦁ General safety accident occurrence
⦁ Price inflation of construction Materials.


Written by Gowrinath.S  ©