**4. Definitions of risk management**

Definitions of risk management are presented in **Table 3**.



**Table 3.** *Definitions of risk management.*

### **5. Importance of risk management in construction projects**

Construction projects are extremely complex and fraught with uncertainty. Risk and uncertainty can potentially have damaging consequences for the construction projects. Hence, risk analysis and risk management has come to be a major feature of the project management in construction projects. Construction projects are unique, inherently complex, dynamic and risks emanate from multiple sources. The interests of individuals and organisations who are actively involved in a construction project may be positively or negatively affected depending upon the course which a project takes from concept to completion. Multiple stakeholders with varied experience and skills have different expectations and interests in the project which creates problems for smooth execution of the project. Risk management is a concept which many construction companies have never thought of, despite the fact that, the risks can be better controlled if they are identified in the first instance and a well-structured mitigation mechanism is in place. Risk management helps the key project participants namely the client, contractor/developer, consultant and supplier to meet their commitments and to minimise negative impacts on construction project performance in relation to cost, time and quality objectives. Success of a construction project is associated with three aspects of time, cost and quality outcomes.

Successful commissioning of any project, necessarily calls for sound planning on various fronts and getting the project executed in a competent manner. An organisation executing a project would have to reckon with the various risks to

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*Process of Risk Management*

the objectives.

are to be treated accordingly.

**6.1 Identification of risks**

**6. Risk management process**

Risk management process is shown in **Figure 1**.

Risk identification, the first step in the risk management process is usually informal and is performed in various ways, depending on the organisation and the project team. Identification of risks relies mostly on past experience and study of similar executed projects. This being a preliminary stage, a combination of tools and techniques may be used to identify the risks in any project. Here are many methods that fit specific types of challenges and projects especially at identification stage. Risks and threats may be difficult to eliminate, but when they have been

*DOI: http://dx.doi.org/10.5772/intechopen.80804*

which the project may be exposed to and these have to be managed effectively. The construction industry, being vulnerable is potentially more prone to risks and uncertainties than any other industry. The process of taking a project from the conceptual stage to its final completion and putting into operation is quite complex and entails painstaking process at every stage. Construction industry is highly fragmented in that each of its participants—designers, constructors, planners, suppliers, etc. can be highly skilled in their own area and yet there is no clear perspective as to how all the players can come on the same platform for achieving

Construction industry is also dependent on quality of its people rather than technology. The increasing technological complexity and more complex interdependencies and perpetual shortage of resources namely materials, equipment, technical/supervisory staff, finance, etc. calls for a comprehensive risk management

Given the nature of the construction sector, risk management is an extremely important process. It is most widely used in such of those projects where susceptibility to risks is very high and is characterised by planning, monitoring and controlling the risks in a more structured and formal manner. The most efficient method of identifying the risks is to study a project of similar size which was executed in the recent past which gives an insight into the failure/success of the project. In order to be sure that the project objectives are met, the portfolio of risks associated with all stakeholders should be considered across the project life cycle (PLC). In later stages, risk management when applied systemically helps to control those critical elements which can negatively impact project performance. Keeping track of identified threats will result in early warnings to the project manager if any of the objectives, time, cost or quality, are not being met. There are a plethora of risks which are to be identified in the construction industry and which can be faced in each construction project at any point of time regardless of its size and scope. Frequent change in scope is one of the major risks in any construction project. If revised scope or design is implemented, it can have effect in the form of additional resources of time and cost. Early project completion may be as troublesome as delays in a schedule. Completing too early which may be a result of insufficient planning or design problems can lead to a low quality of final product and increased overall cost. Thus it is important to keep a balance in the concept of time–cost-quality trade-off, which more widely is becoming an important issue for the construction sector. Risks may vary depending on the project scope, types and

framework which will insulate the risks of the participants to a great extent.

#### *Process of Risk Management DOI: http://dx.doi.org/10.5772/intechopen.80804*

*Perspectives on Risk, Assessment and Management Paradigms*

8 **www.gpmfirst.com/risk.** *management-construction*

9 **Risk Management in Construction Projects by NICMAR** [2]

10 **Dr Patrick et al., 2006 retrieved from feaweb.aub.edu.lb**

taking precautionary steps to reduce/curb the risk.

**Definition of risk management**

control over a project

and controlling them,

**Sl. no**

6 **Cleden** [4]

**5. Importance of risk management in construction projects**

11 **http://economictimes.indiatimes.com/definition/risk-management**

something happening, and the consequences or impacts if it does.

7 **Project Risk Management, D Vanwell-Stam, Kogan Page India publications, 2004**

Construction projects are extremely complex and fraught with uncertainty. Risk and uncertainty can potentially have damaging consequences for the construction projects. Hence, risk analysis and risk management has come to be a major feature of the project management in construction projects. Construction projects are unique, inherently complex, dynamic and risks emanate from multiple sources. The interests of individuals and organisations who are actively involved in a construction project may be positively or negatively affected depending upon the course which a project takes from concept to completion. Multiple stakeholders with varied experience and skills have different expectations and interests in the project which creates problems for smooth execution of the project. Risk management is a concept which many construction companies have never thought of, despite the fact that, the risks can be better controlled if they are identified in the first instance and a well-structured mitigation mechanism is in place. Risk management helps the key project participants namely the client, contractor/developer, consultant and supplier to meet their commitments and to minimise negative impacts on construction project performance in relation to cost, time and quality objectives. Success of a construction project is associated with three aspects of time, cost and quality

Risk is exposure to the consequences of uncertainty. In a project context, it is the chance of something happening that will have an impact upon objectives. It includes the possibility of loss or gain, or variation from a desired or planned outcome, as a consequence of the uncertainty associated with following a particular course of action. Risk thus has two elements: the likelihood or probability of

The entire set of activities and measures that are aimed at dealing with risks in order to maintain

Risk Management is a means of dealing with uncertainty – identifying sources of uncertainty and the risks associated with them, and then managing those risks such that negative outcomes are minimized (or avoided altogether), and any positive outcomes are capitalised upon.

Risk Management is the planned and structured process of bringing the project team make the right decisions at the right time by identifying, classifying and quantifying the risks and then for managing

Risk Management refers to the practice of identifying potential risks in advance, analysing them and

Risk Management is "a systematic way of looking at areas of risk and consciously determining how each should be treated. It is a management tool that aims at identifying sources of risk and uncertainty, determining their impact, and developing appropriate management responses"

Successful commissioning of any project, necessarily calls for sound planning on various fronts and getting the project executed in a competent manner. An organisation executing a project would have to reckon with the various risks to

**186**

outcomes.

**Table 3.**

*Definitions of risk management.*

which the project may be exposed to and these have to be managed effectively. The construction industry, being vulnerable is potentially more prone to risks and uncertainties than any other industry. The process of taking a project from the conceptual stage to its final completion and putting into operation is quite complex and entails painstaking process at every stage. Construction industry is highly fragmented in that each of its participants—designers, constructors, planners, suppliers, etc. can be highly skilled in their own area and yet there is no clear perspective as to how all the players can come on the same platform for achieving the objectives.

Construction industry is also dependent on quality of its people rather than technology. The increasing technological complexity and more complex interdependencies and perpetual shortage of resources namely materials, equipment, technical/supervisory staff, finance, etc. calls for a comprehensive risk management framework which will insulate the risks of the participants to a great extent.

Given the nature of the construction sector, risk management is an extremely important process. It is most widely used in such of those projects where susceptibility to risks is very high and is characterised by planning, monitoring and controlling the risks in a more structured and formal manner. The most efficient method of identifying the risks is to study a project of similar size which was executed in the recent past which gives an insight into the failure/success of the project. In order to be sure that the project objectives are met, the portfolio of risks associated with all stakeholders should be considered across the project life cycle (PLC). In later stages, risk management when applied systemically helps to control those critical elements which can negatively impact project performance. Keeping track of identified threats will result in early warnings to the project manager if any of the objectives, time, cost or quality, are not being met. There are a plethora of risks which are to be identified in the construction industry and which can be faced in each construction project at any point of time regardless of its size and scope. Frequent change in scope is one of the major risks in any construction project. If revised scope or design is implemented, it can have effect in the form of additional resources of time and cost. Early project completion may be as troublesome as delays in a schedule. Completing too early which may be a result of insufficient planning or design problems can lead to a low quality of final product and increased overall cost. Thus it is important to keep a balance in the concept of time–cost-quality trade-off, which more widely is becoming an important issue for the construction sector. Risks may vary depending on the project scope, types and are to be treated accordingly.
