A Guide to Risk Management in Construction Projects
Developed by Jokin Brito
Throughout history, construction has been one of the most revenue generating industries in the world and like many other businesses, is being transformed to meet the highest demands of the twenty-first century. Only in the United States, more than 11.1 million people were employed by the construction industry in 2018, the industry spending topped $1.23 trillion in 2017 and it accounted for between 7% of total U.S. GDP. Furthermore, today's construction industry involves more dynamic and uncertain planning than ever before. Decision-makers and project managers require better knowledge and systematic tools, not only in project management, but also in risk management, a discipline that has a special complexity in construction projects. This article has the goal of giving project managers and decision-makers within construction industry a more detailed guide to fulfill the needs of any projet they manage, where they can identify and reduce cost and time over-runs and security risks, in order to optimize the chances of project success. The guide follows the Project Management Institute (PMI) standards in the PMBOK® Guide.
Structure of this article
The size of construction projects has outgrowed the industry's capacity to manage complex problems under conditions of uncertainty. Risk management in large scale projects becomes a more important part of overall construction management. Each project is very different from each other and they can't be managed in a systematic way, such as in other industries, thus risk management has always been a more trial-and-error method, which requires symbolic reasoning. Empirical knowledge plays a major role for decision-makers and project managers in every stage under uncertainty and many problems in the industry are not very well defined so the risks that this problems entail are much more difficult to define.
In this article the focus is on giving a more systematic way of evaluating and defining risks on any construction project, helping project managers to base their decisions on the standars in the PMBOK® Guide and in the experience of previous projects.
Project Risk Management
Project Risk management includes the processes of conducting risk management planning, identification, analysis, response planning, response implementation, and monitoring risk on a project. The objectives of project risk management are to increase the probability and/or impact of positive risks and to decrease the probability and/or impact of negative risks, in order to optimize the chances of project success.
The Project Risk Management processes according to the PMBOK® Guide are:
- Plan Risk Management
- Identify Risks
- Perform Qualitative Risk Analysis
- Perform Quantitative Risk Analysis
- Plan Risk Responses
- Implement Risk Responses
- Monitor Risks
- ↑ Bls.gov. (2019). Employed persons by detailed industry, sex, race, and Hispanic or Latino ethnicity. [online] Available at: https://www.bls.gov/cps/cpsaat18.htm [Accessed 17 Feb. 2019].
- ↑ Construction spending in the United States from 1996 to 2017, s. (2019). U.S. construction spending: public and private sectors 2017 | Statistic. [online] Statista. Available at: https://www.statista.com/statistics/226355/us-public-and-private-sector-construction/ [Accessed 17 Feb. 2019].
- ↑ 2018 FMI Overview, Featuring FMI’s Fourth Quarter 2017 Construction Outlook. (2018). [online] Available at: https://www.fminet.com/wp-content/uploads/2018/01/Overview2018_FINAL-1.pdf [Accessed 17 Feb. 2019].
- ↑ A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.396