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AN OVERVIEW OF RISK MANAGEMENT IN THE CONSTRUCTION PROJECTS

Article  in  Academic Research International · June 2018

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 Academic Research International Vol. 9(2) June 2018
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AN OVERVIEW OF RISK MANAGEMENT IN THE CONSTRUCTION PROJECTS

Mohammad Abazid1, Husameddin Harb2

1
Civil Engineering Department, Near East University, Nicosia;
2
Business Administration Department, Near East University, Nicosia,
TURKEY.
1
[email protected], 2hoss1983@gmail. com

ABSTRACT
The study was carried out in order to obtain a comprehensive conceptualization on
risk and the consequences it has in the fields of construction and the required
management operation. Along with the utilities and techniques adopted to control
risk in the construction industry, the effect of risk on the project assessment is also
discussed. The aspiration of the topic of research is to be able to enquire into the
productive method of implementing risk management in construction industry, to be
able to respect the various types of managing techniques manipulated to reduce risk,
to define the utility of implementation of the risk management, to resolve the
components that affect the execution of risk management in the life cycle of projects.
The following study discloses the research which focuses on distinguishing the
practices of risk management and construction projects in the Arab region.
Keywords: Risk management, management, construction, project

INTRODUCTION
The risk management of a certain project is considered as one of the major roles that is
undertaken by the project manager. Proper and systematic techniques, knowledge and
experience are required approaches to enable effective and efficient risk management. For
instance, knowledge of the unanticipated events that might prevail while execution of the
project is required (Serpella et al, 2014).
Considering that projects carried out in the construction division are widely complicated and
usually have significant budgets, the major priority of the project manager is to reduce the
associated risks. It should be noted that risk management is not a utility that ensures success
but rather aids in increasing the likelihood of acquiring success. Therefore, risk management
is a proactive concept as opposed to a reactive concept.
In compliance with the Project Management Institute (PMI, 2004), one of the nine most
critical parts of project authorization is project risk management which indicates a sturdy
relationship between risk managing and project success. The majority of the time, risk is
administered through the manipulation of contingencies or floats (respectively money or
time) which are not defined relying on a comprehensive analysis of the risks that can trigger a
certain project, which in many cases is insufficient to cover the outcomes of the risks that
take place during the project apprehension (Serpella et al, 2014).
The majority of the applications utilized in the project risk management pinpoint their
concentration on quantitative risk analysis. On the contrary, these systems do not allow
remedial measures for risks or problems (Tah and Carr, 2001).
(Lyons and Skitmore, 2004) discovered that the most conventional risk identification
methods utilized in the engineering construction industry is brainstorming. A matrix for
determining the suitable risk management approaches in the built environment of each stage
of risk was developed by (Forbes et al, 2008). Among several others; artificial intelligence,

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decomposition, probabilistic analysis, sensitivity analysis and decision trees are some of the
techniques included.
In the construction industry, analyzing and managing risks is a significant part of the decision
making procedure. The high degree of risks from the nature of micro and macro
environments in particular to construction are greatly associated with the construction
industry and their clients (Zavadskas et al. 2010). Comparatively, the construction industry’s
reputation is very weak when concerned in coping with risks due to the failure of various
projects meeting the deadlines and budget targets.
It is commonly known that construction industry is one of the most treacherous, demanding
and dynamic industries across the globe (Hwang et al., 2017). This industry is vulnerable to a
variety of risks as a result of its monetary extremity, intricate procedures, long project
durations, eisky environment and relationships with associates (Panthi et al., 2009).

RISK MANAGEMENT DEFINITION

Risk management as a concept has become very widespread in a great deal of various
businesses. So often, several companies develop a risk management approach in their projects
in order to be able to enhance the production and enlarge the gains. Risk management
nowadays, is a fundamental constituent of project management (Olsson, 2007) and (del Caño
and de la Cruz, 2002) and it is notable that the most impenetrable activities are to dictate what
the risks of the projects are and in what way these risks should be prioritized (Anderson,
2009). This is an essential procedure in project management and the majority of the managers
are aware that risk management is the key foundation for project management (Baloi and
Price, 2003). There is a relation between vagueness and risks as was indicated by (Hillson,
2004): “The risk is the uncertainty measured, and uncertainty is a risk that cannot be
measured”.
The possibility of a ruinous occurrence taking place in the project and affecting its purposes
(Yu, 2002) and (Baloi and Price, 2003) is the definition that describes how risk is considered
to be a multifaceted concept.
The practice of recognizing and evaluating risks and to be able to apply techniques and
approaches in order to reduce these risks to a tolerable extent can define what risk
management is (Tohidi, 2011). Therefore, it is notorious that the essential aspiration of risk
management is the identification, evaluation, and controlling of the risks in order to achieve
project success (Lee et al, 2009). Risk management is used in many different fields and
differs from one context to another. In the construction project management context, risk
management is an extensive and logical method of defining, evaluating and acknowledging
risks in order to obtain the project objectives (Project Management Institute, 2004).
Risk management in projects is a systematic procedure focused on the identification,
assessment and response to the risks of projects. The definition of this procedure
differentiates from one research literature to another (Uher and Toakley, 1999), (Ward and
Chapman, 2003). Regardless, all the definitions concur that the objective of project risk
management is to maximize opportunities and minimize the outcomes of a risk occurrence in
the construction project.

RISK MANAGEMENT IN CONSTRUCTION PROJECTS

Considering the complexion of the construction division, management of risks is a very
significant element. Risk management is greatly utilized in projects that include excessive
levels of variability and these kinds of risk ventures are distinguished by additional

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systematic arrangement, monitor and control procedures. The straightforward technique in

identifying risks is to observe and entice a conjecture from previously executed projects that
have failed in the past (Cleland and Gareis, 2006). Risk management mechanisms ought to be
initiated during the early phase of the project in which the project planning and contracting of
the work along with the exploratory capital budgets are being extracted. In subsequent
phases, risk management logically applied, aids in controlling the crucial elements that can
negatively affect the project production.
By way of explanation, when the threats are previously identified and kept track of, the
outcome will include initial warnings for the project manager if any of the targets are not
being achieved; which include time, cost or quality (Tummala and Burchett, 1999).
Consistently, the construction mechanism is split into four essential phases. These phases
include programming, planning, procurement and production. The initial phase is the
programme phases in which the client obtains a concept about the project and studies
conditions for its implementation. Throughout the planning phase the architects are required
to develop construction drawings in accordance to the requirements set by the client.
Respectively, the procurement phase includes the signing of a contract between all parties
involved in the project. Lastly, the production phase, which involves the execution of the job
required by the contractor.
Generally, in construction, the term risk usually refers to the aspects that might hinder the
aim of the project in regard to the time, cost and quality. It is important for the contractor to
be able to identify the risk that can be faced in order to become aware and prepared in
advance for the perplexity that arises.
There are a variety number of risks, which in the construction industry are identifiable and
are faceable in every construction project neglectful of the project size and capacity. The
most common and general risks in projects that are faced by the construction sector include
differentiation in the design and scope as well as the time frames for the project completion.
The deeper in the procedure, the change in the capacity or design is executed, resulting in
extra additional resources, duration and budget, which is required by those changes.
Comparable to delays in schedule, the completion of a project ahead of schedule can also be
as troublesome. The fact that a project is completed quickly might be the outcome of
inadequate planning or design problems which in reality minimizes the completion duration
but in contrast can lead to low quality of the final product and an increase in the gross cost.
Usually, when behind schedule, it creates larger costs for both the contractors and the
investors as a result of the disagreement between the contracted works (Gould and Joyce,
2002).
Distinctive risks take place during different stages of the project. In most cases risks are
usually inherited from one project stage by the succeeding one. There are various techniques
for codifying the project risks and risk sources (Tah and Carr, 2000), (Baloi and Price, 2003)
and (Li et al., 2005). Generally, the risk sources of any construction project can be split into
three divisions:
 Risks, such as finance, economy, political, legal and environmental which are related
to external elements.
 Risks that are in relation to internal elements, for example design, construction,
management and relationships.
 Force superior risks.

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The purpose behind the process of risk identification is the ability to determine the probable
risks which may influence the project. In the literature works, there are various mechanisms
manipulated in order to categorize project risks and risk sources that can be utilized in
establishing those compilations. The following is a list of possible risks which can be found
in literature works (Smith et al. 2006), (Potts, 2008), (Lester, 2007).
 Budgetary "Financial, Economical, Investment"
 Bureaucratic " Legal, Political"
 Environment "Environmental, Natural, physical
 Technical "Technical"
 Project "Contractual, client, Project objectives, Planning, scheduling, Construction,
Design, Quality, Operational, Organizational"
 Human "Labor, stakeholder, Human factors, Cultural"
 Market "Market"
 Safety " Safety, Security, crime"
 Materials "Resources, Logistics”
Furthermore, the complication of the socio-economics embraced in construction matters
causes it to be more prone to risk in which negative effects of the project sustainability might
be present (Zavadskas et al.,2010). The construction industry is greatly diverse and
miscellaneous, which is a result of several complicated circumstances, and in turn the
industry experiences a great matter of dynamic differentiation along with global sourcing and
inclination of the price competition. Generally, contractors have utilized high mark-ups in
order to prevail over these risks, but as their margins have become smaller, the techniques
have no longer been effective (Baloi and Price, 2003). The phases included in construction
projects during the later decades have become much more complicated in nature, which is the
outcome of technological upgrading and stakeholder pressure, and are classified by an
amount of riskiness that have a dissenting impact on the projects (Jafarnejad et al.,2014).

RISK MANAGEMENT IN CONSTRUCTION PROJECTS IN ARAB COUNTRIE

Researchers in Qatar have been able to discover what the contractors and most of the owners
suffer from, which is the absence of understanding of the methods of alleviation and risk
prevention. Additionally, the manipulation of risk analysis approaches is absent and generally
they rely on the subjective prudence utilizing past experience in time and cost estimation. The
research had advocated that the necessity of providing more needs was required in order to
suppress the dilemmas related to the poorly managed construction projects. Therefore,
owners and contractors must take the authority to administer their applicable risk elements
and work from the feasibility phase onwards to confront possible risk factors in time.
Furthermore, in Palestine, the recommendations were similar. A few of the significant
recommendations can be outlined as follows; the experiences collected from the neighboring
countries in the area of construction of projects should be utilized, in particular the matter of
risks management so to be able to diminish these risks by maintaining annual technical
meetings to share the different views on risk management, their hindrance and the techniques
manipulated to alleviate them. Consequently, the aspect of Engineering Design must be
achieved through Consultancy firms confirming that the design review is conducted by a
third party in order to guarantee design quality (Abazid, 2017), (Nouban and Abazid, 2017).
An organization should be assembled in order to control the risks along with all the required
resources (manpower and financial) and all the compulsory authorization that qualifies them
to confront the risks. Perpetual and occasional assessment must be carried out through the

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coordination of periodic examinations in order to develop the productivity effectiveness of

the construction projects.
(Kartam and Kartam, 2001), unveiled that in the construction risk management implemented
in Kuwait, the local contractors were occasionally accountable for the majority of the risk
factors. Also the manipulation of formal risk evaluation mechanisms for management and
risk control was restricted and the contractors greatly depended on cooperation with the
subcontractors. The contractors demonstrate more keenness to obtain risks that are either
contractual and legal related as opposed to the other types of risks present.
It has been assumed previously and in accordance to the many modifications in UAE, that the
cultural distinctiveness is greatly significant, but the actuality that neither of the two
constructs of have no direct impact on project success, as a result, the project success element
score declines (success is decreased) with inclining scores for Cultural Diversity and UAE
Culture. Specifically, the UAE cultural characteristics and cultural diversity seem to be
mainly unfavorable in the construction industry for project success. All of these particular
risks are connected to cultural differences either by partnership or by matters of important
direct or indirect impacts. Thus, it may be recommended that, in an attempt to better the risk
management and project success in the construction industry of UAE, the main focus would
be on the management of the factors related to the cultural diversity in contrast to the general
cultural matters (Hasani et al., 2017).

CONCLUSION
Projects, in the later decades, have become more complicated and risky in the construction
industry as a result of the multiplicity nature of the activities among worldwide organizations.
The feasibility of the elimination of all the risks affiliated with a certain project is unlikely.
The best that can be achieved is the regulation of the risk allocated to various groups along
with the proper management of the risks. Chapman and Ward discussed that the choice
decisions of the contract are fundamental to both stakeholder management and the
management of the risks and unpredictability. Therefore, an integrated mechanism can be
established depending on a balanced inducement and risk sharing technique to contracting
alongside a better practice methodology to risk management in terms of the entire life cycle
of a project in which contractors usually are aimed at obtaining and acceptable scope of
excess margin.

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