RISK

MANAGEMENT
BSR 654

Lecture 1:
INTRODUCTION TO RISK
MANAGEMENT

By:
Sr Dr Mohd Fadzil Yasin
 Lecture Content
• The key definition
• The concept of risk & risk management
• The principles of risk management
• Type of risk
• Process or risk management
 Introduction

ALL ABOUT RISK

RISK MANAGEMENT
 Introduction
5. the risk
management
concept impact on
1. the concept of risk organisational
management; business
2. risk identification
6. making right
procedures,
strategic decisions
RISK 3. analysis and on how to deal with
MANAGEMENT responses to ensure the results of risk
operational assessment.
continuity,
4. disaster recovery, 7. mitigation of risk in
and business operation of
continuity facilities
maintenance
management and
Building Surveying
profession.
 What is RISK??
Risk is part of all our lives.
• As a society, we need to take risks to grow and
develop. From energy to infrastructure, supply chains
to airport security, hospitals to housing, effectively
managed risks help societies achievement.
• In modern life style, everything 'in hurry', there are a
certain risk evolve quickly and need to manage. These
risks should be taken seriously to minimize their
threats and maximize their potential.
 Source of RISK in Construction Project
1) Characteristics of the client / stakeholders;
• Including whether the client is a public entity or a private firm or
individual;
• the client’s track record on the ongoing project or other types of
projects;
• the availability and adequacy of funding for the project; and the
client’s general attitude toward professional services, including the
methods of compensation, litigation, and claims history.

2) Nature of the project:

• including the relationships among program, site, schedule, and
budget; the political profile of the project in the community; the laws
and regulations applicable to the project; and the project type.
 Source of RISK in Construction Project
3)Use of consultants for professional services:

• including the availability of qualified consultants; past experience with a

particular consultant; the consultant’s reputation; whether or not the consultant
has adequate insurance; and client-selected and client-controlled consultants.

4) Contractor and method of project delivery:

• including whether construction contracts will be bid (by open bidding or invitation
to a select list of bidders); whether there will be one general contractor or a
construction manager (CM) with multiple prime contractors; the familiarity of the
available contractors with projects of similar size, scope, and complexity;
whether the construction documents will be completed before the start of
construction or will be completed
• in stages while construction proceeds (fast track); and whether the project is
completed via design-build or integrated design.
 Source of RISK in Construction Project
5) Other parties:

• including whether there will be a PM; whether the PM/CM’s role has
been adequately defined; whether the CM is sufficiently qualified to
undertake this role; whether there are any special (e.g.,
geotechnical or abatement) consultants required; whether the
design professional is accepting vicarious liability for these
consultants; and if so, whether the design professional will be
appropriately compensated and protected.

6) Design professional’s fee:

• including whether the fee is adequate for the required services;

whether the fee covers costs and provides a profit; and whether
there are fee provisions for additional services.
 Source of RISK in Construction Project
7) Design professional’s capabilities and experience:

• Including business and professional licensing; and whether the firm is

experienced with the project type and has the staff and consultants
available to perform the services in line with the project schedule.

8) Type of contracts for design and for construction:

• including whether the design professional’s contract with the client is

prepared on a standard industry form (such as those published by
the PWD / PAM / LA / etc.); whether the client will hire multiple prime
design professionals for the various disciplines of service; the
method of compensating the design professionals; the form of
construction contract and general conditions (whether standard or
customized form); and whether the contractor will be compensated
on a lump sum or cost reimbursable basis.
 Key Definition
1. Risk
• The 11th edition of Webster’s Collegiate Dictionary defines risk as “possibility of loss
or injury.” or
• The change of something happening that will have an impact upon objectives. It is
measured in terms of consequences and likelihood

2. Likelihood 5 Risk mitigation

Used as a qualitative description of A systematic reduction in the extent
probability / frequency of exposure to a risk and/or the
3. Residual Risk likelihood of its occurrence. Also
called risk reduction.
The remaining level of risk after risk
treatment measures have been taken. 6. Risk analysis
4 Risk identification A systematic use of available
information to determine how often
The process of determining what can specified events may occur and the
happen, why & how magnitude of their consequences
 Understanding the RISK
 Exposure to adversity/difficulty
 Chance/probability to loss
 An exposure to possible loss exist
 Possibility of an adverse deviation
 The chance of hazard, bad consequences, loss
 The potential for unwanted or negative
consequences of an event or activity
Risk Environment
 Examples of Risk
• Delay/schedule risk
• Cost over-run
• Under price /lack in estimating
• Bad weather
• No labour / material shortage
• Economy bad – high interest rates
• Poor management – client / contractor / consultant incompetent
• Project team
• Construction technology / method poor
• Complex job / ultra-modern / novelty
 Risk Management

MANAGING the FUTURE

MANAGING the UNCERTAINTIES
 Risk Management
• Risk management involves understanding, analysing and addressing risk to make
sure organisations achieve their objectives.
• So, it must be proportionate to the complexity and type of organisation involved.
• Because risk is inherent in everything we do, the type of roles undertaken by risk
professionals are incredibly diverse. They include roles in insurance, business
continuity, health and safety, corporate governance, engineering, planning and
financial services.
• As defined, Risk Management is the process of identifying, assessing and
controlling threats to an organization's capital and earnings.
• Threats??
• These threats, or risks, could stem from a wide variety of sources, including
financial uncertainty, legal liabilities, strategic management errors, accidents
and natural disasters.
 Risk Management
• risk management is the effective handling of risks.
• risk management is about managing risk - about managing people,
processes, data, and projects.
• it is the everyday work of actually managing an organization and the risks it
faces.
• Managing risk requires making the tactical and strategic decisions to control
those risks that should be controlled and to exploit those opportunities that
should be exploited.
• Managing profits cannot be separated from managing losses or the prospect
of losses.
• Modern portfolio theory tells us that investment decisions are the result of
trading off return versus risk; managing risk is just part of managing returns
and profits.
 Risk Management
• Objective : “Provide effective management
system through its formal and structural
process”.
• Purpose :
1. To mitigating the effect of risk & minimizing
cost (William & Heinz, 1964).
2. The minimization of the adverse effect of
risk at minimum cost through its
identification, measurements & control
 Risk Management Cycle / Iterative Process
Continuously Improve
RM capabilities
ACT

Monitor RM
Performance CHECK PLAN RM Planning

DO
Risk Identification &
Assessment
NOTES:-

RISK cannot be totally be eliminated, and it may result;

(i) Secondary Risks – risks that are generated by a response to another risk.

(ii) Residual Risks - risks that remain after risk response planning
 Risk Management Process

Identifying

Analysing

Evaluating

Responding
/ Control
Treating /
Mitigating

Monitor

Risk
Registered /
Lesson learned
Communicating
Impact to organisation
Job
Specification

OSH
intervention Morale and
and psychosocial of
prevention employees
cost

Impact

Enterpreneural
survivor Production /
/business profit margin
creation
 Risk management policy
The policy should provide the direction on how to
identify any potential hazard using appropriate
methods and as far as practicable be able to manage
the risk.
Risk management and internal control objectives:

1. Statement of the attitude of the organization to risk

2. Description of the control environment
3. Level and nature of risk that is acceptable
 Risk management policy
4. Risk management organization arrangement
5. Arrangement for communicating risk
information
6. Standards procedures for risk recognition and
rating
7. List of documentation for analyzing and
reporting risk
8. Risk mitigation requirements and control
mechanism
 Risk management policy
9. Allocation of risk management roles and
responsibility
10.Criteria for monitoring and benchmarking
risk
11.Allocation of appropriate resources
12.Risk priorities and performance targets
13.Risk management calendar of the coming
year
 Risk Management (to recap)
• As this module focuses on the risk management
concept impact on organisational business, and
making right strategic decisions on how to deal
with the results of risk assessment.
• So, in considering the application of this Module,
in operation of facilities maintenance
management and Building Surveying profession
environment; two key concept can be
recognized;-
 Risk Management (to recap)
• First, what is considered unfavourable is relative to what is
expected.
• Typically, stakeholder expectations - client, designer,
contractor, lender - are formed at an early point in each
stakeholder’s participation in the project and are often based
on limited information or unfounded optimism.
• Unless the project delivery process incorporates mechanisms
to specifically affect and refine stakeholder expectations
throughout the course of the project, the gap between
expectation and outcome will likely increase with the
duration and complexity of the project.
 Risk Management (to recap)
• Second, what is considered favourable to one
stakeholder, such as lower cost, may be
considered unfavourable to another, such as
lower profit or a loss. Unless there is a
reasonable integration of stakeholder
objectives, reflected in contracts that fairly
allocate risk and reward, the project delivery
team may be a team in name only.
 Risk Management (to recap)
• The narrative discussion reflects the complexity involved in managing
risk in the project environment and points to the need for design
professionals and other project stakeholders to define and implement a
rational process for risk taking.

• Fortunately, the conceptual framework for such a process exists, and a

number of tools have been developed to support the rational allocation
and management of risk in project delivery.

• Among the more important tools are the consensus-based contract

forms developed by PWD/JKR [The American Institute of Architects
(AIA) and the Engineers Joint Contract Documents Committee (EJCDC)].
 Risk Management (to recap)
• As is the case with risk, there is no single, correct
definition for risk management. We choose to
define risk management as the process of
minimizing the probability and severity of an
unfavorable outcome at the lowest long-term cost
to the organization.

• This process involves three overlapping and often

iterative steps: 1) risk identification; (2) risk
analysis; and (3) risk responses
Thank You