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The Risks In The Construction Industries Construction Essay

Paper Type: Free Essay Subject: Construction
Wordcount: 2862 words Published: 1st Jan 2015

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Risk management is the beginning of processing planning in the construction companies. Anytime risk issue rises during project execution, the actions normally is taken by project managers or any other worker using their own experience.

Although, risk can befall anybody in life, risk has become one of the biggest problems in the construction industries which are mostly, because of a lack of adequate environmental information and construction experience.

It is sometimes, hard for inexperience worker to identify risks in a construction project. It is on the other hand, not a good idea to ignore risks in construction project it will as a result cause unrealistic decisions. It is mostly very complicating, time-consuming and makes the project very expensive if risk is not been identified and assessed in the construction industry.

In this case, the process of making project almost impossible is very high especially where there are inadequate amount of information and time. Normally when a company is facing such complex problems, the best way is by identifying and controlling the vital risk method in the firm.

Besides there should be way of managing this various risk so as developing it and how to effectively identify the vital risks in the construction.

KEY WORLDS: Hazard, risk, risk analysis, risk management.


There can be many ways risk can occur, it can be normally be physical such us fire and theft which can affect the company both directly or indirectly. Rick can somehow occur on site (occupational injury or illness of some of the employees) which can also result in reduction of output.

Most of the companies exercise some form of risk control in a formal way but more than not, if risk will occur it still will. However, the process of taking project from the brief to it completing is a very complex one, it usually requires lot of people with different skills to be able to coordinate and do a very good job.

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In view of this, it is sometimes very surprising that the managerial aspect in the construction companies can still identify analysis and respond to such risk. Many of us in the construction industry can agree that risk plays a very crucial role in the decision making of our companies and also on there is less agreement about what risk is made of.

Nowadays, there are many tools available which can deal with the underlying theory concept of risk which identify and manage risk. It has become well known that risk management can be an effective formalization system that can be addressed and manage a whole lot of risk activities in a company.

However, effective risk management provides:

Reduce long-term loss expenditure and hence start to increase in profits.

Can also bring better risk information on time.

More effective centralized management control.

It can focus for more structural approach to risk management.

An increased awareness of the consequences of risk.


Most of the construction companies are facing lots of complex challenges and issues. More often than not, the difference between a highly successful project and it marginal lies in the management of the company.

Risk in the construction industries has become unavoidable problem in most of the companies, when a company is putting up new buildings or renovating an old building there is the need for the contractors to plan ahead.

Because as the building goes on there is the possibility that more complicated problems is bound to arise during the construction and in the development stage. Risk managers must deal with the set of construction risks in the contractual phase of the project.

There are some liability connected with risk in construction industries such as; failure to complete within the stipulated design and construction time, failure to obtain the expected outline planning, detailed planning or building code. There are also some unforeseen adverse ground conditions that delays the project and unexpected price raises for labour and material.

Moreover, it is the task of the risk managers to identify the detached sources of risk which cause failure to construction industry. In addition to the above mentioned, my argument will be basing on risk management in construction.


My main aim of this report is to give the readers a broad overview of what is meant by risk and the influence risk has made in the construction industry.

It will describe the system that could be used by designers and construction team in the management of risk on construction project.

It can also describe a way risk can be avoided in the construction industry in a broad sense.

Research questions

What is project risk management?


Risk is part of human life. Risk is a situation where an event may happy and it frequency of occurrence can be evaluated base on a probability distribution of the past occurrences or environmental considerations.

On the other hand, others also see risk to be an uncertain event or condition that results from the network form of work, having an impact that contradicts expectations. However, risk may not always have an adverse impact, risk is not all the time that something goes wrong, but it is also because it does happened when things doesn’t turn out the way people will want or expect from it.

Before one can understand if an event is very risky, there is the need for the project manager of that organization to understand the hidden effects resulting in it occurrence. Risk can be determined through it judgment, although there is a possibility of risk occurring at times it can be preventives which will be through risk analysis when it come on the view of construction industries.


The construction industry sector plays an important role in the economic growth of every country and it occupies the position of the nation development plans. When risk occur in the construction industries it normally have effect on political, social, environmental and economical factors and it can be seen that all the above mention affect the nation negatively.

There has been some essential changes in construction work lately, for some few years now construction industry have been facing a very bad reputations to carry on with the negative effects of changes, with a lot of project meeting it deadlines, quality and it cost targets. It is not so surprising considering the fact that there are no more perfect designers and engineers neither can there be a perfect human nature behavior.

Besides we cannot get rid of changes in human life but by the application of risk management principles designers and engineers will be able to improve upon the effectiveness of risk management.

However, in extreme cases, the time and cost overrun can be undermined in cases of economic project, tuning the ability of economic assert into a loss making venture. On the other hand, risk event means that, there is an extent of an outcome that an event could both be more or less beneficial than the most likely outcome, that each of the outcome will be within the range of it occurrence.

Project managers should find a way of getting rid of risk before they occur in the construction industries, or reduce the effect of risk and it uncertainty. Normally it is very important to find the root cause of the risk than to see it as an event which occur almost at once.

More often than not, risk can be avoided if their root cause are identified and manage with before its consequence occurs. For companies to achieve their aims of avoiding risk, there should be a systematic approach to it, which is ;

To identify the source of the risk

To identify it effect (risk assessment/analysis)

To manage its development response

Also to provide for the remaining risk in the project value.

The above mention are the cored which leads to risk management.


There are many types of risk in the construction industries. There are for example the physical, economical, financial, design, political, environmental, construction, legal-contractual etc. these types of risk came up by a broad literature review especially with the work of Perry and Hayes (Risk and its management in construction projects).

Environment risk

Physical risk

Construction risk

Risk in construction

Design risk

Financial risk

Legal-contractual risk

Political risk

fig 1.1: Classification of Construction Project Risks

The above diagram illustrates the seven classes of construction project.

Physical risk in construction:

Physical risk in constructions is risks that normally deal with physical nature of the project. This type of risk cannot be controlled by any means, thus it is a team as (the act of God), for instants: bad weather, flood, fire, landslip etc. there can also be some unexpected or unforeseen event that can occur on the construction site. Physical risk can cause direct harm or damages.

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Construction risk:

Construction risk are risk that occur whiles the construction is going on (construction phase) in the life cycle project. The construction phase is team as one of the crucial phase because if changes occur in the construction, it can affect the cost, time and quality of the project. Due to this, it is very important for contractor to pay a very good attention on the going on the construction site. Also construction risk can occur if there is a dispute on the building site between the workers.

Design risk:

Designers have a lot of responsibilities when it comes in teams of risk. In that case they are in the best position to reduce risk in the design phase. Risk occur often in the design phase, on the other hand it is may also occur in the detailed design phase. However, if this risk is identified on time, there can be an early assessment on risk design which can possibly reduce the impact of potential failures.

Political risk in construction:

Organization in teams of construction business in the developed counties brings a whole new set of competition and risk of that country which includes political risk. It will be very important for contractors to encounter with political risk in companies. Political risks are risk which causes losses which will result from the destruction of asserts or damagers. Political risk in construction has been divided into different ways such as: in law, war, revolution, civil disorder etc. for instants, it could be with building codes and planning permit which normally contractors await for a long time.

Financial risk:

When we talk about financial risk then it is risks which consist of money. Financial risk is the amount of chance that is involved with financial asserts or venture. Besides, the goal to secure an asset appears to have a lower risk since they are likely to earn a refund. Normally, it is possible to lose some or the entire original venture, most of the construction project suffers financial problems. Mostly cash flow problem occurs in the construction industry when the amount of funding expecting cannot cover the cost for labour, materials and other expenditures which are involve in the project.

It will be a very good idea to have a suffient founds so that project can be deliver smoothly. Financial risk in construction project consist of cash flow problems, insolvency due to slow payment and dispute, default of contractors, supplier etc. also big project comprises of complex financial planning.

Legal-contractual in construction:

Contractors should ensure that they obey the legal-contractual obligations so that they can benefit from it. In teams of legal-contractual, it has a very difficult network and legal obligation which contractors have no choice than to adhere to and must be considered carefully. A contact is a switch of an obligation between two or more parties which is involved in a contact; mostly it is not very simple for both sides to agree on one team. The contract must be design in such a way that each party will benefit from it and also to obey the obligations adjoin to it. Legal-contractual risk in construction project comprises of local law and code, direct liability, liability to others etc.

Environmental risk in construction:

Environmental risk is a pensive which is really causing issues for construction industries. Even though, most of the construction companies are embraced with the belief that environmental risk is the exposure to only the environment work, however, they abide in every phase of construction industries practices.

Environmental risk is very important considering the fact that, it is made to reduce or eliminating a contractors from dangers to environmental liabilities. This environmental risk in construction consist of pollutions, waste treatment etc.


Risk management is the act of enabling people and organizations to deals

with uncertainty, by finding a way to protect its basic resources. Risk management is the process which is used in preventing, reduction or control risks.

There should be differences between the cost of managing risk and what benefit is required from risk. In order to accomplish this balance, there is the need for good risk identification and risk analysis. Besides the risk management process contains the identification of risk in construction, exposures and how to come out with an effective risk management method which can reduce the potential for losses.

Risk Management Process

Risk management is the act of enabling people and organization to deal with the uncertainties, by finding a way to protect it basic resources. Contractors should use a special approach in managing construction projects so that they can accomplish the goal of producing a better project. Contractors can achieve their goal on a good quality, better budget and good planned schedule.

Basically there is managerial equipment that can help companies make better decision in the risk management process. Companies have to make a decision about setting up a goal or risk policy where risk acceptance criteria will be involve.

However, with a good analysis basing on available information’s all hazards of the activities shall be identified and the consequences of the risk will be assessed. Thereafter, there shall be risk evaluation comparison with the acceptance criteria. In extreme cases where the risk is not acceptable, there is the need for the companies to make a decision to know how they will reduce the content of risk.

Risk identification:


Risk analysis in a broad sense is the act of identifying and analyzing risk factors and finding it root cause. Risk analysis on the other hand consists of: identification of hazard in an organization.

Risk analysis can be divided into two broad methods; these methods can be qualitative and quantitative. The qualitative risk analysis method is made for improving an organizations attention toward potential problems and this can be assist through analyzing this type of risk.

However, quantitative risk analysis is made so that assurance can be implemented and so that it can be allowed to develop cost which can be implemented as well. This quantitative risk analysis is the simplest one to use and more often than not many organizations use it.

Qualitative risk analysis is very beneficial because it can fastly help companies to identify lots of hidden risk as well as valuable resources which are sensitive to these risks. Qualitative risk analysis does not only provide safety measures to be implemented but also provide to those that could be effective if they are implemented. It is the main aim of the qualitative risk analysis to gain a level which can protect risk in pleasant ways and one which can improve upon the awareness among most of the organizations.

The base of this analysis is often calculation bases and it is not very important to know the value or assets involve. The quantitative risk analysis more or less does the same things does by qualitative risk analysis, it is also able to easily identify cases which are safeguarded. Quantitative is base highly instinctive which uses metrics that requires a higher level of effect provided to it.

Risk analysis



Ranking Options

Descritive analysis

Comparing Options

Probability analysis

Sensitive analysis

Simulation techniques

This chart shows the estimating of the potential impacts of risk to decide what risks to retain and what risks transferring to other parties.


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