Construction projects are characterized as very complex projects, where uncertainty comes from various sources. This paper deals with the identification of risk by different methods, types of risks associated with construction project and different risk mitigation techniques. In the construction industry, risk is often referred to as the presence of potential or actual threats or opportunities that influence the objectives of a project during construction, commissioning, or at time of use. Risk is also defined as the exposure to the chance of occurrences of events adversely or favorably affecting project objectives as a consequence of uncertainty. Pure risk in which there is the possibility of financial loss but no possibility of financial …show more content…
This risk may be considerable, since exchange rates are particularly unstable in many developing countries or countries whose economies are in transition. In addition to exchange rate fluctuations, the project company may face the risk that foreign exchange control or lowering reserves of foreign exchange may limit the availability in the local market of foreign currency needed by the project company to service its debt or repay the original investment. Interest rate risk forces the project to bear additional financing costs. This risk may be significant in infrastructure projects given the usually large sums borrowed and the long duration of projects, with some loans extending over a period of several years. The project company and the lenders also face the risk that the project execution may be negatively affected by acts of the contracting authority (Government), another agency of the government or the host country’s legislature. Such risks are often referred to as political risks. Political risk faced by firms can be defined as “the risk of a strategic, financial, or personnel loss for a firm because of such nonmarket factors as macroeconomic and social policies. Political risk includes risk such as change in law, payment failure by government, increase in taxes and change in government. Legal risks is the risk of non-compliance with legal or regulatory requirements.
As previously identified, there are also “non-legal/extra-governmental” political risks which could bring unexpected upheaval to foreign firms. Macro political risks such as the threat of violence, corruption, war or military coup, political instability and terrorism are all direct threats to foreign investors.
Risks management is an important step during the process of a project. Failing to manage a risk may result in unforeseen event happening and a project’s failure. For example, with limited budget, an unforeseen event or an accident occurs in the middle of a project and this matter has not been considered and needs a big sum of expense, then the project may be stopped because of this unexpected event. We should know it is necessary to understand how to identify risks and assumptions based on the information. After identifying risks, it is important for project managers to set contingency plans to prevent and deal with these risks when they occur. Of course, several problems may happen during considering
Risk or threat is common and found in various fields of daily life and business. This concept of risk is found in various stages of development and execution of a project. Risks in a project can mean there is a chance that the project will result in total failure, increase of project costs, and an extension in project duration which means a great deal of setbacks for the company. The process of risk management is composed of identifying, assessing, mitigating, and managing the risks of the project. It
Construction projects can be extremely complex and fraught with uncertainty. Risk and uncertainty can potentially have damaging consequences for the construction projects. Therefore nowadays, the risk analysis and management continue to be a major feature of the project management of construction projects in an attempt to deal effectively with uncertainty and unexpected events and to achieve project success. Risk is inherent on construction projects and disputes frequently arise. One in four construction projects results in a dispute that leads to arbitration or litigation. With large scale, complex projects the likelihood of serious, time-consuming and expensive claims increases.
Others risks involved in such projects include the external risks. These risks are linked to the project externally. They are, for example; new labor regulations, weather, changes in ownership, and in some cases, foreign policies might affect if the project is being carried out in a foreign place. Catastrophic risks can also be categorized under the external risks. The risks include occurrences such as; terrorism, earthquakes, floods, civil arrests and unavoidable circumstances that are most likely to occur unexpectedly. These are physical risks are normally beyond control.
Risk can not control every things by Macville as the project and the project manager or change in government legislation, change in strategy from senior manager the economy, its therefore hard to reduce the associated risk. The mains ways of external risk economic factors, natural factors, supplier relationships.
The completion of any project depends on the execution of various parameters mostly set at the beginning of the project. In order to complete the project to satisfactory levels, the project must be completed within the stipulated timelines, fall within the approximate budget and be of the required quality standards. However, most of the projects are affected by adverse changes and unforeseen events that occur during the execution period. Research shows that the magnitude of change is dependent on the size of the project, with large projects experiencing more uncertainties due to several factors including; planning and design complexity, interest groups having deferring opinions, resource availability, Economic and political climate and statutory regulations, which may necessitate change of plan. Most of the uncertainties are known to occur in the concept phase and if not intervened, they may affect the entire project. The burden falls on the management of such risk as some managers choose to ignore the uncertainties since they call for additional costs. Other inherent risks may go unnoticed and therefore remain unsolved,
The research takes a case study approach. The case study analysis dwelt on risk management by Contractors who work on energy and utility construction projects, including strategies and supporting structures for managing risks, complete with an analysis of how these strategies and structures are implemented and supported by the Contractors resources base. The researcher specifically chose utility contractors for this study as the Energy and Utilities sector play an indispensable role in the global economy and in the UK, industry employs around 2% of the UK workforce (AGCAS, 2012). Moreover, the UK government identified the Utilities companies as companies that are heavily involved in risky incidents affecting their sector thus playing a crucial role in the preparation and planning for emergencies responsibilities (UK Government, 2013). According to Yip (2003) construction is risky as it almost always certainly involves loss of time and money. Above all, any denial of service during outage result in impact on communities (Lindman, 2008) and utility services are no exception. Against this background, it could be argued that contractors working on construction projects undoubtedly play a significant role in managing risks in order to stay in business.
“An investment’s returns could suffer as a result of political changes or instability in a country, instability affecting investment returns could stem from a change in government, legislative bodies, other foreign policy makers, or military control” (Investopedia, 2014).
All companies doing business domestically or internationally are affected by political issues and risks- the likelihood that a society will undergo political changes that negatively affect local activity. In many different ways, politics are a huge factor for the willing of two sides to cooperate and trust one another. (International business book)
Broadly, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or “any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives.”.[1] Political risk faced by firms can be defined as “the risk of a strategic, financial, or personnel loss for a firm because of such nonmarket factors as macroeconomic and social policies (fiscal, monetary, trade, investment, industrial, income,
Political risk in a decision is the risk that politoical factors will invalidate the strategy and perhaps severly damage the firm.
Political risk: This risk is the risk to the political arguments and policies made within a country that might turn out to be an loss to the company. While economic risk is said to be a country 's ability to reimburse its dues. Even if a country 's economy is strong, if the political climate is unstable or unreliable to outside investors, the country where the investment is taking place may not be a good place for investment.
The job title is used in construction, petrochemical, architecture, information technology and many different industries that produce products and services. The project manager must have a combination of skills including an ability to ask penetrating questions, detect unstated assumptions and resolve conflicts, as well as more general management skills. Key among his or her duties is the recognition that risk directly impacts the likelihood of success and that this risk must be both formally and informally measured throughout the lifetime of the project. Risks arise from uncertainty, and the successful project manager is the one who focuses on this as the main concern. Most of the issues that impact a project arise in one-way or another from risk. A good project manager can lessen risk significantly, often by adhering to a policy of open communication, ensuring every significant participant has an opportunity to express opinions and concerns.The study will be restricted to the role of project management in construction industry only. It is very much possible that some of the respondents may give the incorrect information.