Management of Project Risks and Uncertainties

RT-006f Topic Summary
RT 006f

Overview

This topic contains two sources of information, both dealing with risk management in the construction arena. While the research summary is focused on management of risk for a construction contractor, most of the recommendations presented are equally applicable to owners, designers, and subcontractors. The source document from a previous study provides an overview of risk management on capital construction projects as applied to owners, construction managers, and constructors. The materials provide a great introduction to risk management as well as introducing typical methods of identifying, measuring, and controlling risk on capital construction projects.
 

Key Findings and Implementation Tools

1 : Uncertainty: Risk AND Reward

Risk and uncertainty are inherent in all construction activities. They carry with them the potential for time, resource, and monetary loss. However, some uncertainties have the potential for gain. Management of uncertainty must consider the potential in both directions.
Reference: (RS6-8)

2 : Risk Management is More Than Just Insurance

The term “risk management” often is applied to the duties of the staff that handles insurance matters for the company. However, risk management includes considerably more than insurance. Thus, the term “risk management” encompasses the full spectrum of activities associated with identification, measurement, and control of risk, the responsibilities for which may be spread throughout the company.
Reference: (RS6-8)

3 : Three Stages of Risk Management

A risk management program should have three stages:

  1. Risk identification - including the cataloging of risks and analysis of future possibilities, whether the risk is known, unknown, or some combination
  2. Risk measurement - in terms of potential costs should a risk become an event (such as Monte Carlo)
  3. Risk control - including insurance, avoidance, transfer, and containment; contingency funds are discussed here (RS6-8,  p. 4)
Reference: (RS6-8)

4 : Example Risk Management Program

Pulling all of the pieces of risk management together may seem like a daunting task, but included in the material is an example program for your reference. The example includes project information, maps, and diagrams, with a discussion of possible risks and the approach you can take to manage the risks. (RS6-8, p. 24)