Risk analysis and management in construction

Pergamon

International Journal of Project ManagementVol. 15, No. 1, pp. 31-38, 1997 Copyright© 1996 Elsevier Science Ltd and IPMA Printed in Great Britain. All rights reserved 0263-7863/96 $17.00 + 0.00 S0263-7863 (96)00035-X

Risk analysis and management in construction
Akintola S Akintoye*
Department of Building and Surveying, Glasgow Caledonian University, Glasgow, G40BA, UK

MalcolmJ MacLeod
1RISC Technical Services, International Loss Adjusters, 35 Seething Lane, London, EC3N 4AH, UK

The paper describes, on the basis of a questionnaire survey of general contractors and project management practices, the construction industry's perception of risk associated with its activities and the extent to which the industry uses risk analysis and management techniques. It concludesthat risk management is essential to construction activities in minimizing losses and enhancing profitability. Construction risk is generally perceived as events that influence project objectives of cost, time and quality. Risk analysis and management in construction depend mainly on intuition, judgement and experience. Formal risk analysis and management techniques are rarely used due to a lackof knowledge and to doubts on the suitability of these techniques for construction industry activities. Copyright © 1996 Elsevier Science Ltd and IPMA.
Keywords: Risk perception, risk analysis, risk management, project managers, contractors

Organizations from many industries have recognized the increasing importance of risk management, and many companies have established risk managementdepartments to control the risks they are, or might be, exposed to. The construction industry and its clients are widely associated with a high degree of risk due to the nature of construction business activities, processes, environment and organization. Risk in construction has been the object of attention because of time and cost over-runs associated with construction projects. Although, Porter',Healey2 and Perry and Hayes3 have expressed risk as an exposure to economic loss or gain arising from involvement in the construction process; Mason 4 and Moavenzadeh5 have regarded this as an exposure to loss only. Bufaied 6 describes risk in relation to construction as a variable in the process of a construction project whose variation results in uncertainty as to the final cost, duration and qualityof the project. It is generally recognized that those within the construction industry are continually faced with a variety of situations involving many unknown, unexpected, frequently undesirable and often unpredictable factors 7. Ashley8 and Kangari and Riggs9 have all agreed that these situations are not limited to the construction industry; it is recognized that risk is built into anycommercial organization's profit structure and is a basic feature of a free enterprise system. Insofar as risk analysis and management is important to the activities of the construction industry, little is known *Author for correspondence.
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regarding the industry response, and in particular the techniques employed for risk analysis and management. Simister '° investigated the usage andbenefit of project risk analysis and management in 1992, based on a questionnaire survey of 37 members of the UK Association of Project Managers. Simister's l° survey was comprised of respondents classified into five work-related groups: defence industry (36%), management consultancy (36%), systemsbased information technology (12 %), telecommunications (12%) and engineering contracting (4%). Theobjective of the current study was to obtain feedback from construction contractors and construction project management practitioners on the following aspects of risk analysis and management: • • • • • Risk perception by the construction industry Organizational risk management Risk premium in construction projects Management of risk Current usage of risk management techniques.

The research...