Risk management in construction projects: A systematic analytical approach for contractors

Risk is inherently present in all construction projects. From start to finish, the construction process is complex and characterized by uncertainty. Quite often construction projects fail to achieve their time, quality, and budget goals. This failure is often due to the occurrences of unanticipated risk events that a contractor has failed to identify, analyze, and manage properly. A risk model called Construction Risk Management System (CRMS) is introduced to help contractors identify project risks and to systematically analyze and manage them. The CRMS model is logical substitute for the traditional intuitive unsystematic approach currently used by most contractors. The main emphasis of the CRMS model is to increase the contractors' awareness of the many risks they face, and to improve their ability to systematically manage these project risks. The four main components of the CRMS model are described--risk identification, risk analysis and evaluation, response management, and system administration. A new classification scheme for project risks is proposed and a risk mapping concept is presented. The Influence Diagramming technique and Monte Carlo Simulation are used as tools to analyze and evaluate project risks. Alternative risk management strategies are suggested. Such strategies include: risk avoidance, risk transfer, risk retention, loss reduction and risk prevention, and insurance. In conclusion, the CRMS model is an integrated systematic approach to the identification, analysis and subsequent risk management in construction projects. The systematic developments achieved in this work provide a comprehensive approach to risk management. These developments, when employed by contractors, should not only reduce the non-identified risk exposure but also, because of the analytical nature of the CRMS, lead to a reduction in litigation.