Risk Management in the Construction Industry - Essay Example

Risk Management within construction industry Introduction Risks are involved in every segment of human life. In our social life, family life and in professional life, we face lot of expected and unexpected risky situations. Professional life seems to be the most vulnerable areas of our life as far as the risk involved are concerned. Some professions may have fewer risks involved whereas some other professions may involve more risks. Construction industry is perhaps the most dangerous industry as far as risk involvements are concerned because of the complicated tasks the employees need to perform as part of their duties and responsibilities. For example, the risks involved in the construction of a multistory building are enormous compared to single story buildings. Workers are needed to perform complicated tasks such as fabrication, construction etc at a bigger height without adequate safety measures. According to Klemetti (2006), risks in construction industry can be classified into many categories such as pure or operational risks, financial risks, business risks, political/country risks etc. Moreover it can again be classified as business risks, insurable risks, external risks, and internal risks etc (Klemetti 2006, p.14 &15). This paper briefly evaluates the application of risk management in construction industry focusing mainly on the operational risks Risk management in construction industry Risks are at the core of the construction industry. It is difficult to complete a project without any risks being taken. In fact taking risks often increases the opportunity and profitability in construction industry and hence the construction project managers often forced to take risks. Constructions projects involve hundreds of stakeholders which made it extremely vulnerable to risky situations. For example, apart from the masons and ordinary labors, many other skilled, semiskilled and unskilled workers are working in a construction industry. For example, fabrication, electrical works, plumbing, painting, etc are some other major works involved in a construction industry apart from the actual construction jobs. All these associated works are highly risky and it is difficult to anticipate that from where the chances of accidents may arise. Edwards, (1995) has pointed out that effective risk management in construction industry should focus on providing; an increased awareness about the consequences of the risk, a focus for a more structured approach, effective centralized management control, better risk information transfer between the concerned and the responsible persons and reduce long term loss expenditure (Edwards, 1995, p.2). Risk management is process is not limited to the risk mangers alone. In fact in a construction industry, not only the workers, but the management as a whole is responsible if avoidable accidents happen. Implementing proper risk avoiding measures is the responsibility of the construction company management. There are established norms in construction industry for performing certain tasks. But in many cases, managers force the workers to perform dangerous task without taking adequate or prescribed safety measures. In a survey conducted in Malaysian construction industry, 22.2% of the respondents confirmed that their companies have specific processes of identifying risk associated with a project. Moreover, 80% of the construction companies are succeeded in risk identification process, 80% succeeded in risk analysis and only 66.7 per cent implement any risk/response control (Yusuwan et al, 2008, p.125). In other words, the construction companies have well defined policy and procedure of risk management, but many of them are hesitant in implementing safety standards considering the expenses and the timely delivery of a project. Klemetti (2006) has mentioned that better understanding of both the relationships in a project network and risks related to the network structure, project risk management can be more effective overall risk reduction Klemetti 2006, p.2). In other words, the clear understanding or risks associated with each segment of construction works may reduce the overall risks involved in the project work. Fabrication, electrical and plumbing works are highly risky compared to the earth works and hence the risk manger should focus more on such areas. Risk identification is the first important step in the risk management process. Moreover, systematic risk management enables the early detection of risks (Perera et al, 2009). Risk identification before the dangers actually occur, is the first step in the risk management process. If the risk manager was able to identify the possible risks associated with a task, he can take precautionary measures to avoid it. For example, it is dangerous for a painter do painting jobs at the sides of a multistory building without wearing safety belts. If the risk manager was able to enforce safety belts for all jobs performing at a height he can reduce the chances of an accident very much. Risk estimation is the second step in risk management. It refers to the probability of occurrence of the risks identified. In the above example itself, it is necessary for the painter to wear safety belts when painting at a height whereas when painting from the ground it is not necessary or the concerns of falling down is eliminated. In other words, risk estimation should be done based on the nature and type of work performing. Risk response planning and execution is the third step in risk management in a construction industry. Klemetti (2006) has mentioned that the risk response planning should be done based on the following aspects of risks; Avoid: change in project plans in a way that an identified risk is no longer relevant. Transfer: transfer risks to other parties by contracts or insurances. Mitigate: find ways to reduce the probability and/or impact of risk. Accept: take a conscious risk and deal with negative consequences as they occur, but take no action beforehand Klemetti (2006, p.27) If avoiding of risk by changing project plans is not possible, transferring of risk to another external party is one way of dealing with risks. For example, workers involved in a construction project may not have the skills to perform a risky job. Under such circumstances the project manager can seek the help from the skilled persons from outside in order perform the task. Even if considerable precautions were taken, sometimes dangers may occur quiet unexpectedly. Risk management planning should have provisions for dealing with such unexpected dangers. Conclusions Construction industry is one of the most dangerous industries in the world as far as risk involvement is concerned. Most of the construction companies are hesitant in implementing risk management techniques because of the increased expenses needed and the possible delay in the construction activities. Risk identification, risk estimation and risk response planning etc are the major steps in the risk management process. Avoiding of risky tasks, transferring of risky tasks to external agencies, finding ways to reduce the probability of the occurrence of the risks and planning for better management of risks if it occurs are some of the risk management strategies. References 1. Edwards L, (1995), Practical risk management in the construction industry Retrieved on 3 July 2010 from http://books.google.co.in/books?id=SE640cGeyk8C&printsec=frontcover&dq=Risk+management+in+construction+industry&source=bl&ots=LLNg_S4HFX&sig=7M7y_LnU0d3x5UneR1dhyQHOqyU&hl=en&ei=HsQuTI-9M8LQcc-knNQD&sa=X&oi=book_result&ct=result&resnum=6&ved=0CDcQ6AEwBQ#v=onepage&q&f=false 2. Klemetti A (2006), Risk Management in Construction Project Networks, Helsinki University of Technology Laboratory of Industrial Management Report 2006/2, Retrieved on 3 July 2010 from http://lib.tkk.fi/Reports/2006/isbn9512281473.pdf 3. Perera B.A.K.S., Dhanasinghe I & Rameezdeen R (2009), Risk management in road construction: the case of Sri Lanka/Rizikos valdymas tiesiant kelius: Sri Lankos atvejis, International Journal of Strategic Property Management  -  June, 2009 Retrieved on 3 July 2010 from http://www.entrepreneur.com/tradejournals/article/201086460.html 4. Yusuwan N M, Adnan H & Omar A F (2008), Clients’ Perspectives of Risk Management Practice in Malaysian Construction Industry, Journal of Politics and Law Vol. 1, No. 3, September 2008 Retrieved on 3 July 2010 from http://www.ccsenet.org/journal/index.php/jpl/article/viewFile/726/697 Read More