Page 48 - Urban Construction Project Management

Risk Assessment and Problem Solving 23
Exhibit 2-2
Identify risk
exposure Risk management
flowchart.
Risk management
strategies

Insurance Risk management
bonds plan procedures

Implementation of risk
management programs
Monitor and control risk
management process

Feedback

of sabotage or terrorism, material shortages, personnel shortages, geotechnical problems,
and governmental agency problems.

In order to properly manage the potential risks to the project, a risk management plan
needs to be developed to formally identify, quantify, assess, and mitigate the risks
during the execution of the project. The risk management planning process entails com-
pleting a number of actions to reduce the likelihood of occurrence and the severity of
the impact of each risk. This process will enable the CM/GC to identify, document,
review, and mitigate these risks, and any others that may arise in the ever-changing
world in which we live and conduct business. An outline of a risk management plan for
a construction project, which must be customized for each specific project, is shown in
Exhibit 2-3.
A model used in the construction industry to manage risk is the construction risk
management system (CRMS). This model provides an effective systematic frame-
work for quantitatively identifying, evaluating, and responding to risks in construc-
tion projects. Risk management should be seen as managing risk proactively, rather
than responding to risk events after they happen. Hence, the theme of risk manage-
ment approach is to act instead of react to project risks. Many contractors think of
risk management as insurance management, where the main objective is to find the
optimal economic insurance coverage for the insurable risks. Risk management, if
done properly, goes way beyond that and looks to scientifically and systematically
approach the management of risks faced by contractors, and deal with both insurable
and uninsurable risks by choosing the appropriate techniques for dealing with the
risks to the project and the contractor. Contractors must evaluate their own risk toler-
ance and the degree of exposure to risk with which they are comfortable and can be
exposed to financially. Remember that there should be a balance with all risks and
rewards, and if one does not take prudent risks, there may not be the potential for
reward.