Technical Feature: Construction & Engineering Insurance

Systematic risk management approach

for construction projects
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well, writes Mr Chris Holden6#7"-4#&)#8*(+#9-.-/",".06#:;<#=>;?@A#B04C

his article is entitled the Systematic Risk Management Approach for Construction Projects but in fact
it could be simply the Systematic Risk Management
Approach to Anything. Is the management of risk any different for construction projects than any other project? Is
the management of risk for a project any different to the
management of risk in business generally?
The answer has to be a resounding no! Construction projects, by their nature, complexity, value and size, clearly create
risks to the assets and the people working on the project,
and those who are affected by it. So do other projects, and
so does business! Therefore, is the approach that should be
taken to managing the risks of a construction project any
different to the approach to managing the risks of, say, a
mega acquisition or a review of company exposures? No!
The risk management approach is the same, albeit the
results may well determine risks of a different nature. It
may not be a surprise to learn that exposure to risk arises
everywhere to one extent or another.

cinity of the project, together with exposure to the workers

and others that are affected by their actions.
In project terms, risks need to be identified and managed.
Risks generally are those which will cause the project to
be delayed, to run over budget, or damage the reputation
of the contractor.
Just think for a moment about the delays and the extra
costs involved in the building of the new Wembley football
stadium in the UK, together with the ensuing legal cases.
Everyone knows the contractors name now, dont they?
Only they will know the damage that this has caused to
their reputation.
The following approach to managing construction project risks will ultimately provide the project board with a risk
register that details the risks identified with the project and
the mitigating actions that will reduce the risks. The project
may have employed a professional risk manager, or managing risk might form part of the project managers brief.
Identifying the risks

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The risk management process involves:

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of trying to control the risk to reduce the likelihood of
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The project may need to be broken down into manageable

packages, or individual sub-projects. A risk identification
workshop for each package or sub-project should be called
and this should be attended by team members with special
skills relating to the project architects, finance, legal and
any specialists such as piling, underground services, etc.
The risk manager, or project manager, performs a facilitating role in this.

In terms of construction projects, the process of risk

management:
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minimising the amount of fire-fighting that has to be
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will be delivered on time and within budget.
Risk management becomes even more important if the
business decides to try something new for example in
a construction project, using a new material, or working
using untried methods.
Construction projects create exposures to the assets
themselves, surrounding property and utilities in the vi-

48

Construction workers are protected far better today than they were earlier this
century! (Photo: Lunch Atop a Skyscraper, c.1932, by Charles C Ebbets)

Technical Feature: Construction & Engineering Insurance

The first part of the workshop is a brainstorming session where individual risks are identified. The risk must be
articulated correctly there is a risk of..because of
(a fortuitous event occurring). Risks may be considered in
several different categories including the following.

Environmental

Strategic/ commercial

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Analysing the risks

Risks are discussed and analysis of frequency (the chance

of the risk arising) and severity (the impact of the risk arising). In order to consider the impact of the risk arising, the
risk appetite needs to be considered this should have
been determined before the workshop. The impact can be
quantitative or qualitative for example (Chart 1).
There may be more categories as well.
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severity. These are the risks to be focussed upon.
Identifying the risk owner

A risk owner should be identified this is the person best

placed to manage the risk and this person should be informed that they have a risk to manage.
In order to mitigate the risk, actions should be decided
upon this may be a one-off action, or a constant monitoring action. Action owners should be identified as the person
best placed to undertake the action.

Category

Low

Medium

Costs

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milestones or published targets

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Reputation

Some local public/ staff concern

and/or some local media
attention

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Technical Feature: Construction & Engineering Insurance

Risk register

A risk register, showing the top risks identified should be

drawn up this can be a simple excel spreadsheet, or there
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spreadsheet should include date, risk category, description
of risk, frequency, severity, risk owner, mitigating action,
action owner, comments and residual risk.
The risk register is a live document it changes continually as actions are updated or completed. It will be
reviewed regularly by the project board which will have
set the frequency of which it meets. The risk manager or
project manager will be required to review risks with risk
owners regularly so as to be able to produce an update in
time for the project board meeting.
A continuous process

Risk is not static, it is ever changing and every review

should consider new risks that present themselves as the
construction project evolves. The risk management process
is a continual cycle of identification, analysing, reduction
and control, transfer and review.
This process can apply to all projects, not only construction projects, and is the same method for identifying
operational risks in a business environment. While the
project board has ultimate responsibility for risk, it must
be realised that risk management is a task for everyone and
the more attention given to risk the better the opportunity
to embed risk management as a culture into the business.
It does need to be recognised that risk has an upside as
well as a downside risk can produce opportunities as
well as threats no products would be on the market if
risks hadnt been taken in their original development.

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