Text book Nigel J. Smith, Tony Merna, Paul Jobling 2006
A risk event implies that there is a range of outcomes for that event which could be both more and less favourable than the most likely outcome, and that each outcome within the range has a probability of occurrence. The accumulation, or combinations of risks can be termed project risk. This will usually be calculated using a simulation model (see Chapter 7). It is important to try to capture all the potential risks to the project even if they are not strictly events or a calculation of project risk. In construction projects each of the three primary targets of cost, time and quality will be likely to be subject to risk and uncertainty. It follows that a realistic estimate is one which makes appropriate allowances for all those risks and uncertainties which can be anticipated fromexperience
and foresight. Project managers should undertake or propose actions which eliminate the risks before they occur, or reduce the effects of risk or uncertainty and make provision for them if they occur when this is possible and cost effective. It is vital to recognise the root causes of risks, and not to consider risks as events that occur almost at random. Risks can frequently be avoided if their root causes are identified and managed before the adverse consequence – the risk event – occurs. They should also ensure that the remaining risks are allocated to the parties in a manner which is likely to optimise project performance.To achieve these aims it is suggested that a systematic approach is
followed: to identify the risk sources, to quantify their effects (risk assessment and analysis), to develop management responses to risk and finally to provide for residual risk in the project estimates. These four stages comprise the core of the process of risk management. Risk management can be one of the most creative tasks of project management. The benefits of risk management can be summarised as follows: project issues are clarified, understood and considered fromthe start; decisions are supported by thorough analysis; the definition and structure of the project are continually monitored; clearer understanding of specific risks associated with a project;
build-up of historical data to assist future risk management procedures.