a potentially profitable investment into a loss-making venture. 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.