Ayodeji E. Oke · Pelumi E.

Adetoro ·
Seyi S. Stephen · Clinton O. Aigbavboa ·
Lukman O. Oyewobi ·
Douglas O. Aghimien

Risk Management
Practices in
Construction
A Global View
Risk Management Practices in Construction
Ayodeji E. Oke • Pelumi E. Adetoro
Seyi S. Stephen • Clinton O. Aigbavboa
Lukman O. Oyewobi • Douglas O. Aghimien

Risk Management Practices

in Construction
A Global View
Ayodeji E. Oke Pelumi E. Adetoro
Federal University of Technology Akure Malawi University of Business
Akure, Nigeria and Applied Sciences
Blantyre, Malawi
Seyi S. Stephen
University of Johannesburg Clinton O. Aigbavboa
Johannesburg, South Africa University of Johannesburg
Johannesburg, South Africa
Lukman O. Oyewobi
Federal University of Technology Minna Douglas O. Aghimien
Minna, Nigeria De Mont Fort University
Leicester, UK

ISBN 978-3-031-35556-1    ISBN 978-3-031-35557-8 (eBook)

https://doi.org/10.1007/978-3-031-35557-8

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature
Switzerland AG 2023
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To God
who made all things beautiful
Preface

Over the years, the construction industry has been a major driver of physical and
economic growth in countries worldwide. Nevertheless, in comparison with other
notable industries, the construction industry has always been plagued with risk and
uncertainty due to its complexity, scale, and period of completion. In as much as
risk management entails forecasting the unforeseeable, it is regarded as the most
significant management technique for addressing/dealing with project uncertainty.
Risk management can be viewed as a necessary component for adding value to a
project by enhancing its cost, time, and quality performance.
Efficiencies and effectiveness of project risk management are sought to be
maximized in all approaches to the discipline. Regardless of how the concepts of
risk procedures differ based on the particular project, the general risk management
concept consists of three basic components: identification, analysis, and response.
When managing risk, it is mandated to identify, describe, understand, and assess for
treatment. A risk management process that does not result in the adoption of
measures to address the risks that have been identified is incomplete and ineffective.
The ultimate aim, rather than simply analyzing risk, is to manage it effectively. Risk
management in project delivery entails grasping and implementing. It simply
provides a methodical approach to thinking about risk and determining how to deal
with it.
The book is divided into three parts, the first part is the general introduction that
details the background to risk management practices as it pertains to the construction
industry. Also, it contains the objective of the book as regards ensuring
implementation of effective risk management practice in construction project
enhancement and delivery. The second part gives vivid information about risk
management practices in some selected developing countries such as Malaysia,
Nigeria, Qatar, Saudi-Arabia, South Africa, Sri-Lankan, and Tanzania. Each chapter
in this section begins with background introduction and concludes with an outline
of some notable points after a definite examination of different written literature.
There are references provided at the end of each chapter for further reading or
information on the subject matter. This is also the same with the third part of the

vii
viii Preface

book, which details countries in developed nations such as Australia, Canada,

Sweden, and the United States.
This book is expected to be of good use to the following set of readers: construc-
tion professionals, scholars, researchers, government agencies (which include min-
istries and arms of the government that are involved in the decision-­making on
construction projects), policy makers, construction stakeholders and educational
institutions especially disciplines in the built environment such as architecture,
building, land surveying, quantity surveying, estate management, and urban and
regional planning among others, stakeholders concerned with the implementation
of science, technology, engineering, and mathematics (STEM) practices, consulting
firms across various disciplines in finance, value creation, and facility managers in
the architecture, engineering, construction, and operation (AECO) industries, as
well as undergraduates and graduates in tertiary institutions with interest in risk
management-related policies and practices.
The book can serve as a research guide and framework that will encourage
construction professionals to deal with risks associated with executing a project. We
hope knowledge would be transferred through succinctly expressed risk management
policies discussed in the book and enhance construction projects to be executed
within the stipulated duration and contracted budget of lean risk and the whole life
cycle maximized through identified risk management practices.

Akure, Nigeria Ayodeji E. Oke

Blantyre, Malawi Pelumi E. Adetoro
Johannesburg, South Africa Seyi S. Stephen

Johannesburg, South Africa Clinton O. Aigbavboa
Minna, Nigeria Lukman O. Oyewobi
Leicester, UK Douglas O. Aghimien
Contents

Part I General Introduction of the Book

1 General Introduction ����������������������������������������������������������������������������     3
Historical Overview of Risk Management in the Construction
Industry����������������������������������������������������������������������������������������������������     3
The 1990s—The Emergence of Risk Analysis in the
Construction Industry��������������������������������������������������������������������������     3
The Millennium Systematic Approach����������������������������������������������������     4
The Post-2010s—More Sophisticated Technique Development ������������     4
Objective of the Book������������������������������������������������������������������������������     5
References������������������������������������������������������������������������������������������������     5

Part II Risk Management in Selected Developing Countries

2 
Risk Management Practices in Malaysia��������������������������������������������     9
Introduction����������������������������������������������������������������������������������������������     9
Risk Management in Malaysia����������������������������������������������������������������    10
Project Risk Management������������������������������������������������������������������������    11
Project Risk Management in Malaysian Construction Industry��������������    12
Malaysian Standard Risk Management ��������������������������������������������������    13
Stages of Risk Management Process in Malaysia������������������������������������    14
Risk Identification��������������������������������������������������������������������������������    15
Risk Evaluation/Analysis��������������������������������������������������������������������    16
Risk Response��������������������������������������������������������������������������������������    16
Challenges in the Implementation of Risk Management
in Malaysia����������������������������������������������������������������������������������������������    16
Benefits of Risk Management in Malaysia����������������������������������������������    17
Conclusion ����������������������������������������������������������������������������������������������    18
References������������������������������������������������������������������������������������������������    18

ix
x Contents

3 
Risk Management Practices in Nigeria������������������������������������������������    21
Introduction����������������������������������������������������������������������������������������������    21
Nigerian Construction Industry����������������������������������������������������������������    22
Risk Management in Nigeria ������������������������������������������������������������������    23
Project Risk and the Nigerian Code of Cooperate Governance��������������    24
Risk Management Process ����������������������������������������������������������������������    25
Describe the Context of the Event ������������������������������������������������������    26
Identify the Risks ��������������������������������������������������������������������������������    26
Conduct a Risk Analysis����������������������������������������������������������������������    26
Treat the Risks ������������������������������������������������������������������������������������    27
Monitor and Review����������������������������������������������������������������������������    28
Risk Management Actions ����������������������������������������������������������������������    28
Preventive Actions�������������������������������������������������������������������������������    29
Corrective Actions��������������������������������������������������������������������������������    29
Challenges of Risk Management Practices in Nigeria����������������������������    29
Benefits of Risk Management in Nigeria������������������������������������������������    30
Conclusion ����������������������������������������������������������������������������������������������    31
References������������������������������������������������������������������������������������������������    31
4 
Risk Management Practices in Qatar��������������������������������������������������    33
Introduction����������������������������������������������������������������������������������������������    33
Qatar Construction Industry��������������������������������������������������������������������    34
Risk Management in Qatar����������������������������������������������������������������������    34
Concept/Framework for Risk Management��������������������������������������������    36
Risk Identification��������������������������������������������������������������������������������    36
Risk Analysis ��������������������������������������������������������������������������������������    37
Risk Evaluation������������������������������������������������������������������������������������    37
Resolving the Risks�����������������������������������������������������������������������������    37
Risk Monitoring and Review ��������������������������������������������������������������    38
Concepts of Risk Identification����������������������������������������������������������������    38
Documentation Reviews����������������������������������������������������������������������    39
Information Gathering Techniques������������������������������������������������������    39
Checklist Analysis��������������������������������������������������������������������������������    40
Assumption Analysis ��������������������������������������������������������������������������    40
Diagramming Techniques��������������������������������������������������������������������    40
Challenges of Risk Management in Qatar ����������������������������������������������    41
Benefits of Risk Management in Qatar����������������������������������������������������    42
Conclusion ����������������������������������������������������������������������������������������������    42
References������������������������������������������������������������������������������������������������    42
5 
Risk Management Practice in Saudi Arabia ����������������������������������������   45
Introduction����������������������������������������������������������������������������������������������    45
Saudi Arabian Construction Industry������������������������������������������������������    46
Overview of Risk ������������������������������������������������������������������������������������    46
Reasons for Risks Issues in Saudi Arabia Construction Industry������������    47
Risk Management������������������������������������������������������������������������������������    48
Contents xi

Risk Management in Saudi Arabia Construction Industry����������������������    49

Risk Assessment��������������������������������������������������������������������������������������    51
Tools for Risk Assessment in Saudi Construction Industry��������������������    51
Factors Affecting Risk Management Practices in Saudi Arabia��������������    52
Barriers to Risk Management������������������������������������������������������������������    55
Conclusion ����������������������������������������������������������������������������������������������    55
References������������������������������������������������������������������������������������������������    56
6 
Risk Management Practices in South Africa��������������������������������������    59
Introduction����������������������������������������������������������������������������������������������    59
South African Construction Industry ������������������������������������������������������    60
Risk Management in the South African Construction Industry ��������������    61
South Africa Risk Management Standard������������������������������������������������    62
Process/Framework for Risk Management in the South African
Construction Industry������������������������������������������������������������������������������    62
Sources and Types of Risk ����������������������������������������������������������������������    63
Requirements for Effective Risk Management����������������������������������������    63
Challenges of Risk Management Practices in South Africa��������������������    64
Benefits of Risk Management in the South African Construction
Industry����������������������������������������������������������������������������������������������������    64
Conclusion ����������������������������������������������������������������������������������������������    65
References������������������������������������������������������������������������������������������������    65
7 
Risk Management Practices in Sri Lanka ������������������������������������������    67
Introduction����������������������������������������������������������������������������������������������    67
Concept of Risk, Uncertainty, and Opportunity��������������������������������������    69
Concept of Risk������������������������������������������������������������������������������������    69
Concept (Definition) of Uncertainty����������������������������������������������������    70
Opportunities and Threats��������������������������������������������������������������������    70
The Risks Involved in the Construction Sector����������������������������������������    70
Project Risk Classification ����������������������������������������������������������������������    71
Stakeholders’ Attitudes Toward Risk������������������������������������������������������    71
Risk-Averse������������������������������������������������������������������������������������������    72
Risk-Neutral����������������������������������������������������������������������������������������    73
Risk-Seeking����������������������������������������������������������������������������������������    73
Sources of Risk in Construction��������������������������������������������������������������    73
Risk Management in the Construction Industry��������������������������������������    74
Goals and Aim of Risk Management ������������������������������������������������������    74
Sri Lankan Construction Industry������������������������������������������������������������    74
Risk Management in Sri Lankan Construction Industry��������������������������    75
Risk Management on Sri Lankan Road Project��������������������������������������    75
Risk Identification on Sri Lankan Road Projects������������������������������������    76
Risk Identification Techniques Used on Road Projects ��������������������������    77
Risk Analysis and Evaluation on Sri Lankan Road Projects ������������������    77
The Triangulation Approach����������������������������������������������������������������    77
Delphi Approach����������������������������������������������������������������������������������    78
Analytic Hierarchy Process (AHP) Method����������������������������������������    78
xii Contents

Risk Allocation on Sri Lankan Road Project ������������������������������������������    79

Allocation of Risks Between Contracting Parties��������������������������������    79
Allocation of Risks Through Contract Clauses�����������������������������������    79
Risk Allocation Findings on Sri Lankan Road Projects��������������������������    80
Model for Risk Management in Sri Lankan Construction Industry��������    81
Risk Planning ��������������������������������������������������������������������������������������    81
Risk Identification��������������������������������������������������������������������������������    81
Benefits of Risk Identification ������������������������������������������������������������    82
Risk Identification Categories��������������������������������������������������������������    82
Tools and Techniques Used for Risk Identification ����������������������������    82
Risk Analysis/Assessment and Evaluation������������������������������������������    83
Risk Analysis Approaches��������������������������������������������������������������������    83
Quantitative Analysis Techniques��������������������������������������������������������    84
Qualitative Risk Analysis Approach����������������������������������������������������    84
Qualitative Risk Analysis Approach����������������������������������������������������    85
Semi-Quantitative Risk Analysis Approach����������������������������������������    86
Other Risk Analysis Techniques for Project Risk Management����������    86
Criteria for Selecting Risk Analysis����������������������������������������������������    86
Risk Response��������������������������������������������������������������������������������������    86
Types of Risk Responses���������������������������������������������������������������������    87
Risk Response Strategy in Developing Countries ������������������������������    88
How Contractors Respond to Construction Risk ��������������������������������    88
Risk Monitoring and Control Stage ����������������������������������������������������    88
Risk Monitoring and Control Techniques��������������������������������������������    89
Feedback��������������������������������������������������������������������������������������������������    90
Conclusion ����������������������������������������������������������������������������������������������    90
References������������������������������������������������������������������������������������������������    90
8 
Risk Management Practices in Tanzania����������������������������������������������   95
Introduction����������������������������������������������������������������������������������������������    95
General History of Risk Management in the Construction����������������������    97
The History of Risk Management in Tanzania Construction Sector�������    98
Prevailing Challenges of the Tanzanian Construction Industry ��������������    99
Impediments to the Adoption of Risk Management Practice
in Tanzania ����������������������������������������������������������������������������������������������    99
Framework/Model for Risk Management in Tanzania����������������������������   100
Risk Identification��������������������������������������������������������������������������������   100
Risk Assessment����������������������������������������������������������������������������������   100
Risk Response��������������������������������������������������������������������������������������   101
Conclusion ����������������������������������������������������������������������������������������������   101
References������������������������������������������������������������������������������������������������   101
Contents xiii

Part III Risk Management in Selected Developed Countries

9 
Risk Management Practices in Australia��������������������������������������������   107
Introduction����������������������������������������������������������������������������������������������   107
History of Risk Management in the Australian Construction
Industry����������������������������������������������������������������������������������������������������   108
Australian Risk Management Standard ��������������������������������������������������   109
Process of Risk Management Assessment ����������������������������������������������   111
Australian Risk Management Standard Framework��������������������������������   112
Benefits of Risk Management������������������������������������������������������������������   115
Challenges of Risk Management ������������������������������������������������������������   115
Conclusion ����������������������������������������������������������������������������������������������   116
References������������������������������������������������������������������������������������������������   116
10 
Risk Management Practices in Canada ����������������������������������������������   119
Introduction����������������������������������������������������������������������������������������������   119
Canadian Construction Industry��������������������������������������������������������������   120
Risk Management in Canada ������������������������������������������������������������������   120
Risk Analysis and Assessment ����������������������������������������������������������������   121
Qualitative and Quantitative Risk Assessment����������������������������������������   122
Qualitative Risk Assessment Methods������������������������������������������������   122
Quantitative Risk Assessment Methods����������������������������������������������   123
Overview of Hazard and Risk������������������������������������������������������������������   125
Types and Sources of Risk Involved in Construction������������������������������   126
Steps in Risk Management Process ��������������������������������������������������������   127
Framework for Risk Management in Canada������������������������������������������   128
Challenges of Risk Management Practices in Canada����������������������������   129
Benefits of Risk Management in Canada������������������������������������������������   130
Conclusion ����������������������������������������������������������������������������������������������   131
References������������������������������������������������������������������������������������������������   131
11 
Risk Management Practices in Sweden ����������������������������������������������   133
Introduction����������������������������������������������������������������������������������������������   133
Risk Management in the Swedish Construction Sector��������������������������   134
Factors that Affect Effective Risk Management in Sweden��������������������   137
Understanding of Risk Management ��������������������������������������������������   137
Participation at Different Levels of the Project������������������������������������   137
Risk Identification, Assessment, and Response ����������������������������������   138
Risk Transfer and Communication of Risks����������������������������������������   138
Joint Risk Management������������������������������������������������������������������������   139
Conclusion ����������������������������������������������������������������������������������������������   139
References������������������������������������������������������������������������������������������������   140
12 
Risk Management Practices in the United States of America������������   141
Introduction����������������������������������������������������������������������������������������������   141
The United States of America in the Construction Industry��������������������   142
Risk Concepts in the US Construction����������������������������������������������������   143
xiv Contents

Objectives of Risk Management��������������������������������������������������������������   143

Purpose for Studying Risk Management ������������������������������������������������   144
Sources of Risk����������������������������������������������������������������������������������������   144
Characteristics of the Client����������������������������������������������������������������   144
The Nature of the Project��������������������������������������������������������������������   144
The Usage of Consultants for Professional Services ��������������������������   145
Contractor and Mode of Project Delivery��������������������������������������������   145
Professionals’ Abilities and Previous Experience��������������������������������   145
Types of Contracts for Design and Construction ��������������������������������   145
Identifying Project Risks��������������������������������������������������������������������������   145
How Risks Are Identified������������������������������������������������������������������������   146
Project Risk Management Process����������������������������������������������������������   146
Risk Management Planning (RMP) ��������������������������������������������������������   147
Steps to Risk Management Plan����������������������������������������������������������   147
First Project Risk Management Meeting Action Plan��������������������������   148
Risk Identification������������������������������������������������������������������������������������   148
Resolution of Disputes������������������������������������������������������������������������   149
Risk Analysis ������������������������������������������������������������������������������������������   149
Qualitative Risk Analysis��������������������������������������������������������������������   149
Quantitative Risk Analysis������������������������������������������������������������������   150
Risk Response������������������������������������������������������������������������������������������   150
Risk Monitoring ��������������������������������������������������������������������������������������   150
Risk Communication ������������������������������������������������������������������������������   151
Conclusion ����������������������������������������������������������������������������������������������   151
References������������������������������������������������������������������������������������������������   151

Part IV Concluding Summary of the Book

13 
General Summary on Risk Management��������������������������������������������   155
Introduction����������������������������������������������������������������������������������������������   155
Definitions and Concepts of Risk Management Practices ����������������������   156
Concept of Risk Management Practices��������������������������������������������������   156
Risk Identification��������������������������������������������������������������������������������   156
Risk Assessment����������������������������������������������������������������������������������   157
Risk Mitigation������������������������������������������������������������������������������������   157
Risk Allocation������������������������������������������������������������������������������������   157
Risk Monitoring and Control ��������������������������������������������������������������   157
Risk Management as a Sustainable Tool��������������������������������������������������   157
Environmental Risk������������������������������������������������������������������������������   158
Social Risks������������������������������������������������������������������������������������������   158
Integration with Sustainable Strategies������������������������������������������������   158
Governance Risks��������������������������������������������������������������������������������   158
Long-Term Perspective������������������������������������������������������������������������   159
Stakeholders’ Engagement������������������������������������������������������������������   159
Contents xv

Lessons from Developing and Developed Countries’

Risk Management Practice ����������������������������������������������������������   159
Similarities Between Developing and Developed Risk
Management Practice��������������������������������������������������������������������   159
Risk Identification��������������������������������������������������������������������������������   159
Risk Assessment����������������������������������������������������������������������������������   160
Risk Mitigation������������������������������������������������������������������������������������   160
Legal Compliance��������������������������������������������������������������������������������   160
Differences Between Developing and Developed Risk
Management Practice��������������������������������������������������������������������   160
Financial Resources ����������������������������������������������������������������������������   160
Technology and Innovation������������������������������������������������������������������   160
Knowledge and Expertize��������������������������������������������������������������������   161
Regulatory Framework������������������������������������������������������������������������   161
Effective Risk Management for Construction Project ����������������������������   161
Risk Identification��������������������������������������������������������������������������������   162
Risk Analysis ��������������������������������������������������������������������������������������   163
Risk Evaluation������������������������������������������������������������������������������������   163
Risk Treatment ������������������������������������������������������������������������������������   164
Risk Monitoring and Review ��������������������������������������������������������������   164
Risk Communication ��������������������������������������������������������������������������   164
Benefits of Effective Risk Management to Project Team������������������������   165
Improved Project Planning������������������������������������������������������������������   165
Better Decision-Making����������������������������������������������������������������������   165
Budget and Schedule Control��������������������������������������������������������������   165
Improved Stakeholders Communication����������������������������������������������   166
Improved Resource Allocation������������������������������������������������������������   166
Stakeholder Confidence and Organization’s Reputation ��������������������   166
Achieving Sustainable Projects������������������������������������������������������������   166
Benefits of Effective Risk Management to Clients����������������������������������   167
Cost Control ����������������������������������������������������������������������������������������   167
Schedule Adherence����������������������������������������������������������������������������   167
Quality Assurance��������������������������������������������������������������������������������   168
Stakeholder Communication����������������������������������������������������������������   168
Improved Overall Project Success ������������������������������������������������������   168
Safety and Risk Mitigation������������������������������������������������������������������   169
Risk Management and Sustainable Construction������������������������������������   169
Conclusion ����������������������������������������������������������������������������������������������   170
References������������������������������������������������������������������������������������������������   171

Index������������������������������������������������������������������������������������������������������������������ 173
List of Figures

Fig. 2.1 Stages of risk management in the construction industry������������������   15

Fig. 4.1 Project risk identification in project��������������������������������������������������   38
Fig. 9.1 Components of risk management process in construction���������������� 111
Fig. 10.1 Types/sources of risks involved in construction������������������������������� 126
Fig. 10.2 Problems with risk management practices in the construction��������� 130

xvii
List of Tables

Table 8.1 Techniques in risk management�����������������������������������������������������   97

Table 9.1 Interpretation of the components
of risk management (RM) process in construction������������������������ 112

xix
About the Authors

Ayodeji E. Oke is a Senior Lecturer in the Department of Quantity Surveying,

Federal University of Technology Akure, Nigeria, and a Senior Research Associate
with cidb Centre of Excellence, Faculty of Engineering and Built Environment,
University of Johannesburg, South Africa. With more than 350 publications, his
research interest is in sustainable infrastructure management (SIM), emphasizing
sustainable construction, value management, quantity surveying, and construction
in the digital era.

Pelumi E. Adetoro is a Construction Project Manager and currently a postgradu-

ate student of Infrastructure Development and Management at the Malawi University
of Business and Applied Sciences, Blantyre, Malawi, under the Africa Sustainable
Infrastructure Mobility Scheme. He is a Building Information Management (BIM)
enthusiast. His areas of specialization are academic consultancy, BIM education,
and general construction. He is a Construction Cost Engineer with practical experi-
ence in costing and managing construction projects.

Seyi S. Stephen is a Construction Manager and a graduate of Federal University of

Technology, Akure, Nigeria. He is a Social Psychology and Behavioral Sciences
enthusiast. He also has a flair for literature, and his areas of specialization are aca-
demic consultancy, psychological education, and teaching. He is a Construction
Manager and has authored books including Sustainable Construction in the Era of
the Fourth Industrial Revolution, published by Taylor and Francis, Routledge; Value
Management Implementation in Construction, published by Emerald Publication;
and Smart Cities: A Panacea for Sustainable Development, published by Emerald
Publication.

Clinton O. Aigbavboa is a Professor in the Department of Construction

Management and Quantity Surveying and Director of the DSI/NRF Research Chair
in Sustainable Construction Management and Leadership in the Built Environment
and the cidb Centre of Excellence and Sustainable Human Settlement and
Construction Research Centre, University of Johannesburg, South Africa. He

xxi
xxii About the Authors

completed his PhD in Engineering Management and has published several research
papers in the area of housing, construction, and engineering management and
research methodology for construction students. He has extensive knowledge in
practice, research, training, and teaching.

Lukman O. Oyewobi has a background in Quantity Surveying and publishes in

the general area of construction projects management and strategic management in
construction. He is a Senior Lecturer in the Department of Quantity Surveying,
Federal University of Technology Minna, Nigeria. He is a cooperate member of the
Nigerian Institute of Quantity Surveyors and a Registered Quantity Surveyor with
the Quantity Surveyors Registration Board of Nigeria. Dr Oyewobi has extensive
tertiary teaching and research experience in the general area of Quantity Surveying.

Douglas O. Aghimien is a Senior Lecturer in Built Environment at the Faculty of

Art Design and Humanities, De Montfort University, Leicester, United Kingdom.
He is a vibrant researcher with a keen interest in construction digitalization, smart
and sustainable construction, and value management. He has a PhD in Engineering
Management from the University of Johannesburg and has published over 80 peer-
reviewed articles, book, and book chapters.
 Part I
General Introduction of the Book
Chapter 1
General Introduction

The construction industry is complex in nature, and understanding all activities

within the industry can be challenging. This is because of the unique approaches,
methods, and techniques that relate to each project. Lately, there have been some
arguments by some parties about referring to it as an industry or as a sector since it
consists of many other industries (Ofori, 2015). This complexity, therefore, gives
rise to numerous risks, which have effects on the quality, cost, time, and overall
performance of projects. Loosemore et al. (2006) corroborated this by highlighting
some of the effects of unmanaged risks on construction projects, which include
uncertainties in project outcome, financial problem, liabilities, and ineffectiveness
in decision-making. The construction sector is a key contributor to any country’s
economic and social growth. Therefore, there is a need to effectively manage risk to
ensure timely completion of construction projects in good quality and within the
proposed budget, resulting in swift and profound infrastructural development.

 istorical Overview of Risk Management

H
in the Construction Industry

 he 1990s—The Emergence of Risk Analysis

T
in the Construction Industry

In the early 1990s, as the identification and evaluation of factors associated with
construction project risks became a focal point of industry concentration, various
contractors developed varieties of methods for analyzing and assessing these risks.
This resulted in failure of construction works which was measured by reviewing the
triple constraints (i.e., time, cost, and quality of work done) (Al-Bahar, 1988).
Historically, risk-related issues in construction were resolved through a systematic

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 3

A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_1
4 1 General Introduction

approach during the precontract stage to avoid time and cost overruns. This method
required identifying likely risk factors, assessing them, and proposing solutions to
mitigate their effects (Birnie & Yates, 1991). Thus, the factors affecting the cost and
duration of the project were classified as controllable and uncontrollable (Akinci &
Fischer, 1998).

The Millennium Systematic Approach

There have been several attempts to examine risk factors critically, and as a result,
numerous systematic approaches have been developed. Chapman (2001) classified
risks into environmental, industrial, client/investor, and project risks. Shen (2001)
further classified risk based on the nature of its occurrence which includes financial
risk, legal risk, management risk, market risk, policy risk, and political risk.
Chen et al. (2004) studied cost risk management in west rail project of Hong-­
Kong and classified risk factors affecting construction costs into resource-related
factors, management-related factors, and parent-related factors. Dikmen et al.
(2007) investigated the use of fuzzy risk assessment to rate the risk of cost overruns
in construction projects. The study developed a fuzzy risk assessment methodology
using influence diagrams to illustrate the variables that influence project costs. Zeng
et al. (2007) categorized risk factors into four major groups; they are human factor,
site factor, material factor, and equipment factor. In the early 2000s, major limitations
of risk assessment tools and techniques were highlighted such as the analytical
hierarchy process (AHP), probability impact (P-I), fuzzy sets theory (FST), Monte
Carlo simulation (MCS), and decision support system (DSS) to give a more
advanced approach to comprehending and classifying risk in construction as well as
other industries.

The Post-2010s—More Sophisticated Technique Development

In recent years, more sophisticated risk management techniques have been devel-
oped. In the study by Rezakhani (2012), risk was grouped into three major types,
which include external risk, legal risk, and internal risk. The author further divides
external risk into unpredictable/uncontrollable and predictable/uncontrollable,
while the internal risk was classified as either non-technical/controllable or techni-
cal/controllable.
Goh and Abdul-Rahman (2013) classified the numerous risk factors into five dif-
ferent stages: planning stage, design stage, procuring stage, construction stage, and
handing over stage. The authors employed checklists, brainstorming, risk register,
sensitivity analysis, and Monte Carlo simulation as the risk assessment tool and
technique for the classification. The findings of the research identified brainstorming
and checklist as the tools that are most prevalent in practice. There have been
References 5

numerous attempts by researchers to illustrate the relationship between project risks

and environmental complexity using a variety approaches (Lazzerini & Mkrtchyan,
2011). Hwang and Ng (2013) in their findings found that deployment of risk man-
agement practice in construction projects is generally low, which was attributed to
resources and time constraints, a low profit margin, and the fact that it is not cost-
effective. The findings of the study revealed there is correlation between positive
implementation of risk management and achieving success in executing small-scale
construction projects, i.e., in terms of the quality, cost, and time performance.

Objective of the Book

There have been several publications on the definitions and concepts of risk man-
agement in the construction sector by different authors (Kartam & Kartam, 2001;
Olsson, 2007; Zavadskas et al., 2010), some of which are journals, conference
papers, research books, and textbooks. This book aims not just to define risk
management and its concept but also to enhance quality project delivery through
effective risk management practices.
The scope of this book is limited to risk management in a few selected countries,
as it explains explicitly what risks entail in construction and how construction
professionals in the countries formulate and mitigate possible risks in their
construction practices. The book also gives an insight into the best practices to
effectively manage risk in the construction sector in the selected countries. Several
impeding factors to the full adoption and implementation of risk management across
these countries are identified so as to provide long-lasting solutions to reoccurring
impediments in the construction industry.
The book will further improve the awareness and adoption of risk management
among professionals and policymakers in the construction industry and also enhance
collaboration among project teams. The book will also enhance the development of
policies and regulations that will ensure full implementation of risk management for
project delivery within stipulated cost, quality, and time.

References

Akinci, B., & Fischer, M. (1998). Factors affecting contractors’ risk and cost overburden. Journal
of Management in Engineering, 14(1), 67–76.
Al-Bahar, J. F. (1988). Risk management in construction project: A systematic analytical approach
for contractors. Ph.D. thesis, University of California at Berkeley.
Birnie, J., & Yates, A. (1991). Cost prediction using decision/risk analysis methodologies.
Construction Management and Economics, 9(2), 171–186.
Chapman, R. J. (2001). The controlling influences on effective risk identification and assessment
for construction design management. International Journal of Project Management, 19(3),
147–160.
6 1 General Introduction

Chen, H., Hao, G., Poon, S. W., & Ng, F. F. (2004). Cost risk management in west rail project of
Hong Kong. AACE International Transactions, INT.09.1-INT.09.5, China.
Dikmen, I., Birgonul, M., & Han, S. (2007). Using fuzzy risk assessment to rate cost overrun risk
in international construction projects. International Journal of Project Management, 25(5),
494–505.
Goh, C. S., & Abdul-Rahman, H. (2013). The identification and management of major risks
in the Malaysian construction industry. Journal of Construction in Developing Countries,
18(1), 19–32.
Hwang, B. G., & Ng, W. J. (2013). Project Management knowledge and skills for green construc-
tion: Overcoming challenges. International Journal of Project Management, 31(2), 272–284.
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 Part II
Risk Management in Selected Developing
Countries
Chapter 2
Risk Management Practices in Malaysia

Abstract The construction sector has always been plagued with risk and uncer-
tainty when compared to other sectors due to its magnitude as well as its complex
and time-consuming nature. In as much as risk management entails predicting the
unforeseeable, it can as well be thought of as the most important management tool
for dealing with project uncertainty. Risk management is a crucial component for
adding value to a project and improving its cost, time, and quality performance.
Efficient risk management can bring great result to project performance by
improving the productivity. In Malaysia, however, most construction companies do
not practice systematic risk management. This condition has resulted in significant
numbers of project failure, cost and time overrun, and poor-quality performance.
Therefore, this chapter looked into the existing practice of risk management in the
Malaysian construction sector and evaluated the various approaches and tools
currently being utilized to manage project risk.

Keywords Construction risk · Efficient risk · Project delivery · Project risk · Risk
planning · Sustainable construction

Introduction

The construction industry is a major drive in bringing about physical developments

in a country by coming up with projects from planning stage to implementation.
The implementation and actual completion of these projects will invariably benefit
the people and the country at large and in the process enhance national development
and subsequently improving the country’s economic status.
The construction business is viewed as a high-risk venture to embark on when
compared to any other venture because of the various activities involved that are
complex in nature. Since each project has its own uniqueness, procedures, and new
techniques for carrying them out, a comprehensive approach is developed in relation
to the conditions of the projects. The most important factor in project performance
is meeting the cost, time, and quality objectives set for the project. However, risk

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 9

A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_2
10 2 Risk Management Practices in Malaysia

can occur in a number of ways leading to cost and time overrun, capital loss, loss of
life, environmental degradation, and a variety of other failures if not managed
properly and as early as possible (Hamimah et al., 2008). As a result, project success
or failure is directly proportional to how the risks involved are envisaged right from
the onset of construction and throughout other construction phases.
Risk management is essentially making efforts to prevent the impacts of negative
occurrences. It can also be viewed as a way of maximizing opportunities to arrive at
an outcome by using the information at hand and from past occurrences. Every
initiative we embark on involves risk, and how we respond to and cope with it
determines the fate of such initiative.
In the study by Raftery (1994), risk and uncertainty refer to situations in which
the result of an action or event is most likely to differ from the projected value. As a
result, risk can have severe consequences on construction projects. Risk impacts a
project’s productivity, efficiency, quality, and cost.
Edwards and Bowen (1998) referred to risk management as a useful technique
for dealing with the uncertainties that come with construction projects. The
researchers cited numerous examples of projects not being completed on time, in
good quality, or within budget due to a lack of effective risk management practice
in the project management process. Thus, the success of a project in terms of
timeliness, sticking to the original budget, and attaining the desired results depends
on the risk management skills of each team member involved. Furthermore, Bakker
et al. (2010) pointed out that risk management could help increase earnings. As a
result, risk management must be methodical and successful for a project to succeed.
This makes risk management a topic that deserves careful attention, especially
when it comes to project planning and execution. Nevertheless, the primary purpose
of risk management is not to eliminate all risks but to manage them to the lowest
possible effect. The goal is to provide a framework that will guide major stakeholders
in managing risks effectively and efficiently. From the planning to the closing stages
of a project, multiple project management tools and procedures should be used. This
involves controlling numerous risks connected with the project at each stage. Risk
management is therefore considered a critical component of project management.
The concept of risk management appears to be novel in the Malaysian construction
sector, with only a few companies and industrial practitioners utilizing its tools and
techniques.

Risk Management in Malaysia

The Malaysian construction industry has a poor risk management culture (Hamimah
et al., 2008). Risk management identification stage in construction is quite distinct
from other industries. The risk associated is primarily determined by the
characteristics of the construction project (design, methods, materials, location,
etc.) and must begin at the very onset of the project planning.
Project Risk Management 11

In Malaysia, contractors identify risk using simple, quick, and inexpensive meth-
ods such as checklists and brainstorming sessions. Risk analysis requires adequate
experience, training, risk management software, and the assistance of a specialist
who can advise on the most appropriate response techniques. Risk response for
contractors in Malaysia is concentrated on events with a high chance of occurring
and a huge impact. Nonetheless, not all companies conduct acceptable risk manage-
ment operations such as reporting, reviewing, and monitoring ongoing risk manage-
ment activity.
Adnan et al. (2008) opined that Malaysian construction practitioners should be
more proactive in risk management practices. Moreover, Roshana and Akintoye
(2005) confirmed that risk management remains a rhetorical subject in the Malaysian
construction industry due to a lack of knowledge. As such, most contractors are
hesitant to adopt risk management techniques to lower project operational costs. In
the study by Hamimah et al. (2008), it was confirmed that risk management is
practiced by Malaysian construction companies with a good reputation, a strong
financial standing and a wide range of experience in large-scale construction.
As a result, the Malaysian construction sector continues to face significant risks.
This creates the need to identify and evaluate current risk management practices in
the Malaysian construction sector, including the processes and various tools/
techniques. Also, to ascertain the constraints and impeding practices to the
implementation of risk management in the country’s construction sector.

Project Risk Management

Risk management is a key concept that must be implemented into project manage-
ment in order to have a successful project. It aims to improve practice performance
while adding value to project execution. Risk management is a systematic set of
actions and techniques used to monitor risks, and it is essential for getting value and
should follow standard procedures and steps (Chapman, 2001). The first is identify-
ing risk factors that have impacts on the risk assessment of the project, which may
arise due to the size, nature, and quality of the project desired. Moreover, as is cus-
tomary in the construction industry, the contractor plays an important role through-
out the entire process by actively participating in the project’s physical activities. To
ensure projects are delivered successfully, the contractors must be available to man-
age these risks as early as possible.
Fundamentally, project risk management is simply a process of asking and
answering a few straightforward questions:
• What risks can be viewed negatively (threats) or positively (opportunities) as
impeding or facilitating the achievement of project objectives? (Risk
identification)
• Which of the risks is by far the most critical? (Qualitative risk analysis)
12 2 Risk Management Practices in Malaysia

• Given the probabilistic nature of the outcomes, how could these risks affect the
overall project outcome in terms of cost and schedule? (Quantitative risk
analysis)
• What can be done to alleviate the risks? (Risk response)
• After taking action, how did the responses influence the outcome of the project,
and what is the state of the project now? (Risk monitoring)
• Who should be aware of this information? (Communication) (Association of
Project Management (APM) (2010), Adnan et al., 2008, El-Karim et al., 2017,
Maytorena et al., 2005)

 roject Risk Management in Malaysian

P
Construction Industry

According to Siang and Ali (2012), the construction industry in Malaysia can be
divided into general construction and specialist trade. The general construction
includes residential, nonresidential, and civil engineering construction, while the
special trade works involve activities such as electrical works, plumbing and
services, metal works, carpentry, tiling, flooring works, and glasswork. Despite
accounting for less than 5% of the country’s gross domestic product (GDP), the
industry is a strong growth driver because of its numerous interconnections with
other economic sectors (Construction Industry Development Board Malaysia
(CIDB), 2006). Without a doubt, the construction industry activities, which include
building construction, road construction, electricity or other transmission lines or
towers, pipelines, oil refinery, and other specific civil engineering projects, are
undeniably essential to the economic development of Malaysia.
The Malaysian construction industry has been impeded by poor performance and
substandard project quality. With respect to numerous faults, the Malaysian
government initiated the Building Commission (BC) with the primary aim of
identifying these faults and proffering solutions to improve the effectiveness of
project delivery and reduce delay and cost overrun. The commission found out that
the major faults related to construction projects occur due to ineffective risk
management practices which resulted in a rise in project completion costs, delays,
and poor work quality. The commission also discovered that the role played by
quality management systems conforming to ISO standard 9000 had not been
sufficient to reduce the inherent shortcoming in the industry (Simu, 2007).
In the general contract, the contractor is fully responsible for carrying out the
construction work, and it is the client’s responsibility to make any adjustments or
modifications to the design. This enables the contractor to focus on the major task
at hand and plan toward all unforeseen event and its likely outcomes. The contractors
are most times compensated for delay in works due to design modifications.
However, because the clients are aware of these rules, any discrepancy with respect
to the contractual agreement tendered by the contractor is seen as a means to request
Malaysian Standard Risk Management 13

unnecessary claims and attract extra cost. Small-scale projects are most likely
subjected to design modifications, hence the need to plan for these uncertainties
through proper and adequate measures. Parties to this agreement are strongly
advised not to deviate from these agreements. In the study by Hellström (2006),
contracts that deviate from the general agreements are not to be covered by
insurance. As a result, it is essential that the individuals signing the contracts are
made aware of the implications of their actions.

Malaysian Standard Risk Management

The risk management technical committee recommended the MS ISO 31000:2010,

which is an identical standard to ISO 31000:2009, which was adopted from the ISO
standard and provides principles and guidelines to address risk issues, as discussed
in Sousa et al. (2012). The standard provides some risk management processes
designed to help limit the occurrence of risk on projects (Department of Standards
Malaysia, 2010). These processes are as follows.
1. Communication and Consultation
Communication and consultation should begin early in the project, and it should
be integrated into all other risk management processes. This process deals with risk,
its causes, and its consequences. It is also critical to conduct effective external and
internal communication and consultation for stakeholders or participants to
understand the rationale for decisions and the reasons why specific actions are
required.
2. 2. Establishing the Context
Establishing the context will enable the organization to state its objectives, iden-
tifies the external and internal elements to be considered when managing risk, and
establishes the scope and risk criteria for the remaining process.
3. Risk Assessment
Risk assessment encompasses the entire process of risk identification, analysis,
and evaluation.
• Risk Identification: Risk identification is used to identify risks, their areas of
influence, sources, and consequences. The purpose of this process is to compile
a thorough list of risks based on occurrences that could create, improve, avoid,
degrade, accelerate, or hinder the achievement of the set objectives. It is regarded
as a critical step because the other processes are dependent on the identified risk.
• Risk Analysis: Risk analysis is a process that considers the causes and sources of
risk, as well as the positive and negative effects and the probability that these
events will occur. It is necessary to identify the factors that influence the outcomes
and probabilities.
14 2 Risk Management Practices in Malaysia

• Risk Evaluation: The risk evaluation process is intended to aid decision-making

by allowing the organization to categorize the analyzed risks based on their level
of significance and then sort out which risks require attention and how fast it
is needed.
4. Risk Treatment
Risk management entails identifying and implementing one or more risk mitiga-
tion methods. Treatments once applied provide or modify controls. Risk treatment
is a cyclical process that includes analyzing a risk treatment by determining whether
residual risk levels are bearable, developing a new risk treatment, and assessing the
performance of that treatment.
5. Monitoring and Review
Monitoring and evaluation should be a defined component of the risk manage-
ment process, including regular checks or surveillance.
The monitoring and evaluation processes should include all parts of the risk man-
agement process in order to:
• Make sure that the measures are effective and efficient in both design and
implementation.
• Gather additional information to improve risk assessment.
• Examine and learn from occurrences including the success and failures.
• Identify changes in the external and internal contexts, such as changes in risk
criteria and the risk itself which may necessitate a revision of risk treatments and
priorities.
• Identifying new risks.

Stages of Risk Management Process in Malaysia

Risk management is a systematic process of identifying, analyzing, and responding

to project risks. This process increases the possibility and effect of positive events
while decreasing the likelihood and effect of negative events, thereby ensuring
project success (Yusuwan et al., 2008). Simply put, risk management is a decision-­
making process that entails having a thorough insight into an already identified risk
and ensuring that appropriate steps are taken to mitigate the effects of such risks and
their likelihood of occurring to reduce the risks complexities and increase the
likelihood of project success.
In the construction industry, risk management process involves three major
stages, and they are risk identification, risk analysis and evaluation, and risk
response, as illustrated in Fig. 2.1. A significant improvement in the efficiency of
construction project management can be achieved by using the risk management
process across these stages. Since risk management process is targeted toward
eliminating project risks as much as possible, creating an organized structure will
Stages of Risk Management Process in Malaysia 15

Risk response

Stages in risk
management

Risk analysis
Risk
and
idenficaon
evaluaon

Fig. 2.1 Stages of risk management in the construction industry

allow for quick response to predicted and unforeseen project risks especially when
the project is a sensitive one.

Risk Identification

This is the initial phase in risk management that entails detecting, assessing, and
classifying the basic impacts of the risks connected to construction projects as well
as the interrelationships that exist among these risks in an analytical and continuous
manner. The concept of risk identification is widely accepted since it is somehow
rare for a project to be discussed without mentioning and identifying possible risks
involved in case of failures. It is considered to be a necessary phase since the
evaluation and response procedure can only work with the identified potential risks.
This is detrimental to the project success as it is mostly done at the onset of project
planning.
16 2 Risk Management Practices in Malaysia

Risk Evaluation/Analysis

Risk evaluation is described as the process of objectively assessing possible risks,

categorizing them by significance, and enabling the top management to choose the
most essential ones. The most difficult technique in risk management is risk analysis
(Mills, 2007). This is because it entails assessing the likelihood of a risk occurring
as well as its impact on the project objectives. Its main goal is to assess risks that
have been identified by separating insignificant events, evaluating the likelihood of
an unexpected event occurring, and assessing the magnitude of such events. In other
words, it is the process of moving from identifying risk to managing it. To assess the
possible effects of risk, risk analysis/evaluation incorporates uncertainty in both
qualitative and quantitative manners, and thus, risk with high chances or
consequences will then be subject to further assessment before decision-making.

Risk Response

Following the identification and analysis of project risks, suitable risk reduction
strategies must be applied. These risk reduction measures are primarily focused on
the risk existence and potential consequences. A risk process that does not result in
the implementation of actions to address the risks that have been identified is
incomplete and ineffective. Risk response encompasses project identification,
selection, evaluation, and implementation. This phase is designed to improve the
degree of risk management and reduce the risk effect and eliminate as much as
possible the potential effects. In addition, risk response is centered toward retention,
reduction, control, sharing, transfer, and avoidance for an established decision
mechanism. The selected response must fit perfectly to address the severity of the
analyzed risk. Also, it should be financially viable and feasible in terms of the
project timing and be agreed upon by all parties concerned.

 hallenges in the Implementation of Risk Management

C
in Malaysia

The Malaysian construction industry faces several risk factors, such as price fluctua-
tion due to inflation, project delay, shortage of skilled workers, and adverse weather
conditions among others (Kang et al., 2015). Like its counterparts worldwide, the
Malaysian construction industry, also, faces several challenges deterring its proper
implementation of risk management practices that will help reduce the occurrence
of some of these aforementioned risks. Yusuwan et al. (2008) noted some of these
challenges as lack of knowledge, shortage of required expertise, poor cooperation
and commitment of project members, lack of proper standards, resistance from
Benefits of Risk Management in Malaysia 17

management and staff members, among other issues. Similarly, in their assessment
of risk management practices in the Malaysian construction industry, Kang et al.
(2015) submitted that several challenges are deterring the industry from employing
effective risk management. These challenges include a lack of adequate knowledge
of risk management, cost and time factors associated with the risk process, reliance
on the experience of construction participants, level of education of project partici-
pants, and the need for professionals. The challenges deterring the proper imple-
mentation of risk management in Malaysia can be summarized into the following:
• Lack of knowledge.
• Shortage of required expertise.
• Poor cooperation and commitment of project members.
• Resistance from management and staff members.
• Cost and time factors associated with the risk management process.
• Reliance on the experience of construction participants.
• Level of education of project participants.
• Lack of proper standards and guidelines.

Benefits of Risk Management in Malaysia

The Department of Standards Malaysia (2010) noted that when the international
standard for risk management is implemented correctly, organizations stand to gain
several benefits. Some of these benefits are achieving project objectives, encouraging
proactive management better, identification of opportunities and threats in projects,
better control of projects, and minimizing losses among others. In the same vein,
several studies (Ansah et al., 2016; Hillson, 2009; Kang et al., 2015; Loosemore &
Cheung, 2015; Siang & Ali, 2012; Ward & Chapman, 2003; Willumsen et al., 2019)
have explored the benefits of proper risk management in the Malaysian construction
industry. Identified below are some of the benefits of implementing risk management
in the Malaysia construction industry. These benefits are identified across various
publications.
• It improves project performance in terms of the cost, time and quality.
• It improves the whole process of project management.
• It provides a proactive approach to addressing risks instead of avoidance thereby
improving the construction process.
• It improves the organizational culture in terms of organizational learning, resil-
ience, and creating a conducive working environment.
• It reduces financial losses and enhances the continuity of the organization.
• It improves stakeholders and customers/clients’ relation.
18 2 Risk Management Practices in Malaysia

Conclusion

The construction industry has been developing over the years to meet the demands
of the clients. However, the construction industry in countries around the world
(Malaysia inclusive) faces several risk factors which if not addressed properly might
hamper the successful deliver of projects to cost, time, quality, and the overall
satisfaction of the client. To effectively identify and address these risks, the
Malaysian industry can do well with further implementation of risk management
process into its construction right from the onset of construction and across the post-­
construction phase. This will help in eliminating challenges that might delay
construction, reduce construction quality and so on that at the end of the day will
affect project delivery. While there is a risk management standard in place in
Malaysia, studies have shown that the proper implementation of these standards is
still a problem. This is a result of issues surrounding knowledge and education of
construction professionals in relation to risk management among other factors.
These challenges identified can therefore be given proper attention to improve risk
management within the country’s construction industry.

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Chapter 3
Risk Management Practices in Nigeria

Abstract A construction project often necessitates the participation of a large num-

ber of individuals with varying skill sets, as well as the coordination of a wide
variety of distinct but linked tasks. The particular characteristics of a project and
other numerous external uncertainties add to its complexity. With this, construction
projects experience cost overruns, delayed schedules, and poor quality due to
numerous risks the projects are exposed to at every stage of planning and execution.
This chapter examined how risk is managed in Nigeria. In view of that, this study
revealed that risk management practice is low and ineffective in most developing
nations of the world, and Nigeria is not exempted. This was majorly due to the lack
of knowledge on risk management by parties involved in the construction project.
This chapter also looked into the best and most effective risk management practices
worldwide, which can be used to effectively manage risks in the Nigerian
construction industry.

Keywords Construction risk · Project delivery · Project management · Project risk

· Risk management · Risk planning

Introduction

Risk management process involves identifying, evaluating, and prioritizing risks,

followed by the use of resources in coordinated and cost-effective manner. This is
done in order to mitigate the likelihood and resulting effect of unpleasant events, as
well as maximizing the realization of opportunities.
In the study by Ojo (2010) on claims and contract disputes in a number of con-
struction projects, it was observed that risks that were not well analyzed or inte-
grated by clients, contractors, or consultants were some of the main causes of claims
and disputes in construction projects. It was further stated that risks can occur as a
result of several circumstances, including financial market instability, threats from
project failures at any stage of the project (i.e., from design to sustainment life
cycles), potential lawsuits, credit risk, accidents, naturally occurring catastrophic

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 21

A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_3
22 3 Risk Management Practices in Nigeria

events, intentional attack from rival and competitor, and events with uncertain or
unpredictable root causes.
In a general view, events in construction can be categorized into two: risks and
opportunities (Perry & Thompson, 1992). Positive occurrences are categorized as
opportunities, whereas negative events are classified as risks. The Project
Management Institute (PMI), the National Institute of Standards and Technology
(NIST), Actuarial Societies, and International Organization for Standardization
(ISO) have all established a risk management standards, with their methods,
definitions and goals varying significantly depending on the application, whether in
project management, security, engineering, industrial processes, financial portfolios,
actuarial assessments, or public health and safety, among others.
There are several ways of managing threats (risk), these include avoiding the
threat right from the onset, reducing the resulting detrimental effect or its likelihood,
transferring all or part of the threat to another party, and trying to retain some or all
of the potential or actual effects of a specific threat. The opposite of this is applicable
when faced with opportunities. To this end, this chapter explores the management of
risk in the Nigerian construction industry.

Nigerian Construction Industry

Nigeria has one of the largest economies in sub-Saharan Africa. The economy of the
country is supported by the contribution of diverse sectors, including construction.
However, the country is challenged by an infrastructure shortage and the deterioration
of existing ones. Nigeria’s infrastructure stock amounts to just 30% of its gross
domestic product (GDP) as of 2021. This is 70% short of the international benchmark
set by the World Bank (International Trade Administration, 2021). Considering the
astronomical rate of increase in the country’s population, it is envisaged that there
will be a significant strain on the meager available infrastructure in the nearest
future. As a result, substantial investment in infrastructure is needed if the country
is to meet its infrastructure needs now and in the nearest future. To deliver this
needed infrastructure, the construction industry will play a crucial role.
The construction industry in Nigeria, like its counterpart worldwide, is a signifi-
cant contributor to the socioeconomic development of the country. The industry
contributes about 3.2% to the country’s GDP (National Bureau of Statistics, 2020).
Moreover, the industry worldwide provides the bases needed by other sectors of the
economy to build upon (Giang & Pheng, 2011). Sectors such as transportation,
property market, finance, and material production all rely on the product of the
industry for their services and contribution to the economy as a whole (Oladinrin
et al., 2012). In Nigeria, Olanipekun and Saka (2019) noted that the construction
industry makes significant short- and long-term contributions to the economy. It
was noted that the industry makes up to 50% contribution to the country’s domestic
fixed capital formation and up to 20% contribution to employment.
Risk Management in Nigeria 23

In describing the Nigerian construction industry, Dantata (2008) noted that, like
its counter in other countries, the industry in Nigeria could be divided into formal
and informal groups. On the one hand, the informal group is unorganized and
comprises simple structures delivered by private individuals through the use of
private labors. This group makes almost no contribution to revenue generation for
the government, and getting statistical data about this informal group is almost
impossible. On the other hand, the formal group is organized with registered
companies carrying out construction projects through formalized approaches. This
group contributes significantly to the growth of the economy, and statistical data are
readily available for analysis and possible forecasting. The client of the construction
industry includes the government and private individuals/entities. Olanipekun and
Saka (2019) have earlier noted that the government is the biggest client of the
construction industry, and they are responsible for up to 60% of the industry’s
output. The private clients cut across oil and gas companies, NGOs, large real estate
developers, and homeowners (Dantata, 2008).
Despite its importance to economic growth, provision of employment in the
country, and its delivery of projects to both public and private clients, the Nigerian
construction industry has been smeared with several issues, such as building
collapse, unethical practices, insecurity, poor management, and poor overall
performance. Some of these issues emanate as a result of poor risk assessments of
projects from the inception to completion.

Risk Management in Nigeria

In Nigeria, effective risk management practices are still in their infancy. Despite
being one of the nine knowledge areas set by the Project, Management Institute, the
Nigeria construction industry has given little consideration to risk management in
the delivery of construction projects (Adeleke et al., 2015). The result of this neglect
of risk management is seen in the poor delivery of projects to cost, time, and quality
that has characterized the country’s construction industry for decades. According to
Aibinu and Jagboro (2002), in most cases, participants of projects have little
understanding of the risk associated with the project they are handling. As a result,
these project participants are unable to put measures in place to ensure these risks
are properly addressed and that projects are effectively delivered. Odeyinka et al.
(2007) assessed the possibility of occurrences and impacts of certain risk factors in
the Nigerian construction industry. The study found that at the precontract stage,
design risk, estimating risk, competitive tendering risk, and tender evaluation risk
are most likely to occur, and when they do occur, they affect the project adversely.
However, at the post-contract stage, financial risk, political risk, contractual risk,
logistic risk, legal risk, and environmental risk are more prominent.
Belel and Mahmood (2012) conducted a survey to assess risk management prac-
tice in Adamawa State, Nigeria, and identified some of the factors that served as a
barrier to risk management practices. They include lack of skilled labor, which
24 3 Risk Management Practices in Nigeria

appeared to be the major source of risk in construction; and a lack of knowledge,

which was recognized as the most intolerant issue. The study further noted that
majority of construction professionals are familiar with risk management as it
relates to on-site safety hazards rather than those associated with meeting project
objectives of cost, time, and quality.
In another study conducted by Aliyu (2013) on risk management in the Nigerian
construction industry, level of knowledge of the practice was regarded as the main
problem for risk management implementation in Nigeria, with improvement in
knowledge being the main driver for development. The study suggested that the best
way to improve knowledge is to make risk management a course of study at the
higher learning level within the country, as well as to periodically introduce
vocational training and risk management workshops.

Project Risk and the Nigerian Code of Cooperate Governance

The Financial Reporting Council of Nigeria, formerly known as Nigerian Accounting

Standards Board (NASB), which was signed into law in 2011 with the support of the
Ministry of Trade, Industry and Investment, is in charge of providing a code on
corporate governance practices and associated listing rules as the country works
toward sustainable market (Federal Reporting Council of Nigeria, 2022). This
council aims to raise public awareness on important corporate values and ethical
practices that will improve the integrity of the business environment and timely
implementation of strategic models for the Nigerian market. The codes and conducts
are reviewed on a regular basis to reflect the most advanced risks and other challenges
facing the Nigerian market.
Managing risks can be more difficult in current times because risk, uncertainty,
and threats are not always predictable. The focus of the World Economic Forum
tenth edition report (The Global Risks, 2015) was on emphasizing the most
significant long-term risks in various categories (economics, societal, geo-political,
and technological). The report, based on the conclusions of 1500 audit members,
highlighted some of the major risks that pose serious threats to organizations as
follows:
1. Uncertainty and volatility.
2. Government regulation.
3. Legal/regulatory adherence.
4. Operational risk.
5. Management and development of talent.
Organizations in Nigeria are not immune to the aforementioned risks. As a result,
to the Nigerian Code of Cooperate Governance (2018) provide some risk
management principles to help address the risk. These principles are as follows:
Risk Management Process 25

Risk Management and Internal Controls The board of directors of the organiza-
tion is clearly vested with the authority to define and evaluate the risk that is required
to meet the organization’s objectives, as well as to implement effective risk manage-
ment and internal controls. They are also responsible for monitoring the introduced
systems; therefore, the board is essentially in charge of the design, implementation,
and monitoring of the organization’s risk management and internal control.

Internal Audit It was recommended in the code that organizations should have an
internal audit function and that those that do not have one should review the necessity
for this function annually and reveal the results of such review in the cooperate
governance report. The provision specifies that the functional role of the internal
audit is to conduct an analysis and independent evaluation of the adequacy and
effectiveness of risk managed and internal control systems of the organization. Also,
the internal audit function may be outsourced and a group with many organizations
may share the holding resources to carry out the group’s internal audit function.
Finally, there is a need to ensure sufficient resources, staff qualifications and
experience, training programs, and the internal audit function’s budget.

Whistle-Blowing There is a need for the organization to establish a whistle-blow-

ing mechanism to ensure that unethical behavior and violations of established law
are reported to the organization’s authority for appropriate sanction. It is critical that
the whistle-blowing mechanism is reliable, accessible, and secure and that when-
ever a case is reported, it is reviewed and reported to the audit committee. In addi-
tion, if the whistleblower suffers any harm as a result of the disclosure, they are
entitled to compensation.

Role of the Audit Committee In reference to the code, risk management is the pri-
mary duty of an organization’s audit committee, and there is a requirement to moni-
tor its implementation and internal control systems. The audit committee can carry
out these obligations, or the organization can create a separate risk committee.

Risk Management Process

Processes in risk management are divided into five steps as follows:

1. Describe the context of event.
2. Identify the risks.
3. Conduct a risk analysis.
4. Treat the risks.
5. Monitor and review treated risks.
26 3 Risk Management Practices in Nigeria

Describe the Context of the Event

It is critical to understand the context of the risk occurrence for it to be effectively

assessed and managed. The link connecting the source and the environment within
which it operates should be defined to clearly understand the parameters for dealing
with the identified risks.
Describe the context of event by taking into consideration as follows:
• The strategic context.
• The organization context.

Identify the Risks

The goal at this stage is to figure out the possibility of the event happening and what
the consequences (loss or damage) would be if it does happen.
The most important questions to ask here are as follows:
• What is it that could happen? Itemize the risks, events, or accidents that could
occur by working your way through each competition, activity, or stage of your
event in a systematic manner so as to discover what could happen at each stage.
• What causes it to happen, and how does it happen? Write down all the potential
causes and scenarios, as well as a description of the risk, incident, or accident.
• What is the probability of the risk occurring?
• What will be the ramifications if something like this happens?
Risk can either be financial, physical, ethical, or legal. Financial risks are risks
that relate to the assets of the organization. It also covers theft, fraud, cost of
insurance, membership fees, loans, attendance fees, lease payments, and the
payment of compensations or penalties and fines imposed as a result of
noncompliance to government laws.
There are also physical risks that relate to risks involving injury to person, harsh
environmental and climatic conditions, and the physical assets of the organization,
such as landed property, equipment, buildings, vehicles, stock, and facilities.
Ethical risks include real or possible harm to one’s image or values, and legal
risks include responsibilities imposed on providers, participants, and consumers as
a result of laws enacted by governments at the federal, state, and local levels.

Conduct a Risk Analysis

This entails assessing the likelihood and implications of each identified risk, as well
as evaluating the risk factors that are most likely to have the biggest impact. These
types of risks should be given the highest priority in terms of how they will be
Risk Management Process 27

managed in the future. To define the priority level of the risk, the risk level is
determined by integrating assessments of likelihood and implications.
A risk evaluation method entails the comparison of the level of identified risk
through the analytical process and initially established risk criteria and then
determining whether risks may be accepted or rejected. These risks may be tolerated
with minimal further treatment if they are modest or tolerable, depending on the
situation. These risks should be closely monitored and evaluated frequently to
ensure that they continue to be acceptable. Once it is determined that the risks do
not fit into the low or acceptable category, the situation should be addressed by
using some of the treatment options discussed in the next step.

Treat the Risks

Risk treatment entails identifying a variety of treatment alternatives for a given risk,
assessing these alternatives, developing risk treatment plans, and putting these plans
into action. Treatment alternatives must be carefully considered, with the most
acceptable strategy for achieving the desired result being selected from among
identified alternatives.
Risk treatment alternatives must be commensurate with the severity of the risk,
and the cost incurred in treating it must be proportionate with the possible benefits
of treatment.
According to the standard, the following are examples of treatment alternatives:
• Accepting the Risk—for example, the majority of individuals would regard minor
injuries sustained while engaging in a sporting event to be an inevitable risk of
the event in question.
• Avoiding the Risk—this involves making a decision about whether or not to pro-
ceed with a certain activity or whether or not to choose an alternative event with
a tolerable level of risk that matches the objectives of the firm.
• Reducing the Risk—it is standard practice to treat a risk by lowering the likeli-
hood of it occurring, reducing its repercussions, or doing both.
• Transferring the Risk—contracts or notices are typically used to transfer risk, in
whole or in part. Your insurance contract, for example, is probably the most often
utilized risk transfer document. The following are some other examples: Lease
agreements, tickets, disclaimers, waivers, and warning signs are all examples of
transferred documents.
• Retaining the Risk—this shows that treatment of risk is not only about risk eradi-
cation but rather recognizing the risk and accepting that some risks must be
retained. It is critical to examine the amount of risk that is inherent and acceptable
in the situation.
• Financing the Risk—to finance the risk implies funding the risk effects. This
entails providing funds to cover the expenses of putting a risk management
treatment plan in place. No matter which approaches you pick to address a risk,
28 3 Risk Management Practices in Nigeria

if the risk has been highly assessed, there would be need to take extra care in
analyzing the rules, processes, and strategies that will be required to treat the risk
effectively. Some of these considerations include the following:
1. What is required to treat the risk?
2. Who is responsible?
3. What is the expected completion date?
4. When a risk has been successfully mitigated or eliminated, how you
will know?

Monitor and Review

Just as it is in communication and consultation, monitoring and reviewing are con-

tinuous aspects of risk management that are crucial to each phase of the process
identified above. This step also encompasses the aspect of risk management that
receives the least amount of attention, which results in the risk management plans
of many organizations becoming outdated and ineffective over time. By conducting
regular monitoring and review, you can guarantee that critical information created
by the risk management process is recorded, utilized, and preserved.
There are just few risks that remain constant. As circumstances change, elements
that may influence the probability and implications of a result may also change, as
well as the factors that influence the acceptability or expense of alternative treatment
options, among other things. The review process is an essential component of the
risk management treatment strategy.
In addition to being an important part of all key business tasks, risk management
should be recognized and managed as such. It is essential that risk management is
thoroughly integrated into all operational and managerial activities at all level of the
organization and that must be pushed from the executive level.

Risk Management Actions

Risk management actions are measures taken by professionals in order to deal with
a variety of risks. Preventive actions and remedial (corrective) actions are the two
types of risk management actions that are commonly employed. In construction
project, preventive action is used to minimize, prevent, or transfer risks at an earlier
stage of the project development, and corrective action is used to mitigate the impact
of risks after they have occurred or are about to occur.
Challenges of Risk Management Practices in Nigeria 29

Preventive Actions

It has been observed that taking risk management and prevention action at an early
phase of the project is more effective. This is emphasized even in early research by
Thompson and Perry (1992) where it was concluded that risk management is most
beneficial early at the design phase of the project, while there is still the flexibility
in design and planning to evaluate how a major risk might be averted. Below are
some of the methods that can be used to prevent risk early enough in a project:
1. Make an appropriate time estimates and produce an appropriate program with
subjective judgment.
2. Produce an appropriate schedule based on the most recent project information.
3. Make an appropriate time estimates and produce an appropriate program by
referring to previous and ongoing similar projects.
4. Plan alternative methods/options as a backup plan.
5. Consciously adjust for bias and add risk premium to time estimation.
6. Make proper time estimation through the quantitative risk analysis techniques.
7. Transfer or share risk to/with other parties.

Corrective Actions

While certain risks that occur as a result of delay in project execution can be miti-
gated by taking different preventive measures at the early stage of the project, proj-
ect development is nonetheless delayed during the course of procuring solutions.
When there is delay in a project, contractors will be required to take a variety of
corrective activities (which is also known as remedial actions) in order to mitigate
the consequences of the delay. Some of the corrective actions according to their
importance are as follows:
1. Increase the number of labor and/or equipment.
2. Work closely with subcontractors.
3. Ensure strict supervision of subordinates to reduce abortive work.
4. Modify the order of work by overlapping activities.
5. Extend working time.
6. Modify the construction process.

Challenges of Risk Management Practices in Nigeria

In the study by Aliyu (2013), there are some factors responsible for the ineffective
risk management practice in Nigeria. Even when the construction professionals in
this country are fully aware of this, they have struggled to fully address the situation
30 3 Risk Management Practices in Nigeria

due to negligence and misconception of the benefits of the practice. In similar vein,
Zailani et al. (2019) noted that the issues determining risk management in small
construction projects are knowledge and experience related, tight schedules, and
construction cost. Lack of knowledge on risk management is stated to be the most
prevalent of the abovementioned barriers. Many of the laborers (unskilled) employed
for work are not knowledgeable, so there is a need to ensure that they are properly
supervised by knowledgeable professionals which are small in number. If supervisors
assigned to supervise the unskilled laborers lack adequate risk management
knowledge and are unable to identify risk control strategies, they would they be able
to transfer practical and theoretical knowledge to the workers.
The challenges to effective risk management in the Nigerian construction indus-
try can be summarized as follows:
• Lack of knowledge on risk management.
• Lack of joint risk management framework by parties.
• Ineffective implementation of risk management.
• Different recognition of risk control strategies.
• Lack of experience of project team.
• Tight project schedule.
• Construction cost.
• Low profit margin of contractors.
• Complexity of risk analytical tools.
• Treating risk management as a one-off activity.
• Underestimation of the impact of risk on projects.

Benefits of Risk Management in Nigeria

The benefits of employing risk management in projects have been explored with a
view to encourage construction organizations and participants to adopt proper risk
management processes. Okereke et al. (2022) noted that reduction in the occurrence
of uncertainties and attainment of project objectives and maximizing opportunities
within the business environment are some of major benefits of implementing proper
risk management processes. The study by Kpodo (1989) identified some of the
inherent benefits of risk management for developing countries, which can be applied
to Nigeria as well. The study emphasized how risk management can benefit business
organizations, the nation’s economy, and individual workers or employees.
• Business Organization
1. Risk management is critical for improving the organization’s credit rating.
2. It is critical for capital utilization.
3. It is essential for lowering long-term production costs and improve the orga-
nization’s product price competitiveness.
References 31

4. Risk Management helps reduce the effects of natural disaster such as fire,
flood etc. that can threaten the survival of the business.
• Individual Workers or Employees
1. Risk management ensures worker safety by reducing work-related injuries,
which also provides workers or employees with some peace of mind.
2. Risk management ensures that the workforce is productive.
• Nation’s Economy
1. It improves the competitiveness of the domestic product through effective
risk management that automatically improves the country’s gross domestic
product (GDP).
2. Effective risk management prevents wastage in relation to plant and equip-
ment which saves foreign exchange.
3. Effective risk management will allow the domestic insurance industry to redi-
rect its capacity to areas with higher losses.
4. Ensuring high productivity of workforce will result in an increase in better
economic condition.

Conclusion

Risk management implementation is still in the infancy stage in the Nigerian con-
struction industry. This chapter concludes that the limiting factors to effective risk
management in the country are knowledge identification from the aspect of the proj-
ect stakeholders before other construction professionals are involved. With policies
embedded in the country’s code and regulations, it is a matter of time before risk
management practice becomes more adopted not just in the construction industry
but also in other industries as well.

References

Adeleke, A. Q., Bahaudin, A. Y., & Kamaruddeen, A. M. (2015). Level of risk management practice
in Nigeria construction industry-from a knowledge based approach. Journal of Management,
Marketing and Logistics, 2(1), 12–23.
Aibinu, A., & Jagboro, G. (2002). The effects of construction delays on project delivery in Nigerian
construction industry. International Journal of Project Management, 20(8), 593–599.
Aliyu, B. A. (2013). Risk management in Nigerian construction industry. Masters dissertation,
Department of Civil Engineering. Eastern Mediterranean University, Gazimagusa.
Belel, Z., & Mahmood, H. (2012). Risk management practices in the Nigerian construction indus-
try – A case study of Yola. Journal of Engineering Sciences, 7(3), 1–6.
Dantata, S. A. (2008). General overview of the Nigerian construction industry. Unpublished mas-
ters dissertation, submitted to Massachusetts Institute of Technology.
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Federal Reporting Council of Nigeria. (2022). Financial reporting council of Nigeria announces
its intention to early adopt sustainability reporting standards (IFRS S1 & S2) by international
sustainability standards board. Retrieved from https://www.frcnigeria.gov.ng
Giang, D. T., & Pheng, L. S. (2011). Role of construction in economic development: Review of key
concepts in the past 40 years. Habitat International, 35(1), 118–125. https://doi.org/10.1016/j.
habitatint.2010.06.003
Global Risks. (2015). The world economic forum. Retrieved from https://www.weforum.org
International Trade Administration. (2021). Construction sector. Available on: https://www.trade.
gov/country-­commercial-­guides/nigeria-­construction-­sector. Accessed 19 Dec 2022.
Kpodo, P. (1989). Risk management in a developing economy. In Proceedings of the national
conference on risk management (FARIM), 19–23 March, Nike Lake Hotel.
National Bureau of Statistics. (2020). Nigerian gross domestic product report (Q3). National
Bureau of statistics PDF. Available at: www.nigerianstat.gov.ng/. Accessed 24 Nov 2020.
Nigerian Code. (2018). Nigerian code of corporate governance 2018. Retrieved from https://www.
ecgi.global
Odeyinka, H. A., Oladapo, A. A., & Dada, J. O. (2007). An assessment of risk in construction in
the Nigerian construction industry. Construction in Developing Economies, 107(1), 359–368.
Ojo, G. (2010). An assessment of the construction site risk-related factors. The Professional
Builder, 1(1), 10–17.
Okereke, R. A., Zakariyau, M., & Eze, E. C. (2022). The benefits and pitfalls of risk management
in construction projects. CHSM Journal, 2(1), 58–75.
Oladinrin, T. O., Ogunsemi, D. R., & Aje, I. O. (2012). Role of construction sector in economic
growth: Empirical evidence from Nigeria. FUTY Journal of the Environment, 7(1), 50–60.
Olanipekun, A. O., & Saka, N. (2019). Response of the Nigerian construction sector to economic
shocks. Construction Economics and Building, 19(2), 160–180. https://doi.org/10.5130/
AJCEB.v19i2.6667
Perry, J. G., & Thompson, P. A. (1992). Engineering construction risks (2nd ed.). Thomas Telford.
Thompson, P. A., & Perry, J. G. (1992). Engineering construction risks: A guide to project risk
analysis and risk management. Thomas Telford, London.
Zailani, M. B., Abubakar, M., & Muhammad, A. (2019). Assessment of barriers to Risk
Management (RM) implementation in small construction projects in Nigeria. African Journal
of Built Environment Research, 3(1), 15–28. https://doi.org/10.33796/ajober.3.1.02
Chapter 4
Risk Management Practices in Qatar

Abstract Risk can be viewed as a crucial issue that must be addressed in all sec-
tors. This chapter provided a broad overview of risks in Qatar and its management,
particularly in the construction industry. As construction project planning and
execution often necessitates the participation of individuals with varying skill sets
coupled with coordination of a wide variety of distinct but linked tasks, the concept
of risk assessment is crucial toward achieving the project in sight. The chapter
examined some of the tools for effective risk management and how they can be
applied in the construction industry. The chapter further identified some of the
prevailing challenges as well as the benefits of implementing a risk management
process in the Qatari construction industry.

Keywords Construction risk · Project delivery · Risk conceptualization · Risk

planning · Risk variety · Sustainable construction

Introduction

Risk assessment in Qatar has been classified into three categories, and they are eco-
nomic, political, and financial system risks (Humphrey, 2017). The country has
experienced a massive surge in infrastructural development over the years as it has
become a tourist center for many people around the world. To maintain this revenue
stream, the construction stakeholders in the country must be practical in maintaining
these infrastructures by considering risks related scenarios right from the project
conceptualization to completion.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 33

A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_4
34 4 Risk Management Practices in Qatar

Qatar Construction Industry

Qatar is regarded as one of the fastest-growing economies in the world (Humphrey,

2017). The construction sector has been a major industry in the development of the
economies of most countries around the world, and Qatar is not an exemption. Over
the last few years, the Qatari construction industry has undergone a significant
change as a result of a shift toward a core number of major infrastructure projects
from the ones executed before.
The steady influx of people into the country as a result of the better economy has
in turn increased the demand for residential buildings. This has been a dominant
reason for the rise in construction activities in the country (Humphrey, 2017). Since
the demand is on the increase, construction professionals have responded adequately
in terms of putting up major infrastructures in the country.
Furthermore, there is an expectation for a boom in construction activities across
the Gulf Cooperation Council (GCC) nations, particularly in Qatar. This is due to
the World Cup 2022 that will be held in November 2022. Soccer fans from around
the globe will lodge in these facilities over the period of the competition and thus
further aid the country in its tourism and recreation approach. Over the next 5 years,
it is projected that the construction industry will experience a massive investment of
205 billion US dollars in infrastructure projects such as that to be experienced in
roads, rail systems, underground metro, and tunneling projects (Emam et al., 2015).

Risk Management in Qatar

In the management of risk, the following points are essential for consideration:
• Risk origin context (Jaskowski & Sobotka, 2012).
• Allocating process and identity (Hanna et al., 2013; Li et al., 2013).
• Information analysis (Zavadskas et al., 2010).
• Flexible result analysis (Kapliński, 2008; Jaskowski & Sobotka, 2012;
Ustinovičius et al., 2010).
• Evaluation and assessment of risk (El-Sayegh, 2007; Ke et al., 2012; Markmann
et al., 2013; Skinner et al., 2014).
• Treatment (Ustinovičius et al., 2010).
• Processes of risk (Zavadskas et al., 2010; Kapliński, 2013).
• Monitoring and communication of risk (Zavadskas et al., 2010).
The abovementioned activities tend to reduce threat and increase opportunities
during project evaluation. El-Sayegh (2007) and Bon-Gang et al. (2014) examined
the diverse risk assessment methodologies employed by different cooperate
stakeholder. The result of which discussed the prevalence of risk in every human
activity. Since risks associated with construction are numerous and vary in terms of
the degree of complexity of the project at hand, whatever chosen risk management
Risk Management in Qatar 35

practice opted for by the project stakeholders should address necessities concerned
with the project.
Several conclusions on risk have associated its effects on any project. These are
mostly on the negative side, especially when not discussed and managed as soon as
the possible. These outcomes will include monetary loss, damage to property, and
injury to person and perhaps a mix of these failures happening at the same time.
When an aspect of risk is identified, it demonstrates that the performance, capac-
ity, potency, quality, and economic cost of a project may all be affected as a result.
Planning, design, and development of construction projects are all sensitive to a
variety of factors in an unpredictable environment. As a result, construction projects
are the product of the actions taken against them in favor of these factors (Jaskowski
& Sobotka, 2012). And this automatically affects every aspect of the project out-
come irrespective of the corrective measure that might be implemented in the
long run.
Risks can be seen in a different form depending on one’s point of view; some are
categorized based on the likelihood that they will occur, whereas others are
categorized on the influence they may have on construction operations. Also, further
categorization can be in terms of types and sources. Regardless of how they are
classified, they are all intended to achieve a common goal which in turn aids risk
management by assisting in formulating risk lists especially when detecting one.
In general, risks can be classified into three major categories. These are known
risks, known unknown risks, and unknown risks. Known risks include the smallest
number of variations that happens frequently and is inevitable in construction proj-
ects. The second category which is the known unknown risks is the one that can be
predicted and has a known likelihood of occurrence and impact. The unknown risks
include those whose occurrence cannot be predicted with any degree of certainty.
Accordingly, risk can also be classified into groups depending on the sources of
concern to the parties involved (Steven, 2017). For instance, there are risks related
to time, risks concerned with the environment, risks concerned with cost, and risks
concerned with safety. Technical risk, political risk, social risk, economic risk, legal
risk, financial risk, health risk, managerial risk, and cultural risk are all subsets of
human risks connected with construction projects. And these have even categorized
and grouped into 10 classifications, which are as follows:
• Design: Defective design, inaccurate quantities, improper design coordination,
hasty design, award of design work to unqualified professionals, and discrepancies
in contract documents, i.e., drawings, BOQ, and specifications, are all challenges
that can develop at the design phase of the project.
• Physical: Accidents occur as a result of not adhering to safety measures, the use
of substandard materials, the safety of materials and equipment, public safety,
and the variation in labor and equipment output.
• Logistics: Poor site inspection, unrealistic project schedule, shortage of available
labor, resources, and equipment, intense bidding competition, an unclear scope
of work, and poor communication between the contractor’s home office and
project site office accumulate risk during the construction process.
36 4 Risk Management Practices in Qatar

• Legal: Non-clarity in work regulations, difficulty in obtaining permits, delay in

dispute resolutions, legal issues between the parties to the contract throughout
the construction period, and a lack of specialized arbitrators to assist in settling
disputes quickly.
• Environmental: This includes inclement weather, difficulty in accessing the exact
location of the site (located a long distance away), and other environmental
conditions (floods, earthquakes, etc.)
• Construction: During the construction process, the project is not always imple-
mented in accordance with the specifications due to misinterpretation of draw-
ings and specifications, actual onsite quantities differing from contract quantities,
changes to the design, reduction of work quality due to time limitation, hasty
bidding, and undocumented change orders.
• Management: Issues here include communication gap among the parties
involved, confusing strategy as a result of the project complexity, changes in
management methods, unavailability of information (which includes uncertainty),
and resources allocation.
• Cultural: Religion and cultural customs are examples of cultural aspects.
• Financial: Delayed payments on contracts, mismanaged cash flow, inflation, the
financial failure of the contractor, exchange rate volatility, monopolization of
materials as a result of the closure, and other unanticipated political circumstances.
• Political: New government acts or laws, inflation, and unpredictable security
situations (invasions) are all factors to consider.

Concept/Framework for Risk Management

There are several approaches to managing project risk. However, some of the most
often used techniques are described here as follows:
1. Risk identification.
2. Risk analysis.
3. Risk evaluation.
4. Resolving the risks.
5. Risk monitoring and review (Tah & Carr, 2000).

Risk Identification

In identifying risks, brainstorming appears to be the best technique to be used

because of its flexible nature. The outcome of risk identification is a complete list of
potential risks related to a project. This often comes in the form of a risk register,
with management responsibilities for such risks assigned to various risk owners.
Concept/Framework for Risk Management 37

Risk Analysis

This particular process involves the selection of risk. It begins with estimating the
magnitude of the already identified risk. Here, the causes of each risk occurrence
and its possible effects are ascertained. The resulting metrics are then utilized to
assess the level of severity of a particular risk occurrence. This is illustrated in the
equation discussed by Smith and Merritt (2002).

Pea  Pi Le  Le (4.1)

where Pea: probability of risk event

Pi: probability of risk impact
Le: total loss
Le: expected loss.
In the Eq. 4.1 above, total loss can also be regarded as the effect in a situation
where the risk occurs. The formula for calculating “expected loss” as shown in
Eq. 4.1 above is frequently the primary factor in choosing whether to actively
manage some risks while postponing action on others.

Risk Evaluation

Risk evaluation is the process of comparing estimated risks to risk criteria in order
to establish the risk severity. As previously stated, the key criterion is expected loss
since it measures the damage to the project that may be predicted from each risk.
The result will be a list of risks that will be actively controlled. The risks and their
consequences are all noted in the risk register.
It is essential for a risk map to be developed. This is a graph that shows the cor-
relation between total loss on the horizontal axis (x-axis) and the risk likelihood on
the vertical axis (y-axis). The risk map will aid in the prioritizing process.

Resolving the Risks

Risk resolution has to do with the development of action plans for addressing the
most severe risk identified in the evaluation process. The main goal of this particular
process is to create risk action plans to mitigate the likelihood of a risk occurring
and to mitigate its resulting effects if it eventually occurs. Effective risk management
does not necessarily engage the risk itself but rather aims to address the risk drivers,
i.e., its fundamental truths.
Smith and Merritt (2002) further described the risk resolution process in a more
detailed manner. The originators discussed how several beneficial risk resolution
38 4 Risk Management Practices in Qatar

and risk reduction practices, such as risk elimination, avoidance, and transfer are
detailed in a white paper for energy facility contractors.

Risk Monitoring and Review

This can be seen as a continual effort to verify that the developed risk action plans
are moving according to the plan such that unsuccessful plans are withdrawn and
any substantial growing or new risks are discovered and addressed quickly.
The primary input is a list of active risks identified for risk management. The
findings include modifications to the risk register and listing of new action items for
risk resolution.

Concepts of Risk Identification

Risk identification has been seen as a significant process in project management as

it helps in identifying the possible risk that might mitigate the successful
implementation of a project. Figure 4.1 below shows the summary of project risk
identification concepts in regard to identifying risk toward project management.
The risk identification process must be all-inclusive as unidentified risks cannot be
analyzed, and these unidentified risks emerging at a later stage may have a serious
effect on the successful execution of the project (Tah & Carr, 2000).

Project risk Information

Assumption
gathering
identification technique analysis

Diagramming
Documentation Checklist techniques
reviews analysis

Fig. 4.1 Project risk identification in project

Concepts of Risk Identification 39

There are several methods and strategies available for identifying project risks.
They are as follows:
• Documentation reviews.
• Information gathering techniques.
• Checklist analysis.
• Assumption analysis.
• Diagramming techniques.

Documentation Reviews

This is a process that involves a comprehensive examination of project documents,

such as project plans and project files, and the assumptions made. This particular
process can identify the sources of risks in a project.

Information Gathering Techniques

Identifying risk necessitates the use of a variety of information gathering strategies.

They are as follows.
• Brainstorming
This is the most commonly adopted technique in information gathering. Here,
the facilitator permits all parties to the project to list risks that might be detrimental
to the project without necessarily determining the possibility of their occurrence or
effects of such risks. The participants further categorize and analyze these risks
before transferring their outputs into a database for more analysis and communica-
tion to aid selection.
• Delphi Technique
This technique employs quite a number of experts. These experts work on a cer-
tain area and are selected from outside the project. They all work independently and
transfer whatsoever information they can come up with electronically, majorly
through e-mails or printed copies. Each expert is given to offer an anonymous
forecast on a certain area. Following that, each expert is anonymously presented
with information acquired from others and must make new forecasts based on
feedback. The new data are transferred to all experts once more, and the process is
repeated until responses begin to converge. This approach is said to be quite
successful, although it is time-consuming.
40 4 Risk Management Practices in Qatar

• Conducting Interview
Conducting interviews with experienced project participants, stakeholders, and
experts is an effort that can lead to risk identification. This approach is regarded as
one of the most important sources of gathering data for risk identification.
• Root Cause Identification
Root cause identification, as the name implies, involves the process of investigat-
ing the major causes of risks in a project. This process allows for the categorization
of risks based on their causes. When the fundamental causes of the risk are addressed,
effective risk responses may be devised.
• SWOT Analysis
SWOT analysis guarantees that the project is examined based on its strengths,
weaknesses, opportunities, and threats (SWOT) in order to broaden the scope of
assessed risks.

Checklist Analysis

This technique ensures the establishment of a risk identification checklist which is

usually based on documented information experienced from a similar project
executed in the past. It is difficult to create an all-inclusive checklist; consequently,
necessary precautions should be taken to investigate elements that are not included
on the previously prepared list. At the completion of the project, it is important that
the checklist is reviewed so as to have an improved list that can be used on other
projects in the future.

Assumption Analysis

This is a technique for investigating the validity of assumptions in the context of the
project. It identifies project risks caused by assumptions that are inaccurate,
inconsistent, or incomplete.

Diagramming Techniques

Examples of these may include the following.

• Cause-and-Effect Diagrams
They are sometimes referred to as Ishikawa diagrams or fishbone diagrams.
These diagrams are useful for determining the causes of risks.
Concepts of Risk Identification 41

• System or Process Flowcharts

These demonstrate how numerous aspects of a system interact, as well as the
casual mechanism of the risks.
• Influence Diagrams
These are graphical depictions of events that indicate causal influence and event
timing. It also depicts the relationships between variables and outcomes.
Dey and Ogunlana (2004) presented an interesting examination of risk manage-
ment tools and techniques for build operate, and transfer (BOT) projects. The
authors emphasized the need for risk identification and risk analysis in such projects.

Challenges of Risk Management in Qatar

One of the most challenging issues in risk management is the inability to apply risk
information gained via training or experience to project management tasks. Tah and
Carr (2000) provided the following reasons why risk management may not be fully
implemented in every project:
• Those engaged are unfamiliar with risk management, and as a result, they are
unaware of the benefits it provides.
• Some people dislike being compelled to acknowledge the existence of a risk
because it makes them feel vulnerable. Some consider it to be a means of
evaluating an individual’s performance, while some see it as a call on their
competency.
• Risk is costly, and predicting how much money will be generated as a result of it
is challenging.
• Companies claim that they lack the necessary time or resources to devote to risk
management practices.
Summarily, there are two major factors that have affected the implementation of
risk management in the Qatari construction industry over the years; these are cost
and time.
• Time Constraints: It is understood that the highly pressured environment where
construction projects are carried out, coupled with the fast-paced nature of
projects resulting in little or no time for risk management practice.
• Cost Constraints: It has been frequently discussed that the costs incurred in
adopting and administering a proper risk management process are much, thereby
making implementation virtually unfeasible. In order to maintain a competitive
edge in the industry, organizations must limit the amount of money they spend
on personnel to only those who are necessary for the project (who in most cases,
do not have the time and technical capacity to carry out risk management).
42 4 Risk Management Practices in Qatar

Benefits of Risk Management in Qatar

In Sousa et al. (2012) in accordance with ISO 31000, an international risk manage-
ment standard utilized in Qatar, implementing risk management in any organization
enhances efficiency, accountability, and the level of trust stakeholders have in the
organization while reducing losses and augmenting risk analysis as well as risk
assessment capabilities. Some of the other identified benefits of effective risk man-
agement for organizations are stated as follows:
• Gain a competitive advantage.
• Reduces costs in a long term.
• Responds to change by offering effective solutions.
• Value creation and protection.
• Increases the chances of the organizational objectives being met.
• Proactively identifies opportunities and threats.
• Identifies and reduces risk across the organization.
• Establishes a standardized basis for making choices and planning.

Conclusion

This chapter covered risk management practices in the Qatari construction industry.
Starting from the introduction of the country’s construction and the lapses in fully
adopting risk management practices due to cost and time, the chapter went further
in evaluating risk management practices, barriers, benefits, and other related sections
concerned with the country’s construction practice. Finally, it can be inferred from
the chapter once the construction stakeholders in Qatar can fully comprehend fully
the benefits that come with risk management practice, especially with the whole life
cycle of massive infrastructures embarked upon by the country, and it will take their
construction to even greater summit than what is being experienced now.

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Chapter 5
Risk Management Practice in Saudi
Arabia

Abstract The Saudi Arabian construction sector generates so much revenue that it
is considered the largest public construction sector in the Persian Gulf. The country
has experienced massive growth in the construction sector as a result of the govern-
ment ongoing investment in social and economic infrastructures such as housing,
transportation, hotel, and energy infrastructure. However, the delivery of these
infrastructures is not free from risks and the attributed risk impacts. Therefore, this
chapter offers insight into the causes of risk in the construction process and the
management of these risks. The chapter submitted that the major risk factors in the
country are cost- and time-related. Furthermore, the chapter suggested that con-
struction clients are to blame for the majority of this problem owing to frequent
changes in the scope of work and orders. The chapter concluded by offering new
risk assessment tools for advanced construction that have recently become popular
in some developed nations of the world.

Keywords Construction risk · Risk analysis · Risk assessment · Risk management

· Risk tools · Urban risk

Introduction

Saudi Arabia is one of the fastest-growing economies in the Middle East, with a
gross domestic product (GDP) growth rate of 5% (Algahtany et al., 2016). The
development of infrastructure in both urban and rural areas of the country has accel-
erated enormously. According to Algahtany et al. (2016) and Deloitte (2013), Saudi
Arabia has the largest public construction sector in the Gulf with $575 billion spent
on public building projects between 2008 and 2013. Wanies-Guirgis (2012) noted
that the construction industry is expected to reach $610 billion between 2015 and
2020, and this is in addition to the enormous revenue being generated by the coun-
try’s large oil reserves, which has been a significant boost to the country’s economy
in recent years.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 45

A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_5
46 5 Risk Management Practice in Saudi Arabia

The government on their part is enacting new laws and processes to further
strengthen the economy of the country, one of which is a sustained diversification of
exports and investment initiatives. In recent years, the rapid and significant develop-
ment of the housing sector has been a key contributor to the country’s economy
growth, and the result has paid dividends greatly to the government and the people
at large (Bajwa & Syed, 2020; Dhonte et al., 2010).

Saudi Arabian Construction Industry

The Saudi Arabian construction sector is now increasing at a pace of 4.5% per year,
with a total value of $30 billion (Bajwa & Syed, 2020; Deloitte, 2013). The con-
struction sector could expect continuous development in the future years, since the
government plans to continue to invest in social and economic infrastructures. The
most prevalent forms of construction projects in the country today are transporta-
tion, hospitality, residential accommodation, and energy infrastructures. In deliver-
ing these projects, the construction industry attracts a significant number of workers,
with a 26.4% contribution to employment in the country (The General Authority for
Statistics, 2020).
Saudi Arabia’s construction projects are distinct in their qualities and the numer-
ous risks they entail. Risks are frequently increasing due to the extended duration of
projects, fiscal magnitudes, and the sophisticated organizational structures (Smith
et al., 2013). To this end, researchers have put in efforts in evaluating the impacts of
risks on the cost of project, health and safety, and time constraints. Also, further
evaluations have been done on risk and its management, particularly on construc-
tion projects at the design and construction stages (Ebrat & Ghodsi, 2014; Zou
et al., 2007). It has been noticed that the existence of several contractual parties
(contractors, subcontractors, building designers, suppliers, and non-construction
professionals), as well as wide range of cultural differences appear to pose numer-
ous basic risks in the Saudi Arabian construction sector (Taylan et al., 2014).
Risk is an indeterminate and uncertain event which have impacts on project com-
ponents either positively or adversely (suitability, quality, quantity, time, cost, and
safety). Dikmen et al. (2007) stated that it is nearly impossible to eliminate all risks
from construction projects; as a result, construction projects require general risk
assessment and process management in order to cope with all forms of threats in all
situations. This will help in the project whole life cycle and value creation.

Overview of Risk

Risk can be described as the exposure of a certain event to loss or gain or the prob-
ability of loss or gain occurring multiplied by the amount of the loss or gain. Events
are said to be certain if the likelihood of their occurrence is 100%, and they are said
Reasons for Risks Issues in Saudi Arabia Construction Industry 47

to be completely uncertain if the probability of their occurrence is 0%. Risk has

been defined further as something that cannot be predicted accurately or that arises
from unexpected sources that result in a negative deviation from the project time
and cost estimates (Ward & Chapman, 2003).
Project delay and time overrun are both indicators and consequences of the
occurrence of a risk. Every component of a business venture has the potential to be
fraught with risk, and this is true in every industry. Some risks are caused by our
own actions, while others are inevitable due to situations beyond our control. As a
result, stakeholders must always examine the risks that are most likely to be encoun-
tered in the course of their daily operations. The first step in the risk assessment
process is to identify and categorize all risky situations. Risks linked with the con-
struction industry are any problems that can cause injury or loss to persons, prop-
erty, or other interests (Jannadi, 2007). It will be necessary to assess and quantify
risks when they have been identified.
However, in recent years, varieties of risk assessment systems have been devel-
oped. Peltier (2004) demonstrated how a probability/impact matrix might be very
effective in evaluating and prioritizing risk levels before taking any action to mini-
mize them. It is especially useful since risks with a higher possibility of happening
demand the most attention, yet uncertainty varies greatly. In summary, risk can be
defined as an event that has an impact on specific objectives. This impact can be
positive or negative and can occur at the micro-, meson, and macro-levels.

 easons for Risks Issues in Saudi Arabia

R
Construction Industry

The result of several researches carried out in Saudi Arabia over the past years has
revealed the critical issues for non-performance, inefficiencies, time, and cost over-
runs in the construction industry. Time overrun and cost of implementation are
regarded as some of the most prevalent and serious issues in the country’s construc-
tion projects (Assaf & Al-Hejji, 2006, Faridi & El-Sayegh, 2006, Kashiwagi et al.,
2015). Assaf and Al-Hejji (2006) revealed that between 60% and 70% of public
construction projects in Saudi Arabia had delays in their completion time. According
to the study results, the average delay percentage ranged from 10% to 30% of the
initial contract period. An assessment of 49 case studies in the country’s western
province revealed that the average delay in these situations was 39% of the pro-
jected duration (Kashiwagi et al., 2015).
Further study by Abdul-Ghafour (2011) estimated that the total value of public
projects that have gone past their anticipated completion periods is roughly $147
billion. In addition, Allahaim and Liu (2015) noted that the issue of projects over-
running their initial cost in the Saudi Arabia construction industry has been a long-­
standing concern for decades. Al-Turkey (2011) discovered that 80% of Saudi
construction projects were prone to cost overruns. Despite these problems over cost
48 5 Risk Management Practice in Saudi Arabia

and time overruns, studies have noted that there are practically no effective risk
management strategies in the country construction sector (Baghdadi & Kishk, 2015).
Ikediashi et al. (2014) conducted a study to identify and analyze the factors that
led to the failure of infrastructural projects in Saudi Arabia. According to the find-
ings of the study, the most significant cause of project failure was poor risk manage-
ment practices. Also, Albogamy and Dawood (2015) revealed that there is a
significant absence of risk management practices in Saudi Arabia which identify
and analyze the effects of risk variables due to the lack of engagement of clients and
their agents in the construction process. Traditionally, clients do not accept respon-
sibility for risks and instead automatically shift them to other parties (Al-Sobiei
et al., 2005). In the Saudi construction industry practices, the majority of risks are
transferred to vendors, with no risk being allocated to the clients (Al-Salman, 2004).
Albogamy and Dawood (2015) further discovered that the majority of significant
risks faced during the early phases of a project are caused by the clients themselves.
Trigunarsyah and Al-Solaiman (2015) added that these risks are linked with insuf-
ficient decision-making on the part of clients who lack the necessary knowledge and
expertise.
Ibn-Homaid et al. (2011) assessed the sources of change orders in the Saudi
construction sector and argued that clients are the primary source of risks based on
project scope changes and change orders. This has resulted in an average 11.3%
increase in project costs. A similar submission was made by Kashiwagi et al. (2015)
who stated that the majority of delays in the Saudi Arabia construction industry
were caused by the owners of the projects (clients). Bajwa and Syed (2020) also
submitted that delayed payment to contractors and unrealistic project deadlines are
the two major risk factors common in the country’s construction industry. This gives
credence to the earlier submissions of clients being a major source of risk on project
delivery in Saudi Arabia.

Risk Management

Risk management refers to the methods used to manage possible risks by identify-
ing, analyzing, and mitigating them to reduce the possibility or effect of unfavorable
negative occurrences to maximize the realization of emerging possibilities. The out-
come may help reduce the likelihood of a risk arising and the negative impact if one
does occur (Tallaki & Bracci, 2005). In recent years, risk management has become
a significant component of the project management process. Indeed, Akintoye and
MacLeod (1997) have earlier mentioned that the state of the construction industry
has necessitated the implementation of risk management and analysis processes.
Project risk management is an important component of project management
theory and technique (Project Management Institute, 2008). This is because unan-
ticipated events frequently occur throughout a project (Banaitis & Banaitiene,
2012). Given the significance of project risk management in the functioning of proj-
ect management, it is predicted that the effectiveness of risk management will
Risk Management in Saudi Arabia Construction Industry 49

substantially impact project performance. An early study by Strutt (1993) to assess

the impacts of risk management on project performance discovered that risk man-
agement strategies are effective in achieving successful project outcomes.
Risk and uncertainty have been major factors that have caused setbacks to the
growth of the construction industry due to the complex, dynamic, and time-­
demanding nature of the industry. Therefore, risk management is one of the most
essential management strategies for dealing with project risks and uncertainties
since it is focused on anticipating the unexpected. Risk management strategies are
essential for adding value to a project and improving the performance of projects in
relation to the cost, time, and overall quality. Despite this, the majority of construc-
tion enterprises in Saudi Arabia do not apply risk management techniques, resulting
in the failure of construction projects due to cost overrun, schedule slippages, and
poor-quality performance. As such, risk management can have strong impact on the
project performance especially when enhancement is required along the line of
project execution (Jin et al., 2007).

Risk Management in Saudi Arabia Construction Industry

Risks are inherent in any business or projects. In a situation where there is an occur-
rence of risk, risk management system is implemented with the aim of identifying
and quantifying those risks so that a conscious decision may be made on how to
manage such risks (Markmann et al., 2013). The Project Management Body of
Knowledge (PMBOK) (2004) highlighted risk management as one of the nine
focuses in project management and defines it as a systematic method of identifying,
analyzing, and responding to risks in a project. This strategy entails maximizing the
likelihood and implications of positive events while minimizing the possibility and
consequences of events that are detrimental to the project’s objectives. This can be
done by carrying out risk analysis on the project as early as possible. Some of the
various methods (but not limited) of analyzing risks are as follows:
1. Fuzzy TOPSIS bid/no bid model (Ravanshadnia & Rajaie, 2013).
2. Applying TOPSIS-F method in fuzzy environment (Tamosaitiene et al., 2013).
3. Based on intelligent agent (Smeureanu et al., 2012).
4. RAMCAP (Risk Analysis and Management for Critical Asset Protection) by
introducing new risk-related factors (Yazdani et al., 2011).
5. Fuzzy Synthetic Model (Abdul-Rahman et al., 2013).
In further discussion on risk management and how it should be implemented cor-
rectly, the following factors must be considered.
1. Source of the risk.
2. Identification and allocation of processes.
3. Analysis of information.
4. Analysis of the flexibility of results.
50 5 Risk Management Practice in Saudi Arabia

5. Assessment and evaluation of risks.

6. Risk treatment.
7. Risk function or process.
8. Risk monitoring and communication.
A well-designed risk management system stresses the use of a more organized
approach, more effective centralized control, and better transfer of risk information
between parties. In addition to this, the system increases awareness of the effects of
risk on projects. The ability to translate uncertainty into risk and risk into opportu-
nity is essential for effective risk management. As a result, by maximizing opportu-
nity, limiting risk, and lowering uncertainty, the project and organization stand to
gain more.
Sundararajan (2004) stated that failure to manage risk events properly would
result to severe consequences, such as increase in the cost of the project, modifica-
tion of the organization’s capital structure, delay in the commercial operation of the
building or facility, budget overrun, decrease in cash flow, liquidated damages claim
from contractor, poor-quality delivery, and rework after the final completion of the
project. Other researchers, such as Lemos et al. (2013) and Roth & Espersen (2004),
described effective risk management as the successful performance of the whole
procedure of risk management, which includes risk management planning, risk
identification, risk analysis, risk response, and risk monitoring and control.
Despite all these highlighted benefits and effectiveness that accompany the
implementation of a risk management system, in the practical sense of it, it has been
discovered that organizations around the world that have successfully implemented
risk management are relatively low, with the most optimistic reports placing the
figure at less than 25% percent of all organizations that have implemented these
processes (Kutsch & Hall, 2010). The Saudi Arabia construction industry is no
exception. This poor use of risk management systems is significantly harming the
industry considering that construction projects have higher inherent risks due to the
participation of various contracting parties, including clients, designers, contrac-
tors, subcontractors, and suppliers (PMI, 2004). Clients, contractors, and the public
are constantly affected by the consequences of risks not being assessed (Zavadskas
et al., 2012). Therefore, it can be said that the construction industry involves a high
level of risk which has a significant impact on the parties involved; also, the system-
atic approach of analyzing and managing risks related to construction has been a
major challenge to practitioners in the industry (Kaplinski, 2009).
There are some important factors that are needed to be considered for effective
risk management. These factors include the significance of the risks, current risk
management strategies used in organizations, the present condition of risk manage-
ment systems in organizations, and the impediments to successful risk management
as seen from the perspective of major stakeholders. Choudhry and Iqbal (2013)
researched analysis revealed that the most significant risks are financial and eco-
nomic considerations, followed by quality as the industry seeks to prevent or trans-
fer these risks.
Tools for Risk Assessment in Saudi Construction Industry 51

Risk perception is an essential part of risk management. Furthermore, the atti-

tudes and barriers to risk management and advantages of perceived risks are required
for risk analysis and management process.

Risk Assessment

Risk can be assessed in many ways one of which is the use of heat map. Heat map
is considered to be one of the important risk assessment tools that can be utilized in
construction projects. A heat map is a graphic that may be used to illustrate risks
based on certain classifications and priorities. It makes use of standard coded colors
to indicate the severity of the risks. For example, the red color represents massive
risk, the yellow color represents a moderate risk, and the green color represents
extremely low risk (Javalgi et al., 2011). Following the identification and quantifica-
tion of risks, the appropriate risk response techniques will be identified as the next
procedures. The terms abolition, decrement, retention, and relocation are all used to
refer to risk management strategies that are routinely employed. The risk response
techniques that have been selected are implemented and monitored.

Tools for Risk Assessment in Saudi Construction Industry

Integrated Hybrid Methodology This methodology developed by Taylan et al.

(2014) was used to identify and analyze critical risk variables related to construction
projects at King Abdulaziz University in Riyadh, Saudi Arabia (KAU). The key risk
variables addressed in this case were time, cost, quality, safety, and environmental
sustainability. Based on the data provided, this technique employs a relative rele-
vance index to prioritize project risks. This hybrid technique may be used to classify
construction projects utilizing the fuzzy AHP and fuzzy TOPSIS techniques. Taylan
et al. (2014) attempted to incorporate crucial qualitative qualities into construction
project performance assessments, and they translated qualitative data into quantita-
tive metrics. The findings indicated that assessing the overall risks associated with
construction projects is possible. Using this method, it is possible to identify the
project with the lowest risk, which is quite helpful.

The Fuzzy Risk Management Method Fuzzy risk management method was pro-
posed by Liu (2012). It has the potential to reduce the occurrence of work-related
risks. This method uses quality function deployment (QFD) tables to demonstrate
the exact relationship between construction substances, classifications, and reasons
for risk. The fuzzy analytic network process (ANP) method can be employed for the
identification process.
52 5 Risk Management Practice in Saudi Arabia

Assessing project risks using the fuzzy implication technique was developed based
on the failure modes and effects analysis (FMEA). In the case of work-related haz-
ards, the results of the performance evaluations are obtained and then offered a
satisfactory assessment for risk values. A fuzzy multiple criteria decision-making
(FMCDM) tool is used to estimate the level of risk associated with several urban
construction projects. Wang and Chang (2012) investigated the comparative effects
of 20 known risk concerns on project coordination using consistent fuzzy prefer-
ence relation (CFPR) in this scenario. The fuzzy multiple attribute direct rating
(FMADR) determined the chance of each risk factor occurring.

Factors Affecting Risk Management Practices in Saudi Arabia

In research done for Middle East countries which include the kingdom of Saudi
Arabia and Jordan, we have different risk factors, which are listed below.
Material-Related Factor This factor shows material-related issues that often cause
delays in construction. Examples of material-related issues that can cause delay are
material supply and shortage of construction materials, both of which have signifi-
cant implications as regards the time overrun of the project. Another example is the
rise in the price of raw materials which may result in an increase in overall construc-
tion costs. The third material quality problem is of serious concern to construction
parties. Lewry and Crewdson (1994) stated that construction players must not make
any concessions on this issue. Failure to take these material-related factors seriously
may have an adverse effect on the overall construction process.

Project-Related Factor This method draws attention to the difficulties associated

with the numerous elements and stages of a construction project. Among the five
project-related attributes, the first is “inadequate early planning of the project,”
which is one of the key causes of delay that construction parties do not take cogni-
zance of during assessment (Bramble & Callahan, 2010). The second attribute is
“shortage of equipment availability,” which refers to a scenario that occurs during
the construction process due to improper equipment planning during the project
conceptualization phase. When it comes to the third attribute, “lack of systematic
engineering method to identify project time” occurs as a result of making use of
unprofessional and inappropriate construction methods, as well as a possible lack of
dedication on the part of the engineer or project manager. The fourth project-related
attribute, “poor performance of the lowest-bidder contractor in the tendering pro-
cedure,” is a relatively prevalent issue that contributes to project delays in Middle
Eastern nations. Most public clients in developing nations tend to consider contrac-
tors with the lowest bid without considering the bidder’s qualifications, experience,
and expert knowledge on project management procedures and planning techniques
(Agumba & Fester, 2011). Lastly, the fifth attribute, “low manpower output” results
Factors Affecting Risk Management Practices in Saudi Arabia 53

from poor site supervision or the engagement of an unprofessional/unskilled work-

force, which negatively impacts the quality delivery of the construction project.

Contractor-Related Factor This factor reflects delays caused by contractors or

subcontractors who lacked the necessary skills, knowledge, experience, and compe-
tencies for the completion of the project. Critical contractor-related delay character-
istics are poor site management and supervision by the contractor and poor
communication by the contractor.
Potts and Ankrah (2008) stressed the necessity of efficient supervision and com-
munication in attaining cost and time performance in construction projects. Another
problematic delay factor is that contractors’ technical staff may be unable to deal
with issues or not grasp the complexities of a project, both of which can result in
time overruns. The third problematic delay factor is “poor qualification, skills and
experience of the contractor’s technical staff.” The contractor may lack the requisite
qualifications, skills, and experience to execute the work, which may result in time
overrun. There is also “shortage of qualified contractors,” which is another major
cause of delays in the Middle East region. The government often engages foreign
contractors to execute the majority of the capital projects in the country since there
are not enough qualified contractors. Lastly, “lack of proper schedule and planning
of the project by the contractor” might result in inaccurate estimations of a variety
of features and event of things that may develop throughout the construction process
(Agumba & Fester, 2011).
Owner-Related Factor This particular factor has six underlying characteristics; it
illustrates the significance of the client’s decisions and actions before and throughout
the construction phase. The first characteristic is a “lack of cooperation with contrac-
tors involved in the project,” which results in construction projects failing to meet
their specifications (Doloi et al., 2011). The second feature, “delay in the approval of
contractor submittals,” explains the situation where a client fails to fulfill his con-
tractual obligations or attends to a request from the contractor. This is simply an
indication of a lack of collaboration with contractors on the client’s part. The third
factor, “changes in the scope of the project,” which has been a regular experience
with the project managers in the Middle East, is often due to a lack of understanding
of the project scope or/and design. This is a common occurrence in the region
(Kasimu, 2012). This often results in time delays due to rework, errors, duplication
of activities, a lack of drive, and reaching cost limits. The fourth characteristic,
“breach or modification of contract by the client,” typically refers to the engagement
of unskilled or amateur contractors who lack the necessary skillsets (Doloi et al.,
2011). The fifth characteristic is “poor qualifications and supervision of owner’s
engineer,” which might pose serious challenges for the owner and the other construc-
tion stakeholders to attain a timely completion of the project. Finally, the signifi-
cance of the sixth characteristics, the “slow decision-making process of the owner,”
may be evaluated by the rankings of several academics, who have classified it as one
of the top five causes driving construction delays in developing nations.
54 5 Risk Management Practice in Saudi Arabia

Consultant-Related Factor It indicates that there are problems with the consultant.
It has four significant consultant-related characteristics. The first characteristic,
“poor qualification and supervision of the staff of the consultant engineer,” will have
a detrimental effect on the client’s objectives in terms of both cost and time. The
second attribute, “delay in the approval of working drawings,” is frequently caused
by a breakdown in communication between the consultant and the approving
authority. The third attribute, “absence of consultant’s site workers,” is important to
keep track of this on a continuous basis to minimize the time overruns (Assaf &
Al-Hejji, 2006). The last attribute, “inadequate qualifications of consultant assigned
to project,” highlights the need to hire skilled consultants to implement good project
management practices and planning procedures.

Design-Related Factor This emphasizes the significance of design-related errors

and changes made by the consultant and client as a result of either a lack of com-
munication, expertise, knowledge, education, and professional experience with the
consultant.

External-Related Factor Work delays caused by changes in government laws or

unforeseen circumstances such as adverse weather or changes in the external envi-
ronment are examples of this type of factor. This factor can be further expressed in
terms of the following:
• Poor Communication Between Construction Parties: Poor communication
among parties in the construction has brought about risks. There should be proper
discussion and brainstorming on what are the circumstances (challenges) to
expect during the construction process, which must be mitigated, so that the cli-
ent’s objectives are achieved.
• Delay in Decision-Making: The delay in decision-making from either the client
or the designer is one of the reasons affecting management practices in Saudi
Arabia. The inability to come to a consensus between the client and the manage-
ment is causing delays in what to do and what is better for the project.
• Changes in Management Ways: Constant changes experienced in management
are a contributing factor to why there is little adherence to risk management
practices in Saudi Arabia. While one management team might be mindful of
implementing risk management practices, another might not.
• Unreasonable Project Cost Frame: In executing risk management practice in
construction, it costs a lot to put all the sections together. Also, when the budget
sum is outrageous or unreasonable, such could limit the zeal to implement risk
management practices.
• Improper Construction Method: When the wrong approach is used in executing
a project, faults and errors will occur at one or many stages of the project. To
avoid cost in setting up a risk assessment, some contractors may adopt easier or
more convenient construction methods that might not serve project’s purpose,
size, and nature.
Conclusion 55

• Changes in Client Ways: This is related to constant demand and frequent change
initiated by the client. The change might come in terms of design, interior, and
method, concerned with an already agreed schedule. This, in turn, affects the risk
management process that might have been implemented and accepted based on
the initial information.
• Design Changes and Inappropriate Design: Risk can only be managed when
there is a standard design, but inappropriate changes in design affect risk man-
agement practices in Saudi Arabia.
• Weather Condition: Weather condition is also part of the factors affecting risk
management.

Barriers to Risk Management

Liu (2012) discovered that construction companies lacked the expertise and knowl-
edge required for practical implementation of recognizing hazards, assessing risk,
minimizing risks, and preparing for emergencies (RAMP) because it has only been
in use for a short period in the industry. The researchers further discovered ineffec-
tive coordination between the parties involved, a lack of availability of specialist
risk management consultants, and a deadline-driven schedule for construction proj-
ects. According to the conclusions of that study, the following seven obstacles to
RAMP implementation were identified as follows:
• Inadequate awareness of risk management processes.
• Lack of experience.
• Lack of necessary information about the project.
• Lack of cooperation between parties to the project.
• Availability of qualified consultants with strong knowledge of risk management.
• The costs of implementation.
• Time constraints.

Conclusion

The practice of risk management in Saudi Arabia has been addressed in this study.
The tools used to analyze risk management and the reasons for risk issues in Saudi
Arabia are among the topics covered. In addition, the study discussed the obstacles
and factors that hindered the implementation of risk management in the Saudi
Arabian construction industry, which centered on time, knowledge, and cost. The
construction stakeholders in the country can do more to educate construction pro-
fessionals about risk management practices and how these practices can enhance
the delivery of construction projects.
56 5 Risk Management Practice in Saudi Arabia

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Chapter 6
Risk Management Practices in South
Africa

Abstract Risk management often deals with analyzing market and non-market
risks (short- and long-term risks). Also, risk management analyzes the influence of
risks on the corporate environment by developing strategies to mitigate risk
exposure. As a developing economy, South Africa poses long-term economic,
financial, and operational risks to investors through several developmental practices.
These risks have raised some concerns regarding a lack of accountability, increased
expenses, an unstable economy, the spread of economic crisis from one region to
another, and constraints in enforcing the rule of law. The South African construction
industry has been making progress in implementing risk management practice
through different frameworks, and the result has been great over the years. However,
there is still a lot of work to be done in terms of its full adoption, challenges, benefits,
etc. It makes up the country’s reception toward risk management practice.

Keywords Construction risk · Project delivery · Project risk · Risk influence ·

Risk practice · Risk types

Introduction

In trying to define risk and what it entails across several industries, the formulation
and framework of its concepts bring about the difference in risk that is seen and
addressed in the industries. For example, the stakeholders in the construction
industry see risk as a way of removing impediments that will reduce the efficiency
of a project from planning to completion. Furthermore, risk management in a project
is defined as bringing value as a whole life cycle casualization in project delivery.
Risk is becoming an increasingly critical issue in the construction sector. While
losses incurred during the cause of operation are normally high, there is the
possibility of experiencing a catastrophic failure if risk is not addressed (Embrechts
et al. 2003). More recently, there has been a significant shift in the insurance sector
toward a better awareness of risk encountered by individual firms and the sector as
a whole (Acharyya, 2012). The construction business is usually considered risky

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 59

A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_6
60 6 Risk Management Practices in South Africa

because of its complexity. The business involves a large number of stakeholders,

and this implies that both internal and external determinants will pose significant
risks. Notably, the construction industry has a low-risk analysis grade when
compared to other industries (Laryea & Hughes, 2008).
However, one should bear in mind that no construction project is without risk.
On the other hand, risk can be controlled, lessened, shared, transferred, or accepted.
According to Project Management Institute (2008), risk is seen as a multifacet
concept. Project risk management is commonly focused on identifying, analyzing,
and responding to project risk. Risk from the perception of construction can be seen
as the possibility of an event or series of events occurring during the construction
process. This process consists of different phases; this might make it difficult to
discern cause and effect, dependency, and correlations. As a result, these risks can
have a major impact on decision-making and thus affects project performance.
Due to the nature of projects, which include so many interrelated and indepen-
dent operations, several risk variables will affect the performance of such a project.
Developing an effective risk management plan involves identifying and categorizing
the main risk factors that impact the project’s objectives the most.
In the study by Mark et al. (2004), the risk is the probability of experiencing
complications and problems during the course of executing a project while trying to
achieve its objectives. Therefore, construction firms must face unclear risks by
analyzing their impacts on project objectives. Since the level of risk determines
which project is riskier, preparing for such risk will give better condition toward
mitigating them throughout the construction phases (Zayed et al. 2008). Several
organizations have recently recognized the importance of proper risk management
due to the obvious effects on project performance. Effective risk management is
now an important factor to consider when evaluating general management measures
in an organization, as its absence or presence can significantly impact the project’s
final outcome.

South African Construction Industry

The construction industry in South Africa plays a major role in the socioeconomic
development of the country (Construction Industry Development Board (CIDB),
2012). Ofori (2007) and Giang and Pheng (2011) attested to this and further
mentioned some of the ways the industry contributes to economy’s growth. These
include provision of employment (particularly for the least skilled people in society),
contribution to the growth and spread of technology, creation of opportunities for
businesses, and enabling improvement of the user’s quality of life.
The country’s population growth is a critical factor in maintaining the strength of
the construction sector. In the report, according to the United Nations Population
Fund (2022), the population of South Africa is expected to reach 72.9 million by
2050, with urban centers housing 62.1% of the country’s current population.
Therefore, the urbanization rate is expected to grow at an annual rate of 1.21%. As
Risk Management in the South African Construction Industry 61

the country’s urbanization and population are on the rise, housing needs and urban
development are expected to be major growth drivers for the construction industry
(Oxford Business Group, 2016).

Risk Management in the South African Construction Industry

The business environment in general, and in South Africa in particular is laddered

with risks related circumstances. In their study, Visser and Joubert (2008) identified
some of the major risks affecting the South African construction industry: lack of
vital resources, poor project management and business risk management, exposure
of the contract to risk during the tendering process, and government laws.
Risk assessment somehow in one way or the other affects project performance.
There is a clear difference between risk and performance, and risk has a direct
impact on the level of performance attained, while performance may be viewed as
the measure of effectiveness and efficiency (Anthony, 1965). Efficiency as an
included term can be referred to as the ratio of input to output consumption, and
effectiveness expressed refers to the degree to which a planned outcome is achieved.
Risk has always been seen through the perspective of insurance, with little inte-
gration with other managerial functions. Global competition and market instability
have brought risk management to the center of thought in the business world. It is
essential to note that risks do not just relate to simply unexpected events; they can
also refer to possible events that have an effect on the effectiveness and efficiency of
operations, thereby influencing an organization’s long-term performance.
On the other hand, the management aspect of the risk will normally concentrate
on occurrences that could have major influences on the organization’s performance
or profile. Therefore, there is a need to assess the interconnectivity of risk since it
impacts not only a particular activity but also a number of associated and seemingly
unconnected activities. Ideally, all organizational activities are vulnerable to risk;
however, other organizational procedures can mitigate the risk’s impact (Ritchie &
Brindley, 2007).
Prior to South Africa hosting the World Cup in 2010, some infrastructures were
put in place to add glamor to the occasion. These infrastructures added more value
to the already thriving South African construction industry. Chihuri and Pretorius
(2010) assessed some of these infrastructures and identified some major risks
encountered during the construction process. These risks include the following:
1. Escalating Cost: It is a result of unstable exchange rates and a steady increase in
the cost of construction materials.
2. Power Shortage: It prompts concerned parties to seek alternative sources of
power supply.
3. Skill Shortage: This compels the contractors to look for skills outside the coun-
try, thereby raising the project cost higher than anticipated.
62 6 Risk Management Practices in South Africa

The study also emphasized that risk management is still not widely practiced and
that even in organizations where it is the principles are not fully implemented
throughout the project life cycle. Further findings from the study showed that 71%
of projects where risk management practices were fully implemented had a general
success in project delivery. Serpella et al. (2014) also agree with this view with the
claim that there will always be delays, cost overruns, and disputes as regards the
contractual agreement if there is no efficient project management function to address
the risks and uncertainties that comes with every project.

South Africa Risk Management Standard

The Standard Bureau of Standards (SABS), which serves as the national standard-
ization institution, is governed by the Standards Act, 2008 (No. 8 of 2008). The
institution has adopted ISO 31000:20:2018, and its risk management standard was
reissued as SANS 31000: 2019. The ISO has released several standards that serve as
risk management guidelines across different countries. In Borghesi and Gaudenzi
(2013), this standard offers a consistent risk lexicon and terminology to encourage
the exchange of information, the development of metrics and the communication of
results.
The ISO 31000:20:2018 as presented by Sousa et al. (2012) addressed some
important areas of risk management as stated as follows.
• It defines some key terms in risk management, such as risk, event, stakeholder,
risk source, likelihood, control, consequence, and risk management itself.
• It provides principles for effective risk management (ERM) which basically cre-
ates and protects value. It also provides fundamental principles that should be
considered when developing an ERM framework for an organization.
• It also addresses the risk management process, which involves risk identification,
risk analysis, risk evaluation, risk treatment, monitoring, review and recording,
and reporting.

 rocess/Framework for Risk Management in the South

P
African Construction Industry

The control of risk and the management of risk outcomes are two fundamental pro-
cedures that characterize the risk management process. These basic processes con-
sist of an array of activities that differs according to their complexity. The risk
management process consists of the following subprocesses, as stated by (Bowden
et al. 2001).
Requirements for Effective Risk Management 63

• Risk Identification: This particular process involves a well-detailed identification

of risks that can have serious effects on the organization subprocess.
• Risk Evaluation: This is the most significant part of the risk management pro-
cess, where the risk level is quantified by analyzing the rate at which an event
might occur and the effect of such occurrence.
• Risk Control: This process involves the evaluation or design and implementation
of risk treatment measures with the aim of controlling the effect of the risk. The
management team is often responsible for the identification process, while the
staffs are responsible for the execution.
• Risk Monitoring: This involves monitoring and evaluating the effectiveness of
the risk treatment measures implemented by the organization.

Sources and Types of Risk

Risk identification aims to identify all forms of risks. Samson (1987) identified
some of the possible sources of risk, which were broadly construed to include the
following:
• The physical environment is in reference to the climatic condition.
• The social environment deals with human values.
• The political environment relates to the effects of monetary policies.
• The legal environment relates to irregularities that occur as a result of legal
disparities.
• The operational environment concerns injuries suffered by employees during the
manufacturing operation.
• The economic environment determines the economic variables such as interest
rate and inflation.
• The cognitive environment has to do with perception against the reality.

Requirements for Effective Risk Management

There are some influencing factors that are significant in ensuring effective risk
management. These factors are organizational processes, systems, and governance.
One other important factor is the culture of an organization, which comprises the
following elements (Page & Spira, 2004):
• Organizational operations should be based on well-informed, rational, and well-­
structured judgments.
• Long-term growth with little volatility should be sought.
• The order of priority in an organization should follow soundness, profitability,
and growth.
64 6 Risk Management Practices in South Africa

In an organizational framework for assigning risk management, delegations

should be designed and followed strictly by the concerned task performer.
Additionally, thorough risk policies and processes for risk management should be
designed and executed. Control over the processes should be performed by
independent group supervision.
Recently, there has been a growing awareness of the importance of risk manage-
ment; with this development, management should delegate this independent super-
vision responsibility to internal audit. However, good cooperate governance
practices the deployment of a distinct risk management department for risk
supervision. The internal audit’s duty is to offer independent assurance to
management and the board about the sufficiency of risk functions and the extent to
which organizational objectives are met. Unexpected events that result in unfavorable
risk situations would require more funds, time and resources from the organization,
and risk the company’s reputation. In contrast, the lack of such issues allows
companies to use their resources better.

Challenges of Risk Management Practices in South Africa

Chihuri and Pretorius (2010) identified some key factors that impede the implemen-
tation of risk management throughout the life cycle of construction projects in
South Africa.
1. Lack of Appreciation: There is a lack of appreciation for the enormous benefits
that a structured risk management strategy can provide a project. Quite a number
of engineers and project managers in South Africa are still uncertain about how
risk management would contribute to overall project success.
2. Time: The risk management techniques require time for their implementation;
thus, it affects the construction period of the project.
3. Knowledge: There is a general lack of understanding as to what the risk manage-
ment process involves. There is a need for construction professionals to be
trained so as to understand the benefits of this process.
4. Perception: There is this general perception of the risk management process
involving a whole lot of cost.

 enefits of Risk Management in the South African

B
Construction Industry

Risk management involves the use of the right tools to address the issue of risks. If
all risk management processes are followed correctly, they can offer numerous
benefits to engineering and construction projects in general. Shunmugam and
References 65

Rwelamila (2014) identified some of the major benefits of implementing risk man-
agement in South Africa.
• It allows for better decision-making.
• It allows for planning and prioritizing skills.
• It allows for well-organized resources and financial allocation.
• It allows for the prediction of problems, allowing for the best use of resources to
combat and avoid detrimental outcomes.
• It improves the likelihood of completing the business plan within the stipulated
time frame and cost.

Conclusion

The South African construction industry can improve its already exciting infrastruc-
tural development by inculcating functional management practices. One of these
practices is risk management, introduced from the onset of construction in order to
detect, plan, and mitigate failures (predicted and perceived) right from project
reconnaissance to completion. Even with their exposure, the South African industry
still needs to inculcate risk management process more to continue the rise to the
summit in infrastructural development. This will aid all the parties concerned in
project actualization and, subsequently, the country’s economy development.

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Anthony, R. N. (1965). Planning and control systems: A framework for analysis. Harvard
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Borghesi, A., & Gaudenzi, B. (2013). Risk management: How to assess, transfer and communicate
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Chapter 7
Risk Management Practices in Sri Lanka

Abstract Risk management is considered an emerging concept in the Sri Lankan

construction industry. It is gradually gaining prominence because of rising
construction activity, increased complexity and sophistication in construction
projects, and strong market competition. This chapter addressed risk concepts and
identified the risks associated with construction projects. It also highlighted the risk
management processes and the tools that can be employed to execute each phase. It
was concluded that there was a certain constraint to the application of risk
management in Sri Lanka, as most clients were not proficient about risk management
benefits and felt that contractors and consultants have the obligation to bear the risk
effects by their own cost. Also, clients that were willing to actualize risk management
practices in their projects were not prepared to spend extra cost in implementing
risk management process.

Keywords Construction risk · Project risk · Project success · Risk actualization ·

Risk practice · Risk management

Introduction

The construction industry is highly diversified and highly unpredictable in its nature.
There are numerous notable categories of construction that are distinct from one
another. They include houses, non-residential buildings, road, utilities, and modern
construction (Keoki et al., 2008). Construction projects incorporate brand-new
construction, remodeling, and demolition for both private and public projects. This
is to meet the ever-increasing demands of the clients. In addition to these projects,
open project works like lanes, streets, parkways, utility plants, scaffolds, tunnels,
and bridges are also constituents of the construction industry.
The success factors for any project include early finish time, within the budget
plan, and imperative execution (specialized prerequisite). The boundary to these
accomplishments is the adjustment in the project condition. The issue duplicates
with the measure of the projects as vulnerabilities result in increment with the

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 67

A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_7
68 7 Risk Management Practices in Sri Lanka

estimate (Dey & Ogunlana, 2002). Vast construction projects are presented to an
unverifiable situation due to factors such as arranging, planning and development
unpredictability, nearness of different involving groups, (clients, specialists,
contractual workers, providers, etc.), assets (labor, materials, machinery, and assets)
accessibility, environmental factors, the financial and political condition, and
statutory controls. Olsson (2007) asserted that there are vulnerabilities in routine
daily existence, institutions, and projects, which pose an obvious threat to the
business. These vulnerabilities come in risk that occurs through many factors either
at the onset of construction or throughout the phase of the construction process.
It has been demonstrated by Hillson (2004) that there is a relationship between
uncertainty and risk. Risk is an estimated uncertainty, while uncertainty is a risk that
cannot be estimated or assessed. Wang et al. (2004) described risk as a multifaceted
occurrence with a probability of a harmful outcome on project objectives.
Risk was also defined by Kartam and Kartam (2001) as the likelihood of some
unpredictable, undeterminable, and unwanted outcomes causing the expectations of
profitability on a specific investment to be altered. A risk may also provide an
opportunity, but the reality that the majority of risks have bad outcomes has caused
many people to exclusively examine its negative aspects (Hillson, 2011).
Over the previous decades, numerous projects have experienced high cost and/or
schedule fluctuations, ultimately resulting in the failure of these projects. As a
result, systematic risk management is required to allow for the early detection of
these risks (Abdelgawad & Fayek, 2010). Despite the fact that risk management
research in the construction industry has grown significantly in recent years (Forbes
et al., 2008), construction projects are exposed to risk from the moment they are
conceived (Schieg, 2006) and are believed to have higher inherent risk due to the
engagement of numerous contracting parties such as clients, contractors, designers,
and engineers (El-Sayegh, 2008).
Risk management is generally recognized as an essential component of project
management (Olsson, 2007). Perhaps one of the most challenging tasks is defining
which risks are relevant to the project and how they should be prioritized among
other risks (Anderson, 2009). This is a critical procedure as most project managers
are aware that effective risk management is critical to project success (Baloi &
Price, 2003).
Risk management is the cognitive process of detecting and analyzing risk before
taking steps to reduce it to an acceptable level (Tohidi, 2011). Furthermore, Project
Management Institute (PMI) (2007) expatiated risk management in construction as
a detailed and precise approach for identifying, investigating, and responding to
risks to meet the project objectives. Implementing risk management at the earliest
stage of a project is critical, especially when crucial decisions such as alignment and
construction methods can still be modified (Eskesen et al., 2004).
The Sri Lankan construction industry is growing toward the trend of risk man-
agement. Even though its adoption is recent, efforts have been made to implement
the practice as much as possible since the country’s infrastructural development has
improved when compared to previous years. Also, due to increased project com-
plexity and sophistication in construction projects, along with fierce competition in
Concept of Risk, Uncertainty, and Opportunity 69

the market, construction professionals identified risk management as a functional

way of dealing with emerging possibilities. In order to arrive at a realistic bid price
for a planned or already project, it is vital to have a sense of the importance of risks
and how they are allocated and distributed within these phases of the construction
process (Perera et al., 2009).

Concept of Risk, Uncertainty, and Opportunity

Concept of Risk

Risk is ever inherent while drawing conclusions based on presumptions, anticipa-

tions, and appraisals of the future. This word describes an event in which the actual
outcome of a specific result or action is expected to diverge from the predicted value
(Raftery, 1994). In its many forms, risk can be quantified in a variety of ways
depending on how it is viewed across different industries.
Further expatiation on risk can be seen as a condition in which the outcome of an
event is conceivably predictable based on statistical chance. This characteristic
distinguished it from uncertainty. It simply implies that there is cognition near a risk
as a result of a combination of variables. This is in contrast to uncertainty (Smith
et al., 2006). Risk is frequently described in terms of its chances and consequences
along with its impact on various targets. According to Loosemore et al. (2006), a
predicted outcome must have a probability value between 0 and 1, revealing a
probability distribution in which the outcome is either unacceptable or certain to
occur. As a result, once a conclusion is drawn regarding a sequence of conceivable
outcomes, and after known odds may be attached to predict those outcomes, the
presence of risk is established (Smith et al., 2006).
Hillson and Murray-Webster (2005) highlighted an intriguing tendency discov-
ered while analyzing various officially published risk management guidelines.
According to the authors, prior to 1997, individuals had a negative sense of risk, and
as a result, the risk was synonymous with threat, with the condition being equivalent
to hazard, danger, etc. Although the concept of risk described in many risk
management literature studies has evolved since 2000, the vast majority of official
standards plainly see risk as more of a threat rather than an opportunity or even a
combination of both. In addition, PMI (2000) defined risk as an unpredictable
consequence or occurrence that when it occurs it has favorable or damaging effect
on the project’s objectives. Risk can also be defined as the exposure to the theory of
financial loss or gain, physical harm or injury, or time lag as a result of the uncertainty
involved in following a trend of activity (Chapman, 1991). Smith et al. (2006)
concluded by stating that risk entails ranking of possible outcomes before reaching
a conclusion; these possible outcomes require facts for it to be understood clearly by
all the involved parties.
70 7 Risk Management Practices in Sri Lanka

Concept (Definition) of Uncertainty

Uncertainty is simply the probability of an event occurring in which the chance

distribution is undefined. It can also be defined as the occurrence of an event about
which little is known except that it may occur (Smith et al., 2006). Hence, there is
no necessity for a fact for a conclusion to be made at a fixed moment in time (Winch,
2010). As a result, when an activity produces more than one potential result, but the
likelihood of each result is unknown, the occurrence of uncertainty occurs (Smith
et al., 2006).

Opportunities and Threats

In order to provide effective risk management on a project, it is essential to under-

stand the relationship that exists between opportunities and threats (Hillson, 2004).
Risk is not necessarily defined as the probability of having entirely undesirable
outcomes; rather, it should as well admit the possibility of beneficial outcomes
(Smith et al., 2006). Therefore, there is a need to consider threats and opportunities
before establishing any conclusion, which must then be dealt with appropriately and
effectively. It is important to also take into consideration related opportunities and
not just focus solely on reducing possible threats. At the same time, it is not sug-
gested to chase after opportunities while not being alert to possible threats (Chapman
& Ward, 2003).
Opportunities and threats necessitate a degree of uncertainty, which has the abil-
ity to have an impact on the targets. An opportunity is a set of terms or an unpredict-
able outcome that, if realized, would benefit the overall success of the project.
Threat, on the other hand, may be characterized as an unpredictable outcome or
precondition that, if realized, would be detrimental to the overall success of the
project. Therefore, from these definitions, it is evident that the primary distinction
between these two terms is the sort of result they obtained/influenced on the target.
Drawing a parallel in their definitions, it appears logical to mix these two together
under a general definition that combines the component of uncertainty with the
capacity to impact objectives which is how risk is modernly described (Hillson, 2004).

The Risks Involved in the Construction Sector

Risk in the construction sector is broadly defined as an event that has the potential
to negatively impact the outstanding objectives of a project in terms of cost, time
schedule, and quality (Dai et al., 2009). Additionally, it is well known that the con-
struction industry is far more exposed to risk and uncertainty than any other indus-
try (Tah & Carr, 2001). This may be attributable to intrinsic construction sector
Stakeholders’ Attitudes Toward Risk 71

traits such as high levels of complexity, a high level of engagement (Hwang et al.,
2014), exposure to project environments, tight schedule (Klemetti, 2006), and enor-
mous and massive nature of the project (Thompson & Perry, 1992).
The engagement of a varied range of stakeholders and parties at each stage of the
project amplifies the effects of these traits (Dikmen et al., 2008). Project risks may
have an impact on all phases of the project (Tadayon et al., 2012). As a result, the
success of construction projects depends on these stakeholders’ ability to effectively
manage the risks associated with the projects at hand (Ren, 1994).

Project Risk Classification

Smith et al. (2006) classified project risks into three groups: known risks, known
unknown risk, and unknown unknown risks. The distinction between these
categories is the diminishing power to predict or anticipate the risks. It is the
diminishing ability to predict or anticipate risks that distinguish these groups from
one another. The categories are as follows.
1. Known Risks: The known risks category includes risks that have been identified
by the project team. They frequently occur in all construction projects and are
therefore unavoidable, thus resulting in modest variations in the cost of material
and efficiency (Smith et al., 2006). This risk category can be described as the
rational prerequisite of risk in which the risk source has been identified, and the
chance of an event happening in the risk case has been assigned (Winch, 2010).
2. Known Unknowns: The known unknown risks category is fairly certain indicat-
ing that little is known about the chance of their occurrences or the implications
of their occurrences (Smith et al., 2006). This risk category can be described as
the rational prerequisite of uncertainty where the source of the risk has been
identified and comprehended, at the very least.
3. Unknown Unknown: In this context, “unknown unknowns” refer to the cognitive
precondition of uncertainty in which someone could have had personal experi-
ence with the risk sources and possibilities but chooses to keep that information
hidden. Because the source of the risk is unknown, it is impossible to predict the
consequence of the risk (Winch, 2010). In this way, risk outcomes are situations
whose outcome and the likelihood of occurrence are unknown, even to the most
experienced and professional members of a project team (Smith et al., 2006).

Stakeholders’ Attitudes Toward Risk

Understanding the principles and practices of risk management require evaluating

different attitudes toward risk (Baranoff & Kahane, 2009). Hence, in order to
conduct a successful evaluation of decision-makers’ and stakeholders’ risk attitudes
72 7 Risk Management Practices in Sri Lanka

while managing risk in construction, a complete understanding of their risk attitudes

is essential (Wang & Yuan, 2011). Even more so, given that the construction industry
has always struggled with a lack of cognitive retention and communication skills,
which particularly necessitates more reason for the suggestion action (Liu et al.,
2007). Risk attitudes can come in the form of the following:
1. Risk-averse.
2. Risk-neutral.
3. Risk-seeking.
Contrasting attitudes toward risk exist among people, and the individualist
unique attitude will impact how they grasp risk and react to risk (Raftery, 1994).
Attitudes help increase an individual’s dignity, and they communicate a person’s
sense of self-identity and conduct esteems to others. These perceptions are
consequently crucial to managers because they govern how people behave in
response to a given input and allow perceptivity to be converted into propelling
mechanisms. Individuals’ attitudes are based on their own personal favorable or
unfavorable ratings, opinions, and cognitions about the implication of definite
conduct (Teo & Loosemore, 2001).
As a result, people’s risk attitudes are a reflection of their individual feelings and
qualities and the managerial environment in which they live. In this way, Winch
(2010) defines project managers’ risk preferences as their tendency or desire for the
degree of risk and uncertainty that they are ready to accept in the same decision state
of affairs. Wang and Yuan (2011) explained how different project managers make
disparate and sometimes even contradictory assessments in the same decision
situation. The author explained further that the framework is built on the three
contrasting attitudes previously articulated, and it recognizes a variety of decision-­
making measures that are categorized according to their risk visibilities.

Risk-Averse

As soon as people and groups become uncomfortable with uncertainty, they become
risk-averse. The traits of this instance of attitude are more common, and they are
signaled and confirmed by highly successful working practices. Irritation and
increased sensitivity are caused by the presence of a threat. As a result, there is a
tendency for assertive risk reactions that diminish the risks. A risk-averse attitude,
on the other hand, may underestimate the magnitude of possible chances (Hillson &
Murray-Webster, 2005). They hope to acquire property in order to get as much
security as possible in order to alleviate their suffering (Baranoff & Kahane, 2009).
Sources of Risk in Construction 73

Risk-Neutral

People and organizations with a risk-neutral attitude are more likely to engage in
initiatives that have a high likelihood of success. Hence, they consider contemporary
risk-taking a cost justified in light of the potential advantages.
This attitude is characterized by being fearless in times of challenge and seeing
potential in obscurity. This approach places a strong emphasis on seniority once it
concerns threats and potential opportunities. Thus, simply employing a procedure
that is projected to yield significant benefits (Hillson & Murray-Webster, 2005).

Risk-Seeking

People and organizations who personify a risk-seeking attitude are more likely to
tolerate a somewhat unplanned move in the direction of the behavior of potential
threats. On the risk technique, the risk-seeking individual tends to identify less
threats due to the model in risk attentiveness. It is expected that threats will be
underestimated in terms of their potential impact and likelihood of occurring. The
risk-seeking attitude may exaggerate the significance of potential chances and
engage in aggressive behavior when confronted with these opportunities.
An attitude can be defined in two ways; the first definition refers to the internal
making of the human mind, and the second definition refers to the mental aspect of
information with respect to the information. This second definition depicts lean
management, which could be understood as an analogy for the inner access an
organization or person gains to a given state of events. Some attitudes are entrenched,
while others are more flexible; they all, however, provide an alternative making
them situational reactions that can vary based on the work environment. If the
impacts are both explicitly and implicitly described, the potential of modifying the
attitudes is opened up. However, attitudes are not limited to non-inheritable
characteristics of people or organizations; instead, they can be transformed, and this
is important to the cause of discernment and handling risk attitudes (Hillson &
Murray-Webster, 2005).

Sources of Risk in Construction

On a broad scale, the sources of risk associated with construction can be grouped
into three categories as follows:
1. Internal Risks—risks that can be controlled (e.g., risks involving design, con-
struction, management, and relationships).
2. External Risks—risks outside of one’s control (e.g., financial, economic, politi-
cal, legal, and environmental risks).
74 7 Risk Management Practices in Sri Lanka

3. Risks Associated with Force Majeure—risks associated with the environment

(weather condition), e.g., frost, typhoon, and hail.

Risk Management in the Construction Industry

The term “risk management” basically refers to the process of identifying, describ-
ing, and responding to project-related risks. It must maximize the likelihood and
impact of positive outcomes while simultaneously reducing the likelihood and
impact of negative outcomes to ensure the overall success of the project (Tipili &
Ibrahim, 2015). Risk management can be considered a decision-making procedure,
as it involves making a thorough assessment of a known risk and/or taking crucial
steps toward mitigating the impacts and probabilities of the outcome of such risks.
This is done to minimize the complexity of the risks and raise the chances of success
(Goh & Abdul-Rahman, 2013).

Goals and Aim of Risk Management

A significant improvement in the construction project management performance

can be achieved by implementing a risk management process. Rather than
completely eliminating all project risks, the risk management approach seeks to
reduce them to the greatest extent practicable. Its aim is to establish a coordinated
structure that encourages project management to deal with project risks, particularly
the most critical ones more effectively and efficiently than now exists (Wang
et al., 2004).

Sri Lankan Construction Industry

The current growth of the Sri Lankan construction industry is primarily attributable
to economic factors. The sector has benefited the most from the government’s recent
push to provide infrastructure and guarantee massive development projects are
completed following the end of the country’s ethnic war in 2009. In Sri Lanka, there
have been developments in numerous infrastructure areas, including luxury
residential projects, road projects, affordable housing, water projects, and port
projects. These initiatives have substantially impacted the Sri Lankan economy
(Investment Information and Credit Rating Agency (ICRA Lanka), 2011). According
to the Central Bank Report (2016), construction operations in Sri Lanka have
increased significantly in value from a prior increment of 2.7–14.9%, accounting for
7.6% of the country’s Gross Domestic Product (GDP).
R isk Management on Sri Lankan Road Project 75

However, there are some persistent challenges in the Sri Lankan construction
industry which are comparable to those encountered in every developing country
around the world. Some of these challenges are high construction material costs,
scarcity of high-quality steel, scarcity of skilled labor, a deficit of funds, pollution,
and regulatory changes (ICRA, 2011).

Risk Management in Sri Lankan Construction Industry

Since only a few studies on risk management have been undertaken in Sri Lanka
(Perera, 2006), there is not much to add to the existing body of knowledge about the
island nation that is completely different from what have been discussed across this
chapter so far. The majority of the risk-related research available on Sri Lanka
construction industry is focused on the context of road construction, with few (or
very few) studies fitting the criteria for conducting an effective risk investigation on
construction projects (Perera et al., 2009).

Risk Management on Sri Lankan Road Project

In response to the ever-increasing volume of traffic on Sri Lanka’s roads, the Road
Development Authority (RDA) developed plans to construct a nationwide highway
network in the future (RDA, 2006). Many factors, including the availability of inter-
ested parties, available resources, the physical, economic, and political environ-
ments, and legal and regulatory requirements, frequently accompany road
construction projects. Wang and Chou (2003) pointed out that such risks have a
major impact on the project’s outcome. Since then, it became necessary to develop
fundamental physical infrastructure in order to support the major types of real estate
investment, particularly those involving roads, because the success or failure of
such investments will have a long-lasting effect. Kitazume et al. (2005) described
road projects as “social capital development projects that are exposed to a variety of
risks throughout their life cycle.” The lengthy construction and maintenance periods,
as well as the broad geographic coverage, are the reasons behind this. With a wider
time scale comes a greater likelihood of interference or external events that will
have an impact on the project.
Developing countries’ construction projects are vulnerable to unpredictable cir-
cumstances (Ebrahimnejad et al., 2010). Implementing risk management proce-
dures will help avoid a wide range of project challenges (Tadayon et al., 2012).
However, little information is available on the country’s application of risk
management practices except on road projects discussed. This can be attributed to a
lack of focus on the risk management approach (Tadayon et al., 2012).
The sources of risks lined with road development in Sri Lanka are considered to
be unique because of the country’s emerging economy and geographical location.
76 7 Risk Management Practices in Sri Lanka

There is evidence that contractors and clients do not pay close attention to such risks
in this type of economy, resulting in cost time overruns and poor workmanship
(Tadayon et al., 2012). Numerous Sri Lankan roads have been rebuilt or rehabilitated
in recent years primarily due to degradation and increased traffic to the point where
expanding or realigned certain sections were required. This thus necessitates
identifying and properly allocating risk to contractual parties to reduce foreseen or
unforeseen circumstances regarding the project.

Risk Identification on Sri Lankan Road Projects

In the study by Perera et al. (2009), the sources of risk in carrying out road projects
in Sri Lanka were identified using some foreign-funded road projects that were
close to completion. In order to minimize the complexity that can occur when
analyzing several types of road projects at the same time, projects that use traditional
procurement methods with ad measurement were chosen for consideration due to
the fact that they are the most commonly used procurement method in Sri Lanka.
These projects were chosen because they required a project completion time of
at least twenty-four (24) months since researchers believe that gathering risk-related
data requires a longer period of time. Some risk sources were identified through a
review of literature studies and concepts that were developed based on interview
transcripts. Furthermore, the result of the research reveals that the risk sources were
relevant and were then divided into four types of risk sources stated below.
1. Technical and Contractual Risks
• Low value of preliminaries bill.
• Necessary changes imposed by the supervising engineer.
• Delay in handing over of project.
• Detailed drawings.
• Change in the scope of the work.
2. Economic, Financial, and Political Risks
• Late payments.
• Relying on foreign loans for the funding of the project.
• Regulations and difficulty in obtaining clearance permits.
• Inflation.
• Change in policies and legislation.
3. Managerial Risks
• Competent level of the contractor.
• Dealing with utility agencies.
• Regulations and difficulty in obtaining clearance and permits.
• Inflation.
• Change in policies and legislation.
R isk Analysis and Evaluation on Sri Lankan Road Projects 77

4. External and Site Condition Risks

• Uncontrollable natural forces.
• Harsh weather conditions.
• Unforeseen site ground conditions.
• Inflation.

Risk Identification Techniques Used on Road Projects

Perera et al. (2009) identified some of the risk identification tools that were used on
the researched road projects; they include the following:
• Checklists: Identification of potential risks was based on the information check-
list documented from previous abandoned and failed projects in Sri Lanka to
enable project managers to know the risks involved on the road project and ways
of minimizing them.
• Interviews with Experts: Experts were engaged to seek out ideas on risk contain-
ment based on their experiences on project evaluations. This was done in order
to obtain profound practical solutions to issues not on the preidentified list and
also for receiving feedback on the risks associated with identified projects.
• Past Experience: This analyzes historical data on similar risks from previous
projects as the basis for a breakdown for evaluation. Risks that might be prevalent
in each phase of the project life cycle and for best risk reduction from successful
projects were identified and assessed carefully.

Risk Analysis and Evaluation on Sri Lankan Road Projects

After reviewing several literature studies on risk management in Sri Lanka, it can be
outlined that risk analysis assessments and evaluation of the identified risk sources
which were pertinent to the Sri Lanka Road project were based on two different
approaches as stated below:

The Triangulation Approach

This approach is the combination of two data analytical processes together to

achieve a particular aim. Love et al. (2002) opinionated that this approach is
advantageous since it allows both qualitative and quantitative data in the process of
generalizing the findings. Also, more grounds can be followed, and relevant
information can be obtained more across the respondents.
78 7 Risk Management Practices in Sri Lanka

In their study, Love et al. (2002) identified multiple sources of risk evidence.
These include semi-structured interviews with project participants, documents such
as letters, weather records, bills of quantities, claims, non-conformity reports,
variation orders, the program of work, public complaint reports, and interim
valuation and progress reports. They also included archival records like historical
meteorological data.
In a research conducted by Perera et al. (2014) on enhancing the effectiveness of
risk management practices in Sri Lankan Road construction projects, the Delphi
approach, analytic hierarchy process (AHP) method, and sensitivity analysis were
used for risk analysis assessments and evaluation of prospective identified risk
sources pertinent to Sri Lanka Road project.
• Quantitative Approach: Sensitivity analysis was used to determine the project’s
uncertain components that would have the greatest impact on the final outcome.
• Qualitative Approach: Delphi approach and analytic hierarchy process (AHP)
method were also used. The mentioned practices are explained as follows.

Delphi Approach

This procedure involves identifying qualified experts, preparing acceptable ques-

tions for them to answer, and analyzing their responses (Outhred, 2001). According
to Xia and Gu (2012), even if expert collective judgments are constituted of subjec-
tive views, they are more reliable than individual assertions, hence resulting in more
objective conclusions being made. The Delphi approach ensures that the results of
a project are based on the consensus of the experts who are working on a similar
project.

Analytic Hierarchy Process (AHP) Method

This method is based on perceptions and is a multicriteria decision analysis method

developed by Saaty in 1980. This process is used for eliciting decision-makers’
preferences in the form of ratios using pairwise comparison matrices based on
perceptions for ranking risk and resource allocation (Deb, 2012). However, this
approach was selected for the purpose of allocating risks among the major
stakeholders (clients/consultants, contractors, and engineers) to cover more research
ground and gather enough information about the intended projects.
R isk Allocation on Sri Lankan Road Project 79

Risk Allocation on Sri Lankan Road Project

The risk-handling methods used for the Sri Lanka Road project were as follows:
1. The allocation of risks among contracting parties for all actual risk handling.
2. The allocation of risks through contract clauses.

Allocation of Risks Between Contracting Parties

1. Employer: Risks allocated to this party are risks related to uncontrollable natural
forces, harsh weather conditions, necessary changes imposed by the supervising
engineer, dealing with utility agencies, defects in design, delay in making
payments, relying on foreign loans for the funding of the project, inflation, delay
in handing over of project, change in policies and legislations, interaction or
relation with the surrounding community, security and safety of the public,
regulations and difficulty in obtaining clearance permits, changes in the scope of
the work, and unforeseen site ground conditions.
2. Contractor: Risks allocated to this party are risks related to harsh weather condi-
tions, necessary changes imposed by the supervising engineer, competent level
of the contractor, dealing with utility agencies, defects in construction, defects in
design, incorrect estimation of the work, inflation, low value of preliminaries
bill, the inadequacy of labor and equipment output, interaction or relation with
the surrounding community, procurement of needed resources, security and
safety of the public, regulations and difficulty in obtaining clearance permits,
detailed drawings, and unforeseen site ground conditions.
3. Engineer: This party is responsible for the risk of late approval.

Allocation of Risks Through Contract Clauses

1. Employer: Risks allocated to the employer by the contract clauses include risks
related to uncontrollable natural forces, harsh weather conditions, necessary
changes imposed by the supervising engineer, dealing with utility agencies,
defects in design, delay in making payments, relying on foreign loans for the
funding of the project, inflation, late approvals, delay in handing over of project,
legislative changes, interaction or relation with the surrounding community,
change in policies and legislations, relations with neighborhood, security and
safety of the public, building regulations and difficulty in obtaining clearance
permits, change in the scope of the work, detailed drawings, and unforeseen site
ground conditions.
2. Contractor: Risks allocated to the contractor by the contract clauses include
risks related to harsh weather conditions, necessary changes imposed by the
80 7 Risk Management Practices in Sri Lanka

supervising engineer, competent level of the contractor, dealing with utility

agencies, defects in construction, defects in design, incorrect estimation of the
work, inflation, low value of preliminaries bill, the inadequacy of labor and
equipment output, interaction or relation with the surrounding community,
procurement of needed resources, security and safety of the public, regulations
and difficulty in obtaining clearance permits, detailed drawings, and unforeseen
site ground conditions.
3. Engineer: Risks allocated to the engineer by the contract clauses include risks
related to defects in design, security and safety of the public, detailed drawings,
and unforeseen site ground conditions.

Risk Allocation Findings on Sri Lankan Road Projects

The Federation Internationale Des Ingenieurs-Counseils (FIDIC) published a set of

contract conditions (FIDIC, 1987), which was used in the selected projects. Given
that risks are shared among contractual parties via contract provisions, the
administration of construction risks was first examined using the conditions of
contract (CC) used in the chosen cases. Since the conditions of the contract in both
situations were the same, the analysis could be conducted on the same set of facts in
the selected cases.
After that, the actual allocation, which is the allocation of risks that are not
explicitly stated in the contract clauses but are agreed upon by the contractual
parties, is identified, and the risks associated with these allocations are evaluated.
However, with the exception of a few contract clause modifications, it was dis-
covered that for the vast majority of the risk factors identified, actual risk allocation
and risk allocation through contract clauses were nearly identical. Contract clauses
modifications that are used in place of actual risk allocations include the following:
The risk of uncontrollable natural forces that becomes a risk to the Employer was
exposed through the sub-clause 20.4 (h) [Employer’s Risks] that the Contractor
must also bear some of the risk connected with this.
In accordance with the sub-clause 42.2 [Failure to Give Possession], the risk of
Delay in the handing-over of project had been allotted to the Employer;
nevertheless, the Contractor was also required to bear this risk as a result of
irrecoverable difficulties that he had to encounter.
Under the sub-clause 52.3 [Variations Exceeding 15 percent], the Employer is
responsible for the risk of Change in the scope of work in both projects, while the
Contractor is also responsible for a portion of the risk associated with delay in
handing-over of project.
In the three cases highlighted, the risks had been shared only with the employer
by actual risk allocation, while according to contract clauses, both parties (employer
and contractor) should bear the risk.
Model for Risk Management in Sri Lankan Construction Industry 81

 odel for Risk Management in Sri Lankan

M
Construction Industry

Wang et al. (2004) defined the steps in the methodologies of risk management in the
construction industry as follows:
• Risk planning.
• Risk identification.
• Risk analysis/assessments and evaluation.
• Risk response; risk monitoring and control.
• Feedback.

Risk Planning

Risk planning requires projecting how to advance and execute risk management
procedures needed to guarantee that the point, type, and profile of risk management
are proportionate to the scale of the risk, as well as its relative importance in relation
to the project’s overall importance. During the risk planning stage, the objectives of
the projects are set out, and responsibilities are delegated to the project’s key players
(Project Management Institute PMI, 2004).

Risk Identification

Risk identification is the process of identifying and retaining records of the risks
that are associated with a given situation. It can as well be described as the technique
of analytically and perpetually identifying, evaluating, and categorizing the initial
impact of the risks related to construction projects (Al-Bahar & Crandall, 1990) and
the interdependency of these risks (Liu et al., 2016). The concept of risk identification
appears to be straightforward and easily applied (Hassanein & Afify, 2007). It is an
important metric since the risk management and risk analysis approach can only be
applied to risks that have been identified as a possibility (Wang et al., 2004). When
not carried out in time and properly, it has the potential to have negative implications
on the growth and success of a project (Crnković & Vukomanović, 2016). It is
possible that failure to identify potential risks will result in a deficiency throughout
the process. This, in turn, might have a major impact on the organization’s available
resources.
82 7 Risk Management Practices in Sri Lanka

Benefits of Risk Identification

Rostami (2016) highlighted some benefits of risk identification as follows:

1. It helps to determine the optimal and the most critical input data to use.
2. It helps to have a deeper understanding of the process significantly.
3. It helps in identifying potential risks and its possible impact.
4. It provides information to people (stakeholders) who are in charge of making
decisions.

Risk Identification Categories

In accordance with Zou et al. (2007), risk categorization is an inherent component

of risk identification. Risks of various types are classified into several classes based
on the features that have been predetermined for them. Generally, risk can be
classified as follows:
• External: These are politically related, regulation-related, and environmental-
and market-related.
• Internal: These are risks that have to do with safety, customer satisfaction, cost,
time, and quality, coupled with service-related.
• Technical: These are risks that have to do with the managerial, resource, produc-
tivity, design, client, and payment.
• Unforeseeable: These are risks that have to do with natural hazards.

Tools and Techniques Used for Risk Identification

The process of risk identification can be completed with the assistance of a variety
of tools and procedures (Rostami, 2016). Brainstorming, the Delphi approach,
interviews, cause and effect analysis, SWOT analysis, and presumption analysis are
some of the tools and methodologies available. In Crnković and Vukomanović
(2016), the first four procedures are fundamental techniques; however, the final two
techniques are utilized in particular to enquire into a broader scope of prospective
scenarios.
The four strategies identified below are commonly employed to detect risks in
developing nations in the area of infrastructure (Tipili & Ibrahim, 2015).
1. Checklists: It helps identify possible events that might have caused failure in past
projects, which can be useful in identifying risk. It also enables the project
manager to understand the risk involved in a project and prompts their
involvement in the whole process of risk identification. This will enable a more
favorable reception of any tools or methods deployed to mitigate the risks.
Model for Risk Management in Sri Lankan Construction Industry 83

2. Interviews with Experts: This involves seeking out ideas on risk containment
based on experts’ experiences. It also involves analyzing previously documented
data for works that are identical and assessing identical past or present works. It
also involves project reviews through lessons learned from experts to obtain
feedback on project risks.
3. Past Experience: This involves reviewing data of similar projects carried out in
the past to ensure risk reduction. This particular technique is limited in its usage
as it cannot be applied to all projects.
4. Brainstorming: This approach is more suitable for projects that involve new risk,
new management systems, or the development of preliminary checklists. This
could be beneficial in risk management workshops.

Risk Analysis/Assessment and Evaluation

After risks have been identified, the next step is to ascertain their implications as
entirely as conceivable in order to prioritize them ahead of the response management
stage (Schieg, 2006).
Risk analysis is considered the process of requiring the vital rating of prospective
risks, ordering those risks according to importance, and selecting the most critical
risks by the management team (El-Sayegh & Mansour, 2015). When it comes to risk
management, risk analysis is by far the most challenging process to master. This is
because it requires determining the likelihood of a risk occurring and its influence
on the project’s objectives (Thomas, 2006). Its primary goal is to analyze risk by
categorizing unavoidable occurrences, estimating the possibility that an unpleasant
event will occur, and estimating the degree of such situations (Karimi et al., 2011).
It is implied that it is the intermediate phase between risk identification and
management. It incorporates uncertainty in both qualitative and quantitative forms
in order to assess risk outcomes. The rating should focus mostly on risks with a
higher probability of occurring or having negative effects (Wang et al., 2004).

Risk Analysis Approaches

There are two main approaches to risk analysis that are commonly employed. They
are qualitative risk analysis and quantitative risk analysis, and semi-quantitative risk
analysis as a subcategory (Choudhry & Iqbal, 2012).
• Quantitative Approach
It is predicated mainly on the chance dissemination of risks. However, if suffi-
cient information is made available, it can provide objective solutions to problems.
Furthermore, quantitative risk analysis represents risks as numerical figures,
allowing them to be measured in terms of how well they perform in quality, time,
84 7 Risk Management Practices in Sri Lanka

and cost (Morledge et al., 2006). Risk assessment is accomplished by quantitative

analysis, which determines the impact of each risk on a scale from high to low and
the likelihood that it will occur (Zou et al., 2007).

Quantitative Analysis Techniques

The following are the fundamental quantitative techniques:

These are decision tree analysis; expected monetary value; fault tree analysis
(FTA); fuzzy logic; probability distributions; and sensitivity analysis/tornado
diagram (PMI, 2013).
1. Decision Tree Analysis: It is a valuable technique for drawing up the problem
and assesses several alternatives. This technique is in the form of a tree diagram,
which gives more illustration of the project, and its decisions will determine the
consequences of these decisions (Mhetre et al., 2016).
2. Expected Monetary Value Analysis: This considers the odds component of the
arrangement states and is established on a gain matrix.
3. Fault Tree Analysis (FTA): It describes vital risk cases but measures one outcome
in a specific time.
4. Fuzzy Logic: It is valuable wherever probabilistic information is abstracted. It is
not as accurate as probabilistic techniques.
5. Probability Distributions: This is a technique employed to reveal the potential
influence of a contrastive degree of uncertainty on project goals. Specifically, it
assesses the impact of risks on the project’s cost and timeline, estimating each
task with three points, including the most speculative event scenario, the most
likely scenario, and the worst-case scenario. The Monte Carlo simulation
approach is almost always utilized for this type of analysis.
6. Sensitivity Analysis/Tornado Diagram: It is used to describe uncertain elements
in a project that will have the greatest impact on its outcome. It is expressed as
an order of magnitude. The goal here is to consider the sensitivity of varied risk
framework factors on project outcomes by changing the values of one variable at
a time and then showing the influence on the outcome.

Qualitative Risk Analysis Approach

When applying this approach, it is frequently necessary to rate the effects of risks
and develop lists of risks from the smallest to the largest. This is done to facilitate
an early breakdown of the identified risks (Zou et al., 2007). It is executed by a data-­
driven methodology (Banaitene & Banaitis, 2012). However, it is open to
individualized perception, suspicion, and assessment. Thus, depending on the
analyst’s point of view, the results can vary significantly. Therefore, the qualitative
Model for Risk Management in Sri Lankan Construction Industry 85

technique continues to be the preferred strategy by the majority of professionals

(Jarkas & Haupt, 2015). A risk-scoring matrix (also known as a probability/impact
matrix) is a type of risk analysis tool that is commonly used in qualitative risk
analysis.

Qualitative Risk Analysis Approach

The following are the fundamental qualitative techniques: brainstorming, expert

judgment, causes and effect diagram, checklists, Delphi, event tree analysis (ETA),
risk breakdown matrix (RBM), risk data quality assessment, probability and impact
assessment, and risk matrix method are some of the most common qualitative
analysis approaches.
1. Probability and Impact Assessment: This technique can be used to predict the
chance of a given risk occurring in the future. When evaluating the impact of risk
on the success of a project, it is crucial to include both chances and favorable
outcomes, threats, and unfavorable outcomes. It is essential to establish the
likelihood of a risk occurring in a project and the implications it may have on the
project.
2. The Risk Matrix Method: This method, in conjunction with probability and
impact, can be utilized to lay the groundwork for further evaluation. The priority
score is computed by averaging the probability and impact. The priority score
range, rate, and color are all provided to demonstrate the significance of each
risk. Threats with a high priority score, indicating a high impact and possibility
of occurrence, are regarded as high-risk and may demand an immediate response,
whereas threats with a low priority score could be monitored more closely and
given attention only if necessary.
3. The Delphi Method: When using this method, you will be tasked with selecting
qualified experts, developing relevant questions to be presented to them, and
analyzing their responses (Cabaniss, 2002).
4. Expert Judgment: This method is based on using a professional’s opinion to
determine the likelihood of failure and the likelihood of achieving the project’s
objectives.
5. Risk Breakdown Matrix (RBM): Risk is classified into smaller units using a risk
breakdown matrix.
6. Risk Categorization: This is used as a method of systematizing risks according
to their sources, with the goal of identifying areas that are most vulnerable to
certain risks. Due to how this approach is used, activities are broken down into
little components and organized into a hierarchical series of activities.
Additionally, the approach can include risk dependencies and prioritize them
based on how quickly they require a response.
86 7 Risk Management Practices in Sri Lanka

7. Analytic Hierarchy Process (AHP): This method involves gathering information

and using pairwise comparisons to rank the risks associated with various events.
This method is limited to only a few pairwise comparisons.

Semi-Quantitative Risk Analysis Approach

This particular approach establishes a personal estimate of the oftenest with which
risks occur as well as an objective assessment of risk outcomes (Mead, 2006).

Other Risk Analysis Techniques for Project Risk Management

Monte Carlo simulations and system dynamics are examples of computer-based

simulation technologies that can be used in risk analysis for project risk management
(Choudhry et al., 2014).
Monte Carlo Simulations This technique sums up the cumulative impacts result-
ing from a set of uncertain parameters. It is computationally expensive to use this
technique.

Criteria for Selecting Risk Analysis

1. The nature and scope of the proposed project.

2. Readily available information.
3. The financial ramifications and the amount of time available.
4. The analysts’ collective knowledge and experience.
5. The amount to which innovation has occurred.
6. The ultimate goal of the outcomes (Goh & Abdul-Rahman, 2013).

Risk Response

Risk response involves the development of alternatives and ascertaining activities to

heighten chances while also reducing threats to achieving project objectives. This
strategy necessitates the identification of parties who will assume responsibility for
each harmonized risk response, and the effectiveness of this stage will determine
whether the project risks will step up or drop off (PMI, 2000). This also addresses
the design of a strategy to mitigate potential threats while increasing the likelihood
of success (PMI, 2004). It is necessary to implement adequate risk mitigation
Model for Risk Management in Sri Lankan Construction Industry 87

measures after the risks associated with the project have been identified and
investigated. These risk mitigation techniques are based largely on the nature of the
risk and the potential effects of taking action. Its main purpose is to increase risk
dominance, reduce the destructive risk impact, and get rid of the potential possible
impact. The criterion gets a lot more efficient when there is further dominance of
one mitigation assess on one risk (Wang et al., 2004).

Types of Risk Responses

The six distinct risk reactions are retention, reduction, control, sharing, transfer, and
avoidance (Kerzner, 2003). Alternatives for responding to risk need to recognize
and acknowledge the significance of the risk. They also need to be financially cost-­
effective and honest in terms of project timing and also acceptable to the other
parties involved (Goh & Abdul-Rahman, 2013).
• Risk Retention: It demands acknowledging the existence of a specific risk situa-
tion and devising an intended measure to bear the degree of risk without employ-
ing any exceptional drives to contain it (Kerzner, 2003).
• Risk Reduction: It is employed to convey the probabilities and effects of the risk
low beneath a threshold that is accepted (Loosemore et al., 2006).
• Risk Sharing: It is primarily incurred through a contractual process to acquire a
feeling of corporate obligation among the parties to the project (Loosemore
et al., 2006).
• Risk Control: It does not totally remove risks in the project; rather, it accepts
methods to reduce existing risks (Kerzner, 2003).
• Risk Avoidance: It is an act of unwillingness to acknowledge the risk or activity
undertaken to ensure that the risk is not active to occur (PMI, 2004).
• Risk Transfer: It changes and alterations, as well as ownership from one party to
another third party, without affecting the overall level of risk or lowering the
importance of the risk sources (Smith et al., 2006).
In this phase, accessible alternatives and processes are acquired in order to pro-
mote opportunities and mitigate threats to project objectives. Each contracting party
appears to be prepared to take a certain degree of risk and be well aware of its per-
sonal apportion of risks and the conditions under which losses will occur (Perera
et al., 2014). The implication of each party’s consciousness of the risks assigned to
them, as well as the sequential planning required to address such risks, is assertive
and subsequently adds to the project’s success (Zou et al., 2007).
88 7 Risk Management Practices in Sri Lanka

Risk Response Strategy in Developing Countries

In developing countries, the risk response approach includes both preventive (avoid-
ance) and corrective techniques (Kartam & Kartam, 2001).
1. Preventive Risk Management Technique: A risk is best managed when it is elimi-
nated early enough in the planning stage of the project. Early consideration of
risks prior to the start of a project and the development of an effective plan for
dealing with them are examples of preventive management approaches that are
employed during the planning stage to prevent or reduce a necessary but
unavoidable risk.
2. Remedial Risk Management Technique: In order to mitigate the consequences of
risks and, if possible, entirely eliminate them, remedial risk management
processes must be used. This is because not all risks can be managed at the early
stage of the project and certain risks will develop during the operation stage of
the project. Therefore, the manner of remedying the situation becomes critical.

How Contractors Respond to Construction Risk

In accordance with Wang and Chou (2003), contractors typically employ three
methods to transfer risk in construction projects, which are the following:
1. Insurance companies to insurance companies.
2. Modification of the terms of agreement of the contracts to benefit the client or
other parties.
3. Delegation of tasks or subcontracting of work to other parties.

Risk Monitoring and Control Stage

Risk monitoring and control are important stages in the project life cycle because
they ensure that the desired outcomes of risk response execution are achieved
throughout the project life cycle. Regularly, risk management documentation is
reviewed and updated, and the outcomes of risk monitoring and control can serve as
a lesson for future decision-makers (Morledge et al., 2006). The performance of risk
response is evaluated from time to time as the project progresses in order to correct
any errors in the strategy that have been implemented and to realign the strategy
with the project objectives.
Model for Risk Management in Sri Lankan Construction Industry 89

Risk Monitoring and Control Techniques

Risk Register

A risk register is a risk database that is used as a crucial tool in risk management to
keep track of the progress of the risk management process (Cooper et al., 2005). The
design of the register is determined by the organization, the nature of the projects,
and the persons involved. It is essential that the organizations draft their own register
that is appropriate for them in terms of order of magnitude for it to be fully
implemented as intended rather than adding another strain to an already demanding
study schedule. The register should be incorporated with a database to make
enrolling, storing, managing, and categorizing data more convenient (Flanagan
et al., 2007). The risk register contains a complete list of all known risks, along with
the outcomes of their analysis and associated activity plans. It also includes an
assessment of the risk’s current status in relation to the specific risk. The risk register
should be updated and re-examined on a regular basis throughout the duration of the
project lifecycle.

Uses of Risk Register

A risk register is an essential tool for tracking and adjusting progress on risk mitiga-
tion processes. It aids in the description of new risks and the termination of low-
terminated risks. Also, adjustment of the evaluation of present risk, among other
things, can be checked with the use of a risk register (Potts, 2008). Risks that are no
more critical due to avoidance or that have previously been dealt with can be
removed from the register along with the action plans that were associated with
them. The condition of activity plans, as well as specific risks, should be
systematically re-evaluated and revised (Cooper et al., 2005).
Schieg (2006) opined that it is necessary to include new additional risks, risk
conditions, and the progression of the process. Existing risks must be recorded, as
well as the overall degree of damage incurred as a result of those risks. Furthermore,
the author asserted that an important component of risk monitoring (which occurs
in the final phase) is the internal constraint system, which delegates the responsibility
for monitoring early indicators to certain individuals or groups. A reporting and
meeting agreement for the project, as well as the organization as a whole, must be
included in the contract for this process to be effective.
90 7 Risk Management Practices in Sri Lanka

Feedback

Receiving feedback is critical for reviewing the treatment plan. It may be required
to return to the identification stage if new risks emerge or the nature of existing risks
changes during the project execution.

Conclusion

After a definite examination of different written literature on risk management in Sri

Lanka, it can be outlined that currently, formal risk management M practice is rare
among the Sri Lankan construction industry except for its one-time usage on road
projects. The track record on risk management evolution has shown the value of risk
management application for enhancing effective coordination among project teams
for proper risk allocation on the executed road projects toward the management of
cost, quality, and time, which are key objectives of each and every project. Moreover,
research indicated constraints in the implementation of risk management to some
degree in Sri Lanka, as most clients are not proficient in risk management benefits
and feel that contractors and consultants have an obligation to bear the risk effects
at their own cost. There is a need for different risk management processes to be
inculcated in the construction firms for medium to large-scale project.

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Al-Bahar, J. F., & Crandall, K. C. (1990). Systematic risk management approach for construction
projects. Journal of Construction Engineering and Management, 116(3), 533–546.
Anderson, S. (2009). Risk identification and assessment. Retrieved from https://www.PMI.org
Baloi, P., & Price, A. (2003). Modelling global risk factors affecting construction cost perfor-
mance. International Journal of Project Management, 21(4), 261–269.
Banaitene, N., & Banaitis, A. (2012). Risk management in construction projects. Retrieved from
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Chapter 8
Risk Management Practices in Tanzania

Abstract The economic importance of the construction industry in developing

countries cannot be overstated due to the critical need for infrastructure development
and housing. The Tanzanian construction industry accounts massively for the
country’s economic development. This chapter gave an insight into what risk
management practice entails in general. Also, it discussed the practice in the said
country along with challenges, impediments, and other related subsections. The
study concluded that there is a low level of adoption of risk management practices
among the construction professionals of the country. The study stated that the reason
for this is the fact that risk management is still in its early stages. The chapter
recommended that training and further awareness should be encouraged to increase
the level of adoption and implementation in projects.

Keywords Construction industry · Project risk · Risk management · Risk

mitigation · Risk practice · Sustainable construction

Introduction

The construction industry has always been a significant contributor to the growth of
the economy of most nations. Lema (2008) stated that the Tanzanian construction
industry contributes approximately 7% of the country’s gross domestic product
(GDP). Further study by Kikwasi (2011) noted that the construction industry
accounts for about 9% of job creation and around 57% of capital development. Even
though the sector is plagued with different challenges in cost and time overruns
among all, the sector remains a cogent part of the country’s economic development.
A risk is defined as the possibility or tendency of an event or problem occurring
in relation to the success or achieving the desired aim of the project or unpredictable
future occurrence, which would have impacts on the project’s objectives (cost,
quality, time, standard, etc.) (Mark et al., 2004). Furthermore, even as the effect of
such occurrences is unpredictable, it has been hypothesized that risks can be
mitigated to reduce their negative impacts on project success even though their

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 95

A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_8
96 8 Risk Management Practices in Tanzania

occurrence is unavoidable during a project’s life cycle (Chia, 2006). There are
various sources of risk, and these include intrinsic uncertainties, institutional
inadequacies, and company-related issues such as technological implementation,
economic policy, weather and climatic condition, inflation, market competition, and
bidding process (Karimi et al., 2011).
The practice of project risk management has been in existence since the mid-
1980s and is considered to be one of the nine primary speciality areas of the Project
Management Institute (PMI) body of knowledge (Tuysuz & Kahreman, 2006). The
effects of risk can be lessened by observing, monitoring, managing, analyzing, and
applying managerial skills and resources through synchronized socioeconomic and
political stimulation. This is done to minimize the likelihood of unforeseen events
occurring and to achieve the target for the project (Douglas, 2009). Effective and
efficient risk management practices would lead to enormous benefits with respect to
the success of a project, and such benefits include identification of favorable alterna-
tive course of action, adequate site investigation, proper project planning and bud-
geting, adequate price forecast, proper feasibility study, improved technological
implementation, and proper and adequate estimates (Bannerman, 2008).
The ideology behind achieving sustainable construction is expanding, and higher
standards are expected. This has led to the development of technology, improved
material, and advanced technique applications. It is common knowledge that every
new technology has its constraints and risks; the desire to achieve expected results
through utilization of these modern technological techniques and materials has
made the importance of project risk management more profound. Infrastructural
development in any country would certainly enhance the economic growth of such
a country and generate job avenues. The cost of undertaking such projects is
enormous, and in order to deliver on time and standard, project risk management
practice must be involved so as to prevent huge monetary losses (Bannerman, 2008).
Consequently, the risk is critical to the successful execution of a project within
the stated time frame and budget. The construction industry is sometimes regarded
as a high-risk venture because of its intricacy and strategic nature. It involves a vast
number of parties and internal and external influences, and all this implies significant
risks. When compared to other industries, the construction sector has a bad
reputation for risk analysis and management (Laryea & Hughes, 2008). There are
risks in all construction projects, but they can be managed, decreased or shared,
transferred, or accepted; they cannot, however, be ignored (Latham, 1994).
According to the experts, risk is a multi-facet concept, while project risk management
involves identifying, analyzing, and responding to project risks (Project Management
Institute, 2008). Risk management in the construction industry refers to the
likelihood that a specific event or series of events will occur during the course of
construction. There are several factors involved in the construction process, and it is
frequently difficult to discern cause and effect, dependence, and correlations.
General History of Risk Management in the Construction 97

General History of Risk Management in the Construction

In the 1990s, risk identification and assessment of construction projects became the
center of concentration in the industry. Different contractors developed various
methods to analyze and assess these risks. The early techniques used to resolve risk-­
related issues in construction involved a systematic approach at the pre-contract
stage to prevent time and cost overruns. This method required the identification of
likely risk factors and assessing and proffering solutions to minimize their effects on
the project. Risks and uncertainties (used interchangeably) in cost and time can be
managed methodically throughout the estimation stage to mitigate any possible
impacts (Birnie & Yates, 1991).
Chapman (2001) grouped risks into four categories: environmental, industrial,
client, and project. Shen (2001) classified risks by nature of occurrence, such as
financial risk, market risk, management risk, legal risk, and political or regulatory
risk. In Chen et al. (2004), there are just a few risk factors that affect construction
costs, which were divided into three categories: resource, management, and parent.
A study conducted by Dikmen et al. (2007) employed influence diagrams to identify
the factors that have an impact on project cost. Risk factors were further classified
by Zeng et al. (2006) into four categories: human factor, site factor, material factor,
and equipment factor.
In recent times, more sophisticated techniques of risk management have been
developed. Table 8.1 shows the combination of several factors experienced in risk
and that of the categories by which it is divided as stated by the authors. Rezakhani
(2012) classified risk into three types: external, legal, and internal. It was determined
that external risk could be further classified into two: unpredictable/uncontrollable
and predictable/uncontrollable, while internal risk could also be further classified
into non-technical/controllable and technical/controllable. In addition, the author
proposed a risk breakdown structure based on a hierarchy of risks and identified the
most significant risk factors. Goh et al. (2013) classified the numerous risk factors
into five stages: planning stage, design stage, procurement stage, construction stage,
and handing-over stage. The authors identified the usage of workshops with an inte-
grated approach, brainstorming, checklists, probability impact matrices, subjective

Table 8.1 Techniques in risk management

Author Techniques in RM propounded
Rezakhani (2012) Risk in terms of categories:
 External risk
 Internal risk
 Legal risk
Goh et al. (2013) Risk in terms of factors:
 Planning state
 Design stage
 Procurement stage
 Construction stage
 Handling-over stage
98 8 Risk Management Practices in Tanzania

judgment, and risk register as ways of improving awareness of risk management

practice. Lastly, the study recommended that the approach of using risk management
workshops will be more beneficial for risk identification and analysis.
Past studies have made numerous attempts to illustrate the interdependences
between project risks and the complexity of the surrounding environment using a
variety of methodologies (Lazzerini & Mkrtchyan, 2011). In Hwang et al. (2013),
the implementation of risk management in small-scale construction is often
considered low, and this is due to a lack of time and budget, low-profit margin, and
the fact that it is not cost-effective. The findings demonstrated a positive association
between the applications of risk management practice toward improvement in
construction quality, cost, and whole life cycle.

 he History of Risk Management in Tanzania

T
Construction Sector

The role of the construction sector cannot be overemphasized, as it influences socio-

economic development in various ways (Ofori, 2007). This impact is particularly
significant in developing nations because of the strong need for infrastructural
development and housing. As a result, the construction sector actively promotes
economic and social development, leading to wealth, social equality, and improved
standard of living (Gomes & Silva, 2005). An example of this is seen in the study by
Lema (2008) where it was stated that the construction industry in Tanzania contrib-
utes approximately 7% of the country’s GDP and further corroboration in the study
by Kikwasi (2013).
In order to optimize the performance of the construction sector, it is necessary to
analyze the causal relationship between the implementation of certain risk
management measures and the success of a project (Tabish & Jha, 2011). From this,
it can be established that enhanced knowledge of risk management practice and its
subsequent application could contribute to overall project performance optimization
in the construction sector.
Research findings indicate that most construction firms in Sub-Saharan Africa do
not incorporate risk management strategies and methodologies into their project
management procedures, which frequently results in project cost and time overruns
(Kululanga & Kuotcha, 2010; Kikwasi, 2013). As a result, it is necessary to
investigate the obstacles that are preventing the execution of risk assessment and
management practices in developing nations using Tanzania as an example.
The following is an account of some of the issues that the Tanzania construction
sector has experienced. Here, we explain explicitly the challenges of adopting and
implementing RAMP based on existing literature and then present a concise
summary of discussions and information on the knowledge gap that exists. The
methodological technique used in the research, as well as a discussion of the study’s
findings and implications, is presented briefly. Some solutions to the barriers to
RAMP implementation have been advocated, and some of these have been proposed.
Impediments to the Adoption of Risk Management Practice in Tanzania 99

Prevailing Challenges of the Tanzanian Construction Industry

Tanzania aspires to have one of the top construction industries in the world but con-
tinues to struggle with poor project execution (Ofori, 2012), a shortage of trained
experts, and other challenges (Debrah & Ofori, 2005). Tanzania relies heavily on
international institutions to train indigenous experts, contractors, and consultants
for large-scale construction projects on her territory (Debrah & Ofori, 2005;
Egmond, 2012).
These prevailing challenges have negatively impacted the general adoption and
implementation of project management concepts and principles among the many
parties involved in the project (Lema, 2008). Several studies have been conducted in
Tanzania on project management-related topics such as procurement and project
performance, but none have explicitly addressed risk management challenges that
arise during the project development process.
In a bid to bridge this gap, Kikwasi (2013) conducted a study to determine the
causes, impacts, and disruptions of construction projects in Tanzania. According to
the findings of this study, there are still various factors contributing to risk
management delays and disruptions. These effects put construction projects at
serious risk of failure and negatively impact their performance. Poor project
management was identified as one of the causes of project failure. It is well
acknowledged that international contractors are involved in the construction industry
operational environment in the mentioned country. These international contractors
often have an edge over local contractors due to their superior skills, training, and
competences, as well as their human resources development (HRD) practices. For
instance, the Constructors Registrations Board (CRB) (2010) estimates that there
are about 4470 registered contractors in Tanzania, with 134 (3%) from abroad and
4336 (97%) from within the country. Despite the small number of foreign contractors
in the construction industry, they control approximately 96% of the market share.
Local contractors should be encouraged and trained to meet the international
standard and, from there would be able to deliver quality projects.

I mpediments to the Adoption of Risk Management Practice

in Tanzania

The adoption and implementation of risk management practices have been the sub-
ject of a number of research studies. Even though each country’s construction faces
similar and different impediments to the practice, it can be concluded that the
impediments are mostly similar, especially in most developing countries.
In the research conducted by Frimpong et al. (2003), which sought to uncover the
causes of cost and time overrun in the Ghanaian construction industry, one of the
factors identified was limited knowledge of risk management practices.
100 8 Risk Management Practices in Tanzania

In a further study, Akintoye and MacLeod (1997) discovered that contractors’

lack of technical knowledge of risk analysis and management was one of the rea-
sons for not employing risk management techniques. However, Wood and Ellis
(2003) discovered that one of the elements limiting the implementation of risk man-
agement practices was a relative lack of training and skill development.
Chileshe and Kikwasi (2014) identified some of the impediments to risk manage-
ment implementation in the Tanzanian construction industry. These include but are
not limited to:
• Lack of understanding of the risk management process.
• Inexperience in process execution.
• Lack of information.
• Lack of proper coordination among parties involved.
• Availability of specialist risk management consultants.
• Cost implications.
• Time constraints.

Framework/Model for Risk Management in Tanzania

Risk management system is a process that comprises risk analysis and risk response.
Risk analysis is subdivided into risk identification and assessment.

Risk Identification

This is the first step in risk mitigation, it involves the use of techniques and tools to
brainstorm and break down the inherent risk (Maytorena et al., 2005). In the quest
to identify risks associated with a particular project, it is, however, important to
identify the different sources of these risks and also their effects on the project. This
would enable one to set priorities right and proffer suitable solutions (Flanagan &
Norman, 1993).

Risk Assessment

This is a process that entails employing proper tools to ascertain the likelihood of an
event occurring and the expected impact. Risk assessment will enable the risk
manager to categorize the unforeseen events within a range of highest probable to
the least probable (Grey, 1995).
References 101

Risk Response

This is the process of attempting to offset the impacts of a risk. Risk response is
typically categorized into four levels: risk retention, risk reduction, risk transfer, and
risk avoidance (Flanagan & Norman, 1993).

Conclusion

The Tanzanian construction industry has experienced improvement over the years.
Through the implementation of favorable policies and frameworks to develop the
country’s construction sector, project planning and execution have increased
tremendously as construction professionals are more knowledgeable than before.
However, the country’s construction sector is still largely dominated by foreign
contractors. This has been attributed to their level of skills, training, education, sex,
etc., in handling projects irrespective of the size, nature, and type. The implementation
of risk management practices through an increased number of local contractors will
help the country to develop better and thus increase overall development.

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 Part III
Risk Management in Selected Developed
Countries
Chapter 9
Risk Management Practices in Australia

Abstract Risks that have not been identified and handled pose an undeniable threat
to the project’s objectives, potentially resulting in major cost and time overruns.
Risk management is a proactive decision that entails several steps, including risk
identification, analysis, risk response and communication, monitoring, review, and
learning. This chapter focused on risk management practice in Australia by
providing guidelines and principles for establishing an effective risk management
framework. The chapter also provided the finest risk management framework and
process for Australian construction projects, which was adapted from AS/NZS ISO
31000:2009. The concluding sections of the chapter gave the benefits and other
related topics pertaining to the Australian construction industry.

Keywords Construction risk · Project risk · Risk analysis · Risk communication ·

Risk identification · Risk response

Introduction

The construction industry in Australia has developed to become one of the most
significant in the country’s economy. In 2015, the industry generated more than
AUD 120 billion, accounting for 8% of Australian industry’s gross value added. The
construction industry has proven to be one of the most active sectors of the economy
due to its overall impact on the country’s economic development and its populace
(Tabish & Jha, 2011).
The complicated nature of construction projects exposes them to constant risks.
Risk is referred to as the probability of any event happening that will have an impact
on the project aim and objectives. According to the Australian Standard Risk
management (2004), risk management is the culture processes and structures aimed
at maximizing possible possibilities while minimizing negative consequences. Risk
management involves certain processes such as risk identification, analysis,
response, communication and monitoring, review, and learning. Monetti et al.
(2006) opined that risk management is essential for achieving organization or

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 107
A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_9
108 9 Risk Management Practices in Australia

project objectives since it is not only aimed at avoiding negative outcomes. Also, it
can act as a guide to maximize favorable outcomes within the concept of available
resources and practices.
Atkinson (2001) reported that construction projects are all prototypes to some
extent, facilitated by changes, distinctiveness, and similarities. Zhi (1995) further
corroborates that each project is distinct and thus invariably entails complex and
diverse risks. The nature of risks influences the duration of a construction project
(Sigmund & Radujkovic, 2014). In Marsh Australia (2007), risks are exacerbated by
certain factors, which include legislative changes, the influence of relevant authori-
ties, the use of non-standard building contracts, and unpredictable site conditions.
Construction projects involve various construction methods and several team
participants with varied skills and backgrounds. The lack of adequate risk
management practices among these team members can result in inefficient use of
labor and resources, which subsequently affects project execution. Loosemore et al.
(2006) highlighted that the negative effects of a lack of risk management process
could result in project outcome uncertainty, financial crisis, liabilities, and poor
decision-making, among other effects.
To identify goals and processes and improve risk management, organizations
must have a thorough understanding of the current and functional risk management
approach available within the context of the firm (Risk Management Research and
Development Program Collaboration RMRDPC, 2002). In Lyons and Skitmore
(2004), risk management is more often used at the planning/design stage of the
project life cycle and also throughout the construction stage than in the post-­
construction stage. The authors identified risk identification and risk assessment as
the most frequently used risk management processes, followed by risk response and
risk documentation.
Brainstorming is considered to be the most commonly used tool for risk identifi-
cation. For risk assessment, a qualitative approach is the most commonly used,
while risk reduction is the most commonly used risk response method, with contin-
gencies and contractual transfer preferred over insurance; project teams are the most
frequently used group for risk analysis, outnumbering in-house specialists and
consultants.
To attain a high degree of performance within an organization or on a construc-
tion project, the issue of risk must be addressed, and the most effective risk manage-
ment practice is identified.

 istory of Risk Management in the Australian

H
Construction Industry

In the study by Al-Bahar (1988), it was stated that many contractors developed a set
of guidelines for analyzing and assessing risks. This was due to numerous
construction projects failing to meet schedule, cost, and quality objectives. It was
Australian Risk Management Standard 109

proposed that during the estimation stage, a systematic method for managing project
risks and uncertainties in cost and time may be employed to reduce their effects.
Unmanaged or uncontrolled risks are one of the leading causes of project failure;
hence, risk management is an important aspect of project management. In the early
stages of risk management development, even though there were several published
works in the area of risk management, there was little information available on how
the practice could be applied. Between 1987 and 1997, various surveys on risk
management were conducted in a variety of Western nations in the United States,
the United Kingdom, Saudi Arabia, Australia, Canada, and Israel. Even though the
results improved with time, its objectives were challenged heavily at the initial stage.
The conceptual stage is critical for a new construction project since decisions
taken during this phase have a substantial influence on the final cost. It is also the
stage in which the greatest amount of ambiguity regarding the future is met. In a
situation like this, risk management may play an essential role in regulating the
level of risks and limiting their impacts. However, excluding projects that involved
high risk, such as we have in the petrochemical, oil exploration, and aerospace
industry mentioned by Flanagan and Norman (1993) and Toakley (1998), its
adoption by the Australian construction industry was rather slow.
Ward et al. (1991) hypothesized in their study the necessary preconditions for
successful risk management implementation in construction, which are the design
of a suitable organizational structure tailored toward supporting the basic
performance standards of risk management, as well as a new organizational culture
to drive its implementation.
In 1993, the New South Wales (NSW) Government of Australia took a signifi-
cant step by mandating the use of risk management in the planning of new projects
and large capital asset operations costing more than $5 million (Flanagan & Norman,
1993). This document states that risk management should start at the strategic
planning phase and continue through the project’s life cycle.

Australian Risk Management Standard

The Australian and New Zealand risk management standard AS/NZS 4360: 2004
was replaced by AS/NZS ISO 31000: 2009 in November 2009. AS/NZS ISO
31000:2009 provides foundational member agencies with general guidelines and
principles to consider when drafting risk management frameworks and procedures.
Risk management is defined by the Australian New Zealand Risk Management
Standard (AS/NZS ISO 31000:2009) as an organized effort to guide and control an
organization with reference to risk. The Australia Council for the Arts (“the Australia
Council”) faces risk in all elements of its operations and at all stages of its life cycle.
The planning and execution of the council projects provide both opportunities and
threats and therefore need to be managed properly. ISO31000:2009 has recently
been amended, giving rise to ISO31000:2018 described in Sousa et al. (2012). The
primary improvements here include a review of risk management principles,
110 9 Risk Management Practices in Australia

highlighting the organization’s leadership, putting more emphasis on the iterative

nature of risk management, and tailoring the content to accommodate diverse
demands and situations.
The risk management obligations of the Australia Council are outlined in the
Public Governance, Performance and Accountability Act (PGPAA) 2013. This
requires the Australia Council to design and maintain the following:
1. An effective risk monitoring and management system for the organization.
2. An adequate internal control system for the organization.
The following are the risk management principles as stated by the Australian
Council.
• Creates and protects value.
• Be an important element of organizational processes.
• Participates in decision-making.
• Be methodical, structured, and timely.
• Be transparent and inclusive.
To guarantee alignment with risk appetite and organizational objectives, risk
management is included in the Australia Council’s strategic and operational
planning procedures at all levels, including all new activities, initiatives, and projects
before they are implemented.
Risk is captured and reported as follows, according to the Australia Council.
1. Risk Management Objective Profile
This is a hierarchical overview of the Australia Council’s main risk categories,
objectives, related procedures, and residual risk areas uncovered through strategic
planning processes, emergent risks, and a comprehensive risk profile review. The
new risk management framework policy calls for a bi-annual evaluation of the risk
profile by members of the executive team in collaboration with the audit and finance
committee to ensure that existing sources of risks and their associated action plans
are clearly acknowledged and accounted for.
2. Detailed Risk Register
A detailed register shows the major area of inherent and control risks attached to
the operation procedures that are relevant to the attainment of the Australia Council’s
risk management objectives. It includes comprehensive risk evaluation rating,
control effectiveness ratings, and action plans. In conjunction with its management,
the detailed risk register is examined and offers a framework for assessing residual
risk and specific risk control areas where additional review, risk management action
plans, and internal auditing are required.
3. Risk Assessments for Specific Projects
Risk assessment and registers tailored to specific projects ensure risks connected
with significant strategic projects or regulatory obligations should be properly
managed.
Process of Risk Management Assessment 111

Process of Risk Management Assessment

To identify and manage risks, the best risk management practice/framework in AS/
NZS ISO 31000:2009 Risk Management Process will be adopted.
The essential components of the risk management process, as illustrated in
Fig. 9.1 and Table 9.1 are described below.
Establishing the Context—The Australian Council analyses both external and inter-
nal factors when evaluating and managing risks connected with the fulfillment of
organizational objectives.
Risk Assessment—It includes full risk identification, analysis, and evaluation
process.
Risk Identification—It is the process of identifying risk sources, areas of influence,
events, causes, and potential outcomes in order to compile a comprehensive list
of risks based on occurrences that could produce, enhance, prevent, degrade,
speed up, or delay the fulfillment of set out goals.
Risk Analysis—It is the process of determining a risk rating by taking into account
a variety of causes, sources of risk, consequences, and likelihood. The Australian
Council can utilize the rating to determine future management.
Risk Evaluation—It is the process that involves using a consistent overall ranking
and rating system to rate and prioritize the level of risk detected during risk
analysis.
Communicate and Consult—Effective communication, consultation, and risk man-
agement education are essential to accomplish a successful integration of risk
procedures within the organization.
Risk Treatment—It includes deciding on one or more alternatives for mitigating
risks, taking into account other resources available.

Fig. 9.1 Components of

risk management process
in construction EC

MR RA

Components
RT of RM RI
process

CC RN

RE
112 9 Risk Management Practices in Australia

Table 9.1 Interpretation of Code Meaning

the components of risk
EC Establishing the context
management (RM) process in
construction RA Risk assessment
RI Risk identification
RN Risk analysis
RE Risk evaluation
CC Communicate and consult
RT Risk treatment
MR Monitoring and review

Monitoring and Review—The efficacy and appropriateness of the Australian

Council risk management profiles, which include risk treatment plans, risk
assessments, and the detection of developing risks, must be monitored and
examined on a regular basis.
The probability and consequence levels are used to determine the level of inher-
ent risk. The control effectiveness rating is then determined by evaluating the miti-
gating procedures and controls associated with the inherent risks. The residual risk
rating and treatment plan are calculated using the combined inherent risk rating and
control effectiveness. The residual risk is the degree of risk that remains within the
council after considering all existing mitigating practices/controls. The residual risk
indicates the level of management attention that is required, as well as when treat-
ment plans are needed to ensure the management of such risk.
Summarily, the executive team of the Australian Council is saddled with the
responsibility of risk management and how risk controls are identified, implemented,
and monitored. The Executive team will advise the Executive Director of Corporate
Resources and the designated Risk Manager on issues of strategic and operational
relevance relating to risk identification and management.

Australian Risk Management Standard Framework

The risk management framework is a supporting structure that ensures risks are
effectively managed through the implementation of the risk management process at
various levels within the organization-specific context. According to the most recent
ISO 31000: 2018 by Sousa et al. (2012), risk management framework components
include the following:
• Leadership and commitment.
• Design.
• Implementation.
• Evaluation.
• Improvement.
Australian Risk Management Standard Framework 113

• Integration.
Leadership and Commitment The leadership and regulatory bodies of the organi-
zation should ensure that risk management is implemented at all levels and should
demonstrate leadership and commitment by the following:
• Ensuring that the risk management policy is defined and implemented.
• Ensuring that the organization’s culture is consistent with the risk management
policy being implemented.
• Making certain that the necessary resources are devoted to risk management.
• Ascribing responsibility and maintaining compliance at all levels.
Integration Understanding organizational structures and context is required for
integrating risk management. Structures fluctuate depending on the organization’s
purpose, aims, and complexity. Risk is managed throughout the structure of the
organization.

Design Certain procedures are involved in the process of designing the framework
for risk management.

1. Understanding the Organization and Its Environment: Before Developing or

Executing a Risk Management Framework, it Is Necessary to Understand the
External and Internal Contexts of the Organization
Understanding the organization’s external context entails understanding:
• Its social and cultural, political, financial, legal, regulatory, and economic
environments, whether international, national, regional, or local.
• The primary factors and trends that have substantial impacts on the objectives
of the organization.
• Relationships, views, attitudes, requirements, and expectations of external
stakeholders.
• Contractual connections and commitments.
• Network and dependency complexity.
While understanding the organizations, the internal context includes under-
standing its:
• Vision, mission, and values.
• Organizational structure with leadership at all levels and their attributed roles
and responsibilities.
• Strategy, objectives, and policies.
• Culture.
• Standards, guidelines, and models.
• Capabilities, as defined by resources and knowledge (e.g., capital, time, peo-
ple, intellectual property, processes, systems, and technologies).
• Data, information systems, and information flows.
• Relationships with internal stakeholders, taking their perspectives and values
into account.
114 9 Risk Management Practices in Australia

• Contractual obligations and responsibilities.

• Interconnections and interdependence.
2. Clearly Expressing Risk Management Commitment: Where applicable, top man-
agement and regulatory bodies should demonstrate and define their unwavering
commitment to risk management through policy, statement, or other forms that
clearly convey the objectives and commitment of the organization to risk
management.
3. Delegating Organizational Roles, Authority, Responsibilities, and Accountability:
Where applicable, the leadership and regulatory bodies of the organization
should ensure that authorities, responsibilities, and accountability for relevant
risk management roles are allocated and communicated at all levels of the
organization. Also, they should underline the importance of risk management as
a primary duty and also determine who is saddled with the responsibility and
authority to manage risk, also known as risk owners.
4. Allocating Resources: The regulatory bodies and the leadership of the organiza-
tion should oversee the deployment of adequate risk management resources,
which include the following:
• People, skills, expertise, and competence.
• The risk management processes, methods, and tools of the organization.
• Defined processes and procedures.
• Information and knowledge management systems.
• Requirements for professional development and training.
5. Establishing Communication and Consultation Mechanism Within the
Organization: To support the framework and effective implementation of the
risk management process, the organization should guarantee that there is a
regular mechanism for communication and consultation within the organization.
Communication entails the exchange of information by using all the means
available. Consultation entails formally providing comments to seek
recommendations for needed improvements. Communication and consultation
should be timely, with important information being collected, aggregated,
synthesized, and shared as needed, as well as feedback being provided and
improvements being addressed.
Implementation The designed risk management process must be implemented at
all relevant levels of the organization. This can be accomplished by the following:
• Developing an efficient approach that involves time and resources.
• Determining where, when, and how various sorts of decisions are made across
the organization.
• Modifying the applicable decision-making procedures as needed.
• Ensuring that risk management arrangements of the organization are well under-
stood and practiced.
Evaluation To evaluate the effectiveness of an already implemented risk manage-
ment framework, the leadership or regulatory bodies of the organization must mea-
Challenges of Risk Management 115

sure risk management framework performance against its objective, implementation

plans, indicators, and expected behavior on a regular basis. Also, they must deter-
mine whether the framework is still appropriate to help the organization achieve its
objectives.

Improvement To address external and internal changes, the organization must con-
stantly assess and adjust the risk management framework. There is also a need to
continuously improve the framework suitability and effectiveness and the way the
process is integrated.

Benefits of Risk Management

Effective risk management involves quantifying uncertainties that might develop

during project execution, identifying the source of the uncertainties, and determining
the potential consequences of such uncertainties. The implementation of risk
management early in a project clarifies project objectives and provides significant
cost savings.
Mills (2001) summarized some of the major benefits of systematic risk manage-
ment on a project as it:
• Examines the assumptions that have the most impact on the project’s success.
• Focuses on activities that will best control risks.
• Determines the cost–benefit of such activities.

Challenges of Risk Management

In most parts of the world, including Australia, the implementation of enterprise

risk management within an organization, which ensures that risks are managed
holistically, is strongly affected by a variety of factors. These factors are as follows:
1. Lack of Knowledge or Understanding of Risk Management: To be able to under-
stand, use, and interpret the risk management process, there is a need for staff
and managers to have some basic knowledge of statistics and other quantitative
methods of analysis. Therefore, managers need to undergo necessary training,
workshop, and education on risk management techniques to be aware of some of
the benefits this process can offer.
2. Risk Culture Resistance: According to Dornberger et al. (2014), organizations
must foster a risk culture in which risk and its management become
institutionalized. This makes employees to be aware of the organization goals,
engage in risk management, understand the significance of their actions, and
take responsibility for the risks that are peculiar to their area of expertise. This
116 9 Risk Management Practices in Australia

can be a stressful process that requires people in an organization to change their

usual way of doing things.
3. Lack of Support from the Top and Middle Managers: In a situation where the
executive managers do not see the need for the organization to have a defined
approach to risk management, this creates a challenge in the implementation of
this particular process. Also, this sort of attitude can be rubbed off on staff,
supervisors, and managers who are to ensure that the risk management process
is implemented. Therefore, to achieve effective implementation, there is need for
the top and middle managers to be in support of the risk management efforts
presented by the organization.
4. Nature of the Environment: To implement risk management, it is necessary to
first understand the nature of the environment and the world in which we live, as
it can be uncertain, complex, and volatile all at once. This is due to changes in
natural phenomena as well as changes in the political, economic, and social
environment.

Conclusion

Construction is a risky business; thus, a working risk management policy is essen-

tial both before and throughout the construction phases. The chapter analyzed
numerous articles of literature on the subject and assessed the history of risk man-
agement in Australia, and the government provided guidelines to enable effective
risk management implementation at all levels of the organization. The chapter
adopted the most recent risk management framework defined in ISO 31000: 2018 to
further assess the practice in the mentioned country.

References

Al-Bahar, J. F. (1988). Risk management in construction projects: A systematic analytical approach

for contractors. Ph.D. Dissertation, Department of Civil Engineering, University of California.
Atkinson, D. (2001). Risk management in construction projects. Retrieved from http://www.
atkinson-­law.com/cases/casesArticles/Articles/Risk_Management.htm
Dornberger, K., Oberlehner, S., & Zadrazil, N. (2014). Challenges in implementing enterprise risk
management. Journal of Finance and Risk Perspectives, 3(3), 1–14.
Flanagan, R., & Norman, G. (1993). Risk management and construction. Blackwell Scientific
Publications.
Loosemore, M., Raftery, J., Reilly, C., & Higgon, D. (2006). Risk management in projects (2nd
ed.). Taylor and Francis.
Lyons, T., & Skitmore, M. (2004). Project risk management in the queensland engineering con-
struction industry: A survey. International Journal of Project Management, 22(1), 51–61.
Marsh Australia. (2007). Construction. Retrieved from http://www.marsh.com.au/
Construction.htm
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Mills, A. (2001). A systematic approach to risk management in construction. Structural Survey,

19(5), 245–252.
Monetti, E., Rosa da Silva, S. A., & Rocha, R. M. (2006). The practice of project risk management
in government projects: A case study in Sao Paulo City. In Proceedings of CIB W107 construc-
tion in developing countries international symposium, 18–20 January, Santiago.
Public Governance Performance and Accountability (PGPA). (2013). Public governance perfor-
mance and accountability act 2013. Retrieved from https://www.legislation.gov.au
Risk Management Research and Development Program Collaboration. (2002). Risk management
maturity level development. Retrieved from https://www.pmiswitzerland.ch/fall05/riskmm.pdf
Sigmund, Z., & Radujkovic, M. (2014). Risk breakdown structure for construction projects on
existing buildings. Procedia – Social and Behavioral Sciences, 119(3), 894–901.
Sousa, V., Almeida, N. M., & Dias, L. A. (2012). Risk management framework for the construc-
tion industry according to the ISO 31000:2009 standard. Journal of Risk Analysis and Crisis
Response, 2(4), 261–275.
Tabish, S. Z., & Jha, K. N. (2011). Identification and evaluation of success factors for public con-
struction projects. Construction Management and Economics, 29(8), 809–823.
Toakley, A. R. (1998). Risk, uncertainty and subjectivity in the building procurement process – A
critical review. School of Building, University of New South Wales.
Ward, S. C., Chapman, C. B., & Curtis, B. (1991). On the allocation of risk in construction proj-
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Project Management, 13(4), 231–237.
Chapter 10
Risk Management Practices in Canada

Abstract Risk plays a significant part in getting a successful outcome in a con-

struction project. It is an element that must be appropriately considered during the
project planning process. Risk management, the study of risk, begins with the pro-
active identification of prospective risks and progresses to the continuing manage-
ment of those risks deemed appropriate. Hazards and risks are terms that are used
interchangeably; this chapter provided insight into events that might be classified as
hazards or risks, depending on the circumstances. Risk has gained traction in almost
every province in Canada, but there is still no defined strategic approach or frame-
work for successful risk management. The chapter further examined the various
approaches to effective risk management by providing a holistic risk management
framework that will enable a more citizen-centered approach to improving public
interest decision-making and a project outcome. Also, some of the benefits of risk
management implementation in Canada were explained, which were sourced from
the Treasury Board of Canada publications.

Keywords Construction risk · Project risk · Project success · Risk evaluation ·

Risk identification · Risk management

Introduction

Risk management has been identified as a core element for public administration
and project management by assisting in better decision-making, ensuring better
resource allocation, and ultimately producing a better result for the people or
organization. Risk is defined by the Society for Risk Analysis (2022) as the potential
for realizing undesirable, unfavorable effects on humans, health, property, or the
environment. To manage risks, organizations and groups of all types and sizes
coordinate activities that provide direction and control as far as risk is concerned.
According to the International Organization for Standardization (ISO) (2022), risk
assessment (RA) is a key element of risk management, which encompasses risk
identification, risk analysis, and risk evaluation. Risk assessment allows organizations

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 119
A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_10
120 10 Risk Management Practices in Canada

to gain an enhanced understanding of risk, its causes, consequences, and

probabilities. International Electro-Technical Commission (IEC) (2018) stated that
the acquired knowledge by the organizations is used to “offer evidence-based
information and analysis to make smart choices on how to handle specific risks and
how to pick among solutions.”

Canadian Construction Industry

The construction industry in Canada is a significant contributor to the country’s

economy, accounting for 6% of the country’s gross domestic product (GDP)
(Industry Canada, 2012). In 2013, the industry provided 1.2 million jobs to the
economy, accounting for 7.1% of the total labor force in the country (Human
Resources and Skills Development Canada, 2013). The construction industry’s
annual expenditure is expected to increase from $7.2 trillion in 2011 to $12 trillion
by 2020, accounting for 13.2% of global GDP (Betts et al., 2011). According to
Statistics Canada, between 2000 and 2010, the construction sector experienced a
42.7% increase in GDP, compared to a 20.2% increase for all sectors.
Canada’s immigration policy allows for openness and minimizes discrimination,
allowing any organization to strive and ultimately promote innovation, and this is
one of the factors that distinguish the construction industry. Despite the industry’s
massive growth in recent times, there is still a massive gap between the number of
jobs available and the available number of skilled laborers that need to be bridged
due to the ever-growing population, which drives demand for residential and
commercial building projects.

Risk Management in Canada

Risk management has been recognized as a critical management principle that has
often been articulated in terms of its role in “taming chance” through the assessment
and control of uncertainty. Traditionally, risk management in organizations has been
conducted in discrete sectors, such as technological, legal, commercial, and
environmental, with little coordination. Furthermore, major risk events need that the
structures, strategies, and processes for managing organizational risk be consistent
and both internal and external organizational systems be reviewed on a regular basis
(Grant & Venzin, 2009; McGee, 2005).
Risk Analysis and Assessment 121

Risk Analysis and Assessment

This is a methodical technique for determining the criticality of recognized risks in

a project. In Weaver (2008), where reference was made on the Project Management
Institute (PMI) framework, the risk management process includes risk planning,
risk identification, qualitative and quantitative assessment, risk response planning,
risk monitoring, controlling, and reviewing.
Effective risk management necessitates a risk analysis methodology that is
founded on a scientific framework and facilitated by quantitative and qualitative
approaches. Quantitative risk analysis approaches are based on numerical methods,
while qualitative risk analysis approaches prioritize identified risks based on the rate
of occurrence and impact on project goals. The quantitative and qualitative analyses
can both be conducted at the same time and are not mutually exclusive.
Some of the approaches used in qualitative risk analysis include Brainstorming,
Delphi, Final project reports—lessons learned, probability and impact matrix, AHP
(analytic hierarchy process) method, and root cause analysis of risk. The following
are the approaches to quantitative risk analysis that have been recommended, but
not limited to the following:
• Sensitivity analysis approach.
• Program Evaluation Review Technique (PERT).
• Probability analysis approach.
• Monte Carlo.
• Decision tree (The Treasury Orange Book, 2004).
There is a notion that to evaluate if a certain approach is appropriate for assessing
a given project risk, the benefits and limitations of using the approach in terms of
implementation under conditions specific to those projects must be determined.
Assessing the benefits and limitations of risk analysis approaches allows the project
team to easily choose a valid approach, eventually resulting in a better risk
management process on a project.
Though risk assessment (RA) emerged in its applications to engineering and
health (Paté-Cornell, 1996), it is now used across various fields, including public
safety and security. As a result, RA can have great implications for the safety and
security of affected populations, and it is critical to be educated in its usage and
application. There is no unique method or approach for RA since the project is
diverse per country and nature, but its diversified applications necessitate different
methods that are mostly appropriate for the scope of the assessment and the
availability of resources in relation to a targeted project planning and execution.
122 10 Risk Management Practices in Canada

Qualitative and Quantitative Risk Assessment

One of the most widely debated issues in risk assessment is the choice between
using qualitative and quantitative methods. The sections below give a brief
description of some of the benefits and limitations of these two approaches.

Qualitative Risk Assessment Methods

Qualitative risk assessment (QRA) methods assign verbal ratings such as “high,”
“medium,” or “low” to various dimensions of risk, such as probability and
consequence (Genik & Chouinard, 2012). They are frequently used because they
simplify risk assessments, reduce the required inputs and judgments, and can be
easily communicated to policymakers and stakeholders (Cox et al., 2005). However,
the simplicity of qualitative methods generates a variety of concerns with respect to
mathematical accuracy and precision. We have three rating methods in qualitative
research, they are as follows.
(a) Frequency and Probability Ratings
For frequency and probability ratings, Hartley (2018) explains that this qualita-
tive risk assessment method uses a few intervals to represent a wide and continuous
range of frequencies. This can be problematic, especially since it entails counting
risks that might occur without an accurate comparative risk evaluation. In this
method, the number of times a variable is responded to and the rate at which it can
be responded to describe the context of its rating.
(b) Consequence Ratings
The problems discussed above apply equally to consequence ratings as stated by
Hartley (2018). Cox (2008), in the study “What’s Wrong with Risk Matrices,”
explains that there is no standardized way to categorize the comparative severity of
events with highly uncertain consequences. Individuals have varying degrees of risk
aversion (avoidance of risk), and these attitudes can change the way that humans
order the consequence ratings of several events.
(c) Risk Matrices
Cox (2008) also explores the challenges and errors that can occur while using
risk matrices. A risk matrix is a commonly used tool for assessing and communicating
risk. It is a table that assigns categories for frequency on its rows and categories for
a consequence on its columns (or vice versa).
Using the formula risk = probability × consequence, risk matrices permit users
to determine various levels of risks for each row–column pair.
Qualitative and Quantitative Risk Assessment 123

In the risk matrix described above, consequence and probability have numerical
values ranging from 0 to 1 (inclusive). The quantitative risk for any pair (consequence,
probability) is their product, as defined by the formula as follows:

Risk  Consequence  Probability

In general, the risk matrix correctly classifies the two risks if one risk is in the
“high” risk cell and the other is in the “low” risk cell. This is because every high cell
risk is qualitatively and quantitatively greater than any risk that falls in the “low”
risk cell. However, suppose that probability and consequence values are negatively
correlated (i.e., as the consequence value increases, the probability value decreases)
and that the risk pairs are clustered along the line probability = 0.75 – consequence,
then for all of the risks that fall along this line, the risk classifications provided by
the risk matrix do not accurately represent the true quantitative risks. Along this
line, the risks that fall in the “medium” risk cells have smaller quantitative risks than
the risks that fall in the “low” risk cells.

Quantitative Risk Assessment Methods

To overcome the limitations that emerge in qualitative risk assessment, suggestions

have been made over time in using quantitative methods. In Kaplan and Garrick
(1981), quantitative risk assessment was conducted by answering the following
three questions:
1. What can happen?
2. What are the consequences?
3. What is the likelihood?
The first question is answered by identifying a set of initiating events or distur-
bances. Next, the consequences can be estimated using logic diagrams such as event
and fault trees to generate event sequences (scenarios). Lastly, the likelihood of
these scenarios is evaluated using all available evidence (primarily historical data)
and expert judgment and assigned numerical rankings according to the expected
frequency of occurrence (Apostolakis, 2004). The use of quantitative risk assess-
ment is widespread because it employs logical and transparent mathematics and
provides precise numerical values for risk (Cox et al., 2005). In addition, quantita-
tive risk assessment also can analyze a wide range of possibilities and quantify
uncertainty (Apostolakis, 2004). However, the reliability and accuracy of quantita-
tive risk assessment can be challenged due to the numerous limitations and errors in
the method. Different rating in quantitative methods is listed as follows.
(a) Likelihood Ratings
Likelihood ratings can be a source of human error and uncertainty. In quantita-
tive risk assessment, likelihood is determined by using precise quantitative interval
124 10 Risk Management Practices in Canada

scales, such as very likely: >90%; likely: >66%; about as likely as not: 33–66%;
unlikely: <33%; and very unlikely: <10%. However, such interval scales are often
misinterpreted and erroneously applied in practice (Budescu et al., 2009).
(b) Consequence Ratings
The consequences of risk events are rated by using a variety of “impact factors,”
such as fatalities, economic damage, and environmental impact. However, estimating
the impacts of potential scenarios creates several challenges because some impact
factors are very difficult to quantify and measure. For example, how does one
quantify the damage to national reputation or environmental degradation? In
addition, impact estimates must be aggregated into a common metric to determine
an overall risk rating for each scenario. However, the “impact factors” are very
diverse and thus use different measurement units (such as the number of fatalities or
the monetary loss in a particular currency). Consequently, the conversion of impact
estimates into a common metric requires the use of subjective judgments. For
example, risk assessors are often faced with the question, “what is the monetary
value of a life”? (Hartley, 2018).
(c) Scoring Methods and Ordinal Scales
The consequence and likelihood ratings discussed above are frequently con-
ducted using scoring methods with ordinal scales. However, Hubbard and Evans
(2010) examined some of the limitations of this approach. On an ordinal scale,
items are assigned numbers so that the order of the numbers represents the position
or order of these items in relation to another. For example, on an ordinal likelihood
scale of 0 to 5 (0 indicates no likelihood and 5 indicates very high likelihood), an
item with a likelihood rating of 4 has a greater likelihood than an item with a rating
of 2. Risk factors are rated using ordinal scales, which are then aggregated using
additive weighting or multiplication so as to provide a measure of the overall risk.
Generally, the additive method is used to assess the overall risks of a project,
policy, or investment. Using the additive method, each of these risk factors would be
weighted according to their importance and then added to arrive at an overall risk
score. In contrast, the multiplicative method is used to assess the risk of individual
events. It is common to use scores for likelihood and consequence and multiply
these values to give a final risk rating. This multiplicative method is in line with the
generally accepted concept of risk: risk = likelihood x consequence. After providing
an overview of the existing research on this method, the authors claimed that
“scoring methods are not useful tools for risk assessment” (Hubbard & Evans, 2010).
Given the problems and limitations discussed above, Hubbard and Evans (2010)
suggested that risk assessment should fulfill the three basic criteria:
• Risk assessment should use quantitative expressions of probability and the mag-
nitude of losses. For example, instead of stating that the likelihood or impact is
“medium” or “high,” one should state, “10% chance of a loss of inventory is
worth $2 million.”
Overview of Hazard and Risk 125

• Risk assessment should explicitly model the relationships and correlations

between different system components. Instead of adding or multiplying risk
factors, risk should be represented using descriptive functions.
• Risk assessment should apply methods to correct the biases in human judgment
and decision-making.

Overview of Hazard and Risk

Risk and hazard are two words that are frequently used interchangeably. These two
terms are of different meaning and do not really explains the same scenario. Wilson
and McCutcheon (2003) in their work functionally described risk and hazard as
follows.
Hazard This is a potential cause of danger or harm to person(s), environment,
assets, or production during the usage of a machine, equipment, operation, material,
or any other physical element being used in the working environment.

Risk This simply refers to the possible harm, loss, or environmental damage caused
by a hazard. The likelihood of an unexpected incident and the severity of the
resulting consequences define the relevance of risk. There are a few things worth
mentioning about these definitions:
• Risk occurs as a result of hazards. Successful risk management requires thor-
ough hazard identification; in other words, it is impossible to effectively manage
risk posed by hazard without first identifying the source of the hazard.
• There are four groupings of areas that might be affected by harm or damage:
people, environment, capital (such as equipment, property, etc.), and production
process. The identification of these distinct groups leads to a more comprehensive
risk management strategy that considers all possible losses. A wide range of
engineering practices and possible hazards are included in comprehensive risk
management.
• Likelihood and severity are the two dimensions to risk. Instead of likelihood, the
term probability or frequency is sometimes used. Although the meanings of these
terms differ slightly, particularly between frequency and probability, the
difference is, however, not significant.
Risk management is described as the act of assessing exposure to loss and taking
necessary measures to eliminate the risk or minimize it to a tolerable level. In other
words, risk management refers to the whole process of identifying risk, assessing
risk, and making choices to guarantee that proper risk controls are in place and
being used.
Risk management starts with the proactive identification of potential risks, which
lead to ongoing management of risks considered appropriate. This is the cycle of
risk analysis, which contributes to risk assessment, which in turn contributes to risk
126 10 Risk Management Practices in Canada

management (Bird & Germain, 1996). Engineers basically analyze risk (in terms of
likelihood and severity) in order to assess risk (in terms of acceptability) so that they
can eventually control the risk. As previously explained, beginning this cycle
without first accurately identifying the threats that must be addressed is simply not
realistic.

Types and Sources of Risk Involved in Construction

There are different types/sources of risk involved in the construction industry. They
are listed as follows and summarized in Fig. 10.1.
A. Technical Risk: These risks include the following:
• Lack of thorough site investigation.
• Incomplete design.
• Incorrect specification details.
• Uncertainty about material availability.
B. Logistical Risk: Examples of these are as follows:
• Lack of transportation facility.
• Lack of maintenance personnel.
• Lack of equipment availability.
• Lack of operator availability.

Environmental

Management Financial

Logiscal Socio-polical

Technical
Types/sources Common
of Risk source

Fig. 10.1 Types/sources of risks involved in construction

Steps in Risk Management Process 127

C. Management-Related Risk: These include the following:

• Unstable management.
• Uncertain productivity.
• Problematic industrial relation.
D. Environment Risk: These include the following:
• Fluctuations in foreign exchange.
• Payment delay.
• Inflation.
• Local taxes.
E. Financial Risk: These include the following:
• Customs and import restriction.
• Constraints on availability of expatriate staff.
• Insistence on the use of local firms and agents.
• Constraints on employment of expatriate staff.
F. Socio-Political Risk: These include the following:
• Natural disaster.
• Weather implication.
• Design error and omission.
G. Common Source Risk: These include the following:
• Change in project requirement.
• Inadequate in responsibilities and staff.
• Inefficiency of skilled staff.
• Unfamiliarity with local conditions.
• Unavoidable accident.
• Inadequate in contractor experience.

Steps in Risk Management Process

Berg (2010) identifies the following as steps involved in the risk management
process:
1. The first step is to define the risk environment, goal, and context.
2. The second step is to identify the risk (risk identification).
3. The third step is to assess the risk (risk assessment). Here, the possible impact
and magnitude of the risk are quantified. Also, the profitability and the cost
implications are evaluated, and finally, the risks are prioritized and ranked
accordingly.
4. The fourth step is to respond to the already assessed risk (risk response). This
step checks if the risk is acceptable or not. If it is acceptable, the risk is accepted,
128 10 Risk Management Practices in Canada

and if it is not acceptable, there would be a further enquiry as to whether the risk
can be mitigated or not. If the risk can be mitigated, then there would be an
action to reduce the risk. If it cannot be mitigated, it should be avoided,
transferred, or shared among the parties involved.
5. The fifth step is to control all measures put in place to mitigate risk (control
activities). These activities include policies or actions taken by the management
to ensure the mitigation of already assessed risks, which can be preventive or
corrective.
6. The sixth step is to get all stakeholders on the project adequately informed
(information and communication). This is a very important tool for passing
across information and understanding the risk management process.
7. The last step is to ensure that the desired outcomes of the risk response are car-
ried out (risk monitoring).

Framework for Risk Management in Canada

One of the first risk management research papers published by the public sector in
Canada was titled “Best Practices in Risk Management: Private and Public Sectors
Internationally” on April 27, 1999. This research was conducted by Klynveld Peat
Marwick Goerdeler (KPMG) for the Treasury Board of Canada Secretariat.
Nonetheless, the Integrated Risk Management Framework (IRMF) appears to be the
most significant of all publications by the Treasury Board of Canada Secretariat. It
was written by Robillard Hill in the year 2001. The publication aimed to improve
risk management practices in the public sector. The author contends that an IRMF
may help achieve this by supporting the public sector’s four management
commitments: emphasis on citizens, values, performance, and financial prudence.
Creating a holistic risk management framework allows for more participation by
the citizens and the construction professionals in order to arrive at a more desirable
decision-making. Furthermore, it promotes essential public service principles such
as honesty, integrity, and credibility at all levels, resulting in improved outcomes by
proactively managing risk. Robillard (2001) argues that holistic risk management
promotes a whole-of-government approach (WGA) based on logical prioritization
and financial prudence principles.
In addition, Stephen Hill’s work “A Primer on Risk Management in the Public
Service,” published from the University of Calgary in 2001, is a notable and
extensively used work in Canada. Hill’s work is a brief introductory piece that is not
intended to be a thorough study or treatment of risk management, but rather to
provide the most fundamental concept of good risk management and challenges that
might be faced in implementing risk management in the decision-making process of
the public sector. System like this includes the following:
1. Identification of risks and opportunities:
• Sources of risk.
• Sources of opportunity.
Challenges of Risk Management Practices in Canada 129

2. Effective management of risks and opportunities:

• Assessing and altering risk tolerance.
• Assessing risks and opportunities.
• Managing risk.
• Managing opportunity.
• Monitoring and using a management control system to examine the strategy,
costs and benefits, structure, processes, and risk tolerance.
3. Effective risk and opportunity assessment using return on investment (ROI) in
conjunction with real options analysis and/or scenario analysis.

Challenges of Risk Management Practices in Canada

Risk is an essential component of any strategic planning process, as expatiated

throughout the course of this chapter. Despite the fact that risk management systems
have been established at the national level in Canada, as well as in specific provinces
such as British Columbia, there is no clear strategic approach (except the framework
put together here) to risk management in the public sector. Finally, as obvious in the
global trend, the ability of municipal and provincial governments to create a workable
system for risk management is critical in managing the services provided to the people.
Risks that occur within the public sector are significantly greater than risks in the
private sector. These risks can come either in the form of financial or capital projects.
The Treasury’s Orange Book (2020) on risk management provides the local/munici-
pal government in the United Kingdom with a policy guide on managing risk. It
recommended that public agencies should consider these three major forms of risk:
1. External risks.
2. Operational risk.
3. Risk related to organizational change.
External Risk comprises political risk, economic risk, socio-cultural risk, legal/
regulatory risk, and environmental risk.

Operational Risk is a risk related to the delivery of goods and services. This sort of
risk causes losses due to ineffective internal organizational processes and risk
management skills.

Risk Related to Organizational Change refers to all practices and acts that exceed
present organizational capabilities (The Treasury Orange Book, 2004). These risks are
summarized in Fig. 10.2 to facilitate easy comprehension. While the United Kingdom
has developed a clear approach to risk management, the same cannot be said for
Canada at all tiers of government. Hence, the public sector in Canada needs to develop
a risk management approach to address all of the aforementioned forms of risk.
130 10 Risk Management Practices in Canada

Benefits of Risk Management in Canada

Numerous benefits to risk management implementation were cited in a 1999 KPMG

research report published for the Treasury Board of Canada, some of which are as
follows:
1. Organizational objectives are met.
2. Improved focus on key business objectives. It also helps managers to direct their
resources toward the most important objectives. Problems are not addressed with
re-directed resources. As a result, shareholders and ministers have more
confidence in the organization. An effective risk strategy is to take action to
prevent and limit loss rather than to clean up after the fact.
3. A shift in culture that encourages open dialog about risks and potentially harm-
ful information. Mistakes are tolerated in the new culture, but errors are not
concealed. In addition, the culture places considerable emphasis on learning
from mistakes.
4. Better operational and financial management by ensuring that risks are ade-
quately evaluated while making decisions. Improvement in operational manage-
ment will bring about effectiveness and efficiency in service delivery. Managers
will have more time to respond and take action if they anticipate problems. On
the other hand, the organization will be able to meet its service commitments.
5. Enhancing the planning process and providing a tool to assist management in
identifying opportunities.
6. In the short run, it increases management accountability. Also, it increased over-
all management capabilities in the long run.
7. Increase in value (comment from the private sector) (KPMG, 1999).

• Political
• Economical
External • Socio-cultural
• Legal/regulatory
• Environmental

• Goods delivery
Operational
• Services delivery

• Practices beyond
Organizati
onal organisation
practices

Fig. 10.2 Problems with risk management practices in the construction

References 131

Conclusion

Risk assessment is a critical component of risk management, which includes risk

identification, analysis, and evaluation. The qualitative risk assessment methodology
simplifies risk assessment by utilizing three rating methods: frequency and
probability ratings, consequence ratings, and risk matrices. The quantitative risk
assessment methodology assures precise numerical values for risk by utilizing
likelihood ratings, consequence ratings, scoring methods, and ordinal scales. Even
though the country’s Treasury Board (through the government) has developed a
framework toward risk management practice, the development of a functional and
applicable framework for the public sector will help the country’s quest to fully
implement risk management practice into the country’s construction.

References

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515–520. https://doi.org/10.1111/j.0272-­4332.2004.00455.x
Berg, H. P. (2010). Risk management: Procedures, methods and experiences. Retrieved from
https://www.scirp.org
Betts, M., Robinson, G., Blaik, N., Burton, C., & Godden, D. (2011). Global construction 2020:
A global forecast for the construction industry over the next decade. Global Construction
Perspectives and Oxford Economics.
Bird, F. E., & Germain, G. L. (1996). Practical loss control leadership. Retrieved from https://
www.googgle.com/practical-­loss-­control-­leadership
Budescu, D. V., Broomell, S., & Por, H. H. (2009). Improving communication of uncertainty in
the reports of the intergovernmental panel on climate change. Psychological Science, 20(3),
299–308. https://doi.org/10.1111/j.1467-­9280.2009.02284.x
Cox, L. A. (2008). What’s wrong with Risk Matrices? Risk Analysis, 28(2), 497–512. https://doi.
org/10.1111/j.1539-­6924.2008.01030.x
Cox, L. A., Babayev, D., & Huber, W. (2005). Some limitations of qualitative risk rating systems.
An International Journal on Risk Analysis, 25(3), 651–622.
Genik, L., & Chouinard, P. (2012). DRDC support to Emergency Management British Columbia’s
(EMBC) Hazard Risk Vulnerability Analysis (HRVA) and Critical Infrastructure (CI) pro-
grams: Problem formulation and solution strategy, Defense Research and Development
Canada DRDC Technical Memorandum DRDC CSS TM 2012–01, October 2012, Canada.
Grant, R. M., & Venzin, M. (2009). Strategic and organisational challenges of internationalisation
in financial services. Long Range Planning, 42(5–6), 561–587.
Hartley, M. (2018). The use of qualitative risk analysis methods to facilitate decision making
in the management of health and welfare in wildlife. Retrieved from https://www.chesterrep.
openrepository.com
Hill, S. (2001). A primer on risk management in the public service. University of Calgary.
Hubbard, D., & Evans, D. (2010). Problems with scoring methods and ordinal scales in risk assess-
ment. Journal of Research and Development, 54(3), 1–10.
Human Resources and Skills Development Canada. (2013). Human resources and skills develop-
ment Canada: Reports on plans and priorities. Retrieved from https://www.canada.ca
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International Electro-Technical Commission (IEC). (2018). Risk assessment standards. Retrieved

from https://www.webstore.iec.ch
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www.iso.org
Kaplan, S., & Garrick, B. J. (1981). On the quantitative definition of risk. Risk Analysis, 1(1), 11–27.
Klynveld Peat Marwick Goerdeler (KPMG). (1999). Best practices in risk management: Private
and public sectors internationally: KPMG study prepared for treasury board of Canada secre-
tariat. Retrieved from https://www.researchgate.net
McGee, M. W. (2005). Measuring the payoff of strategic risk management. Retrieved from
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Chapter 11
Risk Management Practices in Sweden

Abstract Infrastructural development in any country would certainly enhance the

economic growth of such a country and generate job opportunities. Through
different practices and concepts, the construction industry in Sweden has improved
tremendously over the years. Several attempts have been made in Sweden to address
the issue of risk management using various methodologies. This chapter assessed
the Work Environment Act (AML) and other construction bodies or regulations that
are part of Swedish law that ensures adequate risk management in construction
contracts with the aim of bridging knowledge gap. Other sections of the chapter
discussed the history of risk management in the country, factors that affect effective
implement of the practice, and other related topics. The chapter concluded that more
still needs to be done in order to move the country’s construction toward that which
is risk-free through identified risk management frameworks used in several other
developed countries of the world.

Keywords Construction risk · Project delivery · Project risk · Risk framework ·

Risk management · Risk valuation

Introduction

A risk can be defined as the probability or proclivity of an event or problem occur-

ring in relation to the success of a project, achieving the project’s desired outcome,
or an uncertain future occurrence with a probability greater than 0% but less than
100% that would have an effect on the project’s objectives (cost, quality, and time)
(Mark et al., 2004). Additionally, the impact of this future occurrence must be
unpredictable or unforeseen; it has been postulated that risks can be mitigated to
upturn their resulting effect on project success even if their occurrence is unavoid-
able during the life of a project (Chia, 2006). There are various sources of risk.
These include intrinsic uncertainties, institutional inadequacies, and company-
related issues such as technological implementation, economic policy, weather and

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 133
A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_11
134 11 Risk Management Practices in Sweden

climatic condition, inflation, market competition, and bidding process (Karimi

et al., 2011).
Project risk management has been practiced since the mid-1980s, and it is cur-
rently considered one of the nine core specialist areas of the project management
institute’s body of knowledge (Tuysuz, 2006). Risk can be mitigated by observing,
monitoring, managing, analyzing, and applying managerial skills and resources
through synchronized socioeconomic and political stimulation to minimize the
eventual of the unforeseen event occurring (Douglas, 2009). Effective and efficient
practice of risk management would lead to enormous benefits with respect to the
success of a project; such benefits include identification of the favorable alternative
course of action, adequate site investigation, proper project planning and budgeting,
adequate price forecast, proper feasibility study, improved technological
implementation, and proper and adequate estimates (Bannerman, 2008).
The ability to achieve a sustainable construction project is expanding, and higher
standards are expected, which has led to the development of technology, improved
material, and advanced technique application. It is common knowledge that every
new technology has its constraints and risks; the desire to achieve expected results
through utilizing these modern technological techniques and materials has made the
importance of project risk management increase and its awareness more profound.
Infrastructural development in any country would certainly enhance the economic
growth of such a country and generate job avenues. The cost of undertaking such a
project is enormous. It delivers on time, and to standard, project risk management
practices must be involved so as to prevent huge monetary losses (Bannerman, 2008).
Risk is critical to completing a project within the stipulated time period and cost
budget. The construction industry is frequently regarded as a high-risk venture
owing to its complex and strategic nature. This venture involves a large number of
stakeholders and internal and external influences, all of which pose a significant
risk. Unfortunately, when compared to other sectors, the construction industry has a
bad reputation for risk analysis and management (Laryea & Hughes, 2008). No
construction project, however, is risk-free, yet these risks can be controlled,
mitigated, shared, transferred, or accepted (Latham, 1994).
About Project Management Institute (PMI) (2008), the risk is a multi-facet con-
cept; the processes involved in identifying, analyzing, and responding to project risk
are referred to as project risk management. In the construction industry, it refers to
the probability of a given occurrence or series of events occurring throughout the
course of construction. Construction involves a vast number of factors, and
establishing cause and effect, dependence, and correlations is frequently difficult.

Risk Management in the Swedish Construction Sector

In the past, the Swedish construction industry was known to struggle with chal-
lenges such as the increase in construction costs, delays in the delivery of projects,
and poor-quality standards. To address these concerns, the federal government
Risk Management in the Swedish Construction Sector 135

formed a commission, which issued the “Skärpning Gubbar” Report 2002 in Simu
(2007). According to the commission’s reports, despite continued quality manage-
ment and internal quality surveillance operations, significant gains were not being
made. Risk management basically involves the ability to think ahead and plan for
unforeseen events and scenario that would affect a project success, which is embed-
ded in the duties of a quality manager of any organization. The Swedish system has
been designed to prioritize medium- and large-scale initiatives, with little or no
attention paid to smaller projects. However, small projects are an integral part of the
industry, constituting about 83% of the total number of projects undertaken in a fis-
cal year.
The Swedish construction industry has been impeded by poor performance and
sub-standard project quality. With respect to these numerous faults, the Swedish
government established the Building Commission to identify issues and propose
solutions to improve project delivery effectiveness and reduce delays and cost
overruns. The commission-found major faults related to a construction project are a
result of inadequate risk management, which leads to increased project delivery
costs, delay, and poor quality of work. The Commission discovered that quality
management systems in accordance with ISO standard 9000 were insufficient to
address the sector’s fundamental shortcomings (Simu, 2007).
Risks are uncertainties that occur in various ways and are linked to practically all
aspects and stages of a construction project. The objectives of every project are
linked to its overall cost, the quality standard of that project, its functional rating,
and satisfaction derived by clients (Hillson, 2004). Organizations have different
understandings and definition of risk management, which results in various
techniques applied in the management of risks. The majority of managers in the
Swedish construction industry focus on-site management (Hillson, 2004), which is
also known as probable alternative to project risk management and safety risk
management. They tend to use techniques connected to various management
systems at later phases.
Risk management is a component of the management system with several simi-
larities to quality management, environment, or work environment management
system. The core values shared among these branches of management include
managerial commitment, employee commitment, quality of work done, continuous
improvement, and adequate decision-making ability. Risk management is an
important aspect of project management, and with the current concentration given
to risk management, it should be regarded as an improvement on the quality
management system used by most companies. The majority of the projects in the
Swedish construction sector are under 15 MSEK (approximately €1.65 million). In
Hultén (2004), 83% of all projects ranged from 1 to 15 MSEK in the year 2003. The
comparable figure was 68% at NCC (data from NCC’s Internal Economical Control
System from 2003). The distribution of projects in each sector, sorted by monetary
value, indicates that the bulk of construction projects completed in Sweden are on a
small scale. In the Swedish construction sector, projects worth up to 50 MSEK
account for half of the industry’s turnover; this is not to say that projects in the span
of 1–15 MSEK are not important, but they are still countable. Most of the large
136 11 Risk Management Practices in Sweden

projects undergone in Sweden employ the use of risk management technique, which
is because organizations that engage in this construction have the money and time
to retain the services of risk management professionals so as to achieve the desired
objective of the project (Hellström, 2006). Large-scale projects undergo proper
planning, and the professionals involved have meaningful input at the initial stage
to highlight the most favorable risk, analyze its outcome, and further proffer
meaningful solutions.
The small-scale projects, on the other hand, have limited budgets and time con-
straints, which most likely interfere with proper planning even before execution.
This eventually leads to potential risks not being identified at an early phase of the
project, which finally results in increase in cost and an extended completion period.
The Swedish construction industry has a standard agreement for the contract. It
consists of different agreements subject to the form of a contract. Describing the
contract, AB04 is used for general contracts, while ABT94 is utilized for build and
design contracts (Berg, 2010). When preparing these general agreements, the
Construction Contracts Committee (Byggandets Kontraktskommitté, BKK) is in
the duty of representing numerous parties in the Swedish construction industry. In a
general contract, responsibilities are regulated between the various actors to the
project (contractor and client), and parties charged with the function of preparing
designs and undertaking the construction work are stated clearly with the ultimate
aim of achieving the best results.
Under this general contract, the contractor is fully accountable for the construc-
tion work under the general contract, and it is the client’s responsibility to make any
adjustments or modifications to the design. This enables the contractor to focus on
the major task at hand and plan toward all unforeseen event and their likely
outcomes. The contractors are often compensated for delays in work due to design
modifications. Clients, on the other hand, are aware of these laws; therefore, any
anomalies with respect to the contractual agreement tendered by the contractors are
seen as a means to request unnecessary claims and attract extra cost. Since small-­
scale projects are most likely subjected to design modification, the need to plan for
inherent uncertainties should be proper and adequate. Parties to this agreement are
strongly advised not to deviate from these agreements.
Today, insurance does not cover contracts that depart from AB’s general agree-
ments (Hellström, 2006). As a result, it is critical that the people who sign the con-
tracts understand everything. In Hellstrom (2006), risk insurance in the Swedish
Construction industry for large projects is between 100,000 and 200,000 SEK
(10,000–20,000€), which is a tiny portion of the entire project cost. For small-scale
projects, the risk insurance is between 25,000 and 100,000 SEK (2500–10,000€),
which is a larger proportion of the total contract sum. This makes it difficult for
small-scale projects to prepare extensively against the risk associated with the
construction work due to financial constraints, among other reasons.
The risks associated with the workplace are strictly governed by laws and regula-
tions. The Work Environment Act (AML), passed by the Riksdag (Sweden’s parlia-
ment), governs the Swedish Work Environment Authority (Government Offices of
Sweden, 2015). The Work Environment Authority then issues detailed regulations
Factors that Affect Effective Risk Management in Sweden 137

on the subject via provisions and general recommendations. It is stated clearly

within the regulation the description for what activities is to be undertaken and who
is to undertake such activities. It is customary for the client to delegate the work to
be done on-site to the contractor, who in turn makes necessary provisions to militate
against various risk factors. The main contractor then drafts the AML-­required
paperwork, such as risk studies for workplace risks and a work environment man-
agement plan.

Factors that Affect Effective Risk Management in Sweden

Osipova and Atkin (2008) conducted a study on nine construction projects in

Sweden, which include road, residential, and other facilities. Risk management was
implemented in each of these projects, but it was not done systematically, thus
resulting in cost overruns in some of them. The findings of this study explained
some important factors influencing effective risk management in Sweden. They
include the following.

Understanding of Risk Management

There is a need for project participants to understand risk management. According

to the quoted study above, most project participants have a basic understanding of
risk management as a result of their experience in the construction industry. Some
organizations also train their employees on risk management; the only challenge is
implementing it consistently. The researchers went further to identify some of the
risk management tools that project actors are familiar with, such as checklists, and
to brainstorm for risk identification, probability-consequence for risk assessment,
and risk transfers for risk response.

Participation at Different Levels of the Project

The construction process is systematic, with multiple parties involved in various

stages of the project, each focusing on their specific aspect of the task rather than the
overall project. As a result, identified threats are communicated less effectively, and
knowledge is lost between stages.
In the identified study, there is little participation during the planning stage, and
contractors are not even participating at this stage of the project. Furthermore, it was
recommended that the presence of a contractor at this stage is critical in helping the
parties concerned to select the best technical approach, understand the cost, and
anticipate future challenges.
138 11 Risk Management Practices in Sweden

Risk Identification, Assessment, and Response

Systematic investigation of probable and possible risks in the project is crucial for
successful risk management. The term “systematic” refers to risk identification,
assessment, and response at every level of the project, and the results of the processes
are communicated to project stakeholders.
• Risk Identification
This is considered to be the first step in militating against risk. This step involves
the use of techniques and tools to brainstorm and break down the inherent risk
(Maytorena et al., 2005). In the quest to identify risks associated with a certain
project, it is necessary to first identify the different sources of these risks and their
impacts on the project. This would enable one to set priorities right and proffer
suitable solutions (Flanagan & Norman, 1993).
• Risk Assessment
This process entails the application of tools to determine the probability of an
unforeseen event occurring and its predicted impact, allowing risk management to
categorize such events into a spectrum of most likely to least likely (Grey, 1995).
• Risk Response
Risk response is the process where steps are taken to mitigate the effects of risks
assessed. The four levels that are usually used to grade responses are risk retention,
risk reduction, risk transfer, and risk avoidance (Flanagan & Norman, 1993).

Risk Transfer and Communication of Risks

Risks are typically shared among project participants. Some risks are intrinsically
assigned to the client, such as market and environmental risks; the client transfers
some risks to the contractor because they feel they have the necessary technical
competence to manage the risk.
Risks are either positively or negatively transferred. The positive approach entails
carrying out risk identification and ensuring that the party responsible for risk
management is fully aware of the risk prior to the start of the project. The negative
approach involves the client omitting some information prior to the start of the
project and the risk later appearing during the construction phase that must be
addressed.
The findings of Osipova and Atkin (2008) further provided two viewpoints on
the negative risk transfer approach. The first contended that some clients might
choose not to disclose all known risks during the procurement stage in order to
Conclusion 139

reduce the value of the bid and simply assume that the risk can be managed by the
contractor. The second contended that both the client and the contractor are unaware
of the potential risk and must reach an agreement on how to address it. Therefore,
accurate and complete risk identification is required during the planning stage, and
risks are communicated at a detailed level to limit the chances of their occurrence
throughout the course of construction, as well as their impact.

Joint Risk Management

Joint risk management is a technique that emphasizes the need for project partici-
pants to work together to manage risks. This is essential to prevent the contractor
from being forced to manage the risk in a project, which is frequently the case in
most projects.
The following are some critical factors that must be considered to accomplish
effective collaborative risk management:
1. The participation of all project stakeholders in risk discussions.
2. The effectiveness and openness of communication and information exchange.
3. The ability of project participants to highlight issues as they arise, to ask probing
questions, and to work without concern for prestige.
4. The commitment, motivation, and integrity of each participant involved.
5. The trustworthiness.
6. The mutual respect for each other’s positions and competency.
7. The equitable allocation of opportunities.

Conclusion

This chapter showed that most capital projects executed in Sweden use risk man-
agement techniques, which is because organizations involved in this construction
have the money and time to retain the services of risk management professionals.
Capital project undergoes proper planning hence reducing risk owing to the
involvement of different construction professionals in executing project planning
to execution. On the other hand, small-scale projects have limited budgets and
time constraints, which most likely would interfere with proper planning, eventu-
ally leading to potential risks not being identified at an early phase of the project.
This affects the outcome of the construction but can be managed by following
strict conditions (rules and regulations) associated with the Swedish construction
industry.
140 11 Risk Management Practices in Sweden

References

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of Systems and Software, 81(12), 2118–2133.
Berg, H. P. (2010). Risk management: Procedures, methods and experiences. Retrieved from
https://www.scirp.org
Chia, E. S. (2006). Risk assessment framework for project management. Retrieved from https://
www.ieeexplore.ieee.org
Douglas, H. (2009). The failure of risk management: Why it’s broken and how to fix it. Wiley.
Flanagan, R., & Norman, G. (1993). Risk management and construction. Blackwell Scientific
Publications.
Government Office of Sweden. (2015). The Swedish work environment authority activities 2015.
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Grey, S. (1995). Risk assessment for project management. Wiley.
Hellström, M. (2006). Risk manager. NCC Group. Retrieved from https://www.google.com
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CRC Press.
Hultén, V. (2004). Statistics from Sveriges Byggindustrier. Stockholm.
Karimi, A., Mousavi, N., Mousavi, S. F., & Hosseini, S. (2011). Risk assessment model selection
in construction industry. Expert Systems with Application, 38(8), 9105–9111.
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contractual arrangements in the United Kingdom construction industry. Crown Publication.
Laryea, S., & Hughes, W. (2008). How contractors price risk in bids: Theory and practice.
Construction Management and Economics, 26(9), 911–924.
Mark, W., Cohen, P. E., & Glen, R. P. (2004). Project risk identification and management. Retrieved
from https://www.proquest.com/openview
Maytorena, E., Winch, G. M., & Kiely, T. (2005). Construction risk identification. In Proceedings
of the 11th joint CIB international symposium- combining forces advancing facilities manage-
ment and construction through innovation, 13–16 June, Helsinki.
Osipova, E., & Atkin, B. (2008). Risk management in construction projects: A comparative study
of the different procurement options in Sweden. Building Resilience.
Project Management Institute (PMI). (2008). A guide to the Project Management Body of
Knowledge (PMBOK guide). Project Management Institute Incorporation.
Simu, K. (2007). Risk management on small projects. Retrieved from https://www.diva-­portal.org
Tuysuz, K. (2006). Project risk evaluation using a fuzzy analytic hierarchy process: An applica-
tion to information technology projects. International Journal of Intelligent Systems, 21(16),
559–584.
Chapter 12
Risk Management Practices in the United
States of America

Abstract The study of risk management (RM) began in the aftermath of World
War II. It began with market insurance and then moved to other industries, such as
finance, stock exchange, and construction projects, before finally becoming
widespread. In its most basic form, risk management seeks to safeguard individuals
and businesses against financial losses that may result from accidents. The US
construction industry is one of the major pioneers of risk management concepts
developed over the years. This concept has been reviewed over time in order to meet
the present demand for sustainable buildings. Through different sections, by
identifying the sources of risk, the purpose of risk management, and other related
practices, the study gave an exclusive overview of risk management practices to
achieve enhanced project delivery.

Keywords Project risk · Project success · Risk identification · Risk management ·

Risk properties · Sustainable building

Introduction

Risk is common in every industry. Even in different formats across several phases,
its effects are felt either positively or negatively along the line. To find a solution to
this, risk management was introduced to enlighten, direct, and discuss risk properties
across business operations, industries, supply chains, products and services, etc.
The beginning of modern-day risk management can be traced back to 1955–1964,
according to scholars such as Crockford, 1982; Williams & Heins, 1995.
In the early days, according to Snider (1956), there was no literature on risk
management, and no tertiary institutions (universities) offered courses in risk
management at the time of observation. Regarding this, the first book was believed
to have been published by Mehr and Hedges in 1963, and Williams and Hems
released the second in 1964. The subject matter presented at the time was pure risk
management, which did not include financial risk assessment/analysis of companies.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 141
A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_12
142 12 Risk Management Practices in the United States of America

Later in the years, engineers devised a model for technological risk management
in operational risk, which partially compensated for technology losses. Progressively,
operational risk was embraced and employed by financial organizations such as
banks, insurance companies, and stock exchanges.
Risk management is a contemporary corporate practice that has evolved in recent
years. After 1955, modern-day risk management became a reality. During the 1970s,
the notion of risk management underwent significant evolution. A notable
development has been the expansion of risk management beyond market insurance
coverage, which is now considered a competitive protection instrument that
complements a variety of other risk management operations (Sousa et al., 2012).
Typically, construction projects are carried out in a complicated and ever-­
changing environment, which creates situations characterized by a high level of
uncertainty and risk and are constrained by strict time limitations (Schieg, 2006).
Historically, the construction industry has been and continues to be a very dynamic
sector that has undergone and will continue to undergo changes due to demands,
economics, utility, policy, etc. This industry is mostly pushed by the private sector,
resulting in a significant increase in the presence of real estate across nations. As a
result of these factors and more, the construction sector is susceptible to a wide
range of technical and business risks, many of which are more severe than those
encountered in other traditional industries. This situation, therefore, necessitates the
need for risk assessment to be fully implemented in construction to help fill lapses
overlooked or not considered right from the onset of project planning. When it
comes to project execution, risk assessment is a strategy that helps to detect potential
risks and manage them appropriately with appropriate treatment.

The United States of America in the Construction Industry

The construction industry accounts are crucial to the development of any nation. In
the United States, the construction industry contributes the largest share of the
country’s gross domestic product (GDP) (Arditi & Mochtar, 2000). From 1995 to
mid-2000, construction expenditure accounted for around 7–8% of yearly economic
production in the United States, peaking at about 9% of GDP during the housing
boom in 2006 before falling to under 5% in 2010. Similarly, construction employment
varied from approximately 4.6 million during the 1991 crisis to a high of 7.7 million
in 2006 before falling to approximately 5.5 million in early 2011 (Kirchhoff, 2011).
In 2020, the industry was expected to expand by 4.5% in real terms after a $1.5
trillion spending package was signed by the president of the country (Emam
et al., 2015).
The construction industry in the United States is categorized into various sectors:
residential, commercial, industrial, institutional, energy and utilities, and
infrastructure. As big as the industry is, it is not immune to risk. Relating the practice
to the United States (US), Kangari (1995) explained the early reaction of big US
construction companies toward risk management and evaluated how the contractors
Objectives of Risk Management 143

implement construction risk management using a survey of the top 100 contractors.
According to the findings of the study, contractors have become more eager in
recent years to bear risks associated with actual and legal problems, as well as share
risk with the property owner. This has helped parties concerned with project delivery
to pay more attention to details, as failure may lead to damages on all fronts.
Now, the industry has grown massively, and the implementation of risk-related
procedures has helped the industry achieve its robust nature. Coupled with other
digitally enabled concepts and practices put in place, the country’s industry can be
said to be at the forefront of project enhancement, project delivery, and other
improvements experienced over the years in both developed and developing nations
of the world.

Risk Concepts in the US Construction

Risk, in simple terms, can be defined as the likelihood of certain event or combina-
tion of events occurring during the entire construction process (Mehr & Hedges,
1963). Also, it can be seen as a lack of certainty as to what the outcome or impact
might be at the planning or decision phase. There is a possibility that results will be
better or worse than expected because of the uncertainty connected with outcome.
In any country, construction is seen as a significant industry. This is attributed to
the qualities of its products, its contribution to the GDP, and improvement that
comes in the form of enhanced quality or standard of living. For example, in the
United States, investment in design and construction services currently amounts to
approximately one trillion dollars per year, which amounts to approximately 10% of
the country’s GDP on average. This figure is replicated several times throughout the
world (multiplier effect) (Emam et al., 2015).
There are several definitions of risk, along with classifications used for different
purposes. In construction projects, the risk is divided into two categories: external
risks and internal risks. Internal risks are risks that occur as a result of poor perfor-
mance by the employee, accidents in the production facilities, operational efficiency,
etc., while external risks include political risk, financial risk, and market risk.

Objectives of Risk Management

The following are some of the objectives of risk management in the construction
industry:
1. To actively manage risk to enhance project success.
2. To make risk proportional to project size and complexity.
3. To integrate risk management into the present project delivery process.
4. To include all functional units in the process, etc. (Emam et al., 2015).
144 12 Risk Management Practices in the United States of America

Purpose for Studying Risk Management

Construction has historically been a high-risk endeavor for a variety of reasons, and
studying and embracing risk management practice will help to reduce potential
risks from onset of project planning to execution. Studying risk management will
aid the following:
1. The pressure to save time and money.
2. The pressure to deliver a high-quality job.
3. In generating a high return on investment (ROI).
4. In tracking and keeping records of projects (completed or uncompleted).
5. By making project delivery to be on schedule and within budget.
6. In reducing or eliminating dispute and litigation.
7. In improving profit and market value.
8. In project delivery beneficial to both the contractor and the client, etc. (Emam
et al., 2015).

Sources of Risk

The number of potential sources of risk that may affect a project is virtually limit-
less in theory, but in practice, the number of statistically significant sources of risk
is quite modest.
For the vast majority of construction projects, the following are the most impor-
tant sources of risk (Schieg, 2006).

Characteristics of the Client

Depending on the situation, the client may be a public entity, a commercial corpora-
tion, or an individual. Consider the track records and attitudes of the client regarding
professional services, as well as the availability and adequacy of funds for the proj-
ect, among other considerations.

The Nature of the Project

The location of the project, budget, and political profile in the community where it
is located is considered. Also, the laws governing the implementation of such
projects are all important considerations. The project’s simplicity or complexity is
another point to be considered.
Identifying Project Risks 145

The Usage of Consultants for Professional Services

For the project, the availability of skilled and experienced experts is important to
consider. Also, the consultants’ professional reputation should be within standard
and required education.

Contractor and Mode of Project Delivery

Whether the construction contract will be awarded through open bidding or selec-
tive bidding, whether there will be a single primary contractor with subcontractors
providing services, whether or not the contract documents will be completed right
before the commencement of the construction project, and whether the design
expert will be properly compensated and safeguarded are important considerations
and questions to be answered.

Professionals’ Abilities and Previous Experience

Check to see if all of the specialists involved are licensed, if the firm has previous
experience with the type of project, and if the firm has enough staff and consultants
on hand to provide the services on time and within the project budget.

Types of Contracts for Design and Construction

The contract between the design expert and the client is prepared using a standard
industry form, for example, the American Institute of Architects (AIA). The client
will engage a number of prime design professionals to provide services in a variety
of disciplines. The methods of remunerating specialists, the structure of the building
contract, and the basic terms and conditions should be discussed.

Identifying Project Risks

The project risk manager is the officer put in place to convene risk project meetings
and identify and assess risks. There is always the challenge of differentiating
between risk sources, genuine risks, and risk impacts when it comes to risk
identification.
146 12 Risk Management Practices in the United States of America

Causes Some specific events or situations exist in the project or its environment,
such as follows:
• The need to use unproven method.
• Scarcity of qualified employees.
• The fact that the company has not previously completed a project of simi-
lar nature.
Genuine Risks These are uncertainties that, if they happen, would affect the proj-
ect objectives in either a negative or positive way. The negative is referred to as a
threat, while the positive is known as an opportunity. The uncertainties must be
treated in a proactive way.

Effects These are unanticipated changes or deviations from the project objectives
that could occur as a result of the risk, e.g., failing to meet the agreed quality,
exceeding authorized budget, and not meeting the milestone time targeted.

How Risks Are Identified

During risk identification, any of the following or a combination of them can

be used:
• Brainstorming by the Project Risk Management Team (PRMT).
• Challenging assumptions (e.g., using reinforced concrete instead of timber
floors).
• Looking for newness.
• Experience from similar projects.
• Consultation with people who have had previous experience with similar
projects.
• Experiential learning from stakeholders or other individuals within the firm/
organization (Jayasudha & Vidivelli, 2016).

Project Risk Management Process

Construction risk management is designed to plan, monitor, and control measures

required to avoid risk exposure. Project risk management will enhance the
achievement of project objectives which are as follows:
1. There will be no cost overrun (to cost).
2. there will be no time overrun (timelines).
3. Quality will not be compromised.
Risk Management Planning (RMP) 147

In essence, there will be value for money, the project will be executed within
budget, and there will be a balance (logical) distribution of resources in all areas of
the project.
The following steps are included in the project risk management process (Sousa
et al., 2012):
1. Risk management planning.
2. Risk identification.
3. Risk analysis—both quantitative and qualitative risk analysis.
4. Risk response.
5. Risk monitoring.
6. Risk communication.

Risk Management Planning (RMP)

This is the first step to be taken in the implementation of a risk management plan
(RMP). It specifies the extent to which risk management will be carried out, that is,
the development of the project roadmap. Risk management planning is not required
for all projects; the need for one is determined by the size and complexity of the
project, as well as the amount of risk management effort required (Jayasudha &
Vidivelli, 2016).
The RMP determines the frequency of meetings and the location and frequency
of risk register updates. In addition to a list of the risk management team members
who will be involved, it includes a budget for the risk management activities. The
RMP must be completed as soon as possible due to its critical role in successfully
implementing other procedures.

Steps to Risk Management Plan

• Determine the scalability level of the project.

• Put in place a risk register.
• Determine the frequency with which project meetings will be held.
• Make a decision on who will be a member of the Project Risk Management
Team (PRMT).
• Include cost estimate for external consultants in your budget.
• Obtain the approvals that are required for the RMP.
148 12 Risk Management Practices in the United States of America

First Project Risk Management Meeting Action Plan

The very first meeting of PRM is extremely crucial; all members must be present
because salient and very important decisions will be made during this meeting. It is
at this meeting that the project manager should inform the team of the following:
• The significance and objectives of the project risk management process will be
highlighted.
• The duties and responsibilities will be shared among the participants.
• Risk register will be put in place.
• The communication channel and accountability will be made known.
• Schedule of risk management activities.
• Codes for calculating time charges for risk management activities.
• The expectation that risk will be managed, documented, and reported on.

Risk Identification

Since it is difficult to completely eliminate risk, it is necessary to assess and deal

with all of the risks that have been identified. The identification of risks must be
done in a way that is both forward-looking and in synchronization with the progress
of the project. As a result, all critical risks must be covered to the greatest extent
possible.
Risk identification determines any occurrence that could occur and have an
impact on the objectives of the project, as well as the manner in which those events
could occur.
At this point, it is necessary to establish a project risk register, which will contain
information on the risks and their characteristics. The risks may either be negative
or positive, which can also be terminal threats and opportunities.
When the contractors secure the project, the project objectives (scope, time, cost,
and quality) are contractually established and cannot be changed. There are fewer
opportunities to save money and time (Jayasudha & Vidivelli, 2016).
The Risk Register This is a document that lists all of the risks that could occur. It
can be utilized by the project teams to address and document potential risks
throughout the life cycle of the project. It is a living document that incorporates
significant risks and information on how they are being addressed. This register is
included in the project file. The risk register is an extremely important tool because
it conveys project risks and assists members of the risk management team (RMT) in
understanding the condition of risks as the project progresses from the inception
phase to the final completion.
Risk Analysis 149

A project risk register should be prepared alongside the cost and schedule of the
project. This document must be reviewed and updated at the start of each project
phase. A risk register must be used throughout the life cycle of the project, from the
initial project document to construction, so as to capture the systematic evolution of
project risk.

Resolution of Disputes

There must be a mechanism for resolving disputes among the Project Risk
Management Team (PRMT) so that they can achieve success at the end of their
assignments. They must put in place a dispute resolution ladder (DRL) that clearly
outlines the processes through which disputes will be discussed and ultimately
resolved. The project manager (PM) will be the one to facilitate resolution and its
elevation.

Risk Analysis

This process is where the risk is described. When describing a risk, the objective is
to express it completely and precisely as much as possible. The next stage is to
prioritize or rate them and then investigate them to estimate the likelihood of their
occurrence and the impact they will have on the project that has been established.
Broadly speaking, we have two ways of analyzing risk, i.e., qualitative and
quantitative risk analysis (Jayasudha & Vidivelli, 2016).

Qualitative Risk Analysis

This is a method of prioritizing the identified risk for further investigation, which
will lead to the type of response that will follow.
The PRMT may revisit the qualitative risk analysis along the life cycle of the
project. This is done to check whether the risk mitigation adopted is working.
Prioritizing, in this case, simply means rating. The rating will help the team to focus
their attention on the ones with higher ratings. The rating will be in three layers.
“High”—a first priority for quick response.
“Medium”—Response as time and resources permit.
“Low”—Response is not necessary at this time.
150 12 Risk Management Practices in the United States of America

Quantitative Risk Analysis

This is another method of analyzing risk on a project by means of numerical esti-

mating. This analysis checks whether the project will meet its objectives (time and
cost). There is software called “Primavera Risk Analysis software” for simultaneous
evaluation.
It is vital to note that this approach of risk analysis is heavily influenced by two
significant factors: time (the completion term) and cost. If the mentioned software
is used, the result will be a probability distribution of project cost and completion
time based on the identified risk.
Any activities or line-item cost element contributing most to the possibility of
exceeding time or cost targets can be determined, and then, due attention can be
focused on such by performing sensitivity analysis.
The chance of the risk occurring is represented by the two values “Low” and
“High” in this context. Another example is the use of three estimates for both cost
and time. This consists of the words “Low” (optimistic) and “High” (pessimistic),
and the last is “Most Likely” for the cost and time.
Under this quantitative risk analysis, figures are used all along to generate a
table, which can further be used to plot graphs at different times in order to have a
comparison.

Risk Response

This is the means by which the project risk management team responds to all risks
identified on a project. This is done by establishing strategic options and formulating
action plans in order to maximize opportunities while maintaining project objectives.
Every member of the PRMT must be alive of their responsibilities in handling
threats assigned to them (Sousa et al., 2012).

Risk Monitoring

Continuous monitoring must be done by the project team to guarantee that new and
changing risks are identified and effectively managed. In addition, the team must
ensure that risk response actions are conducted effectively and efficiently to achieve
the project objectives and success across the project phases.
Risk monitoring must be done throughout the life of the project for the sake of
sustainability. The project team should have their meeting regularly to update the
risk register and have project risk reviews.
References 151

Risk Communication

Communication is a critical component in the management of project risks.

Everybody involved in the project at hand must be adequately informed.
Communication must be simple, clear without any ambiguity. Communication and
consultation with all stakeholders, sponsors, and the project team are critical
components of effective risk management practice (Schieg, 2006).

Conclusion

Effective project risk management must penetrate all project areas, functions, and
activities. The ultimate goal must be negotiating risk assets and reducing or
eliminating them completely. The key to achieving this is for all parties involved to
demonstrate dedication while also acting with professionalism. Also, the parties
involved must be highly motivated to do a thorough job because the quality of their
work and the success of the project are determined at the end of the process.
Managing risks is critical to successfully implementing any project because it
demonstrates an understanding of the project’s goals, responsibilities, service
content, and feasibility. It is expected that the construction professionals in the
United States will continue to implement risk-related practices and develop more
concepts that will aid construction across all phases.

References

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 Part IV
Concluding Summary of the Book
Chapter 13
General Summary on Risk Management

Abstract Risk management is designed toward getting the best value on construc-
tion project by addressing and assessing possible risks either at the onset of con-
struction or at any phases of the project execution. In a bid to understanding the
general ideology behind risk management practice in both developed and developing
construction industries across selected nations, this chapter inferred that even
though there are similarities in terms of concept delivery, there are subsequent
differences that influence how construction professionals in both regions execute
risk management practice. This constituents differences in project method, delivery,
and output in relation to financial resources, technology and innovation, knowledge
and expertise, and regulatory framework.

Keywords Construction risk · Project management · Project risk · Sustainable

construction · Sustainable risk · Value management

Introduction

Risk management is the process of dealing with potential risks by finding, examin-
ing, and minimizing them to lower the chance or impact of harmful events and to
make the most of emerging opportunities. In order to reduce the negative effects of
risks in construction projects, project managers need to follow a risk management
process (Construction Risk Management, 2023). This process requires careful plan-
ning to create a plan that helps project managers to spot, track, and deal with risks
as they occur (Risk Management, 2023). The steps of this process include identify-
ing possible risks, finding out who are affected by the risks, assessing the risks and
making a plan to manage them. The kinds of risks that can majorly happen in
construction projects are risks related to safety, cost, and materials.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 155
A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8_13
156 13 General Summary on Risk Management

Definitions and Concepts of Risk Management Practices

Edward and Bowen (1998) described risk management as a helpful method to cope
with the unpredictability of construction projects.
Kartam and Kartam (2001) also described risk as the possibility of some uncer-
tain, unknown, and undesirable results changing the expected returns on a certain
investment.
Dai et al. (2009) defined risk in the construction industry as an occurrence that
can adversely affect the remaining goals of a project in terms of cost, time schedule,
and quality.
Tohidi (2011) further explained risk management as the mental activity of iden-
tifying and evaluating risk before taking actions to lower it to a tolerable level.
Nawaz et al. (2019) expatiated on risk as an occurrence that influences the orga-
nization’s objectives and that subsequently affects the organization’s performance
in terms of productivity, quality, and budget.

Concept of Risk Management Practices

In the construction industry, managing risks is essential for identifying, evaluating,

and reducing potential risks and uncertainties that may affect a construction project.
By using effective risk management techniques, construction professionals can
lessen the negative impact of risks and increase the chances of project success.
Academic research on risk management practices in construction offers valuable
insights into different aspects of this field (Shad et al., 2019).
In construction, risk management practices involve a structured approach to
identifying, evaluating, and addressing risks that may occur during various project
stages such as planning, design, construction, and operation. Below are some
important aspects and ideas related to risk management practices in construction
(Schulte & Knuts, 2022).

Risk Identification

This refers to the process of recognizing potential risks and dangers associated with
a construction project. It involves identifying both external risks, such as changes in
the economy, regulations, and natural disasters, and internal risks, such as mistakes
in design, delays in construction, and safety hazards.
R isk Management as a Sustainable Tool 157

Risk Assessment

After risks have been identified, they must be evaluated to determine the probability
of them happening and their potential impact on the project. Risk assessment
techniques, such as qualitative and quantitative analysis, can be used to prioritize
risks and allocate the necessary resources to mitigate them.

Risk Mitigation

Strategies for risk mitigation are put in place to decrease the probability or impact
of identified risks. This can include taking preventive actions, establishing safety
procedures, utilizing advanced construction methods, or making changes to project
plans and designs.

Risk Allocation

Different stakeholders participate in construction projects and use various methods,

such as contractual clauses or insurance policies, to assign risks to the parties who
can handle them better. This helps to spread risks among different parties and lower
the total risk level of the project.

Risk Monitoring and Control

It is important to keep track of the risks that have been identified and control their
effects throughout the project. Frequent risk assessments, performance
measurements, and feedback systems help ensure that risk management plans are
working well and necessary changes are made as needed.

Risk Management as a Sustainable Tool

Risk management is the practice of identifying, assessing, and mitigating risks to

prevent potential losses or negative impacts on an organization or project. While
traditionally focused on financial, operational, or project-based risks, sustainable
risk management expands this scope to encompass environmental, social, and
governance (ESG) considerations.
158 13 General Summary on Risk Management

Risk management can be a tool for sustainable development when it considers

both the threats and the benefits of sustainability issues. Organizations can use risk
management as a tool for sustainability by proactively identifying and addressing
risks related to environmental, social, and governance factors. This integrated
approach helps ensure the long-term success and viability of businesses while
promoting sustainable development. Some important aspects of this approach are
discussed below as stated in Schulte and Knuts (2022) and Shad et al. (2019).

Environmental Risk

Sustainable risk management also deals with environmental risks that affect the
natural environment and its resources, such as air and water pollution, climate
change consequences, and loss of wildlife and habitats. This may require taking
actions to lower emissions, save resources, and follow eco-friendly practices.

Social Risks

Social risks are also part of sustainable risk management, and they include those
that affect human rights, working conditions, community engagement, and product
quality. This could require adopting ethical business practices, ensuring respect for
employees and stakeholders, and communicating with local communities.

Integration with Sustainable Strategies

Sustainable risk management is an integral part of sustainability strategies and

goals. It aims to align risk management practices with broader sustainability
objectives such as minimizing environmental impact, promoting social equity, and
encouraging responsible governance.

Governance Risks

Governance risks are also included in sustainable risk management, and they involve
corruption, dishonest practices, and low transparency. It stresses the importance of
having strong corporate governance, ethical choices, and responsibility.
Similarities Between Developing and Developed Risk Management Practice 159

Long-Term Perspective

Traditional risk management often concentrates on short-term financial aspects.

Sustainable risk management adopts a long-term view, taking into account the
possible effects of risks and choices on future generations and the overall welfare of
society.

Stakeholders’ Engagement

Effective sustainable risk management requires engagement with a variety of stake-

holders such as employees, communities, customers, investors, and regulators. By
incorporating diverse perspectives, potential risks can be identified and addressed
more comprehensively.

 essons from Developing and Developed Countries’ Risk

L
Management Practice

The sections of the book previously discussed risk management in construction

between selected developing and developed countries. Developing countries include
Malaysia, Nigeria, Qatar, Saudi Arabia, South Africa, Sri Lanka, and Tanzania,
while selected developed countries are Australia, Canada, Sweden, and (USA).
When comparing risk management practices in developing and developed con-
struction industries, there are both similarities and differences. However, different
countries were researched with corresponding differences inferred in terms of gov-
erning bodies, method and stage of implementation, and level of awareness. However,
they all exhibit the same risk management practice with little or no differences but
much similarities. After carefully researching the countries in both (developing and
developed) categories, the following similarities and differences were obtained.

 imilarities Between Developing and Developed Risk

S
Management Practice

Risk Identification

The construction industry, both in developing and developed countries, recognizes

the importance of identifying potential risks in construction projects. This involves
conducting thorough assessments to identify risks related to safety, environmental
factors, financial aspects, and project management.
160 13 General Summary on Risk Management

Risk Assessment

In evaluating risks, construction industries in both developed and developing set-

tings use methods to measure how likely and how serious the risks they face are.
This helps them rank the risks and choose suitable ways to deal with them.

Risk Mitigation

To lessen known risks, both developing and developed construction industries strive
to implement risk mitigation strategies. These strategies often include the use of
safety measures, best practices, regular inspections, and appropriate technology and
equipment.

Legal Compliance

The construction industries in both countries follow legal rules, building regula-
tions, and industry norms. This makes sure that projects achieve the needed safety
and quality levels, lowering the chance of accidents, setbacks, and legal problems.

 ifferences Between Developing and Developed Risk

D
Management Practice

Financial Resources

Construction industries in more developed countries often have financial capability

to spend on managing risks than those in less developed countries. This lets them
use advanced technology, extensive insurance plans, and expert risk management
teams. Construction industries in developing countries may have limited resources,
which can affect the quality and complexity of their risk management practices.

Technology and Innovation

Construction companies (industries) in developed countries often have greater

access to advanced technology and innovative solutions for risk management. This
includes tools like Building Information Modeling (BIM), drones for site inspections,
and real-time monitoring systems, which can enhance risk detection, evaluation,
Effective Risk Management for Construction Project 161

and response. In contrast, construction companies in less developed countries may

have limited access to such technologies, which can affect their ability to manage
risks effectively.

Knowledge and Expertize

Construction industries in developed countries often have the advantage of a well-­

established knowledge base, skilled professionals, and dedicated institutions for
risk management. This allows them to leverage extensive industry experience, best
practices, and research findings. In contrast, construction industries in developing
countries may face challenges in transferring knowledge, developing skills, and
accessing relevant expertise.

Regulatory Framework

The regulatory environment and enforcement mechanisms can vary between devel-
oped and developing countries. Developed countries often have more extensive and
strictly enforced regulations related to construction safety, environmental impact,
and labor practices. In contrast, developing countries may be in the process of
improving their regulatory frameworks or may face challenges in consistently
enforcing regulations.

Effective Risk Management for Construction Project

Construction projects are naturally complicated and involve many risks and uncer-
tainties that can affect project objectives. Managing these risks effectively does not
mean getting rid of them completely, which may seem like the cheapest option but
it is not the case every time since every project is different. From an economic per-
spective, the approach of complete elimination of risks is futile because profitable
activities naturally involve risk, and activities without any risk are not economically
feasible or beneficial (Wróblewski, 2007). However, Kwansoo and Chavas (2003)
argue that effective risk management is essential for a good management strategy. A
good risk management plan helps an organization to take more risks while increas-
ing its overall safety. The different ways of dealing with the possibilities of losses
include avoiding, reducing, transferring by contract, and transferring by insurance
and keeping. Usually, the best way to manage risks is to use more than one methods
together. It is important to have skilled coordination in applying the selected risk
treatment methods to achieve significant improvement and measures results accu-
rately. Sharma and Swain (2011) also emphasized that project management has
162 13 General Summary on Risk Management

changed over time, and managing risks in project delivery has become very impor-
tant. Project teams now try to meet customer and end-user needs, and avoid com-
mon problems in construction projects such as delays, cost overruns, low quality,
and unsafe work environments. The key to achieving these goals is to manage risks
effectively throughout the project lifecycle. Using a holistic risk management
approach helps organizations to identify all the business risks they face, increasing
the chance of successful risk reduction and, ultimately, complete risk elimination.
While stressing the need to manage risks using a holistic approach, Labbi (2005)
stated that risk factors are not independent but interrelated. If we ignore their con-
nections, we may end up managing risks in a wasteful or ineffective way. For exam-
ple, we may hedge some risks that are actually balanced by others or we may miss
some important risks that could harm the whole organization. We should look at the
big picture of how risks affect the organization and avoid actions that could create
new risks or shift them to other parts of the organization.
Lam (2003) further claims that managing risks using a holistic approach has
three main benefits. First, it makes the organization more effective by aligning the
top and bottom levels, promoting cooperation among different functions, and
dealing with not only single risks but also their connections. Second, it enhances
risk reporting by assigning accountability and setting uniform reporting standards.
This allows the consolidation of risks to give a complete picture of risks throughout
the whole enterprise. Third, organizations that use this approach have seen significant
improvements in business performance. Holistic risk management helps key
management decisions such as how to allocate capital, develop and price products,
and merge or acquire other businesses. As a result, it leads to lower losses, less
earnings variability, higher earnings, and increased shareholder value.
In general, effective risk management is essential to identifying, evaluating, and
reducing risks, thereby ensuring successful project completion. The key elements of
effective risk management in construction projects are summarized below.

Risk Identification

In construction projects, the process of identifying risks mainly involves under-

standing the kinds of risks that could potentially affect the project. This involves
identifying the specific factors that describe these risks and estimating their proba-
bility of happening within the project. The need for risk identification comes from
the decision-making situations faced by an investor at any given time (Bizon-­
Górecka, 2006). Here, there is need to consider various factors such as design dif-
ficulty, site situations, regulatory compliance, contractual requirements, stakeholder
expectations, and external influences. Techniques like brainstorming, checklists,
historical data analysis, and expert opinions help in comprehensive risk
identification.
Effective Risk Management for Construction Project 163

Risk Analysis

There is need to analyze identified risks to understand their likelihood of happening

and potential effect on project goals. Risk analysis can use quantitative or qualitative
methods. Quantitative analysis involves using a number to measure the risk level.
Various techniques can be used in quantitative risk assessment, such as expected
value analysis, decision trees, probability analysis, fault trees, event trees, sensitivity
analysis, risk simulation, and statistical inference. However, using only quantitative
measures to determine risk levels has some problems. Firstly, accurate data is very
important for measuring risks correctly, requiring careful attention to data accuracy.
Secondly, the risks that can be measured quantitatively depend on the availability of
relevant data. Thirdly, many risk factors such as political, personnel, and regulatory
risks, as well as intangible consequences like reputation damage and negative media
coverage, are hard to measure with quantitative techniques. However, these factors
can expose organizations to significant risks (Schwartz & Smith, 1997). This analy-
sis helps rank risks and focus resources on managing crucial ones.

Risk Evaluation

This process evaluates the importance of identified risks to make informed deci-
sions on risk response strategies. According to ISO 31000:2009, risk evaluation is a
process that compares the results of risk analysis with predefined risk criteria
established during the context setting stage. The purpose is to determine whether
the identified risks needs treatment and to prioritize the implementation of treatment
measures. Alternatively, further analysis may be needed to make informed decisions.
The risk criteria are based on the desired risk profile of the organization which
reflects its risk appetite. This refers to the level of risk that the organization is willing
to take in its pursuit of value, often representing a balance between growth, risk, and
return. Risks that fall within the established limit are considered acceptable and
require only monitoring without specific treatment. On the other hand, risks
considered unacceptable will require treatment measures. Here there is need to
consider project objectives, constraints, stakeholder priorities, and risk tolerance
levels, and to evaluate risks based on their potential impact on cost, schedule,
quality, safety, and overall project success. This evaluation assists in determining
whether to accept, mitigate, transfer, or avoid risks.
164 13 General Summary on Risk Management

Risk Treatment

This process involves developing and implementing strategies to lower the proba-
bility or effect of identified risks. ISO 31000 emphasizes that risk treatment involves
the selection and implementation of options to modify risks, with these options not
being mutually exclusive. Once applied, treatments create or change controls. The
process involves identifying, evaluating, preparing, and implementing a range of
options for addressing risks (Knight, 2010). Treatment options may include (1)
accepting the risk, (2) avoiding the risk, (3) lowering the risk, and (4) sharing or
transferring the risk. Moeller (2007) suggests that organizations should carefully
consider the costs and benefits of each potential risk response. It is important to
align these strategies with the organization’s overall risk appetite when developing
a risk strategy for each specific risk. Construction firms can implement preventive
measures like improved design, strong construction techniques, strict quality con-
trol, safety protocols, contractual risk allocation, and contingency planning. Regular
monitoring, inspections, and audits help ensure effective implementation of risk
reduction measures.

Risk Monitoring and Review

The probability and effects of an outcome can be affected by various factors, and
these factors have the potential to change over time. Likewise, the factors that
impact the appropriateness or cost of different treatment options can also undergo
changes (Hintsay, 2016). Therefore, there is need to continuously monitor and
review risks throughout the project lifecycle. Regularly evaluating any changes in
project execution, external influences, stakeholder preferences, and market trends
will help in managing risk associated with such project. Risk registers, performance
indicators, progress reports, and feedback mechanisms to track risks and update risk
management strategies are also to be taken into account.

Risk Communication

This process involves ensuring that everyone involved in the project knows about
the risks and how to deal with them. Schieg (2006) highlighted that, in implementing
effective risk management in an organization, it is important to have good
information that allows complete and informed decision-making. This means that
the organization needs to communicate well so that the right stakeholders get the
right information so as to prevent irrational responses which are vital to avoid
possible losses or the failure to achieve expected benefits (Sousa et al., 2012). This
process encourages teamwork and cooperation among project staffs, contractors,
Benefits of Effective Risk Management to Project Team 165

subcontractors, suppliers, and workers to make clear decision on what they need to
do to manage risks. This can be achieved by sharing risk-related information
regularly through meetings, reports, training sessions, and documentation.

Benefits of Effective Risk Management to Project Team

Effective risk management in construction projects has many benefits, both in the
short and long terms. Implementation of effective risk management helps to deal
with possible risks that could affect the main objectives of the project, such as
budget, schedule, and quality. Some of the benefits to project team are
highlighted below.

Improved Project Planning

Effective risk management allows project managers to evaluate possible risks and
create detailed plans that accounts for different scenarios. It makes sure that potential
risks are spotted and handled early, lowering the chance of costly problems during
project implementation, such as delays, defects, accidents, and disputes
(Hintsay, 2016).

Better Decision-Making

Hintsay (2016) identified that, effective risk management will make an organiza-
tion’s operation more efficient and minimize reduction to normal operations, handle
changes better, and choose the best options when making decisions. By carefully
examining risks, project stakeholders learn more about the possible effects and
outcomes of different decisions. This enables them to make wise choices and pick
the best options based on their risk tolerance and project goals.

Budget and Schedule Control

Effective risk management helps the project team to identify possible cost or time
overruns before they occur. This lets them act quickly by applying suitable measures
to reduce these risks. This improves the reliability and accuracy of project
projections, keeping budget changes low, and making sure the project meets its
deadlines.
166 13 General Summary on Risk Management

Improved Stakeholders Communication

Construction projects involve stakeholders with different views and attitudes toward
risk. Risk communication and consultation helps to identify, record, and understand
stakeholders’ perceptions, as it is also useful for supporting future applications of
the risk management processes (Cooper et al., 2005). Effective risk management
promotes open and proactive communication among project stakeholders. It helps
to identify and understand risks by all parties involved, ensuring collaboration, trust,
and agreement toward shared project objectives.

Improved Resource Allocation

Hopkin (2012) argue that useful risk management information helps to make better
decisions about strategic and operational options and supports effective use of lim-
ited resources by weighing risks and benefits of different strategies. However, by
managing risks effectively, project teams can use their resources better by focusing
on the most important risks. This helps them avoid wasting resources and improve
their project results.

Stakeholder Confidence and Organization’s Reputation

When construction projects take steps to identify and deal with risks before they
become problems, they show that they care about delivering what they promised
and protecting the people who are involved or affected by the project. This makes
the clients, investors, and the public trust and respect them more for their
professionalism and responsibility. This also protects the project from getting a bad
reputation and helps the organization build a good image for itself.

Achieving Sustainable Projects

Effective risk management is to ensure that construction projects can succeed in the
long run by avoiding or reducing potential problems. It makes sure that risks are
dealt with properly and in a timely manner throughout the project, making it more
likely to achieve project objectives and deliver good results.
Summarily, effective risk management in construction projects enables project
teams to plan better, make smarter decisions, keep costs and schedules under
control, communicate better, use resources more efficiently, build trust with
stakeholders, and achieve project objectives in the long run. By taking action on
Benefits of Effective Risk Management to Clients 167

risks before they become problems, construction organizations can deal with
uncertainties better and improve their chances of project success.

Benefits of Effective Risk Management to Clients

Sousa et al. (2016) postulated that it is essential that the project owner and their
representatives start the risk management process. This way, they can make sure
that all stakeholders are taken into account and that the project meets the end user’s
needs. Then, designers, contractors, and other parties should follow the owner’s risk
management instructions to achieve the end user’s objectives. Effective risk
management is crucial for achieving successful results for clients in construction
projects. By identifying, evaluating, and reducing risks, it offers many benefits that
improve project delivery, prevent potential losses, and safeguard the clients’
interests. The following are main benefits of effective risk management to clients in
construction projects.

Cost Control

Meulbroek (2002) stated that, effective risk management helps to avoid the usual
problem of having separate risk management teams that are inefficient and in
conflict with each other because they do not coordinate well. This way, risk can be
managed more effectively and at a lower cost. Effective risk management will help
clients to keep project cost under control and within budget. This can be achieved
by identifying the risks early and then take action to reduce or avoid them. This
lowers the chances of unforeseen costs, budget overruns, and financial losses. By
addressing risks proactively, clients can better foresee and handle financial risks,
making sure that the project stays within budget limits.

Schedule Adherence

Finishing the project on time is very important to clients. Effective risk management
helps to identify and reduce risks that may slow down the project, by planning and
dealing with possible schedule problems, clients can lower the chance of project
delays and extra costs. This makes sure that the project is completed on time,
meeting client expectations, and avoiding any negative effects on business operations
or future plans (Bizon-Górecka, 2006).
168 13 General Summary on Risk Management

Quality Assurance

Clients in construction projects expect the quality of the project to meet or exceed
their standards and specifications. To ensure this, project stakeholders need to
manage risks well throughout the project lifecycle. This involves identifying and
managing possible risks that could compromise the quality of the project, such as
design errors, material defects, or construction faults. By applying strong quality
control methods, such as inspections, tests, audits, or reviews, they can monitor and
verify the quality of the project at every stage. By dealing with risks that may affect
the project’s outcome, such as changes in scope, budget, or schedule, project team
can prevent or minimize any negative impacts on the quality of the final product. By
doing so, clients can have greater confidence in the final product and its compliance
with their requirements and expectations. This enhances client satisfaction with the
project delivery and performance. It also protects their reputation as a reliable and
trustworthy partner in the construction industry. Moreover, it boosts the value and
longevity of the constructed facility by ensuring its functionality, safety, and
reliability.

Stakeholder Communication

Risk management requires clear and honest communication among all project
stakeholders. Managing risks well makes sure that clients are aware of potential
risks, how to deal with them, and how the project is going. Frequent communication
and engagement build trust, encourage joint decision-making, and let clients take
part in risk-related conversations. Clients can offer useful feedback, help with risk
reduction efforts, and match project objectives with their own organizational goals.

Improved Overall Project Success

Managing risks effectively greatly enhances the overall success rate of construction
projects. By taking action on risks before they become problems, clients can lower
the chance of project failures, conflicts, and unforeseen outcomes. This results in
higher project success rates, happier clients, and positive project outcomes that
match the client’s vision and objectives. Effective risk management is a key factor
that boosts the overall success rate of construction projects.
R isk Management and Sustainable Construction 169

Safety and Risk Mitigation

Effective risk management helps organization to have a full understanding of the

risk involved in its activities, what causes it, and how to manage it well with the
right strategies to reduce it (Meulbroek, 2002). Construction sites pose a lot of risks
to workers, the public, and the environment. Effective risk management aims to find
and reduce potential safety and environmental problems. By putting safety first,
clients can create a safe working environment, prevent accidents, and avoid possible
legal and financial problems. This not only keeps everyone safe but also preserves
the client’s reputation and prevents expensive legal conflicts.

Risk Management and Sustainable Construction

Sustainable construction has been a major focus for construction players across the
globe in recent times. Kibert (2016) described sustainable construction as a way of
infrastructure development which involves the planning, building, and running of
green building projects that also aims to minimize negative environmental impacts,
conserve resources, promote social responsibility, and ensure long-term economic
viability. Robichaud and Anantatmula (2011) in their research on green constructions
identified that the increase in traditional building material costs and energy prices
has prompted individuals and organizations to consider sustainable construction as
a viable solution. Government incentives and regulations have further amplified this
trend by providing additional motivation and support. Together, these factors have
fostered a shift toward sustainable construction practices that prioritize resource
efficiency, environmental responsibility, and long-term economic viability. The
researchers further acknowledged that, despite the development of green
construction, there are still some risks that needs to be addressed; one big worry is
the possible failure to deliver projects within acceptable cost limits. Green
construction often means adding sustainable features and technologies that may
cost more at first than conventional options. This cost difference can stop some
developers or clients from going for sustainable construction projects, especially if
they have tight budget restrictions. Finding a balance between the financial aspects
of a project and adding sustainable elements need careful planning, cost analysis,
value engineering, and effective risk management to make sure that the project is
still economically viable. Vitunskaite et al. (2019) also agrees that new methods and
ideas in sustainable construction, especially in the area of smart cities, can bring
more risks because they are relatively new and not well understood by project
management teams. When using new technologies or unusual practices, there may
be doubts and risks that come from the lack of previous experience or proven best
practices. Vitunskaite et al. (2019) acknowledges that this inherent risk is more
common in the new concept of sustainable smart cities, where the combination of
advanced technologies and complex systems is still changing.
170 13 General Summary on Risk Management

In sustainable construction, it is important to identify and evaluate possible risks

in order to manage them well and make sure the project succeeds (El-Sayegh et al.,
2018). Risk identification means finding all possible risks and uncertainties that
could affect the project’s goals, schedule, cost, quality, and sustainability goals.
This process needs to involve stakeholders with different skills and views, such as
architects, engineers, contractors, and sustainability consultants. After identifying
risks, they need to be evaluated based on how likely they are to occur and how much
they could affect the project. This evaluation helps rank risks based on how important
they are and lets project teams use the right resources for risk response planning.
Risks in sustainable construction projects can be different, from technical problems
related to green technologies to regulatory compliance, market changes, and
resource availability. By evaluating risks well, project teams can get a good
understanding of the potential problems and opportunities related to sustainable
construction projects.
After risk evaluation, the next step is risk response planning and control. This
means making strategies and actions to reduce or get rid of risks, transfer risks
through insurance or contracts, accept some risks, or make backup plans. Risk
response planning tries to lower the chance and effect of found risks while improving
project results. It may mean changing some parts of the project, using different
materials or technologies, having more suppliers, or making backup plans for
getting resources. Risk control is a continuous process throughout the project. It
means checking and reviewing how well risk response strategies work and making
changes as needed. Regular communication and cooperation among project
stakeholders are important for good risk control, as it allows for the quick finding of
new risks and the changing of risk response plans as needed. Moreover, identifying
and evaluating risks in sustainable construction projects in advance, project teams
can avoid potential problems, make sure project objectives are achieved, and
improve the overall success and sustainability of the construction project.

Conclusion

This chapter discussed the general summary of the previous chapters, starting from
the general introduction of the topic (risk management) and extending toward
definitions relating to the topic. Furthermore, this chapter discussed the similarities
and differences experienced in the selected regions of the research (developed and
developing nations). By assessing the uniqueness of both regions, the research was
able to make adequate comparison between the categorized regions selected and
gave an exclusive inferences. Finally, delving into the benefits of risk management
to both the client and the project team, coupled with the inclusiveness of risk
management in achieving sustainable construction, this chapter gave an overview of
the benefits of assessing risks in terms of managing construction, enhancing project
delivery, and reducing cost, which correlates with the concept of achieving a
sustainable construction industry.
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Index

A D
Acceptable risk, 11 Decision-making, 3, 14, 16, 53, 108,
Analyzed risk, 16 110, 119
Design and planning, 29
Design stage, 4, 97, 108
B Developed countries, 107
Beneficial risk, 37 Developing nations, 52, 53, 82, 98, 143
Brainstorming, 4, 11, 36, 39, 54, 82, 83, 97, Disputes, 21, 36, 62, 149
108, 121, 146
Business organizations, 30
E
Economic, 3, 9, 12, 24, 31, 33, 142
C Effective, 5, 10, 14, 17, 18, 23, 151
Capital utilization, 30 Efficient risk management, 96
Categorization of risks, 40 Environmental, 4, 5, 10, 23, 26, 36, 138
Client/investor, 4 Equipment factor, 4, 97
Client-related risk, 97, 135, 138, 167, 168 Ethical practices, 24
Complexity, 3, 5, 30, 147 Ethical risks, 26
Complex procedures, 3 External environment, 54
Constraints, 3, 5, 11, 41 External risk, 4, 97
Construction, 3–5, 151
Construction costs, 4, 97
Construction industry, 3, 11, 142 F
Construction materials, 52, 61 Feedback, 39, 77, 81, 90, 114
Construction practices, 5, 42, 169 Financial problem, 3
Construction process, 17, 29, 35, 48, 143 Financial risk, 4, 23, 35, 97,
Construction projects, 3–5, 10, 143 141, 143
Construction sector, 3, 5, 10, 11, 142 Financial system risks, 26
Construction stage, 4, 97, 108 Forecast, 39, 96, 134
Contractual agreement, 12, 62, 136 Fuzzy risk assessment, 4
Cost, 3–5, 9, 11, 12, 150
Cost of implementation, 47
Cost overruns, 4, 47, 137 G
Cultural risk, 35, 129 Good quality, 3

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 173
A. E. Oke et al., Risk Management Practices in Construction,
https://doi.org/10.1007/978-3-031-35557-8
174 Index

H N
Handing over stage, 4 New additional risks, 89
Hazards, 55, 125 New risks, 14, 38, 90
Health risk, 35 Numerous risks, 3, 10, 46
High-risk, 85, 96
Human factor, 4, 97
Human risks, 35 O
Opinions, 72
Opportunities, 10, 11, 21, 22, 30, 150
I Overrun, 10, 12, 47, 48, 146
Impeding factors, 5
Industrial, 4, 10, 22, 97, 142
Infrastructural development, 3, 22, 65, 68, 96 P
Institutional inadequacies, 96, 133 Parent factors, 97
Insurance sector, 59 Parent-related factors, 4
Internal audit, 25, 64 Performance evaluations, 52
Internal risk, 4, 97 Performance of projects, 3
Intrinsic uncertainties, 96, 133 Planning, 4, 9, 10, 15, 29, 147
Planning stage, 4, 9, 81, 88, 97,
137, 139
K Policy risk, 4
Knowledge of risk management, 98 Political risk, 4, 23, 35, 129, 143
Known risks, 52, 71 Possible risks, 15, 16, 48, 138
Known unknowns, 71 Pre-contract stage, 4, 23, 97
Predictable/uncontrollable, 4, 97
Procurement methods, 76
L Procuring, 4, 29
Lean management, 73 Project actualization, 65
Legal risk, 4, 23, 35, 97 Project delay, 47
Liabilities, 3, 108 Project delivery, 12, 18, 48, 145
Life cycle, 42, 62, 64, 75, 77, 148 Project environments, 71
Long-term risks, 24 Project management, 10, 11, 17, 135
Low profit margin, 5, 98 Project management process, 10, 48
Project outcome, 3, 12, 35, 108
Project-related risk, 74, 96
M Project risk, 4, 5, 14, 16, 36, 38, 48,
Machines, 125 60, 86, 145
Management, xxi Project success, 10, 14, 15, 64, 68, 143
Management factors, 99 Proposed budget, 3
Management practices, 5, 11, 12, 151
Management process, 13, 17, 21, 147
Management-related factors, 4 Q
Management risk, 4, 97 Qualitative analysis, 85, 123
Management team, 54, 63, 83, 147, 148, 150 Qualitative data, 51
Managerial risk, 35 Qualitative risk analysis, 83, 85, 123, 149
Managing risks, 10, 50, 111 Quality, 3, 5, 9–12, 151
Market competition, 61, 96, 133 Quantitative analysis, 84
Market risk, 4, 97, 143 Quantitative metrics, 51
Material factor, 4, 97 Quantitative risk analysis, 29, 83, 121,
Minimizing risks, 55 149, 150
Index 175

R Skilled consultants, 54
Resource factors, 97 Small-scale construction, 5, 98
Resource-related factors, 4 Social growth, 3
Risk, 3–5, 9, 10, 151 Social risk, 35
Risk analysis, 11, 37, 49, 77, 83, 96, 100, Sources of risk, 13, 63, 96, 111, 144
108, 111 Stakeholders, 10, 13, 17, 31, 33, 151
Risk assessment, 4, 13, 14, 23, 33, 42, 142 Successful project, 11, 49
Risk attitudes, 71–73 Sustainable construction, xxi
Risk control, 30, 112 Sustainable infrastructure, xxi
Risk evaluation, 16, 36, 37, 62, 112, 119 Systematic risk, 68, 115
Risk factors, 4, 11, 23, 26, 52, 60, 97, 124, 125
Risk functions, 64
Risk identification, 13, 15, 36, 38, 148 T
Risk investigation, 75 Technical risk, 35
Risk management, 4, 5, 10, 14, 15, 150, 151 Technological implementation, 96, 133
Risk management approach, 74, 75, 108, 129 Threats, 11, 21, 24, 34, 42, 46, 70, 73, 150
Risk management framework, 30, 109, Time, 3, 5, 9, 12, 17, 18, 23, 150
112, 128 Time and cost overruns, 4, 47, 97
Risk management practices, 5, 11, 23, 130 Time performance, 5
Risk management skills, 10, 129 Transfer risk, 27
Risk management tools, 41, 137
Risk matrix, 122
Risk monitoring, 50, 88, 110, 112, 121, 128 U
Risk monitoring and control, 81, 88 Uncertainty, 10, 13, 16, 24, 36, 47, 142
Risk policies, 64 Unforeseen project risk, 15
Risk register, 4, 36–38, 89, 98, 110, 147, 148 Unknown risks, 35, 71
Risk response, 11, 12, 16, 81, 86, 101, Unknown unknowns, 71
108, 138 Unmanaged risks, 3
Risks and uncertainties, 97 Unpredictable/uncontrollable, 4, 97
Risks assigned, 36, 87 Urbanization, 60
Risk supervision, 64 Utility, 67, 76, 79, 80, 142
Risk technique, 73

V
S Value, xxi, 10, 11, 147
Sensitivity analysis, 4, 78, 150
Sharing, 16, 87, 142
Significant risk, 96, 134 W
Site factor, 4, 97 Whole life cycle, 42, 46, 59, 98
Site management, 53, 135 Work environment, 73, 135, 137