Risk identification is the first and perhaps the most important step in the risk management process, as it attempts to identify the source and type of risks. It includes the recognition of potential risk event conditions in the construction project and the clarification of risk responsibilities. Risk identification develops the basis for the next steps: analysis and control of risk management. Corrects risk identification ensures risk management effectiveness. The identification and mitigation of project risks are crucial steps in managing successful projects.

Defining a project risk as “an uncertain event or condition that, if it occurs, has a positive or negative effect on at least one project objective”. There are many possible risks which could lead to the failure of the construction project, and through the project, it is very important what risk factors are acting simultaneously. Too many project risks as undesirable events may cause construction project delays, excessive spending, unsatisfactory project results or even total failure.

Many approaches on risk classification have been suggested for effective construction project risk management. There are two groups in accordance with the nature of the risks, i.e. external and internal risks. Combining the fuzzy logic and a work breakdown structure, the authors grouped risks into six subsets: local, global, economic, physical, political and technological change. The classification of the risks depends mainly upon whether the project is local or international. The internal risks are relevant to all projects irrespective of whether they are local or international. International projects tend to be subjected to the external risk such as unawareness of the social conditions, economic and political scenarios, unknown and new procedural formalities, regulatory framework and governing authority, etc.

The risks are categorized into such groups: technical, external, organizational, environmental, or project management. Some categories of risk that affect a construction project are similar to risks for other investment projects, whether it is an investment in common stocks or government bonds, and some are specific to construction. The risk identification process would have highlighted risks that may be considered by project management to be more significant and selected for further analysis. Risk identification is an iterative process because new risks may become known as the project progresses through its life cycle and previously-identified risks may drop out. Construction projects carry complex risks for all involved—including owners, consultants, contractors, and suppliers—that can increase when construction takes place near an active facility or congested area. Risks include geological or pollution-related conditions, interference with ongoing operations, construction accidents, as well as design and construction faults that may negatively impact the project both construction and when the project is complete.

Generally two broad categories, namely, qualitative and quantitative analysis are distinguished in on risk assessment. A qualitative analysis allows the key risk factors to be identified. Risk factors may be identified through a data-driven (quantitative) methodology or qualitative process such as interviews, brainstorming, and checklists. It is considered as an evaluation process which involves description of each risk and its impacts or the subjective labelling of risk (high/medium/low) in terms of both risk impact and probability of its occurrence. Qualitative risk analysis assesses the impact and likelihood of the identified risks and develops prioritized lists of the risks for further analysis or direct mitigation. A hierarchical risk breakdown structure HRBS represents a formal model for qualitative risk assessment. Quantitative analysis involves more sophisticated techniques and methods to investigate and analyze construction project risks. Quantitative risk analysis attempts to estimate the frequency of risks and the magnitude of their consequences by different methods such as the decision tree analysis, the cost risk analysis. The application of the quantitative risk analysis allows the construction project exposure to be modelled, and quantifies the probability of occurrence of the identified risk factors as well as their potential impact.

Various risk management tools are available, but unfortunately they are not suitable for many industries, organizations and projects. Although today’s organizations appreciate the benefits of managing risks in construction projects, formal risk analysis and management techniques are rarely used due to lack of knowledge and to doubts on the suitability of these techniques for construction projects.

There are four alternative strategies – risk avoidance, risk transfer, risk mitigation, and risk acceptance, for treating risks in a construction project. Risk mitigation and risk response development is often the weakest part of the risk management process. The proper management of risks requires that they be identified and allocated in a well-defined manner. This can only be achieved if contracting parties comprehend their risk responsibilities, risk event conditions, and risk handling capabilities .

In construction projects, many parties are involved such as owner, consultant, contractor, sub-contractor, and supplier. Each party has its own risks. Risk transfer means the shift of risk responsibility to another party either by insurance or by contract. Contractors usually use three methods to transfer risk in construction projects:

through insurance to insurance companies;

through subcontracting to subcontractor

through modifying the contract terms and conditions to client or other parties.

Construction projects can be managed using various risk management tools and techniques. We had reviewed techniques that can be used for development of risk management tools for engineering projects. Techniques for context establishment, risk identification, risk assessment and treatment can be provided. Application of risk management tools depends on the nature of the project, organization’s policy, project management strategy, risk attitude of the project team members, and availability of the re-sources. A risk assessor model (RAM) presented was developed to determine risk scores for various construction activities. The model provides an acceptability level for the risks and determines a quantitative justification for the proposed remedy.

Risks and uncertainties, involved in construction projects, cause cost overrun, schedule delay and lack of quality during the progression of the projects and at their end. Poor cost performance of construction projects seems to be the norm rather than the exception, and both clients and contractors suffer significant financial losses due to cost overruns.

We discuss the problems of managing risk and uncertainty in construction project due to the owner dissatisfaction in project outcome and dynamism within agile construction environment. We identified some areas in supply chain processes which are prone to greater risks and uncertainty and propose an agile management principle based on the concept of integration and fragmentation in product development and execution processes respectively.

Many authors have reviewed problems on time performance in construction projects. The nine factor categories evaluated include: client-, contractor-, quantity surveyor-, architect-, structural engineer-, services engineer-, supplier-, and subcontractor-caused delays, and external factors (i.e. delays not caused by the project participants). Finally, ten overall delay factors are identified, namely: contractors’ financial difficulties, client’ cash flow problems, architects’ incomplete drawings, subcontractors’ slow mobilization, equipment break-down and maintenance problems, suppliers; late delivery of ordered materials, incomplete structural drawings, contractors’ planning and scheduling problems, price escalation, and subcontractors’ financial difficulties. The authors pointed the poor risk management as one of the principal delay factors and concluded that actions and inactions of construction project participants contribute to overall project delays.

The construction contractors highlight that delay in payments is common both in private and public projects, with the public sector being the worse defaulter. Moreover, most types of contracts presume compensation clauses for delay in payments, but clients rarely agree to pay the interests due to the contract. We analyzed schedule risks and developed a comprehensive construction schedule risk model is referred to as Evaluating Risk in Construction–Schedule Model (ERIC-S). The ERIC-S model provides decision support to project owners, consultants, and re-searchers as a project delay prediction tool. Similarly, the Cost-Time-Risk diagram (CTR) proposed helps project managers consider project risk issues while monitoring and controlling their project schedule and cost performance in one diagram.

The performance by the project management team highly influences the success of a construction project. Some of the incidental risks associated with poor project management performance are

Unclear or unattainable project objectives

Poor scoping

Poor Estimation

Budget based on incomplete data

Contractual problems

Insurance problems

Delays

Quality concerns

Insufficient time for testing

Many authors have recognized the value of trust within the project business. Trust is a critical success element to most business, professional, and employment relationships. Trust is argued to improve the inter-organizational relationships among principal actors in project development, such as owners, contractors, and suppliers. According trust between project owners and project managers is crucial for project success.

In business relations, the global economic crisis brought about distrust of other stakeholders. Trust reinforces the relationships of the critical stakeholder that often determine the success of a project . Stakeholders are a major source of uncertainty in construction projects. Trust provides an important resource for creating greater probability and certainty. We found that project management companies need to overcome problems in their relationships with other professionals on the project team and with the client. For the success of construction projects, there is a need for alignment of the project owners’ interests and the project management team’s interests and trust between them.

Construction projects are tendered and executed under different contract systems and payment methods. There is no possibility to eliminate all the risks associated with a specific project. All that can be done is to regulate the risk allocated to different parties and then to properly manage the risk. We argue that the contract choice decisions are central to both stakeholder management and the management of risk and uncertainty. We are proposing an integrated approach based on a balanced incentive and risk sharing (BIARS) approach to contracting as well as a best practice approach to risk management in terms of the whole project life cycle.

Contractors generally aim to make an acceptable range of profit margin. Profit margins in the industry have been low for most contractors on projects in recent years. Correct understanding and allocation of risk helps for contractors to avoid erosion of the profit margin. A new simulation-based model – the correlated cost risk analysis model (CCRAM) is to analyse the construction costs under uncertainty when the costs and risk-factors are correlated. The CCRAM model captures the correlation between the costs and risk-factors indirectly and qualitatively. We determined the most critical risk factors affecting construction cost performance. We state that global risk factors pose more challenges to contractors, which are less familiar with them. Some of experts may introduce a fuzzy decision framework for a systematic modelling, analysis and management of global risk factors affecting construction cost performance from contractor’s perspective and at a project level. We provide a ‘Level-Severity-Probability’ approach to determine the critical risk source and factors. Fuzzy logic is used in the proposed methodology for evaluation of the risk level, severity and probability. The application of fuzzy reasoning techniques provides an effective tool to handle the uncertainties and subjectivities arising in the construction project.

There are wide range of risk types and sources in construction projects, and that various risk management methods and techniques can be employed in the management of construction projects in order to control potential risks. We do participate in Project Risk Management for clients as well as contractors.