RISK MANAGEMENT IN MEDIUM SIZED COMMERCIAL BUILDINGS
CHAPTER ONE
INTRODUCTION
Background of the Study
Risk management is according to Project Management Institute (PMI) one of the nine knowledge areas and the integration of an effective risk management is considered a crucial element and essential for project success. Construction projects can be described as tremendously complex projects in which uncertainty might arise from various sources. Risk management is therefor increasingly becoming an extensive component of the project management of construction projects in a pursuit to efficiently deal with unexpected events and ambivalence. It is important due to the damaging consequences imposed by risk and uncertainty (Banaitene and A. Banaitis, 2012). However, for years the industry has had a poor reputation for managing the adverse effects of change resulting in delays and a failure to meet quality and cost targets (Smith et al., 2006). The objective of an efficient risk management procedure is to facilitate risk neutral decisionmaking, which in turn till result in superior performance. Systematic methods for obtaining more information about uncertainty on the project is needed to achieve that objective (Winch, 2010). The implementation of various techniques and methods for risk management- and assessment will however not remove all risks but the aim is to ensure that the risks are assessed and managed in a manner allowing the overall objectives of the project to be achieved (Potts, 2008). Risk management involves the establishment of risk consciousness, integration of basic principles of risk policy and organizational integration. This allows, through proactive action, the project to be prepared for unavoidable problems and an increased transparency (Schieg, 2006).
It is an ongoing process throughout the entire the project life cycle as risks will continually change. Risk management is the process of identifying, assessing and responding to risk and it is important to work as an integrated project team from the earliest possible phases, in order to identify and efficiently deal with risks when they arise (Potts, 2008). The benefits of the process are clearer understanding of the specific risks associated with a project, supported decisions by detailed analysis and a build up of historical data that can be used to assist future risk management procedures. Unfortunately, many project managers have still not realized the importance of implementing project risk as an integral part of the delivery of a project (Smith et al., 2006).
An inefficient implementation of risk management is often caused by the lack of formalized procedures, the lack of continuity in the different project phases and an inadequate integration of knowledge management and interaction between processes and parties. During the construction process the major responsibility to deal with risks is laid upon contractors by deciding if the risks should be reduced, avoided, transferred or retained (Liu et al., 2007). In order to manage risk effectively the contractor needs to understand risk responsibilities, risk management capabilities and event conditions (Banaitene and A. Banaitis, 2012).