RiSK ANALYSIS IN PROJECT MANAGEMENT.

Risk Analysis In Project Management

Abstract

Construction projects are being tendered and implemented under different contract systems and payment methods. Design-build has been a popular contract system in recent years. It provides various advantages through entailing the contractor carrying out and being responsible for not only construction but also the design of the work. However, design-build turns out to be a risky system for both owners and contractors unless the risks are identified, analyzed and managed throughout the tender preparation and project execution stages. In this context, this study aims to present a literature survey on the issues of risk, risk management/analysis and the design-build contract system, to propose a schedule and cost risk analysis model, and to show the applicability of these models in scheduling and cost estimation of a fixed-price design-build construction project through a case study.

Risk Analysis In Project Management

Introduction

In a competitive tender, decisions on pricing strategies are based on contractor's experience, intuition, and personal bias. There are a lack of practical models that could quantify risks on construction projects. Xu et al. proposed an approach to the risk assessment of contractor's pricing strategies while Tummala et al. formulated a risk management process (RMP) model to evaluate the risks associated with project cost in different phases of the project life cycle. Songer et al. suggest risk analysis tools like Monte Carlo simulation for evaluating uncertainties on construction projects that are procured by either design-build (DB), construction management, or built operate and transfer methods.(Songer, Diekmann and Pecsok, 1997)

Risk

Risk best qualifies the situations in which there are past records and experience, and decisions are made under the prediction of what is the chance or probability of the outcome. All definitions given in literature share two common elements: indeterminacy and loss. In other words, in order to discuss the existence of risk; first, there must always be at least two possible outcomes and second, at least one of the possible outcomes must be undesirable. For instance, if it is known that a loss will occur definitely, there cannot be any risk.

Risk management

Risk management can be defined as a systematic controlling procedure of risks that are predicted to be faced in an investment or a project. Like every systematic procedure, it is a stepwise phenomenon. The need to perform risk management in construction projects has risen day by day due to the increasing complexity, size, competition, client-consumer requirements, politic-economic problems, and heavy physical conditions in such projects. So, in the course of time, the management of risk has become a key element for the completion of projects within time schedule and planned budget, especially in inflationary environments like Turkey.(Dawood, 1998)

Risk analysis

Risk analysis is performed to show what happens if the project does not proceed according to the plan due to potential risks and warns the decision-maker or manager about the necessary responses to cope with risks. Furthermore, it captures all feasible options and analyses various outcomes of any decision.( Tummala and Burchett, 1999)

Risk analysis techniques are grouped into two parts: ...