International Journal of Modern Engineering Research (IJMER)
www.ijmer.com Vol.2, Issue.3, May-June 2012 pp-1081-1085 ISSN: 2249-6645
Risk Assessment Methods and Application in the Construction
Projects
DR. R. K. KANSAL, MANOJ SHARMA
Department of civil Engg. Madhav Institute of Technology, Gwalior
Abstract:
Risks are very common in construction sector. Risk is the Possibility of suffering loss and the impact on the involved parties.
Risk is identified and then risk assessment and analysis is done. Then risk management and risk mitigation is carried out. Risk
affect construction sector negatively and focusing on risk reduction measure it important. The purpose of this study is to assess
the use and method of risk identification techniques in the construction industry. They are classified in specialized industrial
construction, infrastructure and heavy construction. We conducted a survey research by applying a questionnaire among in the
construction industry. The risk identification techniques more frequently applied in construction are checklist, flowchart, Brain
storming, Delphi method etc.
Key words: Risk, Risk identification techniques,
1. Introduction
There are many risks encountered in the projects particularly construction project R Norman G (1993). The possibility of
encountering loss and its impact is known as risk. Risk is a negative term referring to loss and impact of loss, but there is also
positive risk involving favorable results and their impact is risk involving favorable results and their impact is known as
opportunity Vaughan EJ (1986).In accordance with Ferreira (2009) the recovering of the construction area is very important to
the engineering service sector. Faced with this increase of demand, we verify that it is necessary to include risk management in
project planning and management so as to identify, assess, manage and control the risks that would be adverse to the project
goals (Kerzner 2002). This theme is relatively new, though since this methodology was elaborated in the last decade and the
companies have been adopting it in their projects in the lasting years. The risk identification phase was considered by many
studies in this area as the most important phase in the risk management process. During this phase there is a lot of identification
techniques that could help the identification process. The aim of this article is to assess the degree of knowledge and utilization
of risk identification techniques in the construction projects.
2 Literature Review -
Hull (1990) introduces different models, based on Monte Carlo Simulation and PERT, to assess proposal risk from cost and
duration point of view.
Mustafa and Al-Bahar (1991) adopt the Analytic Hierarchy Process (AHP) to assess construction project risk. It applied the
concept of value and weight to assess risk probability and impact.
Dikmann (1992) discuss, from a theoretical and practical perspective, the issue of applicability and the short coming of risk
analysis techniques based upon probability theory.
Paek et al.(1993) proposes a risk-pricing algorithm, using FST, to assist contractors when determining the bid price of a
construction project.
A critical literature review (Williams 1995) concludes that limited research had been undertaken on quality risk and there was a
lack of research into the impact of risk on different project objectives.
Williams (1996) discuss the limitations of P- I risk models, while advocating a three dimensional risk model : Probability –
Impact- predictability, as recommended by Charette (1989).A stochastic model, which combines the randomness of the cost and
the duration of a project activity, was developed by Tavares et al.(1998).
Hastak and Shaked (2000) deploy AHP within a framework for assessing international construction projects, with risk modeled
as P-I. Using the well established Fuzzy Set Theory (FST) to assess construction risk Tah and Carr (2000) develop a qualitative
risk assessment model, which incorporates linguistic variables to assess risk likelihood and impact, and the interdependencies
between different risks.
A DSS for managing risk in the early stages of a construction project is proposed by Dey (2001) based on AHP and decision
trees. It seeks to identify the best strategy, project scenario, for managing construction project risk through the expected
monetary value (EMV) of each risk response strategy.
Baloi and price (2003) compare different theories used for dealing with uncertainty within the construction industry and
recommend FST as a vital solution for assessing construction uncertainty. Shang et al. (2005) develop a DSS to facilitate
construction risk assessment at design and conceptual stages.
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International Journal of Modern Engineering Research (IJMER)
www.ijmer.com Vol.2, Issue.3, May-June 2012 pp-1081-1085 ISSN: 2249-6645
Dikmen and Birgonul (2006) use AHP within a multi-criteria decision making (MCDM) framework for risk and opportunity
assessment of international construction projects. They calculate the overall risk level of each project by multiplying the relative
impact with the relative probability for each risk and then adding the score up. Hsueh et al.(2007) to develop a multi-criteria risk
assessment model for construction joint-Ventures. It merely proposes that decision makers are able to make-
judgements: the higher the expected utility value, the lower the overall project risk. Zayed et al. (2008) use AHP to assign
weights to risks before calculating project risk level, which is defined as the sum of the weighted risk effects of risk factors.
3. Risk Identification and Risk Identification Technique -
The risk identification phase as being either one of the most important stages within the risk management process, (Martins,
2006) or even the most challenging and relevant phase in this process (Kloss-Grote and Moss, 2008)
Chapman (1998) divided the risk identification phase into three categories.
1. The Risk identification conducted only by a risk analyst and based exclusively in his practice, knowledge and capacity.
2. The Risk identification was conducted through the interview of the risk analyst with one or many members of the project
staff in order to analyze the reviewed data and the project life cycle based on the knowledge and expert of the people
interviewed.
3. The Risk identification in which the risk analyst guides one or many work groups applying the risk identification techniques.
4. Risk Identification Techniques -
1. Brainstorming – An idea generation group technique is divided in two phases. (i) idea generation phase, in which participant
generate as more ideas as possible (ii) idea selection phase, the ideas are filtered, remaining only those approved by the
entire group. (Morano et al. 2006).
2. Delphi Technique – Delphi is a technique to obtain an opinion consensus about future events from a group of experts. It is
supported by structured knowledge, experience and creativity from an expert panel (Wright and Giovinazzo as cited by
Morano et al.,2006)
3. Interview/ Expert judgment – Unstructured, semi structured or structured interviews individually or collectively conducted
with a set of experienced project members, specialist or project stakeholder (Morano et al.,2006)
4. Checklist – It consists of a list of item that are marked as yes or no , could be used by an individual project team members, a
group or in an interview. (Morano et al.,2006)
5. Influence Diagram – It is a graphical representation containing nodes representing the decision variables of a problem. A
traditional influence diagram is formed by three types of nodes: utility, decision and informational. The causal relationship
occurs between utility and chance nodes and represents a probabilistic dependence.
6. Flowchart – Graphical tool that shows the steps of a process. This technique is applied for a better comprehension of the
risks or the elements interrelation (Morano et al.,2006)
7. Cause-and-Effect Diagrams – These are also called Ishikawa diagrams or fishbone diagram, illustrate how various factor
might be linked to potential problems or effects(PMBOK – PMI, 2008). The diagram is designed by listing the effect on the
right sides and the causes on the left sides. There are categorized for each effect, and the main causes must be grouped
according to these categories (Morano et al., 2006)
5 Methodology -
1. Data collection for risk assessment
2. Analysis of Data by – Risk Significant Index Method
The accumulated data will be grouped into categories risk and its magnitude of consequence on project objective in term of Cost,
Time, Quality, Environment and Safety. The three point scales for the risk α (Highly likely, likely, less likely) and the
consequence β ( High magnitude, Medium magnitude, Low magnitude) will be converted into numerical scales. The numerical
values and the calculation of the Risk Significance Index depending on the design of the questionnaire, different value can be
assigned to α and β. A three point rating scale is chosen according to Shen et al and Zon et al.(2001) and Wang and Liu (2004),
High, Highly take value of 1, Medium takes a value of 0.5 and Less or Low take a value of 0.1. The average score for each risk
considering its significance an a project can be calculated by
K k
r =αβ
ij ij ij
Where
rk Significance score assessed by respondent j for the impact of risk i on project objective k
ij
i = ordinal number of risk
k = ordinal number of project objective
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International Journal of Modern Engineering Research (IJMER)
www.ijmer.com Vol.2, Issue.3, May-June 2012 pp-1081-1085 ISSN: 2249-6645
j = ordinal number of valid feedback to risk i
n = total number of valid feedback to risk i ;
α ij = Likelihood occurrence of risk i, assessed by respondent j
k
β ij = level of impact of risk i on project objective k , assessed by respondent j.
The average score for each risk considering its significance on a project objective can be calculated
n
Rki = 1/ n Σ α ij β k ij
J=1
Where Rki = Significance index score for risk I on project objective k .
6. Conclusions -
This paper is based on a literature review on the risk assessment methods. The risk assessments approaches are applied in various
areas and the problems solve. It was found that the currently used methods for risk assessment are Brainstorming, checklist,
Flowchart Delphi method, Risk significant index method. Each method of risk assessment has their limitation therefore this
paper attempt to formulate integrated risk assessment tools. It was observed that currently used risk assessment methods can be
integrated into new approach that can aid the decision makers applying the risk assessment effectively.
7. References -
[1] R.C.Walke et al. “An approach to risk quantification in construction projects” International Journal of Engineering Science
and Technology Vol. 3 No. 9 September 2011 .pp 6846-6855.
[2] L. Y. Shen,1 George W. C. Wu,2 and Catherine S. K. Ng3. Risk assessment for construction joint venture in chinaJournal
of construction Engineering and management Vol. 127 No. 1 January/ February 2001 pp. 76-81.
[3] Wenzhe Tang1; Maoshan Qiang2; Colin F. Duffield3; David M. Young4; and Youmei Lu5. Risk management in the
Chinese construction industry. Journal of construction Engineering and Management ASCE/ DECEMBER 2007
[4] Dr Patrick. X.W. Zou1, Dr Guomin Zhang2 and Professor Jia-Yuan Wang3 1 and 2: Faculty of Built Environment,
University of New South Wales, Sydney 2052, Australia;3: College of Architecture and Civil Engineering, Shenzhen
University, Shenzhen, P.R. China. Identified Key Risks in Construction Projects: Life Cycle and Stake Holder
Perspectives.
[5] Akintoye A.S and MacLeod, M.J. (1997). Risk analysis and management in construction, International Journal of project
Management. Vol 15, February 1997, pages 31-38.
[6] Ossama A.Abdou (Asst.Prof. Dept. of Civil and Arch. Engg.Drexel University) Managing Construction Journal of
Architectural Engineering, Vol 2, No.1 March 1996, pp. 3- 10.
[7] Matins Claudia Garrido, Morano Cassia Andra Ruotolo, Fereira Miguel Luiz Riberio and Haddad Assed Naked. Risk
Identification Techniques Knowledge and Application in the Brazilian Construction Vol. 2(11), pp. 242-252,
November2011
[8] Chapman R.J. (2001) The Controlling Influences on Effective Risk Identification and Assessment for Construction Design
Management, International Journal of Project Management. Vol 19.Issue 3, pp. 147-160.
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International Journal of Modern Engineering Research (IJMER)
www.ijmer.com Vol.2, Issue.3, May-June 2012 pp-1081-1085 ISSN: 2249-6645
APPENDIX I
“Risk in construction industry” Question Survey
Type of risk Probability level of the risk occurrence (a) Degree of impact or the Tota
level of loss if the risk occurs (b) l
Risk
ab
S N Very Smal Norma Larg Very N Ver Lo Mediu Hig Ver
N A Smal l l e Larg A y w m h y
l e Low Hig
h
0 1 2 3 4 5 0 1 2 3 4 5
A Financial
Risk
1 Loss due to
fluctuation of
interest rate
2 Low
credibility of
shareholder
and lender
3 Change in
bank
formalities
and lenders
4 Loss due to
rise in fuel
prices
5 Insurances
risk
B Legal Risk
1 Breach of
contract by
project
partner
2 Lack of
enforcement
of legal
judgment
3 Improper
verification
of contract
document
4 Uncertainty
and
unfairness of
court justice
C Managemen
t Risk
1 Change of
top
management
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International Journal of Modern Engineering Research (IJMER)
www.ijmer.com Vol.2, Issue.3, May-June 2012 pp-1081-1085 ISSN: 2249-6645
2 No past
experience in
similar
project
3 Short tender
time
4 Internal
management
problem
5 Improper
project
feasibility
study
6 Poor relation
and disputes
with partner
7 Team work
8 Time
constraint
9 Project delay
D Market Risk
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