The following essay has been written by analyzing the risks associated from the construction managers/ project managers’ point of view. Citing the possible risks associated while working on international or varied geographical location. Risks are associated with almost all levels of the project life cycle and is mutually shared and mitigated by all parties employed within the construction industry. There are many evidences to state that poor risk mitigation leads to poor performance and hence establish risk management processes and practices are required to be adhered to in order to turn any project’s outcome into a success. The 2000 edition of the Guide to the Project Management Body of Knowledge (PMI,2000) states that a project risk is : ‘An uncertain event or condition that, if it occurs, has a positive or negative effect on a project outcome’. Risks can be broadly classified into 2 categories- speculative risk and pure risk. Speculative risks can be both positive and negative whereas pure risks are mostly negative by nature. Risk can be defined as the ‘variability of return from an investment’ risk analysis play an important role in any project. All projects are prone to some kind of risk or the other. All projects are appraised making certain assumptions and such assumptions are unavoidable since no 2 projects are unique in all respects and hence a new project cannot be compared with an identical project that was executed in the past. Though there may be similarities in 2 projects, exactly identical projects do not exist. KINDS OF RISK IN A PROJECT (in the built environment)
Projects face a host of risks such as,
PROJECT COMPLETION RISK
Completion of the project in time and within the estimated cost is itself a major achievement. A project that is delayed will result in time over run which will subsequently lead to a cost over-run. If the project promoters are not able to pump in additional funds required to meet the cost over-run, then the project runs the risk of coming to a grinding halt. Also delayed implementation means an increase in interest commitments on the borrowed funds. When the project promoters find it difficult to meet the interest commitment during the implementation phase, the lenders may not be prepared to fund the project additionally to meet the cost over-run. There can also be technology failures, which may result in the non completion of the project. For projects with long gestation periods in the field of fast developing technology, there is a risk of project not being completed due to technological obsolesce during the course of project implementation. 12 | P a g e
Raw material, power, fuel, manpower etc are the resources used by a project. Shortage of raw materials may lead to a reduction in capacity utilization and higher cost of production which will make all profitability estimates wrong. Similarly, shortage of power, fuel, and shortage of skilled manpower will also jeopardize the project profitability, calculations and the project may run the risk of not earning the estimated returns. PRICE RISK
Price fluctuations of both inputs and outputs (ie, raw material and finished products) affect the project. Unforeseen happenings such as government’s intervention in price fixation ability of competitors to offer their product to customers at a comparatively cheaper price etc, are likely to have an adverse impact. TECHNOLOGY RISK
Technology risk may appear in two forms. A project that is based on unproven technology may have hidden defects which may make the project obsolete in technology due to evolution of latest technology. POLITICAL RISK
Political risk is a major risk as it cannot be predicted easily. The government intervenes in many forms such as levying and regulating taxes, regulating monopolistic trade practices, imposing import duties, promoting inputs, price – control, ex-proration, nationalization etc. INTEREST RATE RISK...