risks in construction
Articles Construction Management

What are the various types of risks in construction projects?

Last Updated on November 6, 2020 by Admin

The Project Management Institute (PMI) defines project risk in its Project Management Body of Knowledge (PMBOK) as ‘‘an uncertain event or condition that, if it occurs, has a positive or negative effect on at least one project objective, such as time, cost, scope, or quality. A risk may have one or more causes and, if it occurs, one or more impacts.’’ Read this article to learn more about the various types of risks involved in the construction project.

A risk is a potential event, either internal or external to a project, that, if it occurs, may cause the project to fail to meet one or more of its objectives.

Risks In Construction Projects

Construction projects are very complex and can pose various internal and external risks, filled with uncertainties and at times unpredictable. Unfortunately, there is no way to completely avoid risks as there are bound to be unknown factors that arise over the course of a project.

Managing risks in construction projects has been recognized as a very important process in order to achieve project objectives in terms of time, cost, quality, safety, and environmental sustainability.

One of the best ways to manage risks is to know the various types and how you can manage them. If you can identify and categorize risks before you start a project, you can enhance your risk management and escape any possible losses.

Risks in the construction sites are categorized into various types like physical risk in construction, design risks in construction projects, financial risk in construction. The risk factor in construction projects needs to be studied properly for every construction site.

It is very necessary for the analysis of major risks in construction projects and risk identification in construction projects. Risk management in construction and risk identification in construction projects is important to step before starting any project.

Types of Risks In Construction

Construction risks can be categorized into the following various categories. Kindly check the below mentioned major types of risks in the construction sites.

types of risk in construction management
Image: Types of Risk in Construction Projects

1. Environmental Or Acts Of Gods Risk

The environmental risk which we could also call Acts of God is the risk arises due to Flood, Earthquake, Landslide, Wind Damage, Epidemic, Pandemics, and the occurrence of any type of Natural disaster.

2. Financial & Economic Risk

These risks involved Investment risk, Inflation, Non-availability of funds, fluctuations in currency exchange rates, change in tax structure, change in royalty structures of stone and sand, Effects of time and cost overruns, etc.

3. Socio-Political and Legal Risk

The site area is politically motivated, Presence and participation of union labor, local personnel are to be engaged, shifts in political leadership, change in laws and regulations, import-export restrictions, and procedures. The requirement for licenses and permits, pollution & safety norms, etc.

4. Design or Technical Risk

Technical risks include anything that restricts you from creating the product that your customer wants. This can include uncertainty of resources and availability of materials, inadequate site investigation, or incomplete design. These risks can commonly occur when there are changes in project scope and requirements, and if there are design errors or omissions.

5. Logistics Risk

Logistic risks can be considered in any form from every global supply chain perspective. These risks include the availability of transportation facilities and the availability of construction equipment such as spare parts, construction machinery, fuel, and labor. Without addressing these logistical issues, you risk huge project delays and losses.

It is also referred to as uncertain probabilities or threat of damages, injuries, liabilities, loss, or any other negative occurrence that is caused by external or internal vulnerabilities.

6. Physical Risk

Inadequate or low-quality procurement of resources, Non-availability of the material – quality as well as quantity, Weather conditions; like extremely hot or cold temperature/ Heavy rainfall, Unsafe working conditions, Fire, Wastage, and theft, etc.

7. Contractual Risk

Unrealistic time schedule, Conflicting conditions of the contract, Delay in possession of the site, Payment problems, Extra works/ variations, Claims and disputes, Differing site conditions.

8. Management (leadership and organizational) Risk

Management risks involved the wrong selection of project team, No project manual/ documented procedures/ processes, a project being too complex for the available resources, Inadequate communications infrastructure, poor quality control, unsatisfactory control o status review meetings, Inability to take timely corrective actions, Lack competent/ experienced persons in the project team.

Identifying risks, that are present in your project is the first and perhaps the most important step in the risk management process.

If there is a failure to identify any particular risk then other steps in the risk management cannot be implemented for the risk. It is highly recommended to consider the above-listed types of risks before starting any construction activity.

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