Professional Documents
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RISKMGT
RISKMGT
Discuss :
Classification of Risks
WHAT IS PROJECT?
Cost Success
Project
Constraints
Quality Time
Cost
overrun
Risks
Project
Poor Constraints Delays
Quality
WHAT IS RISK?
Phenomenon closely associated with
uncertain events.
It is chance (probability) of loss.
probability of occurrence .
Risk Means that
There is a possibility of loss or damage.
Exposure to Danger.
THE RISK MANAGEMENT PROCESS
ion
sultat
review Establish the context
& con
d
Monitoring an
ion
unicat
Evaluate the risks
Comm
Risk Elimination
Risk Retention
Handling risks by the company who is undertaking the
project.
Two retention methods, active and passive.
Active retention is a deliberate management strategy
after a conscious evaluation of the possible losses and
costs of alternative ways of handling risks.
Passive retention occurs through negligence,
ignorance or absence of decision.
RISK REDUCTION
Risk reduction is done either by reducing the
probability or size of occurrence of loss producing
event or its financial implications if it occurs
Risk reduction through safety and security measures
e.g. risk of theft of material on site is reduced by the
installation of security system, watchmen, etc.
Risk reduction through organisational planning
Involves systematic risk reduction by a conscious
management policy & organisational planning. This
could be done through defined job responsibilities,
training etc. though initially expensive but in long
run it proves to be advantageous against the cost of
mitigation of risk at full force
Risk Response
Risk Response Methods
Risk Reduction
Continuous effort.
Related with improvements of a company’s physical,
procedural, educational, and training devices.
Improving housekeeping, maintenance, first aid
procedures and security.
Education and training within every department .
Risk Response
Risk Response Methods
Risk Transfer
Two basic forms.
(a) The activity responsible for the risk may be
transferred, i.e. hire a subcontractor to work on a
hazardous process. Expected risk cost is built in
contract price – Selection of contract
(b) The activity may be retained, but the financial risk
transferred to insurance.
RISK IN INSURANCE
RISK is defined for Insurance Purpose as the
UNCERTAINTY OF A FINANCIAL LOSS.
The object of Insurance is to provide
protection against Financial Losses caused by
Unexpected Events. Thus Insurance is a
protection against the Consequences of RISK.
In Insurance, the word Risk may be used
interchangeably with Peril-which means the
Prime Event or occurrence which causes the
loss.
RISK IN INSURANCE
In Insurance, the word Risk may
also refer to the Property or
Subject Matter of Insurance
The Subject Matter of Insurance
can be Life, Limb, Property,
Interest & Liability
Peril, Hazard & Proximate Cause
Peril means prime event which causes loss and the
factors which have an effect on the outcome of loss.
E.g. A house constructed on a beach and there is a
risk of cyclone.
Hazard : It is a condition that increases chance,
size and severity of loss. E.g A house constructed
on beach
Physical hazards arise from the physical
characteristics of an object that increases severity of
loss from given peril
E.g. ship damaged and lost due to collision on
iceberg Earth faults – hazard for earthquakes,
dense forest – hazard for fire
Moral Hazards & Proximate Cause
Moral Hazard : It arises from attitude of the
insured or they are acts of dishonest
individuals. E.g. Intentionally hitting the car
on lamp post
Proximate cause means the effect of cause is
active and which sets in a motion chain of
events between the occurrence of events
between the occurrence of covered perils and
damage of the property
DEALING WITH RISK
to its Owner.
There is a normally expected Life-time for the
51
Impact of Insuring Partial Losses and Total Losses
BOOK VALUE
This is the value of the property as indicated in the
insured’s books of accounts.
It is arrived at by applying depreciation on the original cost
of the property.
At some point of time this value may be nominal and not
adequate for insurance purposes.
MARKET VALUE
‘Market Value’ is determined, for insurance
purposes, with reference to
Present cost of construction of similar building
less (the purchase cost + suitable depreciation
based on age + usage + maintenance, etc.)
Client Team
Type of Client Change in Govt. Policy
Constraints on Delay in Decisions/
Contractor’s Choice Approvals
Competence Lender Requirements
Bureaucratic Procedures Approval Procedures
Change In Requirements Communication Risks
Confirmed Brief Interpretation of
Requirements
RISKS IN CONSTRUCTIONS
Contractual Risk Design Risk
Form of Contract Practicality of Concept
One Sided Contracts Extent of Foundations
Modification of Pioneer/ Experimental
Contract conditions Design
Arbitration Use of Latest
Scope Of Project Equipments
Additional Facilities
Specifications of
materials
Service
Requirements
Tolerances
Change In Scope
Change In
Regulations
Design Team Financial Risk
Experience of Team Interest Rates
Continuity of Team Delay in Funding approval
Authority of Team Restrictions on cashflow
Project Mgt. Role Inflation
Level of Design Fixed / Fluctuating Contract
Information
Exchange rates
Delay in financial closure
Public & Safety Regulations
Fire Services Req. Health & Safety
Environment Risks Requirements
Planning Approvals Building Byelaws
Construction Risk Pricing / Estimation Risk
Bankruptcy of contractor Market Conditions
Variation & Change order Tender Price Levels
Time and Cost Overruns Tax changes
Defective works Changes in Labour /
Fire Risks, Force Majeure Material Rates
Performance Of Change in Insurance
Subcontractors Premium
Hidden Problems
Material & Plant
Availability
Completed Operations Risk
SITE PARAMETERS RISK
Location and Climatic Considerations
Soil and Geology
Access Problems and Right of way
Contaminated ground
Waste Treatment
Infrastructure Requirements
Encroachment
NON CONSTRUCTION RISKS
Inadequate Forecasting of revenues
Frauds
High Operating costs due to high maintenance
Competition from other operators eroding
market share and therefore revenues
Natural disaster (e.g. hurricane or earthquake)
Product Obsolescence
Managerial Incompetence
Reduction in use due to economic downturn
Categories of Engineering
Insurance
Construction &
Development Risk :
Defective Design,
Workmanship, Material
CAR
Damage to work
Injury to third parties Third Party
Liability
covering all
parties
Financial Losses ALOP following a
following a delay or material damage
operational start up loss