Managing Risk in Construction Projects

Nigel J. Smith is Professor of Project & Transport Infrastructure Management at the School of Civil Engineering, University of LeedsTony Merna is Senior Partner of Oriel Group Practice and a lecturer for Manchester Business School Worldwide.Paul Jobling is a managing consultant with Kingsfield Consulting

• Preface ixAuthor’s Biographies xiAcknowledgements xiii1 Projects and Risk 11.1 Construction projects 11.2 Decision making 21.3 Risk management strategy 41.4 Project planning 51.5 Summary 62 The Project Environment 82.1 Projects 82.2 The project constitution 92.3 Project organisation 112.4 Project phases 132.5 Effect of project phase on risk 162.6 Project appraisal 172.7 Summary 193 Understanding the Human Aspects 213.1 Risk management – context 213.2 Risk management – organisations 223.3 The risk management process 233.4 Some guidelines to the risk management process 243.5 The risk workshop 263.6 Communication 293.7 Summary 30Reference 304 Qualitative Methods and Soft Systems Methodology 314.1 Qualitative risk assessment 314.2 Review of project programmes and budgets 324.3 The risk log 334.4 Using a risk log to formulate risk management strategy 354.5 Qualitative methods 374.6 Soft systems methodology 384.7 Case study: SSM in use in the procurement of construction projects 404.8 Summary 485 Risk and Value Management 495.1 Introduction 495.2 Approaches to the management of risk 505.3 The standard risk management model 525.4 Applying risk and value management 535.5 Value management processes 555.6 Understanding the project risk 565.7 Applying value and risk management 625.8 Iteration of the process 655.9 Summary 66References 666 Quantitative Methods for Risk Analysis 676.1 Sanction 676.2 Project appraisal and selection 696.3 Project evaluation 716.4 Engineering risks 726.5 Risk management 756.6 Probabilistic analysis 766.7 Response to risks 796.8 Successful risk management 806.9 Principles of contingency fund estimation 81Appendix 6.A: Alternative methods of risk analysis 827 The Contribution of Information Technology to Risk Modelling and Simulation 877.1 Purpose of RMS 887.2 When to use RMS 887.3 Requirements of the analyst 907.4 Modelling and simulation 907.5 Modelling using RMS 917.6 Data management 927.7 Analytical mechanisms 937.8 Classification of RMS 947.9 Selection of RMS 957.10 Modelling a project for risk management 967.11 Data requirements for realistic modelling 987.12 Choice of variable distribution 1007.13 Case study 1017.14 Case study simulations 1077.15 Analysis of the result 1097.16 Discussion of findings 1157.17 Summary 1158 Risk Allocation in the Contracting and Procurement Cycle 1178.1 Typical contracting and procurement processes 1178.2 Value planning case study 1218.3 Known and unknown risks in contracts 1238.4 Risk allocation strategies 1258.5 Risk allocation according to payment mechanism 1358.6 Contract award 1388.7 Summary 140Reference 1419 Managing Financial Risks in Major Construction and PFI / PPP Projects 1429.1 Project financing 1429.2 Types of finance 1439.3 Appraisal and validity of financing projects 1489.4 Typical financial risks 1519.5 Promoter 1529.6 Financial risk in concession contracts 1539.7 Global and elemental risks in concession contracts 1559.8 Summary 16010 Risks in International Construction Project Joint Ventures 16110.1 Background 16110.2 Concept of joint venture 16210.3 Motives for joint venture formation 16210.4 Assessing joint venture success 16310.5 Case study 16510.6 Summary 169Acknowledgement 169References 16911 Risk Management at Corporate, Strategic Business Unit and Project Levels 17111.1 Risk in organisations 17111.2 Risk management 17311.3 The risk management process 17311.4 Benefits of risk management 17411.5 Recognising risks 17511.6 Why risk management is used 17611.7 Risk management actions at different levels 17711.8 Summary 182References 18312 Case Studies 18412.1 Introduction 18412.2 Heavy lift vessel design and fabrication programme risk assessment 18512.3 Risk identification 18612.4 High Speed 1 18912.5 Brief history of HS1 19012.6 The risk management process 19312.7 Risk assessment, analysis and response 19812.8 Summary of the preliminary schedule risk analysis results 20513 Risk Management in a Multi-Project Environment 20913.1 Introduction 20913.2 Drivers for the multi-project approach to project delivery 20913.3 A conceptual model of the multi-project environment 21113.4 Risks that are unique to or amplified in multi-project environments 21313.5 The change in mindset required to manage risk in multi-project environments 21413.6 Summary 217References 217Further reading 21714 Key Issues and Guidance in Practical Risk Management 21814.1 Decision making 21814.2 Preparation for risk management 21914.3 Risk management process 22014.4 Models 22414.5 Uncertainty 22614.6 Socio-technical approach to risk 22614.7 Summary 228References 229Index 231

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