A Guide to Risk Management in Construction Projects - Revision history

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	The Project Management Institute (PMI) standards in the PMBOK® Guide, establishes a detailed guide to manage the risks in every project. Risk management is the most uncertain discipline in project management and this makes harder to follow the guide to the detail. Even though, risk management is highly important in every project, project managers in construction industry are more likely to follow empirical methods to mitigate these risks. The porpose of this guide is to give an easy to follow method to decision makers and project managers.		The Project Management Institute (PMI) standards in the PMBOK® Guide, establishes a detailed guide to manage the risks in every project. Risk management is the most uncertain discipline in project management and this makes harder to follow the guide to the detail. Even though, risk management is highly important in every project, project managers in construction industry are more likely to follow empirical methods to mitigate these risks. The porpose of this guide is to give an easy to follow method to decision makers and project managers.

	However, following a defined process is hard for construction projects because every project is very different and "~~unknown~~ unkowns" are more frequent in this type of projects than in projects from industries with defined processes. This makes harder to follow the guide and this is one of the reasons why construction project managers tend to follow more empirical methods.		However, following a defined process is hard for construction projects because every project is very different and "unknowable unkowns" are more frequent in this type of projects than in projects from industries with defined processes. This makes harder to follow the guide and this is one of the reasons why construction project managers tend to follow more empirical methods.

	==Annotated Bibliography==		==Annotated Bibliography==

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	This process consits in implementing agreed-upon risk response plans. The key benefit of this process is that it ensures that agreed-upon risk responses are executed as planned in order to address overall project risk exposure, minimize individual project threats, and maximize individual project opportunities. The inputs, tools and techniques, and outputs of the process are shown in Figure 8.<ref name="PMBOK"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.395-458'' </ref>		This process consits in implementing agreed-upon risk response plans. The key benefit of this process is that it ensures that agreed-upon risk responses are executed as planned in order to address overall project risk exposure, minimize individual project threats, and maximize individual project opportunities. The inputs, tools and techniques, and outputs of the process are shown in Figure 8.<ref name="PMBOK"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.395-458'' </ref>

	This is the process where the planning is implemented and decision-makers and project managers need to know what to do in case of a contingency, and the impact that the previously identified risk could have. For example, consider the case where a contractor delays due to bad weather or even negligence, what actions should be taken? ~~this~~ actions should be aligned with the risk management plan and with the consequences previously identified, with the respective costs that this events may entail. The project manager needs to have very clear the cost of every contingency and the cost of the action that needs to be taken on the overall result of the project. For example, in the case of a delay in the program, the project manager needs to know the cost of each day of delay and what actions are allowed to be taken.		This is the process where the planning is implemented and decision-makers and project managers need to know what to do in case of a contingency, and the impact that the previously identified risk could have. For example, consider the case where a contractor delays due to bad weather or even negligence, what actions should be taken? These actions should be aligned with the risk management plan and with the consequences previously identified, with the respective costs that this events may entail. The project manager needs to have very clear the cost of every contingency and the cost of the action that needs to be taken on the overall result of the project. For example, in the case of a delay in the program, the project manager needs to know the cost of each day of delay and what actions are allowed to be taken.

	[[File:MonitorRisks.PNG\|thumb\|left\|300px\|Figure 9: Monitor Risks: Inputs, Tools & Techniques, and Outputs <ref name="MR"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.453'' </ref>.]]		[[File:MonitorRisks.PNG\|thumb\|left\|300px\|Figure 9: Monitor Risks: Inputs, Tools & Techniques, and Outputs <ref name="MR"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.453'' </ref>.]]
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	Monitor Risks is the process of monitoring the implementation of agreed-upon risk response plans, tracking identified risks, identifying and analyzing new risks, and evaluating risk process effectiveness throughout the project. The key benefit of this process is that it enables project decisions to be based on current information about overall project risk exposure and individual project risks. The inputs, tools and techniques, and outputs of the process are depicted in Figure 9.<ref name="PMBOK"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.395-458'' </ref>		Monitor Risks is the process of monitoring the implementation of agreed-upon risk response plans, tracking identified risks, identifying and analyzing new risks, and evaluating risk process effectiveness throughout the project. The key benefit of this process is that it enables project decisions to be based on current information about overall project risk exposure and individual project risks. The inputs, tools and techniques, and outputs of the process are depicted in Figure 9.<ref name="PMBOK"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.395-458'' </ref>

	The target is to use performance information during the project execution to determine if the followed strategy is the right one, if the risk management approach is still appropiate or if contingency reserves for cost or schedule require modification. It is essential for the project manager to know if the action taken after a risk ~~has~~ occured has been the right one and it has reduced cost and time over-runs, maybe the action taken was even worst than the problem and a rethinking on the strategy has to be done.		The target is to use performance information during the project execution to determine if the followed strategy is the right one, if the risk management approach is still appropiate or if contingency reserves for cost or schedule require modification. It is essential for the project manager to know if the action taken after a risk occured, has been the right one and has reduced cost and time over-runs, maybe the action taken was even worst than the problem and a rethinking on the strategy has to be done.

	It is also important to identify new risks or new threats that could have a negative on the project, or potential opportunities that eventually could benefit the overall project results.		It is also important to identify new risks or new threats that could have a negative impact on the project, or potential opportunities that eventually could benefit the overall project results.

	==Limitations==		==Limitations==
	The Project Management Institute (PMI) standards in the PMBOK® Guide, establishes a detailed guide to manage the risks in every project. Risk management is the most uncertain discipline in project management and this makes harder to follow the guide to the detail. Even though, risk management is highly important in every project, project managers in construction industry are more likely to follow empirical methods to mitigate ~~this~~ risks. The porpose of this guide is to give an easy to follow method to decision makers and project managers.		The Project Management Institute (PMI) standards in the PMBOK® Guide, establishes a detailed guide to manage the risks in every project. Risk management is the most uncertain discipline in project management and this makes harder to follow the guide to the detail. Even though, risk management is highly important in every project, project managers in construction industry are more likely to follow empirical methods to mitigate these risks. The porpose of this guide is to give an easy to follow method to decision makers and project managers.

	However, following a defined process is hard for construction projects because every project is very different and "unknown unkowns" are more in this projects than in projects from industries with defined processes. This makes harder to follow the guide and this is one of the reasons why construction project managers follow more empirical methods.		However, following a defined process is hard for construction projects because every project is very different and "unknown unkowns" are more frequent in this type of projects than in projects from industries with defined processes. This makes harder to follow the guide and this is one of the reasons why construction project managers tend to follow more empirical methods.

	==Annotated Bibliography==		==Annotated Bibliography==

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	This process consits in implementing agreed-upon risk response plans. The key benefit of this process is that it ensures that agreed-upon risk responses are executed as planned in order to address overall project risk exposure, minimize individual project threats, and maximize individual project opportunities. The inputs, tools and techniques, and outputs of the process are shown in Figure 8.<ref name="PMBOK"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.395-458'' </ref>		This process consits in implementing agreed-upon risk response plans. The key benefit of this process is that it ensures that agreed-upon risk responses are executed as planned in order to address overall project risk exposure, minimize individual project threats, and maximize individual project opportunities. The inputs, tools and techniques, and outputs of the process are shown in Figure 8.<ref name="PMBOK"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.395-458'' </ref>

	This is the process where the planning is implemented and decision-makers and project managers need to know what to do in case of a contingency, and the impact that the previously identified risk could have. For example, consider the case where a contractor delays due to bad weather or even ~~neglignece~~, what actions should be taken? this actions should be aligned with the risk management plan and with the consequences previously identified, with the respective costs that this events may entail. The project manager needs to have very clear the cost of every contingency and the cost of the action that needs to be taken on the overall result of the project. For example, in the case of a delay in the program, the project manager needs to know the cost of each day of delay and what actions are allowed to be taken.		This is the process where the planning is implemented and decision-makers and project managers need to know what to do in case of a contingency, and the impact that the previously identified risk could have. For example, consider the case where a contractor delays due to bad weather or even negligence, what actions should be taken? this actions should be aligned with the risk management plan and with the consequences previously identified, with the respective costs that this events may entail. The project manager needs to have very clear the cost of every contingency and the cost of the action that needs to be taken on the overall result of the project. For example, in the case of a delay in the program, the project manager needs to know the cost of each day of delay and what actions are allowed to be taken.

	[[File:MonitorRisks.PNG\|thumb\|left\|300px\|Figure 9: Monitor Risks: Inputs, Tools & Techniques, and Outputs <ref name="MR"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.453'' </ref>.]]		[[File:MonitorRisks.PNG\|thumb\|left\|300px\|Figure 9: Monitor Risks: Inputs, Tools & Techniques, and Outputs <ref name="MR"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.453'' </ref>.]]

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	Even though, every project is different and specially construction projects have a high level of uncertainty, external resources could also be taken into account, such as academic studies, industry studies and records from the same organization. The target is to have a list of every possible risk or uncertainty factors that affect productivity, cost, time, quality and performance, so the project management could categorize them according to the risk plan. This list includes the principal risks of all major parties (contractors, designers and owners) involved in a construction project.		Even though, every project is different and specially construction projects have a high level of uncertainty, external resources could also be taken into account, such as academic studies, industry studies and records from the same organization. The target is to have a list of every possible risk or uncertainty factors that affect productivity, cost, time, quality and performance, so the project management could categorize them according to the risk plan. This list includes the principal risks of all major parties (contractors, designers and owners) involved in a construction project.

	It is also important that if any risk happens, the team ~~have~~ a prepared document regarding lessons learned, so this could help in future projects and identifying potential threats and opportunities. It can also be updated with information on techniques that were effective in identifying risks to improve performance in later phases or other projects.<ref name="CRM"> ''Kangari, R. (1988). Construction Risk Management. Civ. Engng Syst., Vol. 5, p.114-120.'' </ref>.		It is also important that if any risk happens, the team has a prepared document regarding lessons learned, so this could help in future projects and identifying potential threats and opportunities. It can also be updated with information on techniques that were effective in identifying risks to improve performance in later phases or other projects.<ref name="CRM"> ''Kangari, R. (1988). Construction Risk Management. Civ. Engng Syst., Vol. 5, p.114-120.'' </ref>.

	====Perform Qualitative Risk Analysis====		====Perform Qualitative Risk Analysis====

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	====Identify Risks====		====Identify Risks====
	[[File:TotalRisk.PNG\|thumb\|left\|300px\|Figure 4: Risk identification, inspired from: "Construction Risk Management" <ref name="RIC"> ''Kangari, R. (1988). Construction Risk Management. Civ. Engng Syst., Vol. 5, p.116.'' </ref>.]]		[[File:TotalRisk.PNG\|thumb\|left\|300px\|Figure 4: Risk identification, inspired from: "Construction Risk Management" <ref name="RIC"> ''Kangari, R. (1988). Construction Risk Management. Civ. Engng Syst., Vol. 5, p.116.'' </ref>.]]
	This is the process where the team should identify probable risks that could have both positive and negative impact on the project and gather them according to the risk plan previously done. This process is performed ~~throuhgout~~ the project. The inputs, tools & techniques and outputs that the team should follow are shown in Figure 3.		This is the process where the team should identify probable risks that could have both positive and negative impact on the project and gather them according to the risk plan previously done. This process is performed throughout the project. The inputs, tools & techniques and outputs that the team should follow are shown in Figure 3.

	In this process is very important to involve the project team so they can develop and maintain a sense of ownership and responsibility for identified individual project risks, the level of overall project risk, and associated risk response actions. In construction projects, the previous experience of each member of the team is specially important in risk identification, a brainstorming meeting could be very helpful to create a list of possible threats or opportunities. Identify Risks is an iterative process, since new individual project risks may emerge as the project progresses through its life cycle and the level of overall project risk will also change.<ref name="PMBOK"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.395-458'' </ref>.		In this process is very important to involve the project team so they can develop and maintain a sense of ownership and responsibility for identified individual project risks, the level of overall project risk, and associated risk response actions. In construction projects, the previous experience of each member of the team is specially important in risk identification, a brainstorming meeting could be very helpful to create a list of possible threats or opportunities. Identify Risks is an iterative process, since new individual project risks may emerge as the project progresses through its life cycle and the level of overall project risk will also change.<ref name="PMBOK"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.395-458'' </ref>.

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	* '''Project resilience:''' These emergent risks are better known as unknowable-unknowns and they can be tackled through developing project resilience. This requires each project to have an specific ''risk budget'' for known risks, ''flexible project'' processes that can cope while maintaining overall direction of the project, ''empowered project team'' that is trusted to get the job done with agreed-upon limits, ''frequent review'' of early warning signs and ''clear input from stakeholders'' to clarify areas where the project scope or strategy can be adjusted in response to emergent risks.		* '''Project resilience:''' These emergent risks are better known as unknowable-unknowns and they can be tackled through developing project resilience. This requires each project to have an specific ''risk budget'' for known risks, ''flexible project'' processes that can cope while maintaining overall direction of the project, ''empowered project team'' that is trusted to get the job done with agreed-upon limits, ''frequent review'' of early warning signs and ''clear input from stakeholders'' to clarify areas where the project scope or strategy can be adjusted in response to emergent risks.

	* '''Integrated risk management:''' Projects may be part of a program or portfolio, where risks also exist and should be owned and managed at the appropiate level. Some risks can be managed by the project team or manager but some risks may ~~escalete~~ to a higher level. A coordinated approach to enterprise-wide risk management ensures alignment and coherence in the way risk is managed across all levels.		* '''Integrated risk management:''' Projects may be part of a program or portfolio, where risks also exist and should be owned and managed at the appropiate level. Some risks can be managed by the project team or manager but some risks may escalate to a higher level. A coordinated approach to enterprise-wide risk management ensures alignment and coherence in the way risk is managed across all levels.

	Each project is unique and it is necessary to tailor the way Project Risk Management processes are applied. These considerations include project size, project complexity, project importance and development approach.		Each project is unique and it is necessary to tailor the way Project Risk Management processes are applied. These considerations include project size, project complexity, project importance and development approach.

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	The size of construction projects has outgrowed the industry's capacity to manage complex problems under conditions of uncertainty. Risk management in large scale projects becomes a more important part of overall construction management. Each project is very different from each other and they can't be managed in a systematic way, such as in other industries, thus risk management has always been a more trial-and-error method, which requires symbolic reasoning. Empirical knowledge plays a major role for decision-makers and project managers in every stage under uncertainty and many problems in the industry are not very well defined so the risks that this problems entail are much more difficult to define.		The size of construction projects has outgrowed the industry's capacity to manage complex problems under conditions of uncertainty. Risk management in large scale projects becomes a more important part of overall construction management. Each project is very different from each other and they can't be managed in a systematic way, such as in other industries, thus risk management has always been a more trial-and-error method, which requires symbolic reasoning. Empirical knowledge plays a major role for decision-makers and project managers in every stage under uncertainty and many problems in the industry are not very well defined so the risks that this problems entail are much more difficult to define.

	In this article the focus is on giving a more systematic way of evaluating and defining risks on any construction project, helping project managers to base their decisions on the standars in the PMBOK® Guide and in the experience of previous projects.		In this article the focus is giving a more systematic way of evaluating and defining risks on any construction project, helping project managers to base their decisions on the standars in the PMBOK® Guide and in the experience of previous projects.

	[[File:PRMoverview.PNG\|thumb\|right\|250px\|Figure 1: Project Risk Management Overview <ref name="PRMO"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.396'' </ref>.]]		[[File:PRMoverview.PNG\|thumb\|right\|250px\|Figure 1: Project Risk Management Overview <ref name="PRMO"> ''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.396'' </ref>.]]

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	====Structure of this article====		====Structure of this article====
	The article structure is aligned with the standards in the PMBOK® Guide, following the same processes. First the key and basic concepts of risk management are given, where the types of risks that a project can suffer are explained. Then, the processes are ~~explained~~ giving examples and customizing them to the needs of construction industry. The goal is to give a clear guidance through the process to project managers in construction projects.		The article structure is aligned with the standards in the PMBOK® Guide, following the same processes. First the key and basic concepts of risk management are given, where the types of risks that a project can suffer are explained. Then, the processes are analyzed giving examples and customizing them to the needs of construction industry. The goal is to give a clear guidance through the process to project managers in construction projects.

	Finally, the limitations of risk management in construction projects are explained.		Finally, the limitations of risk management in construction projects are explained.

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	This article has the goal of giving project managers and decision-makers within construction industry a more detailed guide to fulfill the needs of any project they manage, where they can identify and reduce cost and time over-runs and security risks, in order to optimize the chances of project success. The guide follows the Project Management Institute (PMI) standards in the PMBOK® Guide.		This article has the goal of giving project managers and decision-makers within construction industry a more detailed guide to fulfill the needs of any project they manage, where they can identify and reduce cost and time over-runs and security risks, in order to optimize the chances of project success. The guide follows the Project Management Institute (PMI) standards in the PMBOK® Guide.

	Four phases can be found in project management, where the executing order is really important: scope, schedule, cost and risk. With the first three constraints defined, risk is the last but not least constraint remaining, and it is certainly the one that ~~have~~ no exact answer and the most abstract one. This guide could help project managers to define risks within their projects but it is a discipline that is highly dependent on the manager criteria.		Four phases can be found in project management, where the executing order is really important: scope, schedule, cost and risk. With the first three constraints defined, risk is the last but not least constraint remaining, and it is certainly the one that has no exact answer and the most abstract one. This guide could help project managers to define risks within their projects but it is a discipline that is highly dependent on the manager criteria.

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	==Annotated Bibliography==		==Annotated Bibliography==
			'''A guide to the project management body of knowledge. (2017). 6th ed. Newtown Square, Pennsylvania, USA: Project Management Institute, pp.395-458''' The book contains the last version of the PMBOK® Guide, the article is based on the process established by this book.

			'''Kangari, R. (1988). Construction Risk Management. Civ. Engng Syst., Vol. 5, p.114-120.''' The article contains advisory on managing risks on construction projects.

	==References==		==References==
	<references />		<references />