Exploring the elements of the risk management process

After placing and specifying hazard, it evolves into a direction issue ( Chapman, 1997 ) . Risk direction is “ a direction system that is used to place and quantify all the built-in hazards that influence the concern or undertaking public presentations, so a determination shaper can do a suited determination on how to pull off hazards. ” ( Flanagan and Norman, 1993 )

Before one decides to put in a building undertaking, it is critical to determine a risk/return profile which is ambitious with the most the market state of affairs can favor ( Flanagan and Norman, 1993 ) . Thompson and Perry ( 1992 ) , suggest that hazard direction methods are non meant to kill undertakings, neither to deter capital investors, but for the most portion, they are at that place to do certain that undertakings which are considered to be perfectly honoring and besides run into the aims are approved.

In most undertakings, hazard is either brushed off or is managed in a capricious manner i.e. a 10 % eventuality is added upon the estimated cost of the undertaking ; this is deficient for the present times.

Thompson and Norris ( 1993 ) , suggest that hazard direction should be a lasting activity during the whole of the undertaking continuance. This is due to the fact that all the major uncertainnesss happen during the early phases of a undertaking, which is besides the stage when major determinations are taken. All hazards should, for this ground, be assessed and considered before the undertaking is implemented.

Merna ( 2004 ) states that, soon, it is regarded as the portion which is interesting and critical for the planning and direction determinations at assorted degrees of the undertaking and is an activity that needs to be handled earnestly.

This chapter defines hazard direction, the assorted phases of a hazard direction procedure and the people who gain by its execution. The qualitative and quantitative hazard analysis techniques are addressed in this chapter excessively.

3.2 Risk Management Definitions

A few hazards can be identified and expected before the undertaking start, even though a few are farther off from perceptibility and expectancy. Risk direction attempts to place and pull off the different hazards that originate during the undertaking life rhythm and efforts to extenuate the effects. ( Gary and Larson, 2008 ) . Perminova et Al ( 2008 ) suggest that, undertaking hazard direction by and large prioritizes on the significance of planning as one of the primary techniques, taking attention of assorted other activities like hazard designation, analysis, monitoring and control. Merna and Al-Thani ( 2005 ) specify it as an array of actions taken by people or organisations to alter the hazard arising from their concern. Merna ( 2004 ) goes on to state that the chief aim for hazard direction is to “ Maximise stockholder value ” .

As per AIRMIC ( 2002 ) , Risk Management is a principle portion of an administration ‘s strategic direction. The hazards attached to the administration ‘s activities are approached with an purpose of carry throughing uninterrupted net incomes from within every other activity. It assists administrations to recognize and extenuate them and by making this the chance of the undertaking being a successful venture additions.

The PMBOK ( 2002 ) defines risk direction as:

“ It is the systematic procedure of identifying, analysing and reacting to project hazard. It includes maximizing the chance and effects of positive events and minimising the chance and effects of inauspicious events to project aims. ”

Harwood ( 2004 ) defines risk direction as the procedure in which we select from possible picks to diminish the effects of the hazard. It involves the appraisal of via media between alterations in hazard, anticipated returns and progressive freedom.

Uher and Toakley ( 1999 ) suggest that, hazard direction is a procedure by which hazards are controlled and mitigated. The stairss involved in it are risk designation, hazard analysis and hazard response. It aims at screening the administration from harm and loss. Its aim is to increase the maximal feasible value to the administration ‘s activities. It puts together the information acquired of all the likely jobs which can impact the administration and optimises the opportunities of success all the piece slimming the opportunities of failure and uncertainness.

The general purpose of hazard direction in a undertaking is to recognize, measure, believe and pull off likely issues in it, as a consequence of which, taking or decreasing any detrimental consequence on it ‘s aims. It can besides be described as a method, taking to recognize and mensurate the hazards to which the administration or the undertaking is unfastened, lest a reasonable determination can be taken ( Hoile, 1996 ) .

Risk direction handles the hazards to which insurance can be arranged for and besides those to which can non be insured. It is a manner affecting orderly methods for recognizing, measuring and admiting the events all the manner through the undertaking life rhythm to acquire the best or agreeable degree of hazard remotion or control ( Merna, 2004 ) . The heightened gait of alteration, consumer demands and globalization, all these place hazard direction as an of import procedure for progressive administrations with a vision of the hereafter. It becomes rather indispensable for an administration to hold an extended hazard direction scheme to keep out the current market state of affairs ( Merna, 2005 ) .

Thompson ( 1995 ) proposes that hazard direction is a critical portion of a undertaking and concern planning rhythm which requires one to accept that uncertainness exists, creates an organized response to hazard by doing other programs, solutions and eventualities, is a rational procedure demanding originality and resourcefulness, creates a reasonable mental mentality over an investing for the undertaking squad by fiting them for hazard events.

Risk direction can besides be looked at as a procedure that associates with the undertaking from the start till the really terminal. It is non similar to insurance, nor does it pull off all the hazards that occur in a undertaking. In world, it should be possible, reasonable, economical and adaptable. The extent to which one examines hazard relies upon the conditions within which a undertaking is executed and managed ( Adnan and Jaser, 2008 ) . Al-Bahar and Crandall ( 1990 ) , describe hazard it as a procedure for orderly designation, analysis and response to put on the line events during the whole of the undertaking to get the best possible degree of hazard remotion or direction.

Still, risk direction must be a changeless and germinating procedure which should continue all the manner through the administration ‘s scheme and its public presentation. All the hazards enveloping the administration ‘s activities from the yesteryear, the hereafter and particularly the future activities should be dealt with in an orderly mode. It must be accommodated into the administration ‘s civilization and must be governed by the most senior direction. The scheme must be interpreted into well-thought and operational aims, authorising answerability throughout the administration with every employee held accountable for hazard direction. It holds up duty, efficiency measuring and wages, and so encouraging operational efficiency at all degrees. It helps an administration restore assurance into the stakeholders, that the undertaking is being managed in an efficient mode and formalize its understanding with the corporate administration scheme. It is evident that hazard direction is now an of import concern procedure and must be thought out consequently and on a changeless mode so that hazard and volatility can be reduced and returns made better ( AIRMIC, 2002 ) .

3.3 Risk Management Process

Risk direction is of import to vouch the success of a building undertaking on clip, budget and of good quality. A smattering of people would deny the significance of hazard appraisal in a undertaking, but really few analyze the hazards in an orderly mode, they use experience and intuition for analysis. Risk direction is of import for the success of a undertaking, but is it acceptable if we are merely cognizant of hazards or should they be mensurating, analyzing and pull offing them?

As any building undertaking is complex in nature, it includes a high chance of hazard. Despite this, hazard direction is non sufficiently developed in the building industry. Every stakeholder of a undertaking approaches hazard analysis and direction with their ain experiences.

Every administration should hold a suited hazard direction procedure, they will pull off hazards in a manner that is suited to their administration ‘s model, but the procedure will by and large hold the streamlined stairss:

Recognizing and sort the hazards that are present in the administration ‘s scheme.

Measuring likeliness and possible effects of the hazards.

Picking up an appropriate hazard direction technique and besides reassign or avoid the hazards which the administration can non pull off.

Detecting and analyzing the effects.

Using restrictions to pull off the outstanding hazards.

Detecting the effectivity of the assorted techniques used.

Learning from experience and initiating alterations.

Assaf ( 1982 ) suggests an orderly attack for hazard direction. It contains:

Designation of hazards with the assistance of concern audits, consecutive diagrams, studies and checklists or a combination of these.

Analysis of options for hazard direction through hazard control, turning away, keeping or transportation.

Risk direction by the administration.

Backer et Al ( 1999 ) have proposed a series of stairss which are interlinked, these stairss if managed decently, will take to a disciplined hazard environment. They are ; hazard designation, hazard appraisal, hazard rating, hazard response and hazard monitoring. Here risk designation and appraisal will come under hazard analysis. Whereas hazard analysis and hazard rating will come under hazard appraisal, response and monitoring come under hazard control. This can be understood by analyzing the figure below.

An orderly undertaking hazard direction method would include five phases, which are, risk designation, hazard analysis and changeless rating, control and accumulating experience throughout the undertaking lifecycle. Kahkonen and Huovila ( 1999 ) province that “ Orderly hazard direction means advanced readying and determination devising for minimising the effects of possible inauspicious hereafter events and, on the contrary, to maximize the benefits of pure future events. ” Harmonizing to them, undertaking hazard direction is farther connected to “ be aftering ” in topographic point of “ direction ” , which as a regulation directs to command of the hazard events. Peoples by and large consider undertaking hazard direction as an aggressive technique for placing possible hazards, analyze them, admit them and seek to extenuate them.

Flanagan ( 1999 ) points out that perceptible ideas need to be used with the best applicable information in an orderly mode to analyze hazards in a undertaking. This can be farther understood by analyzing the undermentioned figure.

Chapman and Ward ( 1996 ) demonstrate that there are eight phases in the hazard direction procedure:

Define: In this phase, appropriate information on the undertaking is combined and incompatibilities, if any are to be fulfilled.

Focus: In this phase, the critical program and the extent of the hazard direction procedure are to be decided.

Identify: In this phase, the countries where the hazard will happen is to be identified.

Structure: In this phase, the hazards identified are tested and a more elaborate model is designed.

Ownership: In this phase, hazards are allocated to the assorted stakeholders.

Estimate: In this phase, the countries of considerable uncertainness are identified.

Evaluate: In this phase, the consequences of the appraisal phase are brought together and evaluated.

Plan: In this phase, the undertaking program is ready for execution.

Raftery ( 1994 ) explains the hazard direction procedure with the aid of a chart which can be seen below.

The PMBOK ( 2000 ) describes undertaking hazard direction procedure as one which includes:

Hazard designation

Hazard Analysis ; and

Hazard Response.

The above stairss are really much like those proposed by Raftery ( 1994 ) .

3.3.1 Risk Identification

Hazard designation is designed to find possible hazards ; hence it is the most critical phase in the procedure. PMBOK ( 2000 )