Risk Attitudes in the Construction Industry

Risk Attitudes in the Construction Industry - Avoidance Does Not Work [P084]

Risk management is one of the least appreciated aspects of modern construction management. Most client organisations are excessively risk averse, and in their attempts to avoid ‘all risk’ expose themselves to more adverse outcomes than if they actively embraced and managed risk. No client can avoid the ultimate risks associated with its project such as the liquidation of its prime contractor; these major events inevitably impact the client and by attempting to quarantine itself from ‘all risk’, the client simply passes the benefit of any favourable outcomes to its contractor.

A recent example of the impossibility of avoiding, or contracting out of, ‘all risk’ is the new Wembley Stadium, delivered years late and $millions lost. Contrast Wembley with BAA’s Terminal 5 project at Heathrow and the need for an effective risk attitude by organisations becomes obvious. BAA’s management set out to actively manage ‘all risks’ in the Terminal 5 project and have delivered one of the most successful major construction projects in Europe this decade. By effectively engaging in its project, BAA could help mitigate adverse risk events and collect benefits from favourable risk outcomes. In this context, ‘effective engagement’ included both having the right risk attitude, as well as being a knowledgeable client that could partner effectively with its contractors to proactively manage project risk. Unfortunately the proactive engagement with managing risk did not flow through to the opening of T5.....

This paper describes the key aspects of risk management needed from the client, the contracting organisation and the project to optimise overall risk management and places risk management within a stakeholder management framework. Particular focus will be on reducing the variability in projected outcomes (closing in on the Mean) to minimise the contingencies needed to compensate for expected variability, and the competencies required at each level to manage risk events to optimise project outcomes.

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