Financial Risks in Construction
Financial Risks in Construction
Discuss financial risks in construction, highlighting historical background, current issues/practices and implications/relevance to construction project management generally and specifically to construction project planning and control, feasibility study and appraisal, and financing. 1.0 Definitions i. The Project Management Institute‟s (PMI) A Guide to the Project Management Body of Knowledge (PMI 2008) defines project risk as: An uncertain event or condition that, if it occurs, has a positive or a negative effect on at least one project objective. ii. iii. According to the Oxford English Dictionary (2009), risk is a situation involving exposure to danger or the possibility that something unpleasant will happen. The ISO 31000 (2009) /ISO Guide 73:2002 definition of risk is the 'effect of uncertainty on objectives'. In this definition, uncertainties include events (which may or not happen) and uncertainties caused by ambiguity or a lack of information. It also includes both negative and positive impacts on objectives; this definition was developed by an international committee representing over 30 countries and is based on the input of several thousand subject matter experts. The British Standard on Project Management (EN BS 6079-3:2000) defines Risk as an uncertainty inherent in plans and the possibility of something happening (i.e. a contingency) that can affect the prospect of achieving business or project goals.
iv.
2.0 Risks 2.1 Financial risk Financial risk is an umbrella term for multiple types of risk associated with financing, including financial transactions that include company loans in risk of default. Risk is a term often used to imply downside risk, meaning the uncertainty of a return and the potential for financial loss. Financial risk include, i. ii. iii. iv. v. Inflation. Availability and fluctuation in foreign exchange. Delay in Payment. Repatriation of funds. Local taxes
2.2 Construction Financial Risk
Discuss financial risks in construction, highlighting historical background, current issues/practices and implications/relevance to construction project management generally and specifically to construction project planning and control, feasibility study and appraisal, and financing. 1.0 Definitions i. The Project Management Institute‟s (PMI) A Guide to the Project Management Body of Knowledge (PMI 2008) defines project risk as: An uncertain event or condition that, if it occurs, has a positive or a negative effect on at least one project objective. ii. iii. According to the Oxford English Dictionary (2009), risk is a situation involving exposure to danger or the possibility that something unpleasant will happen. The ISO 31000 (2009) /ISO Guide 73:2002 definition of risk is the 'effect of uncertainty on objectives'. In this definition, uncertainties include events (which may or not happen) and uncertainties caused by ambiguity or a lack of information. It also includes both negative and positive impacts on objectives; this definition was developed by an international committee representing over 30 countries and is based on the input of several thousand subject matter experts. The British Standard on Project Management (EN BS 6079-3:2000) defines Risk as an uncertainty inherent in plans and the possibility of something happening (i.e. a contingency) that can affect the prospect of achieving business or project goals.
iv.
2.0 Risks 2.1 Financial risk Financial risk is an umbrella term for multiple types of risk associated with financing, including financial transactions that include company loans in risk of default. Risk is a term often used to imply downside risk, meaning the uncertainty of a return and the potential for financial loss. Financial risk include, i. ii. iii. iv. v. Inflation. Availability and fluctuation in foreign exchange. Delay in Payment. Repatriation of funds. Local taxes
2.2 Construction Financial Risk
References: 1. Alexander F H Loke. 1998 RISK MANAGEMENT AND CREDIT SUPPORT IN PROJECT FINANCE (Singapore Journal of International & Comparative Law. 2. Kenn Dolan June 2009; Exploring Techniques for Making Better Project Investment Decisions. 3. Kenn Dolan June 2009; MANAGING PROJECT APPRAISAL & FEASIBILITY. 4. Dr Patrick X.W. Zou1, on “Identifying Key Risks in Construction Projects: Life Cycle and Stakeholder Perspectives” (2004). 5. Brian A. Burt, BDS, MPH, PhD (2001) DEFINITIONS OF RISK. 6. Global association of risk professionals, June 2004; The History of Financial Risk Management: A (Mostly) Personal View. 7. Simon A. Burtonshaw-Gunn, Risk and Financial Management in Construction. 8. Dr Patrick. X.W. Zou1, Identifying Key Risks in Construction Projects: Life Cycle and Stakeholder Perspectives. 9. Uher, T. (2003) Programming and Scheduling Techniques, UNSW Press, Sydney 10. Uher, T.E. and Toakley, A.R. (1999) Risk Management in the Conceptual Phase of a Project, International Journal of Project Management, 17(3), 161-169. 11. Abdou, O.A. (1996) Managing Construction Risks, Journal of Architectural Engineering, 2(1), 3-10. 12. Flanagan, R. and Norman, G. (1993) Risk Management and Construction, Victoria: Blackwell Science Pty Ltd, Australia. 13. Ward, S.C. and Chapman, C.B. (1995) Risk-Management Perspective on the Project Lifecycle, International Journal of Project Management, 13(3), 145-149. 14. Project Management Body of Knowledge (PMBOK) from the Project Management Institute 15. Oxford English Dictionary (2009) 16. Study by the National Economic Development Office, London. 17. ISO 31000 (2009) /ISO Guide 73:2002 18. Mehr et al, Management: Concepts and applications 19. http//www.dispute in construction.com/construction-claim-consultants 20. Duff, Michael A. and Reid, David R (Sept 2001) Operational risk management: A holistic approach 21. K.G Krishnamurthy, S.V Ravindra.Construction and Project Management for Engineers, Architects, Planners and builders – 22. D Arcy,Steven P. Volume 12 Journal of risk Management of Korea, 6