Risk Management Practices in Real Estate Projects

Abstract

Risks are always in the future and when it occurs may lead to progressive or destructive effect on the project. Efficient management of project is required by using the techniques of project management which involves project risk management as an important component through the various stages of the project, in order to manage risks and reduce time-cost overruns and quality and safety issues

Full text

IJSRD - International Journal for Scientific Research & Development| Vol. 4, Issue 06, 2016 | ISSN (online): 2321-0613
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556
Risk Management Practices in Real Estate Projects
Raziasultana N. Shahapur1 Prof. Balasaheb Jamadar2
1PG student 2Assistant Professor
1,2Department of Civil Engineering
1,2Jain College of Engineering Belagavi
Abstract— Risks are always in the future and when it occurs
may lead to progressive or destructive effect on the project.
Efficient management of project is required by using the
techniques of project management which involves project
risk management as an important component through the
various stages of the project, in order to manage risks and
reduce time-cost overruns and quality and safety issues
Key words: Real Estate Projects, Risk Management,
destructive effect
I. INTRODUCTION
The construction industry has now become one of the thriving
industries of today that has considerable impact on the
economy of the nation. There is a huge amount of investments
made in infrastructure development activities. Many projects
undertaken encounter considerable time and cost overruns.
Construction projects when delayed cause increase in overall
budget. The project has to be scheduled and organized
properly and carefully in order to complete it within given
time with proper quality.
Activities in the construction industry are subjected
to various uncertainties or risks that cause adverse effects on
the performance of the various activities during the project
life cycle. Construction projects may have damaging
consequences due to uncertainties or risks. Therefore, it is
necessary to include risk management planning in order to
deal with various risks occurring in the project. Hence it is
very important to adopt risk management strategies.
II. RISK AND UNCERTAINTY
A Risk always occurs in the future. Risk can either lead to a
progressive or destructive effect on the project. Objectives of
the project like the cost, quality, time, schedule and safety
will be affected. A risk may occur because of one or more
number of reasons having one or more number of impacts
positive or negative.
Risk is always uncertain but uncertainty is not
always a risk, therefore risk is uncertainty that matters. At a
more comprehensive level, one can classify uncertainty into
three categories:
 The Known uncertainties: The contractual requirements
or other events which are certain to occur.
 The Unknown uncertainties: How a product/service will
fare in the market after its launch.
 The Unknowable uncertainties: The occurrences of
calamitous events like natural disasters or terrorist
attacks.
 Three main types of reasons for projects being risky are
as follows:
 Common features
 Planned design
 External environment
All projects have some common characteristics
which make them risky and some of them are as follows:
 Uniqueness
 Complicated: Technical, Profitable, Relational, etc.
 Assumptions and Restraint: Chances of being wrong,
unknown or disclosed,
 People: Project team, Clients, Dealer, Contractors and
Subcontractors,
 Stakeholder: Impose necessities, outlook and objectives,
 Change.
III. FACTORS AFFECTING RISKS
The factors affecting risk are as follows:
 History: A repetitive project will have fewer risks.
Possibility of accomplishment with new project is high
as the processes are per-defined. Whereas, new projects
will have more risks.
 Experience and skilled team: To manage a project
effectively, the team must have thorough understanding
and expertise in the area which will otherwise affect the
project performance.
 Stability in Management: Vision and Mission of the
organization should be followed strictly. If the
organization’s top level is unbalanced, then it may result
in unreasonable and unproductive outcomes.
 Team size: Team size may cause positive or negative
impact on the project. Number of members for a
particular team depending upon the assigned work
should be sufficient.
 Complex nature of the project: In case of sophisticated
and complex project, the chances of risks are high. Risks
increase with complexity of the project.
 Availability of resources: A project depends on the
availability of resources. Improper and Untimely
resource mobilization will have negative impacts on the
project.
 Time: The risks get multiplied in a project which has
complex and compressed schedule.
IV. TYPES OF RISKS
Risks are broadly classified as External risks and internal
risks, Risks that occur due to environmental impacts are
External risks and Risks that occur within the project are
internal risks. Risks can either be acceptable or unacceptable
depending on the impact they cause. The risks in any
construction project have a large number of sources which
can be classified into following broad categories:
1) Technical risks: These risks may occur due to improper
implementation and execution of the technical processes.
Improper planning, poor site investigation, incomplete
and faulty designs, errors in drawings etc., are some of
the examples of technical risks.

Risk Management Practices in Real Estate Projects
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2) Financial risks: A set of risks such as transactions that
include loans, investments, raising of funds from the
clients, changes in market rates, different standards of
accounting, changes in foreign exchange etc. together
constitute Financial risks.
3) Management related risks: Cooperation and
Coordination among the team members, proper flow of
information, presence of skilled staff etc. are important
for any project to be successful.
4) Logistic risks: Failure of equipment’s, non-availability
of sufficient transportation facilities, non-availability of
spare parts, and failure of procurement of resources are
considered as logistic risks.
5) Socio-political risks: Changes in the rules and
regulations, legal constraints and conditions, conflicts,
corruption, changes in the bylaws, safety rules and
pollution control rules etc.
6) Environmental risks: These are the risks external to the
project which are unavoidable such as the natural
calamities, weather and seasonal implications.
7) Construction risks: The risks that arise due improper
execution of activities, improper supervision, inadequate
safety and protection on construction sites etc., are
considered as construction risks.
V. PROJECT RISK MANAGEMENT
“Project Risk management includes the process of conducting
risk management planning, identification, analysis, response
planning, and monitoring and control on a project”13. The
objective of Project Risk Management is to reduce the
probability of occurrence and impact of uncertain or negative
events and increase the probability of occurrence and impact
of certain or positive events. The following figure depicts the
processes of Project Risk Management according to
PMBOK.
Fig. 1: Project Risk Management Process
VI. RISK MANAGEMENT PROCESSES
1) Plan Risk management:
It is the process of defining the processes and
activities for conducting risk management planning
throughout the project life cycle. Planning helps in allocating
resources and time for conducting risk management
activities.
2) Risk Identification:
This process involves identification of the risks, may
be a simple or complex and documenting the characteristics
of the risks identified. This process involves various project
participants and stakeholders. Attention should be given to
the project assumptions, constraints, deliverables, Work
Breakdown Structure (WBS), cost estimates, resource
mobilization plans, and other project documents.
3) Qualitative Risk Analysis:
Qualitative Risk Analysis is the process of analyzing
the probability of occurrence and impact of identified risks. It
assesses the priority of the risks identified by their likelihood
of occurrence, impact of those risks on the project, and the
corresponding urgencies for the risks.
4) Quantitative Risk Analysis:
It is the process of analyzing the identified risks
numerically in to know the impact of the risks on the
objectives of the project i.e. to know the probability of the
project reaching its planned budget or cost estimate.
5) Risk Response Planning:
It is the process of planning risk mitigation to reduce
the effect of risk on project objectives. Preparing plans and
strategies to avoid, mitigate, share, transfer or hold the risks
and selecting the best response. Various responses will be
planned and the best one has to be selected. Risk response
planning should satisfy the following requirements:
 It should be suitable with the consequences of risk,
 It should be reasonable within the project context,
 Cost effective in meeting the challenges,
 It should be agreed by all the parties involved in the
project and
 It should be handled by an experienced person.
6) Risk Monitoring and Controlling:
It is the process of documenting risk response plans,
identifying new risks, monitoring the residual risks, and
controlling the risks and evaluating the risks throughout the
project. The tools techniques used are as follows:
 Risk Reassessment: It involves identifying new risks if
any, closing the risks that are mitigated, and
reassessment of the existing risks.
 Risk Audits: It checks the efficacy of the risk
responses and documents them, the causes for those
risks and evaluates the efficiency of the risk
management process.
 Variance and Trend Analysis: It involves comparing
the actual results with the planned results.
VII. IMPORTANCE OF PROJECT RISK MANAGEMENT
Project risk management adds number of values to the project
that include:
 Identifying uncertainties and predicting possible
outcomes.
 Through systematic and logical decision making helps in
producing better business outcomes.
 Enhances returns or benefits by creating better project
control and reduces over budget and time.
 Has a positive persuade on creative thinking,
improvements and innovations.

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VIII. CONCLUSION
Project risk management is an important and integral part of
project management. With efficient risk management as an
integral and important component of the project, one can take
suitable actions to avoid or shift the probability for project
success in good turn, by not only identifying the risks but also
predicting the most possible future outcomes. Risk
Management is taken as one of the toughest sector of the
construction process and its application has to be encouraged
in all the projects so as to avoid negative consequences in the
project.
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