New Rules of Measurement 1: Risk
Risk and risk exposure
Risk, as defined by NRM1, is the ‘likelihood of an event or failure occurring and its consequences or impact’. As anyone involved in the industry can attest, there is more often than not an unforeseen event that can occur anytime during a project. Examples include, (but are far from limited to): protected wildlife, unexpected ground conditions, statutory work or planning conditions. Regardless of the risk, if they are not identified and managed it can have a major financial impact on the project.
The RICS NRM 1 defines risk exposure as ‘the potential effect of risk’, and described the various types:
- Risk avoidance – where risk is classed as totally unacceptable, including:
- changing the client brief/scope
- an alternative design solution
- or, if no solution is found, cancellation of the project.
- Risk Reduction – where risk is classed as unacceptable. Actions to reduce the risk include:
- Further detailed design/site investigation to gain further information
- Different methods of construction
- Changing the contract strategy
- Risk transfer – the employer does not get best value for money if they take on the risk. Passing on the risk will incur a cost for another party to take on a certain risk:
- Passing the risk to the contractor through D&B contracts
- Taking out insurance where necessary
- Risk Sharing – occurs where the risk it not transferred entirely and some risk is retained by the employer. This often translates to provisional quantities.
- Risk retention – risk retained by the employer. This remaining risk is called ‘residual risk exposure’.
Risk and the RIBA Plan of Work
Plotting the different types of risk exposure onto the RIBA Plan of Work 2013 (figure 1), it’s clear that some form of risk occurs at any one stage throughout the construction process. As such, dealing with risk is an ongoing task throughout the project, starting from strategic definition right through to practical completion and handover.
A higher risk allowance is generally given at the earlier stages of the construction cycle (typically 10-20%), gradually reducing as the design and construction progresses (2.5%-5%). A risk allowance provides a financial buffer to cover the costs of unknowns. This in turn should mitigate the number of unexpected financial hits from risk in the future, thereby protecting all parties that are invested in the project.
Managing risk at Goodrich
At Goodrich we utilise various methods through the construction life cycle in dealing with risk. With 25 years’ experience in the industry, we have a wealth of knowledge and experience in complex projects from which to draw upon:
Early stages (planning/design) – During the early stages of the construction process we can aid in value engineering in our costs estimates by offering various solutions to meet the client’s needs. We can also advise on the best procurement and tendering route for the client to proceed with. In addition, risk assessments are undertaken to reduce risk through identification.
Mid stages (detailed design) – As the design continues we use workshops to identify and form solutions to areas of risk that can be avoided by working closely with the design team involved in the project. Risk registers are produced in order to monitor risk based on their probability and impact as well as how to mitigate the risk.
Later stages (Construction) – During the construction phase, monthly status reports are issued which detail the current status of the project in terms of programme and cost, highlighting any known risks and their potential impact on progress of the project.
Continuous (throughout RIBA Plan of work stages) – Whilst risk can be split across the stages of the project, risk is a factor in construction that requires continual management. Goodrich strive to ensure that any risk items are dealt with at the earliest moment. Whether this involves additional on-site support or guidance on specific problems, we are always proactive when dealing with risk.