Strategic Risks Management
All construction projects are unique and carry their own risks. Such projects involve a number of parties concerned, starting with the owner, contractor, designer, suppliers, and others. All parties involved in a project inevitably carry certain risks. Risk can be defined as a hazard, a probability of it to occur and the potential of losses and resulting gains. Risk can be defined as a difference of actual and expected results. Risks can be managed, reduced, transferred or accepted, but it cannot be ignored. The process of risk management usually consists of four stages: risk identification, risk analysis, selection of risk management technique and monitoring of the management of risk consequences.
Any construction project shall start with signing of a contract between owner and contractor for carrying out construction works. The purpose of a construction contract agreement is to allocate rights, duties, responsibilities and risks between the parties. In construction projects, risks can hardly be ever eliminated; they can only be transferred to another party to a construction contract agreement or shared on the basis of relevant contractual conditions. It means that, in addition to the aforementioned four stages of the risk management process, there is the fifth stage – risk allocation (sharing) between the parties to a contract. Terms and conditions is an object for negotiations, but usually the contract is drawn up by the owner, i.e., the party initiating a project. As a rule, the owner tends to allocate more risks for the contractor and accept as little risk as possible. In this case, the contractor may increase the project bid price basing on a mere fact that responsibility for circumstances likely to occur during the project is vested solely upon him. Proper allocation of risks between contractual parties is obviously very important in order to put the parties on equal footing. Otherwise, only one party or none of them
would have a benefit from project implementation.