What are the types of risks that occur in the construction sector?

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Construction projects have always been susceptible to a lot of upheavals. And the risks associated with it cannot be ignored or undermined. Over the years, researchers associated with this sector have extensively studied the types of risks that are associated with the construction sector.

What are the types of risks that occur in the construction sector?

These are the following types of risks that you will mostly find in this arena. Under these circumstances, construction risk management steps must be adopted. They are-

Financial risks

Due to oscillating exchange rates, cost of material, inaccurate estimation, demand in the market, delay in payments, disorganized cash flow, and most importantly, financial incompetence, every project is posed with innumerable risks.


In this category, you will find that if there are amendments in the government laws and regulations, issues related to bribery, law and order, increase in taxes and government change become causes of posing risk to the sector.

Risks related to construction

If there is a failure of the logistics, changes in design, labor productivity, not up-to-date work quality, and drawing revision, construction risk management strategies must be applied.

Environmental risks

Ranging from bad weather conditions, natural disasters, inability to access the site, pollution concerns, to noncompliance with safety norms are causes as well.

Not only that both parties must agree on the Insurance claims management solutions that might kick in if the need arises. Since there are many technicalities and legalities associated with risk management, it is best to approach a professional that will be able to help you in this regard and guide you well. One such service provider that has time and again helped clients from preying parties is ContractSquare.

Construction risk management – The process

Check out the step-by-step process for managing risks.

  1. Risk identification

The first step to risk identification is brainstorming. In this, all the parties that are involved come together to discuss all aspects comprehensively. The facilitator makes a note of the points and outcome of the discussion.

Aside from brainstorming, there are a few other techniques like the Delphi technique. In this, there is a set of questions prepared and answers are given anonymously by a panel of experts.

Checklists are the predetermined list that comprises risks that might hamper projects. These are drawn and delved into.

As part of risk management, past experiences are brought up as well so that the type of risks can be ascertained.

  1. Risks assessment and analysis

After you assess the risks, the next step is to find out the valuation or the amount that you might have to incur in the worst-case scenario. The valuation is calculated on both quantitative and qualitative basis.

The qualitative method is appropriate for projects that are small and medium-sized. It involves listing down the risks and collating them. As per the opinion of the people involved, the same is prioritized and deprioritized.

Whether the risks are high rates, low rated, or medium. Risk tolerance is yet another aspect that is ascertained in this step.

The qualitative method is made use of when the data available is not adequate or when the project must operate within a stipulated time frame.

A few of the quantitative assessment methods include –

  • Decision tree analysis
  • Probability distribution
  • Sensitivity analysis
  • Expected monetary value
  • Expert judgment
  • Fuzzy logic
  • Fault tree analysis
  • Monte Carlo estimations

It may be mentioned here that quantitative analysis needs greater effort since it requires huge data for obtaining precise and accurate analysis.

  1. Risk Response
    Once you identify and assess the risks, the next step is to prevent the risks from happening in the future. It involves the remedial measures you must take when risks impact the project. It comprises finding out the positive scope that will minimize risks related to the project.

As such, the processes that are involved in this step include risk avoidance, risk transfer, risk acceptance, and risk mitigation. The appropriate measures will be taken depending on the nature of the risk.

  1. Monitoring Risk and Control
    Having discussed the above three steps, the next is to monitor risk and control the same so that it does not go out of hand. Amidst, these steps and measures, another aspect as already mentioned above is not to forget about working on Insurance claims management solutions.

To get in-depth information and how you can go about it related to construction risk management solutions you can approach us at ContractSquare. For more information and assistance, reach us at enquiries@contractsquare.co or call +91 9903023893.

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