Risk management is an integral part of majority of infrastructure projects. Many methodologies and guidance have been developed. This section gives a brief overview of the methodologies and their applicability.
Section 2.6.1 describes a general concept of risk management recommended by ISO 31000:2009 guidelines on risk (ISO, 2009). The thesis also takes over the definition of risk introduced by this document. The risk is thus defined as:
“effect of uncertainty on objectives”.
Section 2.6.2 concerns with risk management of construction projects and of tunnels in particular. In Sections 2.6.3 and 2.6.4, the role of risk in procurement and insurance of the tunnel projects is discussed.
2.6.1 Risk management process
The generic process for risk management is depicted in Figure 2.12.
Figure 2.12: Risk management process according to ISO 31000:2009.
The first, essential step of the process is establishing of the context. It consists in defining scope and aims of the risk management process, describing criteria of success and explaining the constraints and limitations. The risks must always be defined based on the stakeholders’ objectives.
The risk assessment contains three steps: First, phenomena and events, which might influence the stakeholders’ objectives in either positive or negative way, are identified (risk identification). Second, the causes and likelihood of the events and their impacts are analysed on a qualitative or quantitative basis (risk analysis). Third, the results of the risk analysis are compared with the acceptance criteria and with the objectives and decisions are made how to treat the risks (risk evaluation).
For risk treatment, four general strategies (also known as “4Ts of risk response”) can be applied: Tolerate the risk: It can be applied, if the risk is acceptable.
Treat the risk: Means to take measures to decrease the risk.
Transfer the risk: Transfer the risk to another stakeholder or insurance company.
Terminate the activity or project, if the risk is inacceptable and other strategies are not applicable.
The implementation of the selected risk management strategy must be properly controlled. At each stage of the process, the findings must be properly communicated with the stakeholders. The findings and decisions should be repeatedly revised whenever some new information is available or when the conditions change.
2.6.2 Risk management of construction projects
Application of risk management in construction industry has been motivated by increasing complexity of the construction projects and by pressure for cost savings and for construction time reduction. Identification of risks in early design phase allows significant reduction of life-cycle costs through improvements of the design and planning and through appropriate treatment of the risk in the later phases. Generic guidance for the risk management process in construction projects can be found for example in Flanagan and Norman (1993), Edwards (1995), Wang and Roush (2000), Revere (2003), Institution of Civil Engineers et al. (2005), Smith et al. (2006) and Rozsypal (2008). A risk management section is also included in the broadly used manual of project management (Project Management Institute, 2008).
Some manuals have been developed specifically for the underground construction and tunnelling projects (Clayton, 2001; Eskesen et al., 2004; Staveren, 2006). In these manuals, a special attention is paid to the geotechnical risks, which play a crucial role in the underground construction.
2.6.3 Risk and procurement of tunnel projects
An essential issue in the construction project is the selection of appropriate procurement method, which implies the sharing of risks between the stakeholders (project owner, designer, construction company). Several forms of contract are used in the practice, which enable different types of risk sharing (see Figure 2.13). A comprehensive manual for planning and contracting of underground construction projects derived from the USA practice is given in Edgerton (2008). Love et al. (1998) present a procedure for selection of the optimal procurement method in building projects. The infrastructure procurement practice in the USA is discussed in (Pietroforte and Miller, 2002) and experiences from Norway are summarized in Lædre et al. (2006).
Figure 2.13: Selected types of contract and risk sharing adapted from (Flanagan and Norman, 1993) Risk assessment is beneficial for every construction project. However the contract forms transferring a significant part of the risks to the contractor require an especially detailed risk assessment, because evaluation of the risks is the essential basis for the contractor in determining the bid price and schedule. Additionally, the risk assessment has a high importance in the partnering types of contract, so called Public Private Partnership (PPP) projects – see e.g. (Li et al., 2005;Aziz, 2007).
2.6.4 Risk and insurance of tunnel projects
Insuring of construction projects is a common practice in countries such as USA or Great Britain. The insurers offer project specific insurance covering for example claims for injury, third party property damage or damage to the constructed structure, material and machinery. Standard types of insurance schemes for construction projects are the Contractors All Risk (CAR) insurance or Construction Project All risk Insurance (Allianz Insurence, n.d.). Because the private financing of the tunnel project has increased in recent years, demand for new types of insurance schemes is growing: for example Anticipated Loss of Profit / Delay in Start Up (ALOP/DSU) insurance (Landrin et al., 2006).
After the insurance companies experienced major losses on insured underground project, they developed codes for tunnel project risk management (ABI and BTS, 2003; ITIG, 2006). Compliance with the codes is now required from most of the insured projects. Even if the codes are successfully applied in the practice (Spencer, 2008), insuring of tunnel projects is still very risky and the insurers must search for methods to improve the assessment of construction project risks.