Risk in relation to project work has two components:

The first is uncertainty and the second is exposure. If both are not present, there is no risk to the outcome of a project. If both are not present there would be little call for project and construction management skills that determine the successful outcome of any project venture. After all, if we were all omniscient, there would be little or no risk to the project outcome. However because knowledge is a personal experience, risk is necessarily subjective.

The most basic definition of risk is ‘an undesirable implication of uncertainty’. ‘Risk’ is sometimes a convenient short form for ‘source of risk’, and sometimes for ‘the probability of realizing a source of risk’.

The role of MDF Group in contracting project work is to minimize the risk of any undesirable consequence of an undertaking or venture. Projects in the construction and engineering fields necessarily deal with large amounts of money. With this in mind the mitigation of financial risk is a critical part of MDF Group’s service to our clients.

For companies risk management—or financial risk management can be defined as practices by which a firm optimizes the manner in which it takes on some kind of financial risk.

Risk management is about rocking the boat, asking questions and challenging the establishment. No one can manage risk if they are not prepared to take risk.
‘ Risk’ in its basic sense need not be measured. In general, measures of risk should be seen as surrogates unless special restrictive assumptions or conditions hold. It is for this reason that risk mitigation be a cooperative undertaking. Cooperation is required between the contractor and client, whether the contract be an adversarial type contract or fee based. The importance of a structured and formal approach to risk and its mitigation is the same. Participatory and structured planning is the method used by MDF Group to formally reduce project risk for all stakeholders. Within the structured participatory model the emphasis is on group problem solving, with individuals within the group drawing on each other for complimentary resources. The group exploits these resources to solve problems and/or to mitigate risk.

A numerical ‘solution’ to a ‘problem’ is not the most important part of risk analysis, in fact in regard to safety a numerical solution may be inappropriate and elimination may be essential. Instead, a major purpose of the participatory management approach is to provide a framework within which to approach a specific situation, a structure which will allow a variety of people with diverse backgrounds to communicate and gain insight. Particular models for mitigating risk should not be viewed as ends, but rather a means to a wide variety of ends and of these ends, ‘insight’ is often the most important outcome.

Risk engineering is an integrated approach to all aspects of risk analysis. Its aim is to identify and measure uncertainty as appropriate and to develop the insight necessary to change associated risks through effective and efficient decisions. This is as true for financial risk as it is for project risks.

It is the reduction in project risk exposure which provides corporate management with the bottom-line justification for undertaking risk analysis studies. The direct benefit of quantitative risk analysis includes a clear view of the uncertainty in the key measures of a project’s performance, which form a sound basis for setting targets and contingencies or accepting commitments.

Risk is a personal experience, not only because it is subjective, but because it is individuals who suffer the consequences of risk. Although we may speak of companies taking risk, in actuality, companies are merely conduits for risk. Ultimately, all risks which flow through an organization accrue to individuals, shareholders, creditors, employees, subcontractors, customers, board members, etc. While individual initiative is critical, it is corporate culture which facilitates the process. Corporate culture defines what behavior the members of an organization will condone—and what behavior they will shun. Corporate culture plays a critical role in risk management because it defines the risks which an individual must personally take if they are going to help manage organizational risks.

2002. Lectric Law Library
(Aug 2004)

Monroe, Allen. 1998. Evolving Role of the Chief Risk Officer
(Aug 2004)

2004. The Institute of the Chief Risk Officers
(Aug 2004)

1997. The Commission's Risk Management Framework
(Aug 2004)

Risk Analysis for Large Projects
Models, Methods and Cases
Dale F. Cooper and C.B. Chapman