A Study On Pricing Risk With A Scope On The Construction Project Essay

A Study On Pricing Risk With A Scope On The Construction Project Essay

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2.1 Introduction
This chapter presents significant literature on pricing risk with a scope on the construction project as this research proposal pretends to discuss. The concept of risk will be defined on the scope of construction management through the point of view of several researchers. Additionally, this literature review highlights the factors that may affect the cost of the project, determining both external and internal considerations. Complementary findings from other studies are critically analysed in this chapter. Finally, this proposal will present an overview of several methods of cost estimation will be revised and discussed in the context of construction risk management.
2.2 Definition of Risk
Oxford English Dictionary (2013) defines risk as “a situation involving exposure to danger.” The meaning of risk has been discussed by many authors, associating this occurrence with certain uncertainty and inadmissible episode (Willet, 1951). Loosemore et al. (2006) include that a company’s goals could be modified or unachievable about the risk that it is exposed. Commonly, as it is possible to interpret through these definitions, the risk is mainly associated with future events that involve undesirable concerns.
Nevertheless, according to the Project Management Institute (2013), the definition of risk can be associated with both positive and negative effects on the objectives and general development of the project, regarding the uncertainty of the context. Considering both negative and positive side of the risk, Figueiredo and Kitson (2009) name specific terms such as ‘threat’ and ‘opportunity’ to classify the potential effects of the risk in a specific situation.
In the matters of the construction sector, Mills (2001) ...

... middle of paper ...

...d also turnkey contracts, the risk is assumed by the contractor considering that the firm is responsible for undertaking all process of the project and the client is just financing the project (Ghahramanzadeh, 2013). Meanwhile, in reimbursable contracts, the firm is rewarded a percentage of the total cost, then the client assumes most of the financial risk (ibid). In case of partnership contracts, there is a balance in distributing the risk between the contractor and the client (Avazkhah and Mohebbi, 2010).

It can be clearly seen that the risk shared by contractors and clients regarding the type of contract. For this reason, it is necessary to determine systematic controls for managing and pricing the risk within a bid. The involvement of risk within the price as an essential part of the financial management of the project will be argued in the following section.

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