Risk Management in the Indian Construction Industry


By: Sowmya K --

21 December, 2012

Risk Management in the Indian Construction Industry

The Indian construction industry witnessed soft growth over the past two years but the outlook is promising with substantial growth due to increasing road construction projects and greater demand for commercial space due to the foreign investments in the retail sector. In the eve of this tremendous growth potential companies are changing their strategic focus primarily towards risk management. The whitepaper is an attempt to analyze the impact of such a change in strategy to the procurer of services from the construction industry. The major risk faced by the construction industry is inability to complete projects within time. This can greatly affect the corporate strategies of the buyers in ways such as increasing the time to market, higher possibilities of litigation which could impact the cash flow of the buyer and other such consequences which might be crippling. A root cause analysis for such time delays in projects and the probability of occurrence has been identified. Further, the impact on other major parameters like quality and cost for the buyer has also been analyzed. An assessment of the supplier in terms of their risk management capabilities prior to signing the contract by the buyer and determining the risk mitigation strategies that the buyer should employ is vital for the smooth and efficient functioning of the buyer. Furthermore, the buyer has a realistic view about the possible roadblocks that occur in the Indian construction industry and enables them to evaluate and identify the right fit of suppliers that should be contracted for the optimal execution of the project. The construction industry in India is observing a marked shift in the focus of strategies with firms inclining towards risk management whereas earlier strategies included expanding geographic presence, up-gradation of technology used or diversification of business streams. This is due diligence displayed by the construction firms as even established players like L&T are facing difficulties and vowing to choose their clients with more care in the future. The nascent stage of risk management in the industry calls for the buyers to be extremely cautious while engaging with these suppliers since practices that were followed in some of the developed countries cannot be viable here. Risk Management is vital for any industry as the worst that can happen is not being prepared and vigilant when problems arise. Implementation of risk management strategy comprises broadly of three steps, namely: Identifying the risk Assess the impact and probability of the identified risks Formulate a suitable solution Risk Management techniques or assessment tools in the Indian construction industry is still at its nascent stages and much needs to be learnt and followed from the western construction industries.


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