Proactive mechanisms for response to risks of business entities engaged in investment and construction activities

Yuri Levin

doi:10.2139/ssrn.3873189

Abstract

Basing on the extensive analysis of both native and foreign scientific publications, the authors have concluded that the problem of classifying risks and factors of their occurrence, and the risk assessment, as well, is well-publicized. In some works, strategies are proposed to mitigate consequences of the onset of risks by creating reserves. However, all of them are mechanisms of the management response during implementation of an investment and construction project, i.e., the reactive position. The article proposes to move from a reactive to a proactive position, which essence is to implement the goal set by the investor, regardless of the conditions, circumstances, and the likelihood of the manifestation of internal or external negative impacts. This problem is solved by the Business Impact Analysis (BIA) method, which logic is only in assessing the fact of breaching contracts by the subjects, but not the frequency of occurrence of events causing risks. The method used does not consider or observe the content of various events, their cause-and-effect relationships, but the only fact of nonfulfillment of the contract terms in relation to duration or estimated cost by a business entity implementing investment and construction projects.

Highlights

The established practice of risk management, both native and foreign, in the implementation of investment and construction projects (ICPs) is based on the management response upon occurrence of a risk event
The target implementation is facilitated by the Business Impact Analysis (BIA) method [16] developed on an algorithm based on the identification of critical and significant processes in relation to the goals of the business entity
3) differentiation of tools by ICP stages and contracts. 4) consideration of the source risk origin, the degree of impact of business activity on the threat formation. 5) the ability to compensate for selected types of risk consequences from the part of contractual relationship entities; 6) incorporation of the mechanism to the ICP capital planning system as costs and/or changes to the schedule plan

Summary

Introduction

The established practice of risk management, both native and foreign, in the implementation of investment and construction projects (ICPs) is based on the management response upon occurrence of a risk event (i.e., the reactive position). This is evidenced by the analysis of scientific literature on the topic under study. Based on the results obtained, the authors [4] recommend controlling the delay of construction projects completion. This is the posthumous information – a risk event has occurred. The authors are silent how to avoid the risk, too

Methods

Results

Conclusion