In an average year, construction represents approximately 10 percent of the American gross national product, and because of its size and diversity one might conclude that the industry would be both stable and profitable. This is hardly the case, however, as the construction business instead is known for its high volatility yet relatively slender profit margins.

The reasons for this are easy to understand: fierce competitive pricing exists at all tiers, sectors, and geographies of the industry; while the technical, managerial, and administrative components that characterize today's construction process are growing more elaborate and expensive.

In spite of these challenging “macro-dynamics,” it is important to recognize that, from a “micro” perspective, all construction projects begin with the best of intentions. Unfortunately, in a highly competitive and complex climate that is fraught with risk, unfavorable outcomes can often plague these projects and their participants. Such outcomes might include cost overruns, budget shortfalls, compromised quality, schedule delays, third-party meddling, confusion about scope of work, smeared reputations, bruised relationships, severe financial hardship, and increased underwriting expenses.

Troubling situations frequently surface because owners, contractors, designers, oversight agencies, and vendors cannot reliably predict the future, and so are rarely able to assess the true impacts of their decisions until late in the construction program. By then it is often difficult — if not too late — to recover.

In our experience, the extent to which these construction risks can be successfully identified and managed largely determines whether a project meets its schedule, budget, and quality assurance targets. The intent of this chapter is to discuss project risk; once appropriately identified, we believe that project personnel can then better monitor and mitigate these risks, and thereby improve project performance.