International Construction Law Review
RISK MANAGEMENT IN EMERGING MARKETS: APPLYING ABRAHAMSON’S WISDOM TO MODERN CHALLENGES
JEFFREY DELMON
Senior infrastructure finance specialist, World Bank
*
Infrastructure is critical for emerging markets, for economic and social development as well as the reduction of poverty and improving human welfare.1 Achieving efficiency in risk allocation can reduce the cost of financing, reassure investors and thereby release additional resources to improve infrastructure services and help to resolve the global infrastructure crisis.2
Max Abrahamson was one of the early thinkers on risk management in the construction industry. He published “Risk Management” in the first volume of The International Construction Law Review (ICLR).3 This article looks at Abrahamson’s principles of risk management, how they have influenced the modern construction industry and how these principles are doubly relevant for construction in emerging markets. Some excerpts from Abrahamson’s original article are also included throughout for context.
I. ABRAHAMSON PRINCIPLES OF RISK MANAGEMENT AND THEIR EVOLUTION
Abrahamson followed in the footsteps of many great thinkers on the topic of risk and risk management. In the 17th and 18th centuries innovators like Blaise Pascal, Girolamo Cardano, Francis Galton, Daniel Bernoulli, and Pierre de Fermat developed the theory of probability, a powerful tool used for information processing and decision making.
In the 1950s and 1960s researchers studied the impact of risk on financial decisions,4 leading to financial risk management products in the early 1970s
* The findings, interpretations and conclusions expressed herein are those of the author and should not be attributed in any manner to the World Bank, its affiliated organisations, or to the members of its Board of Executive Directors or the countries they represent.
1 United Nations Development Programme, Starting a Pro-Poor Public Private Partnership for a Basic Urban Service (2014); “Deloitte, Closing the Infrastructure Gap: The Role of Public-Private Partnerships” (2006); Willoughby, C, “Infrastructure and the Millennium Development Goals”, Session on Complementarity of Infrastructure for Achieving the MDGs, sponsored by the Department for International Development (2004); Coudouel, A, Hentschel, J and Wodon, Q, 2006, “Poverty Measurement and Analysis” (2002), https://mpra.ub.uni-muenchen.de/45362/1/MPRA_paper_45362.pdf (last accessed 27 February 2024).
2 Flanagan, R and Norman, G, Risk Management and Construction (1983), Oxford; Boston: Blackwell Scientifi.
3 Abrahamson, M, “Risk Management”, [1983] ICLR 241.
4 Such as Markowitz, Lintner, Treynor, Sharpe and Mossin.
Pt 2] Risk Management in Emerging Markets
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