112 risk management
TRANSCRIPT
RISK MANAGEMENT
Risks have a significant impact on a construction project’s performance in terms of:
cost Time quality Size and complexity of the projects have
increased over the past 30 years. The ability to manage risks throughout the
construction process has become a major factor for preventing risk.
RISK MANAGEMENT
Supply chain must share the risk. Risk to a large extent is governed by the
procurement option and the content of the related contract documents.
Selecting an appropriate project procurement option is a key issue for risk reduction.
RISK MANAGEMENT
A systematic process of: identifying assessing and responding to project risk The aims and objectives of the risk
management process is to maximize the opportunities and minimize the consequences of a risk event.
A variety of risk management models with different numbers of stages can be obtained.
RISK MANAGEMENT The international standard “Project risk
management – Application guidelines” (IEC 2001) is a good source for risk management.
IEC suggest a model with four steps: risk identification risk assessment risk treatment risk review monitoring
RISK MANAGEMENT PMBOK’s model (PMI 2000) is similar
but divides risk assessment into two processes. They are:
1. qualitative risk analysis2. quantitative risk analysis Baloi and Price (2003) include an
additional step of risk management process it is:
communication.
RISK MANAGEMENTMany construction professionals
look at risks individually.They do not realize the potential
impact that other related risks may have on their work.
Use a holistic risk management approach.
RISK MANAGEMENTThis will enable a firm to identify all
of the organization's business risks. This will increase the probability of
risk mitigation.The ultimate goal of total risk
elimination
RISK MANAGEMENT
Risk Transfer & Indemnification Two most problematic areas for
construction management teams are:
1.contractual risks2.the insurability of projects.
RISK MANAGEMENT Contract reviews and insurance
facilitation They are critical components on an
effective risk mitigation and management program.
Insurance facilitation assumes the probability that accidents will occur
It seeks an efficient way of distributing and/or transferring the risk
RISK MANAGEMENT Risk management can reduce risk in the
different procurement options. Design and build contracts and collaborative
form of partnering. Better understanding is expected to contribute to
a more effective risk management. Therefore, a better project output and better
value for both clients and contractors.
RISK MANAGEMENT A clear link between the procurement
option and risk management Design-build projects offer better
cooperative work by the architects and contractors in early phases
Therefore, more thorough risk management.
RISK MANAGEMENTPartnering helps to establish good supply chain
relationships partners work together throughout the
project each partner participates in joint risk
management share information to reduce risk
RISK MANAGEMENTeffective communication; information exchange;open attitudes and good
relationship;all have open discussion of
project risk and a strong determinant for project success.
RISK MANAGEMENTRISK IDENTIFICATION It is aimed at determining potential risks Identifying those that may affect the project risk Supply chain must participate in the risk
identification process There are a number of tools and techniques for
identifying the project risks Supply chain to decide which one is the best for
them
RISK MANAGEMENTSupply chain must decide how to minimizedor completely eliminated the project risk. This can be achieved by: Brainstorming; expert opinion;
RISK MANAGEMENTstructured interviews questionnaires checklists historical data previous experience
RISK MANAGEMENT potential risks grouping; different groups of risk scaled; testing and modeling; evaluation of other projects risk; evaluation of methods used and
success factors; decide on risk management team.
RISK MANAGEMENT
Empirical studies of risk management practice show that:
checklists and brainstorming is most usable techniques in risk identification.
They also highlight that risk identification often relies on individual judgments supply chain.
RISK MANAGEMENTIn general, the sources of risk in
constructionprojects may be divided into three groups:
1. Internal or controllable risks during design, construction, management and relationships.
2. External or uncontrollable risks such as: financial, economic, political, legal and environmental.
RISK MANAGEMENT
4. Force majeure risks. The risk that causes serious
interruption to site operation operations
Loss of earning due to: Fire
RISK MANAGEMENT Flood Storm or other factor beyond the control of the
project's supply chain.
RISK MANAGEMENTRISK ASSESSMENT-SUPPLY CHAIN1. identify risks2. evaluated risks3. ranked risks4. use both qualitative and quantitative methods
for assessment5. based on fuzzy estimates of risk components
or a better option 6. Identify risk to cover all KPI’s (TIME-COST-
QUALITY-CUSTOMER SATIFACTION-SAFTEY)
RISK MANAGEMENT
Risk Response Process There are four main risk response
strategies. They are: 1. risk avoidance; 2. risk reduction; 3. risk transfer;4. risk retention (IEC 2001, PMI 2000,
Smith et al. 2006).
RISK MANAGEMENT
Risk avoidanceby changing the project planby finding methods to eliminate all
risks. Risk reductionby reducing the probability and/or
consequences of a risk event
RISK MANAGEMENT
After risk avoidance andreductionAny other risk may be shared
amongst supply chainRisk retention or acceptance it is an indication that the risk
remains present in the project
RISK MANAGEMENTTwo options are available when retaining the risk: 1. To develop a contingency plan in case a risk
occurs2. To make no actions until the risk is triggered
Risk reduction as the most commonMethod usaed.Baker et al. 1999,Lyons and Skitmore 2004,Tanget al. 2007
RISK MANAGEMENTConstruction Risks-Technical Risks Incomplete design Inadequate site investigation Uncertainty over the source and
availability of materials Appropriateness of specifications
RISK MANAGEMENTLogistical Risks
Availability of resources1. construction equipments2. spare parts3. fuel and labour4. Transportation facilities5. Etc.
RISK MANAGEMENT
Construction RisksUncertain productivity of
resources Adverse Weather Industrial relations problems
RISK MANAGEMENT
Financial Risks Inflation. Availability and fluctuation in foreign
exchange Delay in Payment Repatriation of funds Local taxes
RISK MANAGEMENT
Political Risks Constraints on the availability and
employment of expatriate staff Customs and import restrictions and
procedures Difficulties in disposing of plant and
equipment Insistence on use of local firms and agents
RISK MANAGEMENT
Some of the Risk FactorsUseful guide-AS4360 The scope of the project (the expected
and defined). The quality of the final product (project,
the expected and defined).
RISK MANAGEMENT
founding project type client participation supply chain communication process environmental issues
RISK MANAGEMENT-REFER TO PRODUCTIVITY MODELPre-construction Activities (1) D1. Client brief D2. Project objectives D3. Specification D4. Design/build-ability D5. Contractual arrangement D6. Planning D7. Scheduling D8. Estimating
RISK MANAGEMENT-REFER TO PRODUCTIVITY MODEL
Site/Project Manager Characteristics (2) D9. Experience/capability D10. Leadership style D11. Authority/influence D12. Goal commitment D13. Involvement
RISK MANAGEMENT-REFER TO PRODUCTIVITY MODELLabour Characteristics (6) D39. Subcontracting D40. Direct labourManagement System (4) D18. Planning D19. Communication D20. Controlling D21. Co-ordinating
RISK MANAGEMENT-REFER TO PRODUCTIVITY MODEL Resource Management (5) D22. Labour selection D23. Labour control D24. Material selection D25. Material handling D26. Plant D27. D31. Waste on site D32. D38. Delay and Disruption on site
RISK MANAGEMENT-REFER TO PRODUCTIVITY MODEL Motivating Factors (7) D41-D46 Hygiene Factors D47-D55
RISK MANAGEMENT-REFER TO PRODUCTIVITY MODEL Within the model there is a strong relationship
between productivity-delay and disruption. They are:
owner interference inadequate contractor experience financing and payments labour productivity decision making improper planning subcontractors
RISK MANAGEMENT-REFER TO PRODUCTIVITY MODEL Smith et al. (2006) suggest the importance of
considering the following factors when making risk allocation decision. They are:
1. who has the best ability to control risk events;2. who has the best conditions to manage risks;3. who should carry the risks that cannot be
controlled;4. How much does it cost to transfer the risks?
RESEARCH MODEL
(Process model productivity on site)
Organisational Factors
Contract management
Finance
Etc
The correlation co-efficient and the chi-square test.
Linear regression method &“Factor Analysis” of the SPSS package
Pre-construction Activities (1) D1. Client brief D2. Project objectives D3. Specification D4. Design/build-ability D5. Contractual arrangement D6. Planning D7. Scheduling D8. Estimating
Site/Project Manager (2) Characteristics D9. Experience/capability D10. Leadership style D11. Authority/influence D12. Goal commitment D13. Involvement
Labour (6) Characteristics D39. Subcontracting
Labour D40. Direct labour
Management (4) System D18. Planning D19. Communication D20. Controlling D21. Co-ordinating
Resource (5) Management D22. Labour selection D23. Labour control D24. Material selection D25. Material handling D26. Plant D27. D31. Waste on site D32. D38. Delay and Disruption on site
Motivating Factors (7) D41-D46 Hygiene Factors D47-D55
P R O D U C T I V I T Y
Project Performance Time Cost Quality Safety
Job Satisfaction
Effort Rewards
Ability and Skill of worker
RISK-OTHER FACTORS difficulties with material procurement lack of integration of project
information lack of experience and training under
direction of employees disruption exclusion of site management from
contract meetings
RISK-OTHER FACTORS Head Office Factors ineffective delegation of responsibilities; lack of inter-unit integration of project
information; ineffective project planning; poor scheduling of project activities; authorisation style of management of
superiors.
RISK-OTHER FACTORS under direction of employees; lack of shared beliefs between head office
and site personnel; exclusion of site management from
contract meetings; poor selection of project personnel; lack of consultation during decision-
making.
RISK-OTHER FACTORS Risk & Resource Management Effectiveness difficulties with the procurement of materials; disruption of site programme; discrepancies in technical information; use of inappropriate tools/equipment for different
tasks; ignorance, lack of knowledge of project
technology; gang – interference by management; poor site layout.
RISK-OTHER FACTORS Risk & Motivation lack of re-appraisal of employees for promotion; resentment regarding management policies; lack of incentives for good performance; lack of opportunities to exercise
skills/knowledge; slow response in settling employee’s
grievances; uncertainties about career prospects; constraints on a worker’s performance.
RISK-OTHER FACTORS Risk & Education - Training lack of experience and training. lack of contact administration skills. poor knowledge of scientific skills. insufficient knowledge of new
technologies. shortage of multi-skilled project personnel.
RiskManagement
Riskassessment
Riskidentification
TIMECOST
QUALITYSAFETY
Procurement option
Risktreatment
HighProductivity
Qualitativerisk analysis
Quantitativerisk analysis
Risk review andmonitoring.
FEEDBACK
Brainstorming,Expert opinion,
Structured interviews,Questionnaires,
Checklists,Historical data,
Previous experienceetc.
Client
Consultants Management Contractor
Works Contractors
Subcontractors & Supliers
MANAGEMENT CONTRACTING
CHARACTERISTICS OF TRADITIONAL METHOD
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