112 risk management

RISK MANAGEMENT

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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

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