Value and Risk Management in Construction - Essay Example

 The scope of both risk and value management is increasing day by day in today’s world. Before coming to its importance and main applications, we will first highlight the basics and the main concepts behind risk and value management. Both these are very much interrelated and are carried out in a parallel fashion. For more convenience, the risk management is initially described as the first thing here and it should also be known that poor risk management is the main reason for any project failure. (Office of government commerce, 2003) On the other hand in practice, the value management exercises are basically carried out first in order to determine an exact cause which is responsible for constituting the values to the business mainly from delivery of any project. A preferred option is also identified and together with all other risks, there is a great chance of it to occur if any particular option is implemented. (Office of government commerce, 2003) Risk management mainly includes all the activities that are required for identification and control of the risks that are related to the option of the preferred project. Successful risk management also requires a senior management commitment along with ownership and a thorough understanding of the whole process and also an active risk management regime that is reviewed on daily basis in a much constructive culture. Attitudes to the risk are known to have a significant effect on the overall success of the projects being carried. For instance, the main objective related to ‘not failing’ will surely have a low tolerance of the risks of all kinds. Conversely speaking, the objective of ‘succeeding’ will also encourage the participants to become more innovative and to take more risks where necessary and to make an effort for monitoring along with management of the recognised risks. (Office of government commerce, 2003) If the talk in detail about the risk management mainly in the construction projects of my country, USA, it mainly involves: a proper identification and assessment of the risks mainly in terms of its impact along with probability, proper establishment and maintenance of the joint risk register, it should have the concept and assurance of agreement by all the integrated project team members, establishment of the procedures that are required for active management and monitoring of the risks throughout the on-going project and the during occupation on the completion, to make sure that the members of the team are having a proper opportunity for engaging in a dialogue that is eventually going to promote an agreement of the appropriate and accurate allocation of the risk, proper updating of the risk information throughout the project which would surely ensure the control of the risks by proper planning of how the risks will be managed through the on-going project so that it could have an acceptable limit and lastly efficient allocation of the responsibility for proper management of each of the risks with the suitable party that will best their job. (Office of government commerce, 2003) Now talking about value in detail particularly in much broadest sense then its main is to benefit the client or in simpler words the project that is worth doing and which could also quantify in the main business terms, for example, this can be done by creating a better and an efficient working environment or even by improving the overall experience of the associated people during their workings. In this respect, value basically means to ensure that the correct choices and decisions are being made mainly to obtain the optimum and the best possible balance of the benefit mainly in its relation to the overall cost and its risk. Value management also provides a well-structured approach for assessing and developing the project for increasing the chance of it to achieve all these requirements at a better and an optimum life value for its cost and money. (Office of government commerce, 2003) Apart from management, value engineering can be defined as a continuous process by which all the key components along with the processes are involved mainly in the construction that are being critically appraised for determining whether a better value alternative or a better solution is available. It is much helpful to reduce the wasteful processes along with the inefficiency mainly in the specific aspects of its design and construction along with its maintenance. (Office of government commerce, 2003) The main benefit of is that it will surely enable the stakeholders so that they can define and also achieve all their needs through the facilitated workshops which are mainly encouraging the participation along with team working and the end-user buy-in. Hence, the main focus of this value management is certainly on the function along with its value for money and not on reducing its cost. (Office of government commerce, 2003) Moreover, value management is also about proper enhancement of the value and it is not about cutting the overall cost, although this can also be a by-product. The main principles and the main techniques of this value management are aimed for achieving the required quality at an optimum whole-life cost mainly during the processes of any project development. Eventually in the end, the basic principle center on its identification of the main requirements will add a demonstrable value that will meet all the business needs. (Office of government commerce, 2003) If we talk about the construction engineering and its management program, then it is known to develop knowledge along with tools and methods that add a value to the entire construction projects along with the organizations with a more focus on its risk management. In many big industries, especially the construction companies, then they are known to successfully manage the risks mainly by determining the success or the failure of the entire developmental procedures of the projects and their enterprises. So, by development of the basic risk management skills along with better participation in the leading edge of the research can surely upgrade the position which will eventually make an enormous difference for all the for-profit and the government along with the non-profit developmental companies. This is one of the basic and the main application of risk and value management that is employed currently. Moreover, a proper understanding of the nature along with structure of the developmental risks can also provide certain benefits. (Texas A&M Engineering, n.d.) In this regard, Monk and Major also explained that for the projects to improve mainly in the terms of their risk and value management, all the project managers should be able to understand that these important processes cannot be managed merely by focusing on just improving the technical skills. These processes are very important and also necessary but they also need to be underpinned by all the important measures that are basically connecting them with the entire emotional side of life of the project. This also includes a cooperative way mainly for working to build a foundation of the mutual trust which is a strong commitment to achieve a common purpose and an environment that is built on the spirit of a continuous improvement. (Clifford, 2006) In the long run, bringing of the key stakeholders together mainly in a well-facilitated value management workshop will surely enable a better and a common understanding of their needs along with the constraints of each of the party along with crystallisation of their main objectives or the value drivers, hence will prove beneficial. If there are any alternative solutions then they can surely be judged and also compared in a much logical and a systematic way to establish a consensus possibly on the best way forward. (Clifford, 2006) Many construction project teams are working very hard for many long hours. Talking about the benefits, this partnering along with the risks and the value management processes can surely bring significant advantages only if they are being used as a logical sequence of all the activities which will start early as possible mainly in any project cycle and can also be reviewed at any later stage. (Clifford, 2006) If we highlight the construction industry in more detail then we can see that it is a heterogeneous and enormously complex. There are many major classifications of the construction industry that mainly differs in a market level ranging from one another. Be it housing or non-residential building, heavy or the highway, utility along with industrial, etc. Construction projects these days mainly include many new constructions, renovation processes, demolition for both the residential along with the non- residential projects, and also many public works projects, including the streets, roads and highways along with the utility plants, bridges and tunnels. Here is we consider the success parameters mainly for these projects that one of them would be in time completion and within a specific budget and in some cases a requisite performance which is basically the technical requirement. (Banaitiene; Banaitis, 2012) Many large construction projects are on-going in my country which is also exposed to uncertain environment due to the factors including planning, designing, construction complexity, various interest groups, resources availability, different environmental factors, both economic along with the political environment and the statutory regulations. (Banaitiene; Banaitis, 2012) Hence, it can be said that the construction projects are very much unpredictable. Management of the risks and the values in the construction projects are also recognized as the key process to achieve the main objectives of the projects in terms of its time, safety, cost, quality and lastly its environmental sustainability. (Banaitiene; Banaitis, 2012) In USA, Kirk proposed a methodology mainly for the integration of both value and risk management in his value analysis studies along with the Job Plan, for some specific construction projects. His methodology basically started by the preliminary risk identification mainly in the general and qualitative terms. Regarding this, the probabilistic analysis along with the Monte-Carlo simulation of the project costs was also carried out in the information phase. The entire risk mitigations were brainstormed in a parallel manner with the idea generation during this creativity phase. Risk is also considered as a weighted criterion which is generally present in any evaluation phase. The alternatives here are the risks that are analysed during the development process. For the presentation phase, all the qualitative risk assessments were presented with the mitigations along with the costs and the schedule risk analysis with modern cost plans and better planning. (Mootanah , 1998) Construction risk management basically emphasizes on the main applications of the risk management particularly in the construction industry. It also focused on a large scale along with other innovative projects. Their application is however still very less than it is genuine and true value. In the present times, the level of the basic needs of the construction industry along with the current levels of the acquired risk management knowledge along with the skills is not well-known. Regarding this, the main responses were also used for deduction of the main elements that were required for implementation of the construction risk management in the construction market. Moreover, the present levels of both knowledge and skills of these elements were also assessed which were also based on a collected set of data. (El-Dash, 2008) Risk management knowledge also includes a diversity of other knowledge areas which are somehow difficult for any individual engineer to consider and then accumulate. Hence, we can say that the risk management is actually a cooperative process which should be carried out only by an efficient management team who acquires the appropriate and required knowledge which in the end can benefit the rest of the associated individuals from this. (El-Dash, 2008) Proper risk and value management basically maximizes the opportunity and also mitigate and prevent other possible threats. Hence, all the major organizations need an efficient and a distributed, dynamic, defined process mainly of the risk and value management rather than fragmented and ad-hoc activities which are presently the norm. For maximum benefit, the industries need to be: Holistic: so that they can manage all the important categories of the risk and value management throughout with only one platform for providing a complete 360 view of all the risks. Predictive: so that they can foresee the onset of any unacceptable levels of the risk by using an automated and an intelligent monitor on regular business operations, Relevant: so that they can embed the risk management into a strategic and an operational planning so that they can proactively manage the overall impact of the uncertainty on their achievement of the main objectives. (Oracle white paper, 2009) Currently, many organizations are performing a number of management activities so that they can reduce the overall level of both risk and the uncertainty they are facing. In principal, these basically fall under the Enterprise Performance Management (EPM) and the Governance, Risk, and Compliance (GRC). (Oracle white paper, 2009) Furthermore, by facilitating a consistent measurement of the risks and the value management all across the distinct assets and the activities, we can efficiently monitor and report and also control the risks in a timely manner that can efficiently relate the risk control to a much desired and an actual economic exposure. Similarly, a reliance on this management can also result in a wide range of serious problems when they are improperly used. (Culp, 1998) It should also be kept in mind that this management can only be applicable and hence useful to certain firms only in a particular situation. More specifically, the total value and risk management is mainly a consolidated value of the exposures across the main activities that are related to a certain issue. Moreover, dangerous misinterpretations of the management values can also lead to negative results and other consequences. (Culp, 1998) In simpler words, it can be said that this whole process is not for avoiding different risks. The basic aim of the risk and value management is not elimination of the risks and other possible threats but these are mainly for better management and handling of the risks that are involved in any business or industry for maximisation of the important and crucial opportunities and also to minimise the adverse effects that are related to it. (University of Surrey, n.d.) Moreover, risk management is genuinely not the process for managing any insurable risks or threats. Proper insurance is a necessary way to transfer the risks but most of these risks can also be managed by many other effective means. An efficient risk management will also provide an upward assurance from the related industries or business activities along with many other administrative functions, ranging from department to the faculties, to the experienced and senior management team and lastly to the main governing body. (University of Surrey, n.d.) The future potential benefits from the risk and value management can be regarded as a supporting strategy along with a business planning. This will eventually: Support an effective use of the related resources. Promote a continuous improvement. Eventually there will be fewer shocks along with less unwelcome surprises. There would be fast and efficient gain of the new opportunities. They will also enhance communication between different industrial departments. They will eventually assure the associated clients and stakeholders; Lastly, will help in better focus of the entire internal audit programme, etc. (University of Surrey, n.d.) In conclusion, different companies and team members for different projects or other industrial level business can use risk and value management as: A competitive and a solid advantage for driving the shareholder’s value. The key decision-making also requires risk and value management. For refining the measurement along with better modelling of the risks for facilitating of complete analysis along with the evaluation of the risk scenarios that persists in any company. They can also integrate the risk management programs all over their organization for better results. They can also develop efficient risk awareness methods across the industry. (ERM Initiative Faculty; Heineman, 2011) References Office of government commerce (2003). Risk and value management. Retrieved from http://www.rdec.gov.tw/public/Data/851414523371.pdf Texas A&M Engineering (n.d.). Construction Engineering and Management. Retrieved from https://www.civil.tamu.edu/areas/cem/ Clifford, B. (2006). IMPROVEMENT THROUGH COOPERATION – INTEGRATING PARTNERING, VALUE MANAGEMENT AND RISK MANAGEMENT. Retrieved from http://www.civil.hku.hk/cicid/3_events/48/papers/6.pdf Banaitiene, N., & Banaitis, A. (2012). Risk Management in Construction Projects. Retrieved from http://cdn.intechopen.com/pdfs/38973/InTech-Risk_management_in_construction_projects.pdf Mootanah, D. P. (1998). DEVELOPING AN INTEGRATED RISK AND VALUE MANAGEMENT FRAMEWORK FOR CONSTRUCTION PROJECT MANAGEMENT. Retrieved from http://www.arcom.ac.uk/-docs/proceedings/ar1998-448-457_Mootanah.pdf El-Dash, K. (2008). CONSTRUCTION RISK MANAGEMENT: APPLICATION AND EDUCATION. Retrieved from http://www.aeipro.com/files/selected_proceedings/2008/sp08_0390_0403.1865 Oracle white paper (2009). Risk Management: Protect and Maximize Stakeholder Value. Retrieved from http://www.oracle.com/us/solutions/corporate-governance/032434.pdf Culp, C. L. (1998). VALUE AT RISK: USES AND ABUSES. Retrieved from http://rmcsinc.com/articles/JACF104.pdf University of Surrey (n.d.). The Benefits of Risk Management. Retrieved from http://portal.surrey.ac.uk/portal/page?_pageid=823,181132&_dad=portal&_schema=PORTAL ERM Initiative Faculty, & Heineman, R. (2011). The Future of Risk Management: A Proactive Approach. Retrieved from http://www.poole.ncsu.edu/erm/index.php/articles/entry/proactive-risk-management/ Read More