Construction Project Risk Management - Coursework Example

CONSTRUCTION PROJECT RISK MANAGEMENT ID: School of Civil Engineering of Birmingham MSc/MEng in Module Construction Project Risk Management Date: Introduction Risk management is the identification, and responding to project risk. It includes maximising consequences of positive events and minimising the probability and consequences of adverse events to meet the project objectives. Risk identification is defined as the systematic process of continuous identification, categorization and assessment of the initial significance of risks associated with a construction project. This industry faces higher risks because of the uniqueness of construction. Hence, it is important to take effective measures to manage these risks. In this document, we shall be examining a construction project for a small apartment building in a residential area. Risk Management Requirements of a Construction Project This type of study has been intensively discussed over the past years. Most projects are being shared by two or more parties and the risks that could interfere with the development should be well defined to avoid instances of blame game or one party taking advantage over the other. For example, the product outcome of the construction industry has a very complex and dynamic actor network. Another example includes issues like which member is supposed to get into, the motives and interconnecting them to the company’s mission and vision. On the same, research on managing risk in the construction industry is not adequate. This makes it difficult to pick the possible risks that might arise. The risk source, which is any obstacle that can cause a variation in what is set in this case the output of the construction project, should be clearly identified. Then the risk itself should be set up and their consequences. Risk Information and Data Collection In the construction industry, people always have a reputation that there is a delay in delivery and failing to meet budget. This clearly indicates that collection of the information about such risks is mandatory. It gives clear directions on how to go about risk management. Identifying risk sources has an advantage in that one is able to curb the need of identifying each and every single risk. The foregoing analysis ascertained 20 key risks related to clients, contractors, government bodies, external environment etc. The roles of stakeholders and their responsibilities in the management of these risks are outlined below. Client related risks Tightness of the project schedule is rated as the highest point causes most concerns among all factors discussed, which means that formulation of an appropriate schedule in the evaluation phase is very crucial to delivery of the project. The clients have tp prepare a feasible schedule that allows sufficient time but not to the extent of introducing redundancy in time to as time and costs are always tightly coupled, a long schedule will make the project more uneconomical and reduce viability. “The client’s variations” may directly cause changes in the plan, design and construction of the project. These variances result from two reasons, clients changing their minds or the constructor misunderstanding/misinterpreting the clients’ needs in the project brief. For the changing of the client’s mind, the clients bears the responsibility; for the misunderstanding or misinterpreting of needs, an experienced starting project team has to be established as soon as possible to set the project’s scope and functionality precisely. “Unrealistically high expectations on the quality of the system” is borne in most clients’ mind, which however may cause the sacrifice of project’s time, cost and even safety. The project’s outcome could also affect the bigger market or the individual clients’ needs. Therefore, clients should define the ,metrics of the proposed projects based on rational research of their own and/or the market needs. “Incomplete approval and other documents” usually occurs due to management weakness of the project routines or the bureaucracy of government. Clients need to establish a competent team to obtain the approval from government agencies and prepare project documents effectively and efficiently. Designer-related risks Four main risks related to designers were uncovered. “Variations in Design” also came up popularly arisen during the project’s design phase resulting from issues such as “client’s specifications variations” and defects in the designs. To avoid such defects in the design, the team needs to come up with an efficient scheme of communication among the members of the design team and to comprehend what the clients want as they have defined in the project brief. “Inadequate scheduling of the program” is common in projects with a tight schedule. This causes some of the programs to be skipped to meet the project’s timeline. In addition to this, there is a lot of uncertainty surrounding most aspects of construction projects. This reduces the chances of success in predicting with accuracy the amount of time required to complete various programs. By choosing experienced designers, the organization can reduce the variances between the proposed schedules and practical program schedules. “Incompleteness or inaccuracy of cost estimates” has a direct bearing on the knowledge and attitude towards work held by the designers or consultants doing the job. As noted before, there is great uncertainty and anxiety surrounding construction activities and this may cause deviation of the estimated cost from the real cost. By picking highly trained professionals, the organization can increase transparency and increase the level of accuracy. “Inadequacy or insufficiency of site information (report on soil test and surveys)” can have a serious effect on the progress of excavation, foundation and footing of the construction project. There should be thorough tests to the site carried out by authorized bodies before any design decisions are made. Contractor- related risks Seven primary risks were highlighted. “Unsuitable planning of the construction program” may result from inadequate program scheduling, lack of innovativeness in design or contractors’ lack of knowledge in programs of this nature, so can “variations of construction programs”. To minimize the drawback effects of the two risks, an informative program scheduling should be worked out in the design phase, and the viability of the innovative design should be examined. More importantly, the ability to manage such programs and implementation of innovative designs should be some of the most important criteria used in appointing contractors. “Absence of adequate coordination between project participants” may lead to chaos in the management of construction team and programs. A general contractor or project manager who is skilful in team and program coordination should be engaged. On the other hand, strengthening the participant’s perception of cooperation and communication is also important for improvement of the quality and efficiency of the construction process. “managers and professionals are unavailable” and “scarcity of skilled labor” may cause delays during the construction phase. The contractors should be mapping the construction progress all the time and coordinating different project stakeholders so that the can secure enough professionals, managerial staff and skilled labor ready to work. “Occurrence of dispute” exists in most construction projects. External issues-related risks Besides the above highlighted risks related to project stakeholders, inflation of the prices of construction materials, is identified to be related with the external environment. It is impossible to avoid this risk and therefore clients should come up with an appropriately phrased contract such as set amount of money for transferring the risks to other third parties. It is not advisable for the contractor to use fixed price contracts to bear the risk. A good idea would be to add a contingency premium Risk Identification After risks have been identified at an early stage of the planning process, they can be classified accordingly as needed. By identifying risks at an early stage of planning a project or a tender and assessing their relative importance, the project management can be adapted to reduce the risks and allocate them to the parties best able to control them or neutralize them should they occur. Methods for Identifying Risk in Construction Projects 1. Industrial checklists (usually prepared by a specialist in documentation). Checklists are often instrumental in identification of areas that are at risk of failure in past projects. This makes them very useful in identification of risks, conducting interviews for project personnel from each area of expertise. Members of staff in the organization who have experience in similar projects spread corporate knowledge and personal experience, which are then utilized in the process of risk identification. Using this technique, the project personnel can identify all the risks that exist in the project and gives them the feeling of being involved in the process and a sense of ownership of some of the identified risks. This consequently leads to a greater level of acceptance for any measures taken towards the reduction of the risks. 2. Interviews with key project participants or analysis of historical data for other projects like this carried out in the past. The team examines similar projects, risks identified, lessons learned from the experience or evaluations of projects are other techniques of getting the feedback about the risks (Farmer, 1984). 3. Examination of previous historic data from past projects of similar kind utilizes most of the corporate knowledge. There are cases where an organization has never carried out a similar project or the previous project’s data was not recorded. This means the technique can only be used in a limited number of cases. A viable source of information may be from databases that manage and give reports on the progress of projects. However, they often suffer from limitations in form of storage of useable or relevant data. 4. Brainstorming with the project team may be valuable for projects involving new or unfamiliar risks, innovation in management arrangements or to come up with the initial checklists. The method may be used as an element of risk management workshops. These sessions involve a lot of time in bringing all comprehensively assembling all the key project stakeholders together for identification and prioritization of the risk factors involved in the project (Farmer, 1984). The technique is crucial to enabling the stakeholders to understand what the other members of the project team see as risks and to utilize their ideas to inspiring them to identify more project risks. It is important to consider several factors in choosing the people who make up the brainstorming team. This is because the correct selection of project team members with the necessary experience and seniority is necessary to ensure a successful session (Farmer, 1984). Risk Analysis It is also called risk assessment and is basic for any constructional project. It assists by making sure that the budget is not overlooked and that the members can withstand any changes that may not go as plotted. Most of the methods that have emerged over time are now not efficient enough to be used in the complex and dynamic field of construction (Farmer, 1984). They are not flexible enough to handle the risks involved. Similarly, they are not usable to the expectations of the inexperienced users who want products that are up to date and of high standards. Developers have come up with a methodology and advanced tools for the process of risk analysis and management. The tool also ensures thta the product is compliant with set security standards that may be altered by some risks incurred during the construction process. Security of any constructed product is supposed to be commensurate with the risks incurred. Another great reason of risk analysis is to a basis that is more objective making the process even more important. Many different approaches to analysis of risks have emerged but they are generally grouped into two categories namely qualitative analysis and quantitative analysis. To begin with, we have the quantitative analysis. There are two basic elements employed by this approach. These are, the probability that an event may occur and the loss that if the risk is to occur. The approach uses single figure generated by the mentioned basic elements. This process is called the annual loss expectancy. The same is also known as the estimated annual cost. To calculate the answer, the potential loss is divided by the probability. This makes it practically possible to rank the risk of events theoretically either from the most risky to the least risky or vice versa. However, there are short comings in using this approach. The data collected may not be reliable and at times is not accurate. The countermeasures and the controls of the events may often tackle most of the potential events and the losses thus providing wrong results about the action. The advantages of the procedure outdo the shortcomings thus many companies have successively applied the method. On the other hand, there is the qualitative risk analysis method. The method is by far applied more than the other method. It only requires the estimated potential loss of the events and the probability data is not required. Most methods that apply this approach use a collection of elements that are interrelated. They include threats, which are actions or things that can cause the construction process go wrong or which can cause harm to the system (Farmer, 1984). Fraud and fire are examples and the threats are there for each and every construction project. The other elements are vulnerabilities. These are the tings that cause the project to be more susceptible to the threats. An example is presence of inflammable materials such as paper would make the place or product to be more vulnerable to fire. The last elements are the controls to the risks and vulnerabilities, which act as countermeasures. They come in four types. Deterrent controls, which minimise the probability of an attack that is deliberate. This could be from a malicious hacker doing it for the fun or from a major threat of security. Preventative controls which cover the vulnerabilities and reduce the impact of an attack. These are a proactive reaction that seeks to prevent the problem from ever materializing. Corrective controls, which minimise effects caused by any attack. These are more of a reactive approach to dealing with the problem. Detective controls which triggers preventive and corrective controls in case an attack is discovered. Output Analysis and discussion There is a flow of activities that involves all the stakeholders, members of the team and any other person who adds inputs or gets outputs from the project. It is done in a series of levels which have different characteristics. Level 1 There are no defined and documented processes for identification of risks. Members of the project team occasionally make suggestions of possible risks to the manager of the project. Whenever necessary, the project teams holds risk discussions to come up with comprehensive risk analysis. Level 2 There is a defined and documented process for risk identification. The project team examines the WBS, cost, schedule and other relevant aspects of the project plan to point out the operative risks. Risk identification includes input from clients and stakeholders .4. Risk discussion includes cost, schedule and scope. The team may count on industrial lessons risk identification purposes. Level 3 A documented standard risk identification process is in place and is used for all projects. The project team uses a database of risks as a template for enumeration. There are inter-project risks that are identified. Level 4 The process of risk identification is integrated fully into other crucial processes. The lessons that the team learns from the experience are used in other projects of similar nature. Level 5 A program is already in place for the continuous collection and analysis of risk identification process performance data and used to improve the process. Lessons learned and best practices are used to improve the risk identification process. Recommendations for Improvement and future work These are the recommendations for future trends which should be applied to ensure quality and effective risk management practices. (1) The client should have a good idea describing what kind of product he/she wants. (2) The clients choose a team of designers and contractors to be involved in the early stages of the development process. The members of this team should assist the client in production of a viable schedule of programs. They also help the clients form a realistic view of the project so that their expectations are reasonable. The team members should also be experienced enough to understand various aspects of the financial world that they can take advantage of such as effects of inflation on the cost of materials used in construction projects. The construction field also involves a lot of documentation that should be filed. The team should advise the managers accordingly (Farmer, 1984). (3) The investigators should also conduct adequate analysis and investigation of the site on which the construction is to be carried out. This is the job of the designers in conjunction with the consultants hired for the job. They should use their technical knowledge to analyse and present the needs of their clients (Farmer, 1984). (4) The government should also make its impact felt by reducing the bureaucracy with which various bodies operate and conduct their activities. The government is in a good position to effect change and provide a conducive environment for most of the required changes to happen. However, the team also has the responsibility to keep a good relationship with the government to expedite the delivery of various services (Farmer, 1984). Conclusion In conclusion, the construction projects are more complex and the associated risks are similarly complex. Risk management is a necessity, which ought to be done thoroughly. Due to the turbulent environment, the method used for this process should be strong enough leading to a stable solution. This prepares the team members to be strong enough in case of any loss that may arise from the risks. It also prepares the other stakeholders to be able to deal with and make adequate decisions when a risk occurs. By being able to curb the risks, the people involved in production can construct the product that will satisfy the consumer making them earn trust in the construction team. Other than that, the products are of high standards and good quality thus gives maximum services as expected and lives to their expected life time. The construction companies should insist on using the best risk management services and the one that is most appropriate according to the company set up and the stakeholders will. This will guarantee maximum risk avoidance thus high fewer losses are incurred during the product construction. References FARMER, M. C., MCINTYRE, W. S., & GIBSON, J. P. (1984). Construction risk management. Dallas, Tex, International Risk Management Institute. Read More