Kazuaki and Keiichi Risk Management - Case Study Example

Risk Management (Summary of Learning Points from Three Case Studies) al affiliation Risk Management (Summary of Learning Points from Three Case Studies) In reference to most developing countries according to Yukiya, Kazuaki and Keiichi (2005) there has been an economic boom, outpacing the development of infrastructure and consequently threatening the high rate of economic growth. The public sector finances the construction of infrastructure, leading to a growing pressure to reduce the public sector debt. There has been an initiative to strap up the incentives of private markets to the interest of the public towards the state. This has been through the public, private partnerships initiative. Over the years, in regard to the study works of Yukiya, Kazuaki and Keiichi (2005) there has been application of the Build Operate Transfer (BOT) scheme which includes complex financial, technical, political and legal transactions which originate from the diverse objective. Most developing countries have introduced a scheme of issuing bonds intended for the transport and irrigation projects in the nation. Despite of the initiative, there is still a gap between what the various governments can raise from the issue of bonds, official development assistant and budget funds necessary for infrastructure projects. Providing private participation in infrastructure, according to Yukiya, Kazuaki and Keiichi (2005) provides increased efficiency in operations and investment. It also provides access to private finance, and there is an increase in the revenues generated by the government. The provision also allows the government to divert money away from spending on infrastructure and target the money on social programs such as education and health. Privatization of infrastructure involves political, economic, legal and social dimensions, which have long-term uncertainties and provide wide risk portfolios. Presence of a short history and lack of BOT experience of BOT expertise leads to various problems. Risks arising from the use of BOT include, delays in land acquisition, delay in getting approval from the agencies, cost overrun risks, increase in the inflation rate, fluctuation in the interest rates and corruption and untrustworthiness of public officials (Yukiya, Kazuaki and Keiichi, 2005). The other risk is actual traffic revenue which is lower than the estimates. Risks arising from the perspective of the government are; focus on the benefits accrued from construction rather than profits arising from the projects whole life cycle. According to the study work of Yukiya, Kazuaki and Keiichi (2005) there are poor financial resources for the plant necessary for contractors and investors, while there is the risk of poor quality construction. Investors also have risks ranging from lack of appropriate toll adjustment mechanisms, analysis of duration of ownership which is incorrect, poor prospect for the growth of the economy, land acquisition delays and payment structures which are unsuitable. Risk management in regard to the work of Dr. Patrick, Dr. Guomin and Professor Jia-Yuan (2005) is crucial whereby the perceivers are the stakeholders in the project. The stakeholders are the entities which have the power to influence the decisions made directly. Systematic risk management is crucial since everyone is aware of the risk management decision-making. The process of risk management entails risk identification, qualitative and quantitative risk analysis and allocation of risks to parties which are able to manage the risks. Construction risks get solved by transferring them to design risks, fixed price contracts and fund operation. The government retains the risks which are legal and political. This is because the government has the experience and resources to deal with political and legal risks. In order to achieve project objectives in terms of time, cost, safety and sustainability of the environment, it is necessary according to Dr. Patrick, Dr. Guomin and Professor Jia-Yuan (2005) to manage risk through management processes. To manage risks, there is the need to use a holistic approach and systematic approach so as to identify and analyze risks associated with development of construction projects. Risk management aims at identifying sources of risks, establishing the impact of the risk and developing an apt management response (Dr. Patrick, Dr. Guomin and Professor Jia-Yuan, 2005). There are many risks in the construction industry due to complicated processes within the industry, presence of an abominable environment, dynamic organization structure and financial intensity. Factors that influence the delivery of a construction project in relation to Dr. Patrick, Dr. Guomin and Professor Jia-Yuan (2005) include resource factors, management factors and parent factors. The resource factor pertains to escalation in the cost of materials while the management factors may be inaccurate cost budget and default of the suppliers. The parent factors include excessive interface on the management of the project. Factors affecting performance include poor safety awareness of peak management, poor safety awareness of the managers foreseeing the project and lack of training. Other factors increasing the risk include reckless operations by the workers and reluctance to input resources to safety. Though the management knows the risks, they do not apply risk management strategies. Classification of risks into construction finance, construction design and construction time is vital since it structures diverse risks that affect a construction project (Dr. Patrick, Dr. Guomin and Professor Jia-Yuan, 2005). Risks undergo a classification into environment, project, industry and client as a result of the combination of the holistic approach with a break down structure. In risk management, the necessary data such as the likelihood of a risk occurring and the level of impact on the objective of the project according to Dr. Patrick, Dr. Guomin and Professor Jia-Yuan (2005) gets used to manage the risks. In doing a research, it is essential to identify and ascertain the key risks that can radically sway the delivery of construction projects. With respect to research by Dr. Patrick, Dr. Guomin and Professor Jia-Yuan (2005) on risk management, there are impacts of risks on project objectives ranging from tight project schedule which influences design variation, excessive approval procedures, inadequate scheduling of programs, variation of construction programs and high performance expectations. Conducting an altruistic project cost benefit plan entails the use of sketchy schedules. This is because cost and time have a close correlation. Changes in planning, construction and design of any project arises from variations in the client. The variations may result from change of mind of clients or misunderstanding of the needs of the client in regard to the project. There are risks that relate to various parties, the risks that relate to clients in terms of tight project schedule. Risks related to designers and contractors are vital to ensure that there is proper planning. There are key risks associated with the accomplishment of all project objectives varying from quality, time, cost, environment and safety Dr. Patrick, Dr. Guomin and Professor Jia-Yuan (2005). Tight project schedule has an impact on all aspects while the other risks influence one aspect of project objective. Designers, clients and bodies within the government need to work together to address potential risks in time and effectively. Considering risk management, there is a necessity to analyze and summarize the data obtained, frequency as well as the impact of the events arising to risk management. The Monte Carlo simulation according to Bridge Project (2010) is essential in simulating model projects. As a result of long construction and maintenance period, there are numerous risks ranging from the planning stage until the maintenance stage. Quantification of the risks during the project in regard to the study work of Bridge Project (2010) is necessary for appropriate management. In most places, there are few projects where the planning involves analysis of various risks, which is qualitative, throughout the life cycle of the project. The length of time that a project will take depends significantly on the risks involved; this also applies to the cost. Risk avoidance and reduction measures that form their bases on experiences are essential for any project. To obtain data regarding to an ongoing project, conducting a questionnaire survey is vital since it allows efficient and effective gathering of data (Bridge Project, 2010). This is because acquisition of risk data is significant for efficient and comprehensive handling of risks. The term “risk” varies in meaning in different fields according to Bridge Project (2010) where in the field of insurance and economics, “risk” means, the change in the occurrences during a specified period is. While in other fields “risk” is said to be the uncertainty regarding to the actual occurrence of an activity. Various elements of risks are mutual such that a phenomenon originates from potential factors, which are multiple. In a research on risk management by Bridge Project (2010), the average values of something and the value which expected are standard value, where a common based value on an experience from the past is a standard value. The shortest values in this study according to Bridge Project (2010) represent the costs and periods required to complete the work provided to ensure smooth progress of the work. The announced values show the estimates of the period and cost of project completion. The optimal values are obligatory since it is tricky to infer such values. The divergence of any planned period from the actual period just like the cost gets examined for every stage of the project which is in consideration. In any project, prior, proper management is vital since many projects must respond to problems in the neighbouring areas. In investigative analysis of risk management in a project, there are many events that cause a large impact and undergo repetition due to the change of the route at the designing and surveying stages (Bridge Project, 2010). Consultation on the environmental measures and discussion with the local communities at the design construction juncture is indispensable to reduce the risks involved. After the identification of the risks at every stage, all the risks which are impeding any achievement of the project are in consideration. Some risks have a low probability of occurrence and some other risks do not have any effect on the project. In order to reduce risks according to Bridge Project (2010) it is vital to rank them in regard to their probability and their impact. References Bridge Project. (2010). Stakeholders’ Perspective on Risks and Opportunities Of BOT Infrastructure Projects In Vietnam: A Case Study Of The Yen Lenh. Professional Project Management. CEIM Reporter. Dr. Patrick. X., Dr. Guomin, Z., and Professor Jia-Yuan, W. (2005). Identifying Key Risks in Construction Projects: Life Cycle and Stakeholder Perspectives. International Journal of Project Management, 13(4), 231-237 Yukiya, S., Kazuaki, M., Keiichi, K. (2005). Quantitative Risk Analysis of Road Projects Based On Empirical Data in Japan. Journal of the Eastern Asia Society for Transportation Studies, Vol. 6, pp. 3971 – 3984. Read More