Risk Analysis in Construction Projects - Coursework Example

Introduction to Risk Principles (Part B) Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission PART B Risk analysis in construction projects Construction work can be perceived to generally encompass any work that is undertaken which is directly linked to the construction, conversion, maintenance, renovation, demolition, fitting-out, commissioning, decommissioning or dismantling a structure. All these processes are endowed with widespread hazards and risks which require concise identification if at all the process of risk management in the construction business is to be successful. This fact is supported by Zou, Zhang and Wang (2006) who determined that managing risks in construction projects has been identified as an imperative process in management aimed at achieving the objectives in the process in terms of quality, cost, safety, time and environmental sustainability. 1.0 Risk, hazard, peril, category and heading identification From the given list on risk management issues, these issues can be classified either into risk, hazard, peril, category or heading. 1.0.1 Risk According to HB436:2004, risk is the chance of something happening that will have an impact onobjectives. On the other hand, AS/NZS/ISO31000:2009 perceived risk as effect of uncertainty on objectives. Examples of risks in risk management realm include but not limited to; Business interruption Design liability Product liability Public risk General liabilities 1.0.2 Hazard A hazard can be perceived as a source of potential harm (HB436:2004). Some of the hazards include; Organizational change Technological change Political change Disaster Discrimination Harassment Contingency Foreign exchange operations Legislative compliance 1.0.3 Peril This can be viewed as exposure to the risk of harm or loss. Some of the perils include; Fraud detection and prevention Fire detection and prevention Occupation health and safety Information systems security 1.0.4 Category A category a specifically defined division in a system of classification, or generally referred as a class. Environmental issues Ethics issues Probity issues Information systems Computer networks Maintenance systems Professional advice Reputation issues 1.0.5 Heading Some of the heading in the given risk management issues include; Emergency planning Employment procedures Training Feasibility studies Fraud management Human health Animal health Project management Plant health Contract management Transport Finance Audit Federal government Financial management Insurance Quality assurance Local government Treasury management State government Research and development Business law and practice Corporate environmental management Conservation and environment Environmental health risk management Global resources and energy management Human resource management Investment and portfolio management Knowledge management Managing people and organizations Operations management Strategic management Corporate governance Asset management and resource planning Bank management and risk analysis Business continuity planning Risksidentification in construction business There are several risks that are prevalent in this business. The identification of these risks entails historical data, informed and expert opinion, the opinion of the stakeholders and theoretical analysis. This is according to the prerequisites in the AS/NZS/ISO31000:2009 in regard to risk identification. Some of these risks are outlined in the following analysis under five distinct risk categories. Eventually, these risks are incorporated in a risk register in the subsequent section. 1. Environment issues a. Serious noise pollution caused by construction b. Insufficient site information (survey reports and site survey) c. Adverse weather conditions d. Variations by the clients 2. Cost related risks a. Disputes occurrence b. Inflation of prices in regard to construction materials c. Inaccurate cost estimation d. Tight program schedule e. Excessive approval process as a result of immense bureaucracy in government 3. Reputation issues a. Product liability b. Design liability c. General liabilities 4. Time related risks a. Variations by clients b. Unstable construction program planning c. Tight program schedule d. Poor performance and quality by the contractor leading to delay e. Unexpected construction operations 5. Safety related risks a. Generic safety accident occurrence b. Vandalism of construction materials c. Inadequate synergy between participants in the construction project d. Inadequate competency in management by the sub-contactors e. Unexpected risks to public safety Risk assessment and analysis All the above risk categories in the construction business have different probability of occurrence as well as the projected minimum and maximum cost in case they occur during the construction process (refer to the risk register in the ensuing section). Environmental related risks: These risks are bound to either emanate from the environmental conditions or cause some devastating risks to the environment which can cause the construction firm to incur unanticipated costs. Generally, these risks have a probability percentage of 40-50% based on the uncertain nature of the human behavior among the personnel involved in environmental issues. However, the probability of adverse weather conditions affecting the construction process is minimal (20%) based on presumed accuracy of weather forecast departments. Cost related risks: These risks are the most prevalent in the construction business. Ranging from contractual disputes, delayed design approval to overall economic slump, these risks pose the most diabolical impacts on the construction business and thus endowed with the highest cost load. Disputes have the highest costs, mostly when they culminate into court processes like arbitration and litigation. Their occurrence probability in most construction projects is 60%. The risks of the cost exceeding the approved budget as well as the tight program schedule have a 50% likelihood of occurrence. Lastly, delayed approval of the construction designs causes added cost risks due to interfered working programs. Reputation issues: These are predominant mostly during and after the construction process. They range product and design liability to general liabilities. Mostly, their occurrence probability is 50%. This category of risks has a lower probability when juxtaposed with other categories in the sense that most of these liabilities have some sought of predictability based on the way the construction project was formulated and implemented. Time related risks: These are risks that are bound to culminate in extensive delays in the construction process. Their probability of occurrence ranges from 25-80% depending on the projected influence of particular risks in delaying the completion of the construction project. The tight program schedules leading to alteration of time allocated for each phase as a result of unexpected phenomena has the highest probability of 80% while the others are 50% and below. Safety related risks: These risks involve issues to do with compromise of public safety, vandalism of construction materials and unforeseen injury of the workers. Vandalism has the highest likelihood of occurrence (95%) based on the security issues and deviant behavior among members of the public. The construction process might also pose diverse unanticipated risks to the public, ranging from prospective injuries, pollution and general interference, thus a projected probability of 75%. Other risks in this category have lower probabilities ranging from 10-30%. This is based on their limited likelihood. As epitomized in the subsequent risk register, the above categories have different minimum and maximum cost implications with the time related risks having the highest cost implication. This category has a cumulative cost of $91. On the other hand, cost, environmental, technical and safety related risks have cumulative costs of $84.8, $14.6, $59 and $59.3 respectively. Various actions can be utilized to minimize these risks with each risk requiring distinct risk in each category calling for a discrete strategic approach as analyzed in the subsequent risk register. CONSTRUCTION BUSINESS - RISK REGISTER No Risk Category Risk description Min. Cost ($) Max. Cost ($) Mean Cost ($) Probability Total Cost ($) Action to minimize risk Environment issues 1 1A There is a risk of serious noises from the construction site 8 16 12 50 6 Use of less noise generating machinery. Ensure compliance 2 1B There is a risk of remittance of insufficient site information -10 18 4 50 2 Early consultation with planners, surveyors and other third party 3 1C There is a risk of unfavorable weather conditions affecting the construction process 2 6 4 20 0.8 Allow contingency time extension in the construction program 4 1D There may be unexpected construction variations from the client 4 8 6 50 3 Consensus between the client and the contractor before the commencement of construction Cost related risks 5 2A There may be unforeseen contractor- sub-contractor or sub-contractor-employees disputes 20 1000 510 60 30.6 Apply amicable settlement to disputes as opposed to ligation or arbitration 6 2B The is a risk that the cost of construction material will rise due to inflation 10 40 25 40 10 Provide contingency within budget. Monitor cost and adjust risk register 7 2C There is a risk that the estimated cost will exceed the approved budget 8 10 9 50 4.5 Finalize the design and generate revised estimates 8 2D There is the risk of the tight program schedule leading to increased construction cost 10 60 35 50 17.5 Ensure the program schedule fits into the allocated budget and timeframe 9 2E There is a risk of delayed planning and approval of the project design from the government engineers 3 70 36.5 60 21.9 Early consultation with the relevant approving individuals or agencies Reputation issues 10 3A There is a risk of the contractor compensating injuries emanating from using faulty construction materials 4 26 15 50 17.5 Using quality and approved products and materials in the construction process 11 3B There is a risk of liability arising from omissions and errors in the provisional design -10 18 4 50 2 Stringent designing process. Engaging competent architectural services. 12 3C Unforeseen liabilities not related to design or product may arise 12 60 36 50 18 Holistic approach of the risk management team in curtailing any form of liability. Proper planning process. Time related risks 13 4A There is risk of delays in construction as a result of variations from clients 4 8 6 50 3 Consensus between the client and the contractor before the commencement of construction 14 4B There is a risk that the construction process will over-run the planned timeframe 40 120 80 25 20 Provide contingency within timeframe. Ensure feasible work plan 15 4C The tight program schedule might cause variations in time allocated for each construction phase 20 100 60 80 48 Ensure ample time is allocated for each phase in the planning process. Constant involvement of the contractor and the client 16 4D There is a risk that poor performance from the contractor will cause the construction period to over-run 10 100 55 25 13.75 Develop feasible program. Early involvement of the contractor 17 4E There is a risk of mining tasks being encountered leading to delays in the entire construction process 10 40 25 25 6.25 Revise design as necessary. Engage thorough early investigation Safety related risks 18 5A Unforeseen injuries sustained from falls, machinery or exposure to harmful substances may occur 1 100 50.5 10 5.05 Provision of sufficient working outfit. Undertake safety assessment at an early stage 19 5B There might be unforeseen vandalism of construction materials by workers or external parties 10 50 30 95 28.5 Early involvement of the contractor. Stringent security in the construction site 20 5C There is a risk of non-cooperation by the participants in the construction process towards compliance with safety measures 5 120 62.5 30 18.75 Early debriefing of the participants in regard to safety issues and their respective roles. Maintaining communication strategy 21 5D There is a risk of insufficient management skills by the sub-contractors exposing workers to unsafe conditions 0 50 25 10 2.5 Early involvement of the sub-contractors. Appoint dedicated officers to work 22 5E The construction process may pose risks to the public which were not anticipated 2 10 6 75 4.5 Ensure that all operations are subjected to public risk assessment. Total 308.4 Use of a risk register Many scholars have outlined diverse uses of a risk register in organizational and project management. Nonetheless, it is worth noting that this tool should be used to inform the decision making process in organizations or projects. This includes procedures of practice, change in policies, and all investments of resources should be aimed at reducing the high priority risks in the institution. In addition, risk registers are fundamental in business planning whereby the overall business plan and the proposals ought to include a section that outlines how they will assist in organizational risk reduction and whether any additional risk will surface. Recommendations Diverse organizations and project stakeholders ought to apply an extremely critical and innovative approach in the identification of key risks. The above risk register focused on a construction business and analysis of risks in the project life cycle generated the following insight. All the stakeholders in the construction project ought to assume a holistic approach in the identification of the diverse risks confronting the project. This is through constant consultation and engagement of all the stakeholders in every phase of the construction project. This process ought to go on until the project is completed and approved by the relevant bodies. Secondly, synergy between all these stakeholders from the feasibility phase onward is integral aimed at effective tackling of these risks in time. In addition, contractors and sub-contractors with strong managerial and construction skills and knowledge must be involved early in order to make profound preparations for executing efficient, timely, cost-effective and safe construction operations. Lastly, the construction firm ought to undertake stringent measures to minimize any form of liabilities that can culminate in reputational risk. This is through the engagement of competent personnel in the entire construction process ranging from designing to M&E after the completion of various phases. References AS/NZS/ISO31000:2009. Risk management—Principles and guidelines. Retrieved May 03, 2012 from sherq.org/31000.pdf HB436:2004. Risk Management Guidelines. Zou, P.X., Zhang, G. & Wang, J.Y. (2006).Identifying Key Risks in Construction Projects: Life Cycle and Stakeholder Perspectives. Sydney: University of New South Wales. Read More