Risk Management in Construction Projects

7th Semester Thesis

Bachelor of Architectural Technology and Construction Management

Risk Management in Construction Projects Application of Risk Management in Construction Period

HAND IN BY ZENGHUA KUANG Consultant : Ernest Vivian Müller VIA UNIVERSITY COLLEGE Horsens Campus Denmark November 2011

Risk Management in Construction Projects Application of Risk Management in Construction Period ©ZENGHUA KUANG

Student No. 123859 VIA University College,Horsens Campus, Denmark Bachelor of Architectural Technology and Construction Management 7th semester

Consultant : Ernest Vivian Müller 2 Hard copies of report and a PDF-file on a CD-rom – Font Verdana 12 November 2010 39 pages ， 300 words per page

All rights reserved — no part of this publication may be reproduced without the prior mission of the author. NOTE: This dissertation was completed as part of a Bachelor of Architectural Technology and Construction Management Degree course No responsibility is taken for any advice, instruction or conclusion given within!

Risk Management in Construction Projects Application of Risk Management in Construction Period ©ZENGHUA KUANG

Student No. 123859 VIA University College,Horsens Campus, Denmark Bachelor of Architectural Technology and Construction Management 7th semester

Consultant : Ernest Vivian Müller 2 Hard copies of report and a PDF-file on a CD-rom – Font Verdana 12 November 2010 39 pages ， 300 words per page

All rights reserved — no part of this publication may be reproduced without the prior mission of the author. NOTE: This dissertation was completed as part of a Bachelor of Architectural Technology and Construction Management Degree course No responsibility is taken for any advice, instruction or conclusion given within!

School of technology and business

Acknowledgements This dissertation was written as part of the final semester of the education as bachelor of architectural technology and construction management. Many people have contributed to this work. First of all, I want to express my gratitude to my consultant Ernest, he really gives me great help and conduct which makes my report orientation and study scope smoothly going. And then, I would like to say thanks to Renger , my former semester consultant. He also helps me a lot this time. He lends to me some reference books which are very helpful to my report.

I am extremely grateful to Director of studies, Jan Uwe Wolff. He is nice and supports me a lot, although he is very busy. He contacts CASA company for me, which helps me to have the chance to meet with the site manager.

I want to thank Clæs Knudsen, the site manager too. Thanks for his accepting my visit during the busy construction period. The visit is a golden experience for me as a student. Finally, I would like to thank my closest friends here. Many thanks go to my family members and fiancée for their support support and love. love. Zz, without you you this work would never have been possible. Thank you! All my friends in Denmark, China and all over the world are acknowledged just for the reason they exist.

ZENGHUA

KUANG

26,11,2010 3


Abstract As the most common and typical project types, construction projects have several characteristics such as specific objects、time limit、financial constraints and economic requirements, special organizational and legal conditions, complexity and systematic characteristics, For that each investment project itself is a complex system. Especially for the construction projects, there are many risk facets and complicated relations, which will influence it. The complicated relations include direct, indirect, obvious, implicit or unpredictable, unpredictable, What's more, the various risk factors will cause different severity of the consequences. If you do not consider these risk factors, or ignore the major factors, they all will cause damage because of decision-making errors. Quality targets, time targets, cost targets are the three objectives of project management. Especially in the construction project, the time objective is closely and inseparably related to the cost objective. Therefore, risk management of construction period is a key part in the risk management of construction The overall aim of this study report is to let everyone know what risk management is, realize the procedure of risk management in construction project and have a deeper study on the application of risk management in construction period. The study-involved examples of construction projects what I have experienced in different places. The results of this study present the effect of common and major risks on construction

period.

Meanwhile,

put

forward

the

corresponding

countermeasures Keywords: risk, risk management, construction project, construction construction period 4


CONTENTS

ACKNOWLEGEMENTS-------------------------------------------------------------- 3 ABSTRACT--------------------------------------------------------------------------4 CONTENTS------------------------------------------------------------------------- 5 1. INTRODUCTION------------------------------------------------------------------7 1.1 Background------------------------------------------------------------------7 1.1.1 Definition of risk------------------------------------------------------7 1.1.2 Definition of risk management-------------------------------------- 7 1.1.3 Principle of risk management----------------------------------------8 1.1.4 The process of construction projects--------------------------------8 1.2 Problem formulation-------------------------------------------------------- 9 1.3 Aim, Objective and research questions-----------------------------------11 1.4 Delimitation----------------------------------------------------------------12 1.5 Research methodology----------------------------------------------------13 1.6 Structure of study---------------------------------------------------------14

2. THEORETICAL OVERVIEW------------------------------------------------------15 2.1 Project Risk Management--------------------------------------------------15 2.1.1 Risk Environment----------------------------------------------------16 2.1.2 Risk Identification---------------------------------------------------16 2.1.3 Risk Assessment-----------------------------------------------------17 2.1.4 Risk Response Planning---------------------------------------------19 2.1.5 Risk Control----------------------------------------------------------20 2.2 Risks in construction projects---------------------------------------------20

5


3. CASE OF STUDY----------------------------------------------------------------23 3.1 Case

Ⅰ

Public building in Denmark---------------------------------------23

3.2 Case

Ⅱ

The International project in Vietnam ---------------------------26

4. THE ANALYSIS AND DISCUSSION---------------------------------------------28 4.1 Results and Analysis of cases---------------------------------------------28 4.2 Discussion on the problems in project risk management----------------29 5. FOUNDS AND CONCLUSION---------------------------------------------------31 5.1 Answering the research questions-----------------------------------------31 5.1.1 Findings about risks be identified during construction period-----31 5.1.2 Findings about the impact of risks on the construction period----31 5.1.3 The countermeasures for risks in construction period-------------33 5.2 The main conclusion--------------------------------------------------------36 5.3 Further Research-----------------------------------------------------------37 REFERENCES-----------------------------------------------------------------------38 APPENDIX--------------------------------------------------------------------------39

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INTRODUCTION This chapter presented the background to the research area and sets discuss the problem formulation. The aim, objectives and research questions are stated and delimitations are described. Finally, the structure of the dissertation is outlined.

1.1 Backgroun d

1.1.1 Definition of risk

Definition of risk is a state of uncertainty where some possible outcomes have an undesired effect or significant loss. Uncertainly is meaning that the lack of certainly due to limited knowledge that it is impossible to state the outcome exactly, perhaps, more than one possible outcome happens. Risk concerns the deviation of one or more results of one or more future events from their expected value. Technically, the value of those results may be positive or negative. However, general usage tends to focus only on potential harm that may arise from a future event, which may accrue either from incurring a cost or by failing to attain some benefit. (http://en.wikipedia.org/wiki/Risk) 5. Nov.2010 1.1.2 Description of risk managem ent

Risk management is the discipline of identifying, monitoring and limiting risks. In some cases, the acceptable risk may be near zero. Risks can come from accidents, natural causes and disasters as well as deliberate attacks from an adversary. Risk management applied in the field of construction currently, has been on the agenda for about 25 years. It has focused in the main on large-scale 7


projects with different kinds of complexity related to them, such as Technology, international collaboration, geography or finance. (Hintze et al., 2004; Jaafari, 2001). More recently, risk management has started to influence an increasing number of companies and not only the largest projects. In spite of this, the small projects in construction do not feature a great deal of systematic risk management (Azinim & Edum-Fotwe, 2006; Simu, 2006)

1.1.3 Prin ciple of risk management

The International Organization for Standardization identifies the following principles of risk management: 

Risk management should create value.



Risk management should be an integral part of organizational processes.



Risk management should be part of decision-making.



Risk management should explicitly address uncertainty.



Risk management should be systematic and structured.



Risk management should be based on the best available information.



Risk management should be tailor-made.



Risk management should take into account human factors.



Risk management should be transparent and inclusive.



Risk management should be dynamic, iterative and responsive to change.



Risk management should be capable of continual improvement and enhancement.

1.1.4 The process of construction projects

In general, Idea, Briefing, Design, Production and Maintenance management, are five steps as the process of construction project. (Figure 1) Depending on 8


the scope of the construction companies’ business concept, they enter this process in different phases. The viewpoint in this study is that client has to take charge of the phases of idea, briefing and maintenance. This description of the construction process is a general one and several different descriptions can be found in other literatures.

Figure 1: A general description of the construction process

In the construction process, it is still most common with competition using a tender process to obtain the project and finish it. Such as commercial bid and technical bid is used in popular. According to the client demands, each of the competing companies submits a bid. The client will decide to choose the company as a winner, which is offered by the most favorable price. The winner is the one that continues with the project into the design and/or production phase of the construction process. In some cases, the constructions companies are exclusive and do not have to compete through bidding. As we know that the many factors have influence on the outcome of the bidding process, such as cost, quality, safety and sustainability determine the outcome of the bidding process, the cost parameter has the greatest influence. Although others, they do have a significant impact from time to time.

1.2 P roblem Formulation

As the most common and typical project types, construction projects have several characteristics such as specific objects: time restraints, cost restraints, special organizational and legal conditions, complexity and systematic characteristics. For that, each investment project, it is a complex system, 9


especially for the construction project; there are many risk factors and complicated relations, which will influence it. The complicated relations include direct, indirect, obvious, implicit or unpredictable, what is more, the various

Risk factors will cause different severity of the consequences. If you do not consider these risk factors at all, or ignore the main factors, they will cause damage because of decision-making errors. Quality targets 、time targets、cost targets are the three major objectives of construction project management. Especially in the construction project, the time objective is closely and inseparably related to the cost objective. Therefore, we cannot ignore risk management of the effect on time objective caused by risks during construction phase.

According to the above description of the background in this thesis, we know that risk management of construction period is the management on the time limit in uncertain conditions. As the accordance to construction project implementation, the technical and economic analysis is based on the prediction and judgment analysts make of future events. The construction project implementation process can be broken down into several specific parts, and these parts are always affected by the political and economic environment 、 sources condition 、 technical development, so there are uncertainty on their future change, What is more, there are limitation on the predictable methods and working conditions. Therefore, the assessment and predicting outcomes will be erroneous results inevitably. This makes possible deviation between actual value and predicting value, which bring about large risk to both the owner and the construction companies. For example, investment or time limit prolonged, productivity under design requirement, rising cost of raw materials, increasing labor fee, fluctuating product prices, changing market demand, loan interest rate and rate in foreign money, all these unpredictable effect even damage to an investment project. The uncertainties, which can be considered 10


as the reason for postponing time limit for a project in the construction project contract, are the very point of studying time limit for a certain construction project. Only by analyzing the influence, can we make a better predication and control of the schedule and ensure the project complete successfully

1.3 Aim, objective and research que stions

The overall aim of this study report is to let everyone know what risk management is, realize the procedure of risk management in construction project and have a deeper study on the application of risk management during construction period, therefore, a better project output and better value for both clients and constructors. There are two objectives of this study: 1. To assess the most major and common risks which cause bad effect on construction period. 2. To figure out reasonable solutions. On the basis of the aim and the objectives, research questions have been formulated.

1. what is the process of risk management? 2. How to apply risk management in construction projects? 3. What risks are there in construction projects? 4. How risks can be indentified during construction period? 5. How risks can be assessed during construction period? 6. How risks can be controlled during construction period?

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Figure 2: research questions (See figure 2)The first three questions as the basis to support last three ones.

1.4 Delimitation

According to the statement of related problems in this report, I try my best to narrow down the scope of my study and make my report more pertinent.

The original Risk Management: Concepts and Guidance (Defense Systems Management College 1986) classified risk into five facets: 

Technical(performance related)



Programmatic(performance related)



Supportability(environment related)



Cost



Schedule

Figure 3: Relationships among the five risk facets 12


(See figure 3)Considering that, cost and schedule risks frequently serve as indicators of project status. They are treated somewhat differently from the others. However, cost and schedule can become a major source of project risk. Based on the above, I decide to start from schedule, and narrow down the scope to the risk management in construction period phase which makes my report more specific. Go through the case of study, different realistic constructions have been presented and analyzed . last section of the report lists the most common and major risks during construction period and some countermeasures referred to these risks.

1.5 Research methodolog y

Literature study and analytical research are my major learning methods, which play an important role in this report. Analytical research involves analyzing existing facts and information. Today’s world is based on information technology and huge amounts of information are available on all kinds of subjects. In addition, to speak of, the report is more persuasive and practical based on the study of real case and visit of site manager. As a student lacking experience working on building site, the visit definitely has a critical effect on the conclusion of this report.

I also use Internet-searching engine, which is a fast approach to get wanted answers of this time. It offers me much writing inspiration and scientific proof from other related articles.

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1.6 Structure of stud y Chapter one is introduction to the background of the research area and sets

discuss the problem formulation. The aim, objectives and research questions are stated and delimitations can be found. The purpose of this chapter is to help the reader understand why this report needed to be written. Chapter two is the theoretical overview and the state the literatures which this

thesis focuses. This chapter gives the theoretical foundation for the thesis and the aim of this chapter is to ensure the reader that this thesis is at the cutting edge of the research in the chosen area.

Chapter three is the case of study, the different constructions have been built

in different place. This section tells the background of each project and describes different type of risks occurred in construction projects. Chapter four is the analysis and discussion, this section’s objective is to

combine results of both the case of study and analytical research in order to identify the main findings and their relevance and implications to current risk management practices Chapter five contains the findings and conclusions of the study. This part

points out the main research contributions and thinking about the specific direction what we can still doing further study in future.

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THEORETICAL OVERVIEW Chapter two is the theoretical overview and the state the literatures which this thesis focuses. This chapter gives the theoretical foundation for the thesis and the aim of this chapter is to ensure the reader that this thesis is at the cutting edge of the research in the chosen area.

2.1 Project Risk Managemen t

This part focuses on defining and explaining the elements of risk management and presents the recommended overall structure for implementing risk management. (The Figure 4) reflects a structure that mirrors the perspective of the Project Management Institute's PMBOOk (® Guide (2004) within the organizational environmental context.

Figure 4. the structure of risk management

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2.1.1 Risk Environmen t

In every project, there is a risk environment. There are risks that must be faced, and there is a host of different ways to deal with them. Risk management planning is the effort, organizationally, to draw together the risk policies, practices, and procedures of the organization into a whole that will address the nature of risk peculiar to the project. Managing construction projects involves making decisions relating to changes in conditions associated with construction, the environment, geotechnical, economic and legislative aspects and so on. In spite of this, risk management has only been applied in the construction industry for a little more than two decades (Flanagan & Norman, 1993, p. 1). Formal and traditional risk management as used today is based on the logical structure of identification, assessment, response and finally also control.(see figure 4).

2.1.2 Risk I dentification

A critical step in the risk management process, risk identification is an organized, thorough approach to finding real risks associated with a project. It is not, however, a process of inventing highly improbable scenarios in an effort to cover every conceivable possibility. After risks are identified and described, then they can be assessed or managed.

Perhaps the key failing of project managers in risk identification is the actual description of risk events. Many project managers attempt to identify risks simply as "schedule" or "cost." (The schedule in and of itself is not a risk.) A risk event is something that may happen to the benefit or bad effect of the 16


project. Risk events are most effective when they are described clearly and in depth. A high-quality risk event description will describe the potential occurrence and how it would influence the project. On a construction project, the risk that a "wall will collapse, causing a delay" is different from the risk that a "wall will collapse, killing someone." To carry out risk identification effectively, basic project documentation must be in place. The project charter, scope statement, and project management plan (including the WBS) need to be available to build a thorough list of risks. Without these elements as a frame of reference, it is impossible to effectively evaluate the risks on a project. The risk management plan and the organizational environment also must be clearly understood to conduct risk identification. These establish the environment in which the risks will be evaluated. The risk management plan may also identify specific risk identification practices which are either preferred or rejected by the organization as part of their risk culture. All this information can spur thinking about different risk issues and concerns when evaluated using the tools and techniques of risk identification. The tools and techniques that are applied in risk identification are as varied as the projects they serve. However, some groups of tool and technique types are most commonly applied. According to PMl BOOK, they include documentation reviews, information-gathering techniques, checklists, assumptions analysis, and diagramming techniques.

2.1.3 Risk Assessmen t

Risk assessment is performed in numerous ways. Tools and techniques have been developed to consider probabilities and consequences, using historical data, statistical data or estimated judgment translated into numerical 17


information (Aven, 2003; Grey, 1995). There are also assessments grading certainty in scales such as rare-almost certain and low-extreme. They share estimates of probability and consequence and the use of software tools to manage the data. Scoring techniques (Grey, 1995) are developed checklists that include the evaluation of both probability and the consequence of a risk breakdown and those are used to produce risk matrices. This is a common technique for risk assessment in construction projects that is widely used due to its simple approach. As with checklists, the disadvantage is that some aspects are forgotten. The bias that also needs to be considered is that different evaluations will appear depending on the individuals carrying out the assessment. Using models or simulation to assess risks is another approach. Models are simply a breakdown of a complex project into manageable bits and pieces, often by using mathematics to show how these bits and pieces are linked together. The disadvantage of any model using figures is that the user could easily be blinded by exact figures, without having any more precise information than a more qualitative answer. It is important to remember that, with models and simulations, the saying “what goes in is what comes out” is very applicable.

Figure 5 Probability- Impact Matrix 18


2.1.4 Risk Response P lanning

Risk response development is a critical element in the risk management process that determines what action (if any) will be taken to address risks evaluated in the identification, qualification, and quantification efforts. All information generated to date becomes crucial in determining what the organization will do that is in keeping with the risks, the organization's tolerance, the project tolerances, and the customer culture.

To some measure, risk is a cultural phenomenon. Different countries, regions, and organizations have different cultural tolerances for risk and risk responses. Determining what limits exist early in the risk response planning process is important to ensure that time is not wasted on approaches that are intolerable. Risk thresholds frequently are as significant here as they are in establishing basic probability and impact for the risks. These risk thresholds should become a component of the risk management plan.

All risks have causes; sometimes multiple risks within a given project arise from a common cause. In developing risk responses, the project team should work to identify any common causes, as those causes may have common risk responses. Generally, response strategies for threats fall into one of the following categories: •

Avoidance

•

Transference

•

Mitigation

•

Acceptance

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2.1.5 Risk Contr ol

After risks have been identified, qualified, and quantified, and clear responses have been developed, those findings must be put into action. Risk monitoring and control involves implementing the risk plan, which should be an integral part of the project plan. Two key challenges are associated with monitoring and control. The first is putting the risk plans into action and ensuring that the plans are still valid. The second is generating meaningful documentation to support the process. The final step in the description of the risk management flow chosen in this thesis involves ensuring the use of the prior steps. It is a question of making sure that the identified risks, which are regarded as important, are also controlled in the way that was planned in the response step. In the control step, it is also possible to identify new risks that emerge and the continuous process proceeds.

2.2 Risks in construction projects

Risks in construction projects may be classified in a number of ways. One form of risks classification is as follows:

1. Socioeconomic factors 

Environmental protection



Public safety regulation



Economic instability



Exchange rate fluctuation

2. Organizational relationships 

Contractual relations



Attitudes of participants



Communication 20


3. Technological problems 

Design assumptions



Site conditions



Construction procedures



Construction occupational safety

The environmental protection movement has contributed to the uncertainty for construction because of the inability to know what will be required and how long it will take to obtain approval from the regulatory agencies. The requirements of continued re-evaluation of problems and the lack of definitive criteria which are practical have also resulted in added costs. Public safety regulations have similar effects, which have been most noticeable in the energy field involving nuclear power plants and coal mining. The situation has created constantly shifting guidelines for engineers, constructors and owners as projects move through the stages of planning to construction. These moving targets add a significant new dimension of uncertainty which can make it virtually impossible to schedule and complete work at budgeted cost. Economic conditions of the past decade have further reinforced the climate of uncertainty with high inflation and interest rates.

During periods of economic expansion, major capital expenditures are made by industries and bid up the cost of construction. In order to control costs, some owners attempt to use fixed price contracts so that the risks of unforeseen contingencies related to an overheated economy are passed on to contractors. However, contractors will raise their prices to compensate for the additional risks. The risks related to organizational relationships may appear to be unnecessary but are quite real. Strained relationships may develop between various organizations involved in the design/construct process. When problems occur, discussions often center on responsibilities rather than project needs at a time 21


when the focus should be on solving the problems. Cooperation and communication between the parties are discouraged for fear of the effects of impending litigation. This barrier to communication results from the illconceived notion that uncertainties resulting from technological problems can be eliminated by appropriate contract terms. The net result has been an increase in the costs of constructed facilities.

The risks related to technological problems are familiar to the design/construct professions which have some degree of control over this category. However, because of rapid advances in new technologies which present new problems to designers and constructors, technological risk has become greater in many instances. Certain design assumptions which have served the professions well in the past may become obsolete in dealing with new types of facilities which may have greater complexity or scale or both. Site conditions, particularly subsurface conditions which always present some degree of uncertainty, can create an even greater degree of uncertainty for facilities with heretofore unknown characteristics during operation. Because construction procedures may not have been fully anticipated, the design may have to be modified after construction has begun.

If each of the problems cited above can cause uncertainty, the combination of such problems is often regarded by all parties as being out of control and inherently risky. Thus, the issue of liability has taken on major proportions and has influenced the practices of engineers and constructors, who in turn have influenced the actions of the owners.

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CASE OF STUDY Chapter three is the case of study, the different constructions have been built in different place. This section tells the background of each project and describes different type of risks occurred in construction projects.

3.1 Case

Public building in Denmark

Background of the Project

This realistic project case is new educational building and multi-hall of our school. This project is under construction. The gross of constructed floor area is about 7600m2 for educational building and 1600m2 for multi-hall. The educational building has been started from August.2010 before the schedule of multi-hall, it has to be finished at July.2011.construction period is nearly 10 months. The multi-hall will be started at May.2011 and finished at December.2011, and construction period will be nearly 7 months. As the project client, our school have chosen the total contracting form of procurement and offer a set of specific detailed brief. CASA A/S will be responsible for the total co-ordination of the design and the construction. The bid of price for construction works is approximately 87 million. In order to get more realistic data, I visited building site of this project, and had a short talk with him, it was my great honor. Clæs is a senior site manager from CASA a/s, he has a 20-year experience of site management. He is responsible for former projects of our school too. His duty of being building site is to manage the operation of the whole construction phase, especially on project’s quality, cost and schedule he also takes charge of the communication

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with client

，

sub-contractor ,supplier. Besides, there are two or three

colleagues to help him with these work.

Construction Related Risk

During the meeting with him, my research questions have been mentioned that How can risk be identified, assessed , control during construction period? These risks means the risks which have a bad effect on construction?

From the site manager’s aspects, there are four main risks that would affect the construction period. 1. Safety risk The first one would be safety risk. According to his opinion, this is the most important thing that should be paid attention to. Based on plans for safety and health, all the works should have its own precautions. The site manager has to make a safe working environment for labors. If any accident happens during the process, not only the schedule will be delayed but also the other areas will be affected. Therefore, enough money is supplied to make sure the labor safety on building site. At the mean time, site manager has to make and implement a safety and health plan to assure the safety of the working process. Manually inspections and supervision are also important.

2. Material supply risk The second one would be risk on material supply. Material supply is a compulsory part of the construction project. Under the influences of global economy crisis, many suppliers are facing bankruptcy. By choosing a supplier without great reputation and funding, it may lead the construction to facing delay on delivery. If it is during the critical process, it will surely delay the whole construction. In construction industry, the delay on time always cost more. It would be a better idea for the total contractor to choose a supplier 24


company wisely to avoid short of material and delay on delivery. For site manager, his responsibility would be contacting supplier and arrange the material delivery and transfer.

3. Unforeseen extra work Third of all, unforeseen extra work is also one of site manager’s concerns. Most of the unforeseen extra works take place on soil work. It is because that geological exploration datum cannot predict and analyze the exact condition of geology. The rest extra work might happen in other construction work methods. The site manager stated that during this project, the soil problem has caused a delay for couples of weeks. However, there is nothing the site manager can do about this situation. 4. Omissions of construction work The last main risk would be omissions of construction work. Due to the consideration of cost, clients all wish to finish the construction as soon as possible. This will bring a lot of pressure to the total contractor. They are trying to do their work faster. When rushing into doing things, more mistakes might happen. As a result, the quality of the construction will highly be reduced. This leads to the omissions during construction period. However, they still want to balance the time and quality. Consequently, total contractor will hire more skilled and experienced workers as compensation. They will pay attention to the critical parts of the work while speeding up on the easy ones. And it is known that the Germans are good with concrete element work, the Italians are good with wet room surface work. During the period of construction projects, site manager always identify, assess and control risks based on their own experience. This is also considered as the most practical and convenient risk management. There are also other methods which cannot be ignored, such as risk breaking down system, meetings planning and so on. 25


3.2 Case II The I nternational project in Vietnam

Background of the Project

This case study relates to the development of a factory to produce yeast in the southern part of Vietnam. The client is a joint venture based on a 50:50 share between a France company and a Vietnamese company. The site area is about 40,000m and the gross of constructed floor area about 6,200m2. The contract sum for construction works is approximately US$10 million. The client informed that a few consultants and project management firms were invited to submit fee proposals. French architects, engineers and project managers were selected as they came from the same country as the foreign client. Project Planning and design started in late 2001. Due to some problems within the joint venture and technical issues with the yeast manufacturing method and process of operating the factory, construction only started in early 2005 and was expected to be completed in late 2006. However, the project was only completed in 2008.

through the above description of the background, it is obvious that the project lasts two years more than the planned time. there must be several risks during the construction phase such as political risk, legal Risk, financial and economic risk, design risk, construction risk, etc, and these risks haven't been well under control at last, thus, affecting project performance. The following part is the main analysis of risks in construction phase.

Construction Related Risk

The main construction related risk faced in this project was substandard quality of materials and workmanship. The client's representative had to ensure that the factory achieved similar quality as the client's other yeast production 26


factories throughout the world. However, in this project, the client's representative had to accept a lower quality standard because that was what the Vietnamese contractors were capable of. The low quality workmanship was because some of the main contractor's workers were unskilled. They also had low productivity. The main contractor's excuse was that he needed the skilled manpower for his other ongoing projects. The lesson learned is that foreign firms should enter Vietnam knowing that their built facility would not be of the quality and standard that they are used to in developed countries. Hence, quality control must be enforced strictly.

The project manager recounted that the contractors changed their site management staff frequently. In response to this risk, the consultants required that any change of personnel in the main contracting, nominated and domestic subcontracting firms would need the project manager's approval.

In this project ,the equipment and materials are easily found in Vietnam. Specialized items however had to be imported. The local main contractor had to contend with long delivery time, delay in customs clearance and payment of tax. There was a long lead-time for equipment to arrive from overseas, and the main contractor overcame this risk by placing orders early. The delay in,

customs clearance is something that foreign firms should be aware of and build this into their schedule. Import tax is complicated, and the rate depends on

the type of material and equipment, and when the items arrive in Vietnam. Firms should therefore build in a large contingency sum for paying import tax on materials and equipment.

Another construction risk faced by the project was unsafe work practices. The project manager found that most of the contractors did not have safety management systems in place. To manage this risk, the main contractor was 27


required to engage a safety specialist, who must ensure that safe work practices were adopted, and the working condition on site was safe. In addition , There is one of risks in construction risks that we should not be ignored, which is nature risk. Construction work in Vietnam may be affected by heavy rain. The construction manager explained that in southern Vietnam, the wet season lasts from May to October. In central Vietnam, flooding may occur from October to December. In northern Vietnam, the rainy months are August to November, with February and March having persistent, light, drizzling rain. The construction manager said that he would undertake construction work that would be affected by bad weather condition outside of the rainy season. Apart from planning work to avoid heavy rain, the project did not face any other severe natural risk that affected construction progress.

THE ANA LYSI S AND DI SCUSSI ON Chapter four is the analysis and discussion, this section’s objective is to combine results of both the case of study and analytical research in order to identify the main findings and their relevance and implications to current risk management practices

4.1 Analysis of case study

Risks may exist throughout the project lifetime from inception to design, bidding, construction and commission. From previous cases what we have uncovered is that the main and critical the risks are occurring during construction period. Actually, in the whole project process, there are other risks such as political risk, legal risk, financial and economic risks, design risk, cultural risk. Bureaucracy, inadequate legal framework, high inflation rate, those issues are significant factors affecting both clients and contractors’ 28


venture. After we know those, effective risk response techniques must be adopted to manage the risks, such as documentation reviews, checklists assumptions analysis are used often.

Another effective risk response technique is to use negotiation to solve problems. It is found to be the most practical and effective way to overcome

difficulties faced in Vietnam. The implication is that practitioners should be well equipped with negotiation skills when undertaking projects in Vietnam

As the quality of work and safety could be compromised in projects, it is recommended that contractors provide workers with some training so that they can achieve certain skills level and safety awareness. Safety management systems should also be implemented on site.

4.2 Discussion on the problems in project risk manageme nt

When the scale of a project is huge, the construction period is quite long. there will be lots of uncertain factors facing the whole project. At the beginning of the construction project, the contractor and the owner have already foreseen that certain factors causing the implementation of the project will definitely occur during the implementation process. In order to safeguard each interest, both sides make some special regulations when signing a contract. After confirming the following factors, the construction period can be delayed without paying for any fine to the clients undertaking project as long as the performing units put forward the apply to units in charge of construction. The factors include: 1. Change of working amount and design

29


2. Contractors will not be responsible for the damage brought by the work stoppages because of blackout, short of water supply or gas supply that not belong to. 3. Force majeure 4. There meet unpredictable obstacle or ancient tombs

、cultural

relic、

quicksand which need to be dealt with during the foundation construction. 5. Supplier do not supply the materials in time, the clients do not pay construction fund on time or any other conditions the client admits.

Then we can avoid direct damage caused by some uncertainties to the project. In order to make sure that there is no effect on stake, the project manager cared more about the cost of construction than the construction schedule. So the study of construction period is still resting on the theory at present and there is little strict estimate and control on the project period when practicing. In fact, construction period affects construction expenses directly, delay of the period lead to change of both direct expenses and indirect expenses and thus affecting the overall expenses of a project. Therefore, we should evaluate project construction period reasonably and estimate the construction period within bounds for that it is quite important for the implementation and completeness of the whole project.

FI NDS AND CONCLUSI ON Chapter five contains the findings and conclusions of the study. This part points out the main research contributions and thinking about the specific direction what we can still doing further study in future.

5.1 Answ ering the research questions

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5.1.1 Findings about risks be identified du ring construction period

For that the construction project itself is a complicated system, there are many influencing factors and various uncertainties result in different consequences. We can start from the viewpoint of system when identifying uncertainties. Risk identification is an organized, thorough approach to finding real risks associated with a project. It is not, however, a process of inventing highly improbable scenarios in an effort to cover every conceivable possibility. Risks cannot be assessed or managed until they are identified and described in an understandable way. We should grasp the major factors among multiple factors and then analyze the severity of input-output caused by the uncertainties. The common methods are: Expert interviews, which depend on veteran like project manager or site manager. Documentation reviews, Analogy comparisons, Brainstorming, Risk breakdown structure, and Delphi technique. In construction projects, the common uncertainties are: soil and geological conditions、weather conditions、material and equipment deficiency、imperfect design scope 、 equipment change 、 labor productivity 、 contractor’s neglect of duty and so on.

5.1.2 Findings about the im pact of risks on the construction p eriod

Uncertainties include three facets, operation factor 、industry factor and market factor. These three facets together have an effect on the project construction period. However, the influences of the three factors made on the construction

31


period are quite different. Operational risk is on the top, it is the most uncertainty during the implementation of a construction project. The follows are the description of the major uncertain factors influencing the construction period. 1. The Nature risk. Open air、upper air and the underground are the major building operation field, so the weather plays an important role on the construction period and safety. For example, flood 、earthquake、rainstorm ect.

2. Innovation of design, like using new technique 、 change of work method deficiency of design and so on.

3. Equipment failure. (1) Uncertainty of construction technology: every building is unique and has its own

characteristic.

Construction

technology

needs

to

be

innovated

continuously because of the constant change of the design, and then the construction technology will meet the risk of “first failure”. (2) Equipment breakdown.(such as crane, Hydraulic jacks, hydraulic concrete pumps, welding equipment, demolition devices) 4. Labor productivity. (1) The quality of construction teams (2) Mating between labor and equipment: there need many kinds of specialized type of work cooperating in one project such as carpenter, mason, plumber , welder, and so on. Although the enterprises follow the regulations of local building environment, when they employ workers, scale of project is still so huge that it need large amounts of teams, therefore, it is hard to say if the job mating with equipment is reasonable or not.

32


(3) Employment dynamics: if service operations are according to construction schedule, keep the working performance as planned, pull the job off up to standard within the limited time, after hand over or check the completed project and leave the construction site immediately or not. 5. Materials delay. (1) Dissatisfactory material quality. (2) Uncertainty of equipment supply: the major materials used in the construction are steel 、wood、concrete、sands and brick, etc. Although these construction materials are rich in the domestic market, the big amount of manufacturers, the different quality of the same material and misuse of construction companies may affect the construction quality and cause direct financial loss. (3) Uncertain price of construction materials: the bid price of the contract in a construction project includes material prices. The construction period is very long and if the material prices increase, the income will decrease. (4) Poor local transportation condition. 6. Soil situation, Geological exploration datum can’t give an overall and exact explanation of the geology, so soil situation is an indispensable factor. Uncertainties exist in all kinds of activities of whole construction process and have an effect on the whole project implementation. The control planning and traditional work methods when we done before for managing construction project that do not work because of these uncertainties.

5.1.3 The countermeasures for risks in construction p eriod

According to the above analysis

，

we can take actions to control those

uncertainties which have great influence on the process of construction so as 33


to provide a most effective risk control and risk management of the project period. Moreover, take the following relative measures if necessary: 1. Try to make sure that the project gets up to a high standard on processing operation and organizational structure, more importantly on the qualifications of contractor. including the human resource required by the total contractor, the strong market competiveness, qualified design capacity, complete project management system, powerful technical support, the ability to equipments and construction supplies

，

purchase

good communication skill of the

contracts, the ability to face risk, advanced enterprise culture, etc. 2. Raise legal consciousness. We must comply with the law when we sign contracts, claim indemnity, protect rights, operate, withstand risks, financing and settle accounts, etc. 3. Implement talent strategy, impart knowledge of construction project management, risk management, contract management, economy, finance, insurance, operation control, etc to employees so that the enterprise can own experts and professional project managers absorbing skills, law, strategy, operation, foreign language, management. 4. Set specification on construction management, prepare the manuals and planning by total contractor, in addition, build up their own risk management system. 5. Take active technical countermeasures, including risk avoidance, risk reduction, risk prevention, risk transfer and risk retention



Measures to avoid risk

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If risks become big threats that the enterprise could hardly bear and control to the project, we should give up the contract and the project definitely to avoid greater losses. Moreover, laying down the regulation that certain project should be prohibited and avoiding the actions which may cause damage are also good measures to evade risk.



Measures to reduce risk

This kind of measures can reduce the incidence of risk or the damage when risk occurs. For the known risk, we can use project resources to cut down, for the predictable or unpredictable risk, we should change it to known risk through assumption and limited conditions and then take measures to reduce the possibilities risk happen to a level which risk can be accepted.



Measures to prevent risk

Implement technical supporting and effective control planning to prevent risk. The aiming is to prevent new risk factors; reduce existing risk factors; reduce the incidence of risk events



Measures to transfer project risk

Spread the risk to other objects, including owners, subcontractor, partners, investors, suppliers, etc.



Measures to risk retention

If the damage caused by known risks is not serious, sustain it on one’s own. And one should have the ability, have emergency measures, back-up actions and financial reserve.

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5.2 The main conclusion

Finally, after resolving the research questions, I would like to make a conclusion of my report.

At the beginning of this report, I made up my mind the orientation of my study through learning about the background related to my study aim such as what is risk, what is risk management. The orientation of my study is the application of risk management in construction projects. Then I start my study by finding out literature references via borrowing related books and surfing the Internet. Next, I list realistic construction projects, each project has its own characteristic and building sites, so it will meet with various risks. In addition, I make specific analysis based on what I learn from the document literature. At last, I provide the resolving methods after theoretical study and case study.

This report tells us what risks will occur during construction period for that risks have an effect on the cost and schedule of construction projects. I make my study and description mainly on the schedule. Then presenting what are the major and common risks influencing construction period that I choose from numerous factors. In the end, I got the answers like how to ensure as soon as possible、 how to make reasonable analysis and how to have a good control of these risks.

As part of the final semester work, I get down to my report and graduation project at the same time. Considering the writing time and writing depth , it is a challenge for me. Nevertheless, I still try my best to search literature and references and have profound study. I treat a better final report as my pursuit.

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5.3 Future research

I have learnt a lot what I did not know before through finishing this report, which enrich my learning experience and broaden my horizon of project management. As is known to all, there are still many risks, which need us to solve. Risk management has a wide usage, for example, we can apply risk management to the analysis and management of the existing and possible risks from the design phase to the construction phase.

Regarding writing time and writing scope, I narrow my report to a specific aspect, which describes what risks are there during construction period and what are the common risks affecting construction schedule. This is just a small part of risk management application in construction projects. Moreover, there is no more deep study of other aspects in this report. Based on the report, we can make further analysis and study about the risks, which affect construction cost for the further study to ensure budget balance of construction projects, and maximum value of clients such as the study of what factors may cause cost change except extension of construction time. There is one of aspects of risk management is worth doing it.

37


References Jaafari, A. (2001). Management of risks, uncertainties and opportunities on projects: time for a fundamental shift. International Journal of Project Management, 19(2), 89-101.

Azinim, M. & Edum-Fotwe, F. T. (2006, 18-20 October). Risk management practices of construction project staff: Preliminary lessons. Paper presented at the Construction in the XXI Century- Local and global challenges, Rome.

L.P. Gragg and J.M. Cassell, Progress in Management Engineering,pp. 173 197.2009 Nova Science Publishers, Inc. CarL.Pritchard, risk management ,concepts and guidance pp28-54,2005 third edition. printed in the United states of America

R.max wideman fellow,PMI, risk management - a guide to managing project risks and opportunities, 1992,project management insitiute .inc.

Kajsa Simu, The Construction Site Manager’s Impact on Risk Management Performance, doctoral thesis, 2009,Lulea, Sweden http://civilengineerblog.com/risks-construction-projects/

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Appendices

Appendix A EXAMP LE OF RI SK ASSESSMENT PLAN IN G

Appendix B EXAMP LE OF RISK ASSESSMENT PLA NI NG 2

Need some winter precautions

Winter (1.11.09 to 31.03.10) Weather (summer/Winter)

Winter (1.11.10 - 15.12.10 Summer (1.04.10. to 01.07.10)

Easy access to the building site Okay but of course not perfect Unknown

Delivery conditions

Geographical conditions Who is he?

Who are there? ?

Well working? ?

Competitors (other contractors)

Liquidity

Expensive? Experience

Idræts Alle 10, 6740 Bramming

SURROUNDING

Flat plot No big vegetation

Esbjerg Kommune Torvegade 74 6700 Esbjerg In all domain, the financial situation is not the best right now but Esbjerg Kommune is the state and they will have the money to finance the project NO - DD Contractors has no experience with Esbjerg Kommune Årstiderne Arkitekt Dalgasgade 11 7400 Herning

CLIENT

Architect

Position of the site

Reputation

Good accessibility (main road,...)

RISK ASSESSMENT

Rambøll Dokken 10 6700 Esbjerg

Big space Residential area

Engineer

Neighbours Green area

Experience

Reputation

Good access for big trucks

We have Yes

Other trade

Property Have we tried this type of work before?

Do we have time?

PROJECT

Is it the time schedule realistic?

Can we have the necessary machinery?

Is the plan for safety and health okay? RESOURCES

Do we have the manpower/staff

Do we need subcontractors

Risk Assessments

Is it new technology?

Okay

Yes, we have been working with this type of work before

Yes but of course some surprises can appear

Do we have the material

Yes but some risk due to the financial crisis (bankruptcy) No, so need to ask for other subcontractors

DD contractors have already work with Rambøll

Specifications

Our trade (Ground, Soil, concrete and mounting element work No

Big experience with all kind of projects

Is the tender materials okay?

Only 3.5 km from the Motorway

Yes

DD contractors have already work with Årstiderne Arkitekt

NO- Missing some of the tender documents Transport

Placed on a big plot

Big experience with all kind of projects

Experience

No - DD contractors haven't received any basic plan for safety and health

Normal technology but more difficult than normal

Risk Management in Construction Projects

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