Risks Management on Building Projects in Bali.
INTERNATIONAL JOURNAL of ACADEM IC RESEARCH
Vol. 7. No. 2. Iss.2. M arch, 2015
RISKS MANAGEMENT ON BUILDING PROJECTS IN BALI
I.N. Budiartha R.M
1
Senior Lecturer at Faculty of Engineering, Udayana University (INDONESIA)
[email protected]
DOI: 10.7813/2075-4124.2015/7-2/A.62
Received: 08 Jan, 2015
Accepted: 04 Mar, 2015
ABSTRACT
Bali has been well-known as a tourism place; therefore the development of infrastructures including building projects
in this area has also increased significantly. Constructing a building project particularly in the southern part of Bali, which is
recognized as a heavy congested area of tourism activities, is likely to face difficulties and risks related to the access and the
delivery of materials and equipment to the project location, as well as problems dealing with social, political and regulations.
This paper aims to evaluate and assess risk factors that impact on the construction of building projects in Bali. A
questionnaire survey was developed based on extensive literature review. The survey involved 20 participants that were
selected based on purposive sampling method. It covered contractors, clients (project owners), and consultants those have
experienced on constructing building projects located in this particular area. The collected data was analysed using
descriptive statistic to identify and calculate the likelihood and consequences of risks. Mitigation actions were formulated
after classifying risk in terms of risk acceptability. The findings indicates that the identified risks covers three negligible risks,
six acceptable risks, twelve undesirable risks and eight unacceptable risks. Risk mitigation should be taken to address the
major risks (undesirable and unacceptable risks) that mainly rooted from four sources, i.e. Social, political and regulations;
environm ent and nature; finance; and technical of the project.
Keywords: risk assessment, building projects, likelihood, consequences, major risks
1. INTRODUCTION
The economic development in the southern part of Bali has grown-up rapidly, which is dominated by tourism
business. It can be seen by the increasing numbers of infrastructure and building projects such as hotels that particularly
located in Badung regency. This situation indicates that construction business in this area is well-promised. Badung regency
is known as a congested area thus it generates challenges when constructing a building in this location. For instance, heavy
traffic jam can impact on the accessibility to the project location, difficulties to load materials and equipm ent, the noise and
pollutant impact on the environment and other technical risks during the constructions period. Contractors should be able to
manage these risks, so, they can achieve the project’s objectives, i.e.: to meet time, cost and quality as being planned.
Practically, realizing these three objectives often becom es a critical issue.
There are many factors that influence the success of a project completion. Risks that particularly related to the
construction of the project are one of the factors that should be identified in order to minimize the consequences that likely
impact on the project completion. Therefore, identification of risks that likely occurred during the construction phase is an
important early stage prior formulating strategies for managing them. This paper aims to identify and assess risk factors
related to construction of building projects in Bali. The identification of risk factors was conducted based on an extensive
literature review. Subsequently, the identified risks were examined through a questionnaire survey. It involved 20 participants
(contractors, consultants, and clients) those experienced on constructing building projects in the area of Badung Regency
(i.e.: Seminyak, Legian, Kuta, and Tuban). This paper begins with a review on risk identification in construction industry and
risk assessment.
2. RISKS FACTORS IN CONSTRUCTION INDUSTRY
Construction industry has often faced the negative effects of change that lead to the failures of many projects to
achieve the deadline, cost and quality as being set. Risk occurs due to uncertainty that lead to the possibility of adverse
events. However, Al-Shibly, et al [1] argue that if it was practiced in the correct way, risk can becom e a positive key factor for
the company. Smith, et al [2] suggest that employing the principles of risk management will enable engineers to improve the
management of this change effectively.
Risk management is defined as a set of methods and activities designed to minimize the disruptions rising during
project delivery. It covers identification and specification of risks that likely occurs in the construction process, as well as risk
assessment and a formulating strategy to address the negative consequences of the risk [3]. Identifying risks is the first
essential step in risk management that must be conducted to result proper strategies for mitigating the negative impacts.
Risk factors can be identified from their sources[2, 4]. The following table 1 depicts the risk factors that was identified based
on previous studies and was summarized into five (5) sources, i.e. Social, Political and regulations; Environment and Nature;
Finance; Technical of the Project; and safety.
442 | PART A. APPLIED AND NATURAL SCIENCES
ISSN: 2075-4124
INTERNATIONAL JOURNAL of ACADEM IC RESEARCH
Vol. 7. No. 2. Iss.2. M arch, 2015
Table 1. Risk Identification based on previous studies
No
1
2
3
Sources of Risk
Social, Political and
Regulations
4
5
6
7
Risk Factors
Local regulations
Government regulations & regulation change due to government change
Public opinion, Norms disturbance to the local society due to the construction of
project, protest from local people, legal environment.
Unstable politic of the country
Long bureaucracy and corruption
The loss of green open space
Environmental pollution (soil, noise, inconvinience,view obstruction) during
construction
Unforeseen ground condition, weather, earthquake, fire of explosion, archaeology
discovery
The increase of interest rate, bad market, inflation
The increase of material and delivery cost
Late payment by the client
Design changes, incompleted specification, inapplicable design.
Difficulties to supply and deliver man, materials and equipment to project location
Failure to achieve quality due to unstandarized handling work and low quality
control
Organisation, communication and culture
Working hours management and procurement strategies
Project team competencies
Limited parking area for project vehicles and materials loading, and difficulties to
access the project location
Labour sickness, tiredness
Safety, theft, disruption during construction
High rate of accident during construction due to less awareness to wear safety
equipment
Destruction, riot, sabotage and terorism
Environment & Nature
8
9
10
11
12
13
14
Finance
Technical of the project
15
16
17
18
19
20
21
Safety
22
References
[3, 5]
[5-7]
[7-9]
[6, 7]
[9]
[8]
[7, 8]
[7]
[4-7, 9]
[8]
[3, 10]
[3, 5-7, 9]
[3, 5-7, 9]
[5, 7]
[7]
[7, 8]
[5, 7]
[8]
[7]
[5-7]
[4-6]
[4, 5, 7]
3. RISK ASSESSMENT
The first step of risk assessment is by determining the degree of likelihood and consequence of each risk factor. It
can be represented by the frequency of mode in descriptive statistics. Multiplication between the mode score of likelihood
and consequence will result the degree of risk or called as risk index (RI). The value of RI indicates the level of risk
acceptability. Godfrey [7] provides a guidance for classifying risk acceptability level based on the value of RI, as depicted in
Table 2. Accordingly, risk assessment can be formulated as [7]:
RI = P x I
where:
RI –
P –
I –
the degree of risk (Risk Index)
Probability (or likelihood) of occurrence of a risk.
the consequence or perceived impact on a project
Table 2. Assessment of Risk Acceptability
ASSESSMENT OF RISK ACCEPTABILITY
CONSEQUENCE →
Catastropic
(5)
Critical
(4)
Serious
(3)
Marginal
(2)
Negligible
(1)
Unacceptable
25
Unacceptable
20
Unacceptable
15
Undesirable
10
Acceptable
5
Description
Unacceptable
20
Unacceptable
16
Undesirable
12
Undesirable
8
Acceptable
4
Guidance
Undesirable
10
Undesirable
8
Acceptable
6
Acceptable
4
Neglegible
2
Acceptable
5
Acceptable
4
Acceptable
3
Neglegible
2
Neglegible
1
Unacceptable
15 ≤ x ≤ 25 (Intolerable, must be eliminated or transferred)
8 ≤ x < 15 (To be avoided if reasonably practicable, detailed investigation and cost
benefit justification required, top level approval needed, monitoring essential)
3 ≤ x < 8 (Risk can be accepted or managed)
1 ≤ x < 3 (There is no further consideration required)
LIKELIHOOD ↓
Frequent (5)
Probable (4)
Occasional (3)
Remote (2)
Improbable (1)
Key:
Undesirable
Acceptable
Neglegible
Unacceptable15
Undesirable
12
Undesirable
9
Acceptable
6
Acceptable
3
Source: Godfrey [7]
As described in Table 2, one of the steps in risk assessment is to categorize the degree of risk into four main
group, i.e. unacceptable, undesirable, acceptable and negligible. Afterwards, actions for mitigating risks can be formulated
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INTERNATIONAL JOURNAL of ACADEM IC RESEARCH
Vol. 7. No. 2. Iss.2. M arch, 2015
which is associated with the degree of risk. Norman and Flanagan[4] suggest four methods for risk mitigation that includes
risk retention, risk reduction, risk transfer and risk avoidance. Based on the degree of risk categorised by Godfrey [7],
acceptable and negligible risk are indicated as low risks, so, risk retention can be taken. Meanwhile, unacceptable and
undesirable risks have higher degree of risk, therefore proper mitigation actions should be focused on these types of risk.
Finally, risk ownership must be defined to specify the parties that responsible and control the risks[4].
4. METHODS
The identified risk factors from the literature were used to develop a questionnaire that consists of 29 questions that
were derived from 5 (five) sources of risk. The questionnaire was distributed to 20 participants, involved contractors,
consultants and clients those experience on constructing building projects in the area Badung Regency (i.e.: Seminyak,
Legian, Kuta, and Tuban). The questionnaire used Likert scale format for measuring respondents’ opinion related to risk
likelihood (probability) and risk consequence. The scale used for measuring risk likelihood is: 1(never), 2(rarely),
3(sometimes), 4(often), 5(very often); while, for measuring consequence is: 1(very low), 2(low); 3(moderate), 4(high), 5(very
high). The retrieved data was tabulated based on its frequencies (mode). The mode score of likelihood and consequence
was multiplied in order to define the degree of risk and to classify the level of risk acceptability. Then, formulation of risk
mitigation was focussed on major risks (undesirable and unacceptable), which followed by specifying of risk ownership.
5. RESULTS AND DISCUSSION
The responses retrieved from 20 participants of the questionaire survey was tabulated. Reliability and validity test was
conducted and confirm ed that the instrument (questionaire) is reliable and valid. This was indicated by the values of
Cronbach’s alpha that above 0.70 and the calculated ”r” that above 0.444 (r table)[11]. Subsequently, the data was analyzed
using descriptive statistics (employed SPSS version 19) to determine the mode (frequency) of ”likelyhood” and
”consequences”. Risk index (RI) was obtained by multiplying them. The result is presented in
Table 3. This table also indicates risk acceptability that classified into: three negligible risks, six acceptable risks,
twelve undesirable risks and eight unacceptable risks. Risk mitigation was focused on major risks that cover undesirable and
unacceptable risks.
Table 3. Response to risk likelihood, risk consequences and risk acceptability
1
2
3
Source
of Risk
Social, Political &
Regulations
No
4
8
Environment & Nature
7
9
Finance
10
11
12
15
16
17
18
Technical of Project
13
14
P
Mode
I
Mode
RI= PI
(Risk Index)
3
2
6
3
3
9
4
4
16
3
3
9
Pollution to the environment due to the construction and
operational of the project.
2
2
4
The increase of noise during the construction phase that
causes disturbance to the local society.
4
4
16
The decrease of cleanness and convenience in the
surrounding of the project.
4
3
12
3
3
9
Potential landslides if the project located in the hilly place and
other unpredicted risk such as earthquake and fire.
4
4
16
The escalation of project cost due to the increase of interest
rate if the project is financed by using bank loan.
2
3
6
5
4
20
5
4
20
Delay on project execution due to the design is unfitting with
the real condition of the project location.
3
2
6
The disruption on project construction due to inaccurate the
project scope definitions.
4
3
12
3
3
9
2
4
8
2
4
8
2
4
8
Social problems that arise from local regulations and
pressure from local society.
Public opinion that assume the construction of the project will
destruct the local society norms.
Problems deal with obtaining authorization of the project
construction from the government/ related institution.
The disruption on project construction due to ineffective
strategy for delivering materials and equipment.
Unable to meet the quality as specified due to the
unstandarised work handling.
Unable to meet the quality as specified due to low control on
work quality.
Unable to maximize the project execution due to improper
structure of project organisation, in particular that deal with
444 | PART A. APPLIED AND NATURAL SCIENCES
Acceptable
Undesirable
Undesirable
Acceptable
Unacceptable
Undesirable
Disturbance to the local society due to unfitting block view.
The increase of project cost due to the need to build a new
access from the main road to carry out materials to the
project location.
The decrease of contractor’s profit due to delays and
difficulties as the project is located in a high density area of
tourism activities.
Risk Acceptability
Unacceptable
The loss of some green open space due to the project.
5
6
Risk Factors
Undesirable
Unacceptable
Acceptable
Unacceptable
Unacceptable
Acceptable
Undesirable
Undesirable
Undesirable
Undesirable
Undesirable
ISSN: 2075-4124
INTERNATIONAL JOURNAL of ACADEM IC RESEARCH
No
Source
of Risk
Vol. 7. No. 2. Iss.2. M arch, 2015
Risk Factors
P
Mode
I
Mode
RI= PI
(Risk Index)
Unable to maximize the project execution due to improper
work methods for each item of work, includes the
management of resources-man, materials and equipment.
3
4
12
Disruption on project construction due to less competencies
of the project team (consultant & contractor).
2
4
8
Unable to meet the quality technically as the material is
unable to pass the test for its resistance as specified.
2
2
4
22
Limitted of land availability for project vehicles during the
construction.
4
4
16
23
Limmited of land for materials loading.
4
3
12
24
Difficulties to access the project location.
4
4
16
25
Disruption on working schedule due to the construction
working hours that need to be adjusted with the activities
period of the local environment (local society, activities of the
nearby hotels).
The increase of the sick workers during the project
construction due to tiredness.
4
4
16
2
2
4
1
1
1
1
1
1
Risk Acceptability
the competencies / expertise of the project team.
19
20
21
26
28
Safety
27
29
Threats from safety, destruction and stealing in the project
location.
High rate of accident due to less awareness to wear safety
equipment during the construction.
Terorism and chaos that threats during the project
construction.
Undesirable
Undesirable
Acceptable
Unacceptable
Undesirable
Unacceptable
Unacceptable
1
Acceptable
Negligible
Negligible
1
1
Negligible
In order to simplify the formulation of strategies for mitigating risks, the following These actions were formulated
based on interviews and brainstorming with the same respondents. The major risks include twelve undesirable risks and
eight unacceptable risks, are embedded from three main sources of risk, i.e. Social, Political and regulations; Environment
and Nature; and Technical of the project.
Table 4 depicts the actions that should be taken by the related parties (determined by risk ownership). These actions
were formulated based on interviews and brainstorming with the sam e respondents. The major risks include twelve
undesirable risks and eight unacceptable risks, are embedded from three main sources of risk, i.e. Social, Political and
regulations; Environm ent and Nature; and Technical of the project.
Table 4. Mitigation action for the identified Major Risks
No
Source
of Risk
Acceptability of
Risk
Undesirable
Problems deal with obtaining
authorization of the project
construction from the
government/ related institution.
Unacceptable
3
The loss of some green open
space due to the t project.
Undesirable
4
The increase of noise during the
construction phase that causes
disturbance to the local society.
Unacceptable
The decrease of cleanness and
convenience in the surrounding
of the project.
Undesirable
5
Environment & Nature
2
Public opinion that assume the
construction of the project will
destruct the local society norms.
Political & Regulations
1
Risk Factors
Mitigation Actions
Risk Ownerships
Provide information and approach
to the public to convince them that
the project will not desruct the norms
of the local society
Do not change / remove the
existing public acces near the project
location, such as the access to the
beach for religious ceremonies.
Fulfilling the government
regulations and policies, e.g. related
to the river banks, building design
and others.
Having discussions and
coordination with the related
institution to avoid misinformation.
Maximizing planting of trees on the
remaining land
Project Owner
Society
Design a method that can reduce
noise, e.g. prefabricating of project
component be pursued outside the
project location.
Coordination with all stakeholders
in order to determine proper time
that can tolerate the noise.
Provide guidance to contractors as
well as perform regular inspections
to maintain cleanliness during
construction phase.
Remove project trash and debris
periodically so it does not pile up and
dirty.
Contractor
Project Owner
Goverment
Project Owner
Project Owner
Contractor
Project Owner
Contractor
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INTERNATIONAL JOURNAL of ACADEM IC RESEARCH
No
Source
of Risk
6
Risk Factors
Disturbance to the local society
due to unfitting block view.
7
Acceptability of
Risk
Undesirable
Conduct a feasibility study to analyse
the project investment.
Finance
Unacceptable
10
Disruption on project
construction due to inaccurate
the project scope definitions
Undesirable
11
Disruption on project
construction due to ineffective
strategy for delivering materials
and equipment.
Unable to meet the quality as
specified due to the
unstandarised work handling.
Unable to meet the quality as
specified due to low control on
work quality.
Unable to maximize the project
execution due to improper
structure of the project
organisation, (e.g.: incompetent
project team)
Undesirable
13
15
16
17
18
Technical of the project
14
Unable to maximize the project
execution due to improper work
methods for each item of work,
includes the management of
resources – man, materials and
equipment.
The disruption on project
construction due to less
competencies of the project
team (consultant & contractor).
Limitted of parking area for
project vehicles during the
construction.
Limmited of land for materials
loading.
Make a strict isolation block to limit
the project area.
Unacceptable
The decrease of contractor’s
profit due to delays and
difficulties as the project is
located in a high congested area
of tourism activities.
12
Risk Ownerships
Create the design that suitable for
the real condition of the location,
involving professional and
experienced team.
The increase of project cost due
to the need to build a new
access from the main road to
carry out materials to the project
location.
9
Mitigation Actions
Unacceptable
Potential landslides if the project
located in the hilly place and
other unpredicted risk such as
earthquake and fire.
8
Vol. 7. No. 2. Iss.2. M arch, 2015
Undesirable
Undesirable
Undesirable
Undesirable
Undesirable
Unacceptable
Undesirable
19
Difficulties to access the project
location.
Unacceptable
20
Disruption on working schedule
due to the construction working
hours that need to be adjusted
with the activities period of the
local environment (local society,
activities of the nearby hotels).
Unacceptable
446 | PART A. APPLIED AND NATURAL SCIENCES
Contractor must carefully assess
the bid price related to the cost of
changes that caused by other
party(s).
Contractors must ensure that the
contract covers clauses of
compensation cost due to changes
and delays caused by other party(s).
Carefully list the project scope and
determine work descriptions which
refer to the contract.
Contractor
Project Owner
Contractor
Consultant
Society
Government
Project Owner
Contractor
Project Owner
Contractor
Consultant
Evaluate the time schedule and
associate it with the schedule for
supplying material and equipment.
Contractor
Create and implement standard
procedures of work handling.
Build a quality control team
Provide documentation, report,
photos, etc.
Contractor
Create an effective structure of
project organisation that assign the
right people on the right position,
associated with their skill and
experience.
Make a clear line of command and
job description, so everyone will be
aware of their responsibility and
position.
Create the detail of work method for
all items of works (e.g.: process,
procedures, technical work handling,
technical planning for material,
equipment and labour).
Contractor
Contractor
Select a reputable and profesional
consultant and contractor
Contractor
Consultant
Provide additional temporary parking
area near the location of the project
Project Owner
Contractor
Create an efficient logistic
planning to avoid excess storage
Increase prefabrication and
assemblying outside the project
location.
Provide temporary area for
loading materials
Adjust the suitable time and use the
proper type of vehicles that are
allowed to enter to the project
location.
Contractors need to consider and
estimate the cost that likely occur
due to this disruption.
Create a written commitment
related to the permitted working
hours.
Contractor
Contractor
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INTERNATIONAL JOURNAL of ACADEM IC RESEARCH
Vol. 7. No. 2. Iss.2. M arch, 2015
6. CONCLUSION
The related parties (contractors, consultants and project owners) those will be involved in constructing a building
project located in a congested area as like as in the south of Bali, should consider these risk factors. The suggested actions
need to be taken by the risk owner for mitigating the adverse impacts on project completion, which particularly embedded
from four sources, i.e.: Social, Political and regulations; Environment and Nature; and Technical of the project.
REFERENCES
1. Al-Shibly, H.H., B.M. Louzi, and M.A. Hiassat, The impact of risk management on construction projects
success from the employees perspective. Interdiciplinary Journal of Contemporary Research in Business,
August 2013, vol 5, no 4,. 2013.
2. Smith, N.J., T. Merna, and P. Jobling, Managing Risk in Construction Project. second edition ed., Oxford, UK:
Blackwell Science Ltd., 2006.
3. Skorupka, D., Risk management in building projects. AACE International Transactions RI191-RI196., 2003.
4. Flanagan, R. and G. Norman, Risk Management and Construction. Oxford, UK: Blackwell Science Ltd. 1993.
5. Chileshe, N., A. Boadua, and Yirenkyi-Fianko, An evaluation of risk factors impacting construction projects in
Ghana. Journal of Engineering, Design and Technology. 10(3). 2012. p. 306-329.
6. Al-Bahar, J.F. and K.C. Crandall, Systematic Risk Management Approach for Construction Projects. Journal of
Construction Engineering and Managem ent, ASCE. Vol. 116, No. 3, September, 1990. 1990. p. 533-546.
7. Godfrey, P.S., Control of Risk: A Guide to the Systematic Management of Risk from Construction.
Westminster, London: Construction Industry Research and Information Association. 1996.
8. Dharmika, I.K.Y., Manajemen Risiko Pada Pembangunan Pengembangan Hotel Yang Sedang Beroperasi
(Studi Kasus Pada Pembangunan Extension Villa di Hotel Alila Ubud). Udayana University2014.
9. Sharm a, S.K., Risk Management in Construction Projects Using Combined Analytic Hierarchy Process and
Risk Map Framework. The IUP Journal of Operations Management, Vol. XII, No. 4., 2013.
10. Luu, V.T., S.-Y. Kim, N.V. Tuan, and S.O. Ogunlana, Quantifying schedule risk in construction projects using
Bayesian belief networks. International Journal of Project Managem ent. 27(1). 2009. p. 39-50.
11. Nunnally, J.C., Psychometric theory (2nd ed.). New York: McGraw-Hill. 1978.
| 447
Vol. 7. No. 2. Iss.2. M arch, 2015
RISKS MANAGEMENT ON BUILDING PROJECTS IN BALI
I.N. Budiartha R.M
1
Senior Lecturer at Faculty of Engineering, Udayana University (INDONESIA)
[email protected]
DOI: 10.7813/2075-4124.2015/7-2/A.62
Received: 08 Jan, 2015
Accepted: 04 Mar, 2015
ABSTRACT
Bali has been well-known as a tourism place; therefore the development of infrastructures including building projects
in this area has also increased significantly. Constructing a building project particularly in the southern part of Bali, which is
recognized as a heavy congested area of tourism activities, is likely to face difficulties and risks related to the access and the
delivery of materials and equipment to the project location, as well as problems dealing with social, political and regulations.
This paper aims to evaluate and assess risk factors that impact on the construction of building projects in Bali. A
questionnaire survey was developed based on extensive literature review. The survey involved 20 participants that were
selected based on purposive sampling method. It covered contractors, clients (project owners), and consultants those have
experienced on constructing building projects located in this particular area. The collected data was analysed using
descriptive statistic to identify and calculate the likelihood and consequences of risks. Mitigation actions were formulated
after classifying risk in terms of risk acceptability. The findings indicates that the identified risks covers three negligible risks,
six acceptable risks, twelve undesirable risks and eight unacceptable risks. Risk mitigation should be taken to address the
major risks (undesirable and unacceptable risks) that mainly rooted from four sources, i.e. Social, political and regulations;
environm ent and nature; finance; and technical of the project.
Keywords: risk assessment, building projects, likelihood, consequences, major risks
1. INTRODUCTION
The economic development in the southern part of Bali has grown-up rapidly, which is dominated by tourism
business. It can be seen by the increasing numbers of infrastructure and building projects such as hotels that particularly
located in Badung regency. This situation indicates that construction business in this area is well-promised. Badung regency
is known as a congested area thus it generates challenges when constructing a building in this location. For instance, heavy
traffic jam can impact on the accessibility to the project location, difficulties to load materials and equipm ent, the noise and
pollutant impact on the environment and other technical risks during the constructions period. Contractors should be able to
manage these risks, so, they can achieve the project’s objectives, i.e.: to meet time, cost and quality as being planned.
Practically, realizing these three objectives often becom es a critical issue.
There are many factors that influence the success of a project completion. Risks that particularly related to the
construction of the project are one of the factors that should be identified in order to minimize the consequences that likely
impact on the project completion. Therefore, identification of risks that likely occurred during the construction phase is an
important early stage prior formulating strategies for managing them. This paper aims to identify and assess risk factors
related to construction of building projects in Bali. The identification of risk factors was conducted based on an extensive
literature review. Subsequently, the identified risks were examined through a questionnaire survey. It involved 20 participants
(contractors, consultants, and clients) those experienced on constructing building projects in the area of Badung Regency
(i.e.: Seminyak, Legian, Kuta, and Tuban). This paper begins with a review on risk identification in construction industry and
risk assessment.
2. RISKS FACTORS IN CONSTRUCTION INDUSTRY
Construction industry has often faced the negative effects of change that lead to the failures of many projects to
achieve the deadline, cost and quality as being set. Risk occurs due to uncertainty that lead to the possibility of adverse
events. However, Al-Shibly, et al [1] argue that if it was practiced in the correct way, risk can becom e a positive key factor for
the company. Smith, et al [2] suggest that employing the principles of risk management will enable engineers to improve the
management of this change effectively.
Risk management is defined as a set of methods and activities designed to minimize the disruptions rising during
project delivery. It covers identification and specification of risks that likely occurs in the construction process, as well as risk
assessment and a formulating strategy to address the negative consequences of the risk [3]. Identifying risks is the first
essential step in risk management that must be conducted to result proper strategies for mitigating the negative impacts.
Risk factors can be identified from their sources[2, 4]. The following table 1 depicts the risk factors that was identified based
on previous studies and was summarized into five (5) sources, i.e. Social, Political and regulations; Environment and Nature;
Finance; Technical of the Project; and safety.
442 | PART A. APPLIED AND NATURAL SCIENCES
ISSN: 2075-4124
INTERNATIONAL JOURNAL of ACADEM IC RESEARCH
Vol. 7. No. 2. Iss.2. M arch, 2015
Table 1. Risk Identification based on previous studies
No
1
2
3
Sources of Risk
Social, Political and
Regulations
4
5
6
7
Risk Factors
Local regulations
Government regulations & regulation change due to government change
Public opinion, Norms disturbance to the local society due to the construction of
project, protest from local people, legal environment.
Unstable politic of the country
Long bureaucracy and corruption
The loss of green open space
Environmental pollution (soil, noise, inconvinience,view obstruction) during
construction
Unforeseen ground condition, weather, earthquake, fire of explosion, archaeology
discovery
The increase of interest rate, bad market, inflation
The increase of material and delivery cost
Late payment by the client
Design changes, incompleted specification, inapplicable design.
Difficulties to supply and deliver man, materials and equipment to project location
Failure to achieve quality due to unstandarized handling work and low quality
control
Organisation, communication and culture
Working hours management and procurement strategies
Project team competencies
Limited parking area for project vehicles and materials loading, and difficulties to
access the project location
Labour sickness, tiredness
Safety, theft, disruption during construction
High rate of accident during construction due to less awareness to wear safety
equipment
Destruction, riot, sabotage and terorism
Environment & Nature
8
9
10
11
12
13
14
Finance
Technical of the project
15
16
17
18
19
20
21
Safety
22
References
[3, 5]
[5-7]
[7-9]
[6, 7]
[9]
[8]
[7, 8]
[7]
[4-7, 9]
[8]
[3, 10]
[3, 5-7, 9]
[3, 5-7, 9]
[5, 7]
[7]
[7, 8]
[5, 7]
[8]
[7]
[5-7]
[4-6]
[4, 5, 7]
3. RISK ASSESSMENT
The first step of risk assessment is by determining the degree of likelihood and consequence of each risk factor. It
can be represented by the frequency of mode in descriptive statistics. Multiplication between the mode score of likelihood
and consequence will result the degree of risk or called as risk index (RI). The value of RI indicates the level of risk
acceptability. Godfrey [7] provides a guidance for classifying risk acceptability level based on the value of RI, as depicted in
Table 2. Accordingly, risk assessment can be formulated as [7]:
RI = P x I
where:
RI –
P –
I –
the degree of risk (Risk Index)
Probability (or likelihood) of occurrence of a risk.
the consequence or perceived impact on a project
Table 2. Assessment of Risk Acceptability
ASSESSMENT OF RISK ACCEPTABILITY
CONSEQUENCE →
Catastropic
(5)
Critical
(4)
Serious
(3)
Marginal
(2)
Negligible
(1)
Unacceptable
25
Unacceptable
20
Unacceptable
15
Undesirable
10
Acceptable
5
Description
Unacceptable
20
Unacceptable
16
Undesirable
12
Undesirable
8
Acceptable
4
Guidance
Undesirable
10
Undesirable
8
Acceptable
6
Acceptable
4
Neglegible
2
Acceptable
5
Acceptable
4
Acceptable
3
Neglegible
2
Neglegible
1
Unacceptable
15 ≤ x ≤ 25 (Intolerable, must be eliminated or transferred)
8 ≤ x < 15 (To be avoided if reasonably practicable, detailed investigation and cost
benefit justification required, top level approval needed, monitoring essential)
3 ≤ x < 8 (Risk can be accepted or managed)
1 ≤ x < 3 (There is no further consideration required)
LIKELIHOOD ↓
Frequent (5)
Probable (4)
Occasional (3)
Remote (2)
Improbable (1)
Key:
Undesirable
Acceptable
Neglegible
Unacceptable15
Undesirable
12
Undesirable
9
Acceptable
6
Acceptable
3
Source: Godfrey [7]
As described in Table 2, one of the steps in risk assessment is to categorize the degree of risk into four main
group, i.e. unacceptable, undesirable, acceptable and negligible. Afterwards, actions for mitigating risks can be formulated
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Vol. 7. No. 2. Iss.2. M arch, 2015
which is associated with the degree of risk. Norman and Flanagan[4] suggest four methods for risk mitigation that includes
risk retention, risk reduction, risk transfer and risk avoidance. Based on the degree of risk categorised by Godfrey [7],
acceptable and negligible risk are indicated as low risks, so, risk retention can be taken. Meanwhile, unacceptable and
undesirable risks have higher degree of risk, therefore proper mitigation actions should be focused on these types of risk.
Finally, risk ownership must be defined to specify the parties that responsible and control the risks[4].
4. METHODS
The identified risk factors from the literature were used to develop a questionnaire that consists of 29 questions that
were derived from 5 (five) sources of risk. The questionnaire was distributed to 20 participants, involved contractors,
consultants and clients those experience on constructing building projects in the area Badung Regency (i.e.: Seminyak,
Legian, Kuta, and Tuban). The questionnaire used Likert scale format for measuring respondents’ opinion related to risk
likelihood (probability) and risk consequence. The scale used for measuring risk likelihood is: 1(never), 2(rarely),
3(sometimes), 4(often), 5(very often); while, for measuring consequence is: 1(very low), 2(low); 3(moderate), 4(high), 5(very
high). The retrieved data was tabulated based on its frequencies (mode). The mode score of likelihood and consequence
was multiplied in order to define the degree of risk and to classify the level of risk acceptability. Then, formulation of risk
mitigation was focussed on major risks (undesirable and unacceptable), which followed by specifying of risk ownership.
5. RESULTS AND DISCUSSION
The responses retrieved from 20 participants of the questionaire survey was tabulated. Reliability and validity test was
conducted and confirm ed that the instrument (questionaire) is reliable and valid. This was indicated by the values of
Cronbach’s alpha that above 0.70 and the calculated ”r” that above 0.444 (r table)[11]. Subsequently, the data was analyzed
using descriptive statistics (employed SPSS version 19) to determine the mode (frequency) of ”likelyhood” and
”consequences”. Risk index (RI) was obtained by multiplying them. The result is presented in
Table 3. This table also indicates risk acceptability that classified into: three negligible risks, six acceptable risks,
twelve undesirable risks and eight unacceptable risks. Risk mitigation was focused on major risks that cover undesirable and
unacceptable risks.
Table 3. Response to risk likelihood, risk consequences and risk acceptability
1
2
3
Source
of Risk
Social, Political &
Regulations
No
4
8
Environment & Nature
7
9
Finance
10
11
12
15
16
17
18
Technical of Project
13
14
P
Mode
I
Mode
RI= PI
(Risk Index)
3
2
6
3
3
9
4
4
16
3
3
9
Pollution to the environment due to the construction and
operational of the project.
2
2
4
The increase of noise during the construction phase that
causes disturbance to the local society.
4
4
16
The decrease of cleanness and convenience in the
surrounding of the project.
4
3
12
3
3
9
Potential landslides if the project located in the hilly place and
other unpredicted risk such as earthquake and fire.
4
4
16
The escalation of project cost due to the increase of interest
rate if the project is financed by using bank loan.
2
3
6
5
4
20
5
4
20
Delay on project execution due to the design is unfitting with
the real condition of the project location.
3
2
6
The disruption on project construction due to inaccurate the
project scope definitions.
4
3
12
3
3
9
2
4
8
2
4
8
2
4
8
Social problems that arise from local regulations and
pressure from local society.
Public opinion that assume the construction of the project will
destruct the local society norms.
Problems deal with obtaining authorization of the project
construction from the government/ related institution.
The disruption on project construction due to ineffective
strategy for delivering materials and equipment.
Unable to meet the quality as specified due to the
unstandarised work handling.
Unable to meet the quality as specified due to low control on
work quality.
Unable to maximize the project execution due to improper
structure of project organisation, in particular that deal with
444 | PART A. APPLIED AND NATURAL SCIENCES
Acceptable
Undesirable
Undesirable
Acceptable
Unacceptable
Undesirable
Disturbance to the local society due to unfitting block view.
The increase of project cost due to the need to build a new
access from the main road to carry out materials to the
project location.
The decrease of contractor’s profit due to delays and
difficulties as the project is located in a high density area of
tourism activities.
Risk Acceptability
Unacceptable
The loss of some green open space due to the project.
5
6
Risk Factors
Undesirable
Unacceptable
Acceptable
Unacceptable
Unacceptable
Acceptable
Undesirable
Undesirable
Undesirable
Undesirable
Undesirable
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No
Source
of Risk
Vol. 7. No. 2. Iss.2. M arch, 2015
Risk Factors
P
Mode
I
Mode
RI= PI
(Risk Index)
Unable to maximize the project execution due to improper
work methods for each item of work, includes the
management of resources-man, materials and equipment.
3
4
12
Disruption on project construction due to less competencies
of the project team (consultant & contractor).
2
4
8
Unable to meet the quality technically as the material is
unable to pass the test for its resistance as specified.
2
2
4
22
Limitted of land availability for project vehicles during the
construction.
4
4
16
23
Limmited of land for materials loading.
4
3
12
24
Difficulties to access the project location.
4
4
16
25
Disruption on working schedule due to the construction
working hours that need to be adjusted with the activities
period of the local environment (local society, activities of the
nearby hotels).
The increase of the sick workers during the project
construction due to tiredness.
4
4
16
2
2
4
1
1
1
1
1
1
Risk Acceptability
the competencies / expertise of the project team.
19
20
21
26
28
Safety
27
29
Threats from safety, destruction and stealing in the project
location.
High rate of accident due to less awareness to wear safety
equipment during the construction.
Terorism and chaos that threats during the project
construction.
Undesirable
Undesirable
Acceptable
Unacceptable
Undesirable
Unacceptable
Unacceptable
1
Acceptable
Negligible
Negligible
1
1
Negligible
In order to simplify the formulation of strategies for mitigating risks, the following These actions were formulated
based on interviews and brainstorming with the same respondents. The major risks include twelve undesirable risks and
eight unacceptable risks, are embedded from three main sources of risk, i.e. Social, Political and regulations; Environment
and Nature; and Technical of the project.
Table 4 depicts the actions that should be taken by the related parties (determined by risk ownership). These actions
were formulated based on interviews and brainstorming with the sam e respondents. The major risks include twelve
undesirable risks and eight unacceptable risks, are embedded from three main sources of risk, i.e. Social, Political and
regulations; Environm ent and Nature; and Technical of the project.
Table 4. Mitigation action for the identified Major Risks
No
Source
of Risk
Acceptability of
Risk
Undesirable
Problems deal with obtaining
authorization of the project
construction from the
government/ related institution.
Unacceptable
3
The loss of some green open
space due to the t project.
Undesirable
4
The increase of noise during the
construction phase that causes
disturbance to the local society.
Unacceptable
The decrease of cleanness and
convenience in the surrounding
of the project.
Undesirable
5
Environment & Nature
2
Public opinion that assume the
construction of the project will
destruct the local society norms.
Political & Regulations
1
Risk Factors
Mitigation Actions
Risk Ownerships
Provide information and approach
to the public to convince them that
the project will not desruct the norms
of the local society
Do not change / remove the
existing public acces near the project
location, such as the access to the
beach for religious ceremonies.
Fulfilling the government
regulations and policies, e.g. related
to the river banks, building design
and others.
Having discussions and
coordination with the related
institution to avoid misinformation.
Maximizing planting of trees on the
remaining land
Project Owner
Society
Design a method that can reduce
noise, e.g. prefabricating of project
component be pursued outside the
project location.
Coordination with all stakeholders
in order to determine proper time
that can tolerate the noise.
Provide guidance to contractors as
well as perform regular inspections
to maintain cleanliness during
construction phase.
Remove project trash and debris
periodically so it does not pile up and
dirty.
Contractor
Project Owner
Goverment
Project Owner
Project Owner
Contractor
Project Owner
Contractor
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No
Source
of Risk
6
Risk Factors
Disturbance to the local society
due to unfitting block view.
7
Acceptability of
Risk
Undesirable
Conduct a feasibility study to analyse
the project investment.
Finance
Unacceptable
10
Disruption on project
construction due to inaccurate
the project scope definitions
Undesirable
11
Disruption on project
construction due to ineffective
strategy for delivering materials
and equipment.
Unable to meet the quality as
specified due to the
unstandarised work handling.
Unable to meet the quality as
specified due to low control on
work quality.
Unable to maximize the project
execution due to improper
structure of the project
organisation, (e.g.: incompetent
project team)
Undesirable
13
15
16
17
18
Technical of the project
14
Unable to maximize the project
execution due to improper work
methods for each item of work,
includes the management of
resources – man, materials and
equipment.
The disruption on project
construction due to less
competencies of the project
team (consultant & contractor).
Limitted of parking area for
project vehicles during the
construction.
Limmited of land for materials
loading.
Make a strict isolation block to limit
the project area.
Unacceptable
The decrease of contractor’s
profit due to delays and
difficulties as the project is
located in a high congested area
of tourism activities.
12
Risk Ownerships
Create the design that suitable for
the real condition of the location,
involving professional and
experienced team.
The increase of project cost due
to the need to build a new
access from the main road to
carry out materials to the project
location.
9
Mitigation Actions
Unacceptable
Potential landslides if the project
located in the hilly place and
other unpredicted risk such as
earthquake and fire.
8
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Undesirable
Undesirable
Undesirable
Undesirable
Undesirable
Unacceptable
Undesirable
19
Difficulties to access the project
location.
Unacceptable
20
Disruption on working schedule
due to the construction working
hours that need to be adjusted
with the activities period of the
local environment (local society,
activities of the nearby hotels).
Unacceptable
446 | PART A. APPLIED AND NATURAL SCIENCES
Contractor must carefully assess
the bid price related to the cost of
changes that caused by other
party(s).
Contractors must ensure that the
contract covers clauses of
compensation cost due to changes
and delays caused by other party(s).
Carefully list the project scope and
determine work descriptions which
refer to the contract.
Contractor
Project Owner
Contractor
Consultant
Society
Government
Project Owner
Contractor
Project Owner
Contractor
Consultant
Evaluate the time schedule and
associate it with the schedule for
supplying material and equipment.
Contractor
Create and implement standard
procedures of work handling.
Build a quality control team
Provide documentation, report,
photos, etc.
Contractor
Create an effective structure of
project organisation that assign the
right people on the right position,
associated with their skill and
experience.
Make a clear line of command and
job description, so everyone will be
aware of their responsibility and
position.
Create the detail of work method for
all items of works (e.g.: process,
procedures, technical work handling,
technical planning for material,
equipment and labour).
Contractor
Contractor
Select a reputable and profesional
consultant and contractor
Contractor
Consultant
Provide additional temporary parking
area near the location of the project
Project Owner
Contractor
Create an efficient logistic
planning to avoid excess storage
Increase prefabrication and
assemblying outside the project
location.
Provide temporary area for
loading materials
Adjust the suitable time and use the
proper type of vehicles that are
allowed to enter to the project
location.
Contractors need to consider and
estimate the cost that likely occur
due to this disruption.
Create a written commitment
related to the permitted working
hours.
Contractor
Contractor
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Vol. 7. No. 2. Iss.2. M arch, 2015
6. CONCLUSION
The related parties (contractors, consultants and project owners) those will be involved in constructing a building
project located in a congested area as like as in the south of Bali, should consider these risk factors. The suggested actions
need to be taken by the risk owner for mitigating the adverse impacts on project completion, which particularly embedded
from four sources, i.e.: Social, Political and regulations; Environment and Nature; and Technical of the project.
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