Skala - Anida.pdf
PROJECT RISK FACTORS : CASE STUDY OF MINISTRY OF EDUCATION PROJECTS ANIDA SUHARTI @ AMI RONIDA BINTI BASIRON
A project report submitted in partial fulfillment of the requirements for the award
of the degree of Master of Science (Construction Management)
Faculty of Civil Engineering Universiti Teknologi Malaysia
MAY 2009
“I declare that this project report entitled ‘Project Risk Factors : Case Study of Ministry of Education Projects’ is the result of my own research except as cited in the references. The report has not been accepted for any degree and is not concurrently submitted in candidature of any other degree”.
Signature : ………………………….............................. Author’s Name
: Anida Suharti @ Ami Ronida binti Basiron Date
14 May 2009
ACKNOWLEDGEMENT
Praise to the Almighty Allah the God of the Universe that with His blessing I managed to complete this master project successfully. First and foremost, I would like to convey my sincere thanks and gratitude to my supervisor; Ir. Dr. Rosli bin Mohamad Zin for his kind assistance and advice, beneficial criticisms and observations throughout this master project. His professional guidance has enabled this master project to be written and submitted as a partial requirement for the Masters of Construction Management programme.
I would also like to thank the respondents of this study for help in improving my questionnaire survey form for their precious comments and ideas that have provided me with very useful background data and information.
I am also indebted to my loving parent and family members whom have been giving their continuous support, encouragement and motivation throughout the process of producing this project report. My sincere appreciation also extends to all my colleagues and others who have been directly and indirectly involved in providing assistance and support in the completion of this master project.
ABSTRACT
Risks are inherent in any projects. A major criticism of the Ministry of Education (MOE) projects undertaken by the Public Works Department (PWD) is the growing rate of delays and cost overrun in project delivery. As reports under the JKR Project Information System, (SKALA JKR), as of September 2008 there are three hundred and fifty nine (359) MOE projects were granted extension of time (EOT) and twenty three (23) projects were not completed in a timely manner due to the poor risk anticipation. The aim of this study is to investigate risk factors in building construction projects belonging to MOE. In order to achieve this aim, three objectives have been outlined in this study; to establish risk factors in building project belonging to MOE, to identify the levels of risk of each risk factor from the contractors’ perspective and to identify the risk treatment for each risk factor from the contractors’ perspective. Postal questionnaire surveys were used as the main data collection method. From the comprehensive assessment of the likelihood of occurrence and their impacts, this study identifies ten major risk factors where “affordable material is more expensive than presented in bills of quantity (BQ)” factor was found to have significant impact on the project during its life cycle. This study also found that each risk factor can be treated by reducing its impact if the risk occurs. Treatment includes contingency planning that should address significant risk areas through some form of tactical response. The adoption of a risk management technique for building projects belonging to the MOE is critical to ensure the successfulness of the future project implementation.
ABSTRAK
Risiko adalah merupakan perkara biasa di dalam mana-mana projek. Kritikan yang hebat terhadap projek-projek Kementerian Pelajaran Malaysia (KPM) yang dilaksanakan oleh Jabatan Kerja Raya (JKR) adalah disebabkan oleh peningkatan kadar kelewatan dan peningkatan kos di dalam penyerahan projek. Sepertimana laporan Sistem Maklumat Projek JKR (SKALA JKR) sehingga September 2008, tiga ratus lima puluh sembilan (359) projek KPM telah diberikan lanjutan masa dan dua puluh tiga (23) projek tidak dapat disiapkan mengikut masa yang ditetapkan disebabkan oleh ramalan risiko yang lemah. Matlamat kajian ini adalah untuk menyiasat faktor-faktor risiko di dalam projek pembinaan bangunan milik KPM. Bagi mencapai matlamat tersebut, tiga objektif telah dikenalpasti iaitu menghasilkan faktor risiko di dalam projek pembinaan bangunan milik KPM, mengenalpasti tahap risiko bagi setiap faktor risiko berdasarkan perspektif kontraktor dan mengenalpasti rawatan risiko bagi setiap faktor risiko berdasarkan perspektif kontraktor. Tinjauan soal selidik telah digunakan sebagai kaedah pengumpulan data utama. Penilaian secara keseluruhan terhadap kebarangkalian berlakunya risiko dan kesan yang mungkin berlaku, kajian ini telah mengenalpasti sepuluh faktor risiko yang utama dimana faktor “bahan yang mampu dibeli adalah lebih mahal daripada yang dinyatakan di dalam senarai kuantiti (BQ)” didapati mempunyai kesan yang sangat tinggi terhadap projek sepanjang kitaran hayatnya. Kajian ini juga mendapati setiap faktor risiko boleh dirawat dengan mengurangkan kesannya sekiranya risiko berlaku. Rawatan tersebut merangkumi perancangan kontigensi yang perlu ditekankan terhadap risiko yang tinggi melalui beberapa penilaian tindak balas. Penggunaan kaedah pengurusan risiko untuk projek-rojek bangunan milik KPM adalah kritikal bagi memastikan kejayaan pelaksanan projek di masa akan datang.
TABLE OF CONTENTS
DECLARATION ii DEDICATION
iii ACKNOWLEDGEMENTS
iv ABSTRACT
v ABSTRAK vi
TABLE OF CONTENTS vii LIST OF TABLES
xi LIST OF FIGURES
xii LIST OF SYMBOLS
1.2 Background of the Study
1.3 Problem Statement
1.4 Aim and Objective
1.5 Scope
1.6 Methodology
2 RISK IN BUILDING PROJECT
2.1 Introduction
2.2 Overview of the Ministry of Education (MOE) Projects
2.3 Current Practices of Risk Management in
13 Public Works Department (PWD)
2.4 The Nature of Risk
2.5 Risk Management and Project Life Cycle
2.6 Risk Identification and Classification
2.6.1 Business Risk
2.6.2 Pure Risk
2.6.3 Speculative Risk
2.6.4 Financial Risk
2.7 Risk Identification in Projects Belonging to MOE
2.7.1 Establishment of Risk Factors and Classification
2.7.1.1 Technical Risk
2.7.1.2 Construction Design Caused Risk
2.7.1.3 Physical Risk
2.7.1.4 Financial Risk
2.7.1.5 Personal Risk
2.7.1.6 Safety-Accident Risk 32
2.7.1.7 Political and Regulation Risk
2.7.1.8 Contractual Risk
2.7.1.9 Environmental Regulations Cause Risk
2.8 Risk Analysis
2.8.1 Qualitative Analysis
2.8.2 Quantitative Analysis
2.8.3 Likelihood and Impact
2.9 Risk Evaluation
2.10 Risk Control
2.10.1 Avoidance
2.10.2 Reduction in the Likelihood
2.10.3 Reduction in the Impact
2.10.5 Acceptance or Retention
2.11 Risk Monitoring
2.12 Risk Factors in Building Construction Projects
3.2 Objective Identification
3.3 Literature review
3.4 Data Collection
3.5 Discussion with Experts
3.6 Questionnaire Survey
3.6.1 Section A : Demography
3.6.2 Section B : Identification of Level of Risk
3.6.3 Section C : Develop and Implement Risk Control
3.7 Questionnaire Distribution
3.8 Data Analysis
3.8.1 Level of Risk Analysis
3.8.2 Risk Treatment Analysis
3.9 Summary
4 ANALYSIS AND DISCUSSION
4.2 Early Analysis
4.2.1 Company Profile
4.2.1.1 Classification of Company
4.2.1.2 CIDB (Construction Industry Development Board) 57 Classification Grade
4.2.1.3 Number of Years in Business
4.2.2 Respondent Profile
4.2.3 Project Details
4.2.4 General Knowledge about Risk
4.3 Detail Analysis
4.3.1 Risks Factors in Building Projects Belonging to MOE
4.3.2 Level of Risk for Each Risk Factor
4.3.3 Risk Treatment for Each Risk Factor
4.4 Summary
5 CONCLUSIONS AND RECOMMENDATIONS
5.2.1 To Establish Risk Factors in Building Projects Belonging
to Ministry of Education (MOE)
5.2.2 To Identify the level of Risk for Each Risk Factor from the 78
Contractors Perspective
5.2.3 To Identify Risk Treatment for Each Risk Factor from
Contractors Perspective
81 Appendices A – B
84 - 108
LIST OF TABLES
TABLE NO.
TITLE
PAGE
2.1 Federal government allocation and expenditure by
10 sector (RM million)
2.2 Development expenditure and allocation for education
11 and training
2.3 Education programme list under the PWD
2.4 Risk factors under the technical risk classification
2.5 Construction design cause risk factors
2.6 Physical risk factors
2.7 Financial risk factors
2.8 Personal risk factors
2.9 Safety-accident risk factors
2.10 Political and regulation risk factors
2.11 Contractual risk factors
2.12 Environmental regulations cause risk factors
2.13 Risk matrix
3.1 Matrix for the calculation of the risk significance index
4.1 Risk classification
4.2 The level of risk for each risk factor
4.3 Risk treatment
LIST OF FIGURES
FIGURE NO.
TITLE
PAGE
1.1 Research methodology flow chart
2.1 PWD risk management framework
2.2 Risk management process
2.3 Technical risk classification
4.1 Questionnaire distribution and responses
4.2 Classification of company
4.3 CIDB classification of grade
4.4 Number of years in business
4.5 Type of contract
4.6 Type of project
4.7 Risk existence
4.8 Risk knowledge
4.9 Risk important
4.10 Risk identification
LIST OF SYMBOLS
r - significance score j -
respondent
i - ordinal number of risk k -
ordinal number of classification of risk α
- likelihood occurrence of risk β
- impact of risk R -
significance index score n -
total numbers of valid feedback questionnaire µ
- weighting given to each risk control by respondent µ 1 -
frequency of “avoid risk” response
frequency of “reduce likelihood” response
frequency of “reduce impact” response
µ 4 - frequency of “risk transfer” response µ 5 -
frequency of “acceptance and retention” response
LIST OF APPENDICES
A Risk factor list
89
B Questionnaire survey form
The construction industry has a bad reputation in coping risk which is depending on the degree of project difficulty. Risk analysis is either ignored or done by simply adding contingencies in a contract. As a result many projects fail to meet the expected deadlines, cost targets and quality standards thus loss to both contractors and clients.
Risk by its definition is the implication of existence of significant uncertainty about the level of project performance achievable (Chris and Stephen, 1997). A source of risk is any factor that can affect project performance, and risk arises when this effect is both uncertain and significant in its impact on project performance. The definition of project objectives and performance criteria has a fundamental influence on the level of project risk.
Risk will exist and should be assessed and reduced to acceptable levels. There are different types of risk at different stages of project development. Typical risk areas include client changes due to business predictions or user requirements, subcontractor default, technical failure, labour shortages, inclement weather, critical task sequences, tight deadlines, resource limitations, complex co-ordination requirements and unfamiliar tasks. Peter (2005) added that external political, economic, social, technology issues can also affect current projects which are not covered under insurance.
Construction of a building project implies considerable risks. Risk assessment during the construction period is an important tool for the construction management giving part of the basis for mitigation actions against delays in production. Application of risk management techniques can significantly improve the investment performance of construction projects (Flanagan and Norman, 1993). According to Godfrey (1996), systematic risk management will helps to:
a) identify, assess, and rank risks, making the risk explicit;
b) focus on the major risks of the project;
c) make informed decision on the provision for adversity;
d) minimize potential damage should the worst happen;
e) control the uncertain aspects of construction projects;
f) clarify and formalize the company’s role and the roles of others in the risk management process;
g) identify the opportunities to enhance project performance.
Interest in the management of risk, has led to the development of best practices, tools and techniques thus will assist the construction player maximizing the value they Interest in the management of risk, has led to the development of best practices, tools and techniques thus will assist the construction player maximizing the value they
1.2 Background of the Study
A variety of study in risk management has been studied and introduced in literature review. The purpose of developing risk management technique is to add value to project delivery. Thus there has been an increase in research aimed at investigating risk in construction industry.
Majid and McCaffer (1998) identified the factor of shortage of material, poor quality of material, poor procurement of material, late delivery of material, and unreliable suppliers that contribute to causes of delays. Chan and Kumaraswamy (1996) revealed that factors shortage of material and poor procurement of material as a critical risk factors.
Creedy (2005) found that the design or project scope change was the most important factor identified in cost over run Reyers and Mansfield (2001) concluded that works often cannot be accurately predetermined in terms of specification, extent, duration or cost in conservation project. Chen (2004) proposed 15 risks concerned with project cost and divided them into three groups: resources factors, management factors and parent factors. Zou (2005) concluded that 20 key risks were highlighted on a comprehensive assessment of their likelihood of occurrence and level of impacts on project objectives. Tight project schedule was found to have significant impact on all Creedy (2005) found that the design or project scope change was the most important factor identified in cost over run Reyers and Mansfield (2001) concluded that works often cannot be accurately predetermined in terms of specification, extent, duration or cost in conservation project. Chen (2004) proposed 15 risks concerned with project cost and divided them into three groups: resources factors, management factors and parent factors. Zou (2005) concluded that 20 key risks were highlighted on a comprehensive assessment of their likelihood of occurrence and level of impacts on project objectives. Tight project schedule was found to have significant impact on all
1.3 Problem Statement
Construction industry will be risky for a large number of reasons. Differences categories of project risk and level of risk found on construction projects. Project risk if not well managed has significant effect on completion cost and time of construction project. Risk can be minimize, avoid or transfer when their factors are identified. Knowing the risk factor in a construction project would help avoiding the same in future.
In PWD most of MOE projects, are awarded on a competitive basis using the traditional approach. MOE projects were prepared based on a lump sump contract with JKR 203 Condition of Contract. This is because, preparation the document tender is a very time consuming job.
A major criticism of Ministry of Education (MOE) projects under the Public Work Department (PWD) is the growing rate of delays and cost overrun in project delivery. JKR Project Information System (SKALA) reported that as of September 2008 three hundred fifty nine (359) MOE projects were given extension of times (EOT) and twenty three (23) projects were not completed in a timely manner due to poor of risk anticipation.
At the moment, PWD has no specific methodology to deal with risk in construction projects. Construction risk of government projects under the PWD generally has not been well researched. In particular, risk in construction is poorly understood and very little researches have been directed towards the need in PWD. As a result, unnecessary delays turn to a profitable project to be financially undertaking and client has become dissatisfied with the performance and level of service they are receiving. These risks can be substantially mitigated if they are properly identified and addressed accordingly. The lack of risk management in PWD is the motives of this study particularly in projects belonging to MOE, since the MOE received the biggest budget allocation in the Ninth Malaysia Plan (9MP).
1.4 Aim and Objective
The aim of this study is to investigate risks factors in building construction projects belonging to MOE. In order to achieve this aim, three objectives have been outlined:
a) To establish risks factor in building projects belong to MOE. b) To identify the level of risk for each risk factor from the contractors perspective. c) To identify risk control or treatment for each risk factor from the contractors perspective.
1.5 Scope
The study focused on MOE projects in Johor. The respondents to the questionnaire survey were contractors that are registered under the class E, D, C and B.
1.6 Methodology
The main research methodology was through questionnaire survey and series of discussion. T he literature review was carried out to provide the background information of risk factors particularly in MOE projects. From the literature review, the issues relevance for this study were highlighted and identified. Figure 1.1 depicted the research methodology being using in this study.
Start
Identify the issue
Literature review
Data collecting
Series of discussion among
Survey form will be distributed among
contractors PROKOM & senior level management, client, consultant and
contractors.
Data analysis
Figure 1.1: Research methodology flow chart
CHAPTER 2 RISK IN BUILDING PROJECT
2.1 Introduction
This chapter covers the overview of MOE projects and follows by the review of studies carried out by previous researchers in determining the risk factors and level of risks in building projects. The last part of this chapter will focus on the risk treatment for all possible factors according to the established categories based on the previous study and adopted to suit the MOE projects.
2.2 Overview of the Ministry of Education (MOE) Projects
The construction industry has grown tremendously in Malaysia especially in the Ninth Malaysia Plan (9MP). The Federal Government has allocated a total of 200 billion Ringgit Malaysia for development expenditure, an increase of 30 billion Ringgit
Malaysia from the Eight Malaysia Plan (Table 2.1). Out of the total allocation, 44.9 percent has been distributed to development projects under the economic sector where the sub-sectors education and training received the biggest percentage of the allocation, at 20.6 percent. In line with the greater focus on human capital development, a total of RM45.1 billion will be allocated during the 9MP period to implement the various education and training programme, as shown in Table 2.2.
For Education Programme, RM 23.198 billion is allocated for 17,179 projects development. New projects development are 16,735 with RM 20,704 billion and continue 8MP projects are in development of Government Aided School (Islamic Religious School, Chinese Medium School and Tamil Medium School), computer laboratory, additional / replacement of buildings programme, replacement of building block & upgrading programme and other school projects.
To ensure that entire programme is on its track, MOE has appointed Public Works Department (PWD) as the sole contractor for government projects with a ceiling of RM 17.087 billion. According to MOE, the PWD uses minimum cost and standardized designs that fit their criteria. The other projects, on the other hand are done under privatization programmes (private finance initiatives). This approach is to facilitate the economic growth of the nation, relieve the financial and administration burden of the Government, reduce the Government's presence in the economy, decrease both the level and scope of public spending and to allow market forces to govern economic activities and improve efficiency and productivity in line with the National Development Policy. Table 2.3 is an education programme list under the PWD.
Table 2.1: Federal government development allocation and expenditure by sector (RM million) (Source: Economic Planning Unit (EPU))
8MP
9MP
Sector Expend-
Development
Private
Finance TOTAL %
11,785 5.4 Development Mineral
0.1 0 141 0.1 Resource Development Commerce &
20,201 9.2 Industry Transport
0.3 0 533 0.2 Energy & Public
10.9 0 21,805 9.9 Utilities Feasibility Study
20.6 9,472 50,586 23.0 Training Health
0.2 0 450 0.2 Broadcasting Housing
5.0 1,565 11,512 5.2 Culture, Youth &
0.7 0 1,394 0.6 Sports Local Authorities
4.6 0 9,121 4.1 & Welfare Services Village &
1.1 0 2,218 1.0 Community Development
7.6 1,582 16,819 7.6 Internal Security
General Services 12,839
0.5 0 1,079 0.5 Renovation
Total 170,000
Table 2.2 : Development expenditure and allocation for education and training (Source: Economic Planning Unit (EPU))
Programme
9MP Allocation (RM million)
Education 40,356.5
Pre-school 807.3 Primary education
4,837.3 Secondary education
6,792.8 Government & government-aided schools (Academic)
5,549.1 MARA Junior Science Colleges
614.5 Government & Government-aided schools
629.2 (Technical & Vocational) Tertiary education
16,069.0 Teacher education
577.7 Other educational support programmes
11,272.4
Training 4,792.6
Industrial training 4,103.6 Commercial training
179.5 Management training
509.5
Total 45,149.1
Table 2.3 : Education programme list under the PWD (source: Cawangan Pendidikan dan Pengajian Tinggi, JKR Malaysia )
No. Code programme
Education Programme
Numbers of project
Primary school
Secondary school
Sport School
Boarding School
Technical & Vocational
Teachers Education
Teachers quarters
Education Office
Government aided school
Special education
Vocational subject
Education Technology Section
USNT (Primary)
USNT (Secondary)
USNT (College)
USNT (Support)
USNT (Technical & vocational)
432 B41
Computer laboratory
Government aided school
(Islamic religious school)
SMK Astana hostel
25 P27
Road access for PMC project
26 P49
Polytechnic
27 UITM & UM
TOTAL
2.3 Current Practice of Risk Management in Public Works Department (PWD)
Although the PWD was burdened by too many projects under the 9MP, ninth hundred and fifth teen (915) MOE projects were awarded to the successful contractors throughout Malaysia also handled by the PWD (Project Information System; SKALA, 2008). A variety of unexpected events occurred during the process of building procurement until project implementation and many of them can create financial and time losses to the MOE as a client or other interested parties. Such events are commonly called risks. For example, when too many projects are being implemented at one time, the demand for the construction material will be increased and this may cause a contractor to make substandard quality of work on site to ensure they gain their expected profit from a completed project which called as risk event. Cost and time overruns in many construction projects are attributable to various risk events, where uncertainties were uncontrollable, or not appropriately accommodated during planning of the project (Baloi and Price, 2002).
The adoption of risk management technique in PWD is vital to improve their reputation as a technical body to the Government. These will help the Department to enhance its services with better value for money and timely completion of projects. The identification of risk factors in projects belong to MOE is critical to the success of future project implementation and improves efficiency of the construction industry during practice.
PWD has embarked on a journey of change to bring about improvements to project delivery through the implementation of risk management which has been developed by the Complex Management Division (PROKOM) in February 2008. The current risk management processes require workshops to be held to identify, analyse and design risk treatments. This is particularly relevant to complex projects or high PWD has embarked on a journey of change to bring about improvements to project delivery through the implementation of risk management which has been developed by the Complex Management Division (PROKOM) in February 2008. The current risk management processes require workshops to be held to identify, analyse and design risk treatments. This is particularly relevant to complex projects or high
The purpose of having the guideline is to provide guidance to PWD project teams and project stakeholders on the application of the standard project risk management process in PWD. The guideline is applicable to all PWD projects, programs, plans and activities. The guideline also provides information and advice useful to project teams and those concerned with project governance, but do not provide
a detailed definition of all the actions to be taken or of the detailed risk management organisation for a project or program. These will vary according to the circumstances.
Typically an organisation will develop a framework under which risk management operates within the organisation. This enables the overall context under which risks will be addressed, provides a process for escalating risks and ensures a standard approach to risk management across the organisation. Although PWD has not adopted an organisational approach to risk management, it is important that the establishment of project risk management positions itself within an appropriate framework to ensure future compatibility. Figure 2.1 provides an overview of a typical framework and positions the PWD project risk management process within that framework.
Strategic – Portfolio level Risk Management layer
Risks to the achievement of
PWD
PWD strategy to become the
Strategy
Center of Excellence Infrastructure Development
Program-level Risk Management layer
PWD
Risks escalated as Risks to the achievement of Strategies
Objectives
appropriate
PWD objectives In support of the PWD strategy.
Project-level
Risk Management
IC IC R A ROADS
A E C QUANTITY
SURVEYOR
IT
Risks to the discrete H
projects or activities
Figure 2.1 : PWD risk management framework (Source: Risk Management Facilitation Guidelines Jabatan Kerja Raya )
On top of that, the non physical projects which have risk management that are currently adopted are:
a) Coaching & mentoring program.
b) To enhance the performance of project through milestone set in SKALA.
c) To prevent the highlighted issued in Auditor General Report 2006.
d) Project implementation enhancement through report card system and SKALA.
2.4 The Nature of Risk
Risk can be defined in different ways.The Oxford Advanced Learner’s Dictionary, 1995 defines risk as the “chance of failure or the possibility of meeting danger or of suffering harm or loss”. A broad definition of risk is the occurrence of an event that has consequences for, or impacts on project (Ralph and Irwin, 1997). Frame (2003) considered risk from two points of view. First, risk is tied to prospect of injury or loss. Second, risk can be defined as a reflection of information available to make good decisions.
Boothroyd and Emmet (1998) described risk as a consideration in the process of
a construction project whose variation results in uncertainty in the final cost, duration and quality of the project. Atkinson (2005) used hazard and risk term in elaborating its definition in risk management. According to Atkinson, hazard is a particular event which has the potential if it occurs of an adverse effect. Risk is the probability of a defined hazard and the magnitude of the consequences. As it applies to building construction project, risks generally can be defined as the possible occurrence of an uncertain event or outcome which will cause significant consequences such as extra cost or delayed completion.
From these definitions it has bring huge concern of client on construction projects, which are:
a) Will it be finished on time (time risk)?
b) What will it finally cost (cost risk)?
c) Will it perform as it was intended to (quality risk)?
Thus, the typical risks in a construction project include:
a) cost overruns – failure to keep final cost within the budgeted cost
b) time overruns – failure to keep within the time stipulated for design,
construction and handover
c) poor quality – failure to meet the required technical standards in relation to quality, functionality, safety and environment control.
These typical risks indicate the consequences caused by uncertainties, which are commonly referred as risk effects. Risk effects are the result of possible occurrences called risk factors or risk causes.
2.5 Risk management and Project Life Cycle
Today, risk management is a critical factor to successful project management, as projects tend to be more complex and competition increasingly tougher (Baloi and Price, 2002). It is also recognised as a vital integrated project management tool that cuts across the entire project, addressing and interrelating cost, schedule, and performance risks. The goal is to make everyone involved in a project aware that risk should be a consideration in the design, development, and implementation of a system.
Risks associated with projects have a common flow path regardless of the project type. Initially the risks increase as a full understanding of the magnitude and extent of the whole project is obtained. The risks subside as the project progresses and Risks associated with projects have a common flow path regardless of the project type. Initially the risks increase as a full understanding of the magnitude and extent of the whole project is obtained. The risks subside as the project progresses and
The rapidly changing context and its influence on the way projects develop have made risk management process an ever more important challenge. According to Maytorena, et al. (1998), numerous best practices standard such as A Guide to the Project Management Body of Knowledge (PMBoK), Project Risk Analysis and Management Guide, RAMP: Risk Analysis and Management for Project guide and Joint Australian / New Zealand Standard, AS/NZ 4360:2004, Risk Management as well as specialist tools and techniques have been developed focusing on a more effective risk management process.
Risk management basically consists of four basic processes (Figure 2.2). It is an iterative process through the project lifecycle, identify and classify the risk, analyse the risk, respond to the risk and monitor to the risk (Maytorena, 2001).
Define project objectives
Identify and classify the risk
Analyse the risk
Respond to the risk
Monitor the risk
Figure 2.2: Risk management process (source: Maytorena, (2001))
2.6 Risk Identification and Classification
Risk identification involves the identification and documentation of all the risks that may impact on the project during its life cycle that can be realistically predicted at the time. The identification of each source of risk and the components allows the risk item to be separated from others (Mills, 2001). Risk identification usually is done initially by involving key stakeholders, including steering committee members.
One way of doing the risk identification may be through brainstorming sessions that identify and clarify the main risks, which may prevent the project achieving its One way of doing the risk identification may be through brainstorming sessions that identify and clarify the main risks, which may prevent the project achieving its
Risks can be classified in various ways. Risks can be categorized, in terms of type (i.e. corporate risks, business risks, project risks and system risks). These categories can be broken down into other categories, including economic, environmental, financial, human, information and physical security, natural hazards, occupational health and safety (OH&S), public liability and etc. Establishing categories can assist in ensuring all relevant risks are identified. Another way of establishing categories is to take each of the key elements of project management and identify which risks may impinge on the application of each key element.
Frame (2003) categorizes risks in terms of their type; pure (for insurable) risk, business risk, project risk, operational risk, technical risk, political risk. These risk categories are not mutually exclusive. Thus, technical risks can also be pure risks as well, and operational risk may contribute substantially to project risk.
According to Shen (1990) risk can be grouped into business risk, pure risk, speculative risk and financial risk. Edwards (1995) classifies risk by source under three categories; external risk, internal risk and transmitted risk. External risk is beyond project manager control, for example, interest rates. Internal risk is caused by the activities on the project, for example, accident, damage, and design or construction method impact and transmitted risk which has an impact on others for example, environmental damage.
Burke (2003) classifies risk as to the degree of uncertainty, connecting it to the level of available information about the project. He introduced a risk continuum from total risk to no risk (unknown unknowns > known unknowns > all unknowns). Flanagan and Norman (1993) also distinguish pure and speculative risk. The former typically arises from the possibility of something going wrong and no potential gain. The latter is connected with a financial, technical or physical choice and has the possibility of loss or gain. This type of risk can be creative and may be evaluated as worth the pain for the greater gain.
Tah and Carr, 2000 classified risk in terms of their sources, i.e. risks retained by contractors, clients and consultants. Tah and Carr also used a Hierarchical Risk Breakdown Structure (HRBS) to classify risks according to their origin and location of their impact in the project. The HRBS is suited for project risk assessment, but does not have a mechanism for assigning qualitative effects of the risk identified by the HRBS.
A risk scoring mechanism will also have to be implemented to determine the possible effect of the risk.
There are other categories of risk such as controllable and uncontrollable risk. Controllable risks are those risks that a decision-maker accepts voluntarily, and where the risk outcome is, at least in part, within his or her direct control. Uncontrollable risks are those that the decision-maker cannot influence. Uncontrollable risks usually emanate from the external environment, or the political, social, or economic spheres. These risks may be associated with such factors as weather conditions, material prices or taxation changes. While these risks are clearly beyond the influence of the decision- maker, however precautionary measures can be taken if the risk identifies properly. Many different classifications of risk have been developed over the years however; most of these have considered the source criteria as the most important.
2.6.1 Business Risk
Business risk is associated with capital expenditure, possible income, operating expenses and property value. Business risk indicates the probability that the expected level of investment return will not be achieved.
2.6.2 Pure Risk
Pure risk also referred to as static risk, non-market risk, or unsystematic risk. Pure risk indicates a potential outcome that has no potential gain. It is related to physical and technical causes and subsequent losses occur at random, and are beyond the control of decision-maker. It is also focuses exclusively on the occurrence of bad things. For example, an accident on site is a pure risk, that would bring loss and damage if it is happens.
2.6.3 Speculative Risk
Speculative risk sometimes referred to as dynamic risk, market risk or systematic risk. It involves the possibility of either gain or loss should an uncertain event occur. This kind of risk is related to changes in general project conditions, such as changes in the economic environment, politics or technology. Changes in these factors Speculative risk sometimes referred to as dynamic risk, market risk or systematic risk. It involves the possibility of either gain or loss should an uncertain event occur. This kind of risk is related to changes in general project conditions, such as changes in the economic environment, politics or technology. Changes in these factors
2.6.4 Financial risk
It relates to the loss of financial capital. Financial risk increases whenever the amount of debt or related charges increases. If the client sponsors the project from retained earnings, the financial exposure to risk may threaten the existence of his or her business if the project fails.
2.7 Risk Identification in Projects Belonging to MOE
The risk factors and sub-factors were identified in building projects through brainstorming and series of discussions among contractors, client, PROKOM and senior level management in PWD which have greater experiences in managing projects. Besides, the contractor ideas were also being used to generate ideas by using questionnaire survey form.
Brainstorming is project specific and requires a group of experienced practitioners to creatively consider possible risk sources (Winch and Kiely, 2005). The list is more analytically considered and key risks identified. When trying to identify the risks attached to a specific project, greater detail is required. This technique is applied to Brainstorming is project specific and requires a group of experienced practitioners to creatively consider possible risk sources (Winch and Kiely, 2005). The list is more analytically considered and key risks identified. When trying to identify the risks attached to a specific project, greater detail is required. This technique is applied to
The major advantages of brainstorming are that groups can generate more ideas and information than individuals can, and that group involvement can increase commitment, motivation and satisfaction. However, there are barriers to the successful application of this technique. The difficulties with brainstorming include the selection of the appropriate experts and their number, bringing these experts together frequently enough to be of use to a dynamic project lifecycle.
Individual participants fear looking foolish, there may be problems arising from having people of varying seniority working together; for example juniors may be unwilling to put forward ideas for fear of damaging their prospects, while senior personnel may be equally reluctant to make wild suggestions that could damage their image or credibility. While questionnaire survey among contractors will give broad ideas that depending on the contractor classes and contract value.
2.7.1 Establishment of Risk Factors and Classification
The literature review was done through books, conference, journal and the internet. In the next step, all risk factors were established through a detail review of literature and series of discussion among the professional players. The following are the risk factors and risk classification of the building project under study.
2.7.1.1 Technical Risk
Delays are a major factor. Whatever the reason, delays almost invariably increase budget costs. Many events may have contributed to the delay, some which could have been foreseen and others which could not. Figure 2 and Table 2.4 illustrates thirty seven risk factors under technical classification. These risk factors were generated based on : a) an extensive literature review from the work of Akintola and Malcom (1997), Nabil and Saied (2000), Baloi and Price (2002), Creedy (2005), Prasanta (2001), Tang et al. (2007) and b) discussion with the experts who participated in the survey.
Technical risk
Figure 2.3 : Technical risk classification
Table 2.4 : Risk factor under the technical risk classification
Technical Risk
Risk Factor
Material
1. Affordable material is more expensive than presented in bills of quantity (BQ)
2. Proposed material are not approved
3. Material shortage
4. Late in material delivery
5. Quality of material below standard
6. Material damage during storage
7. Material damage during transportation Equipment
8. Low productivity and efficiency
9. Frequently out of order or damaged
10. Inappropriate equipment causes problems
11. Unavailability of spare parts or cost is high
12. No reserve equipment
13. Need to import from other countries
14. High maintenance cost
Technique
15. New technique is required
16. Quality criteria are difficult to achieve Construction Process 17. Failure to construct as planned
18. Coordination problems
19. Delay in possession of site
20. Communication problems
21. Red tape in liaison with public consumes too much time
22. Irregularity of work load
23. Severe climate causes low productivity
24. Errors or omissions in Bill of Quantities
25. Insufficient time to prepare bids
26. Delay in information from designers/JKR/public local authority
Construction site
27. Access problems
28. Construction site is adjacent
29. Work hours are limited
30. Traffic congestion
31. Local regulations
32. Theft
33. Project is threatened by hooligans Ground condition
34. No site investigation or boring log
35. Inadequate site investigation
36. Errors in information of site investigation
37. Unforeseen problems
2.7.1.2 Construction Design Causes Risk
Tang et al. (2007) specified that risk factors of inadequate or incorrect design, feasibility of construction method, insufficient technology and inadequate planning were have significant to the project performance which are more related to the construction design cause risk. Table 2.5 is construction design cause risks factors established under study.
Table 2.5 : Construction design cause risk factors
Risk Classification
Risk Factor
Construction design
1. Inadequate or ambiguous specification cause risk
2. Errors in drawing
3. Incomplete design scope
4. Need innovative construction method
5. Need new materials and equipment
6. Non-standard details of drawing includes low quality of work and errors in estimate
7. Likelihood of change
8. Incompatibility between drawing and method
2.7.1.3 Physical Risk
This term covers a range of events which are also commonly referred to as “Acts of God”. According to Baloi and Price (2002), “Act of Gods” represents risks with
extremely low probability of occurrence but can have huge negative impacts on projects if they occur. This category of risk includes events such as heavy flood, landslide, earthquake and hurricanes. These risks are excusable and usually, the contractor is required to insure against such events happening. Where they do occur, they will normally lead to significant delays occurring and, consequently, cost increases. Study conducted by Nabil and Saied (2000) shows that Acts of God risk factors were not significant to the project performance which placed at the last third. The physical risks established under this study are shown in Table 2.6.
Table 2.6 : Physical risk factors
Risk Classification
Risk Factor
Physical risk
1. Landslide and subsidence
2. Fire
3. Lightning
4. Heavy rain
5. Flood
2.7.1.4 Financial Risk
Nabil and Saeid (2000) classified the factors of financial failure; inflation and delayed payment on contract are the critical factors that contribute to financial risk. Visser and Joubert (2008) in their research identified the factor of unfavorable changes in foreign exchange / interest rates as main contributor to financial fluctuation and cost overruns on long term projects. Baloi and Price (2003) grouped the market conditions, price fluctuations, inflation, exchange rate and interest rates under economic related risk which may lead to significant financial disasters. Based on this previous literature review, there are fourteen financial risk factors that were established as shown in Table
Table 2.7 : Financial risk factors
Risk Classification
Risk Factor
Financial risk
1. Payment risk of completed work
2. Slow payment by clients due to dispute
3. Retention is not returned
4. Liquidated damage for delay
5. Adequate payment for variations
6. Financial problems due to errors in estimating
7. Loss due to default of contractor, subcontractor, supplier or client
8. Inflation
9. Exchange rate fluctuation
10. Local and national taxes are high
11. Bid and construction bond are fairly called
12. Insufficient insurance
13. Labour cost is higher than predicted
14. Material cost is higher than predicted
2.7.1.5 Personal Risk
The role of the personal and project management team is probably the most important element in containing the successfulness of a project. It is often true that a poor project with a good personal will be completed satisfactorily. But even a good project, if combined with poor project management, will almost always face serious difficulties. A poor project management structure will have an impact at all stages of the construction process leading to: The role of the personal and project management team is probably the most important element in containing the successfulness of a project. It is often true that a poor project with a good personal will be completed satisfactorily. But even a good project, if combined with poor project management, will almost always face serious difficulties. A poor project management structure will have an impact at all stages of the construction process leading to:
changes;
a lack of control over time and cost inputs.
The other factors that can contribute to personal risk are as shown in Table 2.8. These risk factors were generated based on: a) an extensive literature review from the work of Smith (2003), Perry and Hayes (1985), Baker and Reid (2005) and b) discussion with the experts.
Table 2.8 : Personal risk factors
Personal risk
Risk Factors
Technician and labour
1. Frequent job change by skilled labour
2. Lack of skilled labour
3. Strikes and labour disciplines
4. Low productivity
5. Poor workmanship
6. Brawls and fighting
7. Use of illegal foreign labour
8. Gambling on site
9. Absenteeism
10. Unable to understand drawings
11. Communication problems
Subcontractor
12. Lack of funds to proceed with work (insolvency)
13. Lack of required technical skill
14. Unable to finish work on time
15. Low productivity
16. Problems in coordination
Personal risk
Risk Factors
17. Subcontractor unable to afford adequate labour
18. Subcontractor takes jobs in several projects
19. Subcontractor abandons projects
Staff, foreman
20. Incompetence and lack of responsibility
21. Absenteeism
22. Brawls
23. Lack of experienced staff and foremen Engineer
24. Incompetence and lack of responsibility
25. Absenteeism
26. Brawls
27. Lack of experienced staff and foremen Consultant / JKR
28. Does not understand his role or duty
29. Poor construction method
30. Delays in materials and shop drawings approval
31. Communication and coordination problems
32. Dishonesty
33. Unaccountability of work
Client
34. Interference