Assignment submitted by:

Haarika Reddy K
RICS – CPM (Batch 04)

Risk Management in Construction

Topic: Risk Management – ABC Developer – Real Estate Project

near Bhiwadi

Assumptions/ Inferences from the given write-up:

 Current planning is being done in the month of December 2016 based on the given
statement that the flats will be handed over to customers in December 2019.
 The existing sewer line shifting work will impact only the construction of Club house.
 The existing trees will impact the entire project design and construction.
 The existing HT pylon shifting does not have a major impact on the project, hence, can
be taken up during the construction phase.
 The minor risks of low impact will be identified and handled during construction phase.
The main objectives of the project are:
 Handing over within 3 years – Completion date
 Make alternative arrangements to face severe shortage of electric power and
water – Alternative arrangements
 Avoid penalty with alternative arrangements – Avoid contractual implications /
maximize profit or reduce losses
Identification of risks:
Identification of risks can be done by various methods. However, as the project is in
the planning stage and SWOT analysis and Diagrammatic Techniques (Cause-effect
analysis) are used to identify the major risks associated with the project.

SWOT analysis

Strength Weakness

 Approvals have been applied for already.  Finance is not in place on account of
 Land is in the possession of the Builder non-availability of statutory approvals.
though Registration is not done.  Timely completion of the project on
account of various hurdles enumerated.

Opportunities Threats

 Expediting the project could save 1.5 
lakhs per flat per month.
 There is no penalty for late completion of
the club house.
 HT pylon affects only the periphery.
Effect of RERA on the project.
 Cost overruns on account of severe
shortage of electric power and water.
 Cost implication in the form of penalty if
project is not completed on time.
 Environment impact due to existence of
100 trees in the site.

Strengths can to be used with a systematic risk mitigation approach to overcome the
weaknesses.

Opportunities have to be used and more may be created in due course to tackle the threats.
Diagrammatic Technique

Fish bone diagram/ Cause and effect diagram

Risk 1: Inability to meet project timelines

Approvals Finance

RERA guidelines Delay in Registration

Local statutory
approvals Delay in approvals

Inability to meet
project time lines

Registration 100 trees Clearance of trees

in the site
Approvals Diversion of sewer line

Shifting of HT Pylon

Access to site Environmental Construction

Risk 2: Cost overruns/ lossess

100 trees on site 33 KVA HT Pylon Finance

RERA guidelines Delay in approvals Delay in approvals

Shifting cost
Local statutory
Approvals Penalty due to delay
Shifting cost Shifting cost

Cost
overruns
Shortage of Water
Shifting the Cost for alternate
Line cost arrangements
Electricity shortage
Delay in Approvals

Land for clubhouse Cost to expedite the project

Sewer line Resources Construction

Risk Breakdown Structure:
Risk breakdown structure below is prepared considering the main objectives of the project
as considered above.

Technical Risks:  Design compromises/ changes in case there are restricted

environmental clearances as there are about 100 trees in the
proposed site and the data of which is not available at present.

 Design compromises in case of club house on account of existing

250 meter long sewer line. The shifting work of which may take 18
months.

 Required clearances for shifting existing sewer lines and HT pylon.

Environmental  Existence of about 100 trees in the proposed site may pose
Risks: objections/ retaliation from the Environmentalists and local bodies.

 Inappropriate or insufficient information with respect to existence of

any rear/ endangered species of plants could result in changing the
layout of the construction.

 Arrangement to transplant trees or arrange for fresh new plantations

may result in unplanned costs on the project.

Financial Risks:  Non-availability of funding for the project till the time of obtaining
clearances would impact the project commencement date resulting
in the delayed handing over dates and penalties

 Expediting the project involves huge funding required in the initial

phases.

Contractual  Effect of RERA norms on the proposed project.

Risks:
 Delay in handing over to the customers entails a penalty payable to
customers @ Rs 1 lacs per flats per month.

Construction  Inaccurate time estimates: The project is scheduled to be completed

Risks: in 3 years. However, the listed difficulties like land registration,
statutory and regulatory clearances, trees clearance, sewer line
shifting, HT pylon shifting, obtaining permanent connections etc.,
could delay the project.

 Work permissions: The land still being unregistered and without

statutory and regulatory clearances, work permissions cannot be
obtained. Hence, no ground work can be commenced immediately.

 Resource availability: Essential utilities like electric power and water

shortage in the area could result in Construction risks in terms of
load on finances due to arrangement of temporary or alternate
means of resources.
External Risks:  RERA norms.

 Registration of the land.

 Involvement of local authorities for shifting of sewer lines and HT

pylon.

 Objections from local communities with regard to the transplantation

of trees.

Organisational  These risks may be identified in detail once the project approvals
Risks: are obtained.

Project  These risks may be identified in detail once the project approvals
Management are obtained.
Risks:
Risk Matrix:
Risk Risk Description Probability Impact
Number
R1 Failure to complete the project within 3 years Very high Severe
(December 2019)
R2 Failure to obtain the expected regulatory approvals Low Severe
in the initial phases
R3 Failure to achieve local authorities’ timely Moderate Tolerable
involvement to shift the existing systems (Sewer
line, HT pylon)
R4 Failure to go with the initial plan/ layout of the project Very Low Catastrophic
R5 Failure to supply timely power and water for the Very High Tolerable
project
R6 Failure to obtain permanent connections for water High Severe
and electric power supply by project completion

Consequences/ Impact

Negligible Low Tolerable Severe Catastrophic

Very High R5 R1

High R6
Probability

Moderate R3

Low R2

Very Low R4

The above Risk matrix indicates the following major risks to be handled to help in achieving
the major project objectives:

 R1  Completion date
 R5  Alternative arrangements
 R6  Avoid contractual implications / maximize profit or reduce losses
Risk Mitigation Plan:
Note: Reference is drawn to the Risk number given in the Risk Matrix above.

R1 - Failure to complete the project within 3 years (December 2019)

Expedite the project with the help of following activities:

 Risk Transfer by engaging experienced consultants to prepare the necessary

documents to expedite the process of obtaining approvals from the authorities.
However, the onus is on the builder as the Risk is not completely transferred to the
consultant.

 Expedite the process for Registration of the Land on the Builders name or Risk
Avoidance by entering into a legal agreement from the land owner such that the
builder does not have to register the land on the his name and still can take up the
project – all in compliance with the laws as devised in Indian Contract Act and
regulations of RERA.

 Risk Mitigation by keeping the financers apprised of the present scenario and being
finance ready by the time statutory approvals are obtained.

R5 - Failure to supply timely power and water for the project

This is a Construction Risk which is a result of External Risk and has an impact on the
Finances and Commercials of the project. The Risk mitigation plan for the same would be by
the following activities:

 Risk Retention by providing additional funds and resources to supply electric power
and water to the construction site with the help of Diesel Generators, water tankers,
etc.

 Risk Mitigation by planning the required finances and resources to supply alternate
means of electric power and water to the construction site with the help of solar
power, bore well supply, etc.

 Risk Avoidance by entering into Contract/ Agreement with local authorities to obtain
minimum reserved/ fixed supply for the Contract period. This may involve additional
terms and conditions put forth by the authorities in the form of transferring solar
power generated at a later date to the EB grid/ develop additional low income
 housing in the vicinity of this project/ developing green belt in the surrounding areas
etc. A cost-profit analysis for the same needs to be done.

R6 - Failure to obtain permanent connections for water and electric power supply by project
completion

Risk in this scenario might not be possible to be avoided hence Risk Retention is the only
possible outcome. However, efforts can be made by implementing the below mitigation plan
to reduce the impact of probable loss:

 Risk Mitigation can be done by expediting the project activities and devising a
payment strategy which could reduce external funding and increase the funding from
the customers.

R2 - Failure to obtain the expected regulatory approvals in the initial phases

This risk being majorly of External Risk nature it is proposed that the Risk may be mitigated
by implementing a Risk transfer strategy as proposed at R1 above or Risk Retention/
acceptance is the possible option. However, this does not absolve the Builder completely of
the Risk. Cogency of this risk is upto project commencement.

R3 - Failure to achieve local authorities’ timely involvement to shift the existing systems
(Sewer line, HT pylon)

This risk arises at the Construction phase and the same is of moderate probability and
impact. This risk may be regarded as Passive tolerance nature and can be dealt during the
Construction phase.

R4 - Failure to go by the initial plan/ layout of the project

The probability of this risk is low; however, the occurrence of this could be catastrophic as
the entire project planning could go on disruption. This can be dealt with ensuring the initial
layout or planning is done in line with the RERA and other applicable local guidelines with
the help of experienced Consultants to ensure the approvals are not delayed due to lack of
detail or erroneous planning.