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Bachelor of Architectural Technology and Construction Management
Risk Management in Construction Projects
Application of Risk Management in Construction Period
HAND IN BY ZENGHUA KUANG Consultant : Ernest Vivian Müller
VIA UNIVERSITY COLLEGE Horsens Campus Denmark November 2011
Risk Management in Construction Projects
Application of Risk Management in Construction Period
©ZENGHUA KUANG Student No. 123859 VIA University College,Horsens Campus, Denmark Bachelor of Architectural Technology and Construction Management 7th semester Consultant : Ernest Vivian Müller
2 Hard copies of report and a PDF-file on a CD-rom – Font Verdana 12 November 2010 39 pages ， 300 words per page
All rights reserved — no part of this publication may be reproduced without the prior mission of the author. NOTE: This dissertation was completed as part of a Bachelor of Architectural Technology and Construction Management Degree course No responsibility is taken for any advice, instruction or conclusion given within!
School of technology and business
This dissertation was written as part of the final semester of the education as bachelor of architectural technology and construction management. Many people have contributed to this work. First of all, I want to express my gratitude to my consultant Ernest, he really gives me great help and conduct which makes my report orientation and study scope smoothly going. And then, I would like to say thanks to Renger , my former semester consultant. He also helps me a lot this time. He lends to me some reference books which are very helpful to my report. I am extremely grateful to Director of studies, Jan Uwe Wolff. He is nice and supports me a lot, although he is very busy. He contacts CASA company for me, which helps me to have the chance to meet with the site manager. I want to thank Clæs Knudsen, the site manager too. Thanks for his accepting my visit during the busy construction period. The visit is a golden experience for me as a student. Finally, I would like to thank my closest friends here. Many thanks go to my family members and fiancée for their support and love. Zz, without you this work would never have been possible. Thank you! All my friends in Denmark, China and all over the world are acknowledged just for the reason they exist.
School of technology and business
As the most common and typical project types, construction projects have several characteristics such as specific objects、time limit、financial constraints and economic requirements, special organizational and legal conditions, complexity and systematic characteristics, For that each investment project itself is a complex system. Especially for the construction projects, there are many risk facets and complicated relations, which will influence it. The complicated relations include direct, indirect, obvious, implicit or unpredictable, What's more, the various risk factors will cause different severity of the consequences. If you do not consider these risk factors, or ignore the major factors, they all will cause damage because of decision-making errors. Quality targets, time targets, cost targets are the three objectives of project management. Especially in the construction project, the time objective is closely and inseparably related to the cost objective. Therefore, risk management of construction period is a key part in the risk management of construction The overall aim of this study report is to let everyone know what risk management is, realize the procedure of risk management in construction project and have a deeper study on the application of risk management in construction period. The study-involved examples of construction projects what I have experienced in different places. The results of this study present the effect of common and major risks on construction period. Meanwhile, put forward the corresponding countermeasures Keywords: risk, risk management, construction project, construction period
1 Risk Environment----------------------------------------------------16 2.1.4 Risk Response Planning---------------------------------------------19 2. THEORETICAL OVERVIEW------------------------------------------------------15 2.3 ABSTRACT--------------------------------------------------------------------------4 CONTENTS------------------------------------------------------------------------.9 1.5 Risk Control----------------------------------------------------------20 2.2 Risks in construction projects---------------------------------------------20 5 .2 Problem formulation-------------------------------------------------------.5 1.7 1. Objective and research questions-----------------------------------11 1.School of technology and business CONTENTS ACKNOWLEGEMENTS-------------------------------------------------------------.1.1 Background------------------------------------------------------------------7 1.5 Research methodology----------------------------------------------------13 1.3 Risk Assessment-----------------------------------------------------17 2.1.3 Principle of risk management----------------------------------------8 1.1.3 Aim.4 Delimitation----------------------------------------------------------------12 1.1 Project Risk Management--------------------------------------------------15 220.127.116.11 The process of construction projects--------------------------------8 1.1.1 Definition of risk------------------------------------------------------7 1.6 Structure of study---------------------------------------------------------14 2.1.2 Risk Identification---------------------------------------------------16 2. INTRODUCTION------------------------------------------------------------------7 1.2 Definition of risk management-------------------------------------.1.
1.School of technology and business 3. THE ANALYSIS AND DISCUSSION---------------------------------------------28 4.3 Further Research-----------------------------------------------------------37 REFERENCES-----------------------------------------------------------------------38 APPENDIX--------------------------------------------------------------------------39 6 .1 Answering the research questions-----------------------------------------31 5.2 The main conclusion--------------------------------------------------------36 5.1.1 Findings about risks be identified during construction period-----31 5.2 Discussion on the problems in project risk management----------------29 5.3 The countermeasures for risks in construction period-------------33 5.1 Results and Analysis of cases---------------------------------------------28 4.1.2 Findings about the impact of risks on the construction period----31 5. FOUNDS AND CONCLUSION---------------------------------------------------31 5. CASE OF STUDY----------------------------------------------------------------23 3.1 Case Ⅰ Public building in Denmark---------------------------------------23 3.2 Case Ⅱ The International project in Vietnam ---------------------------26 4.
2010 1. perhaps. more than one possible outcome happens. general usage tends to focus only on potential harm that may arise from a future event.1 Background 1. objectives and research questions are stated and delimitations are described. the structure of the dissertation is outlined. However. which may accrue either from incurring a cost or by failing to attain some benefit.wikipedia.School of technology and business INTRODUCTION This chapter presented the background to the research area and sets discuss the problem formulation.2 Description of risk management Risk management is the discipline of identifying.1.1. monitoring and limiting risks. Risk management applied in the field of construction currently. It has focused in the main on large-scale 7 . 1. Risks can come from accidents.1 Definition of risk Definition of risk is a state of uncertainty where some possible outcomes have an undesired effect or significant loss. Finally. Technically. the value of those results may be positive or negative.org/wiki/Risk) 5. Risk concerns the deviation of one or more results of one or more future events from their expected value. Nov. In some cases. The aim. natural causes and disasters as well as deliberate attacks from an adversary. the acceptable risk may be near zero. has been on the agenda for about 25 years. Uncertainly is meaning that the lack of certainly due to limited knowledge that it is impossible to state the outcome exactly. (http://en.
Risk management should be systematic and structured. Briefing. Risk management should take into account human factors. Risk management should be based on the best available information. international collaboration.1. iterative and responsive to change. 2001). Risk management should be dynamic. geography or finance. Risk management should explicitly address uncertainty.4 The process of construction projects In general. (Figure 1) Depending on 8 . risk management has started to influence an increasing number of companies and not only the largest projects. Risk management should be tailor-made. 2006) 1. 2006. Risk management should be transparent and inclusive.School of technology and business projects with different kinds of complexity related to them. (Hintze et al. such as Technology. Risk management should be part of decision-making. 1. 2004.. Production and Maintenance management.3 Principle of risk management The International Organization for Standardization identifies the following principles of risk management: Risk management should create value. Idea. are five steps as the process of construction project. Risk management should be capable of continual improvement and enhancement.1. Jaafari. Design. Risk management should be an integral part of organizational processes. Simu. the small projects in construction do not feature a great deal of systematic risk management (Azinim & Edum-Fotwe. In spite of this. More recently.
The client will decide to choose the company as a winner. quality. 1. construction projects have several characteristics such as specific objects: time restraints. cost restraints. In some cases. such as cost. it is a complex system. complexity and systematic characteristics. Such as commercial bid and technical bid is used in popular. The viewpoint in this study is that client has to take charge of the phases of idea. 9 . According to the client demands.School of technology and business the scope of the construction companies’ business concept. Figure 1: A general description of the construction process In the construction process. they enter this process in different phases. each investment project. safety and sustainability determine the outcome of the bidding process. each of the competing companies submits a bid. As we know that the many factors have influence on the outcome of the bidding process. the cost parameter has the greatest influence. For that. Although others. special organizational and legal conditions. which is offered by the most favorable price. the constructions companies are exclusive and do not have to compete through bidding. briefing and maintenance. The winner is the one that continues with the project into the design and/or production phase of the construction process. they do have a significant impact from time to time. it is still most common with competition using a tender process to obtain the project and finish it.2 Problem Formulation As the most common and typical project types. This description of the construction process is a general one and several different descriptions can be found in other literatures.
which bring about large risk to both the owner and the construction companies. the time objective is closely and inseparably related to the cost objective. loan interest rate and rate in foreign money. so there are uncertainty on their future change. For example. all these unpredictable effect even damage to an investment project. changing market demand. investment or time limit prolonged. what is more. rising cost of raw materials. the assessment and predicting outcomes will be erroneous results inevitably. which will influence it. there are limitation on the predictable methods and working conditions. there are many risk factors and complicated relations. the various Risk factors will cause different severity of the consequences. productivity under design requirement. the technical and economic analysis is based on the prediction and judgment analysts make of future events. Therefore. The construction project implementation process can be broken down into several specific parts. fluctuating product prices. If you do not consider these risk factors at all. What is more. we cannot ignore risk management of the effect on time objective caused by risks during construction phase. obvious. implicit or unpredictable. The complicated relations include direct. and these parts are always affected by the political and economic environment、 sources condition、technical development. which can be considered 10 . increasing labor fee. Therefore. they will cause damage because of decision-making errors. Especially in the construction project. or ignore the main factors. Quality targets、time targets、cost targets are the three major objectives of construction project management. According to the above description of the background in this thesis. The uncertainties.School of technology and business especially for the construction project. This makes possible deviation between actual value and predicting value. As the accordance to construction project implementation. indirect. we know that risk management of construction period is the management on the time limit in uncertain conditions.
3 Aim. How risks can be assessed during construction period? 6. research questions have been formulated. Only by analyzing the influence. objective and research questions The overall aim of this study report is to let everyone know what risk management is. a better project output and better value for both clients and constructors. can we make a better predication and control of the schedule and ensure the project complete successfully 1. are the very point of studying time limit for a certain construction project. To assess the most major and common risks which cause bad effect on construction period. 2. What risks are there in construction projects? 4. How risks can be indentified during construction period? 5. How to apply risk management in construction projects? 3. what is the process of risk management? 2. 1. How risks can be controlled during construction period? 11 . therefore. There are two objectives of this study: 1. On the basis of the aim and the objectives.School of technology and business as the reason for postponing time limit for a project in the construction project contract. To figure out reasonable solutions. realize the procedure of risk management in construction project and have a deeper study on the application of risk management during construction period.
School of technology and business Figure 2: research questions (See figure 2)The first three questions as the basis to support last three ones. 1. I try my best to narrow down the scope of my study and make my report more pertinent.4 Delimitation According to the statement of related problems in this report. The original Risk Management: Concepts and Guidance (Defense Systems Management College 1986) classified risk into five facets: Technical(performance related) Programmatic(performance related) Supportability(environment related) Cost Schedule Figure 3: Relationships among the five risk facets 12 .
However. the report is more persuasive and practical based on the study of real case and visit of site manager. which play an important role in this report. cost and schedule can become a major source of project risk. They are treated somewhat differently from the others. In addition. I also use Internet-searching engine. to speak of.5 Research methodology Literature study and analytical research are my major learning methods. 13 . Go through the case of study. last section of the report lists the most common and major risks during construction period and some countermeasures referred to these risks. It offers me much writing inspiration and scientific proof from other related articles.School of technology and business (See figure 3)Considering that. which is a fast approach to get wanted answers of this time. the visit definitely has a critical effect on the conclusion of this report. and narrow down the scope to the risk management in construction period phase which makes my report more specific. As a student lacking experience working on building site. Today’s world is based on information technology and huge amounts of information are available on all kinds of subjects. I decide to start from schedule. cost and schedule risks frequently serve as indicators of project status. Analytical research involves analyzing existing facts and information. 1. Based on the above. different realistic constructions have been presented and analyzed .
objectives and research questions are stated and delimitations can be found. The aim. the different constructions have been built in different place. Chapter four is the analysis and discussion. Chapter two is the theoretical overview and the state the literatures which this thesis focuses. The purpose of this chapter is to help the reader understand why this report needed to be written. 14 . This chapter gives the theoretical foundation for the thesis and the aim of this chapter is to ensure the reader that this thesis is at the cutting edge of the research in the chosen area.School of technology and business 1.6 Structure of study Chapter one is introduction to the background of the research area and sets discuss the problem formulation. Chapter three is the case of study. this section’s objective is to combine results of both the case of study and analytical research in order to identify the main findings and their relevance and implications to current risk management practices Chapter five contains the findings and conclusions of the study. This section tells the background of each project and describes different type of risks occurred in construction projects. This part points out the main research contributions and thinking about the specific direction what we can still doing further study in future.
the structure of risk management 15 . (The Figure 4) reflects a structure that mirrors the perspective of the Project Management Institute's PMBOOk (® Guide (2004) within the organizational environmental context. Figure 4. 2.1 Project Risk Management This part focuses on defining and explaining the elements of risk management and presents the recommended overall structure for implementing risk management.School of technology and business THEORETICAL OVERVIEW Chapter two is the theoretical overview and the state the literatures which this thesis focuses. This chapter gives the theoretical foundation for the thesis and the aim of this chapter is to ensure the reader that this thesis is at the cutting edge of the research in the chosen area.
In spite of this. There are risks that must be faced. however. p. there is a risk environment. Perhaps the key failing of project managers in risk identification is the actual description of risk events.1. 1). response and finally also control. then they can be assessed or managed. practices. risk management has only been applied in the construction industry for a little more than two decades (Flanagan & Norman. Formal and traditional risk management as used today is based on the logical structure of identification.) A risk event is something that may happen to the benefit or bad effect of the 16 .1. economic and legislative aspects and so on.2 Risk Identification A critical step in the risk management process. assessment. and procedures of the organization into a whole that will address the nature of risk peculiar to the project. 1993. Many project managers attempt to identify risks simply as "schedule" or "cost. risk identification is an organized.(see figure 4).1 Risk Environment In every project. a process of inventing highly improbable scenarios in an effort to cover every conceivable possibility. the environment. organizationally. Managing construction projects involves making decisions relating to changes in conditions associated with construction. geotechnical. and there is a host of different ways to deal with them.School of technology and business 2. It is not. to draw together the risk policies." (The schedule in and of itself is not a risk. 2. After risks are identified and described. thorough approach to finding real risks associated with a project. Risk management planning is the effort.
some groups of tool and technique types are most commonly applied.School of technology and business project. information-gathering techniques. These establish the environment in which the risks will be evaluated. The project charter. basic project documentation must be in place. the risk that a "wall will collapse. Risk events are most effective when they are described clearly and in depth. The risk management which are plan either may also identify or specific by risk the identification practices preferred rejected organization as part of their risk culture. it is impossible to effectively evaluate the risks on a project.3 Risk Assessment Risk assessment is performed in numerous ways. 2. scope statement. checklists. Without these elements as a frame of reference." To carry out risk identification effectively. killing someone. and project management plan (including the WBS) need to be available to build a thorough list of risks. The risk management plan and the organizational environment also must be clearly understood to conduct risk identification. they include documentation reviews. All this information can spur thinking about different risk issues and concerns when evaluated using the tools and techniques of risk identification. According to PMl BOOK. The tools and techniques that are applied in risk identification are as varied as the projects they serve.1. statistical data or estimated judgment translated into numerical 17 . Tools and techniques have been developed to consider probabilities and consequences. and diagramming techniques. causing a delay" is different from the risk that a "wall will collapse. A high-quality risk event description will describe the potential occurrence and how it would influence the project. On a construction project. However. assumptions analysis. using historical data.
They share estimates of probability and consequence and the use of software tools to manage the data. Grey. without having any more precise information than a more qualitative answer.School of technology and business information (Aven. 1995) are developed checklists that include the evaluation of both probability and the consequence of a risk breakdown and those are used to produce risk matrices. the saying “what goes in is what comes out” is very applicable. 1995). It is important to remember that. Scoring techniques (Grey. As with checklists. There are also assessments grading certainty in scales such as rare-almost certain and low-extreme. with models and simulations.Impact Matrix 18 . Using models or simulation to assess risks is another approach. The bias that also needs to be considered is that different evaluations will appear depending on the individuals carrying out the assessment. Models are simply a breakdown of a complex project into manageable bits and pieces. often by using mathematics to show how these bits and pieces are linked together. Figure 5 Probability. the disadvantage is that some aspects are forgotten. 2003. This is a common technique for risk assessment in construction projects that is widely used due to its simple approach. The disadvantage of any model using figures is that the user could easily be blinded by exact figures.
and organizations have different cultural tolerances for risk and risk responses. and the customer culture. Generally. Risk thresholds frequently are as significant here as they are in establishing basic probability and impact for the risks.1. All risks have causes. In developing risk responses.School of technology and business 2. the project team should work to identify any common causes. Different countries.4 Risk Response Planning Risk response development is a critical element in the risk management process that determines what action (if any) will be taken to address risks evaluated in the identification. risk is a cultural phenomenon. and quantification efforts. These risk thresholds should become a component of the risk management plan. response strategies for threats fall into one of the following categories: • Avoidance • Transference • Mitigation • Acceptance 19 . All information generated to date becomes crucial in determining what the organization will do that is in keeping with the risks. the project tolerances. Determining what limits exist early in the risk response planning process is important to ensure that time is not wasted on approaches that are intolerable. sometimes multiple risks within a given project arise from a common cause. regions. qualification. the organization's tolerance. as those causes may have common risk responses. To some measure.
It is a question of making sure that the identified risks. 2. Organizational relationships Contractual relations Attitudes of participants Communication 20 . it is also possible to identify new risks that emerge and the continuous process proceeds. The second is generating meaningful documentation to support the process. and quantified.School of technology and business 2. Socioeconomic factors Environmental protection Public safety regulation Economic instability Exchange rate fluctuation 2. qualified.5 Risk Control After risks have been identified. The first is putting the risk plans into action and ensuring that the plans are still valid. which should be an integral part of the project plan. and clear responses have been developed.2 Risks in construction projects Risks in construction projects may be classified in a number of ways. The final step in the description of the risk management flow chosen in this thesis involves ensuring the use of the prior steps. One form of risks classification is as follows: 1.1. In the control step. Risk monitoring and control involves implementing the risk plan. those findings must be put into action. which are regarded as important. Two key challenges are associated with monitoring and control. are also controlled in the way that was planned in the response step.
Technological problems Design assumptions Site conditions Construction procedures Construction occupational safety The environmental protection movement has contributed to the uncertainty for construction because of the inability to know what will be required and how long it will take to obtain approval from the regulatory agencies.School of technology and business 3. contractors will raise their prices to compensate for the additional risks. some owners attempt to use fixed price contracts so that the risks of unforeseen contingencies related to an overheated economy are passed on to contractors. Public safety regulations have similar effects. which have been most noticeable in the energy field involving nuclear power plants and coal mining. These moving targets add a significant new dimension of uncertainty which can make it virtually impossible to schedule and complete work at budgeted cost. Economic conditions of the past decade have further reinforced the climate of uncertainty with high inflation and interest rates. During periods of economic expansion. discussions often center on responsibilities rather than project needs at a time 21 . The requirements of continued re-evaluation of problems and the lack of definitive criteria which are practical have also resulted in added costs. constructors and owners as projects move through the stages of planning to construction. The situation has created constantly shifting guidelines for engineers. major capital expenditures are made by industries and bid up the cost of construction. Strained relationships may develop between various organizations involved in the design/construct process. The risks related to organizational relationships may appear to be unnecessary but are quite real. However. In order to control costs. When problems occur.
Thus. However. Cooperation and communication between the parties are discouraged for fear of the effects of impending litigation. The risks related to technological problems are familiar to the design/construct professions which have some degree of control over this category. The net result has been an increase in the costs of constructed facilities. because of rapid advances in new technologies which present new problems to designers and constructors. can create an even greater degree of uncertainty for facilities with heretofore unknown characteristics during operation. 22 . who in turn have influenced the actions of the owners. This barrier to communication results from the illconceived notion that uncertainties resulting from technological problems can be eliminated by appropriate contract terms. the issue of liability has taken on major proportions and has influenced the practices of engineers and constructors. Site conditions. Because construction procedures may not have been fully anticipated. the combination of such problems is often regarded by all parties as being out of control and inherently risky. the design may have to be modified after construction has begun. particularly subsurface conditions which always present some degree of uncertainty. Certain design assumptions which have served the professions well in the past may become obsolete in dealing with new types of facilities which may have greater complexity or scale or both.School of technology and business when the focus should be on solving the problems. technological risk has become greater in many instances. If each of the problems cited above can cause uncertainty.
The educational building has been started from August. cost and schedule he also takes charge of the communication 23 . our school have chosen the total contracting form of procurement and offer a set of specific detailed brief. especially on project’s quality. This project is under construction. His duty of being building site is to manage the operation of the whole construction phase. The bid of price for construction works is approximately 87 million. In order to get more realistic data.2011. This section tells the background of each project and describes different type of risks occurred in construction projects. As the project client.construction period is nearly 10 months. and construction period will be nearly 7 months. 3. the different constructions have been built in different place.1 Case Ⅰ Public building in Denmark Background of the Project This realistic project case is new educational building and multi-hall of our school. and had a short talk with him. it has to be finished at July. he has a 20-year experience of site management. He is responsible for former projects of our school too. The multi-hall will be started at May.2011. CASA A/S will be responsible for the total co-ordination of the design and the construction. it was my great honor.School of technology and business CASE OF STUDY Chapter three is the case of study.2010 before the schedule of multi-hall.2011 and finished at December. I visited building site of this project. The gross of constructed floor area is about 7600m2 for educational building and 1600m2 for multi-hall. Clæs is a senior site manager from CASA a/s.
control during construction period? These risks means the risks which have a bad effect on construction? From the site manager’s aspects. If it is during the critical process. many suppliers are facing bankruptcy. this is the most important thing that should be paid attention to. It would be a better idea for the total contractor to choose a supplier 24 . 1. enough money is supplied to make sure the labor safety on building site. it may lead the construction to facing delay on delivery. Safety risk The first one would be safety risk. Besides. By choosing a supplier without great reputation and funding. Therefore. all the works should have its own precautions. At the mean time. there are four main risks that would affect the construction period. there are two or three colleagues to help him with these work. my research questions have been mentioned that How can risk be identified. it will surely delay the whole construction.supplier. According to his opinion. site manager has to make and implement a safety and health plan to assure the safety of the working process. Construction Related Risk During the meeting with him. Based on plans for safety and health. Under the influences of global economy crisis. In construction industry. assessed . 2.School of technology and business with client ， sub-contractor . Material supply is a compulsory part of the construction project. not only the schedule will be delayed but also the other areas will be affected. Material supply risk The second one would be risk on material supply. Manually inspections and supervision are also important. The site manager has to make a safe working environment for labors. the delay on time always cost more. If any accident happens during the process.
3. Unforeseen extra work Third of all. Due to the consideration of cost. his responsibility would be contacting supplier and arrange the material delivery and transfer. clients all wish to finish the construction as soon as possible. This will bring a lot of pressure to the total contractor. site manager always identify. such as risk breaking down system. It is because that geological exploration datum cannot predict and analyze the exact condition of geology. There are also other methods which cannot be ignored. there is nothing the site manager can do about this situation. When rushing into doing things. They will pay attention to the critical parts of the work while speeding up on the easy ones. The site manager stated that during this project. the Italians are good with wet room surface work. The rest extra work might happen in other construction work methods. During the period of construction projects. unforeseen extra work is also one of site manager’s concerns. This is also considered as the most practical and convenient risk management. more mistakes might happen. And it is known that the Germans are good with concrete element work. meetings planning and so on. assess and control risks based on their own experience. the soil problem has caused a delay for couples of weeks. This leads to the omissions during construction period. they still want to balance the time and quality. However. Consequently. Most of the unforeseen extra works take place on soil work. 4.School of technology and business company wisely to avoid short of material and delay on delivery. They are trying to do their work faster. Omissions of construction work The last main risk would be omissions of construction work. 25 . However. the quality of the construction will highly be reduced. As a result. total contractor will hire more skilled and experienced workers as compensation. For site manager.
legal Risk. the project was only completed in 2008. through the above description of the background.200m2. The site area is about 40. thus.2 Case II The International project in Vietnam Background of the Project This case study relates to the development of a factory to produce yeast in the southern part of Vietnam. engineers and project managers were selected as they came from the same country as the foreign client. Project Planning and design started in late 2001. French architects. financial and economic risk. Due to some problems within the joint venture and technical issues with the yeast manufacturing method and process of operating the factory. The client's representative had to ensure that the factory achieved similar quality as the client's other yeast production 26 . design risk. The client informed that a few consultants and project management firms were invited to submit fee proposals. there must be several risks during the construction phase such as political risk.School of technology and business 3. Construction Related Risk The main construction related risk faced in this project was substandard quality of materials and workmanship. and these risks haven't been well under control at last.000m and the gross of constructed floor area about 6. affecting project performance. it is obvious that the project lasts two years more than the planned time. The client is a joint venture based on a 50:50 share between a France company and a Vietnamese company. However. The contract sum for construction works is approximately US$10 million. etc. construction only started in early 2005 and was expected to be completed in late 2006. The following part is the main analysis of risks in construction phase. construction risk.
To manage this risk.the equipment and materials are easily found in Vietnam. They also had low productivity. the client's representative had to accept a lower quality standard because that was what the Vietnamese contractors were capable of. Specialized items however had to be imported. and when the items arrive in Vietnam. There was a long lead-time for equipment to arrive from overseas. However. Hence. In response to this risk. and the main contractor overcame this risk by placing orders early. The low quality workmanship was because some of the main contractor's workers were unskilled. The lesson learned is that foreign firms should enter Vietnam knowing that their built facility would not be of the quality and standard that they are used to in developed countries. the consultants required that any change of personnel in the main contracting. Another construction risk faced by the project was unsafe work practices. nominated and domestic subcontracting firms would need the project manager's approval. The project manager found that most of the contractors did not have safety management systems in place. in this project. In this project . customs clearance is something that foreign firms should be aware of and build this into their schedule.School of technology and business factories throughout the world. the main contractor was 27 . The delay in. The main contractor's excuse was that he needed the skilled manpower for his other ongoing projects. Firms should therefore build in a large contingency sum for paying import tax on materials and equipment. The local main contractor had to contend with long delivery time. and the rate depends on the type of material and equipment. quality control must be enforced strictly. delay in customs clearance and payment of tax. The project manager recounted that the contractors changed their site management staff frequently. Import tax is complicated.
high inflation rate. legal risk. The construction manager explained that in southern Vietnam. design risk. the rainy months are August to November. The construction manager said that he would undertake construction work that would be affected by bad weather condition outside of the rainy season. bidding. which is nature risk. in the whole project process. THE ANALYSIS AND DISCUSSION Chapter four is the analysis and discussion. those issues are significant factors affecting both clients and contractors’ 28 . the project did not face any other severe natural risk that affected construction progress. From previous cases what we have uncovered is that the main and critical the risks are occurring during construction period. the wet season lasts from May to October. flooding may occur from October to December. financial and economic risks. Bureaucracy. In central Vietnam. light. this section’s objective is to combine results of both the case of study and analytical research in order to identify the main findings and their relevance and implications to current risk management practices 4. cultural risk. There is one of risks in construction risks that we should not be ignored. with February and March having persistent. construction and commission.1 Analysis of case study Risks may exist throughout the project lifetime from inception to design. there are other risks such as political risk. who must ensure that safe work practices were adopted. Construction work in Vietnam may be affected by heavy rain. In northern Vietnam. drizzling rain. Apart from planning work to avoid heavy rain. inadequate legal framework. and the working condition on site was safe. Actually.School of technology and business required to engage a safety specialist. In addition .
At the beginning of the construction project. 4. The implication is that practitioners should be well equipped with negotiation skills when undertaking projects in Vietnam As the quality of work and safety could be compromised in projects. Another effective risk response technique is to use negotiation to solve problems. In order to safeguard each interest. there will be lots of uncertain factors facing the whole project. such as documentation reviews. After we know those. effective risk response techniques must be adopted to manage the risks. it is recommended that contractors provide workers with some training so that they can achieve certain skills level and safety awareness. Safety management systems should also be implemented on site. both sides make some special regulations when signing a contract. After confirming the following factors.School of technology and business venture. the contractor and the owner have already foreseen that certain factors causing the implementation of the project will definitely occur during the implementation process. the construction period can be delayed without paying for any fine to the clients undertaking project as long as the performing units put forward the apply to units in charge of construction. checklists assumptions analysis are used often. Change of working amount and design 29 . The factors include: 1. the construction period is quite long.2 Discussion on the problems in project risk management When the scale of a project is huge. It is found to be the most practical and effective way to overcome difficulties faced in Vietnam.
Contractors will not be responsible for the damage brought by the work stoppages because of blackout.School of technology and business 2. Supplier do not supply the materials in time. 3. So the study of construction period is still resting on the theory at present and there is little strict estimate and control on the project period when practicing. In order to make sure that there is no effect on stake. There meet unpredictable obstacle or ancient tombs 、cultural relic、 quicksand which need to be dealt with during the foundation construction.1 Answering the research questions 30 . the clients do not pay construction fund on time or any other conditions the client admits. Therefore. the project manager cared more about the cost of construction than the construction schedule. short of water supply or gas supply that not belong to. we should evaluate project construction period reasonably and estimate the construction period within bounds for that it is quite important for the implementation and completeness of the whole project. construction period affects construction expenses directly. FINDS AND CONCLUSION Chapter five contains the findings and conclusions of the study. This part points out the main research contributions and thinking about the specific direction what we can still doing further study in future. Then we can avoid direct damage caused by some uncertainties to the project. delay of the period lead to change of both direct expenses and indirect expenses and thus affecting the overall expenses of a project. 5. 5. Force majeure 4. In fact.
School of technology and business 5. We should grasp the major factors among multiple factors and then analyze the severity of input-output caused by the uncertainties. However.1. Documentation reviews. the influences of the three factors made on the construction 31 . there are many influencing factors and various uncertainties result in different consequences. Analogy comparisons. Risk identification is an organized. These three facets together have an effect on the project construction period. and Delphi technique. Brainstorming. It is not. operation factor、industry factor and market factor. the common uncertainties are: soil and geological conditions、weather conditions、material and equipment deficiency、imperfect design scope、equipment change、labor productivity、contractor’s neglect of duty and so on. Risks cannot be assessed or managed until they are identified and described in an understandable way.1 Findings about risks be identified during construction period For that the construction project itself is a complicated system. thorough approach to finding real risks associated with a project. Risk breakdown structure. however.2 Findings about the impact of risks on the construction period Uncertainties include three facets. We can start from the viewpoint of system when identifying uncertainties.1. The common methods are: Expert interviews. which depend on veteran like project manager or site manager. a process of inventing highly improbable scenarios in an effort to cover every conceivable possibility. 5. In construction projects.
1. Construction technology needs to be innovated continuously because of the constant change of the design. Innovation of design. hydraulic concrete pumps.(such as crane. so the weather plays an important role on the construction period and safety.School of technology and business period are quite different. 2. (2) Equipment breakdown. 3. it is the most uncertainty during the implementation of a construction project. therefore. The Nature risk. mason. Labor productivity. when they employ workers. scale of project is still so huge that it need large amounts of teams. Although the enterprises follow the regulations of local building environment. Equipment failure. The follows are the description of the major uncertain factors influencing the construction period. (1) Uncertainty of construction technology: every building is unique and has its own characteristic. 32 . it is hard to say if the job mating with equipment is reasonable or not. like using new technique、change of work method deficiency of design and so on. Operational risk is on the top. (1) The quality of construction teams (2) Mating between labor and equipment: there need many kinds of specialized type of work cooperating in one project such as carpenter. flood、earthquake、rainstorm ect. demolition devices) 4. and so on. For example. and then the construction technology will meet the risk of “first failure”. welder. Open air、upper air and the underground are the major building operation field. Hydraulic jacks. plumber . welding equipment.
6. Materials delay. Soil situation. the income will decrease. (3) Uncertain price of construction materials: the bid price of the contract in a construction project includes material prices. so soil situation is an indispensable factor. 5. Although these construction materials are rich in the domestic market.School of technology and business (3) Employment dynamics: if service operations are according to construction schedule. the big amount of manufacturers. The construction period is very long and if the material prices increase. etc. Geological exploration datum can’t give an overall and exact explanation of the geology.1. keep the working performance as planned. The control planning and traditional work methods when we done before for managing construction project that do not work because of these uncertainties. (2) Uncertainty of equipment supply: the major materials used in the construction are steel、wood、concrete、sands and brick. the different quality of the same material and misuse of construction companies may affect the construction quality and cause direct financial loss. Uncertainties exist in all kinds of activities of whole construction process and have an effect on the whole project implementation. (4) Poor local transportation condition. pull the job off up to standard within the limited time. after hand over or check the completed project and leave the construction site immediately or not. (1) Dissatisfactory material quality. 5.3 The countermeasures for risks in construction period According to the above analysis ， we can take actions to control those uncertainties which have great influence on the process of construction so as 33 .
take the following relative measures if necessary: 1. operation control. 4. more importantly on the qualifications of contractor. 2. withstand risks. build up their own risk management system. foreign language. etc to employees so that the enterprise can own experts and professional project managers absorbing skills. 5. Try to make sure that the project gets up to a high standard on processing operation and organizational structure. risk management. Raise legal consciousness. risk transfer and risk retention Measures to avoid risk 34 . risk reduction. finance. Implement talent strategy. prepare the manuals and planning by total contractor. contract management. claim indemnity. including risk avoidance. impart knowledge of construction project management. financing and settle accounts. protect rights. economy. etc. operate. risk prevention. operation. 3. the ability to face risk. including the human resource required by the total contractor. qualified design capacity. We must comply with the law when we sign contracts.School of technology and business to provide a most effective risk control and risk management of the project period. powerful technical support. Moreover. management. strategy. complete project management system. etc. the ability to purchase equipments and construction supplies ， good communication skill of the contracts. insurance. Set specification on construction management. in addition. the strong market competiveness. Take active technical countermeasures. advanced enterprise culture. law.
laying down the regulation that certain project should be prohibited and avoiding the actions which may cause damage are also good measures to evade risk. reduce existing risk factors. And one should have the ability.School of technology and business If risks become big threats that the enterprise could hardly bear and control to the project. back-up actions and financial reserve. Measures to risk retention If the damage caused by known risks is not serious. Measures to reduce risk This kind of measures can reduce the incidence of risk or the damage when risk occurs. we should change it to known risk through assumption and limited conditions and then take measures to reduce the possibilities risk happen to a level which risk can be accepted. etc. Measures to prevent risk Implement technical supporting and effective control planning to prevent risk. sustain it on one’s own. we should give up the contract and the project definitely to avoid greater losses. For the known risk. for the predictable or unpredictable risk. suppliers. reduce the incidence of risk events Measures to transfer project risk Spread the risk to other objects. investors. subcontractor. including owners. we can use project resources to cut down. have emergency measures. 35 . partners. The aiming is to prevent new risk factors. Moreover.
At the beginning of this report. As part of the final semester work. 36 . I got the answers like how to ensure as soon as possible、 how to make reasonable analysis and how to have a good control of these risks. each project has its own characteristic and building sites. after resolving the research questions. Next. Then I start my study by finding out literature references via borrowing related books and surfing the Internet. The orientation of my study is the application of risk management in construction projects. I list realistic construction projects. I still try my best to search literature and references and have profound study. I made up my mind the orientation of my study through learning about the background related to my study aim such as what is risk.2 The main conclusion Finally. I make specific analysis based on what I learn from the document literature.School of technology and business 5. it is a challenge for me. Then presenting what are the major and common risks influencing construction period that I choose from numerous factors. At last. I provide the resolving methods after theoretical study and case study. Nevertheless. I treat a better final report as my pursuit. I get down to my report and graduation project at the same time. I make my study and description mainly on the schedule. Considering the writing time and writing depth . This report tells us what risks will occur during construction period for that risks have an effect on the cost and schedule of construction projects. In addition. what is risk management. I would like to make a conclusion of my report. so it will meet with various risks. In the end.
which need us to solve. Regarding writing time and writing scope. which affect construction cost for the further study to ensure budget balance of construction projects. As is known to all. we can make further analysis and study about the risks.School of technology and business 5. Based on the report. there is no more deep study of other aspects in this report. there are still many risks. There is one of aspects of risk management is worth doing it. and maximum value of clients such as the study of what factors may cause cost change except extension of construction time. which enrich my learning experience and broaden my horizon of project management. Moreover.3 Future research I have learnt a lot what I did not know before through finishing this report. This is just a small part of risk management application in construction projects. Risk management has a wide usage. for example. I narrow my report to a specific aspect. 37 . which describes what risks are there during construction period and what are the common risks affecting construction schedule. we can apply risk management to the analysis and management of the existing and possible risks from the design phase to the construction phase.
Azinim. T. International Journal of Project Management. Gragg and J. Kajsa Simu. 89-101. & Edum-Fotwe. Cassell. 1992. uncertainties and opportunities on projects: time for a fundamental shift.School of technology and business References Jaafari.max wideman fellow. risk management .concepts and guidance pp28-54.PMI.P.pp.inc. Inc.Lulea. F. Paper presented at the Construction in the XXI Century. doctoral thesis.com/risks-construction-projects/ 38 . Sweden http://civilengineerblog. The Construction Site Manager’s Impact on Risk Management Performance. (2001). 2009. 19(2). CarL.project management insitiute . Risk management practices of construction project staff: Preliminary lessons. Progress in Management Engineering.2009 Nova Science Publishers. 18-20 October).Pritchard. M. A.a guide to managing project risks and opportunities. L. risk management . Rome. Management of risks. printed in the United states of America R.Local and global challenges.M. (2006.2005 third edition. 173 197.
Appendices Appendix A EXAMPLE OF RISK ASSESSMENT PLANING Appendix B EXAMPLE OF RISK ASSESSMENT PLANING 2 .
07.DD contractors haven't received any basic plan for safety and health Do we have the material Yes Our trade (Ground. concrete and mounting element work No Can we have the necessary machinery? Is the plan for safety and health okay? RESOURCES Do we have the manpower/staff Is it new technology? Normal technology but more difficult than normal Other trade Yes but some risk due to the financial crisis (bankruptcy) No. the financial situation is not the best right now but Esbjerg Kommune is the state and they will have the money to finance the project NO .03.15.10) Winter (1.DD Contractors has no experience with Esbjerg Kommune Big experience with all kind of projects DD contractors have already work with Årstiderne Arkitekt Weather (summer/Winter) Geographical conditions Who is he? Unknown ? Who are there? Well working? ? Expensive? Idræts Alle 10.) Big space Residential area Neighbours Green area Good access for big trucks Transport Only 3. so need to ask for other subcontractors Do we need subcontractors .. we have been working with this type of work before PROJECT Is it the time schedule realistic? Yes but of course some surprises can appear No . 6740 Bramming Flat plot No big vegetation Position of the site Experience Competitors (other contractors) Liquidity SURROUNDING CLIENT Architect Årstiderne Arkitekt Dalgasgade 11 7400 Herning Experience Reputation Good accessibility (main road.10. Soil.10 Summer (1.Missing some of the tender documents Specifications Okay Yes.5 km from the Motorway Placed on a big plot Property Have we tried this type of work before? Yes We have Do we have time? Is the tender materials okay? Engineer RISK ASSESSMENT Rambøll Dokken 10 6700 Esbjerg Experience Big experience with all kind of projects DD contractors have already work with Rambøll Reputation NO..04.12. to 01.10) Easy access to the building site Okay but of course not perfect Delivery conditions Esbjerg Kommune Torvegade 74 6700 Esbjerg In all domain.Need some winter precautions Winter (1..11.09 to 31.11.10 .
Risk Assessments Small risk = Level 1 & 2 Medium risk = Level 3 & 4 High risk = Level 5 Level 1 1 x 1 → 1 + 28 + 21 + 24 + 30 = 104 ↘ 104 : 34 = 3 → Risk for the project is 3 Level 2 14 x 28 Level 3 7 x 21 Level 4 6 x 24 Level 5 6 x 30 .
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