Infrastructure Construction Risks Identification, Analysis and Response

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Infrastructure Construction Risks Identiﬁcation,Analysis and Response
Book · September 2018
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Madhav Prasad Koirala

Pokhara University School of Engineering
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CHAPTER-1 ................................................................................................... 4
1. RISK IN INFRASTRUCTURE CONSTRUCTION FIELD AND THEORETICAL
PERSPECTIVE .............................................................................................. 4
1.1 Introduction ........................................................................................................................... 4
1.2 Infrastructure and Urbanization in Regional Context ............................................. 6
1.3 Infrastructures and Urbanization in Nepalese Context ........................................... 7
1.4 Role of Infrastructure Housing, Apartment and Real Estate ................................ 10
1.5 Housings and Real Estate in Developing Countries ............................................. 10
1.7 Worth of the Infrastructure Projects .................................................................................... 15
1.8 Concluding Remarks ........................................................................................................... 16
CHAPTER-2 ................................................................................................. 17
RISK IDENTIFICATION IN INFRASTRUCTURE CONSTRUCTION FIELD 17
2.1 What is risk? ........................................................................................................................ 17
2.2 Risk Identification ............................................................................................................... 17
2.3 Risk Identification: Inputs .................................................................................... 18
2.4 Risk Identification: Tools and Techniques ........................................................... 18
2.14 Risks & Exposures ........................................................................................................... 24
2.15 Concluding Remarks ....................................................................................................... 28
CHAPTER-3 ................................................................................................. 29
RISK ANALYSIS IN INFRASTRUCTURE CONSTRUCTION FIELD29
3.1 Problems Associated with Legalities .................................................................................. 29
3.2 Big Issue about ownership .................................................................................................. 30
3.3 Planning Permit from Authority .......................................................................................... 30
3.4 Bylaws, 2007 for Towns and Rural ..................................................................................... 32
3.5 Global Issue the Environment Protection ............................................................................ 33
3.6 Local Government: Pre-Matured Authority ........................................................................ 34
3.7 Hurdle in Approval Procedure ............................................................................................ 35
3.8 Problems in the Policies Level Framework-related Rules and Acts ................................... 35
3.9 Problems: Unstable Politics and Unstable Government..................................................... 36
3.10 Financial Factors and Role in Projects ............................................................................ 39
3.11 Economic Aspect: in Infrastructure Projects ................................................................... 41
2
3.12 Qualities in Projects: Challenges ..................................................................................... 43
3.13 Problems Related to Technical Aspects .......................................................................... 45
3.14 Human Resource in the Infrastructure Projects ............................................................... 46
3.15 Components of Nepalese Society and Infrastructure....................................................... 47
3.16 Culture of Consumers in Infrastructure Projects ............................................................. 48
3.17 Organization/Institution and Infrastructure Projects ....................................................... 50
CHAPTER-4 ................................................................................................. 53
RISK RESPONSE IN INFRASTRUCTURE CONSTRUCTION FIELD53
4.1 Integrated Policy for Enhance infrastructure....................................................................... 54
4.2 Existing Legal Polices should guided by Developers Friendly........................................... 57
4.4 Frequent Development and Research work is needed......................................................... 60
4.5 HRM Team must be experienced for Risk Mitigation ........................................................ 61
4.6 Responses Based on their work Experience ......................................................... 61
4.7 Implementation Phase is to be careful Compare to other Phase ......................................... 61
4.8 Cosmetic treatment for Mitigation is not Permanent Solution ............................................ 62
4.9 Products of Infrastructure must be Branded and Qualitative .............................................. 63
4.10 Risk Response Plan.......................................................................................................... 64
References ...................................................................................................................................... 67
3
Chapter-1
1. Risk in Infrastructure Construction Field and Theoretical

Perspective
In this chapter, it is discuss the risk factors involved in infrastructure construction
projects. Under the theoretical Perspective model, following topics are being
discussed: Introduction, Infrastructure and urbanization in regional context,
Infrastructure and urbanization in Nepalese context, Role of infrastructure housing
apartment and real estate, Housing and real Estate in developing countries and worth
of the infrastructure projects. Finally summaries of this chapter is outlined
1.1 Introduction
It is a challenge and an opportunity to manage risk factors in the construction
infrastructure projects within a limit. Professionals are not due concentrating their
expertise and skill in this direction, so as every minute, every second passes by, there
is a chance of cost and time over-running and degradation of quality in each
infrastructure projects because of many more causes. Particularly, developing
countries were severely suffering by those risk factors. In Asia, many countries are
developing countries, Among them Nepal has suffered for more than one decade by
the civil insurgency, now it is on queue to the peace process which is not yet
concluded. It is landlocked country and situated between China and India. In the
infrastructures development either in rural area or urban, professional¶V
consciousness is a must. Previously performed infrastructures were not properly
planed so that could not become result oriented. Although first five year development
plan was started from 1956, its economic plan was started and now already passed
tenth five years and could not get success as per the expected objective.
It is difficult for a new professional to identify new risks, in a new environment
and politically instable countries. It is more difficult to assess these risks and impact
of relationships among them. Legal policy framework has not been made by the
government because of frequent change in government and hence legal and political
risks are more catastrophically influencing equitable infrastructures development,
simultaneously financial, economic and other risk factors. It is more difficult to
assess these risks and impact of relationships among them. The trend in construction
projects is just ignoring and making the decisions which are unrealistic and
irresponsible by authorized professionals as well as other fact is identifying,
4
analyzing new risks becoming complicated, expensive and time consuming due to
omission of the risks management plan during planning phase (Koirala, 2012).
The economic and social circumstances of infrastructures have stimulated calls
for redevelopment and renewal since the Industrial Revolution transformed the
economic base and spatial makeup of American cities during the second half of the
nineteenth century. Industrialization not only brought about a fundamental
transformation in the nature of work, but also brought change in the systems of
transportation, the structure and operations of city government, the experience of
poverty, and the demographic movement of racial and ethnic groups on an
unprecedented scale. Henry Mayhew, Charles Booth, and Lewis Mumford
documented in graphic detail the pathological nature of uneven development
characterizing urban growth under industrial capitalism in the United States (Gotham,
2001).
Redevelopment and renewal need to be worked out as per requirement of
people and country. Existing infrastructures and amenities need expansion and hence
redevelopment renewal, maintenance is a regular process. Americans came to know
urbanization, infrastructure, housing and economic growths as interrelated subjects,
which was not natural gift but an art to manage the excess population.
Urbanization with infrastructure development is one of the fundamental
characteristics of the European civilization. It gradually spread from Southeast
Europe around 700 BC., across the whole continent. Cities and the urban networks
they formed were always an important factor in the development and shaping of their
surrounding regions. Polarization of territory between urban and rural and
accessibility are still important aspects in landscape dynamics. Urbanization and its
associated transportation infrastructure define the relationship between city and
countryside. Urbanization, expressed as the proportion of people living in urban
places shows a recent but explosive growth reaching values around 80% in most
European countries. Simultaneously, the countryside became abandoned (Antrop,
2003? 2004).
Similarly the urban and infrastructure development had started quite earlier in
European countries. In the southeast Europe, the urbanization and infrastructure
development started before 700 BC and rest of the Europeans learnt it and followed
the same pattern.
In Madrid, as in other cities, urban planning projects accompanying the
globalization process have provoked new episodes of social mobilization. In Spain,
there have been few studies of this type of urban infrastructure struggle to date,
5
despite an increase in number and intensity. Understanding the characteristics of the
phenomenon and interpreting them, taking the theoretical and empirical contributions
of others into account should form part of the Spanish urban investigation agenda
(Orueta, 2007).
Social mobilization, social awareness and social cohesiveness were developed
early in Spain and other parts of Europe. As a result, these countries progressed in
urban development as well as in infrastructure and housing sectors.
1.2 Infrastructure and Urbanization in Regional Context

In Asian region China and India are fast economy growing countries including Japan
and South Korea that are already established Asian countries. Among them, China is
more recognized as an economically fast growing country in the Asian region now. It
has been published in media and newspapers that China is technologically ahead in
all regions, even in world. Similarly, growing urbanization problem is being solved
with the formulation and implementation of strategic plan.
We can see two processes of urbanization: (a) small town development driven
by the state and (b) massive inflow of rural-to-urban migrants to large cities. By
putting social policy into this context of urbanization, argued that social policy has
not been properly developed to facilitate small town development. On the contrary, it
has been used deliberately as a barrier to limit migration to large cities. The results
are clear. Small towns are not attractive and often are abandoned. Large cities are
under tremendous social pressure (Li & Piachaud, 2006).
India is another economically fast growing country in south Asian region.
Small cites were promoted by state government and large cities like Mumbai and
Delhi are massiYH LQIORZ WDNLQJ SODFHV 2WKHU VRXWK $VLDQ FRXQWULHV¶ economy is
more or less influenced by Indian economy comparing to China. Until now, Nepal
government has taken the benchmark to Indian currency based on Indian currency is
monetary convertible policy is established.
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expected to reach the figure close to one billion by the year 2030 that is about 120 per
cent increase in three decades beginning with the year 2000. Four countries namely
India, Pakistan, Bangladesh and Iran would accommodate an overwhelming 95.4 per
FHQWRIWKHUHJLRQ¶VXUEDQSRSXODWLRQLQDVFRPSDUHGWRSHUFHQWLQWKH\HDU
2000. This marginal decline in the share of urban population of larger countries in the
region is because of relatively fast increase in the urban population of the smaller
countries like Afghanistan, Bhutan, Maldives and Nepal. However, growth rates of
6
urban population are estimated to decline in successive decades in all the countries of
the region, except India and Sri Lanka (Mathur, 2011).
If the population growth dramatically increases, shelter problem along with
infrastructures will be a challenge to have own house as a human right. India is facing
a lot of problems during urbanization and more resources have to be mobilized, even
though no solution to the problem has yet been developed.
1.3 Infrastructures and Urbanization in Nepalese Context

Nepal's urban development accelerated when migration took place either from
internal or external migration. There are several reasons for this and among which
political, economic and socio-culture factors are the major ones. Studies show that of
last fifteen years migration is mainly due to civil insurgency, war, not maintaining
law and order, security problem, impunity, employment problem.
Urban dwellers are rapidly growing in recent years in the Nepal. Out of total
population in the country, 14 percent live in urban areas, where population density is
985 persons per square km. In developing countries, many cities include large
productive land at the beginning but it decreases as urbanization takes place.
Kathmandu Valley is the capital city of the country, which together with other two
adjoining districts- Bhaktapur and Lalitpur consisted of most fertile land. The
proportion of urban population living in these three districts respectively receive first
(65.9 percent), second (53.4 percent) and fourth (48.3 percent) highest rank in the
country. In the valley, Kathmandu City has almost 42 percent internal migrants from
both rural and urban areas of other districts in 2001. Of the total valley immigrants,
the city alone receives about 79 percent of the rural migrant" (Lohani, 2006).
To address the above problems government plan of land acquisition is an
attraction of better opportunity. Institutionalism is a socially directed step in order to
find, measure and trace patterns and sequences of social, political, economic behavior
and change across time and size. Institutionalism considers rules of law, proper
policies and organizations, education. The above mentioned factors govern a
country's social and cultural phenomenon.
As in the infrastructures development process, institutions are functioning
within the rule of law which affects human behavior, institutionalism dealt with
institutional changes of various organizations, individual behavior within boarder
social political and economic forces. Well Institutionalism changes non-ethic to
ethical, immoral to moral which needs to be established in every society too. These
standard norms are stabilized in developed countries, which is not the case in
7
developing countries because of the government not being able to maintain law and
order resulting in impunity.
That was still more in transition phase due to civil insurgency, war and absence
of law and order. In the same way, urbanization took place speedily when people
started migrating from rural to urban for peace and security, dreaming for good
opportunity of business and employment.
It is argued that the pace and scale of urbanization should match the pace and
scale of economic development. If the urban-rural housing and labor market could be
regulated effectively, unnecessary urban problems can be reduced (Shen, 2000).
The study of past fifty years since 1962 shows that infrastructure and
urbanization is more where government has located the administration place, business
and employment opportunity access, and peace with security was maintained. In the
same way, with the evolution of human beings, organized living and civilization
sense was established. The Nepalese community also flowed from same process.
Infrastructure and Urbanization was in progress including in Kathmandu valley along
with other main cities of Nepal. It is found housing and infrastructures were
developed during Malla period in Nepal. Urbanization was its good example. The
urban planning of those days incorporated the necessary amenities considering
planned cohesive community living. A strong sense of togetherness, which was
represented in its courtyard design for common houses, temples and baha-bahis in the
proximity, well planned Dhungedhara (Stone carved tap stand), Sattal and Patis
(Public house) for rest and recreation, Dabalis (as open air amphitheaters ) which can
be observed from old monumental place in Darbar square of Kathmandu, Patan and
Bhaktapur.
According to Levi (1905), urbanization was continuing when Lichhabi dynasty
was ruling in Kathmandu. Urbanization was influenced by migration. Nepal offers
two main styles in architect, The Caitya Style and the so called Pagoda or Multi-roof
style (Shaha, n.d.).
According to Result of National Population Census 2011, Nepal is a country of
26494504 peoples in 1, 47,000 sq. km. of area, linear in shape, stretching 500 km
east-west and 290 km north-south.
Infrastructure development in Nepal remains a spontaneous process. The
positive aspects of cities and towns as engines of economic growth in the context of
national development have not been adequately appreciated by policymakers,
planners, academics and development partners. Rather, the general reaction of
development agents to a spatial approach to development is that Nepal is a
8
predominantly rural society, and that urbanization could drain resources from rural
areas to urban centers. In many instances, the populist emphasis on rural and
agricultural development as the only strategy has caused development agents to
depict urbanization as the wrong path to development, highlighting the negative
aspects of urbanity (Tibari, 2008).
The migrant pattern is growing in rural areas. From the beginning, state has not
concentrated on infrastructure and urbanization planning. It was found that large
fertile land was used to build the housings.
Migrant from urban in Nepal is less compared to rural. Similarly, migrant from
outside to Nepal is least one compare to other two. According to the projected data
81.2% of rural people migrate, 7% people migrate from urban. Similarly, 11.8%
people migrated to outside of Nepal in 2010/2011 (NLFS III, 2008).
The above statistics show that urban population pressure is rising every year in
Nepal. In 2001, population in urban area was 3,227,879 i.e., 86.1% of total
population, whereas in 2011, it was 4525787 and 83.00% of total population.
The Infrastructure and urban development accelerates when migration took
place either from internal or external. In the past decade the main causes of migration
was civil insurgency, war, not maintaining law and order, security problem,
impunity, government plan of land accusation and attraction of better opportunity.
Institutionalisms consider rules of law, policy and organizations, the way mentioned
above factors govern in every country's social relations and their attitudes.
As institutions are exercised the rules of law, which affect human behavior in
the infrastructure and housing and land development process, institutionalisms dealt
with institutional changes of various organizations, individual behavior within
broader social, political and economic forces. These standard norms are stabilized in
developed countries whereas not in developing countries because of the government,
not able to maintain law and order resulting impunity. That was still more in
developing countries during their transition phase due to civil insurgency, war,
conflict in the past decades.
In the same causes urbanization increased when people started migrating from
rural to urban to seek peace and security, dreaming good opportunity for business and
employment. It is argued that the pace and scale of urbanization should match the
pace and scale of economic development.
9
1.4 Role of Infrastructure Housing, Apartment and Real Estate
Shelter is one of the basic needs for human beings not only for protection against
unwanted environmental event with including hostile weather, but also for
maintaining standard infrastructures of living acceptable to family or even to elevate
one's position in the society through enhanced living status. First housing and real
estate play the role about to accelerate the economy of the country by getting
employment opportunity to unskilled people. Housing and apartments provide shelter
to the people.
Housing is a major aspect of human development. As noted by the World Bank
(1992), housing investment typically accounts for 2% to 8% of GNP, and the flow of
housing services for an additional 5% to 10% of GNP. Residential real estate
represents around 30% of the world wealth, greater than both bonds (27%) and
equities (19%). Residential construction is a major employer often accounting for
more than 5% of total employment. Housing is an important economic sector with
linkages to the real and financial parts of the economy (Lea & Chiquier, n.d.).
Similarly, housing prevents from unwanted environment degradation and
provides the feeling of satisfaction. Secondly, it fulfills the three objective
developments: to increase the availability, to raise level of living and to expand the
range of economic (Todaro & Smith, 2007).
Housing plays important role in fulfilling the above mentioned characteristics.
The other role of housing in Nepal is to provide equal status: individual and grouped
housing on social investigation. It can remove the disparities between the so-called
high caste and low caste.
1.5 Housings and Real Estate in Developing Countries

In the case of Nepal, it is land locked country surrounded from three sides by India
and north side by China. The total population was estimated on 2008 period 23.5
million by Labor Force Survey II (NLFS, 2008). According to NLSS (2011), house
owner ware 91.6% in 2003/2004 and it is 89.7% in 2010/2011. Similarly, House
renter was 5.4% in 2003/2004 and it is 7.8% in 2010/2011.
From above statistic, everyone can easily assume that the demand of house is
increasing. It can observe modern house built by different professional engineers and
developers differs to traditional houses built by citizen of Nepal. From above data
infrastructures, housing and real estate demand can be expected more in coming
years. To fulfill the shelter's need, integrated and systematic housing are growing.
6LPLODUO\ SHRSOHV¶ DVSLUDWLRQV IRU PRGHUQ KRXVLQJV DUH DOVR LQFUHDVLQJ EHFDXVH
10
others influence costumers' culture. On the other hand, Nepal suffered from decade
long civil insurgency and people have migrated from village to cities seeking
RSSRUWXQLW\ VHFXULW\ DQG LPSURYHG SK\VLFDO IDFLOLWLHV (YHU\ RQH¶V GHVLUH WR KDYH
their own house where they are working is a natural desire. This has incorporated
development of housing and real estate business as a separate and distinct economic
sector.
After enactment of Ownership of Joint Apartment Act, 1997, there is a rise in
developers and real estate entrepreneurs in Nepal. This sector being a newer, rapidly
growing economic sector of the country and contributing in terms of revenue,
employment and using local construction materials. During operating its services,
there is growth in the conflict ridden and politically instable environment, which
might have confronted with various types of risks. In this context, this study will
attempt to explore the risks faced by this sector and analyze the causes and
consequences of the risks for systematic enhancement of this sector so that it can
serve as one of the major and reliable economic sectors of the country.
The government benefits from housing business because it gets revenue during
land procurement, and ownership transfer. More than seventy percent of construction
materials are locally made which pumps the money into the domestic economy
through employment and taxes. In the past, housing and real estate were becoming
hot cake till last four years period and they did good profit in terms of money. In the
past, more investors developed the housing and real estate haphazardly not even
maintaining the level of standardization and quality.
As the rural area, it was threat of killing for those who are not of support to
insurgencies. Therefore, developers could manage to build and provide the housing
and real estate even if they were feeling lot of risks as mentioned above. In Nepal,
developers ware facing tremendous problems or risk in housing and real estate.
However, it was manageable if government took initiation because; they are mostly
related to unclear policy of government.
Unregulated and unmanaged urbanization has many problems related to the
environment. Heavy population stress tends to decrease the land suitable for crop
production. Moreover, growing urbanization put heavy strains on natural ecosystems,
i.e., polluting rivers, consuming ground water, forests and agriculture lands,
degrading soils and disrupting drainage system in the city (Lohani, 2006).
It is observed that some projects are selling even before taking final approval
from the authority. Political, social, environmental, and technical risks are being as
usual. Talking about political risks, this was the period of civil insurgency, and ended
11
by doing 12-point agreement between government and Maoist, so people wanted to
have own house in cities so as to do some business where security and physical
facilities are available.
Professionals are giving due concentration with customer's desire by making
houses and supply them to those who have been demanding. Meanwhile, Rastra Bank
of Nepal (the government financial monitoring and regulatory body), is watching
over commercial banks against their limitation to lending on housing and developers.
The Rastra bank is taking action to the commercial banks, and then the financial
problem has becoming concerned to developer, buyer, banker, and other stakeholders.
Thereafter housing and real estate sector facing financial risks along with political
parties and their sister organization were asking donation, if they did not get said
donation they were to lock the project. In the name of indigenous group and ethnicity,
they asked the employment for locals even they were not fit for the project.
Particularly in housing and real estate projects or any construction process can
be divided into four main phases: Formulation or Pre-planning, Planning,
Implementation, and Operation/Handover. In the formulation phase, the client has an
idea about the project and analyses conditions for its execution. During the planning
phase, the architects and engineers produce design and construction drawings
accoUGLQJWRWKHFOLHQW¶VUHTXLUHPHQWV
Depending on the Implementation option, the design phase follows either the
programme phase or the procurement phase. In the procurement phase, the client
chooses the contractor and the parties sign the contract. Finally, the contractor
executes the job in the implementation phase. Management involve planning,
organizing, staffing, leading or directing, and controlling an organization (a group of
one or more people or entities) or effort for the purpose of accomplishing a goal.
Resourcing begins from the deployment and manipulation of human resources,
financial resources, technological resources, and natural resources. During
management, organization is another important pre-requisite entity, which can be
viewed as system, and to manage the human action as it includes design, to facilitate
the production of a useful output from the system. It is also known as the opportunity
to 'manage' one self and attempting to manage others.
Housing and real estate construction projects mobilized with the huge
investment for large sectors of human beings and the society. Most of the projects are
characterized by the incidence of cost and time overruns with unsatisfactory quality
performance, poor project management practices drive to the inability of the
constructions to meet the expectation of customers and investors. This has been
12
important that the need to carry out on this research to explore the reasons for these
failures so as to evaluate practices that can guarantee improvement to construction
projects. As improving, the performance measures of construction projects would
have major effect on competitiveness.
Professionals and developers have found it difficult to agree on methodology
and metrics to apply that can bring improvement to the construction industry. To
improve these issues, how to qualify and quantify practices is capable of ensuring
improvement has not been easy to discuss but it needs skills and practices in the field
arising from the divergent views of professionals in developer's institutions.
6WDNHKROGHUV¶FRQIOLFWLQJYLHZVDQGLQWHUHVWFDQQRWEHUXOHGRXWDVRQHRIWKH
reasons why these measures have been difficult to ascertain. However, it is worthy of
note that the question of how project performance is measured is critical to bringing
improvement to construction organization.
Although construction projects have been part of the human race, old
profession you must agree, projects continue to fail and even now the rate is on the
increase in recent time. Observations in our environment show that investors of
construction projects have not been able to justify their investment because of
frequent project failures.
These increasing failures is of major concern to investors, project team leaders,
stakeholders and larger members of the public whose economic, social and political
lives have been devastated and negatively impacted. In the western world, the
situation is better only to the extent that researchers in that environment were
vigorously and consistently attempting for finding solution to halt such trend.
1.6 Unplanned Infrastructure and Housing Work

In fact, it was a trend that most of the remittance that entered into Nepal was being
used for construction of houses, buying apartment units, and land. Unfortunately,
majority of the construction is carried out in a haphazard way and in an unplanned
area.
Finally, the appetite or demand for planned urban development still seems to
be weak in Nepal, and urban issues have not yet emerged as a strong sociopolitical
aJHQGDWRLQIOXHQFHWKHSROLF\PDNHUV««««$SURDFWLYHDSSURDFKWRPDQDJLQJD
government TPO still appears risky in Nepal. It results in more pain and less
JDLQ«««7KLVLVDPDQDJHPHQWGLOHPPDIRUWKHSODQQHUVRI1HSDOHLWKHUWR³GLH´
quickly by supporting a proactive or ethical stance or else to find strategic ways to
13
survive and slowly try to make progress whenever the opportunity presents itself
(Karki, 2004).
If this trend continues, our city would be registered as one of the ugliest built
cities in the world. It is fact that the construction takes place without taking any basic
amenities. At present, there is haphazard growth of housing and real estate companies
(developers' organization), land accusation and development design Land escaping is
being questionable, and consequently the miss understanding arises with the authority
and developers. Looking to some investors' profit, more people jump to invest on
housing and real estate, consequently leading to bankruptcy.
Another important factor is legality issues, as per building byelaw made by
municipality , floor area ratio (FAR), coverage, height of building, open spaces,
greenery offset are basic issues that developers have to maintain it. Political issues
like donation in the name of meeting conference and conventions are also other
problems. Political system is unstable and there is no clear policy of government to
monitor and control the unmanaged land polling (plotting) and housings, and
apartment system.
A very large number of housing developments both apartment houses and
individual family dwellings involve individual property to the housing unit itself
combined with communal property to the grounds, recreational facilities, and other
joint facilities. While individuals can buy and sell their individual housing units, at
the time of purchase, they assume a set of duties in respect to the closely related
communal properties (Ostrom, 2000).
In the old cities, beauty of the city has become worse as compared to Nepali's
original Malla's period and what is called medieval period. Regulating this has not
been effective. Dispute has been arising about the ownership within the neighbor
because of the lack of open space. Safety and security to the citizens has become big
problem during construction and maintenance period. Each decision to invest in the
housing and real estate project implies that risks are taken. In other words, how the
stakeholders manage to recognized take risk. To put it in simple terms, there is also
the problem in GLD (Guided Land Development) policy adopted by Town
Development Committee (TDC) that imagine 4, 6, and 8 m or wide river corridor
road is perfect to the papers stored at TDC office and is interesting to listen. Actually,
the danger lies right there that it is virtually unknown to public. Only after a customer
has bought a land, paid registration taxes, thought on building a house there, drawn a
house map, and gone to the Municipal Offices for ill-fated approval of the drawing,
14
he now knows that GLD overlaps his land and now he has to sacrifice his land in the
name of GLD.
It does not end there. Of course the person or company who is about to lose
his land will never be able to approve the drawing but since a permission is needed to
build a house, one now starts thinking of extreme alternatives such as bribing the
officials.
Government of Nepal conducted several land pooling projects in such areas
where more development can be ensured through the pooling projects. Government
needs to be able to devise a plan for the particular area right from the beginning and
thus ensure linked roads to new roads being developed. Also there is a need to
manage sewerage to a green area. These can allow the acquiring a large piece of land
and developing it as a perfect residential colony or a business zone.
The Housings, apartment units, and real estate developers are constructing or
producing same range and categories of product targeting upper middle and higher
economic group of income level. No developers or government's authorities are
constructing the housing units targeting middle, lower and even marginalized
economic group of income level. There is no research about the rural-urban
migration. How many of them want the housing units? What was their affordability?
1.7 Worth of the Infrastructure Projects

The housings, apartments, and real estate projects are important for providing the
shelter to the citizens, employment opportunity and contributing for national GDP.
Formulating the projects, planning the project and implementing the project are
challenging job for professional and developers, particularly risks managers.
In Nepal, every year migration taking place more than 5% in average. So every
year ten of thousand of housings or apartment units are being demanded based on
high, medium, low and marginalized economic level of income group. Affordability
needs to be identified based on research work and the income level of groups.
During conceptual, planning and implementation phases the housing and
apartment units were not constructed as per planned. Due to various constraints,
projects could not be executed as per expected planned time, money, and quality. If it
would have been, executed earlier project could have saved the cost and what is said
as opportunity. If it took more time, it means more cost and probability of more risks.
Risk factors are caused due to political, legal, financial, environmental,
economical, quality, cultural, social and technical reasons. Therefore, I felt to do this
research to provide a sound understanding about the risks in housing and real estate
15
in Nepal. I claim that this study is the only image of the circumstance of the risk in
housing and real estate in Nepal.
Housing, apartments, and real estate projects cannot give productivity with
effective risk management. Numbers of scholars and researchers have contributed in
different contexts. I have concentrated on the case of risks in housing and real estate
in Nepal in my research.
This study covered the construction risks in housing, apartment and real estate.
That does not cover the earthquake, landslide, flooding, inundation, volcano, tsunami,
and other disaster. It deals only the risk during formulation, planning, and
implementation phase of project life cycle. It excludes risk that occurs during close
up or handed over phase too. It explores, analyzes, ranking, mitigation, and risk
response plan. Therefore, data had been collected from authorities, experts,
consultants, the registered developers and real estate companies, related technical
non-technical persons and as required, other stakeholders were used.
Housing and real estate is rapidly growing, which is a new sector in Nepal and
suffering from various adversities. It is also observed that the recent crisis observed
in financial institutions of the country is the consequence of the investment on this
sector. However, no systematic effort has been initiated either by government or by
professionals to study the role that has been played by this sector in national economy
as well as the risks associated in this sector. Therefore, this study will be a pioneering
work and will provide a firm basis and future direction for housing and real estate
companies in Nepal. Similarly, it will also help government for formulating and
revising its policies affecting this sector.
1.8 Concluding Remarks

This chapter consists of following topics as discussion. It is discuss the risk factors
involved in infrastructure construction projects. Under the theoretical Perspective
model, following topics are being discussed: Introduction, Infrastructure and
urbanization in regional context, Infrastructure and urbanization in Nepalese context,
Role of infrastructure housing apartment and real estate, Housing and real Estate in
developing countries and worth of the infrastructure projects. Finally I presented the
concluding Remarks.
16
Chapter-2
Risk Identification in infrastructure Construction Field

In this chapter, it is discuss the risk identification in infrastructure construction field.
Under the topics, following subtopics are being discussed: What is risk, Risk
Identification, Risk Identification: input, Risk Identification Tools and Technique and
Risk exposures. Finally summaries of this chapter are outlined.
2.1 What is risk?

Al-Bahar (1998) has also tried to define risks aV WKH H[SRVXUH WR WKH ³FKDQFH RI
occurrences of events adversely or favorably affecting project objective as a
FRQVHTXHQFHRIXQFHUWDLQW\´,QWKHVDPHZD\ Koirala, M.P. (2014) has defined " risk
in housing and real estate in construction projects are the chances of occurrences of
events which affect the objectives and hence it will lose the productivity within the
project life cycle." Risks are unexpected events or circumstances that have a chance
of occurring and that may prevent a project from meeting its schedule and cost
estimate/budget.
Risk Management is defined as a formal orderly process for systematically
identifying, analyzing and responding to risk events throughout the life of a project to
obtain optimum degree of risk elimination or control (Al-Bahar, 1998). Risk
management is a scientific approach of identifying, anticipating and minimizing the
possible adverse impacts on the projects.
2.2 Risk Identification

It determines which risks might affect the construction project and documents their
inheriting characteristics. Authority or delegate in risk identification activities can
include the following, where appropriate project manager, project team members, risk
management team , subject matter experts from outside the project team, customers,
end users, other project managers, stakeholders, and risk management experts. While
these personnel are often key participants for risk identification, all project personnel
should be encouraged to identify risks.
Risk Identification is an iterative process because new risks may become known as
the project progresses through its life cycle. The frequency of iteration and who
participates in each cycle will vary from case to case. The project team should be
involved in the process so that they can develop and maintain a sense of ownership
17
of, and responsibility for, the risks and associated risk response actions. Stakeholders
outside the project team may provide additional objective information. The Risk
Identification process usually leads to the Qualitative Risk Analysis process.
Alternatively, it can lead directly to the Quantitative Risk Analysis process when
conducted by an experienced risk manager. On some occasions, simply the
identification of a risk may suggest its response, and these should be recorded for
further analysis and implementation in the Risk Response Planning process.
2.3 Risk Identification: Inputs

Environmental Factors: Available information, including commercial databases,
academic research or studies, benchmarking, or other available industry studies or
report, may also be useful in identifying risks. Organizational Process Assets: Data
and information received on prior projects may be available from previous project
files or sources, including actual data and lessons learned. Project Scope Statement:
Project assumptions are found in the project scope statement Uncertainty in project
assumptions should be evaluated as potential causes of project risk. Risk
Management Plan: Key inputs from the risk management plan to the Risk
Identification process are the assignments of roles and responsibilities, provision for
risk management activities in the budget and schedule, and categories of risk which
are sometimes expressed in an RBS. Project Management Plan: The Risk
Identification process also requires an understanding of the schedule, cost, and
quality management plans found in the project management plan Outputs of other
Knowledge Area processes should be reviewed to identify possible risks across the
entire project.
2.4 Risk Identification: Tools and Techniques

Documentation Reviews: A structured review may be performed of project
documentation, including plans, assumptions, prior project files, and other
information. The quality of the plans, as well as consistency between those plans and
with the project requirements and assumptions, can be indicators of risk in the
project. Information Gathering Techniques: Examples of information gathering
techniques used in identifying risk can include:
Brainstorming: The goal of brainstorming is to obtain a comprehensive list of

project risks. The project team usually performs brainstorming, often with a
multidisciplinary set of experts not on the team. Ideas about project risk are generated
under the leadership of a facilitator. Categories of risk, such as a risk breakdown
18
structure, can be used as a framework. Risks are then identified and categorized by
type of risk and their definitions are sharpened. Delphi technique: The Delphi
technique is a way to reach a consensus of experts. Project risk experts participate in
this technique anonymously. A facilitator uses a questionnaire to solicit ideas about
the important project risks. The responses are summarized and are then re-circulated
to the experts for further comment. Consensus may be reached in a few rounds of this
process. The Delphi technique helps reduce bias in the data and keeps any one person
from having undue influence on the outcome. Interviewing: Interviewing
experienced project participants, stakeholders, and subject matter experts can identify
risks. Interviews are one of the main sources of risk identification data gathering.
Root cause identification: This is an inquiry into the essential causes of a project's
risks. It sharpens the definition of the risk and allows grouping risks by causes.
Effective risk responses can be developed if the root cause of the risk is addressed.
Strengths, weaknesses, opportunities, and threats (SWOT) analysis: This
technique ensures examination of the project from each of the SWOT perspectives, to
increase the breadth of considered risks.
Checklist Analysis: Risk identification checklists can be developed based on

historical information and knowledge that has been accumulated from previous
similar projects and from other sources of information. The lowest level of the RBS
can also be used as a risk checklist. While a checklist can be quick and simple, it is
impossible to build an exhaustive one. Care should be taken to explore items that do
not appear on the checklist. The checklist should be reviewed during project closure
to improve it for use on future projects. Assumptions Analysis: Every project is
conceived and developed based on a set of hypotheses, scenarios, or assumptions.
Assumptions analysis is a tool that explores the validity of assumptions as they apply
to the project. It identifies risks to the project from inaccuracy, inconsistency, or
incompleteness of assumptions. Diagramming Techniques: Risk diagramming
techniques may include:
Cause-and-effect diagrams- These are also known as Ishikawa or fishbone

diagrams, and are useful for identifying causes of risks. System or process flow
charts-These show how various elements of a system interrelate, and the mechanism
of causation. Influence diagrams- These are graphical representations of situations
showing causal influences, time ordering of events, and other relationships among
variables and outcomes. Risk Identification: Outputs-The outputs from Risk
Identification are typically contained in a document that can be called a risk register.
19
Risk Register: The primary outputs from Risk Identification are the initial entries
into the risk register, which becomes a component of the project management plan.
The risk register ultimately contains the outcomes of the other risk management
processes as they are conducted. The preparation of the risk register begins in the
Risk Identification process with the following information, and then becomes
available to other project management and Project Risk Management processes.
List of identified risks: The identified risks, including their root causes and
uncertain project assumptions, are described. Risks can cover nearly any topic, but a
few examples include the following: A few large items with long lead times are on
critical path. There could be a risk that industrial relations disputes at the ports will
delay the delivery and, subsequently, delay completion of the construction phase.
Another example is a project management plan that assumes a staff size of ten, but
there are only six resources available. The lack of resources could impact the time
required to complete the work and the activities would be late. List of potential
responses-Potential responses to a risk may be identified during the Risk
Identification process. These responses, if identified, may be useful as inputs to the
Risk Response Planning process. Root causes of risk- These are the fundamental
conditions or events that may give rise to the identified risk. Updated risk
categories- The process of identifying risks can lead to new risk categories being
added to the list of risk categories. The RBS developed in the Risk Management
Planning process may have to be enhanced or amended, based on the outcomes of the
Risk Identification process (Koirala, M. P., 2017).
In construction projects, many parties are involved such as owner, consultant,

contractor, sub-contractor, and supplier etc which is known as the team. Each party
has its own risks. In Nepalese construction projects, it is not found about the research
of particularly the identification and management of risks. We can find that ZRUOG¶V
construction projects are suffering from risks. Consequently, it is significant to have a
research about the risks that owners have to face in their financial investment in
construction projects and the way they managed their risks as well as how to control
construction risks smoothly because they are one of the most important teams that are
involved in the projects from the beginning until completion and handed over. The
following are important risks which construction teams are facing as follows.
2.5 Political Risk
20
Nepal is fertile land to obstruct in the name of politics. Political risks are beginning
when project get conceptualize. Planning Commission who makes the plan itself is
influenced by the political party. Similarly, strike, closed, donation to political party,
interference by the political parties, disturbance due to different issues as mentioned
above, confidentiality of political parties and permits and licenses delay due to
political instability etc are main issues of political risks.
Political risks are a bundle of distinct risks that can include not only political factors
but also administrative, social and economic factors. Political risks associated with a
project are closely evaluated as they are generally outside the control of the parties to
the project, other than the government to a certain extent. But even the government
fixing the policies of the telecom industry does not have control over all the
categories of political risks. It should be kept in mind that many of the political risks
arise from the possibility of arbitrary action by the government and altering the
framework on which the very foundation of the project rests. The main categories of
political risks include (a) Risk of political instability such as riots, revolutions, coup,
terrorism, guerrilla warfare (b)War, whether declared or undeclared.(c)International
sanctions (d)Expropriation (e) Nationalization (f) Creeping expropriation
(discretionary regimes, excessive taxation, import restrictions, refusal to allow or
provide for collection or review of tariffs, etc) (g) Failure to grant or renew approvals
and (h) Excessive interference in the implementation of the project, thereby causing
severe prejudice to the concessionaire (Pelling, et al, 2004).
2.6 Contractual risks

Construction companies and other entities must take contractual risks. Some of those
risks are legal risks (For example claims, warranty problems, default terminations,
intellectual property infringement charges, alleged confidentiality
disclosures, disputes, and litigation) and some are business risks (For example poor
relationships, failure to obtain objectives, bad public relations, declining morale,
instability, weakening of brand integrity, loss of goodwill, and reduced revenue or
profits).
We read in news paper, during contract biding period that lots of illegal works like
capturing the bidding document, not allowed to bid the good contractors using force,
buying and selling before assigning the contract etc were being faced by the
professional good contractor. To remove such incidents, professional contractors
were demanded an electronic bidding. Government tried to introduce it in certain
21
limited department of government authority but it could not be possible to implement
in all sectors because of lack of resources. Feedback is coming that some contractors
are facing within the department the problems of giving and taking still taking place
even in electronic bidding, so professional contractors are not satisfied and they want
improvement in electronic bidding system.
2.7 Performance risks

Performance risk can be evaluating of construction projects is essential for ensuring
that planned improvements in quality, cost and time are achieved. It helps clients to
compare achieved performance with that of similar projects, identify potential for
doing things better and assess how suppliers compare with other potential suppliers.
Customers also need to measure their own performance and benchmark with other
customers to identify areas for improvement. Areas such as: Scope, nature and
duration of work, Schedule interactions, Size, Safety and environmental performance,
Weather, Soil and foundations, External influences, Operator and influences at time
of bid.
2.8 Financial risks

Financial risk in construction projects includes whether the building owner has
enough money to complete the project, financial failure of the Building owner or sub-
contractors, availability of money to the contractor in a suitable manner and time to
enable the contractor to progress with the work, financial risk also includes adequate
provision of cash flow, fluctuations, inflation and taxation. Contractors could
financially fail due to dependence on banks and paying high rate, lack of capital, cash
flow management, low margin of profit due to competition, principle of awarding a
contract to lowest builder. Among the financial risks projects, financing can be main
factor which can lead the project in entire life-cycle. Labor and material costs
fluctuation can be other risk during construction project. Earnings volatility leads the
construction project to other risk. Currency fluctuation can be other risk of the
construction project. Interest rate changes will create loss to the project due to
arrangement of funds. Commodity price fluctuation, regulatory exposures, funding
risks and employee stock options will create loss due to management of extra fund.
2.9 Technical risks

The risks related to technological problems are familiar to the design/construct
professions which have some degree of control over this category. However, because
of rapid advances in new technologies which present new problems to designers and
22
constructors, technological risk has become greater in many instances. Certain design
assumptions which have served the professions well in the past may become obsolete
in dealing with new types of facilities which may have greater complexity or scale or
both.
Technical risks are mainly oriented due to pure technical issues. For example
engineering designed quality of the project can be one risk, new technology in the
hands of untrained operator can be other risk, Spoil type, and strata of the layer will
be other type of risk. For example, during the site inspection time we estimated soft
soil but there was hard rock in the foundation. This type of risk is technical risk.
2.10 Geographical Risks

This risk occurs due to the location of the work of its project territory, for example if
we take the site of rock cutting lot of risk has to be faced being injury preventing
safety measures etc. Similarly if in soft strata, during rainy season there will be
chances of land slide which creates losses and lot of effort to maintain the site is to be
done again. In the same way lot of example can be give under the geographical risk.
Site conditions, particularly subsurface conditions which always present some degree
of uncertainty, can create an even greater degree of uncertainty for facilities with
unknown characteristics during operation. Because construction procedures may not
have been fully anticipated, the design may have to be modified after construction
has begun. An example of facilities which have encountered such uncertainty is the
nuclear power plant, and many owners, designers and contractors have suffered for
undertaking such projects.
2.11 Operator Risks

Operation risk is observed during operation of the construction project. The following
are some risks which will be under operation risks.
2.12 Organizational Risks

The risks related to organizational relationships may appear to be unnecessary but are
quite real. Strained relationships may develop between various organizations
involved in the design/construct process. When problems occur, discussions often
center on responsibilities rather than project needs at a time when the focus should be
on solving the problems. Cooperation and communication between the parties are
discouraged for fear of the effects of impending litigation. This barrier to
23
communication results from the ill-conceived notion that uncertainties resulting from
technological problems can be eliminated by appropriate contract terms. The net
result has been an increase in the costs of constructed facilities.
2.13 Insurable Risks

Construction insurance is a practice of exchanging a contingent claim for a fixed
payment to protect the interests of parties involved in a construction project.
Construction insurance is a major method of managing risks in the construction
industry. Its primary function is to transfer certain risks from clients, contractors,
subcontractors and other parties involved in the construction project to insurers to
provide contingent funding in time of difficulty. Construction insurance plays an
increasingly important role in guaranteeing the success of projects, with insurers
sharing losses resulting from natural disasters and other contingencies. However,
LQVXUDQFHVRPHWLPHVGRHVQ¶WUHFHLYHWKHDWWHQWLRQLWGHVHUYHVEHFDXVHSUDFWLWLRQHUVGR
not have a clear understanding of risk allocation and the strategy of risk management
through insurance (Koirala, M. P., 2017).
2.14 Risks & Exposures

The occupational safety and health may be raised in different ways, but aims at the
same fundamental goal of protecting and promoting the health, safety and well-being
of workers, as well as the site being safe and protecting the general environment,
through preventive actions in the workplace. It has not been taken as a serious issue
by authorized ministry and policy maker. In present scenario, more labor force of the
global context is engaged in industrial sector. Industrial and service sectors are new
ones and hence the issues in the sector have still not been given much importance.
Similarly, the high illiteracy among the workers, lack of awareness, poor
performance or negligence of the authorities in implementation of OSH related
policies and activities. Worker level of socio-economic realities has forced us to
struggle hard for wages and some minimum benefits in order to solve hand to mouth
problem. Thus up to now, the OSH has not become the prior agenda for government,
workers, trade unions as well as any other concerned stakeholders too. Industrial
sector is a place where the risk of occupational hazards might be prominent than other
sectors (Koirala, M.P., 2016). In the various risk factors and their exposures are
discussed as following.
24
I Financial Risks & Exposures
Project Financing (Debt, Equity), Labor and Material Costs (FTE's, Contract,
Outsourced), Earnings Volatility (Revenue Recognition, EPS Growth), Currency
Fluctuation (Foreign Exchange, Arbitrage), Interest Rate Changes (Credit Risks,
Bonding), Commodity Price Fluctuations (Options, Derivatives), Regulatory
Exposures (IRS, FASB), Funding Risks (Government Contract Funding,
Allocations) and Employee Stock Options (Pension Funds, Dividends)
II Contractual Risks & Exposures

Contractual Liability (Breach, Third-Party Actions), Indemnification (Hold
Harmless Clauses), Indemnification Forms (Limited, Intermediate and Broad),
Design Responsibility (Design Delegation, Assumption of Risk), Warranties
(Express, Implied), Waivers of Subrogation, Liquidated, Consequential and
Punitive Damages Clauses, Force Majeure Clauses (Schedule Delay) and
Subcontractor Default.
III Operational Risks & Exposures

Operations Failure Risk, Construction Defect, Weather Volatility (Seasonality, Cat
Risk), Political Risk (Domestic, International), Reputational Risk (Company,
Product/Service Defamation), Regulatory Risk, Operational Leverage Risk,
Material / Labor Price Risk and Supplier Provisioning Risk
IV Organizational Risks & Exposures (Project Delivery Methods)

General Construction Contracts (Design-Bid-Build), Design-Build Contracts (Self-
Performed or Subcontracted Design), EPC Contracts (Engineering, Procurement
and Construction), Construction Management Contracts (CM At-Risk or Agency
CM), Fast Track Contracts (Phased Design and Construction) and Joint Venture or
JV / Design-Build Contracts
V Insurable Risks & Exposures

Workers Compensation and Employers Liability, Commercial General Liability,
Commercial Property and Builders Risk, Professional Liability (E&O Coverage),
Environmental Liability (Pollution Coverage), Contractors Professional Liability,
Directors and Officers Liability (D&O Coverage), Employment Practices Liability
25
(EPL), Project Specific Coverages (OCP, RRP, PMPL), Owners and Contractors
Protective Liability (OCP), Railroad Protective Liability (RRP), Project
Management Protective Liability (PMPL) and Subcontractor Default Liability
(Bonding Alternative)
Within the allocated time period, the budgeted cost, at the proper performance or
specification level, With acceptance by the customer/user, When we can use your
FXVWRPHU¶V QDPH DV D UHIHUHQFH :LWK PLQLPXP RU PXWXDOO\ DJUHHG XSRQ VFRSH
changes, Without disturbing the main work flow of the organization and Without
changing the corporate culture (Harold Kerzner, 2001).
There are many things commonly called barriers to the successful completion of a
project. Some of the barriers are listed as follow:
i. Poor communication:-Many projects will fail because the project team does
not know exactly what to get done out of the project or what already been
done on the project
ii. Disagreement between customer and project manager
iii. Failure to comply with standards and regulations
iv. Inclement weather
v. Labor strikes
vi. Personality conflicts
vii. Poor management
viii. Poorly defined project goals
As mentioned above, a good successful completion depends very much on the ability
of the owner representative or project manager to direct and supervise the project
from beginning to the end. Some important roles of a project manager are listed
below:
i. The project manager must define the project, reduce the project to a set of
manageable task
ii. The project manager must set the final goal of a project and must motivate
the project team members to complete the project on time
iii. A project manager must be equipped with technical skills. These should
include financial planning, contract management, creative thinking and
problem solving techniques
iv. Project manager must learn to adapt to changes.
26
In other words, there are three main points that are most important to a successful
project:
i. A project must meet customer requirement
ii. A project must be under budget
iii. A project must be on time
Contractors are independent business organizations and are awarded the projects to
produce the required end product as stipulated in the contract documents. In the case
of the owner and the contractor may disagree on certain things, the achievement of
the end product must always be the top priority of both parties. A good relationship
EHWZHHQRZQHUDQGWKHSURMHFWFRQWUDFWRUPXVWEHPDLQWDLQHGVRWKDWWKHFRQWUDFWRU¶V
expertise, labor and equipment can be best utilised to achieve the objectives of the
project. The contractor is also required to produce a quality control plan to maintain a
job surveillance of its own, to perform tests and keep records to ensure the works
conform to the contract requirements. The owner should monitor and supervise the
FRQWUDFWRU¶VTXDOLW\SODQDQG make a sport checks inspection from time to time during
the construction process
(Oberlender, 1993)
$FFRUGLQJ WR ³$UXQ-,,, 3URMHFW 1HSDO¶V (OHFWULFLW\ &ULVLV DQG LWV 5ROH LQ &XUUHQW
/RDG 6KHGGLQJ DQG 3RWHQWLDO 5ROH <HDUV +HQFH´ LQ WKH DUWLFOH RI 5DWQD Sansar
Shrestha time overrun has described as follows.
Table 1
Hydropower Projects Time overrun
Kulekhani I 21 months
Marsyangdi 7 months
Kali Gandaki-A 18 months
Chilime 60 months
Source: Kantipur daily, 2 March,2011

As per the source of Nepal Electricity Authority, Kulekhani-III Project is categorized
as a National Priority Project (P1) by National Planning Commission, Government of
Nepal (GoN). The funds from Government of Nepal and NEA will be utilized for the
construction of the Project. The total estimated cost of the Project is NRs 2,334
million. The Project is schedule to be commissioned in FY 2010/11.
27
As per Kantipur daily newspaper dated march 2, 2011, Kulekhani Third and
Chameliya hydropower project need additional 2 years time and extra amount of
money to complete the project. Additional Nrs.60 corer has demanded by the
FRQWUDFWRU³&KLQD*H]KRXED:DWHUDQG3RZHU*URXS&RPSDQ\/LPLWHG &**& RQ
December 21, 2006, the Project construction is gaining momentum and the project is
VFKHGXOHGWREHFRPSOHWHGLQ\HDU´6LPLODUO\ additional Nrs. 80 corer money
has demanded by the Sino hydro the contractor of Kulekhani Third The reason of
Chameliya shown by contractor is due to weak soil structure and the Kulekhani Third
is due to strike, stoppage and not to permit to cut down the trees in the project areas
by the authority.
Table 2
Project Estimated Rupees in Additional Rupees In

million million
Kulekhani Third 2334 80
Chameliya 5752 60
Source: Kantipur daily, 2 March,2011)

This chapter consists of following topics as discussion. It is discuss the risk
identification in infrastructure construction field. Under the topics, following
subtopics are discussed: What is risk, Risk Identification, Risk Identification: input,
Risk Identification Tools and Technique and Risk exposures. Finally I presented
concluding remarks.
28
Chapter-3
Risk Analysis in Infrastructure Construction Field
In this chapter, it is discuss the risk analysis in infrastructure construction field.
Under the topics, following subtopics are being discussed: Big Issue about
ownership, Permit from authority, Bylaws, 2007 for town and rural, Global Issue
the Environment Protection, Local Government :Pre-Matured Authority, Hurdle in
approval Procedure, Problems in the policies level framework-related rules and
acts, Problems: unstable politics and unstable Government, Financial factors and
role of projects, Economic Aspect in infrastructure Projects, Qualities in the
projects: Challenges, Problem related to technical Aspects, human resource in the
infrastructure projects, Components of Nepalese Society and Infrastructure, culture
of Nepalese Society and Infrastructure, Organization/ Institution and Infrastructure,
Concluding remarks and Finally summaries of this chapter are outlined.
3.1 Problems Associated with Legalities

Legality questions rose between two to multiparty regarding purposed housing
apartment and real estate property. Legality use to occur in ownership of purposed
property, in the fake or genuine buyers or seller of purposed properties, before buying
the properties make sure to have all proper legal documents, so that property owner
will not be a victim of legal un-owned or illegal property. Similarly, all debts need to
be clear, for example, government taxes on water, electricity bill and other bills had
to clear all legal issues. There could be legal problems related to registration of
property and to short out the above legal issues with legal consultant.
Some of the economic forces that may help to explain the gap between the
current market and its theoretical potential are transactions costs, moral hazard, and
consumer uncertainty about future preferences. In addition, some psychological
forces may help explain lack of enthusiasm for these products among the majority of
older house owners. We also focus attention on impediments to market development
that originate in the legal, regulatory, and tax systems (Caplin, 2000). Legal provision
need to associate by rule of law. Law must be accepted by the state. But in the name
of legalities and policies housing, apartment projects are spending the time in the
name of project approval, lengthy process for taking approval spending time in which
they are losing productivity of the projects.
From above fact, it can be concluded that developers were facing legal risks
during the approval period from Kathmanu Valley development authority or Town
development committee for the planning permit. From above fact, it can conclude in
29
the name of Legal risks, developers were being facing during the approval taken from
Kathmanu Town development committee for the planning permit time taken in the
name of environment (EIA/IEE) for the approval. Time taken from ministry of
physical planning and works, department of urban development and building
construction need to go for approval of safety and structurally sound and local
authority municipality or Village development for approval of the working drawing.
3.2 Big Issue about ownership

The Ownership of joint housing Act, 1998, it seems that the objective of the act
is to fulfill the housing units in urban area as per the demand due to increased
population. Developers are taking advance benefit and not fulfilling their
responsibility as per stipulated time is the problem from developer's side.
It is not only the developers are taking benefit but users also are not paying
their responsibility in the scheduled as per commitment made with the society.
In economics and decision, making it is essential to be able to take into account
the impacts of cultural, social, moral, legislative, demographic, economic,
environmental, governmental, and technological change, as well as changes in the
business world on international, national, regional and local markets. Cost benefit
analysis approach is a useful tool for investment decision-making from an economic
perspective (Turskis, Zavadskas, & Peldschus, 2009).
Some of the developers were taking all the benefit and the works were not
completed after many more years despite the commitment. In the contract document
developers write that, the completed infrastructure will be given with full furnishing
but the developers handed over only not completed infrastructures. Users used to
finish rest of the things. While asking about the contract agreement developers said
that the commitment was made at that time when the contract price was three hundred
thousand rupees per unit and now it is nine hundred thousand rupees for the same
product. So the users were benefited not cheated. It is due to cultural, social, moral,
legislative, economic, environmental, governmental and technological factors, which
created such environment particularly weak legal problem.
3.3 Planning Permit from Authority

According Act (1988), in the context of growing population and urbanization, it is
expedient to provide necessary provisions, services and facilities to the residents of
the town by reconstructing, expanding and developing existing towns and by
30
constructing new towns and maintaining health, convenience and economic interest
of general public.
The land acquiring process is very complicated and so need to be made easy in
the act and policy to give good service to the people.
There are two types of opposing landowners. The first includes those who are
only concerned with what they will lose and do not believe that there is anything to
gain. There are good reasons for this attachment to the land; there are few diversified
HPSOR\PHQWRSSRUWXQLWLHVLQ1HSDODQGSHRSOH¶VODQGLVWKHLUODVWKRSHLQFDVHRID
financial crisis. The second type of opposing landowners have their own plans for
their land and, for this reason, they motivate others to go against the project. Large or
small, all opposing landowners belong to one of these two categories, and the
majorities are in the first category (Karki, 2004)
Therefore, to take land from the owner is very challenging job. If they are
convinced they will agree, if not they will go to court and court says no to proceeding
RQSULYDWHSURSHUW\ZLWKRXWRZQHU¶VDSSURYDO6RWKLVDFWQHHGVWREHXSGDWHGJLYLQJ
more option for land development work. The model may be different like PPP (public
private partnership) model, cooperative model, and proportional contribution model,
etc.
Migration from rural to urban is big intensity in cities and town including all
main cities of Nepal due to security and opportunity in cities. Therefore, it was
started to build unplanned and unmanaged infrastructure, housing and land plotting
which created huge environment risk in the cities.
Urban areas of Nepal are facing an unprecedented rural-urban migration and
subsequent increase in population. The 2001 census recorded an annual population
growth of 2.25 per cent while the urban population grew three times of that rate i.e.,
6.4 per cent (UN-HABITAT, 2010).
Present situation in the cities are dominated by migrated people to purchase
minimum land, make one drawing, and go to municipality or city-oriented village
development authority for approval. The authority gives approval with additional
letter instructing that they need to build as per approved drawing in mentioned
property. According to the provision space for road building in future need to be left
while constructing buildings. When the house is complete there is need of water
supply pipeline, wide road, electricity supply line, etc. So everywhere, it was looking
unplanned and unmanaged.
31
$UFKLWHFWXUHV¶feeling that the time taking was much more by authority. Based on
their education, construction management, and architect felt that time taken to take
planning permit from authority was in fist and second rank.
3.4 Bylaws, 2007 for Towns and Rural

Engineers are concerned, primarily, with Codes, and statutory regulations that are
enforced by Metropolitan or Municipal or other authority, which are frequently
referred to as codes or building by-laws. These codes or by-laws adopted or enacted
by a state or local legislature or town corporation, is a standardized of minimum
provisions respecting the safety of buildings with reference to public health, fire and
structural safety. If it fails to, fulfill the requirements of these codes and by-laws then
penalties are imposed to the Professional.
Since 1956 the building regulation of Hong Kong (HKSAR 1959) prescribed
minimum distance between building blocks based on "sustained vertical angle
requirements". They are basically requirements for the horizontal distance between
buildings and the permissible height of the buildings. This antiquated law was first
developed in the UK in the 19th century. The concept has been widely used in many
countries around the world (Ng, 2003).
Normally, Byelaws formulates by concerning municipality in different
municipalities out of Kathmandu Valley, but in Kathmandu case, town development
committee has formulated and implemented it. If state cannot implement country's
law and order, it creates impunity and every one define the law as per own favor and
not for all. In all cities and villages, some developers are found that the process of
approval as well as projects are starting simultaneously without bylaws' regulation
from which creating the problems.
It has been already revised and still not appropriate. In the 1525 square meter
of land proposed apartment the rear side should be 6 metres, and backside 4 metres.
This 4metres, border margin can be used either as playground or parking. In the case
of 2.5 Anna (80m2) land, developers can build1 30 metres 2 low-cost building.
However, there is no positive attitude of policy makers and other stakeholders to
solve such problems
According to Building, By-laws, (2008), for Kathmandu Valley for
construction in municipalities and urbanizing village development committees
(VDCs) are as follows. 1) Allowable ground coverage of 50% of available plot; 2)
Allowable floor area ratio (FAR) of 3 and 3.5 in case outside of ring road of proposed
project's plot;3) At least 20% open land of proposed available plot in the project. 4)
32
Other open land area needed 30%. 5) Allowable front setback is 6m and 8m in the
case of outside of ring road; 6) Allowable back and rear setback of 4m and 6m in case
outside of ring road. 7) Distance between two blocks must be maintained 6m
(NHLDA, 2008). The existed bylaw, 2007 for Kathmandu valley is not subjective
and scientific. Bylaws must address the orientation and location of the proposed
project. In future development, existed infrastructure would not make barrier.
3.5 Global Issue the Environment Protection

It is expedient to make legal provisions in order to maintain clean and healthy
environment by minimizing, as far as possible, adverse impacts likely to be caused
from environmental degradation on human beings, wildlife, plants, nature and
physical objects; and to protect environment with proper use and management of
natural resources, taking into consideration that sustainable development could be
achieved from the inseparable inter-relationship between the economic development
and environment protection (Environment Act, 1997). The above-mentioned
paragraph is preamble of Environment Protection Act 1997. Even before the
formulation of the environment act, being a global issue was lot of efforts had been
given for environment protection.
A Parliamentary Committee on Environment was formed in 1990 to advise the
House of Representatives in the areas of environment such as forests, soil
conservation, industry, housing and physical planning. As a legislative body, the
Committee had authority to issue directives for actions on environmental protection.
Subsequently, an Environmental Protection Council (EPC) was established in 1992,
as a high-level national body under the chairmanship of the Prime Minister, and with
representatives from various sectors. Its role was to provide guidance on the
formulation of environmental policies and on the management of natural resources
(Khadka et al, 2012).
The infrastructure, housing, and real estate projects degrade the environment if
it is allowed run without planning. In order to implement even a one project, it is
essential to import the construction materials, construction equipment, human
resources and new technology from inside and outside the country. During
construction period, lots of chemicals are used. By-product generated from the
projects affects the environment. The byproduct and chemicals need to be disposed
properly in the appropriate places.
33
Procedure is becomes lengthy as lot of other activities has to be incorporated.
Publishing notice from daily newspaper is not enough to give the excess of
information. It is also essential to use electronic media for advertisement.
The environment issue is becoming a global issue and the by-product from
environment risk is a disaster, which need to be examined carefully. To mitigate the
environment risk cost varies from one housing project to another, one place to
another. Public consultation, impact identification, zone of influence, baseline survey
and its reliabilities need to be updated in the act as well as it needs to be incorporated
in policies as well.
All living things are dependent on each others. Particularly, cities need to be
sensitive in this manner, because the water which is needed for drinking, air which
need for respiration and vegetables for eating, all are becoming polluted. Due to the
environment pollution citizens suffer from health risk. It was observed, the
improvement was always there. Preliminary it could be reduced to some extent.
During that approval period, developers would have been experienced procedural
risks because long procedural work and more time taking, legally the notice need to
be published in national daily newspaper, put it on different public places, and
verified by legal authority.
3.6 Local Government: Pre-Matured Authority

This four-country comparison has four sections. First, some remarks on appropriate
definitions and concepts are made (inter alia by introducing and emphasizing the
GLVWLQFWLRQ EHWZHHQ µWUDGLWLRQDO¶ DQG 1HZ 3XEOLF 0DQDJHPHQW-inspired
administrative reforms). Then, country by country accounts of the pertinent reforms
DUHVXEPLWWHGµLQDQXWVKHOO¶7KLUGZLWKWKHµFRQYHUJHQFHRUGLYHUJHQFH¶TXHVWLRQLQ
mind, the conclusion is put forward that significant differences persist (and even
increase), particularly between Sweden and Germany, on the one hand, and Great
Britain and France on the other. In the final section, an attempt has been made to
DVVHVVWKHµSHUIRUPDQFH¶RIWKHGLIIHUHQWORFDOJRYHUQPHQWV\VWHPVLQORRNLQJDWWKHLU
FDSDFLW\ WR µFR-RUGLQDWH¶ SROLFLHV DQG DFWLYLWLHV ,W LV DUJXHG WKDW 6ZHGHQ¶V DQG
*HUPDQ\¶V WUDGLWLRQDO W\SH RI GHPRFUDWLFDOO\ DFFRXQWDEOH PXOWL-functional and
territorially viable local government does relatively well in achieving policy co-
ordination, democratic participation and political accountability. Great Britain and
France, however, could do better (Wollmann, 2004).
The local level authority act may differ from country to country, place to place
time to time and context to context. Act must be able to address the regulations as
34
much as possible regulations. Act must be able to address the sentiment of majority
people.
3.7 Hurdle in Approval Procedure

Approval process is very lengthy and it took nearly one year for individual housing
and not for high riser building. During approval time, lot of hurdles was being faced.
This is very difficult, unethical and immoral work.
The bureaucratic mechanism is not active, so that people are suffering from
terrible risk and big hurdle. If anyone wants to be ethical, then he cannot perform the
service from the authority.
It is not known how many approvals supposed to get for same project, same
proposal, same objectives, and same documents. Approach one ministry, which
passes it on to the next one. In addition, that was taking too much time, made the
process difficult and confusing.
The descriptive facts and survey shows that almost all the authorities were
exercising the old act and policy so that the developers are facing a lot of problems.
In the name of autonomous authority, project approval need to be taken from
different five authorities. Developers are demanding to make effective one-door
system from where all the processes could be approved through one place.
3.8 Problems in the Policies Level Framework-related Rules

and Acts
Policies are the plans or strategy action of a government, business organization, and
political parties to review, change, or update as reform progresses. Different levels of
government endorse policy to determine the decisions. Let us say, Ministry of
Physical Planning and Works decided on its policy to subsidize the amount to the
buyer of a house or an apartment unit cost of an amounting not more than some fixed
amount.
Integrated polices framework need to be endorsed after incorporating the
problems and solution given by the stakeholders including the professionals,
developers, bankers, suppliers, insurers, contractors and consultants who are involved
in this particular business.
As used in this framework, a policy refers to an overall plan or course of action
by national or local government. Specific legislation, regulations or sectoral policies
should then derive from the overall policy and should be enforceable in a manner and
style that conforms to the policy intent (Chen, Jhabvala & Lund 2001).
35
It is obvious that to maintain favorable, disciplined and legal track, an
integrated guided policy framework facilities, the contracted human services
including or excluding the technology program are required. The discussed
framework provides priority, direction, recommendation, award process, which
includes guided principle, funding criteria, targeted income level of community and
human services mechanism always mitigated by reducing the risk factors.
From above facts it can be concluded that the problems are due to
government's policy and not implementing the existing polices. Policies were not
only government endorsed but also endorsed by developers. Frequent change in
government's policies was a severe problem, which was in rank first, followed by
political instability as mentioned by Nepal Land and Housing Developers'
Association (NLHDA), and Local peoples unnecessary demand with the projects was
in third rank.
3.9 Problems: Unstable Politics and Unstable Government

Political variables are complex and dynamic and, as consequence, very difficult to
grasp. In general, political phenomena are rarely repetitive, which creates serious
challenges for effective modeling. The same applies to the economic and social
variables. Furthermore, political, economic and social events are rarely mutually
exclusive, exhaustive and conditionally independent. First, there have been strong
interrelationships among these variables.
Economy, for example, is strongly associated with social and political events.
In the light of these characteristics, it can be concluded that probabilistic modeling of
global risk factors poses serious challenges in terms of robustness and validity. The
uncertainty inherent in this group of risk factors is much more epistemic rather than
random (Baloi, 2012).
Political risk existed due to uncertainty of law and order, respective policies,
socio-economic, civil insurgency like Maoist civil war. Internal and external conflict
disturbs the investment environment.
Developers need to run their professional practice where it is easy to find the
location, for developing infrastructure projects. The public amenities will not be there
and developers have to develop it. Political parties' leaders and their sister
organizations and local people are giving trouble in the name of renovation of public
road, temple, pond and so on. Some of Political parties' cadres do not perform hard
work. However, they are jealous towards investor.
36
Political risk is the risk that the laws of a country will unexpectedly change to
WKHLQYHVWRU¶VGHWULPHQWDIWHUWKHLQYHVWRUKDVLQYHVWHGFDSLWDOLQWKHFRXQWU\WKHUHE\
UHGXFLQJWKHYDOXHRIWKHLQGLYLGXDO¶VLQYHVWPHQW3XWVLPSO\SROLWLFDOULVNis the risk
of government intervention. Examples of political risk are the risks that a government
will raise import or export duties, increase taxes, impose further regulations, or
nationalize or expropriate the assets of the investor (Comeaux & Kinsella, 1994).
Civil insurgency, civil war was in favor of the business group. In the period,
people who were working out of the country were not able to pass their money to
rural areas because of terrorism and possibility of loss of property along with his life.
So, at that time, the urban cities became safe place to invest, and they thought tot
purchase one unit of house or one flat or one plot of land. In the period during 2003
to 2007, developers came to housing and real estate sectors as an investment for good
profit. From the beginning due to Maoist insurgency middle class people migrated in
Kathmandu valley seeking security and they started buying and selling land
excessively.
In the mid-1990s, the government began to encourage private-sector
investment in land and housing development and promulgated the Apartment
Ownership Act 1997, which was only finalized in 2003 due to legal and
administrative obstacles. Within a span of 2 years (2003±2005), as many as 15
housing companies were sanctioned by the KVTDC for the development of housing
units (independent, duplex and apartment types) in the valley. Over a 3-year period,
14 private housing programs produced about 965 dwelling units on 254.3 ropani of
ODQG,QUHVSRQVHWRWKHSXEOLF¶VRYHUZKHOPLQJDSSURYDORIWhe programme, as many
as 150 real estate companies have since registered with the Nepal Land and Housing
Development Association. Among them, about 40 to 50 of those companies are
registered as Housing Developers and are engaged in various types of developments,
each with variation in design, facilities and prices (Shrestha, 2010).
Therefore, everyone invested on land and houses-apartments and sold as soon
as possible with good profit, so the value of land and housing raised in an optimum
level. Secondly, in the past, banks and financial institutions were attracted to the real
estate sector because the Nepali economy was not competitive in terms of
manufacturing and with political problems and unfavorable business environment,
the responsibility of the economy shifted towards non-manufacturing areas like real
estate. The property bubble was because of over investment of banks, finance
companies, adding that frequent strikes (bandhs), lack in policy implementation, and
absence of state support to manufacturing led by financial institutions to turn away
37
from manufacturing and investing in real estate. To prevent this collapse, over-
investment had diluted at the earliest by creating direct interaction between sellers
and genuine buyers. In addition to this, equal proportion of demand and supply must
be ensured. Investors started their investment for resell purposes in housing,
apartment, and real estate projects. It is due to these reasons that the value of land,
housings, and apartment was being increased. Therefore, the accessibility of middle
and lower class was impossible to be the owner of the land and housing hence
professional developers felt the risks.
After 2007, buyers focused on the product and started qualitative product
because market was starting to govern the price, escalation of construction materials
is raised excessively. It was the crunch of financial investment, which was not able to
maintain. No one was able to stop it. Country was in transition period and people
hoped well that the constitution will allocate more power to state government. People
were confused weather to stay in urban area or move to native place? Similarly, there
was labor shortage in the market i.e., labor risk was increasing.
Nepal Rasta Bank fixed the ceiling and instructed to commercial banks not to
invest more than 20 percent of lend or loan in real estate sector, increased the bank
interest, government's policies were not addressing to all issues and not consistent.
Similarly, instable political condition, one government endorsed one policy and
another cancelled it, no healthy professional's practice, etc. are main causes for
stagnation of housing-apartments and real estate after 2007.
The government is unstable and Nepal being a budding democracy, comprise
of officials lacking a vision or commitment towards the improvement of housing and
infrastructure to meet present day needs or to cope with future growth (Mathema,
1999)
The people who have money were waiting and seeing because the transition
period becoming longer since the major political party that people made largest
(United Nepal Communist Party Maoist) in constitution assembly. The prime-
minister belonged to the same party. Later, the prime-minister dissolved the
constitution assembly without concerning public decision. Therefore, at present
people are not ready to buy the housing and land due to the long transition period.
Particularly high-level of income group family are thinking weather they can stay in
the country or should go out of the country Particularly the people of high-level or
who have money are trying to deposit their money out of the country where their
children are studying due to insecurity physiology.
38
The undue pressure from sister organizations, cadres of the political parties
including donation was being severe, which was in first rank, followed by Industries'
environment is political stability, which was the agenda of Nepal land and Housing
Developers' Association (NLHDA) and hence political instability being second rank .
Similarly, politLFDOLQIOXHQFHRIWUDGHXQLRQV¶VWULNHORFNRXWLQDQGRXWRI KRXVLQJ
apartment and real estate was the third severe problem and strikes called by different
political parties during the construction phase was fourth severe problem.
From the facts and survey undue pressure from various political parties, their
sister organization, cadre who want the money from the project in the name of
various meeting, agitations, convention and seminar is first. Next problem was not
being ready the industry-friendly environment due to unstable politics and
government, since one government make one policy and next government eliminate
that policy, third problem was in the name of trade union supported by different
political parties raise unnecessary problem and lockout and strike. The fourth
problem was Strike called by the different political parties, from which working
environment becomes deteriorate and couldnot create friendly environment for
investment. Therefore conclusion could be drawn from the above facts that due to
political problem industry- friendly environment is not yet established in Nepal.
3.10 Financial Factors and Role in Projects

Financial Risk is uncertainty of return enhanced probability of financial loss. It may
cover various categories of the risk that can be associated with financing, transaction,
including company's loan, interest being paying to financial institution.
Regarding the stagnation of housing and apartment, the developers are facing
financial risks. Before 2007, buyers had made this sector as an investment for resell
and earning the profit. In past the buying and selling of housing was dramatic and
artificial and was not for residential purpose. Housing, apartment, and real estate
position can be divided into two stages for analysis purpose and it was before and
after 2007.
Investors and lenders are aware of certain risks and willing to face it, in order
to gain the profit from their investment. The higher the risk, the higher the profit shall
be gained (Bokharey et al, 2010).
Before 2007, professionals and business professionals promoted the housing
market. This was being watched by the commercial banks. Due to civil insurgency
and security problems industries were shut down. Another reason was due to the
billion remittances receiving by banks from the Nepalese people working abroad,
39
money was deposited in the bank. The deposited money needed to be invested and
there was no other sector for investment. That time the investment sectors were land
housing and vehicles like car, bus, motorbike. So that time people who had money
were buying land and flats even though it was not necessary for them. But some of
them were buying for their living. During this period, land and housing unit became
hot cake and bank's interest was low, construction material cost was low. The cost of
US dollar was consistent. Small and medium investors sold his cultivated land in
rural, migrated to urban area and started housing and plotting business in Kathmandu
valley. Bankers were not getting other sector to invest, and became competitive from
one to other. It was fault of bankers too to provide loan without studying the appraisal
of the project before investment. Naturally investor is bank so bank had to study with
good project appraisal particularly bank had to do analysis on demand and supply as
well.
After 2007, land price excessively increased. People invested on an apartment
and housing projects without studying the supply and demand of the market, which
created artificial sale even market was not ready for the demand and became risks for
long time. Economic principle is according to demand of the product need to supply
in market. Market determines the price of the goods but before 4 years there was
boom in housing market which was not for shelter but for to earn the profit which is
artificial sale. Housing or apartment units were not sold for their own use but resale
purpose due to civil war they could not invest in other sectors.
Meanwhile developers were anticipating for investment the market in the same
period even housing and apartments were not ready to sell. In the same period, the
interest of the Bank was also cheaper. In the market construction materials and
labours were cheaper, consequently, the product, the housing and joint apartment was
cheaper, and it was sold easily in the market.
Bank was investing some amount to one project and approached by other
banks to invest more money if needed to the developer, which was also a risk. Rastra
bank was observing such activities and tightened it in an appropriate time. If it would
have delayed then housing and real estate sector would have been further
deteriorated. The policy that was taken by Rastra Bank was good at right time, which
stopped new investment but preserved the old investment.
During this period artificial land and housing owners were increased because
one was buying it and selling to others within few days. Subsequently buying and
selling was rapid with good profit consequently artificial owner were increasing and
40
created big risks. Developers were dependent on bank and if bank did not give money
then the project would be stopped.
It was also observed that respondent identified the lack of budgeting and cash
flow management being the first rank problem followed by lacking of promoter's
cash flow management, high operation cost and high cost of project equipment as
second, third and fourth rank of problems respectively.
Housing projects are facing the problems of lack of budgeting and cash flow
management. Similarly, lack of promoter's cash flow management is another
problem. It seems that developer's equity and loan from financial institution were
being used for housing and apartment projects. Government change in its financial
SROLF\DQGFRPPHUFLDOEDQNV¶FKDQJHLQWKHLULQWHUHVWUDWHVDUHVome of the important
problems that could not be managed and it affected the promoters' cash flow
management. As interest being higher, machine cost increases and hence operation
cost becomes high. Commercial banks accept the proposals in one condition and
increase the rate of interest and other conditions to housing and apartment projects
before completing the project.
3.11 Economic Aspect: in Infrastructure Projects

(FRQRPLF ULVN PRVWO\ UHODWHG WR IDFLOLW\¶V RSHUDWLRQ ZKLFK FRQVLVW RI PDWHULDOV
supply, labour supply, equipment availability, inflations, tariffs, fiscal policies, and
exchange rates. Projects cash flow was affected by its financial aspects that relate to
the economic parameters. Increment in the supply and maintenance cost, eventually
will increase the operation cost, thus reduce the revenue. This could be seen as a
threat to the promoter (Bokharey et al 2010),
We are facing financial risk and economic risks due to government's financial
policy instructing to the bank that not to give loan to real estate sector more than 25%
of total loan amount so financial and economic policies became unfavor for housing.
As per economic survey of Nepal government, more than 5% GDP is contributed in
average in the past five years by housing and real estate sector.
Output of this sub-sector in FY 2011/12 is estimated to grow by 2.97 percent as
compared to 2.27 percent growth in the previous year. Since last few years, this sub-
sector has started experiencing lower growth rate due to policy adoption towards
restraining the possibility of unrealistic price rise and transactions in the real estate
business. In FY 2006/07, this subsector grew by 11.8 percent as compared to its
preceding fiscal year. This sub-sector averaged the annual growth rate of 5.9 percent
in the preceding five years. Growth of this sector in this sub-sector in this year is
41
attributable to adoption of some policy measures in the area of real estate transactions
(Economy Survey, 2012). Ultimately, it is linked with financial and economic issues.
From the supply side, the housing units were being built but from demand side no
one studied how many housing and their respective affordability were demanded in
the market. Developers do not have the idea of the law of economy which says, if
product is excessive and then demand is less. By paying 15% interests, which is a big
amount how the middle class people can afford?
Another reason was that, it was due to excessive supply and less demand of
housing units, in which the demand-supply became imbalanced in the market.
Developers had to go out of ring road of Kathmandu Valley and build cost effective
houses and apartments. So, supply and demand became imbalance and being facing
the economic risks.
It is the weakness of the government to discourage the developers since the
housing and real estate are giving the employment opportunity, which contributes in
national GDP. Why cannot they provide facilitation policy framework? It is the
government's attitude that does not seek solution.
Demand for housing in walkable neighbourhoods has increased dramatically
due to demographic changes: people who prefer to live in suburbs having small
family size. Because of suburban zoning laws that have prevented building enough
housing to keep up with this demand, housing prices in walkable neighbourhoods are
much higher than in sprawl suburbs. Decades ago, urban housing was cheaper than
suburban housing, but now urban housing in many metropolitan areas sells for 40
percent to 200 percent more per square foot than housing in sprawl suburbs (Siegel,
2008).
It is true that developers did not carry out the research work. If they had done
so then the supply and demand survey based on the income level of group demand
could have identified and then only required housing or apartment units would have
been designed. Developers were not making the houses and apartments especially for
medium income level group, which was the main problem. Developers were
implementing the projects targeting to high and upper middle level of income groups.
It does not mean that demand is saturated, demand is there, but affordability is not
maintained.
Economy depends on the demand and supply principle. Demand is generated
from the consumers. To fulfil the demand investor takes risk to produce the goods, if
the demand raised the investor get profit if not he gets the loss. Therefore, the time in
42
between demand by the client to production time is taken as the opportunity time.
This time is risky for producers.
From the above facts it can be concluded that response of client to the project
more the demand, more the supply principle might be risky which is in first rank
IROORZHGE\ORFDOSHRSOH¶VGHPDQGOLNHHPSOR\HHWRORFDOGHYHORSPHQWWRORFDODQG
so on create economic risk is in second rank. Similarly, ODFNRISURPRWHUV¶FDVKIORZ
because in the right time promoters could not mange the case flow they cannot supply
the goods as per demand and face the risk is in the third rank, and instability of
political system and government create number of problems for creating economic
risk being the fourth risk . Here all the developers need to start the research and
development work. Housing sectors are important, in which they are contributing in
GDP as well as employment opportunity to the people and hence need to be
facilitated by the state.
3.12 Qualities in Projects: Challenges

Quality is defined as distinguishing characteristic or property or attribute, in which
the basic character or nature of particular housing or apartment feature of
product need excellent degree or standard with the high profile and every item that
had worked out need to be perfect as mentioned in the working drawing, specification
of housing or apartment project. But the quality risk is uncertain to fulfil the above
condition. It means in the existed housing and apartment units of the particular
project there are questions in specifications regarding the readability of the executed
work.
Construction material risk, for individual infrastructure and housing, every one
ask which cement, rod, sand, bricks are good in quality but high riser building
developed by developers are using cheaper cement, rod, sand, bricks, which I do not
prefer due to the quality risk. Similarly, the quality maintained by Nepal standard
and how reliable it is also questionable.
Reputation is an effective signal for quality information because it is firm
specific. It was gradually built up from the quality of the projects by a developer in
the past. This gives developers repeat business in real estate development as an
LQFHQWLYHWRSURYLGHTXDOLW\KRXVLQJFRPPHQVXUDWHZLWKEX\HUV¶H[SHFWDWLRQLQVWHDG
of providing minimal quality housing (Chau et al, 2005).
Regarding the quality of the housing apartment, after 2007 buyers were
becoming conscious of the quality. The buyers were getting multiple choices in
market. It was observed that more buyers were searching the design, specifications,
43
sample agreements between seller and buyers. This shows that quality and reliability
also play important role in housing and apartment business. During survey, it was
observed that still demand is there of housing and apartment produced by some
particular developers but some developers are not able to sale their product which
means due to their quality and reliability. The important problem was construction
material quality and reliability. No one monitoring, guaranteed about the materials of
the apartment and housing project what is the requirement and did developer fulfil it?
In this condition, even any buyers who come to purchase may get quite different
despite of the commitment. If the buyers object about the same issue, developers used
to answer that, the product price was in half that you are getting now. Such an
irresponsible commitment made to the developers non-ethics. Commitment is
commitment even the price of commodity might have doubled.
In the past developers did not performed research for requirement of data that
were searching by the customers. Developers need to target certain income level of
the groups and need to identify required quality for them and resulting this condition
of housing sector.
The customer can checklist their requirement for their residential property,
whether the house that they have bought or going to buy meet their requirement or
not. So, it can encourage the customers to be more conscious and more concern when
make a choice before buying a new house or residential property in future (Kamsi,
2005),
If professionals were responsible, regarding their commitment and the quality
the problem would have solved and its private sectors responsibility government only
facilitates on their job, which will be the tracking risks and mitigate them.
It is said that developers do not optimize the quantity, do not train the labor.
They do not employee experienced and skilled technical person but developers try to
reduce the quantity of construction materials, try to pay less to technical and non
technical person, and they think that they did cost effective, which invited various
risks and need to pay much more for mitigating the risks.
The most significant problem related to labour and staff is devoted to be the
lack of skilled labour, poor quality of workers and technical staff. Ninety-five
percent of the respondents complain about difficulty of working with poor
quality/uneducated labour which significantly deteriorates the quality of final product
(Birgonul, M T and Ozdogan, 2001).
We compromise with quality and reduce the quantity whereas no one optimizes
the quantity and reduce it. For example, let us take the plaster item. We do not
44
concentrate how to construct the wall so that plaster quantity would be reduced.
Similarly, we decorate clearing (decorated sheet) after plaster, without plaster also we
can put clearing. If we did clearing without applying the plaster price could be
reduced. Next example is, the size of doors-windows all had maintained the standard
size but not required size or demanded size by that particular room.
In the quality issue, the tabulated data given above due to unavailability of
skilled and trained human resources is observed as serious.
It can be conclude from the research that quality of housing, apartment projects
is due to unavailability of skilled and trained human resources, which is in first rank
because without skilled and experienced architect effective design cannot be imagine
and without good construction manager quality cannot be maintained. In the same
way, single person handled in ventured project cannot maintain the quality because
s/he cannot supervise and review due to his/her busyness is in second rank. Suitable
or effective planning and suitable or effective design is ranked third and fourth
respectively because they would not make poor quality but improve it. Similarly,
research and development work need to achieve the quality. Quality is important
factor in every industry and in housing projects it is still important and Nepalese
housing industries are still facing problems in maintaining quality.
3.13 Problems Related to Technical Aspects

No availability of technical expert, shortage of construction material, machine,
workers, project management, etc. are the technical problems in housing and
apartment projects. Similarly, financial, economic, good quality of construction
material, construction tools and equipment, machines and technology need to be
perfect. In absence of competent as well as skilled srchitects and engineers
developers would face the technical risks. It is fact that technically sound,
experienced and skilled engineer maintain good quality, handle almost all the risk
factors arising during the project, but such things are ignored by the contractors and
developers.
Technical risks are also influenced by other risks. For example, lack of
financial and economic resources, available physical infrastructure and human
resources are the indirect causes including direct causes like inaccurate design details
and specifications of the projects.
Ofori (1994) points out that technology development requires financial
resources, conducive economic conditions, relevant administrative support, a physical
infrastructure, organisations that can apply the new technology and a supportive
45
culture. Unfortunately, most of these factors are weak in developing countries.
Another major cause of inaccurate design details occur when the consultants are
inexperienced, are not competent or do not have the structure to handle such complex
and high-risk projects (Chileshe & Fianko, 2011).
7HFKQLFDO ULVN LV UHVSRQVLEOH IRU WKH LQGLUHFW FDXVH¶V WRR)RU H[DPSOH LI WKH
political influence is there, there will be high technical risk. If clients are ready to pay
IRU WKH ULVNV FRQWUDFWRUV DQG GHYHORSHUV ZLOO QRW JLYH HIIRUWV WR VDYH FOLHQWV¶
H[SHQGLWXUH DV WKH H[SHQGLWXUH LV LQ FOLHQW¶V SDUW DQG KHQFH OHW LW EH ZKLFK LV
irresponsible and unethical. For example, a client was required the commercial
building, which have double basement. The contractor searched for low cost
insurance company so that the risk could be transferred. In this particular case, if
client would have committed to bear the rLVNFRQWUDFWRUZRXOGVD\µ2NJRDKHDG¶LW
was client's money and the contractor did not care of it.
Among many questions asked with respondents, I segregated the above-mentioned in
table that is oriented to technical and generates the technical problems, based on the
same ranked according to its severity. It has been plotted in column chart as given
below. Developers want cheaper technical team and they are not able to complete the
work as required is the problem.
3.14 Human Resource in the Infrastructure Projects

Human resource is a body consisting of different faculties with experienced and
skilled individuals, who make up the team's force of an organization, housing
projects, an apartment projects, real estate projects, or an economy. Sometimes it is
also called as human capital or manpower, etc. The skilled, professional, experienced,
discipline and business function who oversees an organization's human capital is used
to be called as human resource management.
Human resource management risk also exists in housing, apartment and real
estate project. Developers do not want to pay good salary for the set of human capital
and hence they do not empower construction mangers and other staff, consequently
skilled, experienced experts left the organization.
At the team-level, empowerment climate also positively related directly to task
work and teamwork behaviors and partially through team empowerment. The results
suggest that empowerment climate and psychological empowerment play
complementary roles in engendering individual and team performance behaviors and
are therefore not mutually exclusive(Tuuli & Rowlinson, n.d.).
46
Human resource risks are also faced by the developers, since this sector is not
fully matured. Regarding the lack of competent and capable construction manager,
respondent said that the developers are managing the projects by assigning skilled
and competent construction managers when each projects are more than five billion
rupees. Some developers' projects were weak, deteriorating and they were convincing
them to sound reporting by maintaining the good project management. But some
developers had assigned skilled construction managers, well consultant, bankers, and
insurance was done. Always investors are thinking about how to execute the work by
paying less money. Therefore, developers' interest was always hiring unskilled and
non-qualified engineer by paying less money that is wrong assumption. Consequently
investors or developers were facing severe risks due to their wrong interpretation.
Among various strategies of human resource management, some are tabulated here
EDVHGRQUHVSRQGHQWV¶DQVZHULQILHOGVXUYH\ZKLFKDUHPHQWLRQHGDERYHDQGEDVHG
on arithmetic means its rank has been decided.
From the above real facts it is clear that the private ventured projects were
handling more company by a single person in Nepal. In our country, investors look
for cheap human resources, do not spend money to develop, and no program is there
IRUUHWDLQLQJWKHKXPDQUHVRXUFHVDVWKHLQYHVWRUV¶FKRLFHEHLQJ to get cheaper human
resources, which leads to risk.
3.15 Components of Nepalese Society and Infrastructure

Social risk being increased in latest days, particularly in housing, apartment, and real
estate projects. The perception of the local people is that the investors are cheaters
who come to their location to earn money. Naturally, if investors cannot earn the
profit they will be no more sustained. But local people do not think that the investors
are investing so much money and came for business. From their investment, so much
people are getting employment and contributing to the revenue in the form of GDP.
During the land pooling project society becomes the enemy. Somebody run to
the court to move the case, some come to fight for claim. The housings, apartment
and real estate projects behave in the same way. Hence the implementation phase is
more vital and there is more social risk. In this phase legal risks we were facing as
people filed cases in the court, local people were defending to stop building saying
that their society being affected in the name of sunshade, rainwater and so on stopped
the project by the society.
Risk Acceptability according to the Social Sciences (Douglas, 1985), Risk, and
Culture have been influential in the creation of a framework for understanding risk in
47
contemporary society, In these works, Douglas focuses upon the impossibility of a
form of analysis, which does not take into account the uniqueness of the community
in which the perceived risk occurs. Each community is typified by forms of authority,
commitment, boundaries and structures that determine the manner in which risk is
constructed and acted upon (Denney, 2005, p-22).
The attitude of some of the people of society is becoming devalues, immoral,
unethical. When any developer who comes to construct the infrastructures,
particularly housing, then the local people's attitude will be negative and there is need
of a big effort to make it positive.
Related social datum have been segregated and tabulated as given in the above
table, frequencies, mean and standard deviation were identified based on its mean,
and standard deviations rank of risk has been shown.
From the facts, non-implement of rule and regulation make influence to have
negative attitude towards the proposed project was ranked first, and non-adherence of
proper safety in proposed site, hidden (covert) payment to solve the problem and
local people demand and project's responsibility were ranked. Social problem is being
great challenge to the government. Hard working, getting good opportunity is
disappeared. Negative attitude toward the industry is established. Developers need to
get profit, but they are spending their equity and their knowledge, which is enhancing
the people and nation.
3.16 Culture of Consumers in Infrastructure Projects

Cultural risk is uncertainty or unfavourable market condition created by culture of the
customers who require housing and apartment unit to suit for their own culture. The
majority of people inf Nepal are Hindu, followed by Buddhist, Muslim and recent
day Christian community is growing. Requirement of housing and apartment units
are as per own culture. Hindu community prefer a house surrounding by compound
wall with a kitchen garden and a Tulashi Math where Tulashi (a plant treated as God)
could be planted for worship. Similarly, people want the house and apartment units to
suit as per their own culture.
Cultural theory is a way of interpreting how and why individuals form
judgments about danger, pollution, and threat. The point of the theory is to show that
such judgments are not formed independently of social context. They are part of an
evolving social debate about rights to know, justice for those likely to be affected by
damage or loss of peace of mind, and about blame, responsibility and liability. In
order to understand why some risks become politicized and emphasized whilst others
48
remain latent, it is crucial to develop a framework that explains how risks are both
constructed and selected. Cultural theorists argue that social debates about risks
cannot be reduced to concerns about safety and demonstrate instead how they are
inseparable from issues relating to power, justice and legitimacy (Tansey &
O'Riordan, 1999).
The people migrated from rural want similar house as they were living - a
separate house, small kitchen garden oriented in an appropriated direction. In the
same way Newari community wants as per their own culture and the people who
came from western want more luxurious house.
Many authors have described the architectonic works of Nepal by making a
typological classification of the principal monuments. It was only in 1905 that Lévi
clearly identified all the works that constitute the cultural patrimony of the country.
However, nobody has so far prepared a complete chronology of the arts and more
specifically of the architecture. The works analyzed by Lévi are linked to a system of
religious worship, a cult, and are described according to it (Bonapace & Sestini,
2003).
Some communities of Hindus are still conservative. In the morning they
worship sun treating as Brama, Vishnu and Maheshor, what they were learned from
their Hindu's school of thought. Some Newari communities are cultivating on their
land even in an area surrounded by housing and apartment. These communities were
learned that if they sell the land, they cannot survive. Business communities look the
housing and apartment as per their requirement. Therefore, cultural risk also plays a
major role along with other factors. The land development system in Nepal is crucial
and volatilize. Our society culturally taught us about cultivated land and getting the
crops, vegetables, and fruits and passing the life. To develop the infrastructure land
must be taken from public, which is challenging job. In addition, there was no land
use and development act. The land belonging of citizen is free to utilize by doing any
profession, which is being problematic.
Our socio-economic status and our culture are not yet developed to digest the
joint apartment. Everyone citizen prefers their own house built by themselves. Their
interest is decorating garden and worship room with cultural amenities. So cultural
parameter of each ethnicity would be one factor, which is a constraint for apartment.
Adobe architecture predominates along the Bagmati River and rural areas in
general. It blends in perfectly with the local environment, which is ecological and is a
part of the cultural patrimony of the Valley and should be conserved and protected in
the same way as the monumental architecture (Bonapace & Sestini, 2003).
49
Developers did not concentrate for research and development regarding the
perfect requirement of buyers. As incorporating cultural requirements with amenities
based on the research, product could be sold easily in the market. Therefore, the joint
apartment would not be appropriate as per their culture and religion compared to
individual housing. Next, the culturally matured citizen wants the modern amenities
as they are using.
In latest days the frequently changing government policy changes the cultural
dimensions too. Previously it was a Hindu state and now no discrimination in the
name of religion and all religions are treated equally. Local peoples' demand for
money influence in the name of renovation of temple and new temple construction
and un-due pressure from different political parties to celebration the cultural day and
programmes. Risk Response Plan is prepared and implemented by housing projects,
which is very limited because hard working culture is being disappearing in our
culture.
It could be concluded that frequent change in government policy is creating
problem whether in Hindu state or religion equality state, holiday on which festival
was in first rank.
3.17 Organization/Institution and Infrastructure Projects

The information related to the predicted or occurred risks in former organization
projects (such as their causes, consequences, their treatment and success of the
mitigation and contingency actions) may help the project manager identify new
project risks, estimate their probability and impact and plan risk management.
Besides, lessons learned regarding risk management from former projects might
contribute to the enrichment of the project risk planning (Farias, Travassos, & Rocha,
2003).
No one developer was identifying, analyzing, ranking, and response plan in
planning or pre-planning phase. Developers were not doing risk identification and
analysis. Whenever there is no analysis how to rank they and no one make the risk
response plan. If the developer felt to purchase the land plot for housing and
apartment, he uses to give the advance money to assure. Then his analysis process
starts about the legality on the mentioned plot. This is just opposite way. Similar is
the case of the housing and apartment projects. Developers were not taking risk
analysis during planning or pre-planning but started in implementation phase. That is
why developers are facing various risks due to organization cause
50
Due to organizational or Instructional weakness, it there were various risk
being faced. Team must have contained experienced, skilled, motivated, innovative,
and commanding leader. Decision power need to be quick and bold. Construction
manager need to be competitive, technically and experienced. Formally, housing and
real estate work started from around 2003 in Nepal. Therefore, every developer got
the experience of about one decade. They could identify particular problem in the
policy risk, approval risk, financial risk, political risk, labor risk, safety risk, and
other risks factors.
According to Paul C. Stern, (2000), at first step towards understanding the
complexities is to elaborate on the truism that behavior is a function of the organism
and its environment. In one formulation (Guagnano et al., 1995), behavior (B) is an
interactive product of personal-sphere attitudinal variables (A) and contextual factors
(C). The attitude-behavior association is strongest when contextual factors are neutral
and approaches zero when contextual forces are strongly positive or negative,
effectively compelling or prohibiting the behavior in question (an inverted U-shaped
function)
They do not keep in mind whatever risk they felt in previous projects. In the
current project when they feel, oh how to cross the particular risk just make
contingent plan and go away. This was the risk management system in Nepalese
housing and apartment, so no one adopted the systematically risk management
procedure.
Answers of the respondents were segregated related to organizational or
institutional, and tabulated in above table. Based arithmetic means and standard
deviation the ranks were determined as shown in the above table. As mentioned
above, based on the rank the cylindrical column chart was plotted. According to the
column chart, problem due to lack of job description was in first rank followed by
lack of regular meeting of board of director (BoD), periodic review of BoD decision
and undefined or ad-hoc organizational structure of human resource managements
were 2,3,and 4 rank of problems respectively. Problem facing internal and external
must be identified solved by good human resource management. However, without
self-satisfying he cannot give his output in the organization.

This chapter consisting the following topics Under the topics, following subtopics
are being discussed: Big Issue about ownership, Permit from authority, Bylaws, 2007
for town and rural, Global Issue the Environment Protection, Local Government :Pre-
51
Matured Authority, Hurdle in approval Procedure, Problems in the policies level
framework-related rules and acts, Problems: unstable politics and unstable
Government, Financial factors and role of projects, Economic Aspect in
infrastructure Projects, Qualities in the projects: Challenges, Problem related to
technical Aspects, human resource in the infrastructure projects, Components of
Nepalese Society and Infrastructure, culture of Nepalese Society and Infrastructure,
Organization/ Institution and Infrastructure, Concluding remarks and Finally I
presented the concluding Remarks.
52
Chapter-4
Risk Response in infrastructure Construction Field

In this chapter, It is discuss the risk mitigation model and risk response planning
(RRP) in housing, apartment and real estate projects. Under the mitigation model,
following topics are being discussed: Integrated Policy framework enhances
infrastructure, Existing Legal polices should guided by developers friendly ,
Frequent development and research work is needed, HRM team must be experienced
for risk mitigation, Responses based on their work experience, Implementation Phase
is to be careful compare to other Phase, Cosmetic treatment for mitigation is not
permanent solution, Products of infrastructure must be branded and qualitative, risk
response plan and Finally summaries of this chapter are outlined.
Risk response plan is an integral part of integrated risk management; it is being an

important and a critical element in the risk management, particularly in all
infrastructure projects. When we run our projects, always risk is being involved, we
must have formulated the risk response plan in which the process that have whatever
action (if any) would be taken to deal the risks evaluated in the identification,
analysis, ranking efforts in appropriate document.
In WKH WDEOH EHORZ UHVSRQGHQWV µYLHZ RQ WKH 5LVN 5HVSRQVH 3ODQ LV SUHSDUHG DQG
implemented by Housing and real estate projects in Nepal are given.
Most of the infrastructure, housing apartment and real estate projects are not
prepared and implemented according to the Risk Response Plan. If it occurred then
they used to mitigate from contingency plan which may lead problem.
The main purpose of this chapter is to mitigate the risk factors in infrastructure,
housing and real estate considering the various problems, which occurs due to not
working out the risk management during planning phase, and arising in
implementation phases, considering intensity of uncertainty of money, time, and
quality management, and loss occurs due to various adversities.
Risk mitigation is common of all risk handling strategies. Project manager may
have to be responsible and emphasize to reduce or minimize the expected probability
that the risk may suppose to occur from what the construction manager try to reduce
the negative impacts. The project manager must develop risk mitigation plan from
53
which trace the activities based on the proposed plan. In the policy framework
authority need to break down different economic levels of income group.
4.1 Integrated Policy for Enhance infrastructure

Policies are heart of the guided acts, which are the plans of action taken by
government, business organization, political parties, and multilateral investor
company to review or updated as a restructured progress. Polices are endorsed by the
state or local government to determine the decisions. For example, ministry of
physical planning and works decided to subsidize amount to the developer who build
an infrastructure cost of an amounting not more than some figures with a minimum
carpet area of some figure square feet. Planning commission, ministries,
organizations and local level government can endorse their strategies as per their
territory and implement the decisions.
Integrated polices framework need to endorse after incorporating the problems
and solution given by the stakeholders including the professionals, developers,
bankers, suppliers, insurers, contractors, and consultants who are involved in this
particular business.
As used in this framework, a policy refers to an overall plan or course of action
by national or local governments. Specific legislation, regulations, or sectoral policies
should then be derived from the overall policy and should be enforceable in a manner
and style that conforms to the policy intent (Chen, et al, 2001).
It is obvious that to maintain financial discipline, drive in legal track, an
integrated guided policy framework facilitates the contracted human services
including or excluding the technology. The discussed framework provides priority,
direction, recommendation, award process, which includes guided principle, funding
criteria, targeted income level of community and human services mechanism that
always mitigate by reducing the risk factors.
Drawing the attention towards the environment is a global issue, so in the
entire life cycle of infrastructure housing project environment issues need to be
addressed in the policy.
In fact, environment is an important element to live, work, progress, and
prosperity of the world. Every creature needs to live in this universe and without it no
one can imagine of the other. It was observed, to construct or destruct professionals
need to careful about the environment degradation from which the impact will be
hazard. In the same way government of Nepal is taking initiative to minimize
environment degradation and its impacts.
54
The implementation of infrastructure, housing, apartment and real estate
project physical infrastructures need to be developed according to building byelaws,
2007. Wide road, floor area ratio (FAR), ground coverage, greenery, open space
Right of Way (Row), and height of building must be maintained in the proposed
project. Additional drain facilities, water supply, electricity, telephone line which are
others attractive features to value added along with the mentioned in the policy.
Failure to regulate rapid urbanization and haphazard growth of settlement and
building transformation in the historic core and peripheral areas as well as numerous
weaknesses on different kinds of projects ranging from housing construction, land
pooling projects and other infrastructure projects under public private partnership in
the past clearly confirms the inadequacy and ineffectiveness of the existing legal and
institutional framework for urban development in the Kathmandu Valley.
Developers must not concentrate to fulfill the condition of bylaws, but before
starting housing and apartment project an integrated physical amenities, which is
being essential for proposed project need to develop by either socially or privately.
During the project formulation period, research has to be conducted, which help in
planning and implementation phase. The above facts need to be included in the
integrated policy framework hence mitigate the risk.
It is obvious in developed countries if developers default to handover the
infrastructure, house or apartment units after taking the advanced money, the
developers company might keep in black list, canceled the license and promoter
would have to go jail with big amount need to deposit in the court. In the same way,
in order to prevent such activities there should be change in our policy.
The social problem should avoid with neighbors, notice giving to neighbor and
society from KMC is 7, 15 and 35 days against to claim and verify his own or public
land property must not limit in specific days. If anyone who is not doing his duty of
care then his neighbor or stakeholder can claim in any time.
The social problems of noise pollution and disturbance from neighbors as well
as the timely maintenance of leakages and other defects are not clearly mentioned in
the act (Shrestha, 2010).
7KH SURSRVHG SROLF\ QHHG WR DGGUHVV WKH QHLJKERU¶V VRFLDO SUREOHP GXULQJ
H[HUFLVLQJ RZQ ULJKW RU IUHHGRP WKDW VKRXOG QRW YLRODWH RWKHUV¶ ULJKW RU IUHHGRP
during using own ownerVKLSPXVWQRWYLRODWLRQRWKHUV¶RZQHUVKLSRQWKHODQGDVVHW
Municipality or Village development committee inform to neighbor that in proposed
land apartment or housing project is going to built, so if anyone neighbor is affected
or replaced by other land owned by neighbor or public by the project, inform or
55
claim to the authority with legal documents within 7, 15 and 35 days. It is seriously
objectionable. Neighbors would have been out of country during informing or
information access would have not enough. In the property right s/he must be able to
claim his/her property in life time if the proposed project would have been used.
The bylaws and regulations in the city are limited within plot coverage, height
of the building, minimum setback, and right of way. Besides, there are no effective
regulations, laws and policies regarding the housing development that ultimately
resulted in improper and unplanned housing settlements. Very little effort has been
made on the urban form and its overall impact on the city .The approval of building
plan is vested with the local authority where the local authority shall ensure that the
applicant-developer has complied with all necessary rules and regulations, in
particular the Uniform Building By-Laws (UBBL) (Sufian & Rahman, 2008).
The Agreement will stipulate as the primary duty of the engineer that s/he
carefully observes the requirements of the employer in the realization of the project.
It is important to note, however, that the conditions of contract between the employer
DQGWKHRQWUDFWRUVWLSXODWHWKDWZKHUHXQGHUWKHFRQWUDFWDQ\RIWKHHQJLQHHU¶VGXWLHV
are discretionary, the engineer shall act fairly between the employer and the
contractor and apply the contract in an impartial manner. The conditions are based
upon this fundamental principle and this requirement applies even if the engineer is a
PHPEHURIWKHHPSOR\HU¶VVWDII *XLGHWRWKHXVHRI),',& 8VWD
In fact, in our projects there will be different companies, professionals are
employed like A/E consultant, M/S contractor, M/S suppliers and so on. Every
SURMHFW H[SHFWV WKHLU H[SHUWLVH DQG WKH SURIHVVLRQDO¶V VNLOO $FFRUGLQJ WR WKHLU
condition of contract, they must be responsible. Therefore, based on document if the
proposed projects have maintained the Nepal standard building code from the safety
point of view he can supervise or instruct, otherwise need not supervise by DUDBC,
but others professional must be responsible. A/E consultant can determine the height
of the building. Moreover, why to give other authority to make complication from
others nock and corners were existed and facing so many hurdles?
Anyone company registered with the ministry of industry and tax office is a
developer and other side anyone who do not register with authority is developer. Both
are doing housing and real estate business. If it is continuing why to register with
government authority and pay the tax when individuals are doing business without
paying money as a developer.
Validity for the democratic component of DLG (and much for its local
governance as well) deepen in the final analysis on participation and accountability
56
bringing as many citizens as possible into the political arena assuring that local
governs are responsible to the governed for their action. Fortunately, there is
considerable scope for enhancing both participation and accountability at the local
level (Blair, 2000).
4.2 Existing Legal Polices should guided by Developers

Friendly
A company is always a legal entity that is existed through incorporation or other legal
manner. Individual do not have to be a company to run a business. However,
individual people work and earn money without having a formal company.
Authorities had to make wide demarcation between the housing, apartments, Real
Estate Company, and individual who can do business and earn money. Therefore,
when government brings the different policies covering all issue as mentioned above
then housing apartment and real estate business will take one direction. In the same
way it was emphasized that the integrated government policy to uplift the housing
sector. Similarly, financial policy framework was really realized in this sector to
enhance housing, apartment and real estate sector. The policy need to cover land use
plan, which could cover zoning concept, develop the road and physical infrastructure.
Infrastructure, housing sector need to be divided by targeting high, medium,
low and marginalized level of income group. Probably for high and medium level of
income group, the existed developers or private sector may supply their demand. But
for low and marginalized levels of income group, either government have to supply
the houses unit or some short of subsidize need to give them so that they could be
able to buy the housing unit by developing good and easy payment packages. Let us
say cooperative model or give an employment to one family, which can afford one
unit of their own housing within certain time.
According to the United Nations Center for Human Settlements (UNCHS),
access to housing is a basic human right that should be available to all individuals.
However there would this be far from reality than in most cities of the developing
world where housing for up to 50 percent of city residents is commonly in squatter
settlements or in the slums. In the recent past, practically all authorities on housing
provision in developing countries agree that the vast majority of shelter and housing
for the middle and low-income groups is and will continue to be provided through the
individual effort of people to develop their own houses. According to Werna (2001),
in most developing countries, a huge shortfall in housing provision means that the
role of the individual housing development will continue to rise (Kamau, 2002).
57
Infrastructures and housing company is legal entity, where company exercise
the profession as per mentioned in the objective. Company need to submit the
progress, balance sheet to the authority monthly/quarterly/half yearly and yearly.
However, individual need not do so. Therefore, the freedom must not be given as to
the company. That means the individuals who are competitive with housing and real
estate company need to be brought within policy framework and let them carry out
their job that mitigate the risks. Policy need to adress all problems existing in the
society. High-income group and middle-income group might supply the housing,
apartment units by private sectors whereas, low-income group and marginalized-
income group need to make some subsidized mechanisim.Subsidized mechanisim
would be in terms of revenue, tax free and one family one employment so that s/he
can be able to pay the instalment or by making co-operative model of housing
apartment.
It is the responsibility of state to provide the shelter to the citizens, for this
integrated policy framework need to be endorsed by the government stating that
among high, medium, low and marginalized level of income group of citizens. Which
economic level of income group supply the housing by private sector and which
group with subsidize can construct and supply the housing by government need to be
clear in the policy in first part and must be implemented.
Government does not need to construct the housing apartment for
economically weak level of income group but can facilitate and discount in taxes in
terms of subsidize. Government can off the tax during purchase of land, importing
construction materials, transferring the ownerships and some short of loan by
establishing co-operative model or some other mechanism, which need to be address
in an integrated policy framework with access of financial framework.
In different countries, shelter or housing to the people has been guaranteed.
Our interim constitution had also emphasized shelter to all citizens including
marginalized level of income groups. Private sectors had to earn profit, if not they
will collapse. Therefore, private sectors are supplying housing and apartment to high
and medium level of income group. Let it continue and ensure risks mitigate with
improvement in the policy. To uplift the weak level of income group, government
must have cooperation with private sectors and need to supply affordable houses,
apartments to that weak level of income group in effective subsidized rate. In the UK,
the government can influence the housing market in a number of ways. In the past, it
has given tax advantages to owner-occupation (White & Allmendinger, 2003).
58
Land use plan must be endorsed in the cities, land need to supply to the market.
Therefore, in the land pooling need to be further expanded and public amenities need
to develop. In cites owner built houses are unplanned and unmanaged, which are
scattered but state responsibility is to provide drinking water, drainage, good road for
the public. The mentioned work is continuously doing through local development
authorities. If it coordinates with local authorities and urban development authorities
and start housing and public infrastructure more efficiency could be achieved.
In such an imperfect market, the government should intervene, although this
may have positive or negative effects. This intervention has largely been in terms of
planning. In order to protect the natural environment and to avoid uncontrolled
development, new housing can only occur subject to planning approval. Also as
industrial restructuring has left vacant and derelict land in many cities, urban
regeneration has become important in government policy and attracting new housing
GHYHORSPHQWWRµEURZQILHOG¶ODQGKDVEHHQJLYHQDFHQWUDOSODFHZLWKWDUJHWVEHLQJ
set for the proportion of new development allocated between brown field and green
field sites(White & Allmendinger,2003).
Previous policy was not interpreted and applying this is also a problem,
because if we execute the policy then only we can decide whether the policy is
successful or not? So integrated policies by combining all social, economical,
financial and other related problems need to be identified and addressed properly and
endorsed policies need to be implemented perfectly.
4.3 Risk Management Plan in the projects

Housing, Apartment, and real estate projects risk management is treating as an
important process to enhance the project planning work, if it faced uncertainty of
adversity. It is observed that developers were not performing the risk management
plan and authorities were not asked the risk management plan during approval period
that denotes no conscious and ultimately create adverse affect in terms of monetary
lost and reduce the productivity of the industry. Nepalese housing and real estate
projects were lagging despite its schedule due socio-political, socio-cultural including
various problems with financial uncertainty.
Developers were not carrying out the risk management plan during planning
phase, which is a must to work out for productivity of the company. Developers did
not risk identify, risk analysis, risk ranking and no risk response plan in Nepalese
housing apartment and real estate sector.
59
Risk management is a vital work in developing countries. Even global
competition is not experienced because political instability, impunity financial crises
are frequently occurred and hence decision-making procedure takes more time.
Therefore, projects became more uncertain. Risk management is important in
housing, apartment, and real estate project for cash-flow management, by anticipating
loss or profit. Similarly, project can experience the mitigation if it occurred and for
future which is treating as an asset.
4.4 Frequent Development and Research work is needed

Research and development work enhance the productivity of the housing, apartment
and real estate sectors that is why in developed country they allocate certain fund for
research and development. Nowadays research and development work being
important in developing countries too. But in developing countries there has not been
started the research work particularly risks in housing, apartment and real estate work
either developers side or from government's side focusing on housing, apartment and
real estate.
We are very weak in Research and Development work. There are research
conducted on new technology, new construction materials, new construction
equipment, new construction method, and risk management method even in
neighbouring countries china and India they are continually concentrated on research
and development. Research and Development work enhance for risk mitigation in
housing, apartment sector in Nepal.
The risks and corresponding action plans are brought together in a risk
management plan. In addition, in order to document the risk assessment results and
the outcome of the risk management session, the risk management plan states that is
responsible for each of the diagnosed risks, how much time and resources are needed
to deal with these risks, and how progress will be monitored and reported. This plan
HQDEOHVPDQDJHPHQWWRGHFLGHXSRQWKHIHDVLELOLW\RIWKHSURMHFWDQGPDNHD³JRQR
JR´GHFLVLRQ .HL]HUHWDO
It is quite true that reputed company allocate budget for research and
development. Research gives the direction weather to move ahead or stop it. In
Nepalese companies who are doing business were not conscious with research and
development about the risk and its consequences in the projects. It has to start the
research and development work as soon as possible in the housing and real estate to
mitigate the risk factors.
60
4.5 HRM Team must be experienced for Risk Mitigation
Developers are conscious about their profit, which is a positive aspect, whereas they
were always concentrated to employee cheap construction manager, engineer,
supervisors including all human resource team to save the profit, which is negative
aspect because experienced and skilled technical person expect good salary. It is
always true that experienced and skilled risk manager do better risk management than
inexperienced and unskilled risk manager.
Most of the developers were employing inexperienced and unskilled
construction manager including all human resources team. They were proud of
themselves for saving the overhead cost but they never thought the consequences due
to risks factors which may have adverse effect and big lost for company.
4.6 Responses Based on their work Experience

In Nepal, most of the private ventures projects are controlled by single person.
Therefore workload posses and hence risk occur in venture project. This theory is
applicable to housing, apartment, and real estate projects.
Would private venture projects controlled by one person, what is its implication?
Regarding the same respondents response have tabulated in table and based on same
data pie chart have been plotted as given below.
During assignment of project manager, several factors need to be considered
and analyzed. According to identified characteristics requirement need to be decided,
and he should be adjusting in particular project responsibility of the client with
guidance from advisors. According to Peter Fewings, (2005) requirement of project
manager need to list eight characteristics of the certified project manager. These are
an open, Positive, 'can do' attitude, common sense, open mindedness, adoptability,
invectiveness, prudent risk taker (weighing up the risk), fairness, and commitment.
Therefore project manager and entire human resources team need to assign to
mitigate the housing, apartment and real estate risks.
4.7 Implementation Phase is to be careful Compare to other

Phase
As it was found that no one developers analysis the risks in housing, apartment and
real estate construction project consequences implement phase became more busy.
Because workload of construction manager and other team member would be more
since the risk identification, analysis, ranking and mitigation work concentrated in
implementation phase, which would be tedious and difficult.
61
As our developers have no practice of managing the risk during pre-planning
and planning phase, naturally all risk factors were concentrated on implementation
phase. Local hooligans, club, tole , don, and unethical group, sister organization of
different political party's leaders, its cadre, local people come to threaten to lock out,
close-up and so on. If project deny to give money consequently implementation phase
become more risky and is mitigated in this phase.
As there does not clearly existed any universally accepted practice for dividing
the project life cycle into phases, it can be argued that several concepts central to
studies focusing on projects such as project implementation or project execution are
likely to hold different and potentially conflicting meanings for different individuals
(Ahola, 2009).
It is not universally true that among various phases of construction projects
which phase is more risky. But in Nepalese context it was observed that no
GHYHORSHU¶V SODQQHG ULVN PDQDJHPHQW GXULQJ SUH-planning or planning phase so all
work load concentrated in implementation phase. Hence it was more risky for
mitigating same phase taking as more important. It is being established from the civil
insurgency that local people are not doing hard work, which is unethical, and use to
threaten the project manager. In this case, project manager need to mitigate which is
the only alternative.
4.8 Cosmetic treatment for Mitigation is not Permanent

Solution
Government of Nepal feel the risk that the developers are really faced problems and
some cosmetic package have been such as some apartment could be changed into
hotel. Staff provident fund authority is ready to invest as a soft loan to the staff who
wants to buy the apartment unit. It is said that some six thousand units of apartment
and individual houses were in stock during survey. I criticize the process to change
the uses the building made for one purpose to another purpose. It is agreed that
apartment and hotel both could be used for accommodation. But the pollution
created by hotel and apartment would not be the same, environmentally it has to
perform IEA or IEE for environment case, similarly other parameters need to
commence to change the uses.
Some apartments are being converted into a hotel. Was this decision
appropriate? It has also generated other risks factors. If our authority allows changing
the uses, would it not create other risks? For example, the purpose was residency and
it changed into hospital. When not all guided by zoning and changing the uses, in that
62
case the particular building use to design based on what purpose? It is one of the
design risks. For example, we were designing for joint housing purpose and we
changed it into cinema (theatre) then it may be terrible risk having so many risks.
Nowadays, recent real estate projects changed in what concerns to the relation
among developers and investors. Two different examples could be shown: (i) in the
cane of apartment units served by a hotel operator, instead of selling apartment units,
the current products are hotel secured bonds. (ii) Banks do not finance residence
implementations any more, but once the enterprise achieved satisfactory selling
performance it becomes possible its financing through the generation of mortgage
backed securities, suitable to risk averse investors (Junior, Alencar & Monetti,
2003). For mitigating the risk, users change will not give any concrete mitigation.
Developers of housing, apartment and real estate need permanent solution, which
could enhance the sector to give employment to the people to contribute for the
nation and continue to operate their profession.
4.9 Products of Infrastructure must be Branded and

Qualitative
Another important characteristic is qualitative and branded product need not promote
the market. Always buyers' choice must be branded and qualitative. In the same way
housing and apartment applies the same principles.
Corporate brands need to be managed in relation to the interplay between
vision, culture, and image. Achieving this requires effective dialogue between top
management, external stakeholders, and members of the organizational culture.
Effective corporate branding will come with dedication to honest self-assessment,
responsive attitudes towards stakeholders, and respect for the values that attract all
parties to the corporation. In particular what is needed is to draw on the rich resource
that is the organizational culture and make it an integrated part of the effort to build a
corporate brand. This will bring the corporation into the corporate branding process
with all the competitive benefits that implies (Hatch & Schultz, 2003).
Customers are enjoying having Toyota car made in Japan even not feeling the
knot and bolt tightened. In the same way developers should be competent, capable,
and qualitative to make their own branded product. Some developers were already
established on their branded housing and apartment units and they are not yet facing
such worst risk. In the booking, the products were selling. All developers needed to
learn about their brand product from the successful successors.
63
severe. Acceptance is also known as retention and it is broken down in two types of
acceptance: one is passive and the other one is active. Passive acceptance is the
acceptance of risk without taking any action to manage it whereas active acceptance
acknowledge the risks as well but calls for development of contingency plans and
other special plan to mitigate.
4.12 Risk Rejection in Construction Field

This is the decision made not to accept the housing and apartment projects to
proceed. That means, avoidance is synonymous with refusal to accept the risks.
Refusal to implement of housing project is a simple example to risks avoidance. But
simply avoidance is not a way out, relevantly consider the specific risks, which
cannot accept is only the alternate to avoid.
Research projects and innovative, new product development projects are
usually inherently risky, but they offer potential for huge benefit later on. Because
potential benefits from the same projects were proportionate to the level of the risk.
In those cases better to reduce risk to an acceptable level in spite of completely avoid
the risks.
During execution, the essential process threat is that co-ordination and control
procedures prove inadequate. A common perceived threat in the execute stage is the
introduction of design changes, but these may be earlier sources of uncertainty
coming home to roost, including opportunities that should have been spotted earlier
to take full advantage of them. Consequent adjustments to production plans, costs,
and payments to affected contractors ought to be based on an assessment of how
project uncertainty is affected by the changes and the extent to which revised risk
management plans are needed(Chapman & Ward, 2003).
4.13 Risk Reduction in Construction Field

One-way to reduce the risk exposure is to shear risk with other partners or parties.
For example, contractors will enjoy reducing the risk exposures by paying liquidated
damage for late completion by imposing liquidated damage clauses in domestic sub-
contractor agreements.
The following technique would reduce the risks factors; 1) by employing the
best technical team with adequate incentives for success based on the decision on
models and simulations of key technical parameters. 2) by using mature, computer
aided system-engineering tools; 3) by hiring outside specialists for critical review and
65
assessment of work; 4) by performing extensive test and evolution and 5) by
minimize system complexity and use design margins.
4.14 Risk Transfer in Construction Field

Risks transfer does not reduce or solve its criticality of source risks but it transfers to
another party. Risk transference is the effort to shift responsibility or conveniences
for a given risk to a third party. "Risk transference requires shifting the negative
impact of a threat, along with ownership of the response, to a third party.
This is essentially trying to transfer the risk to another party. For a construction
project, an insurance premium would not relieve all risks, although it gives some
benefit as a potential loss is covered by fixed costs. In determining the strategy for a
transmission line construction project, the cost centers involved need to be examined
to determine where the responsibility for transfer and control of these risks are to be
placed (Tummala,V.M.R. & Burchett J.F. ,1999)
In the practice, risks can be transferred to the following organization or individuals
outside the project including but risks can transferred partly or fully from the sub-
contractors to customers as explained below.
The common and most popular way to transfer risks is to do insurances
(Including warranty firms, guarantors and bondsmen), which changes an uncertain
exposure to a certain cost, Next is also popular method to transfer to the
subcontractors, which carry out the job and gives to the developer. The third one is by
transfer to vendors, the fourth method is transferring the risks to partners and last but
not least one is to transfer to customers.
Of course it was impossible to entirely transfer the risks to one party or another
even with the fixed price contract where the contractor was taking all the risks. The
customers still faced the damage or hardship should the housing project exceeded the
target schedule. Transfer of one kind of risk often means inherited another kind of
risks.

This chapter consists of following topics as discussion. In this chapter, It is discuss
the risk mitigation model and risk response planning (RRP) in housing, apartment
and real estate projects. Under the mitigation model, following topics are being
discussed: Integrated Policy framework enhances infrastructure, Existing Legal
polices should guided by developers friendly , Frequent development and research
work is needed, HRM team must be experienced for risk mitigation, Responses based
66
on their work experience, Implementation Phase is to be careful compare to other
Phase, Cosmetic treatment for mitigation is not permanent solution, Products of
infrastructure must be branded and qualitative, risk response plan and Finally I
presented summaries of this chapter.
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Infrastructure Construction Risks Identiﬁcation,Analysis and Response

Book · September 2018

Madhav Prasad Koirala

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1. Risk in Infrastructure Construction Field and Theoretical

1.2 Infrastructure and Urbanization in Regional Context

1.3 Infrastructures and Urbanization in Nepalese Context

1.5 Housings and Real Estate in Developing Countries

1.6 Unplanned Infrastructure and Housing Work

1.7 Worth of the Infrastructure Projects

1.8 Concluding Remarks

Risk Identification in infrastructure Construction Field

2.1 What is risk?

2.2 Risk Identification

2.3 Risk Identification: Inputs

2.4 Risk Identification: Tools and Techniques

Brainstorming: The goal of brainstorming is to obtain a comprehensive list of

Checklist Analysis: Risk identification checklists can be developed based on

Cause-and-effect diagrams- These are also known as Ishikawa or fishbone

In construction projects, many parties are involved such as owner, consultant,

2.5 Political Risk

2.6 Contractual risks

2.7 Performance risks

2.8 Financial risks

2.9 Technical risks

2.10 Geographical Risks

2.11 Operator Risks

2.12 Organizational Risks

2.13 Insurable Risks

2.14 Risks & Exposures

II Contractual Risks & Exposures

III Operational Risks & Exposures

IV Organizational Risks & Exposures (Project Delivery Methods)

V Insurable Risks & Exposures

Hydropower Projects Time overrun

Kali Gandaki-A 18 months

Source: Kantipur daily, 2 March,2011

Project Estimated Rupees in Additional Rupees In

2.15 Concluding Remarks

3.1 Problems Associated with Legalities

3.2 Big Issue about ownership

3.3 Planning Permit from Authority

3.4 Bylaws, 2007 for Towns and Rural

3.5 Global Issue the Environment Protection

3.6 Local Government: Pre-Matured Authority

3.7 Hurdle in Approval Procedure

3.8 Problems in the Policies Level Framework-related Rules

3.9 Problems: Unstable Politics and Unstable Government

3.10 Financial Factors and Role in Projects

3.11 Economic Aspect: in Infrastructure Projects

3.12 Qualities in Projects: Challenges

3.13 Problems Related to Technical Aspects

3.14 Human Resource in the Infrastructure Projects

3.15 Components of Nepalese Society and Infrastructure

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