Professional Documents
Culture Documents
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The Concise OXFORD Dictionary (1996) defines 'risk' as:
"A chance or possibility of danger, loss, injury, or other adverse consequences; or a person or
thing causing a risk regardless in relation to risk."
In every strata and sphere of life there is risk, and so is the case with various industries among
which one is construction industry. In this industry various terms are used to define the term
³risk´ but they do not have universal acceptance. Nevertheless, the definition by Oxford
clearly states that everyone generally understands the meaning of the term µrisk¶ and the
concept itself.
According to Bootbroyd (2000) he mentioned that "the concept of risk is probably as old as
the Bible, but the discipline of Risk Management itself arrived in the insurance industry
during the mid-1500s. In these days brokers and underwriters were only concerned with the
'pure' risk or 'downside' ² looking at the loss or break-even scenario of a lost ship or cargo.
That has come a long way since then." In comparison, today Risk Management is more
concerned about maximising gains over potential treats.
Wysocki (2000) stated that ³risk´ as a change that may occur in the environmental conditions.
This change is basically associated with the estimated loss or a chance of event to occur,
which can be both estimated, and the choice of the project manager on how to reduce the risk
factor or the loss that may occur.
Moreover, Chong (2000) argues that there are no projects that run smoothly and according to
plan. This is because there is no such a thing as a risk-free project. Running project require a
lot of planning and some occasional changes to be made to meet the unexpected. However, a
good project manager is the one that is able to understand the risks so that he is able to
successfully adjust the project by altering the plans when the unexpected risks come in the
way.
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"The project manager must manage risk but without professional Risk Management it is
management by luck, and we can't all be lucky all the time."
(Boothroyd, K., 2000, p.26)
Baccarmi (2002) agrees with Boothroyd and states that Risk Management has attained a lot of
weight age in the project management community in the past decade by becoming a global
phenomenon, especially internationally.
However, there are many who are unable to understand that the inherent risk can be managed
and, thereby, they fail to understand the benefits of the professionalised Risk Management: in
an organisation Risk Management is commonly considered to be an expense or, in better
words, an extra expenditure in the project.
Even Ireland (1988) agrees that it is essential to identify risks in a project, but the
considerable benefits are not achieved by the new termed methodology widely known as
³Risk Management.´
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To include Risk Management in construction industry is still a debateable topic for most of
the professional project managers, even though study and theory have shown its long term
benefits. A lot of research and debates have been done on this but still there is a lack of use of
RM in real life projects.
A research on this topic has been done by Mills (2001) in his papers on µA system approach to
Risk Management for Construction¶, where he mentions the benefit of identifying risk at early
stage and talks about the allocation of risk. Also in Davis Langdon book named - Cost point
on µRisk and Value¶, it is emphasised that RM is beneficial in early detection of consequences
of risks, the review of objectives done by the third party and also it helps in improvisation or
targets, thereby minimising the risk factors, leading to an improved audit trial and towards a
better end value in terms of cost balance, time and quality.
Therefore the aim of this research is to encourage the usability of RM by different project
managers and especially in the conceptual stages of the life cycles of the project, where cis
most significant.
A list is to be developed on all the basic risks and analysis needs to be done for selection of
possible treatments and tools that can be of use to project managers in a Risk Management
identification and minimisation process.
In order to fulfil the aim and the objectives of this dissertation, it is necessarily
to perform the research by adopting a step-by-step approach Dixon (1987)
Both a structured survey or questionnaire and structured interview will be used for data
collection. Data will be collected from selected professional project managers found on
The AIPM website that specialises in the construction projects. The questions posted
will be based on research identifying (bring about all the general findings, through
literature review, by the many steady stream of published books, journal and even
article in the web site, on this subject) the possible common risk encountered in the
construction industry and the available tools and treatments used against such risks,
and finally to find out the effectiveness of the risk assessment, and is it a advantage or
disadvantage doing so.
These questions will be formed in a detailed questionnaire which will be sent
electronically to only a fixed set of construction organisation in South Australia and
also conduct interviews with a few a set of project managers that have participated in a
risk assessed project from start to completion.
Chapter 2
Identifies in depth what are the distinct Risk Management tools and
techniques for risk analysis and risk assessment.
Finally the benefits that exist in providing Risk Management Services to the clients,
and why the usage is still so uncommon in the construction industry. The main
problems that exist in the construction industry that may causes the lack of use in Risk
Management are looked into in detail and debate why these reasons still exist after years
of research.
Chapter 3
Chapter 4
Provides an overall picture of the results on the data collected, with pie charts,
graphs, figures and table as part of the illustration. Also presents a discussion on the
analysed results.
Summarises the overall research and concludes this research. The Researcher
experiences in completing this research will be reflected that include all activities
involved when producing this research. Finally, recommendations will be developed
for further research.
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It was incepted in the late 1950¶s and is being used since then. Project
management has evolved and is considered for delivering the projects on time,
with the set of budgets and other specifications and its effects has made it
holistic approach.
Murphy has given people lot of motivation and wisdom about projects,
machines ,people and also about the circumstances and situations that makes the
things go wrong.
"A temporarily sequence of unique, complex and connected activities that have
one goal or purpose and that must be completed by a time, within and according to
specification."
He had further added that for any project, proper project management is
essential. The project should be designed in such a way that the project is able
to complete on time, and become a success in an acceptable budget and is also
capable of fulfilling the customer specifications.
The two keywords used in the definition are: Temporary and Unique.
Temporary here means µa definite start point¶ and a specific end point and
unique states that a product is very different and stands apart. Both of these
terms bring light that makes a project looks apart from the tasks which takes
place continuously such as in manufacturing.
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A project is not a permanent organisation, its only made or worked upon to achieve a set of
ad-hoc goals which are split-up where the ultimate goals are achieved. Project management
is a technique used by people who manage projects and use friendly techniques, tools and
methods. Thereby Ireland (2000) had concluded that project managers must stand by people
who resist change, as a project is always concerned with a structure, service, product or an
event project. He also believed that a great extend one can use project management to
manage changes.
To protect the value of project it is very important to meet the needs of it and dealt with the
issues that are linked to the project delivery. Ramgopal (2003) had stated that the task of the
project management is making it possible to convert uncertain events and efforts into certain.
He also mentioned that Risk Management is always supported and enhanced by the other
process of project such as scope, schedule or spending management. Management is one of
the very critical and essential part of successful Project Management and is required for
enhancing the value of efforts which are project based.
Morris (1998) had said after examine a summary of the birth or how Project
Management came into use in late 1950¶s. He enforced that most of the modern
concepts and techniques other than Risk Management were invented in the U.S
department of Defence between 1950 and 1964. Projects during that time as said
before had complexities related to Engineering and other problems such as urgency
on schedules or overlapping budget and even overambitious schedules. In response to
which the focus was shifted to find a solution or way which makes project delivery
on time, with set budget specification possible.
Modern Project Management has now evolved more and has become an holistic
approach that is being integrated by major project teams. It is realised that realisation
has come within the project managers that a specific set of technique or skills need to
be used for making timescales of the project, budget, resources, risk etc.
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The project moves on a fixed cycle of life. The project life cycle can be explained as a
process where a project moves from the beginning towards the end along with the variations
that are natural and do exist depending upon the factors such as area of application.
It shows a well recognised picture of risk in project, and also indicates the
relationship among risk and amount at stake through the life of the project. In
this context the Risk Management is project focussed.
Plan Accomplish
amount at stake
period of highest
risk impact
Time
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The term Risk and Risk Management both have a broad application. Risk
Management covers various aspects of a project such as political, commercial,
technical, etc. Browning (1999) had summarised the categories of risk into six
main categories-
Performance Risk
Schedule Risk
Technology risk
Market Risk
Business risk
Uher (1999) had defined Risk Management as a procedure to control the level
of risk and mitigate its effects. The general steps involved are risk
identifications, analysis and response. According to Davey (2001) every
business venture faces risk which may arise from various sources such a
technical management , communication , financial, etc.
Risk Management has become a very invaluable process that enhances the
possibility of the outcomes of all types of projects. By analysing risk the
investigation of all causes and efforts of risk can be done in terms of-
possibilities of things that might go wrong with the expectations of the project.
Risk Management main purpose is to control or cut down risks.
When it was observed that there are increasing uncertainties, Risk Management
was introduced as a new concept in the construction industry in 1980¶s. Its
significance was realised when it was applied practically and a lot of research
was done in the field by Vicknayson (2004), Uher (1998), Raftery (1999), Al-Bahar
(1990) and Perry (1986). According to them the main focus of Risk Management is to
manage risk effectively. If the risk is managed effectively then only the client will be
able to get a project within the timeframe, budget and specified quality.
Fig. 2.4 depicts the relationship between consequence and probability, role of risk
management to move to level of risk associated with a project.
Byford (1998) mentioned that the purpose of analysing risk is not to eliminate
any project that a worthy projects is proceeding effectively, in an environment
which is of realism and Risk Management proves to be an effective tool in
providing such working conditions.
According to wellington (2002) the analysis of risk can be done at any phase in
the project, but is more profitable if it done at the early phase because it is phase
when the budget is made and spending is more effective. The main reason of
risk management is to develop a risk profile for the future to make effective
decisions. In fig. 2.5 indicates that if steps are not taken quickly , options of risk
management become uneconomic with the benefit outweigh by the reduction of
cost.
influence
Cost central
influence
cost
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Several organisations of various industries have understood the significance of
µRisk Management¶ departments to avoid or say control the risks that may come
during the project. And if we talk of construction industry where there is huge
risk due to its nature of activities, procedures, process and environment. So
construction industry and risk is closely associated as it is one of the most
changeable uncertain, risky and challenging business industries.
Yet Hays and Thompson (1986) stated that construction industry holds a very
poor reputation in managing risks as majorly the projects under this industry
fail to meet the deadlines and the target set for expenditure. He also provides
us with various reasons behind it like the changes in weather conditions, the
productivity in terms of labour and the planet and also the quality of material
used. Often here risk is not taken very seriously and it is dealt old ways such as
adding 10% contingency on to the cost estimated for the project. In an industry
like construction such an approach towards dealing with risk only causes major
problems such as expensive delays and even bankruptcy.
The survey concludes that risk management should be the integral part of
construction industry and essential for the activities related to construction. It
states profit possibilities. Construction risk generally include the events and
occurrence that
Affect the objectives of cost, time and quality of a project.
Unfortunately the risk management is not able to hold roots due to lack of
knowledge and the doubts that storm the minds of the project managers in the
construction industry.
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These both terms are interdependent. In a construction industry, the one who
heads the project, the project manager is like a ruler; in this industry risk
management plays a very evident & essential role in ensuring the smooth
running of the project and also in meeting the budgetary and various other
objectives of the project.
A person can better understand the significance and the potential of risk
management in all parts of organisation can only be done when he moves out
of the four walls of a single project and think out of the box. Now a day¶s Risk
Management has became an integral part of various sectors such as the
manufacturing and construction sectors.
According to wellington and Norris 2002- RM can play a very significant role
in improving the decision regarding the project and also help in achieving the
desired goals/ objectives.
But few organisations still follow the tradition process of avoiding risk instead
they must understood the potential of Risk management and must make use of
it in a structured manner. It is an effective tool that has been neglected from the
decision makers.
Even Grey (1999) is of the view that organisation must consider risk
management
For negative reasons in formal manner. If this is done the organisation can
overcome the situations wherein string or disasters takes place. He also
mentions that how risk management is started is not that essential what is
essential is that if its well designed and planned it can be beneficial in a long
run. There are few Risk |Management strategies and methods that happen to be
very cost effective but still there is lot of confusions on its applicability.
Mc Veigh (2002): has done a lot of research work on the topic states that even
though he followed the RM standard 4360:1999 it has not taken him anywhere,
but on the other hand also agrees that during the initial days they did not focus
on the real issues. He also mentioned that probably they failed to have a fair
understanding towards the stake holders and generally looked at the risk
factors which later were difficult to assess and moreover difficult to treat.
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Since years Wysocki Robert & crave (2000) have done through research and
studies on project management methodologies. After all this they found that
various principles are behind the more successful methodologies and patterned
a project management life cycle to do comparative study with client
methodologies. And its results clearly proves their views to be factual , that
features reoccur in successful methodologies and also their life cycle was very
much similar to that of PMBOK published by PMI.
Burchett 1999 stated that risk management part is the essential part of decision
making process of all construction companies. Easy, risk and uncertainty are
the destructive in nature for some construction projects. Risk can be a
hindrance in the way of performance, pro-destructivity and quality and also to
budget.
Wysocki 2001 states that the concept of Risk Management is not all that easy,
it¶s easy to talk of RM benefits but to use it and bring into practise is a
attention seeking job. This is because of the pressure of deadlines on project
managers which exists or indeed forces them to catch up with their work rather
than spending time on planning and preparing work. It¶s advised that project
managers instead of generating press we must try to sort out things in such a
manner that a detailed project plan that is added up with sound Risk
Management should be considered more. As its been demonstrated that poor
planning has adverse effects on the project, such as schedule steps ,low quality
, budgetary problems etc.
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Risk management of project is the thing which every project manager face in
day to day life so is more spontaneous than practical. If the risk in the project is
not identified and managed properly the consequences could be penalties like-
a.c Overspend
b.c Overrun
To achieve these project managers must locate and identify risk at various
stages of life cycle of project, from initial level till the end. It is also essential to
keep a check on operational, maintenance and other phases of the project.
Managing risk in a project should be engrossed in a project for good
management. However , Risk Management is often seen by many as an activity
for developed or established project activities.
Project managers need to focus more on project Risk Management in terms of
goals and interaction with other companies.
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Traditionally the view about risk is negative, represents loss and adverse of ill
effects. But some guidelines on current risk includes the possible situation
where there is µupside risk¶ or opportunity, where there is certain risk or
uncertainties that have a beneficial consequence in achieving objectives. Inspite
of this theory mostly risk process is applied as managing threats and the
approach towards opportunity management is still overlooked. The tools and
techniques that are available to the practitioners mainly focus on the negative
side.
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There are various key steps involved in the R.M that comes in the particular
phase of project life cycle. The foremost of R.M is form objectives of the
involved parties.
Baccarini (2001) mentioned that R.M¶s process can put down as following.
Number of variations have been bought forth in the project Risk Management
process. Boehm (1992) said that process has two main phases namely- Risk
Assessment and Risk Control .
Risk control- which involves R.M, planning, resolution of the risk and
monitoring & planning risk.
R.M is one of the essential of project management process. Various tools are
there to help in various phases of Risk Management. R.M is to its upmost level
as a strategic planning tool and is able to provide best value when used
enhancing or at the initial phase of project. Grey (1999) mentioned that a few
Risk Management methods are very cost friendly but Risk Management still is
attracting lot of confused thinking and intentions that are absorbing more efforts
than giving results. Thereby he also mentioned that practitioners should be clear
of their expectations from Risk Management.
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The process used by quantitative risk assessment are similar to the process of
qualitative risk assessment having an exception of numerical values.
Wellington (2002) mentioned that a quantitative risk must have items that are
assessed with probability of occurrence of three points. It¶s a triangular model
focusing on cost, time and impact.
They can be very costly and also mislead if the validation of data is not done.
CHAPTER 3- METHODOLOGY
3.cRESEARCH METHODOLOGY
3.1 Research
This research will reveal the steps and reasons for using the methods of research chosen for
this research. This research also shows that how from the initial stage of the research, the
design of the research by defining the problems faced and thus forming the aims and
objectives from the data collected and obtained results in order to reach the conclusions to
support or to go against the objective laid in the research.
In this research the author has used many concepts used in Risk Management
and its techniques while reading for his post-graduate degree in the university.
The author had realised that the introduction of risk management techniques
was seen formally in the 80¶s and it was noticed as beneficial, though it had
been seen that different research shows different results. This is first noticed by
Toakley (1991), Risk Management had given success to large amount of
projects in recent yrs and is perceived as beneficial , but till date there are very
few evidence of its usage in the construction era particularly in the building
industry. This was also said in the research done by Carr(1997), ha mentioned
that management is not simple as it sound to everyone , there are many
organisations that are unable to evaluate effectively risk due to insufficient
infrastructure management to support management of the risk and systematic
methods to analyse and plan the mitigation of Risk.
The research of Mok et. al. (1997) shows that there are other methods as well that are
preferred above Risk management, these methods are not well known and are not widely
used by the construction industry.
The research done by In Abdul-Kadir and Price (1995) shows that there was an
issue of production in work in the construction industry related to phases other
than conceptual stage of any construction projects. They had also discovered
that the conceptual stages are the most influencing stages and for the success of
every phase depends upon the decisions took in the conceptual stages.
according to them these phases , stages and decisions were overlooked in the
construction projects.
As the problem mentioned above, the author had reached to a his research
question that encouraged him to put it to test:-
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Quantitative research gives the required data for verification. Dixon et al. (1987) had shown
the importance to determine an accurate method of putting together all the information.
Nachmias et al had recognised various methods, while Naoum (1998) categorised kind of
data into qualitative and quantitative.
"Quantitative research designs are used to determine aggregate differences between group
or classes of subjects´ (Rudestam & Newton, 2001).
"The qualitative means of research is a more laid back approach to a research project and it
allow researcher to be more spontaneous and flexible in exploring the phenomenon in their
natural environment"(Rudestam & Newton, 2001).
Creswell (2003), states with the expansion and apparent authenticity of both qualitative and
quantitative research ,the mixture of research methods and techniques, using the collected
data which is associated with both forms is expanding. It had been recognised that all
methods has got some limitations, and is noted that the researchers who felt biased in one
method could counteract or cancel the biased of the other method.
"Mixed methods approach: pragmatic knowledge claims, collection of both quantitative and
qualitative data sequentially." (Creswell, J., 2003, p.21)
It includes strategies of inquiry that also include collection of data either at the same time or
in sequence to understand the problems fully. Data was collected in both forms i.e numeric
(e.g questionnaire) and text (e.g interviews) which shows both qualitative and quantitative
information. This research begins with a survey in order to generalise results to a population
and then focuses in a second phase i.e interviews conducted from people working in the
construction industry basically working in risk management department.
Taking into account the disparity among the qualitative and quantitative data, the researcher
had taken a decision to the put this research while mixing both the research methods. It can
be seen that the use of several data collection methods and techniques is always good to
answer the research question. The use of variety of methods and techniques gives different
perception on the study and therefore change the actual meaning of it. The use of both forms
of methods and techniques gives the wide picture and also results in good quality of
information by mixing the perception of both the observer and the people interviewed.
Creswell (2003) mentioned the three methods approach they are sequential study, concurrent
study and transformative study. The author took the decision to use the sequential study in
which the procedures are organised in collecting data and analyses of the data.
(Stage 1), followed by qualitative data and collection and analysis (Stage 2). Then, in the
conclusions or interpretation phase of the research, the author will comment on how
qualitative findings helped to elaborate on or extend the quantitative results.
3.4 Questionnaire ² Stage 1
"A questionnaire is not some sort of official form, not is it a set of questions which have
been casually jotted down without much thought. We should think of the questionnaire as an
important instrument of research, a tool for data collection." (Oppenhaim, 1992, p.100)
The consideration took time but was helpful to the author to decide mailing the survey to the
appropriate people who could help in this research.
The author has kept in mind few factors while constructing and designing the questionnaire.
While constructing the questions and modifying it time to time assuming the prospects of
the project managers. Doing so, the objectives can be seen clearly in the questions
developed and easy to understand by people as well.
"Survey questions may be concerned with facts, opinion, attitudes, respondent's motivation
and their level of similarity with a certain subject." (Nachmias, 1996)
The classification of question can be seen as more factual than subjective in nature. The
factual questions are kept in the questionnaire to get the objective information from the
respondents, where there were some questions which are subjective in nature to get the
preference, ideas, and prejudice information from the respondents. But, in this research the
author took the decision to not to use the subjective questions as the fact that it can create
complexity and the answers to the subjective questions are more sensitive than those to
factual.
In this questionnaire planning, the author used both close-ended and half open-ended
questions. For questions that has fixed or singular answers to it, the author used the close-
ended questions, for example:
Q7. What is the usual stage to launch Risk Management in projects?
There are some questions which have close- ended and some are direct , the close-end
questions are biased at times therefore the author used few open end questions also. There
are set of answers for the questions which are at the end of every questions, respondents can
write their own answers if feel like or can tick any one of them which they feel is
appropriate.
For example:
Q6. To what extent do the following factors deter you from applying Risk Management
Too complicated 1 2 3 4 5
Time consuming 1 2 3 4 5
Others 1 2 3 4 5
Nachmias (1996) said that validity and reliability goes hand in hand in measurement theory.
The term Validity is concerned with the question of whether one is measuring what one
thinks one is measuring. While, reliability indicated the extent to which measure contains
variable errors, and the measure can be estimated by one or more of the following methods:
test-retest, parallel-forms and split half.
Interval B Variable which strictly speaking is ordinal, but which have a Q6,Q11
large number of categories, such as multiple ±item
questionnaire measures. These variables are assumed to have
similar properties to true interval variables.
Cramer (1998) mentioned that the use of SPSS software is easy to operate and even calculate
very quickly. SPSS keeps the record of variable, calculates new variables and deals with the
values missing. SPSS can do any kind of statistical analysis and this makes it an appropriate
software for calculating results.
The independent sample t-test is used to determine the means of two unrelated samples
that differ. It is used to compare the difference between the two means together with
the standard error for differences in the different sample.
There are many types of Chi-square test available for testing data. For this research,
the Chi-square test for two or more unrelated samples were used to compare the
frequency of cases found in one variable in two or more unrelated samples, or
categories of another variable.
Denscombe (1998), mentioned that as a data collecting tool, in the interview it help in adding
a detailed and in depth of the data.
As an information gathering tool as mentioned by, the interview lends itself to being used
alongside other methods as a way of supplementing their data, adding detail and depth.
Therefore, to modify the questions and concepts that appear in the questionnaire survey,
where the questionnaire might have thrown up some interesting lines of enquiry, the author
can use interviews to pursue these in greater detail and depth.
Later in this phase, the researcher had chosen a type of interview called µinterview survey¶.
This interview survey was mentioned in Fellows and Liu (2003), a lot of writings have
debated on this type of survey and said that it is more Quantitative. Although the set of
question in the interview survey are planned earlier in which the researcher has put more
stress on the qualitative aspects of the questions whereas the interviews are held freely so that
the respondents answered them the way they want rather than choosing from the options
given to them.
Generally interviews are done to get the in depth of the questions in the survey , to get to
know what the respondent think about it. By doing so it can reduce the biasness that usually
occurs in the quantitative research. The information gathered in the interview is not presented
in the numerical form therefore considered as qualitative.
The aptness of using interviews later than the questionnaire survey is given below. The
aptness of the interviews used in this research after questionnaire survey is justified below:
1.c Allows the author to understand more and elaborate on the personal front of the
individuals.
2.c The author can later on develop more knowledge or statistical results from the analysis
of the quantitative research.
3.c The author can present a more narrative form of report rather than just a numeric
statistical analysis , thus making it more easily to understand by everyone.
The interview method chosen for this research is the in-depth interview to get more deep
information other than questionnaire survey.
Conducting a good In-depth interview could be said to require the skills of a good investigate
journalists." (Ticehurst and Veal, 2000, pg.98)
The researcher had chose open styles of question than the other two given above. Open style
is most commonly used and doesn¶t restrict the content or the response.
The reward of using open style questions are-
1.c Flexibility
2.c Allows testing the limits of respondent knowledge.
3.c Produce unexpected answer.
As stated by Robson (2002), the rewards of open-ended question style are that they:
Usually the three variety of interview are: structured, semi-structured and unstructured
interviews. In this research the researcher had used the semi-structured interviews because he
has the clear set of problems to be address and questions to be answered, and yet flexible
enough to the topics covered so that the interviewee can speak freely on the problems raised
by the researcher.
4.1 ² o
I ²
4.1.1 ² cBackground
4.1.2 ² Management Usage
4.1.3 - Management Benefits
4.1.4 ² Management Deterrents
4.1.5 ² cManagement Life Cycle
4.2 ² o
2²Interview
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In this section the outcome of the statistical analysis is discussed. This research has been
analyzed with the project managers involved in the construction projects throughout Australia.
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From the feedback forms received most of the respondents were project managers from the
Construction sectors (52%) or the fields ancillary to it: Utility (15%), Government (13%),
Project management (10%) and Engineering sector (10%).
Fig. 4.1.1a
Project Managers from
different sectors
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59% of the total respondents have experience in project management of 5 years or less, 18% -
16 years or more, 13% - 6 to 10 years, and the least at 10% have experience between 11 to 15
years.
Fig. 4.1.1b Years of Project
Mangement experience
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Fig. 4.1.2A Risk Management
Usefulness & effectiveness
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Out of the 37 correspondents that employ Risk Management, 92% find Risk Management
beneficial while other 8% are indifferent
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81% of the Respondent use Risk Management in their projects. While 8% of them use it every
1 in 5 projects, or 1 in 10 projects. 3% use Risk Management at rare intervals while some are
of opinion that they would use it in almost every project in a ratio closer to 1 in 2 projects.
Fig. 4.1.2C Length of Risk
Management Provision
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Different correspondents provided Risk Management differently: 32% of them had it for a
fairly long time of 10 years or more, 22% - 6 to 10 years, 27% - 2 to 5 years and 19%
provided it for less than 2 years.
27% of practitioners, who possess experience of Risk Management of more than 10 years, use
it to mitigate the risk consequences for every project, follow by a slight decrease of 3% to 5%
at each category, in years provision against frequency of Risk Management provision. Only
19% fall in the remaining category of providing it in 1 in 5 projects, 1 in 10 projects or seldom
provided, for all years of provision.
Table 4.2 Risk Management experience
The feedback from the survey shows that the many companies are in benefits for practicing
Risk Management.
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Long term cost savings 58%
Complex projects 40%
Quick and more competent in handling risks 45%
Clients Requirements 30%
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The basic reason for providing Risk Management agreed by 58% of respondents was long-
term cost savings, while the other respondents quoted reason is that Risk Management is
beneficial when projects are complex or have high risk and that cannot be commenced
without a good Risk Management plan; also where the client specifically demands it as it
quickens and provides more competencies in handling risk.
Moreover, 15% of the correspondents indicated that Risk Management helps in proper
planning and recognition of risk and that sometimes it is specifically required such as
political requirements or client specifications.
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Table 4.4 Deterring Factors Affecting Provision of Risk Management
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The basic reason for not using Risk Management as provided by 35% of the correspondents
is time consumption, while 46% hold the view that it is turning to be a non-deterrent factor.
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Other deterrent reasons as quoted were not having enough experience in Risk Management,
no strict company procedures, also the resistance to change is often quoted a reason as old
staff are frightened for that.
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could also be the reason for not providing Risk Management.
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Saving of time and money as well as the optimization of the quality of work is possible by
early cost advice. Researcher, as discussed in Chapter 2, also emphasizes this.
Generally, Risk Management is initiated at the early stage followed by the initial design
stage. If Risk Management is implemented before the Detail Design Stage, it still can be
beneficial, but if the change is made after this stage then it can cost more and also
complicates the whole plan.
The results of the other stages of Risk Management than the practitioner¶s usual practice are
provided in the table below.
There is a distinct choice from the correspondents on the Conceptual stage, as some of them
refer it to as the Business Plan stage or Feasibility stage, which is the ideal recommended
stage by most learned researchers. Results are evenly distributed at the remaining stages,
which states that the correspondents feel that Risk Management should be provided
throughout the process. But though it needs to be initiated in the Conceptual stage.
Fig. 4.1.5a Maintenance
of Risk Management
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While 78% of the correspondents feel that Risk Management should be maintained through
the whole project life, the other 22% do not hold this view. However, researchers also feel
that it should be maintained throughout the project. One correspondent states that he is
restrained from maintaining it throughout the project and maintains it only in some areas.
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Table 4.7 Problem encountered when Risk Management not implemented
during conceptual stage
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The two basic reasons that were found as to why Risk Management is not implemented
during the Conceptual stage were unforeseen disputes and claims, and project time slippage,
as these two are more costly to settle at later stage. The other reasons include excessive
variations. Non±implementation of Risk Management at early stage leads to disadvantages
like not finding good alternative solutions, the chances of encountering an increase in
unidentified obstacles and the inability to identify cost savings. Correspondents may also
have to bear cost pressure and leave a bad impression to their clients.
Better or cheaper provision of tools and techniques 9% 12% 12% 21% 26%
The next inquiry was made to find out the factors that would initiate the practitioners to
implement Risk Management. Most of the correspondents emphasized that the important
factor for encouraging Risk Management is that it is a proven risk-preventive measure. Other
factors include providing more training such as Risk Management workshop, cheaper ways
for providing Risk Management by incorporating it in the system that will also encourage
correspondents to use it on regular basis. Making it time saving, firm and actively committed
by organizations can also encourage the implementation.
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The author put forward the next questions to find out the weight of advantages versus
disadvantages of Risk Management.
Table 4.9 Advantages and Disadvantages of Risk Management
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The analysis clearly shows that the advantages of Risk Management surpass the
disadvantages of it. The advantages of Risk Management are the minimization of risk, long-
term cost savings, quality improvements, and quick risk responses. Most of the
correspondents provided all these advantages as cited. However, one correspondent also
quoted the minimization of claims and dispute as its advantage by the project having clear
baseline.
The disadvantages of Risk Management are process being very objective and subjective,
involvement of uncontrollable variables, and overdependence on easy methods for solving
complex process. The other drawback is the non-information sharing between higher
management and bottom group resulting into bottom group being isolated from the process.
Also, as cited by correspondents, there is always a lack of resources and it is a costly
exercise. Over 13% find that there are no disadvantages and the worst disadvantage would be
not using Risk Management.
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Finally, the inquiry was raised to see the frequently used tools and techniques to tackle Risk
Management that were found to include Brainstorming sessions and checklist. Also the idea
of 'keeping it simple' and the inclusion of workshops, showing the benefits of Risk
Management, encourage its implementation.
Other basic applications are the risk matrixes or subjective rating, i.e. daily monitoring and
reporting throughout the project life cycle of the category of risk, the risk event, likelihood,
impact, containment, monitoring and responsibility. Some are just as plainly as developing a
risk mitigation strategy for prevention and contingency. Usually some organizations have
their own in house software that is used to perform Risk Management.
Some respondents said that industrial standard studies are actually a form of Risk
Management. For the complex project the usage of HEMP or hazard identification plan may
be preferred, which is identical to risk matrix.
Correspondents quoted some tools as having more sophistication i.e. Klepner and Tregoe as
compared to Sensitivity analysis, Decision Tree, Influence diagram and Monte Carlo
Simulation.
8% of the correspondent¶s states that previous experience and lessons learned are the main
tools to any project managers' needs, in order to implement the best Risk Management.
a.c There will be two project managers originally from the project management sector of
construction and will represent the huge percentage of Professionalism.
b.c One of the project managers will be from the government sector and will represent the
public projects.
c.c One of the project manager from the private sector which will represent the
consulting team which helps in fulfilling the clients demand.
Some of the two project managers undergone the interview were more experienced in their
particular fields for more than 10 years. This was kept in mind while doing the research
because the researcher wanted to have a in depth knowledge on Risk management. With two
project managers left in which one has experienced of about 6 years while the other one has
got approximately 5 years of experience in managing a project. The project managers
selected represent the new thinking and new practitioners in the construction industry.
4.2.2 Risk Management Usage
The term Risk Management has been known to people since long time about 25 years in one
way or the other, is it believed by the respondent that it has got some more forms even before
then. The term Risk Management has not been formal and its trend can be seen since last 10-
15 years only. According to some practitioners this term was used very casual around 10
years back but in recent years this term has been used very carefully and being used for
almost every construction projects. Earlier it was used very casual without any
documentation or any formal process but now it is used consistently and follows a particular
process.
"Risk Management has happened in the past informally and without people knowing.
We practice Risk Management every day of the week"
Some Practitioners mentioned that they are pro- active and participate in active risk
management and also it is an important part of what they do. Some practitioners states that
the term Risk Management is used all the time, daily basis , formally or informally in one
way or the other in each and every project.
It is well known that public sector projects particularly the bigger ones have much to do with
the formal Risk Management. For almost every project manager big projects are more
formalized than a smaller ones and the procedures for the big projects must undergo all the
formalities required to identify the probability and types of Risk at the conceptual stage.
Some of the small organization use it as well but it cant be more formalized as seen in the
bigger projects. Project managers finds it part of day to day activity to manage risk. For
some practitioner if they find that the project is not too big and can be managed with project
managers day to day activity basis then it is said to be handled more efficiently then handling
bigger projects in which there are many formalities to follow. It takes more time to follow all
the formalities in small projects whereas bigger project always have a good span of time for
completion.
It is also seen that in construction industry, especially small organizations , don¶t actively
participate in following Risk Management. It is based on only the interest of the project
manager, if it is in personal interest of the project manager then only it will be implemented
on the project.
4.2.3 Risk Management Stakeholders
"Call the project manager the risk manager because that¶s one of the
key jobs that the project manager does."
The respondents agrees that project managers play a key role in every project and always
initiates the managing of risk. It is a key role of every project manager to manage risk,
planning and developing during the project. Project managers are actively involved in the
smooth running of the projects and follows all the 9 knowledge areas given in PMBOK.
Generally, it is required to choose correct stakeholders to manage and asses risk at various
stages depending upon the setup of the project. The people concerned for Risk Management
keeps an eye on the type of risks and might change as they goes through the whole project.
It is very common in the earlier stages while introducing new Risk Management steps started
by the clients, once the stakeholders been through the training, they do not initiate it any
further and expect the practitioners to manage and asses risk for them.
"A lot of the project manager's clients are developers that have been working on a
regular basis and the clients believe they have a good handle on what the costs are.
They believe they have a good understanding of what the community wants in the
terms of a project and they look at the bottom line. By bottom line I mean the
profitability of a project, and that is why I call them "small minded clients ", they
might be doing a $2 million project and are not prepared to spend $2,000 to get
someone to come in to look after the cost because that is one of the easiest examples as
far as Risk Management goes. Well the biggest example. They are not even prepared
to spend that sort of money to guarantee the viability of the project and make sure that
they are not going to go over budget and that it will come in within the dollars that
they are looking at."
It has been noticed that stakeholders are not willing to entertain any extra cost because as per
to them it is not justified. They are willing to take a stand for Risk Management without
knowing the implications and utilize their time doing other things. It basically depends upon
the knowledge of the stakeholders related to Risk Management. If the stakeholders are not
keen to know about the assessment and managing of risk and becomes hostile about the Risk
Management and the cost for it. This situation arises when they are in a low risk
environment or when they do not know much about it. But if the client are from government
sector organization then they are more keen to mitigate the risk that comes across and are
happy to pay for it. e.g.,$10,000 now might save them a million dollars later
"Clients are rapidly becoming more, not educated, but more understanding of Risk
Management."
It has been noticed that in recent years clients are becoming more and more educated on Risk
Management. Today clients want the Risk Management process to take place. In bigger
projects , project managers are likely to follow the formalized set of steps given in Risk
Management process. This is usually seen in government sector projects where it is the duty
to follow the formalized set of procedures because they keep an account of it. Whereas in
small projects the formal set of rules and regulation is not seen at all and is managed on the
set of formalized set used in day to day activity of a project manager.
The first step in risk management is to write down the project intentions and evaluate the
limitations involved. Different levels of risk are involved in any project. These could be
extreme, high or low risks, and it is the duty of the clients to determine the level of risk they
are willing to take.
The next step is to develop a risk strategy, which involves decisions about what is to be done,
as well as providing solutions and alternative options for the limitations. The strategy is
achieved through mitigation, negotiation as well as risk-sharing approaches. Although Risk
avoidance is the preferred method of risk management which results in removal of risk at
little or no cost, some risks are inevitable and would need to be taken.
The risks taken in a project need to be carefully monitored by a designated project manager
through re-assessment and re-evaluation, to ensure that the risk strategy is effective.
According to one of the project managers interviewed, risks are not necessarily constant
throughout a project and may appear half way through; thus proper risk management through
the life time of the project can reduce extreme risks to lower risks, and result in a successful
project outcome.
A status report is kept by the project managers to monitor the progress, the expected
completion as well as the budget of the project. Any changes occurring in the project are
documented and attended to, in consultation with the stakeholders; and any risks that may
appear are handled using mitigation approaches in the risk strategy developed.
At completion, the project managers review the whole project using a formal "Post- project
Review process ". Together with the clients, they review the original brief and determine
how successfully that brief was addressed, taking note of issues that should be addressed in
future projects. Some project managers interviewed confirmed the importance of this post-
project review phase in ensuring client satisfaction in terms of how the brief was resolved,
proper functioning of the project outcome and what they would do differently if they project
was to be carried out again.
After handing over of project, project managers are also responsible for proper functioning of
the outcome. Any hitches are analyzed and the risks that may arise are determined and
attended to. Thus, it can be suggested that the risk management exercise extends after project
completion.
The project managers and the stakeholders brainstorm to get ideas and then rate these ideas as
low, medium or high. The client might have something more complicated, but project
managers normally try to keep it simple -"the old KISS principle".
The brain storming sessions are usually achieved by conducting risk management workshops,
as described in the following section.
Various Risk Management tools and techniques are available for use. It can be as simple as a
live spreadsheet that gets updated every month, which informs the project manager of the
current project progress and any issues arising. Very commonly, practitioners only use Excel
or risk matrixes.
Project managers are mostly responsible for risk management workshops and these
workshops are especially popular with government projects, particularly State Government
projects.
These workshops are a good way of getting stakeholders involved in the project,
and involve Brainstorming or risk storming to assess the likelihood and the impacts of the
risks, and the development of risk management strategies. The workshops show that the
clients have their own requirements and the project managers have to meet these
requirements. If clients do not have any requirements, the project managers make suggestions
according to their budget or time availability, and formalize the suggestions by documenting
them.
Different stakeholders have different perceptions of the risks involved in the projects, and
during risk workshops, these risks are scored and written down according to a risk profile.
Copies of the information developed are circulated amongst Stakeholders to remind them of
their contributions and to enable them think of any new risks, mitigation or avoidance
strategies that were not previously thought of. The information obtained from the workshop
influence the decisions of clients and project managers in solving problems which arise in
the project. Review meetings are held to address any issues that were missed, using the
same brain storming process
There are different opinions on risk management workshops, considering the time and
monetary costs involved. One project manager thinks that Risk Management workshop is a
buzzword for the majority of the clients, and that only insurance people, project managers and
some clients, who have a lot to lose really take it seriously. Another project manager
interviewed said "When you have clients, you have to document risks and protect yourself at
the end of the day". He believes that a risk management workshop enables the project
manager carry out due diligence and ensure that all reasonable steps are taken to mitigate,
control and avoid risks, and would serve as a line of defense in case of eventualities.
The risk management workshop can be carried out less formally through exchange of e-
mails between the clients and the project managers, reducing the time and cost implications
of the process. This also provides a documented system.
- Risk management provides an avenue to engage the stakeholders in the project, in order
to determine the viability and success of the project and to make decisions about the best
options to adopt.
-Risk management also helps to achieve best-practice for a project, and allows a project
manager to assess project threats, enabling the project manager to exercise measures to
counter these threats.
Some of the Risk Management deterrents mentioned by interviewees include the time and
monetary implications; the lack of man power and expertise, especially in smaller
organizations, as well as the complexity of the work involved.
However, the benefits of Risk Management outweigh the deterrents. A few project managers
interviewed stated that Risk Management is so embedded in everything they do, that they are
providing Risk Management principles. Unmanaged Risks Can result in a number of
undesirable situations, which include adverse publicity or lack of confidence as well as
dissatisfaction from a client or stakeholder, or they could increase the costs or change the
scope of the project, which could in turn cost you time and diminish the success of the
project.
Larger projects have more formalized stages, for example during concept design stage, there
is a risk assessment for that, and then during design development stage, there is another risk
session.
CONCLUSION
"Risk Management applies to everything that you do, not just the advice that you give
the client but yourself and how you run your office."
5.1 Summary
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The purpose of this dissertation is to bring out the significance or importance of Risk
Management in construction industry at different stages specially at the conceptual stage
Management assessment of risk beneficial during the conceptual stage' and the aim is to
determine how many professional project managers in the construction industry,
or has project managers in their organisation uses Risk Management in their projects,
during the conceptual stage .
After analysing and comparing the results in Chapter 4, it has been found that there is a
significant discrepancy on the reason why Risk Management may not be undertaken at an
early stage.
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Risk Management has been concluded, by most of the practitioners, that Risk
Management is useful and effective, and it is indeed beneficial if Risk Management if
implemented from the early stages of the project life cycle, especially from the
conceptual stage. Yet, there are still a handful of practitioners that still do not practise
Risk Management at every project or even launch this process from the early stages of a
project life cycle. It is found that most of these practitioners are project managers who have
only been in the industry or has project management experience of 5 years or less. Therefore
they are labelled by senior¶s project managers as 'young practitioners' or junior project
managers. More than half of the respondents are from this category and since project
management is a growing industry, therefore the growing numbers of 'young' practitioners
will represent the overall usage of Risk Management.
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Linking to the above statement, another apparent finding was that many young
practitioners were not given a chance to learn or practise risk Management. Quite often when
senior management or senior practitioner have workshops for stakeholders, junior project
managers or 'young practitioners' are not required to attend. Therefore, many
at times, these project managers are not able to contribute, or learn the trade and the process
of Risk Management at the conceptual stage. When the project proceeds into other stages,
such as the design stage, Risk Management is taken up by junior project managers to work on
these projects, they tend to feel lost and do not see the need or the importance of maintaining
or following up the process, thus do not learn to implement Risk Management at the
beginning of their own projects or even providing this service at all.
Risk Management workshops are now a common occurrence, that if either senior or
junior practitioner had not attended one before, they would have at least heard of it. As
mentioned above, other than personal experience, most project information is
expectedly documented for future use. These documents are frequently used as a guide
in other projects or workshop orientation as a reference in similar or 'near' similar
projects. This may lead project manager to approach it in a tactless and routine manner.
Since every project is unique, there are no two exact similar to how the approaches, the
conditions and risks it will face, therefore no identical risks and solutions for it can be
used by just referencing from documented reference.
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An evident group of young practitioners also explain that the obligation to provide
Risk Management is not evident in their company's system. There were no company
procedures to follow nor is it implemented formally with a paper trail; therefore it
relies on individual confinement to learn and become skilled at putting Risk
Management into their practice. Even though senior staffs do put Risk Management in
practice and provide this service in most of their project, it is difficult to engage them
to implement Risk Management following formal company procedures, for most of
them are fixed in their old ways, by providing Risk Management informally. This can
mean that Risk Management is provided spontaneously and project information on this
type of provision is virtually undocumented. Tying to the above reason, senior staff
applies Risk Management with their own experience, and this is not transferable to the
younger staff in the organisation or to the company.
It is recognised that the greatest degree of decisions are made during the early stages in
the project life cycle and the cost implications of decisions made at this time would
have a dramatic effect on the overall viability of the project. Therefore project
managers and stakeholders should want to involved as early as possible of the project
cycle, where high level strategic decisions are made which affect overall business
development and procurement strategies Most studies shows that Risk Management
commences during pre-design phase, where proposal outlines and sketch designs are
done, which most people assume as the 'conceptual' stage. Conceptual stage goes
hand-in-hand with feasibility studies, or sometimes even slightly before.
5.2 Reflection
"A bit like project management, 10 to 20 years down the track what we call project
management today maybe called something else but the process of doing it will have
some basis."
Business process
Like the update in the 1990's of Quality Assurance, it is seen that QA greatly falls to
the wayside but it is now seen to be just sensible business process. Much is Risk
Management in the 2000's. Risk Management is just good management practice.
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Risk Management is there, existing, and the process is there to be used. The frequency
will increase when more people are using it, therefore, when the overall efficiency of
increases, it becomes expected as normal thing to do in a project.
Even now, Risk Management is beginning to have new various names labelled on it.
The few common researched ones are: Opportunity Management and Uncertainty
Management.
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Opportunity Management comes about because Risk Management is
seen as an approach that views risks as a negative impact and only focuses managing
its threats and impact, while Opportunity Management looks into the positive side of
the project and tries to create an opportunity by turning a negative treats to positive
objectives. Uncertainty Management is a half-and-half of both, adversity found from
the results of Risk Management and upside potentials found from the results of
Opportunity Management. The basic theory to it is to have opportunities be exploited
in addition to risk being mitigated.
If thought about Risk Management, everyone have always done it, way back from
years ago. It is just that all of a sudden someone has decided to give it a label and a tag
and make a subject out of it and it is part of someone trying to justify its existence. A
lot of these project management elements are coming into vogue and it is part of what
a well trained professional has always done as part of their working career. It is just
that now someone is able to put a label on it and present Risk Management training
Value Management training, or any other training, professionally.
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5.4 Recommendation
"The solution is simple."
(Ansell, J. & Wharton, F., 1992)
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A responsible approach to Risk Management requires the senior managers adopt a
voice a collective moral stance with regards to implementation. The adoption of such a
stance should not be an artifice, it has to be a sincere expression of a set of values that
will determine the ethos of the organisation. Any shallowness in the expression of
these values will quickly be tested in the organisations, with culture quickly to adapt
the expression of the priorities revealed in the pattern of decision making by the senior
managers.
The board of directors and the chief executive have the ultimate responsibility for the
articulation of a value system which addresses its importance in implementation. The
board must place a priority on matters affecting Risk Management, must define
responsibilities for these issues, and establish a system to monitor its performance.
Risk Management and other issues related to social responsibility should be treated as
equivalent to other components of commercial strategy, worth of board-level review
and incorporated fully into corporate value system.
If senior managers do not begin to express the sincere commitment to the issues of
Risk Management, then they run the danger that society will decide to change the rules
of the game. The public's outrage at de degree of irresponsibility shown by
management in the succession of recent disasters had led to calls to alter the degree of
legal protection that managers have for acts carried out on behalf of employers. If
business executives do not express a responsibility for the care of those who are
affected by their business decisions, then the criminal justice system may be redirected
so as to hold them accountable for both their actions and, more importantly, their
inactions.
In order to sustain Risk Management, it should be maintained throughout the life cycle
of the project, from conceptual stage right to hand over. As mentioned, due to time
restraints, this is sometimes seen as impractical or near impossible. In Chapter 4, time
restraint was pinpointed as one of the main deterrent to why Risk Management is
neither implemented nor maintained, and in order make it more time available, it is to
keep things simple and with proper upfront planning would change the perspective on
its usage and turning it to a useful risk preventive process. With keeping things simple,
the industry does not see a need for new Risk Management tools and techniques, for
majority of the project managers feels that the current ones are simply effective enough.
"Don't believe what some software vendor put in their brochure"
(Reiss, G., 1995)
Tools and techniques used in Risk Management are supposed to assists management as
decision support techniques. Risk tools do not make decisions but are aids to decision
making.
Clients play an important role as one of the key stakeholders in Risk Management
process. For they are normally the formal decision holders, and decisions they make will
have a large impact on the project. Therefore it is very important that the client
receives the best options to decide on, and it is the project manager's duties to
'educate' the client and introduce the benefits of Risk Management to them.
Providing Risk Management workshop is one of the best approaches into getting the
stakeholders involved in the project, and also for all stakeholders to get together to
brainstorm the possible risks and solutions for it.
If everyone in the workshop identify, discuss and collectively accept some risks,
everyone will go ahead with project with their eyes wide open, with the risks
understood and acknowledged.
The main recommendation to this study is that any project management methodology
must include a standardised Risk Management process. Although it may have a
Dampening effect on the 'creative¶s', the risk identification should start as early as the
conceptual stage. There are many sources of risk that a project will face from the
conceptual stage through to project implementation. The conceptual stage of a project
preceding the design stage is used to determine from various perspectives whether a
project should be constructed or not. Project managers should conduct risk assessments
during the project's conceptual stage and at periodic intervals throughout the
development lifecycle
.
5.5 Recommendation for Further Research
Finally to conclude this dissertation, these are the recommendations for further
research:
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