A Study of Risk Factors Affecting Building Construction Projects

A Study of Risk Factors Affecting Building Construction Projects

Patel Kishan1

1Student of Final Year, M.E (Construction Engineering & Management),

B.V.M Engineering College, Vallabh Vidyanagar, Gujarat, India,

Dr. Rajiv Bhatt2,

2Head of the Department, Civil Engineering Department,

1. Engineering College, Vallabh Vidhyanagar, Gujarat, India,

   Prof. J. J. Bhavsar3

   3Associate Professor and PG Coordinator

   (Construction Engineering & Management), Civil Engineering Department,

   B.V.M. Engineering College, Vallabh Vidyanagar, Gujarat, India

   Abstract – Construction projects are initiated in complex and dynamic environments resulting in circumstances of high uncertainty and risk, which are compounded by demanding time constraints. As the most common and typical project types, construction projects have several characteristics such as time limit, specific objects, financial constraints and economic requirements, special organizational and legal conditions, complexity and systematic characteristics, For that each construction project itself is a complex system. Risks always exist in construction projects and often cause schedule delay or cost overrun. Risk management is a process which consists of identification of risks, assessment with qualitatively and quantitatively, response with a suitable method for handling and control risks. Risk management concept becomes very popular in a number of businesses. Many companies often establish a risk management procedure in their projects for improving the performance, minimizing loses and increases the profits. Study of this paper involves finding of 47 factors which are responsible for risk in construction projects. Findings are based on literature review, structured interview with construction professionals and present scenario of construction industry.

   Keywords:- Construction projects, Risk management, Risk identification, Risk assessment, Risk response.

   1. INTRODUCTION

      The track record of construction industry is very poor in terms of managing with risks, resulting in the failure of many projects to meet time schedules, targets of budget and sometimes even the scope of work. As a result, a lot of suffering is inflicted to the clients and contractors of such projects and also to the general public. Risk in the construction adversely affects the project objectives of time, cost, scope and quality. Some risks in construction processes can be easily predicted or readily identified; still some can be totally unforeseen. Construction risks can be related to design, physical, logistics, legal, environmental, management, financial, construction, political. Compared with many other industries, the construction industry is subject to more risks due to the unique features of

      construction activities, such as long period, complicated processes, terrible environment, financial intensity and dynamic organization structures (Flanagan and Norman, 1993; Akintoye and MacLeod, 1997; Smith, 2003).

      Risk is considered to be a major factor that influences project success and Risk Management is an important process in any capital project (Krane, 2010), particularly construction projects. Thus, Risk Management is currently one of the main topics of interest for both researchers and construction practitioners (Raz, 2002). Risk management may be described as a systematic way of looking at areas of risk and consciously determining how each should be treated. It is a management tool that aims at identifying sources of risk and uncertainty, determining their impact, and developing appropriate management responses (Uher, 2003). The aim of each organization is to be successful and Risk Management can facilitate it. However it should be underlined that Risk Management is not a tool which ensures success but rather a tool which helps to increase the probability of achieving success. Risk management is therefore a proactive rather than a reactive concept.

      Managing risks involves identifying, assessing and prioritizing risks by monitoring, controlling, and applying managerial resources with a coordinated and economical effort so as to minimize the probability and/or impact of unfortunate events and so as to maximize the realization of project objectives (Douglas, 2009). Risk management, which has been practiced since the mid-1980s, is one of the nine main knowledge areas of the project management institutes project management body of knowledge (Tuyszet, 2006). Effective Risk Management may lead the project manager to several benefits such as identification of favorable alternative course of action, increased confidence in achieving project objective, improved chances of success, reduced surprises, more precise estimates (through reduced uncertainty), reduced duplication of effort (through team awareness of risk control actions), etc. (Bannerman, 2008). Systemic Risk Management has an effect on the project success. It is found that there is a strong

      relationship between the amount of Risk Management efforts undertaken in a project and the level of the project success (Elkington & Smallman, 2002).

   2. OBJECTIVE OF STUDY

      The main objective of this study is to identify key risk factors that affect the building construction projects.

   3. LITERATURE REVIEW

      A number of studies have been carried out to determine the factors of risk in construction project: P.J.Edwards (1998) conducted research on risk and risk management in construction. They primarily classify risk into two main categories natural risk and human risk. Natural risk occurs outside human system, while human risks arise within humanly organized system. The sub categories of human risk relating to construction and project risks include social, political, economical, financial, legal, health, managerial, technical and cultural risks.

      Patel Kinnaresh (2013) conducted study on Risk assessment and its management in India according to them it is safe to say that the majority of construction projects in India have no systematic procedure to deal with risks from the obtained results. It is also found out that financial, construction, and quality risks were associated with construction projects in India. Indian construction projects generally have been practiced with an informal approach of risk management. Hence there is a thriving need to have a well-documented procedure which should be a one stop solution to all the risks that are likely to be faced during project life cycle.

      Pejman Rezakhani (2012) classify construction project risks into external, operational, project management, engineering and financial in their study of classifying risk factors in construction projects

      Pinkerton and Federation of Indian Chambers of Commerce and Industry (FICCI) 2013 generate Indian Risk Survey 2013 according to them Strikes, Closures and Unrest' emerged as the number one risk In the year 2012

      Shen (1997) identified eight major risks accounting for project delay and ranked them based on a questionnaire survey with industry practitioners. Shen also proposed risk management actions to cope with these risks and validated their effectiveness through individual interview surveys

      Bhandari M.G. (2014) conducted study on management of risk in construction. Thy classify risk into technical risk, logistical risk, management related risk, Environmental risks, Financial risks, socio-political risks

      Mulholand and Christan (1999) explains that due to the complexity and dynamic environments of construction projects, certain circumstances are created which result in a hih degree of uncertainty and risk. Often these risks are compounded by demanding time constraints

      According to Prof. Shakil S. Malek, (2013) Risk management ultimately minimizes the project losses & increase the likelihood that the project in completed on schedule & within the budget. Risk management is a proactive management tool used for early visibility of

      potential problem areas & possible mitigation measures. Risk management includes the entire project, including the design, engineering, business, contracts, finance, purchasing, estimating, & project management.

   4. RISK MANAGEMENT PROCESS Risk management process consists following step:

      RISK IDENTIFICATION RISK ANALYSIS

      RISK RESPONSE PLANNING RISK CONTROL

      Figure 1: Risk Management Process

      1. RISK IDENTIFICATION

         Risk management always starts with risk identification, which may be considered the most important phase of the risk management process (Baker, Ponniah and Smith, 1998). Its purpose is to compile a list of risks important for a particular project. To form this list, it is first necessary to research the potential sources of risk, adverse events that include risk, and the unfavorable effects of an undesirable scenario. For example, weather is a source of risk, extremely bad weather is an adverse event, and its effect is work running behind schedule due to extremely bad weather conditions. Risk identification greatly depends on the managers experience. If his experience with particular methods and techniques of risk identification is good he will continue to use them, whereas bad experience leads to avoiding approaches prepared earlier. Managers use various techniques for risk identification, the best- known of which are:

         • Brainstorming

         • Interviews

         • Questionnaires

         • Delphi technique

         • Expert systems, etc.

      2. RISK ANALYSIS

         Risk analysis, a component of the risk management process, deals with the causes and effects of events which cause harm. The aim behind such analysis is a precise and objective calculation of risk. To the extent that this is possible, it allows the decision making process to be more certain. The essence of risk analysis is that it attempts to capture all feasible options and to analyze the various outcomes of any decision. For building projects, clients are mainly interested in the most likely price, but projects do have cost over-runs and, too frequently, the 'what if' question is not asked (Flanagan & Norman, 1993).

         Risk analysis involves assessing the identified risks. This first requires that the risks are quantified in terms of their effect on cost, time or revenue. They can be analyzed by measuring their effects on the economic parameters of the project or process. The use of risk analysis gives an insight into what happens if the project does not proceed according to plan. When active minds are applied to the best available data in a structured and systematic way, there will be a clearer vision of the risks than would have been achieved by intuition alone (Flanagan & Norman, 1993).

         Table1. Various risk analysis techniques

         Risk Analysis
         Qualitative	Quantitative

         1. Direct judgment

         2. Ranking option

         3. Comparing options

         4. Descriptive analysis

         1. Probability analysis

         2. Sensitivity analysis

         3. Scenario analysis

         4. Simulation analysis

         (Source: Ward and Chapman, 1997)

      3. RISK RESPONSE PLANNING

         Risk Response Planning process is the third stage in the risk management process.

         • Action is taken to deal with the risks. Higher priority risks need more attention.

         • Risk Response Planning covers both preventive actions to prevent the risk from occurring as well as a suitable response in case the risk actually occurs.

         • At times, responding to a risk can give rise to a new or "secondary" risk so care should be taken when choosing a risk response.

         • The five most common responses that are used to deal with risks are:

           • Risk Avoidance

           • Risk Transfer

           • Risk Mitigation (reduction)

           • Risk Share

           • Risk Acceptance

      4. RISK CONTROL

         • This is the last process of risk management and it involves the implementation of risk response to the risk

         • All responses that are made to risks must be monitored and reviewed to ensure they are effective.

         • Responses taken to risks should also be fully documented for future reference and project plans need to be updated accordingly. Any changes required in schedule, budget etc. due to the risk should be documented and updated in the project plans.

         • Risk Control should be an on-going process in which the impact of the risk is again evaluated and assessed.

           • PRINCIPLES OF RISK MANAGEMENT

             The International Organization for Standardization identifies the following principles of risk management: (Zenghua Kuang)

         • Risk management should create value.

         • Risk management should be an integral part of organizational processes.

         • Risk management should be part of decision- making.

         • Risk management should explicitly address uncertainty.

         • Risk management should be systematic and structured.

         • Risk management should be based on the best available information.

         • Risk management should be tailor-made.

         • Risk management should take into account human factors.

         • Risk management should be transparent and inclusive.

         • Risk management should be dynamic, iterative and responsive to change.

         • Risk management should be capable of continual improvement and enhancement.

           • BENEFITS WITH RISK MANAGEMENT

         • Risk management contributes to a better view of possible consequences resulting from unmanaged risks and how to avoid them.

         • Another benefit of working with risk management is increased level of control over the whole project and more efficient problem solving processes which can be supported on a more genuine basis. It results from an analysis of project conditions already in the beginning of the project.

         • The risk management also provides a procedure which can reduce possible and sudden surprises.

         • Different attitudes towards risk can be explained as cultural differences between organizations, where the approach depends on the company's policy and their internal procedures.

   5. WORK METHODOLOGY

      The work methodology included a literature search and interviews. The literature review was conducted through book, internet and journals. As the outcome of this, 47 risk factors for building construction projects were identified. These factors were categorized in ten main groups such as: design, physical, logistics, legal, environmental, management, cultural, financial, construction and political. Framework of the factors is given in Table2.

   6. CONCLUSION

      Risk management is rarely used by the participants in construction projects. The participants generally use to handle the risks with an informal approach. This technique is not employed because of less knowledge and awareness

      among the construction industry. The risk management technique should be applied into any construction project at the initial stage of the project to get maximum benefit of the technique. Hence, there is thriving need to have a well- documented procedure which should be a one stop solution to all hazards that are likely to occur during project life cycle. This study was carried out particularlyto identify construction project risk and outcome is a list of 47 number of risk factors under the category of design, physical, logistics, legal, environmental, management, cultural, financial, construction and political. Based on above factors analysis future study can be carried out to understand criticality of each factor. That kind of study will help the construction industry to work on certain important and most critical factors so that risk can be properly managed.

   7. ACKNOWLEDGEMENT

The Author thankfully acknowledge to Dr. C. L. Patel, Chairman, Charutar Vidya Mandal, Er. V. M. Patel, Hon. Jt. Secretary, Charutar Vidya Mandal, Dr. F. S. Umrigar, Principal, B.V.M. Engineering College, Vallabh Vidyanagar, Gujarat, India for their motivations and infrastructural support to carry out this research.

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Table 2: CONSTRUCTION RISKS AFFECTING BUILDING PROJECTS