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Risk Management In Construction projects
Construction projects
A project is an endeavor in which human, material and financial resources are
organized in a novel way; to undertake a unique scope of work of given
specification, within constraints of cost and time, so as to achieve unitary,
beneficial change, through the delivery of quantified and qualitative objectives.
The definition suggests three key targets of the project, i.e. time, cost and quality,
which are to be in focus when undertaking the project. It also highlights the
importance of efficient organization of available resources in order to achieve a
good final result.
3
Risk Management In Construction projects
Flanagan and Norman (1993) emphasize two aspects of any construction
project: the process, i.e. project phases, and the organization, i.e. project actors.
From the process perspective, any construction project comprises a number of
sequential phases. Different authors suggest a different number of project
phases. The simplest approach identifies two main phases – project
development and project implementation. These two can be further detailed and
developed into a larger number of phases, e.g. feasibility, design, procurement,
construction, commissioning, and operation. Risk management process take
place in programme, design, procurement and production. The maintenance
phase was excluded because no risk management activities are to be found in
this phase.
Programme phase
In the programme phase the client has an idea about the project and
analyses conditions for its execution.
Design phase
During the design phase the architects and engineers produce construction
drawings according to the client’s requirements.
Procurement phase
In the procurement phase the client appoints the contractor to carry out the
project. Depending on the form of contract, the procurement phase follows either
the programme phase (DB contracts) or the design phase (DBB contracts).
Production phase
Finally, the contractor executes the job in the production phase. Figure overviews
the different models presented in the literature and the model used in the thesis.
Risk Management In Construction projects
Another important aspect of the construction process is project organization.
Different participants are usually involved in a construction project. These are
clients or owners, contractors, sub-contractors, manufacturers and suppliers,
architects, engineers, consultants, local authorities, funding organizations etc.
The more participants that are involved, the more
Complex the task of project management becomes. In risk management three
main groups of construction industry actors are in focus: clients, contractors and
consultants.
Client
A clie nt is a party that carries out or assigns others to carry out
construction, demolition or land work. There are two main groups of
Risk Management In Construction projects
construction clients: public and private. Privately owned companies undertake
the projects to make a profit. The public sector includes the central government
and local authorities and undertakes the projects to provide a public service
and/or benefit to the citizens.
Contractor
A contr actor is an organization that provides a service for the client, i.e.
executes the construction works. The contractor organizations have different
complexities and provide different ranges of services – from ground works to
electrical installations and telecommunications.
Consultants
The role ofconsultants is to assist clients and contractors and provide architectural
and engineering services. Due to their dynamic nature, projects change
continuously. Thus a great amount of risk and uncertainty is involved in
construction activities. This uncertainty may have a significant impact on the
project objectives and, therefore, has to be
properly managed by the project actors during the whole project life cycle.
Risk management process
Risk management is a systematic process of identifying, assessing and
responding to project risk. The overall goal of the risk management process is to
maximize the opportunities and minimize the consequences of a risk event. A
variety of risk management models with different numbers of stages can be
found in the literature. The international standard “Project risk management –
Application guidelines” (IEC 2001) offers a model with four steps: risk
identification, risk assessment, risk treatment, and risk review and monitoring.
PMBOK’s model (PMI 2000) is similar but divides risk assessment into two
processes of qualitative risk analysis and quantitative risk analysis. Baloi and
Price (2003) include an additional step of risk communication. Chapman and
Ward (2003) present the SHAMPU (Shape, Harness, and Manage Project
Uncertainty) framework which involves nine stages: define the project, focus the
project, identify the issues, structure the issues, clarify ownership, estimate
variability, evaluate implication, harness the plans, and manage implementation.
Del Cano and de la Cruz (2002) propose an integrated methodology for project
risk management in large and complex construction projects. The model is
divided into four process phases: initiation, balancing, maintenance and learning.
Each phase consists of several stages, which, in turn, are divided into different
activities. Despite the variety of models, risk identification, assessment and
response
Risk Management In Construction projects
form the core of project risk management. Therefore, a model consisting of
these three stages is mostly used in construction projects.
Risk identification
Risk identification is the first step of the risk management process. It
is aimed at determining potential risks, i.e. those that may affect the project.
PMBOK (PMI 2000) suggests that as many project stakeholders as possible
should participate in the risk identification process. There are a number of tools
and techniques for identifying the project risks These are brainstorming, expert
opinion, structured interviews, questionnaires, checklists, historical data, previous
experience, testing and modeling, evaluation of other projects. Empirical studies
of risk management practice show that checklists and brainstorming are the most
usable techniques in risk identification. They also highlight that risk identification
often relies
on individual judgments of the project participants. In this context, it is interesting
to mention a recent study by Maytorena et al. (2007) that suggests that the role
of experience in risk identification is less significant than is commonly assumed.
During the risk identification process the potential risks fall in the different groups.
There are several approaches to classifying project risks and risk sources. In
general, the sources of risk in construction projects may be divided into three
Groups:
Project Management
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