A Study on Critical Risk Factors involved Life Cycle of construction Projects

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1 A Study on Critical Risk Factors involved Life Cycle of construction Projects R.Sakthiganesh 1, Dr.S.Suchithra 2, S.Saravanakumar 3 1 PostGraduate student, Department of Civil Engineering, kongu Engineering College, Perundurai, India 2 Assistant Professor, Department of Civil Engineering, kongu Engineering College Perundurai, India 1 PostGraduate student, Department of Civil Engineering, kongu Engineering college, Perundurai, India Abstract Risk is the Possibility of suffering loss and the impact on the involved parties. Managing risks in construction projects has been recognized as a very important management process in order to complete the project within the duration and without much increase in cost. Risks play a crucial role for the completion of project within the time schedule and planned budget. In this connection, this paper mainly focuses on the critical risk factors and its assessment techniques through literature study of various international construction projects. Study of this paper involves finding of factors which are responsible for risk in Construction projects. Findings are based on literature review. By This study it was concluded that Identifying risks in planning stages and assessing their cause and effects, project managers can identify methods used to reduce risks and allocate the best people to mitigate them. Such early identification helps to minimize major escalations on cost and time overrun in construction projects. Keywords Construction projects, Risks, Risk management, time schedule, planned budget. I.. INTRODUCTION 1.1 Risks in construction projects The Project Management Institute (PMI) defines project risk in its Project Management Body of Knowledge (PMBOK) as an unplanned event or loss condition that, if it occurs, has negative effect on at least one project objective, such as time, cost, scope, or quality. A risk may have one or more causes and, if it occurs, one or more impacts. PMBOK adds Risk conditions could include aspects of the project s or organization s environment that may contribute to project risk, such as poor construction management, or poor dispute resolution or late resolution can adversely affect the project. In project management terms, the most serious effects of risk can be summarized as follows: 1. Price escalation. 2. Failure to complete within the planned duration. 3. Failure to achieve the required quality and operational requirements. Risk management is the most complex job in the project management. A project manager must be able to understand and identify the sources of risks and to trace their causes through the project to their occurrences. Risk management in the construction project management view is a comprehensive and systematic way of identifying, quantifying,analyzing and responding to risks in order to achieve the project objectives. By proper identification of risks in the early stages of a project, where major decisions such as choice of alignment and selection of construction methods can be influenced based on project complexities. The advantages of the risk management process include identifying and analyzing risks, and improvement of construction project management processes and optimized usage of resources. The success parameters for any project are in time completion, within planned budget and technical requirement. The main barriers for their 32

2 achievement are the change in the project environment. The problem is increases when the size of the project increases as uncertainties in project outcome increase with size. 1.2 Risks in Project Life cycle Large construction projects are exposed to uncertain environment because of crucial factors as planning, design and construction complexity, presence of various stakeholders (owner, contractors, consultants, suppliers, etc.), resources availability (manpower, materials, equipment, and funds),organizational factors, the legal and political environment and statutory regulations. Construction projects can be unpredictable. Managing risks in construction projects has been recognized as a very important and also complex process in order to achieve project objectives in terms of time, cost, quality, safety and environmental sustainability. Project risk management is an repetitive process. the process is advantageous when is implemented in a systematic manner throughout the lifecycle of a construction project, from the planning stage to completion. Fig:1 Life Cycle of a Construction Project II. OBJECTIVES The objective of study is to identify the risk factors and to provide a list of major sources of critical risk factors in the life cycle of construction projects based on extensive literature study and provide most suitable remedies. III. LITERATURE REVIEW Mustafa (1991) [1] suggested the factors affecting productivity are Inflation, Country economic condition and rules and regulations, Unavailability of funds, Financial failure. Belassi and Tukel (1996) [2] suggested Factors related to the project,factors related to project managers and team members,factors related to the organization, factors related to the project external environment. Prasanta Kumar Dey, (2002) [3] concluded the factors and they are Scope and design changes, Technology, Implementation,Weather and Climatic conditions, Statutory Clearance and approvals. Bunni (2003) [4]studied the risks and they are Geographical position, project complexity, legal issues, risk outcomes and contract.assaf and Al-Hejji (2006)[5]suggested the risks are change in orders by the owner during construction delay,ineffective planning in early stages and ineffective scheduling,difficulties in financing on the part of the contractor,shortage of labor. Saqib et al. (2008) s[6] concluded that the risk of Project management includes risks of procurement, factors of clients, factors related to design team,factors of contractors, factors of project managers,factors of business environment. Zavadskas et al (2010) [7] suggested that risk include Political, economical, social, climate, time, cost, quality, technical,building,resources,project team members,project location,documents. Wang et al (2011) [8]concluded that risks on project include Decision making consequences, engineering experience, completeness of project information, external information criticality,decision motivation, professional knowledge Shankar Neeraj (2015)[9] studied the risks on were uncertain and it mainly depends on Project team discussions on risk, Revision of price, Time for planning, Disputes between labors,safety of workers. 33

3 IV. FACTORS INFLUENCING RISK 4.1 CONSTRUCTION RISK Disputes between labours Inaccurate contract time estimates Non availability of resources Revision of design Safety of workers Stoppage of work due to Medical outbreak complexity in executing works Delayed deliveries and disruptions 4.2 DESIGN RISKS Late changes of design from client side Inadequate and incomplete design Improper specifications unexpected geo-technical / ground water risk Inaccurate assumptions in design in planning stage 4.3 ENVIRONMENTAL RISKS Impact of weather condition on completion of project Pollution by construction waste Procedure to facilitate construction waste cleanup or disposal project causes unanticipated danger to wildlife, Endangered species Incomplete Environmental analysis 4.4 FINANCIAL RISKS Delay from clients Increment for staff benefits Price escalation of raw materials Estimated finance than expected Change in Bank Formalities & regulations Fluctuation of Inflation Rate 4.5 PROJECT MANAGEMENT RISKS Documents and process for mitigation of risk Project execution team discussions on risk Usage of Project scheduling techniques such as WBS and project milestones. Loosing of important staff at crucial point of construction systematic process for identifying project risks Improper project feasibility studies Improper forecast about market demand 34

4 ORGANIZATIONAL RISKS Inconsistent cost, time, scope and quality objective lack of coordination among team members employee behaviour Improper communication within the organization Inconsistent organizational structure change of top management 4.7 POLITICAL RISKS Pressure from any political party Local bodies (political/rowdies) compelling to use their resources corruption or bribery to political party 4.8 PROCUREMENT RISKS Temporary demand of increase in price of materials Specialized labour for fixation/installation 4.9 TECHNOLOGICAL RISKS seismic vulnerability Ground condition, soil, geotechnical risks Loss of data or software/hardware of computer Knowledge on equipment s Service for damaged equipment s 4.10 LEGAL RISKS Chances of sub-contractor walk out Delay in work execution of sub-contractor Revision of price Delayed dispute resolution Insolvency of contractor or subcontractor V. TECHNIQUES OF RISK ASSESSMENT The various risk assessment techniques followed by various researchers in different literatures are listed. The various risk assessment techniques are as under Project evaluation and review technique (PERT) Probability and impact (PI) Monte- carlo simulation (MCS) Analytical hierarchy process (AHP) Likelihood occurrence of risk(lr) Fuzzy logic most of the researchers have used the risk assessment model in AHP, MCS,LR and FUZZY compared to other techniques. The developed model using AHP, MCS and LR techniques have shown good results in assessment of project risks in construction project. Among all the models AHP model is more effective

5 because of its systematic approach to risk assessment problems by providing hierarchical approach. For assessment of project risks at initial stage of the project the researchers may not have sufficient data at that time. Therefore it is necessary to develops regression model for each project specific task. Risk assessment tools should be simple in its application to encourage the professionals. VI.CONCLUSION This paper is based on a various literature views on construction project risks and their approaches. The risk management approaches are applied in various areas and are used to nullify their effects. Each method of risk assessment has their limitation therefore this paper attempt to list the construction project risks. 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 particularly to identify construction project risk and outcome is a list of risk factors under the category of design, procurement,technical, logistics, legal, environmental, management, financial, construction and political. Based on above factors analysis future study can be carried out to understand criticality of each factor. This kind of study will help the construction industry to work on most adverse factors to meet the project objectives. REFERENCE: 1. Mustafa (1991).Project risk assessment using the analytic hierarchy process. IEEE Transactions on Engineering Management, Vol. 38, pp Belassi,Tukel (1996).A new frame work for determining critical success and failure in construction projects.international Journal of Project Management,Vol. 14, No. 3, pp Prasanta Kumar Dey (2002). Project Risk Management.A combined analytical hierarchy process and decision tree approach, Cost Engineering, Vol. 44, No. 3, pp Bunni (2003).Risk and insurance in construction. Taylor & Francis 5. Assaf, S. A,Al-Hejji (2006). Causes of delay in large construction projects. International Journal of Project Management, 24(4), Saqib M, Farooqui RU,Lodi SH (2008).Assessment of critical success factors for construction projects in Pakistan.First Int. Conf. on Construction In Developing Countries. 7. Zavadskas EK, Turskis Z, Tamosaitien J (2010).Risk assessment of construction projects. Journal of Civil Engineering Management,16(1), Wang J,Yuan H (2011). Factors affecting contractors risk attitudes in construction projects: Case study from China. International Journal of Project Management,29(2), Shankar Neeraj (2015). Assessment of risk in construction industry. International Research Journal of Engineering and Technology, Vol-2, PP