Risk Assessment Using AHP in South Indian Construction Companies: A Case Study

Transcription

1 Internatonal Journal of Engneerng, Management & Scences (IJEMS) ISSN , Volume-2, Issue-5, May 2015 Rsk Assessment Usng AHP n South Indan Constructon Companes: A Case Study Parvathy.P, ShvaprasadH.C, Gopalkrshna.B, Grdhar. B. Kamath Abstract The term rsk s synonymous wth uncertanty and t s present n every busness. The constructon ndustry n Inda also bares no excepton to ths fact. There are numerous problems whch arse on a daly bass n the constructon sector. These problems are attrbuted to rsks. The focus of ths paper s to dentfyand prortze the major rsks and rsk factors that nfluence the three classes of the Indan constructon companes whch undertake the majorty of the projects n the South Indan ctes of Cochn and Udup usng Analytc Herarchy Process, a mult-attrbute decson makng method whch acts as a tool for rsk analyss. The prorty value of each rsk factor and sub- rsk factor were found out and compared and a rank was allotted to each rsk factor based on ths output. The output helps the management of constructon companes n dentfyng whch type of rsk s most lkely to occur n a partcular class of company, so that t can be mtgated n the future. Index Terms Analytc Herarchy Process, prorty values, rsk analyss, rsk assessment model. I. INTRODUCTION Rsks are assocated wth every busness. The constructon ndustry n Inda s no excepton to ths fact. The Indan constructon ndustry s worth over USD 120bllon and ths contnues to grow consderably every year (Subramanyan, Sawant& Bhatt 2012) [1]. Hence there s a need to dentfy and prortze among the rsk factors that may otherwse adversely affect the project. A. Background The Constructon Industry Development Councl, Inda has classfed contractors based on the number of workers they employ. Accordng to ths the constructon companes can be broadly classfed as small, medum and large companes. Small companes also known as Class III companes are those that employ about persons. They account for about 96.4 percentage of the total constructon companes n Inda. Medum companes also known as Class II companes employ about persons and they account for about 2.86 percentage of the total constructon companes n Inda, whereas large szed companes also known as Class I companes are those that employ more than 500 workers and Manuscrpt receved May 20, Parvathy.PPG Scholar, Manpal Insttute of Technology, Manpal Unversty, Manpal. Shvaprasad, H.C Faculty, Department of Humantes and Management, Manpal Insttute of Technology, Manpal. Gopalkrshna, B. Faculty, Department of Humantes and Management, Manpal Insttute of Technology, Manpal. Grdhar.B.Kamath H.C Faculty, Department of Humantes and Management, Manpal Insttute of Technology, Manpal. they account for about 0.74 percentage of the total number of constructon companes n Inda (Constructon Industry Development Councl, 2006). [2] The focus of ths paper s to dentfy and prortze the major rsks and sub- rsk factors that nfluence these three constructon company classes of the South Indan ctes of Cochn and Udup usng the Analytc Herarchy Process (AHP). From earler researches and lterature revews, the major rsk factors have been dentfed as admnstratve, fnancal, resource, manpower and techncal. In ths partcular study par-wse comparson of rsk factors s done and ther prorty values are calculated n order to rank them. II. LITERATURE REVIEW Accordng to Akntoye and Macleod (1997) rsk analyss and management n constructon ndustry s dependent on three factors; experence, judgment and ntuton of team members. They concluded that formal actvtes to analyze and manage rsk are rarely used n the constructon ndustry. [3] A number of mportant rsk factors n constructon projects have been dentfed by researchers n the past. Iyer and Jha (2005) [4]dentfed 55 major attrbutes whch were responsble for mpactng the overall performance of a constructon project. They observed that two factors, namely, commtment of project partcpants and nternal conflct among project partcpants sgnfcantly affected the overall performance of the project.abbas, Abdel-Jaber and Abu-Khadejeh(2005) [5] n ther study dentfed fve major rsk factors whch affect the overall success of a project n a developng naton. They are Admnstratve, Fnancal, Resources, Manpower and Techncal aspects. Tang and Young (2007) [6] dentfed certan rsk factors such as contractor-specfc, subcontractor-specfc, clent-specfc, estmator-specfc, desgn and project-specfc, unknown geology condtons and economc-specfc as crtcal for successful completon of a project. Vdvell, Surjth and Jayasudha (2014) dentfed the rsk factors that affected the performance of brdge projects as a whole. They concluded that tme management and fnancal management sgnfcantly contrbuted towards predctng rsk analyss of tme and cost n brdge constructon. [7] A number of rsk assessment models have also been developed by dfferent researchers. Kang and Feng (2008)[8] dentfed and assessed the potental rsks faced by prvate sectors n holdng BOT (Buld, Operate and Transfer) 98

2 Rsk Assessment Usng Ahpn South Indan Constructon Companes: A Case Study projects by developng a rsk assessment model, whch concluded that the prmary rsk factor for a BOT project s concesson perod for the project and the secondary rsk factor s foregn exchange rato. Subramanyan, Sawant and Bhatt (2012) [1] n ther study dentfed rsk factors that nfluence the smooth completon of a project by developng a rsk assessment model. Fuzzy analytcal herarchy process was used as a tool to analyze the rsk factors and ther sgnfcance n smooth completon of a project.ther fndngs ndcated that rsks specfc to archtects, consultant, envronment and contract clause are more unpredctable n nature whereas, rsks specfc to project- manager, owner, contractor, fnance and resource s more predctable n nature and can be effectvely managed by approprate contract provsons. They also suggested a rsk response strategy n order to mtgate future rsks n the Indan constructon ndustry. III. METHODOLOGY The methodology adopted for ths project s gven below: 1. Study of lterature related to rsk analyss and AHP. 2. Identfcaton of rsk factors and sub rsks. 3. Preparaton of questonnare. 4. Questonnare survey and personal ntervews. 5. Calculaton of rsk ndex score for each rsk factor. 6. Formulaton of decson problem nto herarchcal structure. 7. Par-wse comparson of the rsk factors and sub-rsk factors. 8. Formaton of decson matrces and calculaton of prorty value of each rsk factor and ts sub- rsks. 9. Rankng the rsks accordng to the overall prorty values of rsk factors for each class of company separately. A. Method of surveyng Relevant nformaton pertanng to the study was collected from prmary and secondary data sources. Prmary data sources refer to the nformaton obtaned from the questonnares dstrbuted to the constructon project teams of the three classes of Indan Constructon companes. Secondary data sources conssted of the nformaton taken from varous books, journals, artcles, the nternet and webstes. The targeted respondents were drawn usng random samplng from a lst of all constructon companes operatng n these ctes. Random samplng was used so as to elmnate any form of bas and stratfed samplng technque was adopted, snce the populaton was splt nto non-overlappng portons. Sample sze of 200 respondents was planned to collect the response. B. Questonnare structure and desgn Pror to the admnstraton of the questonnare, t was valdated through a panel of experts to ensure ts content valdty. Its relablty and content valdty were also checked usng the Smart PLS software (2.0). The questonnare s dvded nto two parts. The frst part conssts of general nformaton about the company such as the name of the company and the number of employees employed by the company. The second part focused on the rsk factors n the constructon ndustry. Some of the rsks commonly confronted by the constructon companes were then classfed under fve major rsk factor groups, namely admnstratve (AD), fnancal (FD), resource (RE), man power (MA) and techncal (TE).On the bass of assessment of respondent answers from the questonnare survey, a rsk score was allocated based on the mportance and probablty of occurrence of rsk on a scale of 1-4. Once the rsk scores are obtaned, the level of rsk was assgned as - very mportant rsk, farly mportant, somewhat mportant and less mportant. In order to ascertan the rsk scores for each rsk, the sgnfcance score was frst calculated usng equaton (1). j S O j j P (1) Where S j sgnfes the rsk score gven by respondent j for rsk ; and P j sgnfes the probablty of occurrence of rsk assessed by respondent j; and O j sgnfes the mportance of rsk as assessed by respondent j [7]. The rsk ndex score for each rsk factor can be obtaned by averagng the sgnfcance scores of all responses from each of the three classes of constructon companes as shown n equaton (2). RS T T T S j (2) Where RS = ndex score for rsk ; and S j= sgnfcance score assessed by respondent j for rsk and T= total number of respondents. After the rsk ndex scores are determned, ths s used to evaluate the prorty values usng analytc herarchy process. C. The Analytc Herarchy Process The AHP was developed by Saaty (1994) [9] and t s a flexble as well as robust mult-crtera decson analyss method. The method of AHP makes t easy to understand and analyze project rsks. It allows consderaton of both objectve as well as subjectve factors n decson makng. The mportant step of AHP s formulaton of the decson problem nto a herarchcal structure,wth the top of the herarchy representng the overall objectve that s rsk assessment. The next level of herarchy represents the varous rsk factors as they are all of the same magntude. The sub rsks of the rsk factors are represented n the subsequent level of the herarchy. The lowest level comprses of the decson optons whch are the ranks gven to the rsk factors based on ther 99

3 Internatonal Journal of Engneerng, Management & Scences (IJEMS) ISSN , Volume-2, Issue-5, May 2015 prorty values n the present study. The herarchcal order gves a very clear pcture of all the rsk factors and sub-rsks that affects the decson and the relatonshp between them. The proposed rsk classfcaton scheme s shown (Fg. 1). Ths ensures that the weghtage factors remans smlar for user nput even f the scales dffer. Once the par wse comparson s done, square matrces are created and relatve weghts are derved for elements of each level wth respect to an element on the adjacent upper level of the herarchy. The relatve weghts are computed as components of normalzed egenvector assocated wth the largest egenvalue of ther comparson matrx. A path s followed from the top of the herarchy to the lowest level and the weghts are multpled along each segment of ths path. The outcome s a normalzed vector of overall weghts of the opton. IV. RESULTS AND DISCUSSIONS Fg. 1 Proposed AHP rsk Assessment Model After completon of the herarchy, prortzaton procedure to determne the relatve rsk ndex of each element of level two s ntated. The rsk ndex scores of the elements of level two are parwse compared. The decson maker can judge between two elements and determne f they are equally mportant or f one element s extremely mportant when compared to the other. Ths s then repeated wth the subsequent levels of the herarchy. Saaty[9] developed a scale of 1-9 of relatve mportance for par wse comparsons [Table I]. A.Demographc analyss Out of the total number of 86 companes vsted for the collecton of data and t was observed that 34.9 % consttuted the Class I companes whereas both Class II and Class III companes consttuted 32.6 % each. Therefore the majorty of respondents were from Class I companes. B.Par wse Comparson Usng the nformaton obtaned from the respondent answers and that from Table I, par wse comparsons were done between the dfferent rsk factors on level two of the herarchy separately for all three company classes. The output was used to develop a decson matrx separately for each class of company. (Table II). From ths a normalzed matrx was developed. The present study used a ratng scale of 1-4 for depctng mportance of rsk and the scale s converted to for depctng the probablty of occurrence of the rsk. When the rsk ndex score was calculated for each rsk category, t was observed to be n the range of 0.9 to 4. Thus ths was chosen as the ratng scale for rsk ndex scores.span of the AHP ratng scale of relatve mportance s to be made equal to the span of the chosen scale of rsk ndex. Hence the rato of ratng scale was determned and found to be 0.45 and ths was multpled to each value of the fundamental 1-9 scale of absolute numbers (Hossan, Adnan and Hasn 2014) [10]. To get the normalzed matrx, recprocal of decson matrx was obtaned and each element of the recprocal matrx was dvded wth them sum of ts column to get the normalzed relatve weght. The normalzed prncpal Egen vector was obtaned by averagng across the rows (Table III). The normalzed prncpal Egen vector s also called prorty 100

4 Rsk Assessment Usng Ahpn South Indan Constructon Companes: A Case Study vector. From the prorty values, the rank for each rsk factor can be determned. The consstency of the decson was checked by determnng the consstency rato. The consstency rato must be less than or equal to 10% for a decson to be called consstent (Shahroud, 2011) [11]. are neglgble to the overall outcome [11]. Smlarly the prortes of the rsk factors and the local and global percentage of each sub- rsk for Class II and Class III companes are shown n Tables V and VI. Once the par-wse comparson of all elements on level two of the herarchy s completed, then smlarly par wse comparson of all elements on level three of the herarchy s performed. Ths level ncludes the sub rsks of all the rsk factors. Total of one matrx for the rsk factors and 41 matrces for the sub factors are formed n ths manner for each class of company. The relatve mportance of the rsk factors and sub rsks are computed as components of the normalzed egenvectors of the matrces. The prortes of the rsk factors and the local and global percentage of each sub- rsk for Class I companes sobtaned (Table IV). The local percentages (LP) are obtaned by par wse comparson of all the sub rsks correspondng to each rsk factor. The Global percentage (GP) s determned by multplyng the LP of each sub rsk wth that of the relatve mportance of the respectve rsk- factor. The overall prorty or mportance of a rsk can be determned by summng up the fgures n each GP column. Those sub rsks whose overall weght s less than 10% were omtted because ther weghts AD = admnstratve rsks, FI= fnancal rsks, RE= resource rsks, MA= manpower rsks, TE= techncal rsks Among Class I companes, fnancal rsks have the hghest relatve mportance of followed by admnstratve rsks wth a relatve mportance of (Table VI). Among the dfferent fnancal rsks, sub rsk F1 Absence of fnancal wng whch has knowledge about company s fnancal poston and ts actvtes had the hghest relatve mportance 101

5 or LP of The results show that for class I companes, fnancal rsks are gven the hghest prorty n terms of ther level of mportance and probablty of occurrence and hence they are allotted rank one. In the case of Class II companes, resource rsks had the hghest relatve mportance of followed by techncal rsks wth a relatve mportance of Among the dfferent resource rsks, sub rsk R1 Delay n moblzaton Internatonal Journal of Engneerng, Management & Scences (IJEMS) ISSN , Volume-2, Issue-5, May 2015 In the case of Class III companes, the hghest relatve mportance was of was for techncal Rsks followed by manpower rsks wth a relatve mportance of Among the dfferent techncal rsks, sub rsk T1 Insuffcent data collecton & survey before desgns had the hghest relatve mportance of (Table VI). These results show that n the case of Class III companes, the techncalrsks had hghest prorty among all the other rsk factors wth respect to ther level of mportance and probablty of occurrence and hence were allotted rank one. of work n spte of gettng possesson of ste had the largest relatve mportance of (Table V). The results ndcate that for class II companes, resource related rsks are gven the hghest prorty n terms of level of mportance and probablty of occurrence of the rsk and hence allotted rank one. Class I companes normally handled large scale projects whch nvolves large captal. Par wse comparson among all the rsk factors by the respondents of ths company class showed thatfnancal rsk had the hghest prorty value of 47.6% and among the varous fnancal rsks, one major sub rsk secured the hghest prorty value of 13.2%. It was the absence of a fnancal wng whch has knowledge about the company s fnancal poston and ts actvtes. Ths ndcated the mportance of havng an ndependent body wthn the organzaton havng qualfed people who are solely responsble for mantanng the fnancal dscplne wthn the organzaton, and all projects taken up by the company has to be cleared for feasblty studes wth ths department. Thus n Class I company category, fnancal rsks were gven Rank 1 n terms of ts prorty value. Class II companes worked on both bgger projects as well as small scale projects. When par-wse comparsons were done 102

6 Rsk Assessment Usng Ahpn South Indan Constructon Companes: A Case Study between the rsk factors and prorty value was calculated, t was seen that resource rsks had the hghest prorty value of 47.6%. Ths ndcated that though many companes belongng to the Class II category took on large scale projects, not all of them were able to successfully complete the project on tme due to the lack of suffcent resources requred for a project of that scale. Among the resource rsks the sub rsk R1 delay n moblzaton of work n spte of gettng possesson of ste had the greatest prorty value of 35.9%. Contractors have to commence work as soon as possble after possesson of the ste so as to avod further delays to the fnal handover perod. If there s a delay n moblzaton of work t can lead to further expenses for the contractor as well as hs clent and n extreme stuatons even lead to termnaton of the contract by the clent. Thus n Class II company category, resource rsk was gven Rank 1 n terms of ts prorty. Class III companes hred fewer employees and took on small scale projects. When prorty values of the varous rsk factors were computed for the Class III companes, t was seen that Techncal rsk had the hghest prorty value of 47.6%. Ths s because most companes comng under ths category dd not have suffcent numbers of qualfed engneers and supervsors. Among the techncal rsks the sub rsk T1 nsuffcent data collecton and survey of ste before submsson of desgns, had the hghest prorty value of 25.9%. Certan sol types and condtons lke hgher ground water table can result n dffcultes and more expenses durng constructon. Therefore prelmnary ste nvestgatons and surveys have to be carred out by a qualfed and lcensed engneer or contractor before submsson of fnal desgns and quotaton amount. Thus n Class III category techncal rsks were gven Rank 1wth respect to ts prorty value. [4] Iyer KC & Jha KN (2005). Factors affectng cost performance: evdence from Indan constructon projects. Internatonal Journal of Project Management, 23 (4), Parvathy. PPG Scholar,Engneerng Management, Manpal Insttute of Technology, Manpal Unversty. Prof.Dr.Shva Prasad H C,Graduated wth B.E. (Ind. Prod. Engg), & M.E. (Producton Management) wth Ph. D (IIT KGP). Fellow of WBI, Australa. Hs research nterest: EIC, KM, & Entrepreneurshp, General Management. Edtor of ManpalJournal of Management Prof. Dr. Gopalkrshna B. s Professor n Department of Humantes and Management, MIT, Manpal Unversty. He has BE n Mechancal Engneerng, M.Tech n Engneerng Management and PhD n Servces Marketng. Hs research areas nclude servce qualty, human resource management, Real estate Management, System Dynamcs. Grdhar B Kamaths an Assstant Professor n the Department Of Humantes and Socal Scences at Manpal Insttute of Technology. CONCLUSIONS The fndngs of ths study can help the management of constructon companes n dentfyng, prortzng and preparng for all the key rsk factors whch are lkely to affect a project. Rsk s subjectve by nature. However AHP provdes a bass for the management to take objectve decsons n order to reduce the mpact of rsk to a more manageable level. The man lmtaton of ths study s that t cannot be generalzed for all Indan constructon companes because the study s constraned to only the South Indan ctes of Cochn and Udup where respondents were drawn usng random samplng. Also very lttle data s avalable for the constructon ndustry. Therefore more research s requred wth the cooperaton of the government and local bulders assocatons. REFERENCES [1] Subramanyan H, Sawant PH & Bhatt V (2012). Constructon project rsk assessment: development of model based on nvestgaton of opnon of constructon project experts from Inda. Journal of Constructon Engneerng and Management, 138 (3), [2] Constructon Industry Development Councl ( ). Indan Constructon Industry. Avalable: [3]Akntoye, A. S., & MacLeod, M. J. (1997). Rsk analyss and management n constructon. Internatonal journal of project management, 15(1),