The Construction Project

Question:

Explain various  types  of  risks  associated  with  the  construction  project  could  be  classified.

Answer:

Before  getting  into  the  depth  of  various  risks  associated  with  the  contracts  of  construction, it  would  be  better  to  define  risk. Risk  is  nothing  but  the  probability  of  the  deviation  of  the  actual  result  from  the  expected. The  risks  which  the  construction  project  management  is  exposed  to  is  that  the  project  undertaken  would   be  completed  within  the  required  time  frame  or  not, the  completed  project  is  free  from  faults  and  defects  and  whether  the  construction  would  be  carried  out  having  safety  procedures  so  that  it  is  exposed  to  little  damage (Hayes et al., 2015). While  undertaking  the  construction  project , various  administrative  and  technical  risks  needs  to  be  identified. The  risks  could  be  identified  as  high,  medium  and  low  depending  upon  the  degree  of  its  potentiality.

The  various  types  of  risks  associated  with  the  construction  project  could  be  classified  as  follows :

Business   risk : 

Business  risks  is  the  uncertainty  about  the  generation  of  profits  or  say  income  at  its  target  level  and  it  is  associated  with  the  possible  capital  expenditure  and  income.

Speculative   risk :

Speculative   risks   can  also  be  considered  as  commercial  risks.  This  type  of  risks  involves  both  negative  and positive  deviations  and  has  a  danger  of   loss  and  there  can  also  be  gain. Suppose  that  a  new  business  has  been  set  up  which  might  provide  competitive  edge  to  the  prior  business  and  thus  providing  people  with  new  market.

Financial   risk :

This  risk  is  significant  in  construction  projects  as  the  project  duration  is  long  and  large  sum  of  money  is  involved  in  the  undertaking.  Such  types  of  risks  are  not  under  the  control  of  the  builder  and  it  might  result  in  financial  capital  loss.

Pure  risk  :

Pure  risk  arises  in  the  event  of   uncertainty  or  when  some  contingency  occurs. The  future  earnings  from  the  projects  and  the  loss  is  resulted  from  the  same. It  arises  in  the  form  of  injury  and  expected  death  or  from  civil,  criminal  or  legal  prosecutions.

Technical  risk  :

The  technical  risk  arises  from  the  process  of  designing  the  construction  which  might  lead  to  error  in  completion  of  project.  The  designs  allowed  might  be  inaccurate  or  incomplete  or  the  materials  selected  for  the  undertaking  the  project  is  wrong.

Political  risk :

The  builder  and  the  building  owner  is  also  exposed  to  political  risks. The  execution  of  project  might  be  adversely  affected  by  the  acts  of  government  authorities  or  some  other  agency  or  the  legislation  of  the country. This  risks  arises  due  to  the  non  market  factors  and  might  lead  to  the  personnel  and  financial  loss  of  the  project. This  types  of  risks  comes  from   the  government  policies,  changes  in  laws  or  when  there  is  change  in  taxation  policy.

Construction   risk :

Construction  risks  involve  several  types  of  risk  related  to  the  execution  of  projects. The  procedures  followed  for  executing  the  construction  and  the  occupational  safety  in  the  construction.  The  projects  might  not  be  delivered  on  time  because  of  inaccuracy  in  estimating  the  time  of  contracts. It  can  also  happen  due  to  the  inappropriate  use  of  materials and  equipments.  Several  risks  relating  to  environment  would  also  comprise  the  risks  in  carrying   out  the  construction.  Though  this  risks  is  under  the  control  of  the  construction  management  but  it  has  increased   due  to  stringent  legal  liability  relating  to  the  incidents  of  environment  which  can  impact  the  financial  of  projects  in  a  adverse  manner  and  can  also  leads  to  closure  of  the  construction  works.

Listed  above  are  the  various  types  of  risks  associated  with  the  construction  which  needs  to  be  taken  into  account  before  executing  the  construction  projects.

Ascertaining  the  risks  is  an  important  part  of  managing  then  risks.  The  identification  of  risks  have  to  be   carried  out  in  all  the  phases  of  the  construction  project  whether  it  is  a  phase  of  planning  or  tendering  the  process  or  when  the  conditions  of  contract  is  drafted  or  when  the  contract  is  being  carried  out. There  are  several  methods  of  identifying  the  risks  which  are  as  follows :

Using   expert  system :

One  of  the  sophisticated  method  of  identifying  the  risks  is  by  making  use  of  knowledge  based  and  computer  cooperative  systems   which  assists  the  project  manager  in  providing  them  with  appropriate  knowledge  to  deal  with  the  risk  very  effectively  and  makes  them  acquainted  of  the  risks  that  may  follow  with  the  construction.  It  is  done  on   the  basis  of  artificial  intelligence  system  of  experts  .

Another  method  of  identifying  the  risks  is  by  using  Delphi  technique :

It  is  one  of  the  forecasting  method  which  is  interactive  as  well as  systematic  and  is  has  a  panel  of experts  on  which  the   method  relies  and  it  has  a  sequence  of  events.

After  a  risk  manager  is  appointed  the   appropriate  members  of  project  team  is  forwarded  with  the  questions  and  they  are  asked  to  give  views  on  questionnaire  and  it  is  collected  by  risk  manager  and  redistributed  and  are  requested  to  reconsider  their  original  answers   and  the  revised  results  are  collected  and  again  redistributed  and  the  process  continues  until  the  opinion  has  been  reached (Kendrick, 2015).

Checklists   and  questionnaire :

Questionnaire  provides  with  the  consisted  answers  from  different  team  members  which  has  a  meaningful  comparisons  so  that  the  risk  manager  is  able  to  ascertain  apparent  consensus  and  also  consumes  very  less  time.

We  can  use  cause  and  effect  diagram  to  identify  risks  which  is  also known  as  fishbone  diagram. Here  we  need  to  enlist  the  cause  on  the  right  side  and  effects  on  the  right  side  and  then  are  categorized  and  then  the  main  causes  are  grouped according  to  these  categories. 

Influence  diagram :

The  decision  variables  of  a  problem  are  represented  through   graphs  containing  nodes  which  is  formed  by  decision,  information  and  utility. The  relationship  between  chance  nodes  and  utility  represents  a  probabilistic  dependence.

In order  to  identify  the  risks  ,several  risks  factors  needs  to  be  considered  and  should  be  classified  whether  they  are  internally  or  externally  influenced .  the  variables  whether  economic  or  non  economic  should  be  taken  into  account  in  order  to  identify  the  various  risks.

Quality  management  is  a  system  of  maintain  quality  and  ensuring  that  the  quality  level  of  service  or  product  is  maintained. The  documentation  of  quality  management  system  includes  several  documents  such  as  quality  plan ,  quality  manual, quality  policy ,  work  construction  and  records.

Quality   manual  :

The  structure  and  content  of  the  manual  varies  depending  upon  the  size  of  the , personnel  competence , and  complexities  involved  in  operations. The  entire  quality  management  system  is  documented  in  one  manual  if  the   construction  company  is  small.  On  the  other  hand ,  a  large  c company  may  have  different  quality  manuals. Several  things  are  included  in  the  manual  such  as  scope  of  quality  management system, process  of  business  model, references  which  are  relevant  to  the  documentation  and  exclusions   from  the  standard. some  of  the  elements  which  are  included  in  the  quality manual  are  as  follows :

• Versioning  approval  and  information

• Objectives  and  quality  policy

• Description  of  quality  management  system

• References  which  are  relevant  to  documents

• Appendices  which  are  relevant

• Personnel  responsibilities  should  be  defined

Policy: 

The  first  tier  of  the  documentation  of  quality  management  is  policy  manual  which  defines  what  needs  to  be  done  and  why.  The  manual  should  be  precise  and  practical ,clearly  written  and  easy  to  understand. It  states  the  commitment  by  the  organization  toward  the  continual  improvement  and  also  toward  the  quality.

Procedures  :

In  order  to  perform  and  implement  the  policies, procedures  needs  to  follow  in  documentation  which  include  the  strategies  that  would  be  used  to  ensure  the  quality.  If  the  absence  of  procedure  would  adversely  impact  the  activity  then  the  procedures  needs  to  be  in  place,  though  it  is  not  mandatory.

Work   instructions   :

It  usually  involves  machine,  departments,  task  or  product  and  it  may  be  in  the  form  of  routine  sheet  or  drawings  in  detail, photograph  or  a  sample  for  conformity. The  elements  of  procedures  is  also  included  in  the  workstations.  It  includes  the  activities  to  be  realized  in  detail  focusing  on  the  methods,  tools  and  sequencing  of  steps

Records :

The  documentation  of  policies, procedures  and  work  instructions  are  done  through  records.  It  may  be  a  date  or  signature  on  some  type  of  product.  The  data  are  provided  in  order  to  take  corrective  actions.

The  documentation  of  the  system  establishes  the  processes  which  forms  the  backbone  of  the  quality  system.  First  of  all,  the  processes  needs  to  be  identified  and  this  include :

• The  departments  needs  to  be  listed  before  categorizing.

• Quality  control,  sales ,  marketing,  production  control, customer  service

• The  processes  needs  to  be  related  by  using  flow  diagram.

• The  flow  chart  needs  to  be  included  in  the  quality  manual.

The  quality  procedures  comes  with  a  different  structures  and  include  the  following  elements:

• Title  needs  to  be  included  for  the  identification  of  the  procedure.

• Scope  and   purposes  which  explains  the  various  aspects  to  be  covered  and  not  to  be  covered  and  the  procedures  needs  to  be  described.

• Document  control  should  include  the  change  identification, reviewing  date  and  version  of  documents.  All  this  should  be  according  to  the  practice  which  are  established  for  the  document  control.

• The  main  section  of  procedure  contain  the  description  of  activities  which  describes  what  needs  to  be  done , when,  where, how  and   by  whom. The  various  outputs  and  inputs  has  to  be  explained  and  the  resources  which  are  included  also  needs  ot  be  explained.

• Authorities  and  responsibility  of  the  people  to  be  included  in  the  procedure.

• Records  should  be  designed  and  listed  resulting  from  the  activities.

Documenting   quality  control :

Advantages   of  documentation  system :

Documentation  enables  a  detailed  reconstruction  ,  analysis  of  events  and  reviewing  by  providing  a  permanent  records  of   the  keepings. If  there  is  any  party  to  dispute  then  they  can  demonstrate  a  point  of  issue  by  bringing  a  contemporaneous  documents document  becomes  one  of  the  significant  evidence  in  supporting  the  claims  when  the  battle  enters.

Documentation  would  facilitates  effective  communication  between  non  technical  and  technical  users. The  plan  of  the  organization  and  the  ways  of  accomplishing  the  same  would  be  easily  explained  by  the  documentation  and  it  also  gives  an  instruction  to  the  staffs  on  the  way  of  performing  tasks (Love et al., 2013).

Specifications  of  raw  material , quality  manuals  and  the  procedures  relating  to  quality  control,  marketing, internal  quality  audits  are  included  in  the  documents.

Documentation  provides  the  basis  of  what  actually  needs  to  be  done  for  ensuring  the  quality. It  also  provides  the  methodology  performance  of  quality  system  of  sub  tiers  suppliers  and  suppliers  which  ensures  that  the  best  quality  of  materials  and  product  has  been  selected. 

The  other  commercial  benefits  are  as  follows :

Operational  expenses  reduces : the  rigorous  registration  process  exposes  the  company  to  some  drawbacks  and  when  these  are  brought  into  light,  the  company  can  take  appropriate  measures  to  improve  the  processes  and  due  to  this  improved  efficiency  ,  time  and  money  would  be  saved (McCabe, 2014).

Increased  marketability : the  documentation  system  would  help  in  acquiring  the  customers  and  endeavors  to  bring  in  the  lucrative  customers.

The  list  of  construction  documents  has  to  be  made  with  date  when  received  and  the  contract  files  needs  to  be  established  in  order  to  work  effectively  and  it  contains  the  information  about  construction  documents,  quotations,  progress  claims,  site  instruction,  minutes  of  contract  review, specifications   and  drawings.

It  would  attract  the  investors  and  improve  the  service  provided  to  customers  and  it  would  also  improve  internal  communication  which  would  help  the  construction  company  in  gaining  the  needs  of  the  internal  customers  and  also  there  is  a  better  management  of  control. 

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