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I hereby declared that this report submission is my own work and to the best of my knowledge. It does not contain any material previously published or written by any other person or any material which substantial extent has been accepted for the award of any degree or diploma of a university or other institution of higher education, except where referenced are mentioned.
Rathnayake R.M.R.S.B Department of Building Economics, Faculty of Architecture, University of Moratuwa, Sri Lanka, April 2009
Acknowledgement
This research study embraces much dedication and ready assistance received from many people, who contributed in ample ways to complete this study. Consequently, I take this opportunity to convey my sincere gratefulness to every one of them. It is my foremost duty to pay my gratitude to the Department of Building Economics, University of Moratuwa, and all the academic as well as non academic staff of the department for the tremendous service rendered. I extend my gratitude to Mr. Indunil Senevirathna, Head of the Department of Building Economics, for his keen interest, encouragement and the guidance to the achievement of producing this dissertation. Furthermore, I am grateful to my supervisor, Mrs. Kanchana Perera, Senior lecturer, Department of Building Economics, for her outstanding supervision, her guidance, encouragement, and constructive criticisms significantly contributed towards the successful completion of this research. I extend my gratefulness to Dr. Sepani Senarathna, the dissertation coordinator, for her interest and dedication throughout the year. I should express my appreciation to senior lectures of the Department of Building Economics Prof. R. Rameezdeen, Mr. Suranga Jayasena, Mrs. Yasangika Sandanayaka and Mr. Sandun Fernando for their valuable guidance throughout the research process. I convey my special thanks to Mr. Lalith Rathnayaka (VForm consultants), Mr Thilak kolonne (VForm consultant),Mr. Elmo Fernando (Havelock city project) Mr. Pieris (Department of Mathematics, University of Moratuwa) for their special guidance, assistance and encouragement provided to clarify the problems of this research. I would like to convey my utmost gratitude to all the professionals of organizations who gave me a great support in many ways for the success of this research. Finally I express my heartfelt thanks for my family members, relations, colleagues and my seniors and juniors for giving me an outstanding company to make this dissertation possible.
Table of Content
Table of Contents
Acknowledgement ...................................................................................ii Table of Contents......................................................................................I List of Figures.........................................................................................II List of Tables.........................................................................................III List of Appendix.....................................................................................IV Abbreviations ..........................................................................................V Abstract...................................................................................................VI Chapter 01................................................................................................1 Chapter 02................................................................................................7 Chapter 03..............................................................................................36 Chapter 04..............................................................................................47 Chapter 05..............................................................................................76 References .............................................................................................82 Appendix ................................................................................................89
List of Figures
List of Figures
Figure 3.1: Research Process................................................................37 Figure 3.2: Nested reseach methodology..............................................38 Figure3.3: Research methodology illustration.....................................39
II
List of Tables
List of Tables
III
List of Appendix
List of Appendix
Appendix 01 Preliminary Survey Appendix 02 Questionnaire Survey Appendix 03-A Interview Guideline Appendix 03-B Interview Transcript Appendix 04 Calculating Reliability Using SPSS Appendix 05 Summary of Calculated Cronbachs Alpha Appendix 06 Calculation of RII
IV
Abbreviations
Abbreviations
BOQ CQS FIDIC ICTAD QS RII SBD - Bills of Quantities - Chief Quantity Surveyor - Federation International Des Ingenieurs- Counseils - Institute for Construction Training and Development - Quantity Surveyor - Relative Important Index - Standard Bidding Document
Abstract
Abstract
Construction is a highly risk-prone industry without a very good track record of coping with risks. The participants in the industry, as a result, have been enduring the agonizing outcomes of failure in the form of unusual delays in project completion, with cost overruns and sometimes failure to meet quality standards and operational requirements. Thus, an effective analysis and management of construction associated risks remain a big challenge to the industry practitioners. Moreover, it is crucial to correctly classify important technical risks. Consequently, this research was mainly focused on identification of the critical risks both significant in occurrence and impact, the performance in construction lifecycle, and allocation of technical risk among contracting parties in building construction projects in Sri Lanka. This paper presents a comprehensive methodology that addressed all above mentioned objectives. To understand the perceptions of construction practitioners on technical risks in Sri Lankan building construction projects is an important step in this process, a questionnaire survey and structured interviews were conducted and 24 technical risks were identified and evaluated by using relative importance index. According to the collected data and the results of the statistical analysis procedures employed, the most severe technical risks encountered by the contracting parties in the Sri Lankan building construction industry are: 1) Shortage in skillful workers; 2) Design changes / Design variations by client; 3) Inadequate program scheduling and tight program scheduling; 4) Materials shortage; 5) Estimation errors; 6) Unusual weather and force majeure; and 7) Unknown site physical conditions. Mainly significance of technical risk factors, considering time, cost, and quality were figured out. Moreover the performance of technical risk factors in construction lifecycle and perception about the allocation of technical risk factors among construction parties were figured out. It is important to consider those factors when considering a building construction project and depending on the project perspectives type technical risk factors to be considered also change. Keywords: Technical Risk, Construction Project Lifecycle, Building Construction Project, Risk Allocation, Critical Risk.
VI
Introduction
Chapter 01
1 INTRODUCTION
1.1 BACKGROUND
The concept of risk can be applied to nearly every human decision making action of where, the consequences are uncertain (Flanagan and Norman 1993). The word of risk has entered in to the English language in the mid 17 th century, coming from the French word risqu (Covello and Mumpower 1985 cited Thilakarathne 2007). Cooper and Chapman (1987 cited Dent 1997, p. 1) define risk as exposure to the possibility of economic or financial loss or gain physical damage or injury or delay as a consequence of the uncertainty associated with pursuing a particular course of action. Construction industry is one of the most dynamic and challenging industries (Woodward 1997) and it is subjected to more risk and uncertainty than many other industries (Flanagan and Norman 1993). Furthermore, according to Patrick et al. (2007), Kangari (1995), Uher and Toakley (1999), and Thevendran and Mawdesley (2004), risk relates to construction industry and obviously it is related to construction projects. Hence, construction projects consistently expose to various sources of risks (Poh and Tah 2006). Those risks can effect to productivity, performance, quality, and budget of a construction project (Kangari 1995). However, risks cannot be eliminated (Patrick et al. 2007), but it can be minimized or transferred from one stakeholder to other stakeholder in the construction process (Kangari 1995). Thus, formal and efficient risk management process is needed to manage all types of risks in construction projects (El-Sayegh 2008). Consequently, management of risks has turned into a main part of the organizational activities (Flanagan and Norman 1993). The risk management is a tool which control risks in construction projects (Hamshayini 2007, p. 1). The main aim of risk management is to assist all construction project aims (Mills 2001) by mitigating the risk, transferring the risk to other parties, or sharing the risk among the parties
Construction Risk: Further Consideration of Technical Risk 1
Introduction
(Rahman and Kumarasami 2005). Similarly Kangari (1995) figured out, risk management is an important part of the decision making process in construction projects. Therefore, it is evident that, risk management has been commonly applied across the construction sector in project level (Thevendran and Mawdesley 2004, p. 131). Risk management is a process which, aims to identify and assess risks in order to enable them to be understood clearly and managed effectively (Hilson 2003, p. 85). Furthermore, Shen (1997) suggested that a systematic process of risk management should include: risk identification; risk analysis; and risk responses, where as risk responses has been further divided into the four actions: risk retention; risk reduction; risk transfer; and risk avoidance for managing risk in construction projects. Risk identification is the first stage of risk management. It develops the basis for the next step: analysis and control of risk management. Therefore, the correct identification of risks ensures the effectiveness of risk management (Tchankova 2002). Uher and Toakley (1999) further substantiated the same argument indicating that the concept of risk identification appears to be the most known and practiced out of the three phases involved in risk management. In addition, there has been an increase in research on risk management practices in the construction industry (Rahman and Kumaraswamy 2005), (Archbold 2006), (Akintoye and Macleod 1997). However, Rahman and Kumaraswamy (2005) argued that, little research has been conducted in foreign countries to investigate the overall consequences and uncertainties systematically in construction risk management for various project participants. Construction risks are allocated to different parties through contract conditions, but each and every risk item is difficult to foresee at the outset, due to the natural complexity and uncertainty that exists in construction projects (Akintoye and Macleod 1997). Moreover, Kunishima and Shoji (1996) argued that, the objectives of construction projects could defer from country to country or nation to nation, and all nations and regions of the world may have their own characteristics (cited Andi 2006). Because there are differences in way of living, way of thinking, and way of value systems, and similarly, it could differ their ideas of managing risks. Therefore,
Construction Risk: Further Consideration of Technical Risk 2
Introduction
the management of risk is significantly influenced by the uniqueness of the construction industry of that particular country. As such as, it emphasizes a need of in depth investigation to the overall consequences and uncertainties in construction risk management for a variety of project participants in Sri Lankan context. Besides, according to the empirical study by Kangari (1995) revealed that management practices are mainly focused on construction risk allocation towards perception of the typical large contractors and owners. Further, the same study emphasized the identification of strategies or usage of risk management techniques to add value to project delivery and improve the effectiveness of the construction industry throughout of the process of construction. To handle risks in construction projects appropriately, it is required to assign them scientifically among parties (El-Sayegh 2007). Thus, scientific assignment of risk among project parties can be achieved by only if it analytically investigates the overall consequences and uncertainties in construction risks and risk supervision (Andi 2006). More importantly, this can only be achieved if all parties do understand their risk responsibilities properly (Perera 2006). Identification of sources of risk is vital aspect in risk management process (Tchankova 2002). Edward and Browen (1998) supported the same argument stating that for a proper risk management process, it has to first identify source of risks. Further, the same study classified the sources of risks in to nine categories: financial; legal; management; market; policy; health; cultural; social and political risks. However, among all these risks sources/ factors, the technical risk sources/ factors are not well-represented or not evident in risk management literature (Edwards and Broun 1998). According to above mentioned findings and facts, to trounce them and fill the gap, which had already figured out. Thus, this emphasized a need of research in risk management area with orientation to identify and analyze possible risk factors associated with building construction process and consequences and uncertainties towards contractors and owners. further to assess their towards project parties/stakeholders; specially
Introduction
1.4 OBJECTIVES
Identify the technical risk factors associated with building construction Analyze the allocation of risk factors among construction parties. Figure out consequences of above risks on project goals Identify the performance of technical risk in construction lifecycle.
1.5 METHODOLOGY
1.5.1 LITERATURE SURVEY AND REVIEW
Comprehensive preliminary literature survey was carried out based on journals, books, articles, conference proceeding, census reports, government publications, dissertations, previous research investigations and internet. Further review carried out to acquire the theoretical knowledge regarding the research area and required analysis.
Construction Risk: Further Consideration of Technical Risk 4
Introduction
Introduction
Chapter 02:- Literature synthesis This chapter explains briefly about risk management with the use of literature and figure out possible risk factors according to past researches. It also illustrates the classification of risk sources and critical risk source. Chapter 03:- Method of study In this chapter, research methodology is described in detail. Furthermore, details about background study, research design, method of data collection, and method of data analysis or the data analysis technique are included. Chapter 04:- Analysis and finding This chapter consists with the finding of the preliminary survey, questionnaire survey, structured interviews, and comprehensive analysis of those findings. Chapter 05:- Conclusions, recommendations and further research This chapter concludes the research findings, emprise recommendations, and areas to be considered when doing further researches
Chapter 02
2.2.1 CERTAINTY
Certainty is the situation where the outcomes are consistent, measurable, and accurate from all available alternatives that can be occurred (Storner et al. 1995). Further, more according to Kerzner (2001); there is a hundred percent accuracy for all alternatives, which can be occurred in a particular situation, when there is a certainty to make decisions.
2.2.2 UNCERTAINTY
Flanagan and Norman (1993, p. 22) define the uncertainty as the situation in which there are no historic data or previous historic relating to the situation being considered by the decision-maker. Besides, Stoner et al. (1995) defines as unpredictable external conditions or lack of information needed to establish the probability of events. According above both definitions and Thilakarathne (2007) s argument it is revealed that the uncertainty is the situation where, there is no any
information to predict future events based on probability and it is the worst condition in decision making.
2.2.3 RISK
The word risk is quite modern and it is coming from the French word risqu in mid 17th century to the English vocabulary (Flanagan and Norman 1993). Risk is primarily related to rewards, some risk should be accepted as long as they are in line with the rewards (El-Sayegh 2007, p. 441). Risk is an unavoidable component of all activities (Wang 2002). The word risk is defined as the possibility of something bad happening in sometime in the future; a situation that could be dangerous or have a bad result in the Oxford Advance Learners dictionary (2000, p.1105) Furthermore, Cooper and Chapman (1987 cited Dent 1997, p. 1) defined risk by considering the practical behavior of risk as Exposure to the possibility of economic or financial loss or gain, physical damage or injury, or delay, as a consequence of the uncertainty associated with pursuing a particular course of action. Besides, Flanagan and Norman (1993) define the risk considering the assessable of risk as measurable uncertainty, while uncertainty is as immeasurable risk. However, when consider the project risk; it is defined by El-Sayegh (2007, p.1) as an uncertain event or condition that, if it occurs, has a positive or negative effect on at least one project objective such as time, cost, scope, or quality. According to the definitions of risk given by the Cooper and Chapman (1987 cited Dent 1997), Flanagan and Norman (1993), El-Sayegh (2007) it can be convinced that risk is generally referred to economical or physical loss rather than gain due to measurable uncertainty, while uncertainty is as immeasurable risk. Even, there are many definitions for the risk given by several researchers, for this research considers the Cooper and Chapman (1987 cited Dent 1997) definition as the definition for the risk.
Risk is the potential for unnecessary or negative consequences of an event or activity (Rowe 1997), a combination of hazard and exposure (Chicken and Posner 1998). Achrol (1988 cited Kolltveit 2004) has distinguished uncertainty and risk as following way: situations where having a known probability of occurrence of outcome due to particular activity are called risk, while uncertainty arises with the unknown outcome of event. Moreover, Stoner et al. (1995) illustrate risk as a situation where the decisions made by decision makers mainly by considering probabilities calculated using historical information in that particular incident.
Certainty
Risk
Uncertainty
HIGH
MANAGERIAL CONTROL
LOW
10
The Environment The Market/ Industry The Company The Project/ Individual
Impact of Risk to the General Environment The general environment is that which affect all organizations in given society. Therefore according to Flanagan and Norman (1993) the impact of risk to the general environment will be issue to every society aspects and it can be divided in to two parts, firstly the physical and secondly the political, social and economic. They further argued that the risk arising from physical environment can be identified and steps can be taken to mitigate them. However, for the political, social, and economic only government can control the environment risk (Jamil et al. 2008).
Impact of Risk to the Market / Industry and company The risk which is occurs countrywide or worldwide and it will cause to the market and ultimately to the industry (Flanagan and Norman 1993). Typically, industry and the market contain large number of small and companies or organizations then such kind of risk will cause to the organizations Dent (1997).
11
Impact of Risk to the Project Risk can affect productivity, performance, quality, and budget of construction project (Kangari 1995). Moreover, Andi (2006) emphasize that, failure to adequately dealing with risk will be cause cost and time overruns in construction projects. However, Ahamad and Azar (2004) have given most serious effects precisely that can be occurring due to risk in construction projects from project management point of view and it can be summarized as follows: Failure to keep within the cost estimate Failure to achieve the required completion date Failure to achieve the required quality and operational requirements This research is mainly limited the study to the project level.
12
Sayegh 2007). Further, according to El-Sayegh (2007, p. 431) construction projects are perceived to have more inherent risk due to the investment of many contracting parties such as designers, contractors, subcontractors, suppliers, etc.. Besides, Stoner et al. (1995) and Hastak and Shaked (2000 cited Wang 2002) illustrate the construction project risk as, it has to be operated in an environment where there are many uncertainties so that the aim will be operate on risk. Therefore, risk relation to construction as a variable in the process of a construction project whose variation results in uncertainty as to the final cost, duration, and quality of the project (Bufaied 1987, cited Akintoye and Macleod 1997). Due to these reasons, use of specific risk management will ensure the full control to mitigate the risk in construction.
13
However, when consider above-mentioned definitions with compare to Nummedal et al. (1996 cited Ahamad and Azar 2004) definition of risk management such as a process to control the level of risk and to mitigate its effects and it is a systematic approach for identifying, evaluating, and responding to risks encountered in a project. It is convinced that that the risk management is a systematic process to identify, evaluate and responding to risks encountered in a project. Nummedal et al. (1996 cited Ahamad and Azar 2004) definition takes for this research as the definition for the risk management. The application of systematic risk management in construction projects has long been recognized as an effective approach to minimizing risk impacts (Flanagan and Norman 1993) and it will aims to identify and assess risk in order to enable them to be understood clearly and managed effectively (Hillson 2003).
2.4.2.1 SYSTEMATIC RISK MANAGEMENT PROCEDURE Systematic approach of risk management will be given assurance to the risk management process by minimizing the missing of risk factors and there affect. Basically, a systematic risk management process consist with three steps
14
Further, it is illustrate by using following figure by Dent (1997), simply understand the risk management procedure and to do risk management in systematic way. (Source- Dent 1997)
Risk management process is cyclical one (Poh and Tah 2006), and according to Dallas (2006) risk management should be viewed as a continuous activity throughout the development of a project, resulting in a steady reduction of the level of risk across the project as it proceeds. As a project evolves, some risks will allocate to deferent parties in the project team, some will pass and no longer represent a threat, and new risks will emerge. Some management actions will prove effective, others
15
less so, figure outlines the key activities in this iterative process. Cyclical nature of risk management is shown in following figure more detail by considering the above three steps of risk management, which is defined by Dent (1997).
Risk identification
Risk monitoring
Risk estimation
Risk evaluation
Risk response
By considering risk management procedure diagram with the risk management cycle can demonstrate as following,
16
Risk identification is the first phase of risk management and it is extremely important for all construction projects (Jamil et al. 2008). Because, it develops the foundation for next steps; analysis and control of risk management (Flanagan and Norman 1993). Accurate risk identification ensures all losses or gain that challenge the
organization or the project, then these non-identified risks will become nonmanageable (Greene and Trieschmann 1984 cited Tchankova 2007) Besides Al-Bahar (1988 cited Al-Bahar 1990, p. 534), risk identification is defined as the process of systematically and continuously identifying, classifying, and assessing the preliminary significance of risks associated with a construction project. According to Flanagan and Norman (1993), risk identification done considering the Sources of risk, events that are arising from that particular source of risk and effects caused by those events it is shown in following figure 2.6. Source Events Effects
Further, Tchankova (2007) argue that the attention of risk manager should not be concentrated only on what can be insured or mitigated and it should start with the basic questions: How can the organizational resources be threatened? What adverse effect can prevent the organization from achieving its goals/ What favourable possibility can be revealed?
According to Dent (1997) and Flanagan and Norman (1993) Identification can be further illustrated by considering the followings factors of risk, Likelihood
17
The objective of risk identification is to identify all possible risks (Highways agency 2001), categorize risks that could affect the project (Kangari 1995), and document these risks (Flanagan and Norman 1993), not to eliminate risks from consideration or to develop solutions for mitigating risks and those functions are carried out during the risk assessment and risk mitigation steps. Some of the documentation and materials should use in risk identification as they become available include these. Risk identification process Moreover, the degree, to which the identification process will influence the effectiveness of risk management and its contribution to the overall project management of any particular project, is dependent on the way the steps of the process are implemented (Chapman 2001, p. 147). Furthermore, proper implementation of these steps will ensure better effectiveness of identification process and it will guide to better understanding of risk. Moreover, the key factors involved in each step of the risk identification process demonstrate in following figure and table. There are six steps involved in the risk identification process. The following sections will discuss each step separately (Al-Bahar 1988 cited Al-Bahar 1990). Risk RiskIdentification IdentificationProcess Process
Existence Uncertainty Preliminary Checklist Risk Events/ Consequence Scenarios Logical Risk Classification Scheme Risk Category Summary Sheet Construction Risk: Further Consideration of Technical Risk Risk Mapping
18
Step Existence of Uncertainty Preliminary Checklist Risk Events/ Consequences Scenarios Risk Mapping
Key Issues Recognize the existence of uncertainty about particular risks associated with the project List all potential risks that can possibly occur in the project Identify different risk events and consequent scenarios associated with each potential risk Assess the significance of identified risk by constructing the risk curve
Logical Classify the identified potential risks according to Classification their nature and potential impact Scheme Risk Category Integrate the participation of all personnel involved Summary Sheet in the project management team (Source- Al-Bahar 1988 cited Al-Bahar1990)
According to Highways Agency (2001), risk identification process begins with the team compiling the project's risk events and identification process will vary, depending on the nature of the project and the risk management skills of the team members, but most identification processes begin with an inspection of issues and concerns created by the project development team. Further, these issues and concerns are able to derive from an examination of the project description, work breakdown structure, cost estimate, design and construction schedule, procurement plan, or general risk checklists. A number of documents and tools are available to support the risk identification process. Following table provides an example of project-specific documents, programmatic documents, and techniques available for risk identification.
Table.2. 2: Risk identification
19
Project Specific documents Project description Work breakdown structure Cost estimate Design and construction schedule Procurement plan Listing of team's issues and concerns
Programmatic Documents Historic data Checklists Final project reports Risk response plans Organized lessons learned Published commercial databases Academic studies
Techniques Brainstorming Scenario planning Expert interviews Nominal group methods Delphi methods Crawford slip methods Influence or risk diagramming
There is significant evidence in literature that checklists (Jamil et al. 2008), Delphi method, expert interviews, and document, which are specific to the project, are most popular methods of risk identification Akintoye and MacLeod (1997).
Importance of risk identification According to Hayes et al. (1987cited Hassanein and Afify 2005), many managers believe that the principle benefits of risk management come from the identification rather than analysis stage. Moreover, Hayes et al. (1987 cited Afify and Hassanein 2005) argued that, for them great benefits comes from the discipline of thinking through the project, understanding the potential risks, and considering possible responses. Besides, Bajaj et al. (1997) also supported to that argument and further they printout following causes, might occur unless otherwise use a proper risk identification process,
Failure to keep within the cost estimate Failure to achieve the required completion date Failure to achieve the required quality and operational requirements
Construction Risk: Further Consideration of Technical Risk 20
Risk Estimation and analysis Risk analysis is the process of quantifying the various risk elements identified in previous sections (Kangari 1988, p. 117). The essence of risk analysis is that it attempts to capture all feasible options and analyze the various outcomes of any decisions (Flanagan and Norman 1993). Moreover, Risk analysis and evaluation defined by Al-Bahar (1988, p. 118) as A process which incorporates uncertainty in a quantitative manner, using probability theory, to evaluate the potential impact of risk. Risk estimation and analysis process Al-Bahar (1988) has developed a schematic process to risk estimation and analysis as shown in following figure 2.8,
Assessment of
Potential Consequences Evaluation of Potential Impact of Risk
Further, Flanagan and Norman (1993) has been introduced six steps to follow when estimating and analyzing to achieve it very successfully and six steps can be illustrated as follows,
21
Step 1: All the various option should be considered Step 2: Consider the risk attitude of decision maker Step 3: Consider what risk have been identified, which are controllable and what the impact is likely to be
Step 4: Interpretation of the results of the analysis and development of a strategy to deal with the risk
Step 6: Decide what risks to retain and what risks to allocate to other parties
Risk Estimating or Risk Analysis Methods According to Ward and Chapman (1997 cited Ahamad and Azahar 2004), there are two decision criterias has developed to facilitate the decision making process in qualitatively or quantitatively. Quantitative risk analysis is a way of numerically estimating the probability that a project will meet its cost and time objectives and it give accurate results than the qualitative method if the available data is strong and reliable (Osama and Almishari 2003). Therefore, to define the fundamental decisions, the practical approach should be made by each participant in the project and to model the project in terms of categories of sources of risk (Kerzner 2001). Such kinds of approaches are as follows, Delphi techniques Monte Carlo simulation Sensitive analysis Decision analysis
Response to Risk Risk response is the process of mitigation risk (Tah and Carr 2000) and that can be done by using proper allocation, which should consider the ability to absorb the risk
22
and the incentives being offered to carry it (Flanagan and Norman 1993). Further response to risk can take any of four basic forms as shown in figure2.9, Risk Response
Risk Retention
Risk Reduction
Risk Transfer
Risk Avoidance
Risk Retention Risk, which produces individually small, repetitive losses are those most suited to retention (Flanagan and Norman 1993, p. 62), the level of retention decided by the financial circumstance, and it is based on probability of a claim for damages and what parties can afford to pay if the claim is successful (Carter and Doherty 1974).
Risk Reduction According to Flanagan and Norman (1993) one approach of reducing the risk exposure is distribute risk among parties and risk reduction falls into four basic categories, Education and training to alert the staff to potential risks Physical protection to reduce the likelihood of loss System are needed to ensure consistency and to make people ask the what if questions Physical protection can be taken to protect people and property
Risk Transfer Risk transferring is the process of assigning uncertainty factors to the various parties involved (Thompson and Perry 1992). Risk allocation defines the proportion of risks be shared by owner, designer, contractor, and perhaps other parties (Baker et al.
23
1999). The contract documents allocate risks and establish the relationship of parties in a construction contract (Kangari 1988). Risk transferring does not reduce the risk it just transfer the effect of risk to another party. It means, anyhow one party has to bare or absorb the risk (Flanagan and Norman 1993). Common method of transferring risk is the insurance and further it can be transferred by pricing considerably high, by using sub contracting and claims (Hertz 1964 cited Baker et al. 1999).
Risk Avoidance Risk avoidance means refuse to accept risks. Risk avoidance is normally associated with pre-contact negotiations (Flanagan and Norman 1993). Further, risk avoidance refers as risk elimination and there are number of ways through the risk can be avoided. Such as by tendering a very high bid (Carter and Doherty 1974 cited Baker et al. 1999), either avoid certain risk or avoid certain consequences following from risks and most pertinent example of risk avoidance is the use of exception clause (Flanagan and Norman 1993).
Risk Monitoring Final stage of the risk management is the risk monitoring and the process of risk monitoring should assure the appropriate control in place for organizations activities and that the procedures, understood and followed (Tah and Carr 2000). Further, during the risk monitoring, it should monitor the result of risk management approaches also and it will provide basis for the updating of existing risk management approach to get success output (Kerzner 2001 cited Thilakarathne 2007).
24
Moreover, the size and complexity of construction projects is also higher (El-Sayegh 2007). Due to that reason construction project expose to risk (Flanagan and Norman 1993). Trying to eliminate all the risks, which are occurs in construction projects also is impossible (Wang et al. 2004).
2.5.1.1 NEED OF RISK MANAGEMENT IN CONSTRUCTION PROJECTS Clients, contractors, the public, and others have suffered, because of the construction, industry has a poor reputation in coping with risks and due to that many projects failing to meet deadlines and cost targets (Edwards 1995). Besides, previous researchers (Shen 1997), (Hillson 2003), (Kangari 1995), (El-Sayegh 2007) Suggested that, construction activities are particularly subjected to risk. Then naturally, construction projects expose to risk. Furthermore, that creates uncertainty in construction projects (Flanagan and Norman 1993). Moreover according to Hillson (1999 cited Hillson 2003); risk management has been accepted as a significant advance to dealing with the predictable uncertainty, aiming to minimize threats and maximize opportunities while maintaining a focus on success of objectives. Therefore, it is important to employing effective risk management techniques to deal with risks associated variable construction activities, which are related construction
Construction Risk: Further Consideration of Technical Risk 25
projects. Because effective risk management will ensure project objectives including time, cost, quality, safety and environmental sustainability (Zou et al. 2007).
2.5.1.2
RISK
MANAGEMENT
STRATEGIES
IN
CONSTRUCTION
PROJECTS Once the risks of a project have identified and analyzed, appropriate risk response strategies must be adopted to cope with the risks in the project implementation (Adams 2006). The treatment measures on each risk base on the nature and impact of the risk. Further, the main aim is to remove as much as possible the potential negative impact and to increase the level of control of the risks. However, the process of risk management does not aim to eliminate all risks but to identify appropriate strategies to assist project stakeholders to manage them (Perry and Hayes 1985 cited Zou et al. 2007). These strategies apply in situations experiencing uncertainty in order to ease decision-making regarding the projects future. These beneficial and practicable developments have resulted in construction practitioners becoming progressively aware of the importance of using these techniques at various stages of a project to achieve greater project success. However, there is a significant shortfall in the available risk management techniques. (Thevendran and Mawdesley 2004)
26
According to, American Council of Engineering Companies and Associated General Contractors of America, there are two ways owner can address the project risk as follows; Transfer all risk of loss to other construction project parties Sensible allocation and management of risk
27
28
2.6 PROJECT RISK CLASSIFICATION AND TECHNICAL RISK IDENTIFICATION REGARDING TO SYSTEMATIC RISK MANAGEMENT
Materials shortage Obsoleteness of building equipment Poor quality of procured accessory facilities Poor quality of procured materials Problems due to partners different practice Shortage in accessory facilities Shortage in skillful workers Shortage in supply of water, gas, and electricity Subcontractors low credibility Unknown site physical conditions
Besides, it was quite evident that there is an immense requirement of identifying the potential risk factor both occurrence and influence in prevailing building construction industry and concern of risk handling. Thus, it focuses onto the risk identification and risk response, which are two specific stages in risk management process.
32
Figure out consequences of above risks on project goals Identify the performance of technical risk in construction lifecycle.
By considering following Risk factors which are taken from the researchers conducted by Edwards and Brown (1998), Andi (2006), Shen et al. (2001) and Kangari (1988), Design failures Equipment and system failures New technology failures Estimation errors Accident/ Collision Site Location and access Inadequate program scheduling and tight program scheduling Design changes / Design variations by client Hazards of environmental regulations Incompetence of transportation facilities Increase in site overheads Industrial disputes Local firms incompetence and low credibility Materials shortage Obsoleteness of building equipment Poor quality of procured accessory facilities Poor quality of procured materials
33
Problems due to partners different practice Shortage in accessory facilities Shortage in skillful workers Shortage in supply of water, gas, and electricity Subcontractors low credibility Unknown site physical conditions
2.9 SUMMERY
Studying about the construction risk is very much important to be success in decision making each and every aspect of construction activities. It would be impose significance and value to the decision and at present, more researchers have gone through the risk aspect of the construction projects. According to Edwards and Brown (1993) and (Al- Bahar1990) construction project can be classified broadly as social, political, economic, financial, legal, managerial, technical (most of the time refers as construction related risk) and cultural risks. Risk is rapidly increasing with complexity and dynamic nature of construction projects and it is inherent to all nature of construction works. It affects to time and quality of the construction and due to that, most of the construction projects are experiencing cost and time overruns and poor quality, especially concerning the building construction projects. Further, the technical risk or the construction related risk has considerably affected to the construction project (Shen 2007). Moreover, there are only few consideration has been done according to the literature. Ultimately, those aforementioned facts create the need of developing a risk management framework within building construction project to engage in these unpredictable conditions.
34
In order to fulfill, this requirement, through this research problem Construction Risks: Further Consideration of Technical Risks has investigated to identify prevailing technical construction risk factors, analyze the construction industry practitioners perceptions about allocation of all risk factors among construction parties, figure out consequences of risk factors to project goals and figure out the magnitude of technical risk in stages of building construction project lifecycle.
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Research Methodology
Chapter 03
3. RESEARCH METHODOLOGY
3.1 INTRODUCTION
Main aim of this chapter is to outline the research methodology for this research and specially illustrate the research design, which was followed throughout this research. Initially, it is describing the research Process of this particular research and it illustrates completely the Process of this research in a systematic manner using figures. Further, it is illustrating the research design together with the steps of the research design and applicability of research design steps also illustrate.
3.2RESEARCH PROCESS
This research carried out mainly to identify the prevailing technical risk factors and thereafter to analyze the allocation of risk among contraction parties, figure out consequences of above risk of contracting parties, moreover to identify the performance of technical risk in construction life cycle. Thus, it was essential to think off an appropriate research Process, which is competent of identification risk factors, which is paramount. Further, by using a proper research process can be minimized the errors that can be occurred during our research and can be reduced the mistakes done by the researcher. Research process for this particular research illustrates using following figure,
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Establish Aim & objective Literature Review Data Collection Preliminary Survey Interviewing
Guide to Sampling and Factor Selection
Literature Review
Further Research
Structured Interview
Questioner Survey
Data Analysis
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Further, research methodology illustrated by the Saunders et al. (2003) as shown in the following figure,
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risk to the construction parties throughout the construction project life cycle. Due to that reason interpretivism select as the research philosophy for this research.
Experiments laboratory, quasi-experiments Surveys Case study research Ethnography Action research Grounded theory
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Research Methodology
In this research Survey method has been identified as the most appropriate approach. Because of, it was needed to get perceptions of building construction practitioners.
3.3.2.1 SURVEY RESEARCH APPROACH Survey research is one of the most common quantitative research approaches. Main characteristics of the survey research are (Kraemer 2002), Getting information from a sample Asking questions from respondents Based on statistical sampling A representative sample is selected
3.3.2.3 JUSTIFICATION OF USING SURVEY APPROACH In identifying risk factors and their management control, survey approach provides a better access to the information through the design of questionnaire in concise and precise manner (Katam and Katam 2001). Accordance with the research problem, it is important to quantitatively investigate and identify prevailing technical construction risk factors, analyze perception of construction practitioners about the allocation of all risk factors among construction parties, figure out consequences of risk factors to project goals, and figured out magnitude of technical risk in stages of building construction project lifecycle. Thus, it is evident that in this research can be implemented through a questionnaire survey in obtaining relevant data under this research topic. Moreover, need to generalize the result to some extend and by using survey, approach can get the following advantages for this research (Saunders et al. 2003),
Surveys are relatively inexpensive (especially self-administered surveys). Surveys are useful in describing the characteristics of a large population. No other method of observation can provide this general capability.
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Research Methodology
Consequently, very large samples are feasible, making the results statistically significant even when analyzing multiple variables. Many questions can be asked about a given topic giving considerable flexibility to the analysis. There is flexibility at the creation phase in deciding how the questions will be administered: as face-to-face interviews, by telephone, as group administered written or oral survey, or by electronic means.
Standardized questions make measurement more precise by enforcing uniform definitions upon the participants. Standardization ensures that similar data can be collected from groups then interpreted comparatively (between-group study).
Preliminary Survey Preliminary survey carried out to find out, current prevailing condition of the risk in building construction industry and to identify the significance technical risk factors relate to building construction industry. Moreover, it was conducted in two ways,
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By using literature review: - found out the most significance technical risk factor relate to building construction industry.
By interviewing practitioners: - carried out for selected practitioners who are working in contraction organizations. Purpose of this survey was to figure out applicability of the risk factor selected from the literature and to select the sample in an efficient way.
Further, the data collected from this preliminary survey supported to define the sample and collect data using structured interview, and questioner survey. Sample Sampling defined as the method of selecting from a population (Tan 2002 cited Hamshyani 2007). Thus, selecting most appropriate sample is quite difficult for the research. Special for this piece of research, sampling was done using the information collected by the preliminary survey.
Questioner Survey Questioners were prepared with the guidance of preliminary survey and literature review. This questioner was design to probe the cross-sectional behavioural pattern of individual construction parties to towards the technical risk and the validity of questions and answers ensured by the structured interview and the documentary survey. The quesionnaire was structured to get perception of two main sections. The first was intend to get respondents profile. The second section was intended to gather perception on the rating of each technical risk factors which were collected through the litrature survey. The first question relates to the probability of the technical risk events occurring on Sri Lankan construction projects. The respondents were asked to choose between very low, low, medium, high and very high. The second question refers to impact on project objectives namely time quility and cost once the technical risk event ouccers. The third question refers to performance of technical risk in
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construction life cycle. Ultimatly, in the forth question relates to the proper allocation of the risk among construction parties namely cotractor, client and consultant. The questionnaire survey forms were distributed to construction professionals associated with the Sri Lankan construction industry. The completed responses collected personally. Structured Interviews With the guidance of the preliminary survey, structure for the structured interview was prepared and moreover allocation of risk, consequence, and occurrence of that particular risk factors within the construction lifecycle was try to figure out. This was conducted together with the questioners and interviewed the construction practitioners. In most of the cases interviewed Project manager, Project Engineer, Site Engineers, and specially quantity surveyor to ensure the monitory terms relate to technical risk.
3.3.3.2 DATA ANALYSIS TECHNIQUE Collected data from above three methods evaluate systematically to achieve proper answer to the research question. For analyze the allocation of risk to the contracting parties, figure out the consequences of above risk of contracting parties, and identify performance of risk in construction life cycle from the collected data. Likert Scale was used in questioner survey. Likert Scale Likert scale can be recognized as the technique of measuring the different attitudes towards a statement by asking the respondent to indicate their preference in a series of short statement on a given range of responses. It can be analyzed the general
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attitude or the opinion of respondents and come to a conclusion of a research topic (Ginige 2005). Relative Important Index (RII) The technique used to evaluate the collected data was Relative Important Index (RII). RII for each risk was calculated using Eq. (01). An RII was calculated for the probability, impact and rating. The risk rating was calculated by multiplying the probability and impact for each risk. The risk rating can be used to prioritize risks for further quantitative assessment or response planning. The specific combinations of probability and impact lead to a risk being rated as high, moderate, or low importance (El-Sayegh 2008).
0 1
Wi Xi i
:- weight assigned to ith response; Wi = 1,2,3,4, and 5 for i=1, 2, 3, 4, and 5 respectively : - frequency of the ith response : - response category index = 1, 2, 3, 4 and 5 for very low, low, moderate, high and very high, respectively
Cronbach's Alpha Cronbach's alpha is a test for a model or survey's internal consistency. In addition, it identified as 'scale reliability coefficient' sometimes. Cronbach's Alpha is a measure of how well each individual item in a scale correlates with the sum of the remaining items. It measures consistency among individual items in a scale (Streiner and Norman 1989), (Nunnally and Bernstein 1978). The standardized Cronbach's can also be defined as;
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is the
average of all covariances between the components (Cronbach 1951). According to Nunnally and Bernstein (1978), in a reliable data set the alpha should be above 0.7. Cronbachs alpha calculated using SPSS and calculation of Cronbachs alpha was done according to appendix 04.
3.5 SUMMARY
This chapter considered the methodology of this particular research. The survey method figured out as the best method to collect data from the construction industry together with structured interviews and documentary survey.
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Chapter 04
4 DATA ANALYSIS AND INTERVIEW ANALYSIS
4.1 INTRODUCTION
With the aim of upgrading the knowledge in realm of risk management, the research had first conducted a board literature review in the risk management field with particular prominence in building construction projects in Sri Lankan perspective. Prime intention of this chapter is to analysis the degree of risk management aspects using in technical risk management in construction projects in Sri Lanka. Chapter 2 provided the rigid knowledge of risk management and risk management measures concerning the technical risk management. Besides, the behavior of the contraction projects and construction project partys behavior regarding risk management. This chapter completely based on information collected from construction industry practitioners through questioner survey and interviews. Within this chapter consists of the results, after analyzing the data, collected from questionnaire survey and interview. Moreover, ultimately, discussion carried out with the intention of approaching the conclusion of this study.
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For the fulfillment of aim and objective of the research respondents were asked to state availability of the listed risk factors which were found out though the literature review. That was asked to do considering respondents knowledge and experience about listed technical risk factors. This was done with the intention of removing risk factors where none of respondent stated as; a particular risk factor could not be seen in Sri Lankan construction industry. However, according to finding of the preliminary survey, technical risk identification can be illustrated by following figure 4.1. According to figure 4.1, all the risk events identified were there in Sri Lankan construction industry. Based on the survey result, thirty-four respondents out of forty stated that they have faced to estimation errors considering their experience. Eighty five percent of the total projects were having estimation errors. Moreover, design failures/ design variation by client is the second highest technical risk factor. Thirty three out of forty respondents mentioned that they faced that. Thirty two out of forty respondents had faced to shortage in skillful workers within their projects. It means there is an 80% probability of having shortage in skillful workers for a project. Apart from above mention three technical risk factors, according to respondents identification there were 6 risk factors having more than 50% probability of occurrence in a particular project.
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Response rate There were 45 practitioners who were selected randomly from client oraganisations, contractors organizations and consultant organizations uniformly. Out of 45 distributed questionnaiars, 43 was returned (or Collected). Forty out of 43 questionnairs, were completed and used in the analysis. It represented a response rate of more than 85% overall. The response rate for completed questionnaire according to their type of respective organization was shown in table 4.1.
Respondent s Client Contractor Consultant Overall Distributed Returned Response rate 15 11 73% 15 14 93% 15 15 100% 45 40 89%
Classification of respondents Table 4.2 and figure 4.2 summarizes the respondents profile. Fifty eight percent of the respondents had more than 10 years of experience. More over, 38%, 35% and 27% of the respondents were sequentailly from consultant, contractor and client. The results show that, 43% out of respondents projects contract sums are grater than 1000 million.
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Subject Number of Respondents Less Than 5 Years 5-10 Years Above 10 Years Project Scale less than 500 million 500-1000 million Above 1000 million
No of Respondents
Client Contractor Consultant Total
11 1 1 9 1 5 5
14 5 4 5 2 7 4
15 6 0 9 6 5 5
40 12 5 23 9 17 14
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Reliability of data Considering the data set gain from the questionnaire survey for the probability, Cronbach's Alpha was calculated for the data set. The alpha is 0.743. According to Nunnally and Bernstein (1978), in a reliable data set the alpha should be above 0.7. It means the data set collected to calculate RII for each risk based on probability is reliable. Moreover, considering the data set collected to calculate RII for each risk based on cost impact, Cronbachs alpha was calculated. The alpha is 0.840. It denoted that the data set collected through questionnaire to calculate RII for each risk factor based on cost impact is reliable. Furthermore, for data sets collected for the time impact and quality impact also Cronbachs alphas were calculated. Alphas are consequently 0.794 and 0.829. According to Nunnally (1978), those are reliable data sets.
4.3.1.1.1 SIGNIFICANT TECHNICAL RISK FACTORS CONSIDERING COST OF THE PROJECT Cost of the project is one of the most important project perspectives when considering the budget of the project, which is allocated by the employer, or the owner of the project. Therefore, it is more important to consider impact to the cost of the project by the technical risk factors. Based on the survey, the results are presented in table 4.3. Table 4.4 presents the top 10 technical risks in the Sri Lankan construction industry based on the risk rating considering impact to the cost of the project. According to risk rating values, most significant technical risk is estimation errors. The RII is 11.970. Estimation errors are the key technical risk when considering the cost perspective of the project in Sri
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Lankan construction industry. Because in most of the cases construction estimates are taken roughly at the tendering stage due to following reasons, Incomplete drawings and specification Not following proper standards to prepared it Less experience Time limitations Persons, who are involving with the estimation process, are not capable enough to do it. They may not either be or doing their jobs correctly
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Data Analysis and interview analysis Table 4. 3: Significance of Risk Considering Cost of the Project
Cost Impact RIIRank (1) 3.075 5 2.375 20 2.450 19 3.600 2 2.200 23 2.000 24 3.175 2.675 2.850 2.825 3.350 3.775 2.850 2.775 2.550 2.725 2.925 2.575 2.875 2.550 2.250 2.375 2.700 3.075 4 15 9 11 3 1 9 12 17 13 7 16 8 17 22 20 14 5
Probability Rating RIIRIIRank Rank (2) (3) 2.050 20 6.304 14 2.150 19 5.106 21 2.200 18 5.390 20 3.325 3 11.970 1 2.500 12 5.500 19 2.500 12 5.000 23 2.975 3.475 2.525 2.200 2.725 2.200 2.325 3.150 2.000 2.025 2.300 2.700 1.975 3.500 1.925 2.550 2.750 2.925 5 2 11 16 8 16 14 4 22 21 15 9 23 1 24 10 7 6 9.446 9.296 7.196 6.215 9.129 8.305 6.626 8.741 5.100 5.518 6.728 6.953 5.678 8.925 4.331 6.056 7.425 8.994 2 3 10 15 4 8 13 7 22 18 12 11 17 6 24 16 9 5
Moreover, interviewed respondents also illustrated that the estimation errors could happen due to documentation errors. Those kinds of errors can only be identified at the tendering and production stages.
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The second risk is owners often impose tight construction schedule (RII=9.446) that might be difficult and impractical to achieve. This might be caused by the importance of time to market but often is caused by political reasons. The third technical risk is design changes or design changes by client (RII=9.296). This is especially true for the building construction in industry because most of the time owners tend to change the design or they try to introduce new designs to the project.
Table 4.4: Top Ten Ranked Risk Factors Considering Significance Risk
No RISK FACTORS
a b c d e f g h i j Estimation errors Inadequate program scheduling and tight program scheduling Design changes / Design variations by client Increase in site overheads Unusual weather and force majeure Shortage in skillful workers Materials shortage Industrial disputes Unknown site physical conditions Hazards of environmental regulations
RII
11.97 0 9.446 9.296 9.129 8.994 8.925 8.741 8.305 7.425 7.196
Rank
1 2 3 4 5 6 7 8 9 10
Increasing site overhead is also an important risk (RII=9.129). This mainly occurs due to improper management of the site overhead. Unusual weather and force majeure is ranked fifth (RII=8.994). This is a risk, which cannot be easily predictable but effect to the project is considerably high. Most importantly material shortage which ranked 6th (RII= 8.925) also has an impact to the project but it will depend on the economy condition of the country and is caused primarily because of the large demand. Shortage in skillful workers is a technical risk that is ranked 7 th (RII=8.741). This happens because; there is no regular labour force for the construction industry. It changes from time to time with the seasons. Industrial disputes is ranked eighth (RII = 8.305) in Sri Lankan construction industry. It means the bodies, which are participating in the construction have misunderstandings and disputes. That could happen mainly due to, claim from one party to other to gain time or money from one party to sustain their losses.
Construction Risk: Further Consideration of Technical Risk 55
The 9th risk (RII= 7.425) is unknown site and physical conditions. That is difficult to predict at the preliminary stage. Mainly it will be a risk to owner. Tenth risk is the hazarders of environmental regulations. It is important to state that the significance of technical risk considering the cost perspective of the project will be a more vital factor when deciding whether implementing a project. For proper evaluation of the construction risk, one must consider both the probability of risk occurrence and the impact on cost of the project once, technical risk event occurs. Some authors contented that multiplying the probability and impact values might be misleading (Wong and Chou 2003), (Kartam and Kartam 2001). This is achieved best by plotting the risk probability- cost impact matrix (figure 4.3). In the matrix, the x- axis represents the impact value while the yaxis represents the probability value. Both scales are 1-5 (one being very low to 5 being very high).
The matrix shows 7 of the risks to be high (probability >3 and cost impact>3). It shows that the majority of the risks are medium (probability 2-3 and Cost impact >2.5). There is one technical risk that have probability of less than 2 and risks with cost impact less than 2.5. These are considered low.
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4.3.1.1.2 SIGNIFICANCE CONSIDERING TIME OF THE PROJECT Time of the project is one of the most important project perspectives. When considering time limitation that is given by the owner. That could be due to demand to the project at market. Therefore, it is more important to consider impact to the time of the project by the technical risk factors.
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No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
RISK FACTORS Design failures Equipment and system failures New technology failures Estimation errors Accident/ Collision Site Location and access Inadequate program scheduling and tight program scheduling Design changes / Design variations by client Hazards of environmental regulations Incompetence of transportation facilities Increase in site overheads Industrial disputes Local firms incompetence and low credibility Materials shortage Obsoleteness of building equipment Poor quality of procured accessory facilities Poor quality of procured materials Problems due to partners different practice Shortage in accessory facilities Shortage in skillful workers Shortage in supply of water, gas, and electricity Subcontractors low credibility Unknown site physical conditions Unusual weather and force majeure
ImpactTime RIIRank (1) 3.100 7 2.675 17 2.875 11 2.881 10 2.400 22 2.550 21 3.825 3.300 2.825 2.800 2.900 3.425 2.775 3.675 2.675 2.675 2.650 2.825 2.225 3.450 2.325 2.750 3.100 3.700 1 6 12 14 9 5 15 3 17 17 20 12 24 4 23 16 7 2
Probability RIIRank (2) 2.050 20 2.150 19 2.200 18 3.325 3 2.500 12 2.500 12 2.975 3.475 2.525 2.200 2.725 2.200 2.325 3.150 2.000 2.025 2.300 2.700 1.975 3.500 1.925 2.550 2.750 2.925 5 2 11 16 8 16 14 4 22 21 15 9 23 1 24 10 7 6
Rating RII(3) 6.355 5.751 6.325 9.579 6.000 6.375 11.379 11.468 7.133 6.160 7.903 7.535 6.452 11.576 5.350 5.417 6.095 7.628 4.394 12.075 4.476 7.013 8.525 10.823 Rank 15 20 16 6 19 14 4 3 11 17 8 10 13 2 22 21 18 9 24 1 23 12 7 5
Based on the survey, the results are presented in table 4.5. Table 4.6 presents the top 10 technical risks in the Sri Lankan construction industry based on the risk rating considering impact to the time of the project. According to risk rating values, most
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significant technical risk is Shortage in skillful workers. The RII is 12.075. As illustrated in 4.3.1.1.1, construction industry is not having permanent labour force. Therefore, shortage in skillful workers might be a key risk to the project significance considering the time impact of the project.
Table 4.6: Top Ten Ranked Risk Factors Considering Significance Risk
The fourth risk is owners often impose tight construction schedule (RII=11.379) that might be difficult and impractical to achieve. This might be caused by the importance of time to market but often is caused by political reasons. Due to difficult and impracticality this will definitely influence time of the project.
Unusual weather and force majeure is ranked fifth (RII=10.823). This is a risk, which
No RISK FACTORS
a b c
RII
Rank
1 Shortage in skillful workers 12.075 2 Materials shortage 11.576 3 Design changes / Design variations by client 11.468 Inadequate program scheduling and tight 4 d 11.379 program scheduling 5 e Unusual weather and force majeure 10.823 6 f Estimation errors 9.579 7 g Unknown site physical conditions 8.525 8 h Increase in site overheads 7.903 9 i Problems due to partners different practice 7.628 10 j Industrial disputes 7.535 cannot be easily predicted but effect to time of the project is considerably high. Most importantly estimation errors which ranked 6th (RII= 9.579) will also be an impact to the project as described in section 4.2.1.2.1. Unknown site physical condition is ranked 7th (RII =8.525). This is also impulsive risk at the planning stage and occurring of this technical risk event will influence time of the project. The eighth risk event is contractor related. Increasing site overhead is the ranked eighth (RII= 7.903). Problems arising out of partners deferent practice also create impact to time of the project. It is ranked ninth (RII= 7.628). Tenth risk is the industrial disputes.
Construction Risk: Further Consideration of Technical Risk 59
Based on the argument, mentioned in section 4.3.1.1.1 Wong and Chou (2003), and Kartam and Kartam (2001) is contented that, multiplying the probability and impact values might be misleading. This is achieved best by plotting the risk probabilitycost impact matrix (figure 4.4).
The matrix shows6 of the risks to be high (probability >3 and cost impact>3). It shows that the majority of the risks are medium (probability 2-3 and Cost impact >2.5). There are two technical risks that have probability of less than 2 and risks with cost impact less than 2.5. These are considered low.
4.3.1.1.3 SIGNIFICANT OF TECHNICAL RISK FACTORS CONSIDERING QUALITY OF THE PROJECT Quality of the output is also most important project perspectives. Owner are manly requires a quality product within their budget. Therefore, it is more important to consider the impact to the quality due to technical risk events. Based on the survey, the results are presented in table 4.7 Table 4.8 presents the top 10 technical risks in the Sri Lankan construction industry based on the risk rating
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considering impact to the quality of the project. According to risk rating values, most significant technical risk is Shortage in skillful workers. The RII is 12.775. As illustrated in 4.3.1.1.1 construction industry is not having permanent labour force. Therefore, shortage in skillful workers might be a key risk to the project significance considering the quality impact of the project.
Table 4. 7: Significance of Risk Considering Quality of the Project
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Obsoleteness of building equipment Poor quality of procured accessory facilities Poor quality of procured materials Problems due to partners 2.350 different practice 2.25 Shortage in accessory facilities 0 3.65 Shortage in skillful workers 0 Shortage in supply of water, gas, 2.17 5 and electricity 2.27 Subcontractors low credibility 5 2.47 Unknown site physical conditions 5 Unusual weather and force 2.50 0 majeure
Quality RIIRank (1) 3.02 2 5 2.30 13 0 2.32 12 5 2.10 17 0 1.52 23 5 1.75 21 0 2.87 3 5 2.45 9 0 1.55 22 0 1.52 23 5 1.85 20 0 2.05 18 0 1.92 19 5 2.70 5 0 2.35 10 0 2.72 4 5 2.700 5 10 15 1 16 14 8 7
Probability RIIRank (2) 2.050 2.150 2.200 3.325 2.500 2.500 2.975 3.475 2.525 2.200 2.725 2.200 2.325 3.150 2.000 2.025 2.300 2.700 1.975 3.500 1.925 2.550 2.750 2.925 20 19 18 3 12 12 5 2 11 16 8 16 14 4 22 21 15 9 23 1 24 10 7 6
Rating RIIRank (3) 6.201 4.945 5.115 6.983 3.813 4.375 8.553 8.514 3.914 3.355 5.041 4.510 4.476 8.505 4.700 5.518 6.210 6.345 4.444 12.77 5 4.187 5.801 6.806 7.313
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10 15 13 6 23 20 2 3 22 24 14 17 18 4 16 12 9 8 19 1 21 11 7 5
The second risk is owners often impose tight construction schedule (RII=8.553) that might be difficult and impractical to achieve. This might be caused by the importance of time to market but often caused by political reasons. The third technical risk is design changes or design changes by client (RII=8.514). This is especially true for the building construction in industry because most of the time owners tend to change the design or they try to introduce new designs to the project.
Table 4.8: Top Ten Ranked Risk Factors Considering Significance Risk
RISK FACTORS Shortage in skillful workers Inadequate program scheduling and tight program scheduling Design changes / Design variations by client Materials shortage Unusual weather and force majeure Estimation errors Unknown site physical conditions Problems due to partners different practice Poor quality of procured materials Design failures
RII 12.7 75 8.55 3 8.51 4 8.50 5 7.31 3 6.98 3 6.80 6 6.34 5 6.21 0 6.20 1
Rank
1 2 3 4 5 6 7 8 9 10
The fourth risk is Material Shortage (RII=8.505). Similarly as mentioned in section 4.2.1.1.1, this happens due to high demand of material in the industry. There are not enough resources to cater that demand. Even if there are, that materials are not in required quality level so that automatically leads to impact to the quality of the product. Unusual weather and force majeure is ranked fifth (RII=7.313). This is a risk, which cannot be easily predicted but effect to the project is considerably high. Most importantly estimation errors which ranked 6th (RII= 6.983) also impacts to the project as described in section 4.2.1.1.1. Due to the errors of the estimation construction cost may go high at the construction period than estimated at the
Construction Risk: Further Consideration of Technical Risk 63
planning stage. That will automatically lead owner to reduce quality to do his job within his budget. Unknown site physical condition is ranked seventh (RII =6.806). This is also impulsive risk at the planning stage occurring of this technical risk event will influence quality of the project. Problems arising out of partners different practice also create impact to quality of the project. It is eighth ranked (RII= 6.345). Poor quality of procured material is the 9th ranked (RII= 6.201) risk event that could impact on quality of the output. Tenth risk is the design failures. Failures due to design will lead to impact on quality of output. Based on the argument mentioned in section 4.2.1.2.1, multiplying the probability and impact values might be misleading. This is achieved best by plotting the risk probability- cost impact matrix (figure 4.5).
The matrix shows five of the risks to be high (probability >3 and cost impact>3). It shows that the majority of the risks are medium (probability 2-3 and Cost impact >2.5). There are two technical risks that have probability of less than two and risks with cost impact less than 2.5. These are considered low. 4.3.1.2 PERFORMANCE IN CONSTRUCTION LIFE CYCLE
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The performance in construction project life cycle analysis in figure 4.6 and table 4.9 illustrates the performance in each stage of the construction life cycle simply. According to figure 4.6, construction stage of the construction life cycle is having highest performance of technical risk. Considering data set collected through the questionnaire survey to measure the magnitude of performance level of risk events in construction life cycle, Cronbachs alpha was calculated for each data set. The alpha values for data set using for the analysis of performance of risk events in programming stage is = 0.959, planning stage is 0.755, tendering stage is 0.777 and for the production stage data set = 0.949. According to Nunnally and Bernstein (1978) as described in 4.2.1.2, they are reliable data sets. A careful look at Figure 4.6 confirms the argument that the highest magnitude or the performance of technical risk in the construction life cycle is in the construction stage. When comes to construction stage to the inception or the programming stage, it is reducing. Unusual weather and force majeure and shortage in skillful workers are having highest magnitude at the construction stage (RII= 4.000). Second highest are unknown site physical conditions and local firms incompetence and low credibility. That is because such kind of technical risk events are having more probability of occurrence at that stage. Moreover, third highest is design changes/ design variation by client. Clients tend to do design changes and variation at this stage as they realize the actual design requirements only at this stage. According to table 4.9 and figure 6, it is clear that there are only several risk events in the tendering stage, which are having high performance. Estimation errors, design failures, inadequate program scheduling and tight program scheduling, design changes, / design variations by client are that risk events.
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NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
RISK FACTORS Design failures Equipment and system failures New technology failures Estimation errors Accident/ Collision Site Location and access Inadequate program scheduling and tight program scheduling Design changes / Design variations by client Hazards of environmental regulations Incompetence of transportation facilities Increase in site overheads Industrial disputes Local firms incompetence and low credibility Materials shortage Obsoleteness of building equipment Poor quality of procured accessory facilities Poor quality of procured materials Problems due to partners different practice Shortage in accessory facilities Shortage in skillful workers Shortage in supply of water, gas, and electricity Subcontractors low credibility Unknown site physical conditions Unusual weather and force majeure
Programme RII 1.750 2.275 1.575 1.750 1.825 1.750 2.150 2.150 1.575 1.450 1.475 1.500 1.675 1.700 1.500 1.375 1.550 1.425 1.725 1.725 1.425 1.575 1.625 1.475
Planning RII 3.175 2.000 2.150 2.825 2.325 2.650 2.900 2.650 2.650 1.825 1.675 2.325 2.575 1.925 1.950 1.700 2.100 1.925 2.250 1.850 1.850 1.525 2.250 1.975
Tendering RII 3.125 2.35 2.550 3.550 2.000 2.775 3.100 3.000 2.175 2.075 2.575 2.575 2.450 2.525 2.000 1.925 2.075 2.675 2.250 2.225 1.825 1.900 2.825 1.975
Production RII 3.5 3.475 3.225 3.475 3.275 3.425 3.575 3.850 3.100 3.150 3.550 3.025 2.975 3.725 2.975 3.075 3.325 3.225 3.225 4.000 3.300 3.325 3.725 4.000
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In the planning stage, only design failures are having high performance. All the other events are having medium performance. That is because at that stage there is only documentation part there practical problems are not much arising. All the risk factors in the programming stage are having low performance. That might happen, due to, that stage is the inception stage of the construction process, and parties may not have higher risk of involving to it.
4.3.1.3 RISK ALLOCATION Risk allocation is a vital issue. It refers to the proper allocation of risks to the contracting party, mainly the owner, the contractor, or the consultant. Occasionally, one party alone cannot handle risks so the two share that risk. Generally, risks should be apportioned to the parties that could best handle or manage it. However, due to an irregularity in commercial influence, there are no rules regarding risk allocation in
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construction contracts as owners can place any risks to the contractor. Contractors usually respond to these risks by increasing their contingency and markup, which ultimately increase the contract price to the owner. Interviewed respondents indicated that risks are not allocated appropriately in the Sri Lankan construction industry. The analysis of actual and expected risk allocations based on the questionnaire survey results are presented in table 4.10 and figure 4.7. The table and figure denote subjective analysis. Moreover, considering the data set gained from the questionnaire survey for the allocation of risk events among contracting parties, Cronbach's Alpha was calculated for the data set. The alpha values for data sets taken for the analysis (Annexure 05) are above than the value stated in section 4.3.1.1. Therefore, data taken for the analysis are reliable. In accordance with figure 4.7, the majority of the technical risk events allocated to contractors. This is probably due to the culture and widespread use of traditional contracts that places most of the risk on the contractor. Allocation of risk among parties in the event of design failure is too high to the consultant. Even though figure is showing that, most of the interviewed respondent pointed out that, the risk allocation to consultant is not properly practiced in Sri Lanka. In the event of consultant failure, there is no a remedial action. In such kind of situation usage of personal indemnity assurance is very much low (less than 17%). It is clearly shown by following figure 8. It is almost zero, where the consultant and client both are Sri Lankan companies. Risk allocation to the client is very much low according to findings of interviews. In practical situation consultant, risk also has to be endured by the client in Sri Lanka. Because contractor always try to price the risk, but there is a limitation. If he or she price every risk, in the event of competitive tendering there is a probability of losing it. Therefore, he may price most important risk events only.
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NO.
RISK FACTORS Design failures Equipment and system failures New technology failures Estimation errors Accident/ Collision Site Location and access Inadequate program scheduling and tight program scheduling Design changes / Design variations by client Hazards of environmental regulations Incompetence of transportation facilities Increase in site overheads Industrial disputes Local firms incompetence and low credibility Materials shortage Obsoleteness of building equipment Poor quality of procured accessory facilities Poor quality of procured materials Problems due to partners different practice Shortage in accessory facilities Shortage in skillful workers Shortage in supply of water, gas, and electricity Subcontractors low credibility Unknown site physical conditions Unusual weather and force majeure
CLIENT
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
RII 4.325 2.625 2.825 3.175 2.050 1.850 3.075 3.450 2.225 1.725 1.575 2.225 1.900 1.750 2.225 2.300 2.450 2.275 1.775 1.750 1.474 1.650 2.500 2.075
RII 2.200 3.775 3.450 3.025 4.100 3.575 3.750 3.075 3.375 3.925 3.825 3.600 3.425 3.900 3.300 3.450 3.975 3.725 3.500 4.275 3.625 4.000 3.725 3.350
RII 3.475 2.900 2.875 3.050 2.250 3.275 2.925 3.700 3.300 2.800 2.475 3.125 3.025 3.100 2.975 2.950 3.500 3.175 2.650 2.925 2.650 3.125 3.700 3.675
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Most significant risk factor is the Accident/ collision to contractor, where majority of respondents are considered that the in the event of accident /collision, risk allocation to the contractor is considerably high. According to table 4.10, it is high. According to questionnaire survey findings and interviews findings consultant is the person, who is having lesser allocation of technical risk. Based on the questionnaire findings, design changes / design variations by client is the technical risk having higher allocation to the client (RII= 3.700).
Construction Risk: Further Consideration of Technical Risk 70
4.3.1.3.1 PROPER ALLOCATION OF TECHNICAL RISK IN CONTRACT Proper contractual arrangements determine who is more capable of controlling various specific risks. Generally, the local construction contracts mainly use condition of contract to do it. Usage of condition of contract type is shown in figure 4.9. Considering the findings of the structured interviews, ICTAD is the most using document as the condition of contract for the building projects, but interviewed respondents pointed out that the usage of the type of document will depend on the type of the client. Usage of ICTAD is 67% percentage. For the government project they most of the time use ICTAD. However, for the foreign Clients have to use FIDIC condition of contract.
Figure 4. 9: Type of condition of contract use in Sri Lankan building construction industry
However, interviewed respondents indicated that, allocation of technical risk between consultant and client in a contract is very much low in Sri Lanka. In most of the cases client has to suffer them. Because usage of condition of contract between consultant and client does not much consider about the risk allocation. In addition, they have argued that, effective allocation of technical risk among parties is a good risk mitigation strategy.
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technical risks associated with Sri Lankan building construction industry with questionnaire survey and structured interviews. Based on the questionnaire survey findings and interview findings, figure 10 shows most critical technical risk factors. Those were drafted by getting common risk factors from top ten significant risk factors, considering the significance of cost, time, and quality respectively. Those technical risk events are the most critical events when considering the impact and the probability. When considering the consequences and magnitude of impact to the project from the risk events which are very much higher than other factors, were considered in this particular research. Moreover, factors shown in the figure 4.10 are the highest ranked factors, when considering the impact to the time of the project, cost of the project and quality of the project. Based on the questionnaire survey findings, seven technical risk factors were identified as most critical risk events in figure 4.10. According to figure 4.10, shortage in skill full workers is the most critical risk factor. It is highly affect to the time, cost, and quality similarly. Shortage in skillful workers is a most significant risk to the contractor at the production stage. Therefore it is highly considerable technical risk factor in the construction industry.
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Furthermore, figure 11 illustrates the performance of most significant technical risk factors within the life cycle of construction project in Sri Lankan construction industry. According to above argument, most significant risk factor is shortage in skillful workers. It is regularly in the production stage. Moreover, according to figure 12, shortage of skillful workers is risk to contractor than other parties in the construction industry. However, it is not much affecting to consultant but to some extent affect to the client.
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Data Analysis and interview analysis Figure 4.12: Most Significant Risk Factors Allocation among Contracting Parties
Second most significant technical risk according to figure 4.10 is inadequate program scheduling and tight program scheduling. That is happening due to, owners often impose tight construction schedule that might be difficult and impractical to achieve. Although, it is effecting to client, consultant, and contractor equally, contractor is the person much effected. It will occur in every stage of the construction life cycle, but it will considerably effect to the construction stage. Design changes / design variations by client, is the third critical technical risk event. It also similarly troubling to every contracting party, but higher portion allocation is going to client in the construction stage. Figure 4.11 and figure 4.12 showed performance in construction life cycle and allocation of critical technical risk factors illustrated in figure 4.10. Moreover, based on the interviewed respondents illustration, client is the person always suffered in every risk than other parties in Sri Lankan construction sector. Consultants errors are unable to clamed within the condition of contract according to Sri Lankan practice. If client needs get a claim, he has to go to court, because usage of PIA is very much less according to findings of this research. Furthermore, type of condition of contract between consultant client and contractor client is the other important factor considering the risk mitigation framework in the construction project. According to interviews findings, usage of Standard biding document prepared by ICTAD is much higher than the FIDIC condition of contract in Sri Lankan building construction industry. FIDIC document is mainly used when the client is a foreign company. For the government project most of the time SBD is used as the condition of contract. Therefore, there is a difference in such situation when considering the risk management. Even contractors risks are also attempted to be reduced by pricing the risk with the tender. Therefore, naturally allocation of risk to client will increase.
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Chapter 05
5 CONCLUSIONS AND RECOMMENDATION
5.1 CONCLUSION
Completion of construction project within the set down budget, time, and quality is becoming a very serious concern due to the regular cost overrun, time overrun and poor quality of the project. This consequence comes in the building construction automatically. Therefore, an enormous understanding of technical risk in construction project has become an imperative aspect for the building construction in competitive environment of Sri Lanka. To fill that gap of understanding, it is worthwhile to identify, what are the influencing factors in attaining the project ultimate goals, cost, time, and quality achievements and magnitude of technical risk in stages of construction project life cycle and allocation of construction risk among contracting parties. This particular research was mainly focused on to identification of currently prevailing technical risk factors in Sri Lankan building construction industry and finding out the significance of them considering project goals, cost, time, and quality. Moreover, it was also focused to find out the magnitude of technical risk factors in each stage of the construction project life cycle and to find out perceptions of construction industry practitioners about the technical risk allocation among contracting parties. This research was conducted with questionnaire survey and structured interviews. The survey was carried out based on the construction practitioners in Sri Lankan building construction industry. The quesionnaire was structured to get perception of two main sections. The first was intended to get respondents profile. The second section was intended to gather perception on the rating of each technical risk factors which were collected through the litrature survey. The first question relates to the probability of the technical risk
Construction Risk: Further Consideration of Technical Risk 76
events occurring on Sri Lankan construction projects. The respondents were asked to choose between very low, low, medium, high and very high. The second question refers to impact on project objectives namely time quility and cost, once the technical risk event ouccers. The third question refers to performance of technical risk in construction life cycle. Ultimatly, the forth question relates to the proper allocation of the risk among construction parties namely cotractor, client and consultant. The technique used to evaluate the collected data was RII. Reliability of collected data was checked by using Cronbach's Alpha. Moreover, interview guidelines were prepared to fulfill the gap in the questionnaire. Six practitioners were selected by getting two from each, client, consultant, and contractor. Throughout the literature survey, 24 technical risk factors were identified in the building construction industry. Respondents were asked to mention about their experience with that factors. Based on the collected data from the questionnaire survey, RII was calculated. Based on the calculated RII, consequences of technical risk factors and performance of each risk factor in stages of construction life cycle where figured out. Furthermore, the perception of building construction industry practitioners about the technical risk allocation among parties was figured out. Ultimately, all of the findings were drafted to expose most critical risk factors prevailing in the building construction industry. According to finding of the questionnaire survey, there were seven more critical risk events, when considering significance of technical risk factors to the project goals, time, cost, quality. Those can be listed as follows;
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Design changes / Design variations by client Estimation errors Inadequate program scheduling and tight program scheduling Materials shortage Shortage in skillful workers Unknown site physical conditions Unusual weather and force majeure
Moreover, whenever a project needs to consider more about the time then time significant technical risk factors has to be taken in to account. If quality is the most considerable project perspective, then quality significant risk factors have to be taken in to account. Where, the project having a limited budget cost has to take in to consideration more about the cost significant risk factors. Commonly for any type of building construction project most critical technical risk factors in overall has to be taken in to consideration. This will lead to completion the building construction project by achieving all project goals namely; within the time limit, within the budget limit, and with quality achievement. Among those critical risk factors most severe one is the shortage in skillful workers. It affects highly to the contractor rather than other parties. Commonly, it will occur in the production stage. Over eighty percent of practitioners have faced it within their projects. It means probability is also much higher. Second risk factor having more severity happens as a result of, owners often imposing tight construction schedule that might be difficult and impractical to achieve. According to perception of practitioners, allocation of that risk is higher to contractor and it will highly effect to the construction stage to the project. Over sixty percent of respondents had faced to that risk event. Design changes / design variation by client is the third severe risk factor, when concerning the significance of the risk. For that also, more then 70% percent of respondents indicated that, they had faced them. Similarly, all the other four risk factors out of selected seven factors affect to the project.
Construction Risk: Further Consideration of Technical Risk 78
Apart from that there were seventeen other technical risk factors such as design failures, accident/ collision, site location and access, etc. which were not as severe as aforesaid factors, but when concerning risk managing approaches, these factors should also be considered in total risk management strategy. Based on the interview findings, it was able to figure out usage of type of condition of contract and usage of PIA in Sri Lankan building construction industry. According to interviewed respondents, risks were allocated more to the client ultimately. Because, contractors risk is capable to be priced and consultant risk automatically comes to client according to Sri Lankan practice. This study is important as it sheds the light on the risks in a booming Sri Lankan construction industry. Technical risk identification and assessment is an important step in project risk management and shows the significance of several risks that are present in the industry. This study lays the foundation to assists local companies in negotiating their contracts as to the proper allocation of risks. This study also helps in decision making regarding risk response planning and control. Moreover, all of this mentioned critical technical risk factors more relevant to quantity surveyor than other professionals in the building construction industry. That is because, client quantity surveyor, consultant quantity surveyor or contractor quantity surveyor most of the time try to give a monitory value for that particular risk by predicting them at the initial stage. That would be the most efficient method of mitigation of risk and minimizing the effect of the risk to the building construction project. Therefore, the quantity surveyor needs to be more concerned about especially critical risk factors.
5.2 RECOMMENDATION
Considering all facts above discussed and identified, the cost, time and quality achievement of the building construction projects are effected by several critical technical risk factors, which are uncontrollable or unforeseeable by the parties to the
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contract at the initial stage. All those risk factors cannot be eliminated completely and the best would be to minimize the occurrence and impact to the project objectives by implementing proper mitigation process from initial stage with proper coordination among parties. Moreover, using proper condition of contract among parties can also manage the risk. Through considering project perspectives, risk mitigation process can be decided along these lines;
Whenever a project needs to consider more about the time then time significant technical risk factors has to be taking in to account.
If quality is the most considerable project perspective, then quality significant risk factors have to be taking in to account.
Where, the project having a limited budget cost. Cost significant technical risk factors have to be taken into consideration.
Besides, commonly for any type of building construction project most critical technical risk factors have to be taken into consideration.
It will lead to complete the building construction project by achieving all project goals namely; within the time limit, within the budget limit, and with quality achievement. Further, it recommends, improving the knowledge on risk management techniques and its applications; there should be a proper training or learning of the risk management field which is important to practitioners in the industry
building projects. Suitability of risk handling tools in better recovery of risk, in the contractors
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Appendix
Appendix
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