Project risk management
Project risk management is defined as a structural process that deal with project risks in order to provide satisfactory balance between prospects and threats risks ( Oztas and Okmen, 2010; ISO 31000, 2009). The success implementation of risk management is banked on understanding the organization frame work or the respective project and integrates it into a culture of an organization (ISO 31000, 2009). Positive risk management is more essential when it comes to international construction projects as compared to the construction projects that are internally within a country, this is due to the complexity risks the project may be prone to, which may include political risks that always stand in for any business truncations that are international. Furthermore, it is openly clear that practicing of project risk management will highly improve the project performance (Bakker et al, 2012), by focusing on more uncertainty in order to deliver prosperously project.
The process of managing project risks is dated back as from 1980s when it achieved its prominence (Bredillet, 2010). The late approval of project risk management on construction industry has really contributed on the project personnel not practicing effectively the risk management and that is why the full benefit of risk management on construction projects have not yet been achieved.
There several outlines of risk management that are used for systematic risk management (Bu-qammaz et al, 2009), this includes management of risk management of office, project risk assessment and management, risk analysis of management for project and finally guidelines principles of risk management (ISO 31000, 2009).
Assessment of risks involves steps of identifying the risks, analyzing the risks, evaluating the risk, whereas risk management will involve a processing of planning strategies, implementation, monitoring and a review to countercheck if the strategies used are effectively working ( ISO 31000, 2009, PMI, 2013). In accordance with Wang et al, (2010), the process of managing the risk should help the project manager to answer questions that will arise on identifying the risks, analyzing the risks, evaluating the risk, whereas risk management will involve a processing of planning strategies, implementation, monitoring and a review to countercheck if the strategies used are effectively working.
The outline approaches are achieved effectively by implementing methods that may prioritize risk management on micro – politics. The assessment risk associated with politics are classified on two wide categories which includes qualitative which may also be called heuristic and quantitative which is also referred as scientific method ( Al Khattab, 2011). The category of qualitative is further subdivided into unstructured method and structured method, more analysis has shown that while focusing on political risks, the executive practices qualitative technique as compared to the application of quantitative method (Al Khattab, 2011), this is because the heuristic method is simple, flexible and requires moderate cost for its implementation as will be compared to quantitative techniques that will require statistical and modeling training for their effectiveness in application.
Risk management methodologies
The strategically methods applied on the unstructured qualitative technique while solving risks associated with politics, the first one is the use of judgment and intuition of the project managers, where an approach of executive visiting another country for benchmarking is applied. The construction project managers then direct their identification on political risks and analyses the risks based on their knowledge they acquired during the benchmarking. The process of judging and intuition of the management was the best and preferred method in Jordanian multi- national construction projects (Al Khattab et al, 2011) and also a higher percentage of about 80% was also applied by the Canadian.
The second approach strategies of unstructured qualitative technique is through applying experts directives, which will relies on academics, banks, officials from local government and advisory from foreign construction project management teams, but this is prone with disadvantages from the experts being bias, the application to this was also used by the Jordanian.
The third method is standardizing by use of checklist which will be used for identifying and analyzing the risks, where the project manager reviews the risk elements using the lists and ranking them, but the method too faces some disadvantages where it will ignore other future events, prevents creativity that could be applied by the decision maker, and the idea of ranking the risks can be subjective.
The quantitative techniques applies the use of software and input data, where the data will be derived from statistical of the benchmarked country which will comprise all the construction expenditures, therefore the experts will be required to run the data on the software and interpreted them effectively, the main advantage of this method is that they are precise and depend less on the subjective data.
Example
In 2004 a foreign company with a given mandate to construct hydroelectric power plant was affected by hostility and protest by the Brazilians groups under environment, the head of the company who was a U.S with the responsibilities assign to them, decided to spend more money by compensating the people who were being resettled and also involved in the mitigation of the environment, in the process the hostility and protest was stopped.
The term stakeholders involves a group or an individual or organizations who have direct actual stake and are interested in the performance of the construction project. The stakeholders may constitute different objectives which may be conflicting to the construction project, it is also known that the stakeholders decisions may be subjected to their distinctive profiles of risks, appetite on risks and risks attitudes (Hillson and Murray, 2011).
Risk management approach
One of the methods used by the stakeholders on identification of risk management is the use of SSM (soft system methodology) that applies customer, actor, transformation, worldview, owner and environmental constrains that is denoted as CATWOE.
|
Customers |
The residents or neighborhood communities that may be affected |
|
Actors |
This include all individuals that will participate on the constructions, for example contactors, consultants and suppliers of the construction project |
|
Transformation |
This involves the construction of the respective project |
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Worldwide |
Raising living standard to people by providing infrastructures |
|
Owners |
This involves the decision makers |
|
Environmental |
Reason as to why the project is done |
Management of risks is based on ensuring that all the objectives of the proposed construction project are fulfilled ( ISO 31000, 2009). The objective of the construction project may include net profit, cash flows, completion time, quality standard and safety. In construction the document of the contract will specify the risks that each and every party will be responsible for, and in that context the contract document is a source for achieving the objectives. Since construction project have several stakeholders and consensus of reaching to a one risk management system of the construction project is impracticable, therefore it will be advisable for all their stakeholders to manage their own risks.
Examples
The largest British Library which was opened in 1998, its cost was projected to three time the initial budgeted cost of construction and a blame was placed on the shareholders who were politicians and government agency, to solve the issue the government agency were advised not to change the project personnel, and the initial budget was objectively adhered to.
The process of assessing the risk is done in order to ensure that resource managers to the construction projects have choices for will have to prevent and compensate the activities that will improve opportunities and be able to reduce all the threats of risk management that may arise (Howell, 2014). After the essential elements of risks have been determined then a planning on the risk will be followed and its development will be done in order to minimize the risk threats and be able to maximize the opportunities (ISO 31000, 2009). The threats which are ranked high will require spontaneous responses and actions on them, while those rank least will require only monitoring, this is similar to the opportunities which will require least energy to be realized will be considered immediately, while the least opportunities will require monitoring only (PMI, 2013).
The construction projects have argued upon that for their risks to be efficiently managed then they will require allocation of risks to all the parties having the abilities and expertise to effective act and solve the risks. Based on the recent research the owner have been seen transferring most of the project risks to the contractors, where the contractors now will eventually lay outlines to mitigate the risks or transfer the risks to the subcontractors who end up carrying the burden of this project construction risks
Examples
The largest British Library which was opened in 1998, its cost was projected to three time the initial budgeted cost of construction this was due in effective cost planning on every resources that were required, to solve the issue the construction personnel were required to come up with appropriate and detailed resource planning in order to manage it and reduce the tripled cost back to the feasibility cost that was initially done but was not effectively used.
Conclusion
The report finding proposes that the main strategies to risk management on construction projects includes, stakeholders, politics and resource managements, which will help to solve the project threats like contract problems, unrest on labour, opportunity risks, experts restriction of labours.
The assessment techniques involved the construction managers to adhere to qualitative method techniques, which included judgment and intuition.
The resource management required that the risks are subdivided into portions to each and every parties that will be involved since dealing with apportion of risk will encourage and enhance proper actions to resolve them.
References
Al Khattab A., Awwad A., Anchor J. and Davies E., 2011. The use of political risk assessment techniques in Jordanian multinational corporations : Journal of Risk Research 14(1): pp.97–109.
Bredillet C.N., 2010. Blowing Hot and Cold on Project Management : Project Management Journal 41(3): pp.4–20.
Bu-qammaz A.S., Dikmen I. and Birgonul M.T., 2009. Risk assessment of international construction projects using the analytic network process : Can. J. Civ, Eng 36: pp.1170–1181.
de Bakker K., Boonstra A. and Wortmann H., 2012. Risk managements’ communicative effects influencing IT project success : International Journal of Project Management 30(4): pp.444–457.
Hillson D. and Murray-Webster R., 2011. Using risk appetite and risk attitude to support appropriate risk taking : a new taxonomy and model : Journal of project, Program & Portfolio Management 2(1): pp.29–46.
Howell L.D., 2014. Evaluating Political Risk Forecasting Models: What Works? : Thunderbird
International Business Review 56(4): pp.305–316.
ISO 31000, 2009. Risk managemnt-Principles and guidelines Geneva: ISO.
Oztas A. and Okmen O., 2010. Risk analysis in fixed-price design–build construction projects : Building and Environment 39: pp.229–237
PMI, 2013. A Guide to the project management body of knowledge (PMBOK Guide) 5th ed. Newton Square, PA: Project Management Institute.
Wang, J., Lin, W. and Huang, Y.H., 2010. A performance-oriented risk management framework for innovative R&D projects. Technovation, 30(11-12), pp.601-611.
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