How are risks and risk management perceived in a construction project?
Dissertation Writing Help on Risk Management Practices in a Construction Project
Risk Management (RM) is explained as a structured way of managing risks and other threats in daily work. This is
of great importance
in
the
construction industry
where
projects
are
often exposed to uncertainties and risks. According to the theory, following all steps of the RMP facilitates achieving success with a project.
For everyone who has
been studying
construction
management, RM is recognized as a widely
used concept and is emphasized in many courses.
But
when investigating
the concept in practice,
there are not many who understand
the meaning and content
of RM. Surprisingly, actors operating in the construction industry are not even familiar with the expression „risk‟. Findings from the interviews showed that the term
risk was more understood as an undesired event, problem or threat that makes it difficult to
achieve project objectives. The same result was obtained by Klemetti (2006) who reports that respondents considered risk as a negative concept. However as implied by Webb (2003), risk can be both positive and negative in its effect, which contradicts our respondents‟ opinion that risk can have only negative consequences.
In fact, many companies in the construction industry tend to adapt RM to only some extent.
As was mentioned
in the theory, organizations can have different approaches regarding how and to what extent risks are handled. Those main concepts were risk-averse, risk-natural and risk-seeker. Again, organizations within the
construction industry do not work with RM in
such a structured way, which means that there are some other ways of managing risks when it occurs. This shows that the industry is risk-natural, and corresponds with the research done by Lyons and Skitmore (2004), who also found this approach to be the most common within the sector.
Another point is that most respondents were not familiar neither with the concept of Risk Management nor any methods within the RMP. Similar results were obtained by Klemetti (2006) who found
that for
many of the interviewees,
risk
processes and
theoretical models were
totally unknown. However, some of the respondents in our study were using techniques
from the area of RM. Referring to some everyday practices explained by the interviewees, actions taken against potential problems could be classified as RM methods, even though the actors
were not aware of it. For example, one of the actors talked about evaluating risks from the
economical perspective,
in order to choose
the right path. This is the same as
the Decision tree analysis where several risks are analyzed to ensure that the right way of working has been selected.
Another example used was
the
way of handling risks within
one
of
the
respondent‟s organizations. In that
situation, critical risks were selected and handled
immediately; this helped to eliminate smaller risks and focus on the most threatening ones. This is a typical way
of analyzing risks according to the qualitative
method called Risk Urgency Analysis. Those
examples prove that actors in the industry handle risks in their everyday
operation, but are not
aware that it actually is the RM framework. In addition, all respondents declared that they
could start implementing methods,
if only they had more information about them and a guide
how to use them. This finding is consistent with research done by Lyons and Skitmore (2004) who found lack of information as the second biggest obstacle preventing implementation
of risk management.
In mentioned research the biggest problem identified was lack of time
which was also mentioned by one respondent in
this research. Yet another
finding
from
the
interviews shows
a
differentiation between how risks are
managed by individuals and in a team. Individuals and their organizations most often use checklists and other manuals while groups use discussion as the most common technique
to identify risks and problems. This statement is partially supported by Klemetti (2006) who found group meetings
and discussions as the most relevant way to identify and
manage risks.
How is the risk
management process used in practice?
To show how the Risk Management Process is used in practice, it is helpful to divide the process into the different
main parts such as identification, assessment
and response.
Among
respondents, past experience
and discussions
were the most
commonly used techniques to identify potential
risks. This finding corresponds with the research by Lyons
and
Skitmore (2004) that showed brainstorming and case based approach as the most popular
risk identification tools. In fact, no time in the project was reserved for RM and respondents
declared that potential risks were handled at the time of their occurrence. In order words, the
members of the project team were not identifying risk in a structured way as described in the literature. They believed that their time was used more efficiently when they worked on the actual project instead of searching for problems. Only to a small extent were risks in the project identified by experience. Moreover, a number of risks which are characteristic for a
construction project
can be gathered in the
form
of a
checklist and be
used in future projects.
The other finding from the interviews was that the most common way of risk identification
was
discussion. This tool, along with brainstorming and using previous experience, was used by the project team at the
kick-off meeting, where one of the activities was to identify
potential threats to the project. At the meeting, all actors taking part in the initial stage of the project were present. Even though RM was not used in the investigated project, such a meeting could be classified as a part of RMP. By organizing such meetings,
parties were given a chance to discuss and identify potential problems. This is consistent with Westland‟s (2006) theory that all the stakeholders should contribute in drawing up risk plan to make sure
that every potential risk has been identified. The meeting organized at the beginning of the
planning phase is also
consistent with Lyons and
Skitmore
(2004) research
results
that
planning and execution
are
those two phases
where RM
is most widely used. Yet another
finding
from
the
interviews shows
a
differentiation between how risks are
managed by individuals and in a team. Individuals and their organizations most often use checklists and other manuals while groups use discussion as the most common technique
to identify risks and problems. This statement is partially supported by Klemetti (2006) who found group meetings
and discussions as the most relevant way to
identify and
manage risks.
Assessment
In this part of the RMP, the greatest differences can be discovered between the theory and
how the industry actually works. As previously stated, the respondents were not familiar with
any method used to analyze potential risks. Overall not many
practitioners in the construction industry who
work
with
residential projects
use
these structured methods. Lyons and
Skitmore
(2004) found that intuition, judgment and experience are the tools most often used in risk analysis while
structured methods like Monte Carlo or risk
impact assessment
are
used only to some small extent.
One of the reasons for not using structured methods according to respondents was limited
budget. One interviewee explained that most residential projects have limited profit margins;
this
prevents major changes or implementations of new solutions. Moreover, the general lack of knowledge within the area of RM can result from limited resources such as time or money.
This statement corresponds with previously quoted research
done by Lyons and Skitmore
(2004) which indicates lack
of
time as
the
factor
which
prevents organizations
from implementing risk management. Furthermore, the industry is not willing to change. Only
some of the companies are willing to implement RMP in their operation if only a tangible
outcome will be granted.
As indicated by Lyons and Skitmore (2004), the qualitative
approach is the most common type of technique
to analyze risks. At the same time, it is the easiest
tool to assess the risks,
since it only includes the probability and impact assessment. There is no need of doing
complicated calculations which require i.e. computer software. The quantitative methods are much
more resource consuming and require skilled personnel and technical equipment. That is why it is only medium and large companies which can afford to allocate more resources for
these methods (Lyons and
Skitmore, 2004).
Since none of the respondents had knowledge about RM methods,
a probability and impact method was chosen and performed in the form of an online survey in order to see how risk
assessment works in practice. As a result of the follow up questionnaire, risks with the biggest impact on project objectives
were identified. Cheap solutions
were the threat
which was found to have the biggest impact on time. Again, cheap solutions and not finding
the right contractor were
those risks with the biggest impact on cost and quality respectively. In contrast, different results were obtained in research done by Zou et al. (2006) who found tight project scheduled
as
the risk with the greatest impact on all three project objectives. Such a discrepancy can be
due to different research methods. In this current research, respondents were ask to identify
potential risks themselves while Zou et al. (2006) provided respondents with a list of 88 potential risks in a construction project. Further, data were processed in the same way by using probability and impact matrixes. The results are biased also by type of professions held by respondents. Regardless the type of risks which were identified as the most
hazardous ones, risks which scored the most and had the highest probability of occurrence, were those to which
a
response should be applied in order to minimize its negative impact on project
objective. (PMI,
2004)
Response
In the theory, four of the most common actions to be taken against potential identified risks
were explained. As concluded from the interview, actors have no knowledge about any type
of response. Only few respondents gave answers which could be interpreted as transferring
risks and by this, mitigating the problem. However, discussion and checklists were the main tools
to support the actions. It
is clear that there is also lack of knowledge within
this area.
In addition, based on the results from the case study where risks were identified by
the actors, mitigation was the action chosen most often. Many of the respondents agreed that all risks are manageable and therefore reduction is the best alternative. In the Lyons and Skitmore (2004) research,
risk reduction was also the type of action
most often chosen against
risks.
How do risks change during a project life cycle?
The findings from the interviews show that actors and their roles change depending on the
phase of the PLC. This is consistent with the theory by Smith et al. (2006), that parties
involved change as the phases
change. In the case of the investigated project, some actors were present under the whole PLC while the others took part only in some part of it. Most of
the respondents held an active role in first two phases and a passive role in the others. Therefore, a number of risks identified in those initial parts of the PLC are higher than in the
later ones.
The nature
of
risks
identified by
respondents
differed
depending
on
the
project
phase.
Initially, risks were rather broad, such as the risk of misunderstanding client‟s requirements,
not choosing
the
right consultants or not achieving a good final result. The further in the PLC, the more specific the range of the risk
became, as a result of more detailed planning and design process. Therefore in the next phase, planning
and design, respondents identified
shortage in resources, problems with design or cheap solutions as those main risks. Looking further on the longest phase, project operation, only very characteristic risks such as delays in
the construction schedule or moisture were identified. This pattern complies with assumptions
made by Smith
et al. (2006) who suggest that the nature of risks changes with the project progress, from a broad to a narrower range of issues. Furthermore, the author implies that the type of risk is closely associated with the type of activity undertaken in a certain phase. This
statement has also
been
proven
in
the research,
since
type of risks identified differs significantly over the various stages of the PLC. Problems closely related,
for instance to
design process, were not identified
as a potential threats in
any other
phases.
Conclusion
§ Risk is perceived
as a negative
term, even though in theory
it
can have
two
dimensions.
§ Professionals in the construction industry
are using techniques
described
in
the
literature concerning Risk Management, but are not aware of it. Risks are being managed every day in the industry, but not in
such a structured way as the literature describes. As also other
researchers confirmed, the knowledge of RM and RMP is close to zero, even
though the concept of risk management is becoming more popular in the construction
sector.
§ There is a willingness among respondents to start using RMP, but it has to bring profits to the organization.
§ By applying a simple method, it is possible to identify potential risks in an easy way.
Moreover it gives possibility to detect which of the identified risks has the biggest impact on time,
cost and quality. Those risks should be eliminated or mitigated by taking
an appropriate action. The research showed that the most common action was risk
mitigation. Moreover it was proven that the results from probability and impact
method may differ among projects due to the fact that each project and its scope are
unique.
§ It was important to establish during the interview
which phase of the
PLC
the
respondents were taking part in and what their role in the project was. Based on that, we
could systematize the answers and see types of risks identified in various phases of
the PLC. The conclusion was that there
are risks which are characteristic for each project stage.
§ As the research showed, unstructured form of RM is to some extent used in the construction
sector.
Thus application of actual
RM into companies should not be
difficult. As proved by the
research, knowledge is the factor which is missing for
organizations to implement RM. Thus, this aspect of application of RM could be
further investigated in terms of how to facilitate use of RM in a construction sector. Moreover a simple RM
manual could
be
developed including basic theoretical
information as well as ready-to use guidance for one of the
RM methods.
Reflection
Risk Management is becoming a very popular
topic nowadays. When searching through job adverts, it becomes obvious
that a lot of companies from various sectors are looking for certified risk
managers. Thus we found it interesting to do research in this area, and study this concept in
more detail. A lot of information is available in the literature regarding RM in the form of
books, articles or other publications. However information provided
in those sources is rather
messy. For the purpose of the master thesis research, a number of positions had to be read to find appropriate
information.
Some theories
provided
by RM literature are
not
at all
applicable to construction industry, so we had to be very careful with choosing the right data. Moreover we wanted to see how RM works in practice. Even though not many of the actors
participating in the project
agreed for an interview, we managed to collect enough data to complete the study. The results which we obtained were very surprising with the extent to which RM is used by professionals. The knowledge we gained while
working on the thesis could be successfully used in our future professional careers. Each project manager should have a basic knowledge about risks associated to a project and how to handle them. Thus we think
that the research
done
for this master thesis was
not a waste of time, but actually gave us
a strong basis of
RM.
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