ABSTRACT
The Study investigated to acquire an overall idea about risk and its consequences in the construction field and the process required for its management. The effect of risk on assessment of a project is discussed along with the tools and methods adopted to manage risk in the construction industry. The objective of the research topic is to explore the effective way for implementation of risk management in construction industry, to consider the different types of risk management techniques applied to alleviate risk, to identify the use of implementation of the risk management, to determine the factors that can influence the applications of risk management in the project life cycle. This paper reports the research that aims to pinpoint the risk management and construction projects practices in the Arab countries.
Key word: Risk management, construction
Introduction
One of the major roles undertaken by a project manager is the management of the risk of a project. An effective and efficient risk management approach requires a proper and systematic methodology and, more importantly, knowledge and experience, For example, it requires knowledge of the unforeseen events that may occur during the execution of a project (Serpella et al, 2014)
Projects undertaken in the construction sector are widely complex and have often significant budgets, and thus reducing risks associated should be a priority for each project manager. However it should be underlined that risk management is not a tool which ensures success but rather a tool which helps to increase the probability of achieving success. Risk management is therefore a proactive rather than a reactive concept.
According to the Project Management Institute (PMI) (2004), project risk management is one of the nine most critical parts of project commissioning. This indicates a strong relationship between managing risks and a project success.
most of the times risk is handled through the application of contingencies (money) or floats (time) that are not determined based on a comprehensive analysis of the risks that can affect a particular project, and that in many cases are clearly insufficient to cover the consequences of risks that do occur during the project realization. (Serpella et al, 2014)
The systems used for project risk management have their focus on quantitative risk analysis, but these techniques do not allow that risks, problems, remedial measures (Tah and Carr, 2001). Lyons and Skitmore (2004) found that brainstorming is the most common risk identification techniques used in the engineering construction industry, Forbes et al (2008) developed a matrix for selecting appropriate risk management techniques in the built environment for each stage of risk management. These techniques include artificial intelligence, decomposition, probabilistic analysis, sensitivity analysis, and decision trees, among others.
Risk analysis and management are an important part of the decision-making process in construction industry. Construction industry and its clients are widely associated with high degree of risks due to the nature of micro-, and macro-environments particular to construction (Zavadskas et al. 2010); however, construction industry has poor reputation in coping with risks as many projects fail to meet deadlines and cost targets (Shevchenko et al. 2008).
Construction is one of the most risky, difficult and dynamic industries (Hwang et al., 2017) as, due to its financial intensity, complex procedures, long project durations, risky environment and partner relationships, this industry is prone to a variety of risks (Panthi et al., 2009).
Risk management definition
Risk management is a concept which becomes very popular in a number of businesses. Many companies often establish a risk management procedure in their projects for improving the performance and increase the profits. Today, risk management is an integral part of project management (Olsson, 2007; del Ca”o and de la Cruz, 2002), where one of the most difficult activities is determining what are the project’s risks and how should they be prioritized (Anderson, 2009). This is a key process and most of project managers know that risk management is essential for good project management (Baloi and Price, 2003; Perera and Holsomback, 2005; Alali and Pinto, 2009). There is a connection between uncertainty and risk as Hillson (2004) indicates: ‘The risk is the uncertainty measured, and uncertainty is a risk that cannot be measured’
Risk is a multifaceted concept (Wang et al, 2004), which is defined as the probability of a damaging event occurring in the project, affecting its objectives (Yu, 2002; Baloi and Price, 2003)
Risk management is defined as the process of identifying and assessing risk, and to apply methods to reduce it to an acceptable extent (Tohidi, 2011). Then, the main purpose of project’s risk management is to identify, evaluate, and control the risk for project success (Lee et al, 2009). Risk management in the construction project management context is a comprehensive and systematic way of identifying, analyzing and responding to risks to achieve the project objectives. (Project Management Institute).
Project risk management is a formal process directed to identification, assessment and response to project risks. The process is defined differently in research literature (e.g. Flanagan and Norman, 1993; Uher and Toakley, 1999; Chapman and Ward, 2003). However, all definitions agree that the aim of project risk management is to maximise opportunities and minimise the consequences of a risk event in the construction project.
Risks in construction projects
Due to the nature of the construction sector, risk management is a very important process. It is most widely used in those projects which include high level of uncertainty. These types of risk investments are characterized by more formal planning, monitor and control processes. The easiest way to identify risk is to analyze and draw a conclusion from projects which failed in the past.(Cleland and Gareis, 2006). In the early stages of the project where planning and contracting of work, together with the preliminary capital budget are being drawn, risk management procedures should be initiated. In later stages, RM applied systemically, helps to control those critical elements which can negatively impact project performance.
In other words, to keep track of previously identified threats, will result in early warnings to the project manager if any of the objectives, time, cost or quality, are not being met (Tummala and Burchett, 1999).
Traditionally, a construction process is divided into four main phases: programme, planning, procurement and production. In the programme phase the client has an idea about the project and analyses conditions for its execution. During the planning phase the architects produce construction drawings according to the client’s requirements. In the procurement phase the parties sign the contract. Finally, the contractor executes the job in the production phase.
In construction, risk usually refers to the factors that may hamper the objective of the project regarding time, cost and quality. Identification of the risk that can be faced is important for the contractor to get alert and prepare in advance for the uncertainties that arises. There are a number of risks which can be identified in the construction industry and which can be faced in each construction project regardless of its size and scope. Changes in design and scope along with time frames for project completion are the most common risks for the construction sector. The further in the process, changes in scope or design are implemented, the more additional resources, time and cost, those changes require. Project completion ahead of time may be as troublesome as delays in a schedule. Too quick completion may be a result of insufficient planning or design problems which in fact shorten the completion time but on the other hand lead to a low quality of final product and increased overall cost. Being behind schedule generates greater costs for both investors and contractors due to non-compliance with contracted works (Gould and Joyce, 2002).
Different risks occur in different phases of a project. In many cases risks are inherited from one project phase by the next one. There are several approaches for classifying project risks and risk sources (Leung et al., 1998, Tah and Carr, 2000, Baloi and Price, 2003, Li et al., 2005). In general the sources of risk in construction projects may be divided into three main categories:
‘ Those related to external factors, for example financial, economic, political, legal and environmental risks;
‘ Those related to internal factors, such as design, construction, management and relationships;
‘ Force majeure risks
The goal of the risk identification process is to decide on potential risks that may affect the project. There are several approaches for classifying project risks and risk sources, in the literature, examples of risks can be found which can be used in creating those compilations. Possible risks which can be found in the literature. (Smith et al. 2006; Potts, 2008; Lester, 2007; Darnall and Preston, 2010)
‘ Monetary “Financial, Economical, Investment”
‘ Political ” Legal, Political”
‘ Environment “Environmental, Natural, physical
‘ Technical “Technical”
‘ Project “Contractual, client, Project objectives, Planning, scheduling, Construction, Design, Quality, Operational, Organizational”
‘ Human “Labor, stakeholder, Human factors, Cultural”
‘ Market “Market”
‘ Safety ” Safety, Security, crime”
‘ Materials “Resources, Logistics
However, the socio-economic complexity involved in construction events makes it more risk prone, so that there may be negative effects on project sustainability (Zavadskas et al.,2010) Due to various complex factors, the construction industry is highly diverse and heterogeneous, experiencing a great deal of dynamic change with global sourcing and increasing price competition [50]. To overcome these risks, contractors have generally used high mark-ups, but this approach is no longer effective, as their margins have become smaller(Baloi; Price, 2003). In recent decades, the stages involved in construction projects have become far more complex in nature, due to technological upgrading and stakeholder pressure, and are characterised by a number of uncertainties, which have a negative influence on the projects (Jafarnejad et al.,2014)
Risks in construction projects in Arab countries
In Qatar the researchers found that most of the owners and the contractors suffer from the lack of knowledge about ways of mitigate and prevent risks. In addition, they do not use risk analysis techniques but depend usually on subjective judgment using experience in estimating time and cost. The study recommended that there are needs for more to be done to eradicate the problems associated with poorly managed construction projects. Consequently, contractors and owners should take the responsibility to manage their relevant risk factors and work from the feasibility stage onwards to address potential risk factors in time.
and also in Palestine, the same recommendations; some of the more important ones can be summarized as follows: use should be made of the experiences gathered from surrounding countries in the area of construction of projects, particularly the subject of risks management in order to mitigate such risks through holding annual technical conferences to exchange views about risk management, their impediments and the methods used to mitigate them. In addition, the quality of Engineering Design should be attained through Consultancy offices ensuring that a design review is performed by a third party to assure design quality. A team should be formed to manage the risk with all needed resources (manpower and financial) with all necessary authorization that enables them to address risks. Continuous and periodic review should be performed through conducting periodic tests in order to establish the efficiency, effectiveness of the construction projects.
Nabil Kartam & Saied Kartam, 2001, show that construction risk management in Kuwait: local contractors were often responsible for most risk factors, the implementation of formal risk analysis techniques for managing and controlling risks was limited, and contractors mainly relied on coordination with subcontractors. The contractors show more willingness to accept risks that are contractual and legal-related rather than other types of risks.
we think before and according to many changes in UAE that the cultural diversity is very important but the fact that both the constructs of Cultural Diversity and UAE Culture do not have direct effects on Project Success, therefore, the Project Success factor score decreases (success is reduced) with increasing scores for UAE Culture and Cultural Diversity. In other words, UAE cultural features and cultural diversity appear to be mostly detrimental for project success in the construction industry. All of these specific risks are related to cultural diversity either by association or by means of significant direct or indirect effects. Therefore, it could be recommended that, in an effort to improve risk management and project success in the UAE construction industry, the major focus should be on the management of issues related to cultural diversity rather than on general cultural matters. (Hasani et al., 2017)
Conclusion
In recent decades, projects in the construction sector have become more complex and risky due to the diverse nature of activities among global companies. There is no possibility to eliminate all the risks associated with a specific project. All that can be done is to regulate the risk allocated to different parties and then to properly manage the risk. Chapman and Ward [61] argue that the contract choice decisions are central to both stakeholder management and the management of risk and uncertainty. So we can propose an integrated approach based on a balanced incentive and risk sharing approach to contracting as well as a best practice approach to risk management in terms of the whole project life cycle Contractors generally aim to make an acceptable range of profit margin.