7th Semester Thesis

Bachelor of Architectural Technology and

Construction Management

Risk Management in Construction Projects

Application of Risk Management in Construction Period

HAND IN BY ZENGHUA KUANG

Consultant : Ernest Vivian Müller

VIA UNIVERSITY COLLEGE

Horsens Campus
Denmark
November 2011
Risk Management in Construction Projects
Application of Risk Management in Construction Period

©ZENGHUA KUANG
Student No. 123859

VIA University College,Horsens Campus, Denmark

Bachelor of Architectural Technology and

Construction Management
7th semester

Consultant : Ernest Vivian Müller

2 Hard copies of report and a PDF-file on a CD-rom

– Font Verdana 12

November 2010

39 pages ， 300 words per page

All rights reserved — no part of this publication may be reproduced

without the prior mission of the author.

NOTE: This dissertation was completed as part of a Bachelor of

Architectural Technology and Construction Management Degree
course No responsibility is taken for any advice, instruction or
conclusion given within!
School of technology and business

Acknowledgements

This dissertation was written as part of the final semester of the education as
bachelor of architectural technology and construction management.

Many people have contributed to this work. First of all, I want to express my
gratitude to my consultant Ernest, he really gives me great help and conduct
which makes my report orientation and study scope smoothly going. And then,
I would like to say thanks to Renger , my former semester consultant. He also
helps me a lot this time. He lends to me some reference books which are very
helpful to my report.

I am extremely grateful to Director of studies, Jan Uwe Wolff. He is nice and

supports me a lot, although he is very busy. He contacts CASA company for
me, which helps me to have the chance to meet with the site manager.

I want to thank Clæs Knudsen, the site manager too. Thanks for his accepting
my visit during the busy construction period. The visit is a golden experience
for me as a student.

Finally, I would like to thank my closest friends here. Many thanks go to my

family members and fiancée for their support and love. Zz, without you this
work would never have been possible.

Thank you! All my friends in Denmark, China and all over the world are
acknowledged just for the reason they exist.

ZENGHUA KUANG
26,11,2010
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Abstract

As the most common and typical project types, construction projects have
several characteristics such as specific objects、time limit、financial constraints
and economic requirements, special organizational and legal conditions,
complexity and systematic characteristics, For that each investment project
itself is a complex system. Especially for the construction projects, there are
many risk facets and complicated relations, which will influence it. The
complicated relations include direct, indirect, obvious, implicit or unpredictable,
What's more, the various risk factors will cause different severity of the
consequences. If you do not consider these risk factors, or ignore the major
factors, they all will cause damage because of decision-making errors.
Quality targets, time targets, cost targets are the three objectives of project
management. Especially in the construction project, the time objective is
closely and inseparably related to the cost objective. Therefore, risk
management of construction period is a key part in the risk management of
construction

The overall aim of this study report is to let everyone know what risk
management is, realize the procedure of risk management in construction
project and have a deeper study on the application of risk management in
construction period. The study-involved examples of construction projects what
I have experienced in different places.

The results of this study present the effect of common and major risks on
construction period. Meanwhile, put forward the corresponding
countermeasures

Keywords: risk, risk management, construction project, construction period

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CONTENTS

ACKNOWLEGEMENTS-------------------------------------------------------------- 3
ABSTRACT--------------------------------------------------------------------------4
CONTENTS------------------------------------------------------------------------- 5

1. INTRODUCTION------------------------------------------------------------------7
1.1 Background------------------------------------------------------------------7
1.1.1 Definition of risk------------------------------------------------------7
1.1.2 Definition of risk management-------------------------------------- 7
1.1.3 Principle of risk management----------------------------------------8
1.1.4 The process of construction projects--------------------------------8
1.2 Problem formulation-------------------------------------------------------- 9
1.3 Aim, Objective and research questions-----------------------------------11
1.4 Delimitation----------------------------------------------------------------12
1.5 Research methodology----------------------------------------------------13
1.6 Structure of study---------------------------------------------------------14

2. THEORETICAL OVERVIEW------------------------------------------------------15
2.1 Project Risk Management--------------------------------------------------15
2.1.1 Risk Environment----------------------------------------------------16
2.1.2 Risk Identification---------------------------------------------------16
2.1.3 Risk Assessment-----------------------------------------------------17
2.1.4 Risk Response Planning---------------------------------------------19
2.1.5 Risk Control----------------------------------------------------------20
2.2 Risks in construction projects---------------------------------------------20

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3. CASE OF STUDY----------------------------------------------------------------23
3.1 Case Ⅰ Public building in Denmark---------------------------------------23
3.2 Case Ⅱ The International project in Vietnam ---------------------------26

4. THE ANALYSIS AND DISCUSSION---------------------------------------------28

4.1 Results and Analysis of cases---------------------------------------------28
4.2 Discussion on the problems in project risk management----------------29

5. FOUNDS AND CONCLUSION---------------------------------------------------31

5.1 Answering the research questions-----------------------------------------31
5.1.1 Findings about risks be identified during construction period-----31
5.1.2 Findings about the impact of risks on the construction period----31
5.1.3 The countermeasures for risks in construction period-------------33
5.2 The main conclusion--------------------------------------------------------36
5.3 Further Research-----------------------------------------------------------37

REFERENCES-----------------------------------------------------------------------38
APPENDIX--------------------------------------------------------------------------39

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INTRODUCTION

This chapter presented the background to the research area and sets discuss
the problem formulation. The aim, objectives and research questions are
stated and delimitations are described. Finally, the structure of the dissertation
is outlined.

1.1 Background

1.1.1 Definition of risk

Definition of risk is a state of uncertainty where some possible outcomes have

an undesired effect or significant loss. Uncertainly is meaning that the lack of
certainly due to limited knowledge that it is impossible to state the outcome
exactly, perhaps, more than one possible outcome happens.
Risk concerns the deviation of one or more results of one or more future
events from their expected value. Technically, the value of those results may
be positive or negative. However, general usage tends to focus only on
potential harm that may arise from a future event, which may accrue either
from incurring a cost or by failing to attain some benefit.
(http://en.wikipedia.org/wiki/Risk) 5. Nov.2010

1.1.2 Description of risk management

Risk management is the discipline of identifying, monitoring and limiting risks.

In some cases, the acceptable risk may be near zero. Risks can come from
accidents, natural causes and disasters as well as deliberate attacks from an
adversary.
Risk management applied in the field of construction currently, has been on
the agenda for about 25 years. It has focused in the main on large-scale

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projects with different kinds of complexity related to them, such as Technology,

international collaboration, geography or finance. (Hintze et al., 2004; Jaafari, 2001).

More recently, risk management has started to influence an increasing number

of companies and not only the largest projects. In spite of this, the small
projects in construction do not feature a great deal of systematic risk
management (Azinim & Edum-Fotwe, 2006; Simu, 2006)

1.1.3 Principle of risk management

The International Organization for Standardization identifies the following

principles of risk management:

¾ Risk management should create value.

¾ Risk management should be an integral part of organizational processes.

¾ Risk management should be part of decision-making.

¾ Risk management should explicitly address uncertainty.

¾ Risk management should be systematic and structured.

¾ Risk management should be based on the best available information.

¾ Risk management should be tailor-made.

¾ Risk management should take into account human factors.

¾ Risk management should be transparent and inclusive.

¾ Risk management should be dynamic, iterative and responsive to change.

¾ Risk management should be capable of continual improvement and

enhancement.

1.1.4 The process of construction projects

In general, Idea, Briefing, Design, Production and Maintenance management,

are five steps as the process of construction project. (Figure 1) Depending on

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the scope of the construction companies’ business concept, they enter this
process in different phases. The viewpoint in this study is that client has to
take charge of the phases of idea, briefing and maintenance. This description
of the construction process is a general one and several different descriptions
can be found in other literatures.

Figure 1: A general description of the construction process

In the construction process, it is still most common with competition using a

tender process to obtain the project and finish it. Such as commercial bid and
technical bid is used in popular. According to the client demands, each of the
competing companies submits a bid. The client will decide to choose the
company as a winner, which is offered by the most favorable price. The winner
is the one that continues with the project into the design and/or production
phase of the construction process. In some cases, the constructions companies
are exclusive and do not have to compete through bidding. As we know that
the many factors have influence on the outcome of the bidding process, such
as cost, quality, safety and sustainability determine the outcome of the bidding
process, the cost parameter has the greatest influence. Although others, they
do have a significant impact from time to time.

1.2 Problem Formulation

As the most common and typical project types, construction projects have
several characteristics such as specific objects: time restraints, cost restraints,
special organizational and legal conditions, complexity and systematic
characteristics. For that, each investment project, it is a complex system,
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especially for the construction project; there are many risk factors and
complicated relations, which will influence it. The complicated relations include
direct, indirect, obvious, implicit or unpredictable, what is more, the various

Risk factors will cause different severity of the consequences. If you do not
consider these risk factors at all, or ignore the main factors, they will cause
damage because of decision-making errors. Quality targets、time targets、cost
targets are the three major objectives of construction project management.
Especially in the construction project, the time objective is closely and
inseparably related to the cost objective. Therefore, we cannot ignore risk
management of the effect on time objective caused by risks during
construction phase.

According to the above description of the background in this thesis, we know

that risk management of construction period is the management on the time
limit in uncertain conditions. As the accordance to construction project
implementation, the technical and economic analysis is based on the prediction
and judgment analysts make of future events. The construction project
implementation process can be broken down into several specific parts, and
these parts are always affected by the political and economic environment、
sources condition、technical development, so there are uncertainty on their
future change, What is more, there are limitation on the predictable methods
and working conditions. Therefore, the assessment and predicting outcomes
will be erroneous results inevitably. This makes possible deviation between
actual value and predicting value, which bring about large risk to both the
owner and the construction companies. For example, investment or time limit
prolonged, productivity under design requirement, rising cost of raw materials,
increasing labor fee, fluctuating product prices, changing market demand, loan
interest rate and rate in foreign money, all these unpredictable effect even
damage to an investment project. The uncertainties, which can be considered

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as the reason for postponing time limit for a project in the construction project
contract, are the very point of studying time limit for a certain construction
project. Only by analyzing the influence, can we make a better predication and
control of the schedule and ensure the project complete successfully

1.3 Aim, objective and research questions

The overall aim of this study report is to let everyone know what risk
management is, realize the procedure of risk management in construction
project and have a deeper study on the application of risk management during
construction period, therefore, a better project output and better value for
both clients and constructors.

There are two objectives of this study:

1. To assess the most major and common risks which cause bad effect on
construction period.
2. To figure out reasonable solutions.

On the basis of the aim and the objectives, research questions have been
formulated.

1. what is the process of risk management?

2. How to apply risk management in construction projects?
3. What risks are there in construction projects?
4. How risks can be indentified during construction period?
5. How risks can be assessed during construction period?
6. How risks can be controlled during construction period?

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Figure 2: research questions

(See figure 2)The first three questions as the basis to support last three ones.

1.4 Delimitation

According to the statement of related problems in this report, I try my best to

narrow down the scope of my study and make my report more pertinent.

The original Risk Management: Concepts and Guidance (Defense Systems

Management College 1986) classified risk into five facets:
z Technical(performance related)
z Programmatic(performance related)
z Supportability(environment related)
z Cost
z Schedule

Figure 3: Relationships among the five risk facets

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(See figure 3)Considering that, cost and schedule risks frequently serve as
indicators of project status. They are treated somewhat differently from the
others. However, cost and schedule can become a major source of project risk.

Based on the above, I decide to start from schedule, and narrow down the
scope to the risk management in construction period phase which makes my
report more specific. Go through the case of study, different realistic
constructions have been presented and analyzed . last section of the report
lists the most common and major risks during construction period and some
countermeasures referred to these risks.

1.5 Research methodology

Literature study and analytical research are my major learning methods, which
play an important role in this report. Analytical research involves analyzing
existing facts and information. Today’s world is based on information
technology and huge amounts of information are available on all kinds of
subjects.

In addition, to speak of, the report is more persuasive and practical based on
the study of real case and visit of site manager. As a student lacking experience
working on building site, the visit definitely has a critical effect on the
conclusion of this report.

I also use Internet-searching engine, which is a fast approach to get wanted

answers of this time. It offers me much writing inspiration and scientific proof
from other related articles.

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1.6 Structure of study

Chapter one is introduction to the background of the research area and sets
discuss the problem formulation. The aim, objectives and research questions
are stated and delimitations can be found. The purpose of this chapter is to
help the reader understand why this report needed to be written.

Chapter two is the theoretical overview and the state the literatures which this
thesis focuses. This chapter gives the theoretical foundation for the thesis and
the aim of this chapter is to ensure the reader that this thesis is at the cutting
edge of the research in the chosen area.

Chapter three is the case of study, the different constructions have been built
in different place. This section tells the background of each project and
describes different type of risks occurred in construction projects.

Chapter four is the analysis and discussion, this section’s objective is to

combine results of both the case of study and analytical research in order to
identify the main findings and their relevance and implications to current risk
management practices

Chapter five contains the findings and conclusions of the study. This part
points out the main research contributions and thinking about the specific
direction what we can still doing further study in future.

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THEORETICAL OVERVIEW
Chapter two is the theoretical overview and the state the literatures which this
thesis focuses. This chapter gives the theoretical foundation for the thesis and
the aim of this chapter is to ensure the reader that this thesis is at the cutting
edge of the research in the chosen area.

2.1 Project Risk Management

This part focuses on defining and explaining the elements of risk management
and presents the recommended overall structure for implementing risk
management. (The Figure 4) reflects a structure that mirrors the perspective
of the Project Management Institute's PMBOOk (® Guide (2004) within the
organizational environmental context.

Figure 4. the structure of risk management

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2.1.1 Risk Environment

In every project, there is a risk environment. There are risks that must be
faced, and there is a host of different ways to deal with them. Risk
management planning is the effort, organizationally, to draw together the risk
policies, practices, and procedures of the organization into a whole that will
address the nature of risk peculiar to the project.

Managing construction projects involves making decisions relating to changes

in conditions associated with construction, the environment, geotechnical,
economic and legislative aspects and so on. In spite of this, risk management
has only been applied in the construction industry for a little more than two
decades (Flanagan & Norman, 1993, p. 1). Formal and traditional risk
management as used today is based on the logical structure of identification,
assessment, response and finally also control.(see figure 4).

2.1.2 Risk Identification

A critical step in the risk management process, risk identification is an

organized, thorough approach to finding real risks associated with a project. It
is not, however, a process of inventing highly improbable scenarios in an effort
to cover every conceivable possibility. After risks are identified and described,
then they can be assessed or managed.

Perhaps the key failing of project managers in risk identification is the actual
description of risk events. Many project managers attempt to identify risks
simply as "schedule" or "cost." (The schedule in and of itself is not a risk.) A
risk event is something that may happen to the benefit or bad effect of the

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project. Risk events are most effective when they are described clearly and in
depth. A high-quality risk event description will describe the potential
occurrence and how it would influence the project. On a construction project,
the risk that a "wall will collapse, causing a delay" is different from the risk
that a "wall will collapse, killing someone."

To carry out risk identification effectively, basic project documentation must be

in place. The project charter, scope statement, and project management plan
(including the WBS) need to be available to build a thorough list of risks.
Without these elements as a frame of reference, it is impossible to effectively
evaluate the risks on a project. The risk management plan and the
organizational environment also must be clearly understood to conduct risk
identification. These establish the environment in which the risks will be
evaluated. The risk management plan may also identify specific risk
identification practices which are either preferred or rejected by the
organization as part of their risk culture. All this information can spur thinking
about different risk issues and concerns when evaluated using the tools and
techniques of risk identification.

The tools and techniques that are applied in risk identification are as varied as
the projects they serve. However, some groups of tool and technique types are
most commonly applied. According to PMl BOOK, they include documentation
reviews, information-gathering techniques, checklists, assumptions analysis,
and diagramming techniques.

2.1.3 Risk Assessment

Risk assessment is performed in numerous ways. Tools and techniques have

been developed to consider probabilities and consequences, using historical
data, statistical data or estimated judgment translated into numerical

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information (Aven, 2003; Grey, 1995). There are also assessments grading
certainty in scales such as rare-almost certain and low-extreme. They share
estimates of probability and consequence and the use of software tools to
manage the data. Scoring techniques (Grey, 1995) are developed checklists
that include the evaluation of both probability and the consequence of a risk
breakdown and those are used to produce risk matrices. This is a common
technique for risk assessment in construction projects that is widely used due
to its simple approach. As with checklists, the disadvantage is that some
aspects are forgotten. The bias that also needs to be considered is that
different evaluations will appear depending on the individuals carrying out the
assessment. Using models or simulation to assess risks is another approach.
Models are simply a breakdown of a complex project into manageable bits and
pieces, often by using mathematics to show how these bits and pieces are
linked together. The disadvantage of any model using figures is that the user
could easily be blinded by exact figures, without having any more precise
information than a more qualitative answer. It is important to remember that,
with models and simulations, the saying “what goes in is what comes out” is
very applicable.

Figure 5 Probability- Impact Matrix

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2.1.4 Risk Response Planning

Risk response development is a critical element in the risk management

process that determines what action (if any) will be taken to address risks
evaluated in the identification, qualification, and quantification efforts. All
information generated to date becomes crucial in determining what the
organization will do that is in keeping with the risks, the organization's
tolerance, the project tolerances, and the customer culture.

To some measure, risk is a cultural phenomenon. Different countries, regions,

and organizations have different cultural tolerances for risk and risk responses.
Determining what limits exist early in the risk response planning process is
important to ensure that time is not wasted on approaches that are intolerable.
Risk thresholds frequently are as significant here as they are in establishing
basic probability and impact for the risks. These risk thresholds should become
a component of the risk management plan.

All risks have causes; sometimes multiple risks within a given project arise
from a common cause. In developing risk responses, the project team should
work to identify any common causes, as those causes may have common risk
responses. Generally, response strategies for threats fall into one of the
following categories:
• Avoidance
• Transference
• Mitigation
• Acceptance

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2.1.5 Risk Control

After risks have been identified, qualified, and quantified, and clear responses
have been developed, those findings must be put into action. Risk monitoring
and control involves implementing the risk plan, which should be an integral
part of the project plan. Two key challenges are associated with monitoring
and control. The first is putting the risk plans into action and ensuring that the
plans are still valid. The second is generating meaningful documentation to
support the process. The final step in the description of the risk management
flow chosen in this thesis involves ensuring the use of the prior steps. It is a
question of making sure that the identified risks, which are regarded as
important, are also controlled in the way that was planned in the response step.
In the control step, it is also possible to identify new risks that emerge and the
continuous process proceeds.

2.2 Risks in construction projects

Risks in construction projects may be classified in a number of ways. One form

of risks classification is as follows:

1. Socioeconomic factors
x Environmental protection
x Public safety regulation
x Economic instability
x Exchange rate fluctuation
2. Organizational relationships
x Contractual relations
x Attitudes of participants
x Communication

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3. Technological problems
x Design assumptions
x Site conditions
x Construction procedures
x Construction occupational safety

The environmental protection movement has contributed to the uncertainty for

construction because of the inability to know what will be required and how
long it will take to obtain approval from the regulatory agencies. The
requirements of continued re-evaluation of problems and the lack of definitive
criteria which are practical have also resulted in added costs. Public safety
regulations have similar effects, which have been most noticeable in the
energy field involving nuclear power plants and coal mining. The situation has
created constantly shifting guidelines for engineers, constructors and owners
as projects move through the stages of planning to construction. These moving
targets add a significant new dimension of uncertainty which can make it
virtually impossible to schedule and complete work at budgeted cost. Economic
conditions of the past decade have further reinforced the climate of uncertainty
with high inflation and interest rates.

During periods of economic expansion, major capital expenditures are made by

industries and bid up the cost of construction. In order to control costs, some
owners attempt to use fixed price contracts so that the risks of unforeseen
contingencies related to an overheated economy are passed on to contractors.
However, contractors will raise their prices to compensate for the additional
risks.

The risks related to organizational relationships may appear to be unnecessary

but are quite real. Strained relationships may develop between various
organizations involved in the design/construct process. When problems occur,
discussions often center on responsibilities rather than project needs at a time
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when the focus should be on solving the problems. Cooperation and

communication between the parties are discouraged for fear of the effects of
impending litigation. This barrier to communication results from the ill-
conceived notion that uncertainties resulting from technological problems can
be eliminated by appropriate contract terms. The net result has been an
increase in the costs of constructed facilities.

The risks related to technological problems are familiar to the design/construct

professions which have some degree of control over this category. However,
because of rapid advances in new technologies which present new problems to
designers and constructors, technological risk has become greater in many
instances. Certain design assumptions which have served the professions well
in the past may become obsolete in dealing with new types of facilities which
may have greater complexity or scale or both. Site conditions, particularly
subsurface conditions which always present some degree of uncertainty, can
create an even greater degree of uncertainty for facilities with heretofore
unknown characteristics during operation. Because construction procedures
may not have been fully anticipated, the design may have to be modified after
construction has begun.

If each of the problems cited above can cause uncertainty, the combination of
such problems is often regarded by all parties as being out of control and
inherently risky. Thus, the issue of liability has taken on major proportions and
has influenced the practices of engineers and constructors, who in turn have
influenced the actions of the owners.

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CASE OF STUDY
Chapter three is the case of study, the different constructions have been built
in different place. This section tells the background of each project and
describes different type of risks occurred in construction projects.

3.1 Case Ⅰ Public building in Denmark

Background of the Project

This realistic project case is new educational building and multi-hall of our
school. This project is under construction. The gross of constructed floor area
is about 7600m2 for educational building and 1600m2 for multi-hall. The
educational building has been started from August.2010 before the schedule of
multi-hall, it has to be finished at July.2011.construction period is nearly 10
months. The multi-hall will be started at May.2011 and finished at
December.2011, and construction period will be nearly 7 months.

As the project client, our school have chosen the total contracting form of
procurement and offer a set of specific detailed brief. CASA A/S will be
responsible for the total co-ordination of the design and the construction. The
bid of price for construction works is approximately 87 million.

In order to get more realistic data, I visited building site of this project, and
had a short talk with him, it was my great honor. Clæs is a senior site manager
from CASA a/s, he has a 20-year experience of site management. He is
responsible for former projects of our school too. His duty of being building site
is to manage the operation of the whole construction phase, especially on
project’s quality, cost and schedule he also takes charge of the communication

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with client ， sub-contractor ,supplier. Besides, there are two or three

colleagues to help him with these work.

Construction Related Risk

During the meeting with him, my research questions have been mentioned
that How can risk be identified, assessed , control during construction period?
These risks means the risks which have a bad effect on construction?

From the site manager’s aspects, there are four main risks that would affect
the construction period.

1. Safety risk
The first one would be safety risk. According to his opinion, this is the most
important thing that should be paid attention to. Based on plans for safety and
health, all the works should have its own precautions. The site manager has to
make a safe working environment for labors. If any accident happens during
the process, not only the schedule will be delayed but also the other areas will
be affected. Therefore, enough money is supplied to make sure the labor
safety on building site. At the mean time, site manager has to make and
implement a safety and health plan to assure the safety of the working process.
Manually inspections and supervision are also important.

2. Material supply risk

The second one would be risk on material supply. Material supply is a
compulsory part of the construction project. Under the influences of global
economy crisis, many suppliers are facing bankruptcy. By choosing a supplier
without great reputation and funding, it may lead the construction to facing
delay on delivery. If it is during the critical process, it will surely delay the
whole construction. In construction industry, the delay on time always cost
more. It would be a better idea for the total contractor to choose a supplier
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company wisely to avoid short of material and delay on delivery. For site
manager, his responsibility would be contacting supplier and arrange the
material delivery and transfer.

3. Unforeseen extra work

Third of all, unforeseen extra work is also one of site manager’s concerns. Most
of the unforeseen extra works take place on soil work. It is because that
geological exploration datum cannot predict and analyze the exact condition of
geology. The rest extra work might happen in other construction work methods.
The site manager stated that during this project, the soil problem has caused a
delay for couples of weeks. However, there is nothing the site manager can do
about this situation.

4. Omissions of construction work

The last main risk would be omissions of construction work. Due to the
consideration of cost, clients all wish to finish the construction as soon as
possible. This will bring a lot of pressure to the total contractor. They are
trying to do their work faster. When rushing into doing things, more mistakes
might happen. As a result, the quality of the construction will highly be
reduced. This leads to the omissions during construction period. However, they
still want to balance the time and quality. Consequently, total contractor will
hire more skilled and experienced workers as compensation. They will pay
attention to the critical parts of the work while speeding up on the easy ones.
And it is known that the Germans are good with concrete element work, the
Italians are good with wet room surface work.

During the period of construction projects, site manager always identify,

assess and control risks based on their own experience. This is also considered
as the most practical and convenient risk management. There are also other
methods which cannot be ignored, such as risk breaking down system,
meetings planning and so on.
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3.2 Case II The International project in Vietnam

Background of the Project

This case study relates to the development of a factory to produce yeast in the
southern part of Vietnam. The client is a joint venture based on a 50:50 share
between a France company and a Vietnamese company. The site area is about
40,000m and the gross of constructed floor area about 6,200m2. The contract
sum for construction works is approximately US$10 million. The client informed
that a few consultants and project management firms were invited to submit
fee proposals. French architects, engineers and project managers were
selected as they came from the same country as the foreign client. Project
Planning and design started in late 2001. Due to some problems within the
joint venture and technical issues with the yeast manufacturing method and
process of operating the factory, construction only started in early 2005 and
was expected to be completed in late 2006. However, the project was only
completed in 2008.

through the above description of the background, it is obvious that the project
lasts two years more than the planned time. there must be several risks during
the construction phase such as political risk, legal Risk, financial and economic
risk, design risk, construction risk, etc, and these risks haven't been well under
control at last, thus, affecting project performance. The following part is the
main analysis of risks in construction phase.

Construction Related Risk

The main construction related risk faced in this project was substandard quality
of materials and workmanship. The client's representative had to ensure that
the factory achieved similar quality as the client's other yeast production

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factories throughout the world. However, in this project, the client's

representative had to accept a lower quality standard because that was what
the Vietnamese contractors were capable of. The low quality workmanship was
because some of the main contractor's workers were unskilled. They also
had low productivity. The main contractor's excuse was that he needed the
skilled manpower for his other ongoing projects. The lesson learned is that
foreign firms should enter Vietnam knowing that their built facility would not
be of the quality and standard that they are used to in developed countries.
Hence, quality control must be enforced strictly.

The project manager recounted that the contractors changed their site
management staff frequently. In response to this risk, the consultants required
that any change of personnel in the main contracting, nominated and domestic
subcontracting firms would need the project manager's approval.

In this project ,the equipment and materials are easily found in Vietnam.
Specialized items however had to be imported. The local main contractor had
to contend with long delivery time, delay in customs clearance and payment of
tax. There was a long lead-time for equipment to arrive from overseas, and
the main contractor overcame this risk by placing orders early. The delay in,

customs clearance is something that foreign firms should be aware of and build
this into their schedule. Import tax is complicated, and the rate depends on

the type of material and equipment, and when the items arrive in Vietnam.
Firms should therefore build in a large contingency sum for paying import tax
on materials and equipment.

Another construction risk faced by the project was unsafe work practices. The
project manager found that most of the contractors did not have safety
management systems in place. To manage this risk, the main contractor was
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required to engage a safety specialist, who must ensure that safe work
practices were adopted, and the working condition on site was safe.

In addition , There is one of risks in construction risks that we should not be

ignored, which is nature risk. Construction work in Vietnam may be affected by
heavy rain. The construction manager explained that in southern Vietnam, the
wet season lasts from May to October. In central Vietnam, flooding may occur
from October to December. In northern Vietnam, the rainy months are August
to November, with February and March having persistent, light, drizzling rain.
The construction manager said that he would undertake construction work that
would be affected by bad weather condition outside of the rainy season. Apart
from planning work to avoid heavy rain, the project did not face any other
severe natural risk that affected construction progress.

THE ANALYSIS AND DISCUSSION

Chapter four is the analysis and discussion, this section’s objective is to
combine results of both the case of study and analytical research in order to
identify the main findings and their relevance and implications to current risk
management practices

4.1 Analysis of case study

Risks may exist throughout the project lifetime from inception to design,
bidding, construction and commission. From previous cases what we have
uncovered is that the main and critical the risks are occurring during
construction period. Actually, in the whole project process, there are other
risks such as political risk, legal risk, financial and economic risks, design risk,
cultural risk. Bureaucracy, inadequate legal framework, high inflation rate,
those issues are significant factors affecting both clients and contractors’
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venture. After we know those, effective risk response techniques must be

adopted to manage the risks, such as documentation reviews, checklists
assumptions analysis are used often.

Another effective risk response technique is to use negotiation to solve

problems. It is found to be the most practical and effective way to overcome

difficulties faced in Vietnam. The implication is that practitioners should be well

equipped with negotiation skills when undertaking projects in Vietnam

As the quality of work and safety could be compromised in projects, it is

recommended that contractors provide workers with some training so that they
can achieve certain skills level and safety awareness. Safety management
systems should also be implemented on site.

4.2 Discussion on the problems in project risk management

When the scale of a project is huge, the construction period is quite long. there
will be lots of uncertain factors facing the whole project. At the beginning of
the construction project, the contractor and the owner have already foreseen
that certain factors causing the implementation of the project will definitely
occur during the implementation process. In order to safeguard each interest,
both sides make some special regulations when signing a contract. After
confirming the following factors, the construction period can be delayed
without paying for any fine to the clients undertaking project as long as the
performing units put forward the apply to units in charge of construction. The
factors include:

1. Change of working amount and design

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2. Contractors will not be responsible for the damage brought by the work
stoppages because of blackout, short of water supply or gas supply that not
belong to.
3. Force majeure
4. There meet unpredictable obstacle or ancient tombs 、cultural relic、
quicksand which need to be dealt with during the foundation construction.
5. Supplier do not supply the materials in time, the clients do not pay
construction fund on time or any other conditions the client admits.

Then we can avoid direct damage caused by some uncertainties to the project.
In order to make sure that there is no effect on stake, the project manager
cared more about the cost of construction than the construction schedule. So
the study of construction period is still resting on the theory at present and
there is little strict estimate and control on the project period when practicing.
In fact, construction period affects construction expenses directly, delay of the
period lead to change of both direct expenses and indirect expenses and thus
affecting the overall expenses of a project. Therefore, we should evaluate
project construction period reasonably and estimate the construction period
within bounds for that it is quite important for the implementation and
completeness of the whole project.

FINDS AND CONCLUSION

Chapter five contains the findings and conclusions of the study. This part
points out the main research contributions and thinking about the specific
direction what we can still doing further study in future.

5.1 Answering the research questions

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5.1.1 Findings about risks be identified during construction period

For that the construction project itself is a complicated system, there are many
influencing factors and various uncertainties result in different consequences.

We can start from the viewpoint of system when identifying uncertainties.

Risk identification is an organized, thorough approach to finding real risks
associated with a project. It is not, however, a process of inventing highly
improbable scenarios in an effort to cover every conceivable possibility. Risks
cannot be assessed or managed until they are identified and described in an

understandable way. We should grasp the major factors among multiple

factors and then analyze the severity of input-output caused by the
uncertainties. The common methods are: Expert interviews, which depend on
veteran like project manager or site manager. Documentation reviews,
Analogy comparisons, Brainstorming, Risk breakdown structure, and Delphi
technique.

In construction projects, the common uncertainties are: soil and geological

conditions、weather conditions、material and equipment deficiency、imperfect
design scope、equipment change、labor productivity、contractor’s neglect of
duty and so on.

5.1.2 Findings about the impact of risks on the construction period

Uncertainties include three facets, operation factor、industry factor and market

factor. These three facets together have an effect on the project construction
period. However, the influences of the three factors made on the construction

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period are quite different. Operational risk is on the top, it is the most
uncertainty during the implementation of a construction project.

The follows are the description of the major uncertain factors influencing the
construction period.

1. The Nature risk. Open air、upper air and the underground are the major
building operation field, so the weather plays an important role on the
construction period and safety. For example, flood、earthquake、rainstorm ect.

2. Innovation of design, like using new technique、change of work method

deficiency of design and so on.

3. Equipment failure.
(1) Uncertainty of construction technology: every building is unique and has its
own characteristic. Construction technology needs to be innovated
continuously because of the constant change of the design, and then the
construction technology will meet the risk of “first failure”.
(2) Equipment breakdown.(such as crane, Hydraulic jacks, hydraulic concrete
pumps, welding equipment, demolition devices)

4. Labor productivity.
(1) The quality of construction teams
(2) Mating between labor and equipment: there need many kinds of specialized
type of work cooperating in one project such as carpenter, mason, plumber ,
welder, and so on. Although the enterprises follow the regulations of local
building environment, when they employ workers, scale of project is still so
huge that it need large amounts of teams, therefore, it is hard to say if the job
mating with equipment is reasonable or not.

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(3) Employment dynamics: if service operations are according to construction

schedule, keep the working performance as planned, pull the job off up to
standard within the limited time, after hand over or check the completed
project and leave the construction site immediately or not.

5. Materials delay.
(1) Dissatisfactory material quality.
(2) Uncertainty of equipment supply: the major materials used in the
construction are steel、wood、concrete、sands and brick, etc. Although these
construction materials are rich in the domestic market, the big amount of
manufacturers, the different quality of the same material and misuse of
construction companies may affect the construction quality and cause direct
financial loss.
(3) Uncertain price of construction materials: the bid price of the contract in a
construction project includes material prices. The construction period is very
long and if the material prices increase, the income will decrease.
(4) Poor local transportation condition.

6. Soil situation, Geological exploration datum can’t give an overall and exact
explanation of the geology, so soil situation is an indispensable factor.

Uncertainties exist in all kinds of activities of whole construction process and

have an effect on the whole project implementation. The control planning and
traditional work methods when we done before for managing construction
project that do not work because of these uncertainties.

5.1.3 The countermeasures for risks in construction period

According to the above analysis ， we can take actions to control those

uncertainties which have great influence on the process of construction so as

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to provide a most effective risk control and risk management of the project
period. Moreover, take the following relative measures if necessary:

1. Try to make sure that the project gets up to a high standard on processing
operation and organizational structure, more importantly on the qualifications
of contractor. including the human resource required by the total contractor,
the strong market competiveness, qualified design capacity, complete project
management system, powerful technical support, the ability to purchase
equipments and construction supplies ， good communication skill of the
contracts, the ability to face risk, advanced enterprise culture, etc.

2. Raise legal consciousness. We must comply with the law when we sign
contracts, claim indemnity, protect rights, operate, withstand risks, financing
and settle accounts, etc.

3. Implement talent strategy, impart knowledge of construction project

management, risk management, contract management, economy, finance,
insurance, operation control, etc to employees so that the enterprise can own
experts and professional project managers absorbing skills, law, strategy,
operation, foreign language, management.

4. Set specification on construction management, prepare the manuals and

planning by total contractor, in addition, build up their own risk management
system.

5. Take active technical countermeasures, including risk avoidance, risk

reduction, risk prevention, risk transfer and risk retention

z Measures to avoid risk

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If risks become big threats that the enterprise could hardly bear and control to
the project, we should give up the contract and the project definitely to avoid
greater losses. Moreover, laying down the regulation that certain project
should be prohibited and avoiding the actions which may cause damage are
also good measures to evade risk.

z Measures to reduce risk

This kind of measures can reduce the incidence of risk or the damage when
risk occurs. For the known risk, we can use project resources to cut down, for
the predictable or unpredictable risk, we should change it to known risk
through assumption and limited conditions and then take measures to reduce
the possibilities risk happen to a level which risk can be accepted.

z Measures to prevent risk

Implement technical supporting and effective control planning to prevent risk.
The aiming is to prevent new risk factors; reduce existing risk factors; reduce
the incidence of risk events

z Measures to transfer project risk

Spread the risk to other objects, including owners, subcontractor, partners,
investors, suppliers, etc.

z Measures to risk retention

If the damage caused by known risks is not serious, sustain it on one’s own.
And one should have the ability, have emergency measures, back-up actions
and financial reserve.

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5.2 The main conclusion

Finally, after resolving the research questions, I would like to make a

conclusion of my report.

At the beginning of this report, I made up my mind the orientation of my study

through learning about the background related to my study aim such as what
is risk, what is risk management. The orientation of my study is the application
of risk management in construction projects. Then I start my study by finding
out literature references via borrowing related books and surfing the Internet.
Next, I list realistic construction projects, each project has its own
characteristic and building sites, so it will meet with various risks. In addition, I
make specific analysis based on what I learn from the document literature. At
last, I provide the resolving methods after theoretical study and case study.

This report tells us what risks will occur during construction period for that
risks have an effect on the cost and schedule of construction projects. I make
my study and description mainly on the schedule. Then presenting what are
the major and common risks influencing construction period that I choose from
numerous factors. In the end, I got the answers like how to ensure as soon as
possible、 how to make reasonable analysis and how to have a good control of
these risks.

As part of the final semester work, I get down to my report and graduation
project at the same time. Considering the writing time and writing depth , it is
a challenge for me. Nevertheless, I still try my best to search literature and
references and have profound study. I treat a better final report as my pursuit.

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5.3 Future research

I have learnt a lot what I did not know before through finishing this report,
which enrich my learning experience and broaden my horizon of project
management.

As is known to all, there are still many risks, which need us to solve. Risk
management has a wide usage, for example, we can apply risk management
to the analysis and management of the existing and possible risks from the
design phase to the construction phase.

Regarding writing time and writing scope, I narrow my report to a specific

aspect, which describes what risks are there during construction period and
what are the common risks affecting construction schedule. This is just a small
part of risk management application in construction projects. Moreover, there
is no more deep study of other aspects in this report.

Based on the report, we can make further analysis and study about the risks,
which affect construction cost for the further study to ensure budget balance of
construction projects, and maximum value of clients such as the study of what
factors may cause cost change except extension of construction time. There is
one of aspects of risk management is worth doing it.

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References

Jaafari, A. (2001). Management of risks, uncertainties and opportunities on

projects: time for a fundamental shift. International Journal of Project
Management, 19(2), 89-101.

Azinim, M. & Edum-Fotwe, F. T. (2006, 18-20 October). Risk management

practices of construction project staff: Preliminary lessons. Paper presented at
the Construction in the XXI Century- Local and global
challenges, Rome.

L.P. Gragg and J.M. Cassell, Progress in Management Engineering,pp. 173 -

197.2009 Nova Science Publishers, Inc.

CarL.Pritchard, risk management ,concepts and guidance pp28-54,2005 third

edition. printed in the United states of America

R.max wideman fellow,PMI, risk management - a guide to managing project

risks and opportunities, 1992,project management insitiute .inc.

Kajsa Simu, The Construction Site Manager’s Impact on Risk Management

Performance, doctoral thesis, 2009,Lulea, Sweden

http://civilengineerblog.com/risks-construction-projects/

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Appendices

Appendix A
EXAMPLE OF RISK ASSESSMENT PLANING

Appendix B
EXAMPLE OF RISK ASSESSMENT PLANING 2
Need some winter precautions Winter (1.11.09 to 31.03.10)
Weather (summer/Winter)
Winter (1.11.10 - 15.12.10
Summer (1.04.10. to 01.07.10)

Easy access to the building site Delivery conditions

Okay but of course not perfect Esbjerg Kommune

Geographical conditions
Torvegade 74
6700 Esbjerg
Who is he?
Unknown Who are there?
In all domain, the financial situation is not the best
right now but Esbjerg Kommune is the state and
? Well working? Competitors (other contractors) they will have the money to finance the project
Liquidity

? Expensive? NO - DD Contractors has no experience with

Esbjerg Kommune
Experience
Idræts Alle 10,
6740 Bramming
SURROUNDING Experience Big experience with all kind of projects
Flat plot CLIENT Årstiderne Arkitekt
Dalgasgade 11
7400 Herning DD contractors have
No big vegetation Architect already work with
Position of the site
Årstiderne Arkitekt
Reputation
Good accessibility (main road,...)
RISK ASSESSMENT Big experience with all kind of projects
Big space Rambøll Experience
Dokken 10
Residential area 6700 Esbjerg DD contractors have
Engineer already work with Rambøll
Neighbours Reputation
Green area

Good access for big trucks NO- Missing some of the tender documents
Transport Is the tender materials okay?
Only 3.5 km from the Motorway Specifications Okay

Placed on a big plot Property Yes, we have been

working with this type of
work before
Have we tried this type of work before?
Yes Do we have time?
PROJECT Is it the time schedule realistic? Yes but of course some surprises can appear
We have Do we have the material
No - DD contractors haven't
received any basic plan for safety
Can we have the necessary
Yes and health
machinery? Is the plan for safety and health okay?

Our trade (Ground, Soil, concrete Normal technology but more difficult than normal
and mounting element work RESOURCES Is it new technology?
Do we have the manpower/staff
No Other trade

Yes but some risk due to the

financial crisis (bankruptcy)

No, so need to ask for other Do we need subcontractors

subcontractors
Risk Assessments 

Small risk = Level 1 & 2  

Medium risk = Level 3 & 4 

High risk = Level 5 

  

Level 1  Level 2  Level 3 Level 4  Level 5

1 x  14 x  7 x 6 x 6 x
1  28  21 24 30
 

→ 1 + 28 + 21 + 24 + 30 = 104 
            ↘ 104 : 34 = 3 
   

    → Risk for the project is 3