Managing Risk in Construction Industry Using Probability and Impact Method in Mumbai Region

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Volume 3, Special Issue 1, ICSTSD 2016

336

Managing Risk in Construction Industry

Using Probability and Impact Method in

Mumbai Region

Kumail Holawala

M.Tech Scholor Civil Engineering Department

S.P.C.E Mumbai, India

[email protected]

Abstract

Implementing risk management in construction project may bring a number of benefits and therefore it is necessary to have construction management as an integral part of construction organization management practice. Establishing risk management procedure improves the performance as well as increase the profits. In this paper present various types of risk analyzed by interview and meeting conducted with contractors and developers. And the risk is analyzed on the basis of probability of occurrence of that risk and impact of that risk on that project by using probability and impact method on time, cost and quality of the project. This study is conducted for Mumbai region. All analysis is based on theoretical background regarding risk, risk management processes and project life cycle approach in construction sector

Keywords: Risk management, Types of risk, Probability and impact method, construction industry, time, cost, quality.

1. INTRODUCTION

1.1 General

A successful construction project is typically regarded as one that produces a quality facility that meets or exceeds the expectations of the project sponsor on time and within budget. Like many other industries, the construction industry has substantial risk built into its profit structure. Due to the nature of the different activities involved, construction projects can be complicated and involve a number of uncertainties such as uncertainties about material delivery times and costs, task completion times and costs, and the quality of work completed by subcontractors. These uncertainties can lead to project risks and can be the cause of a construction project's failure to achieve predefined objectives. These objectives are traditionally assumed to be based on project cost and schedule together with facility quality. Although other factors may also influence the

Sahajanand Kamat

Assistant Professor, Civil Engineering Department, MPSTME,India, Mumbai- 400056,India

[email protected]

perception of project success, these factors can be project specific. This paper focuses on cost, time, and quality as the main criteria by which construction projects would be judged a success. In addition to the above-mentioned factors, managers of construction projects are faced with the challenge of ensuring the appropriate location of scarce project resources including financial, material, and human resources during the life times of projects in order to minimize the risks of project failures. In their attempts to appropriately allocate scarce project resources, project managers are again faced with the challenge of balancing technical and managerial failure risks, where technical risks refer to failure to provide a product that conforms to specifications or perform as required, and managerial risks refer to the inability to complete a project within a specified budget and within a specified duration. Such situations require trade-offs between technical and managerial failure risks, and it is essential that managers are furnished with decision-support tools that would help them make valuable decisions.

1.2 Risk management

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1.2.1 Definitions

Risk

-

Risk is the statement of what may arise

from that lack of knowledge. Risks are gaps in knowledge which we think constitute a threat to the project.

Uncertainty

-

Uncertainty is the intangible

measure of what we do not know. Uncertainty is what is left behind when all the risks have been identified. Uncertainty is gap of knowledge we may not be aware of. (cleden,2009)

Risk management

-

Risk management

process (RMP) is the basic principle of understanding and managing risks in a project. It consists of the main phases: Identification, Assessment, Analysis, and

Response (Smith et al. 2006) as shown in Figure. All

steps in RMP should be included when dealing with risks, in order to efficiently implement the process in the project.

Fig.1 Risk Management Flowchart

The risk management process

1. Risk identification

Risks and other threats can be hard to eliminate, but when they have been identified, it is easier to take actions and have control over them. If the causes of the risks have been identified and allocated before any problems occur, the risk management will be more effective. RM is not only solving problems in advance, but also being prepared for potential problems that can occur unexpectedly. Handling potential threats is not only a way to minimize losses within the project, but also a way to transfer risks into opportunities, which can lead to economical profitability, environmental and other advantages. (winch,2002)

The purpose of identifying risks is to obtain a list with potential risks to be managed in a project. In order to find all potential risks which might impact a specific project, different techniques can be applied.

 Workshop, brainstorming, Interview,

Questionnaire, Benchmarking, consulting expert, Past experience, Delphi technique, risk breakdown structure, Visit Location, Databases, historical data from similar

projects , Checklist, etc. 

Assessment/analysis

In the analysis of the identified risk, two categories of methods have been developed.

 Qualitative method 

 Quantitative method 

. The qualitative methods are most applicable when risks can be placed somewhere on a descriptive scale from high to low level. The quantitative methods are used to determine the probability and impact of the risks identified and are based on numeric estimations (Winch, 2002). Companies tend to use a qualitative approach since it is more convenient to describe the risks than to quantify them (Lichtenstein, 1996). In addition, there is also one approach called semi-quantitative analysis, which combines numerical values from quantitative analysis and description of risk factors, the qualitative method (Cooper et al. 2005). However, this approach will not be further addressed in this paper

Quantitative methods

 Scenario technique - Monte Carlo simulation 

 Modeling technique - Sensitivity analysis 

 Diagramming technique 

Qualitative methods

 Risk probability and impact assessment 



 Risk categorization, and Risk Urgency

Assessment 



 Probability/impact risk rating matrix 

Risk response

 Avoidance/prevention 

 Reduction/mitigation 

 Transfer 

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338

Monitoring

This final step of RMP is vital since all information about the identified risks is collected and monitored (Winch, 2002). The continuous supervision over the RMP helps to discover new risks, keep track of identified risks and eliminate past risks from the risk assessment and project (PMI, 2004). PMI (2004) also states that the assumptions for monitoring and controlling are to supervise the status of the risks and take corrective actions if needed.

Risk reassessment, Monitoring of the overall project status, Status meetings, Risk register updates.

Identified Risk

 Misunderstand the client 



 Lack of cooperation between actors in the

project 



 Not finding the right contractor 



 Contractor has not enough knowledge or

experience 



 Problem with design 

 Shortage in resources 

 Delay in construction schedule 



 Cheap, not efficient solutions which can be

more expensive over time 



 Choosing not the right consultant 



 User do not take decision necessary for the

work process 



 Moisture 

Method and materials

The research method is a technique for collecting data which can involve specific instruments such as self-completion questionnaires or structured interview. For the purpose of this paper a qualitative research method has been chosen to provide a description of how people experience the application of RM in the complex project organization. According to Morgan and Smircich (1980) the choice of the method should be made based on the nature of the research problem. Qualitative methods are based on the facts which are socially constructed rather than objectively and are based on peoples‟ experience

(Noor, 2008). Qualitative research is an inductive

approach where theories are generated out of collected data (Bryman and Bell, 2003)

Data collection

In order to collect appropriate data for the study, different sources have been used. For the theoretical background, a literature study has been conducted, using both scientific articles written by professionals in the field as well as books in the area of project and risk management.

Meeting and interviews

After the theoretical background of risk management, meeting has been conducted with contractors and developer about main risk factors in a project i.e. 11 and how do they manage that risk.

After knowing all those factor a questionnaire is been prepared which include all those risk factor, probability of their occurrence of that risk and impact of that with respect to time cost and quality.

After that once again Meetings and interview is been conducted of various people and 34 responses has been collected with the help of questionare by meeting as well as email. Questions were formulated in a way to determine how RM is used in practice and how familiar the actors in the project are with this concept. The scale used for assessing probability was from 0.1 (low probability) to 0.9 (high probability) and the possible choices were 0.1, 0.3, 0.5, 0.7, and 0.9. Whereas impact was evaluated in a range from 0.05 (low impact) to 0.8 (high impact) and the possible choices were 0.05, 0.10, 0.20, 0.40, and 0.80.

Application of the probability and impact method

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339

Probability Very low Low Moderate High Very high

Risk 0.1

0.3

0.5 0.7 0.9

Identifie Project _{Very low(0.05)} _{Low (0.10)} Moderate

High (0.40)

Very high(.80)

d risk objective (.20)

Cost _{cost increase}Insignificant <10% cost _increase 5-10% cost _increase 10-20% cost >40% cost

increase increase

Risk A _Time Insignificant <5%time 5-10% time 10-20% time >20% time

time increase increase increase increase increase

Quality Only very _reductionQuality Quality Project end item

degradation demanding

reduction is

Quality requires

barel

y application are Unacceptable

effectively useless sponsor

noticeable affected

to sponsor

approval

0,80

0,080

0,240

0,400

0,560

0,720

0,40

0,040

0,120

0,200

0,280

0,360

0,20

0,020

0,060

0,100

0,140

0,180

0,10

0,010

0,030

0,050

0,070

0,090

0,05

0,005

0,015

0,025

0,035

0,045

IMPACT↑

0,1 0,3 0,5 0,7 0,9

PROBABILITY→

 From table it is been noted that the values lying in upper right section of the table is critical.

 Values lying in lower bottom portion is non-critical.

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340

IDENTIFIED RISK PROJECT

Response

OBJECTIVE PROBABILITY IMPACT MATRIX

COST 0.2 0.06

Misunderstand the Mitigate

TIME 0.3 0.2 0.06

client

QUALITY 0.2 0.06

Lack of cooperation COST 0.2 0.14

0.7

TIME 0.2 0.14

between Mitigate

actors in the project

QUALITY 0.2 0.14

COST 0.1 0.04

Not finding the right _{Avoid/mitigate} _TIME 0.4 _0.4 _0.16

contractor

QUALITY 0.1 0.04

Contractor has not COST 0.1 0.01

enough Avoid TIME 0.1 0.4 0.04

knowledge or

experience _QUALITY _0.2 _0.02

COST 0.4 0.12

Problem with design Transfer TIME 0.3 0.2 0.06

QUALITY 0.1 0.03

COST 0.2 0.1

Shortage in resources Mitigate TIME 0.5 0.2 0.1

QUALITY 0.1 0.05

COST 0.7 0.49

Delays in construction Mitigate/Transfer TIME 0.7 0.7 0.49

schedule

QUALITY 0.4 0.28

Cheap, not efficient COST 0.8 0.64

solutions which can be

TIME 0.8 0.8 0.64

more Mitigate

expensive over time _QUALITY _0.4 _0.32

Choosing not the right Mitigate/Retain COST 0.4 0.2

TIME 0.5 0.4 0.2

consultants

QUALITY 0.8 0.4

Users do not take COST 0.2 0.1

decisions necessary for Mitigate

TIME 0.5 0.8 0.4

work progress

QUALITY 0.8 0.4

COST 0.7 0.35

Moisture Mitigate TIME 0.5 0.4 0.2

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341 1. COST

Risk factor Probability

Impact on cost Matrix

misunderstanding the client

0.3 0.2 0.06

Lack of cooperation between actors

0.7 0.2 0.140

Not finding the right contractor

0.4 0.1 0.04

Contractor has not enough knowledge or

experience 0.1 0.1 0.010

Problem with design

0.3 0.4 0.12

Shortage in resources

0.5 0.2 0.1

Delays in construction schedule

0.7 0.7 0.49

Cheap, not efficient solutions which can be more

expensive over time 0.8 0.80 0.64

Choosing not the right consultants

0.5 0.4 0.2

Users do not take decisions necessary for work

progress 0.5 0.2 0.1

risks due to change in climatic condition

0.5 0.7 0.35

Cost

Im

p

a

ct

0.9 0.64

0.8 0.35 0.49

0.7 0.6

0.5 0.12 0.20

0.4

0.3 0.06 0.10 0.14

0.2 0.01 0.04

0.1 0

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

Probability



So form this table it can be concluded that delay, not effective solution, choosing not the right consultant



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342

2. TIME

Impact on Time Matrix

0.3 0.2 0.06

0.7 0.2 0.140

0.4 0.4 0.16

Miscalculation

0.3 0.2 0.06

0.5 0.2 0.1

0.7 0.7 0.49

Cheap, not efficient solutions which can be

more expensive over time 0.8 0.80 0.64

0.5 0.4 0.2

Time

Im

p

a

ct

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

0

0.40 0.64

0.49

0.04 0.16 0.20

0.06 0.10 0.14

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 Probability



So form this table it can be concluded that delay, not effective solution, choosing not the right consultant,



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343

3. QUALITY

Impact on Quality Matrix

0.3 0.2 0.06

0.7 0.2 0.140

0.4 0.1 0.04

Miscalculation

0.3 0.1 0.03

0.5 0.1 0.05

0.7 0.4 0.28

Cheap, not efficient solutions which can be more

expensive over time 0.8 0.4 0.32

0.5 0.8 0.4

Quality

Im

p

a

ct

0.9 _0.40

0.8 0.7 0.6

0.5 _0.28 _0.32

0.4

0.3 _0.02 _0.06 _0.14

0.2 _0.03 _0.04 _0.05

0.1 0

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

Probability

 So form this table it can be concluded that delay, not effective solution, choosing not the right consultant,

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344 Conclusion

 Risk is perceived as a negative term, even

though in theory it can have two dimensions. 



 There is a willingness among respondents to

start using RMP, but it should bring profits to

the organization. 



 From graphs, it has come to notice that time

and cost goes hand in hand 



 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. 



 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. 



 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 

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