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Journal ArticleDOI

Protocol to Enhance Profitability by Managing Risks in Construction Projects

01 Sep 2015-Journal of Management in Engineering (American Society of Civil Engineers)-Vol. 31, Iss: 5, pp 04014090
TL;DR: In this paper, a risk management protocol for construction companies to handle the risks through the analysis of completed construction projects is proposed, which consists of two phases: Phase-1, risk identification and analysis at the project level, and Phase-2, development of risk-handling strategies to control risks at the company level.
Abstract: To enhance the profitability of a construction company, risks that affect the profit of the company must be controlled as part of their long-term business planning. Project risk management is a systematic process used for managing risks. However, it is challenging to properly analyze the probability and impact of risks because of the inherent uncertainties associated with construction projects. Therefore, a practical risk management protocol is proposed for construction companies to handle the risks through the analysis of completed construction projects. The protocol consists of two phases: Phase-1, risk identification and analysis at the project level, and Phase-2, development of risk-handling strategies to control risks at the company level. The major contribution of the proposed protocol is that any construction company can practically utilize the protocol to establish risk management strategies by evaluating the effectiveness of the relationships among cost centers, profit centers, and extern...
Citations
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Journal ArticleDOI
TL;DR: In this article, the authors highlight the risks associated with highway construction projects in the United Arab Emirates (UAE) and identify the most significant risks through a detailed literature review and a questionnaire is developed to solicit the opinion of construction professionals as to the probability and impact of those risks in addition to their proper allocation.
Abstract: Highway construction projects carry substantial risks. This paper highlights the risks associated with highway construction projects in the United Arab Emirates (UAE). Thirty-three risks are identified through detailed literature review. A questionnaire is then developed to solicit the opinion of construction professionals as to the probability and impact of those risks in addition to their proper allocation. Fifty-one surveys were completed and used in the analysis. The priority of each risk is calculated by multiplying the probability with the impact for each risk. The priority helps identify the most significant risks. The relative importance index (RII) for the risk priority is calculated based on all responses for each risk. The most significant risks include inefficient planning, unexpected ground utilities, quality and integrity of design, delays in approvals, and delays in expropriations. Internal project risks are found to be more significant than external risks. Contractors and consultan...

147 citations

Journal ArticleDOI
TL;DR: In this article, the authors investigated the effects of dynamic risk interactions on a schedule delay in infrastructure projects and developed a system dynamics model for the investigation of risk effects on a project schedule based on the causal loop diagrams and the underlying relations among the variables.
Abstract: Effective risk management is critical to the success of infrastructure projects. Although several studies in the literature have focused on various aspects of infrastructure project risk management, limited efforts have investigated the overall dynamics of infrastructure project risks and how dynamic risk interactions can affect a project schedule. This study, therefore, takes a holistic view to investigate the effects of dynamic risk interactions on a schedule delay in infrastructure projects. First, major risks that can cause a schedule delay in infrastructure projects are identified through a review of related literature and questionnaire survey. Second, the interactions among main variables related to infrastructure schedule risks are analyzed using causal loop diagrams. Afterward, a system dynamics (SD) model for the investigation of risk effects on a project schedule is developed based on the causal loop diagrams and the underlying relations among the variables. Finally, the model is applied...

65 citations

Journal ArticleDOI
TL;DR: A hybrid dynamic approach for investigating the effect of risks on infrastructure project schedule performance and shows that the proposed SD-DES model could be ease of modifying the model to reflect real situation, performing various sensitivity and uncertainty analysis, and showing simulation results more effectively.

54 citations

Journal ArticleDOI
TL;DR: In this article, a questionnaires survey was conducted to get opinion of experts for their priorities on most likely risks, which occur in Arabian projects, the answers were used to make pairwise comparison between all risks parameter, then AHP is applied to normalize uncertainty estimates and rank the risk likelihood occurrence.
Abstract: Risk management is an approach of recognizing, classifying, analyzing and assessing of all risks in any project and is an important step for project success. Therefore, it is important to analyze and study parameters of construction risks. Numerous methods had developed to support project managers and contractors for risk management in construction. Applications of these methods enabled project managers to avert potential problems. “AHP” A nalytic H ierarchy P rocess was discovered by Saaty (1980), and it had been studied with “MCDM” M ultiple C riteria D ecision M aking; in this paper, AHP was used to normalize uncertainty estimates and rank risk likelihood occurrence which occurs specifically in construction projects in Egypt and Saudi Arabia during bidding and construction phases. The AHP enforcement steps had been simplified through “ECS” E xpert C hoice S oftware that is available for its fulfillment. A questionnaires survey was conducted to get opinion of experts for their priorities on most likely risks, which occur in Arabian projects, the answers were used to make pairwise comparison between all risks parameter, then AHP is applied to normalize uncertainty estimates and rank the risk likelihood occurrence. Results show project stakeholders believe that risk from financial as maximum likelihood occurrence of the construction projects. Design risk was the highest second rank most likelihood occurrence after financial risk. Political and construction risk was of the third rank.

47 citations

Journal ArticleDOI
TL;DR: In this article, the influence of a project manager's leadership competence on project performance is investigated. But little attention has been given to people-related competencies of the project manager as a leader.
Abstract: The role of a project manager’s leadership competence in improving project performance is critical. However, little attention has been given to people-related competencies of the project manager as a leader. This study aims to develop and test a model of project manager leadership competence. To investigate the influence of a project manager’s leadership competence on project performance, 289 project managers working on public sector projects in Pakistan were surveyed. Both exploratory and confirmatory factor analyses were used to analyze interrelationships among specific competencies and to explain these competencies in terms of their common underlying dimensions. Hierarchical Regression Analysis and Structural Equation Modeling were employed to test research hypotheses and the model. Findings from this study demonstrate that all five leadership competencies of a project manager are significantly related to achievement of project performance in terms of schedule, cost, and quality, as well as sta...

41 citations

References
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Book
25 Dec 1995
TL;DR: In this article, the authors give students and professionals a profound understanding of project management with insights from one of the best-known and respected authorities on the subject, including case studies, discussion and multiple-choice questions.
Abstract: With plenty of case studies, as well as discussion and multiple-choice questions, this book gives students and professionals a profound understanding of project management with insights from one of the best-known and respected authorities on the subject.

2,895 citations

Journal ArticleDOI
TL;DR: In this paper, the authors describe the construction industry's perception of risk associated with its activities and the extent to which the industry uses risk analysis and management techniques, concluding that risk management is essential to construction activities in minimizing losses and enhancing profitability.

721 citations


"Protocol to Enhance Profitability b..." refers background in this paper

  • ...For construction companies as contractors, reducing business losses caused by risk events is the primary concern to maximize their business profitability on construction projects (Akintoye and MacLeod 1997)....

    [...]

Book
20 Aug 1993
TL;DR: In this paper, the authors define risk and uncertainty in the context of the construction industry and present some basic rules for risk taking, such as Place your waterline lowa and risky shift phenomenon.
Abstract: List of figures List of tables Forward Introduction The aim of the book Part 1 -- Putting risk into perspective: Introduction Risk and reward go hand in hand Risk and contruction Risk -- another four letter word AGAP (All goes according to plan) and WHIF (What happens if) The people, the process and the risks Clients of the industry Have clientsa needs changed? Privately financed infrastructure projects What do clients want? Investment in property Consultatns and risk Contracting and risk Part II The background to risk and uncertainty: Introduction Defining risk and uncertainty The uncertainty of life and construction projects Dynamic and static risk A threat and a challenge Some fo ther basic rules for risk taking Risk a Place your waterline lowa The risky shift phenomenon -- what happens when groups make decisions The risk of not risking Risk styles Removing ignorance -- and risk Probability Converting uncertainty to risk Decision--making in the construction industry Intuition Bias and intuition Experts and experience Rules of thumb Making a model Reacting to information Looking at the past to forecast the future Types of information Building a decision model to solve a problem Part III The risk management system: Introduction Developing a risk management framework Risk identification Sources of risk Dependent and independent risk Risk classification Types of risk Impact of risk The risk hierarchy Risk and the general environment The market/industry risk The company risk Project risk and individual risk Consequence of risk Risk reponse Risk retention Risk reduction Risk transfer Risk avoidance Risk attitude Summarising risk management Risk management Part IV Some of the tools and techniques of risk management: Introduction Seeing the big picutre and tthe detail Decision--making techniques The risk premium Risk--adjusted discount rate Subjective probabilities Decision analysis Algorithms Means--end chain Decision matrix Strategy Decision trees Bayesian theory Stochastic decision tree analysis Multi--attribute value theory Specify the utility function Case study Summary Sensitivity analysis Spiider Diagram Monte Carlo simulation Portofolio theory The aplication of portfolio analysis in the construction industry Stochastic dominance Cumulative distributions of illustrative portfolios Conclusion Part V Utility and risk attitude: Introduction Risk exposure Utility theory Expected monetary value Payoff matrix The utility function General types of characteristics of utility functions The difference between EUV and EMV in practice The use of utility theory in construction Basic principle for the aplication of the theory Part VI Risks and the construction project -- money, time and technical risks: Introduction Money and delivery sequence Investment and development sequence Cost considerations Operational/revenue considerations The influence of taxation Value considerations Design and construction sequence Time delivery sequence Contractors and specialist contractors Technical delivery sequence A case study of the technical risks faced by the building surveyor Part VII Sensitivity analysis, breakeven analysis, and scenario analysis: Sensitivity analysis Breakeven analysis Scenario analysis Sensitivity analysis -- an application to life cycle costing Part VIII Risk analysis using Monte Carlo simulation: Probability analysis -- extending the sesitivity technique How it works Using Monte Carlo simulation in the cost planning of a building Estimating and price prediction an overview of current practice Cost planning and risk analysis Interdependence of items Risk analysis using probabilities Risk analysis using Monte Carlo simulation Considering some probability distributions Comon distriubtion types Uniform distribution Triangular distribution Normal distribution A step by step approach to Monte Carlo simulation Using Monte Carlo simulation on a live project The result Questions and Answers Part IX Constracts and risk: Disagreement and conflict The purpose of the contract The fundamental risks -- liability and responsibility Transferring and allocating the risk in the contracts The principles of control -- the theory The contractual links Risk avoidance by warrannties and collateral warranties The types of contract Contracts and risk tactics Part X A case study of an oil platform: A practical application of resourced schedule risk analysis Background The model Comparison with deterministic plan Data Weather Project variables Processing of data Confidence in the data Initial results Conclusion References and bibliography Index

595 citations

Journal ArticleDOI
TL;DR: In this article, a risk model entitled construction risk management system (CRMS) is introduced to help contractors identify project risks and systematically to analyze and manage them, and alternative risk management strategies are suggested.
Abstract: Risk is inherently present in all construction projects. Quite often, construction projects fail to achieve their time, quality, and budget goals. A risk model entitled construction risk management system (CRMS) is introduced to help contractors identify project risks and systematically to analyze and manage them. The CRMS model is a logical substitute for the traditional intuitive unsystematic approach currently used by most contractors. The influence diagramming technique and Monte Carlo simulation are used as tools to analyze and evaluate project risks. Alternative risk management strategies are suggested. Such strategies include: risk avoidance, risk transfer, risk retention, loss reduction, and risk prevention and insurance.

404 citations


"Protocol to Enhance Profitability b..." refers background in this paper

  • ...The passive risk retention even happens in the underestimation of the potential losses of the identified risks by the construction company (Al-Bahar and Crandall 1990)....

    [...]

  • ...Contractors usually prefer insurance companies for handling more serious financial loss exposures (Al-Bahar and Crandall 1990)....

    [...]

  • ...Similarly, the contractor can eliminate the risk source by not bidding on the construction projects in politically and financially unstable countries (Al-Bahar and Crandall 1990)....

    [...]

  • ...For example, a well-maintained fire sprinkler system in a building could reduce the financial losses from the lowered severity of casualties and property damage by fire (Al-Bahar and Crandall 1990)....

    [...]

01 Jan 2004
TL;DR: The use of risk management is moderate to high, with very little differences between the types, sizes and risk tolerance of the organisations, and experience and risk-tolerance of individual respondents as discussed by the authors.
Abstract: This paper provides the results of a survey of senior management involved in the Queensland engineering construction industry, concerning the usage of risk management techniques. These are described in comparison with four earlier surveys conducted around the world and indicate that: the use of risk management is moderate to high, with very little differences between the types, sizes and risk tolerance of the organisations, and experience and risk tolerance of the individual respondents; risk management usage in the execution and planning stages of the project life cycle is higher than in the conceptual or termination phases; risk identification and risk assessment are the most often used risk management elements ahead of risk response and risk documentation; brainstorming is the most common risk identification technique used; qualitative methods of risk assessment are used most frequently; risk reduction is the most frequently used risk response method, with the use of contingencies and contractual transfer preferred over insurance; and project teams are the most frequent group used for risk analysis, ahead of in-house specialists and consultants.

282 citations