Construction Risk Management (Mixed-used Commercial Centre Project)

Introduction

The practise of risk management is a common practice for organisational purposes and business achievements. In the case of large complex project related to construction, risk management can be a hectic task, however, according to Marcelino-Sádaba, et al. (2015) risk management can be conducted in an efficient manner through the integration of different methods of risk identification and elimination. In order to conduct a systematic risk analysis, it is important to identify the nature of risk along with the environment in which a certain project intends to operate and execute its operations. Thus, the following study is conducted to identify the risk associated with a project of a mixed-use commercial project. A company named VCN, which is a consortium, initiates the project. The purpose of the study is to develop a risk management plan for the said project by evaluating the identified risk and thereby highlight the key risk to ensure that the project can be executed by complying with the overall stakeholders, needs and requirements.

1. Identification and evaluation of risk associated with the project of the mixed-used commercial centre

According to a study conducted particularly on the assessment of risk and determining complexities in construction projects by Qazi and Simsekler (2021) has stated that performance of construction projects has often been a bit poor and not aligned with the overall stakeholders’ interests and demands. Project in the current situation is not able to meet basic requirements in terms of quality, safety or environmental sustainability. The mixed-use commercial centre will have to analyse the given aspects in order to deliver a quality project and risk identification and mitigation is one such approach in the said direction. In this regard, Parvari and Godarzi (2021) have stated that risk in construction projects is evident as the stages involved in construction project operations seems to be complex, hence, for effective risk mitigation the complexities of the projects needs to be altered into simpler frameworks.

Therefore, in order to identify the risk associated with the given project of mixed-use commercial centre the overall construction risk needs to be evaluated in order to gain a detailed insight on the risk type in the entire constriction sector. The approach for the evaluation will help further highlight the relevant issues related to the current project proposed by the VCN consortium.

Thus, in this case, the project leaders need to first comprehend the construction industry type and its critical aspects that lead to the various construction risk. According to Qazi and Simsekler, (2021) the construction industry is fragmented and complex in nature, which makes it difficult for project leaders to follow a fundamental set of policy or practise for each project that is put into practice. The same has been illustrated by highlighting the issues that arise from the fragmented and complex nature of the construction process, which is designer, may design a concept reflecting the designers’ philosophy, however, the contractor may seek a more feasible concept that is easily buildable.

Accordingly, the aspect of complexities causes other issues within the construction industry, which is the involvement of various parties with a single project. Adeleke et al. (2018) have states that the risk of dissent among the stakeholders may as it has the highest potential among parties with varied interest from a single project. Therefore, risks of stakeholders are mostly evident in the case of construction projects, which is the failure of the project’s leaders in fulfilling varied stakeholders’ interest. This aspect of construction project management is crucial in terms of business sustainability as stakeholders conflict may result in the closure of ongoing projects and at times, it may lead to financial loss for organisations. Therefore, the VCN consortium needs to take into account the stakeholders perspective while managing their risk and planning to mitigate the same accordingly.

Site condition plays a significant role in posing risk to construction projects, site condition relates to environmental concern of the area and the stakeholders’ interest and expectation related to a particular area. As per Chatterjee et al. (2018), site condition may not be similar or relevant to what a project leader may predict as various event environmental and political in nature can alter desired site condition. Hence, in this regard, the VCN needs to consider the proper site inspection prior to the execution of the commercial project. Moreover, in terms of commercial projects Bahamid and Doh, (2017) has identified certain associated risk that can act as a barrier in the successful delivery of the project to the client. In this regard,  lack of resources is stated to be one of the foremost reason as inadequate resources affect the timely execution and delivery of the project, which further leads to an increase in cost and overruns in the case of construction projects. Apart from that, clearance from regulatory authorities for commercial projects is a risk factor as the project may not be feasible in case the authorities identify any issues or community impact in a negative manner by such construction works in a particular location or area based on various elements ranging from environmental to community interest. Other than that, the case of construction projects of commercial nature faces risk in terms of national economic challenges resulting from inflation or abnormal fluctuations in the exchange rates.

In addition to this, the risk that cannot be ignored in the case of the current mixed-use commercial construction project is the risk from social and environmental factor. Based on the current event at the global level, referring to environmental conditions project of all classification are in a stale condition. Therefore, based on the illustration provided by Shojaei and Haeri, (2019) on the significance of social and environmental risk, it can be said that these risk type can be another critical barrier in the process of construction project execution and delivery. In the same context, Myrczek, Juraszek and Tworek, (2020) has stated that reaction of adverse nature from local interest groups or resident groups are the social risk factors that hinder construction activities in a given location. Similarly, unforeseen natural events and political situations or instability cause severe loss and risk for the construction sector as a whole in terms of its viability and sustainability.

Therefore, the study on risk analysis and approach to risk management strategy by Nguyen and Nguyen, (2020) has stated that the perception of reality in an effective manner by the project leaders can act as an effective tool for planning and mitigating. Identified risk for construction project as well as any given project as it can function as a fundamental approach towards risk management approach. Therefore, in this regard, Al Mhdawi, (2020) has highlighted the purpose of the risk management approach, which is to construct a series of a systematic framework that can be easily adopted and comprehended with clarity and transparency to assert logical solution for a given issue in case of projects risk. Optimum communication is the key to the planning of an effective risk management plan. With the inclusion of the critical stakeholders and by identifying the key risk associated with a project the project leaders can formulate a mitigating plan that can be highly relevant to the risk and the approach will be problem-focused as per (Okudan, Budayan and Dikmen, 2021).

2. Analysis and quantification of the identified risk at the planning and construction stages

The purpose of identification of potential risk is to ensure that the delivery process of the project is efficient and quality intact. As stated by Shakya, Bajracharya, and Mishra, (2020) the success factor of a given project depends on certain significant factors, which are on-time delivery, completion of the project as per the specified budget, ability to meet the functional and quality specifications along with the ability to fulfil industry benchmark, which maintains safety, sustainability and benefits to the intended stakeholders. Based on the given success factors, it can be said that the need for risk management is crucial as it can help in identifying the critical barriers to the successful delivery of the VCN project for mixed-use commercial building.

Therefore, in this context, the factors lay down by Konstantis and Massinas, (2020) can be put emphasis on as it illustrates the causes of the breakdown of major projects.

Underestimation of cost

In the planning stage, the likely error to be evident is an underestimation of the needed cost or fund for the overall project. The reason for the cause of underestimation of adequate cost is the inability to measure the scope of the project prior to its approval from the relevant authority. Moreover, the quantification of the risk is said to be unrealistic in some major public projects that fail as per McCaffer Baldwin and Edum-Fotwe, (2021). In the same context, Alkaissy et al. (2020) state that a high level of optimism and lack of practical insight leads to cost overruns. In addition to this, misrepresentation of the objectives or the strategy of the project also leads to project failure.

Project complexities

According to Panthi, Waller and Ahmed, (2021), unclear project objectives and technical challenges lead to a higher degree of project complexities. Moreover, complex projects can lead to cost overrun as risk transfer and unrealistic trade-offs between costs, quality and time are factors that cause an increase in project resources and complexities. In this regard, a political report on the Australian metro tunnel project in Melbourne can be cited, wherein, the report states that 31% of the increase is reported in the project due to high level of complexities in the designing of the project and its difference from the original plan and assumption. As a result, the project apart from beginning high on funds from the original estimation also got delayed further creating conflict among different government departments in order to identify the cause of the said issue.

Similarly, another project in the United Kingdom, London Crossrail was delayed as the project leaders according to a report on the project has stated that the authority not exactly knows the true cost of the project. Thus, it indicates that ineffective planning of the project can lead to cost overruns and accordingly the project will be delayed affecting the wants and interest of the associated stakeholders. Further, the report analysed the causes for the cost overrun and project delay, which is identified as lack of proper planning process, lack of accountability among the project members and limited capability of the authorities to execute the said project in the United Kingdom.

Figure 1: Main construction risk

Source: (Alsharef et al. 2021)

Considering the given discussion, the key project risk in the case of the current construction project of VCN for a mixed-use commercial building can be identified from the above figure. The figure above depicts the main construction risk prominent in the case of construction projects along with a depiction of the nature of risk and is further classification. The figure given above helps in comprehending the nature of risk based on the interest and needs of the various parties involved in the construction project. The client VCN has concerns regarding the feasibility of the project, which is the potential of the project to succeed after its execution and closure. At the same time, the budget estimated for the project should not exceed, as it will cause a delay in project delivery and affect the quality of the project as noted from the instances provided in the discussion above. The contractor in case of the current commercial project of VCN is the CME ltd. The contractors’ concern with the project is the certainty of payment by the client VCN, moreover, cost overrun or exceed in budget lead to conflicts, thus, causing the risk of paying for any extra work done in the project. Cost overrun not only affects the clients’ interest it can also influence the profit percentage of the contractors.

The project leaders while executing the project will have to comply with the compliance guidelines prescribed by the relevant regulatory authorities in order to ensure that the project is carried out under the stated sustainable approach. Thus, it further indicates that compliance with regulatory requirements means the community interest and expectation from the project of the particular it is located. Therefore, the risk of satisfying the end-user, which is the larger community, is essential for the project to address in order to ensure community benefit through the implementation of the said project. On the other hand, contractors and other parties involved with the project may have a concern with contractual clarity or objectives of the project, apart from that, safety and work health policies needs to be addressed to the fullest in order to ensure that safety compliance is begin adhered by the project team and the other stakeholders. In this regard, the site inspection is necessary as stated earlier, this allows the project team to analyse the capability of the project to sustain in a particular location, in addition, a site inspection is necessary for ensuring that environmental risk is identified and for the same, the project leaders can conduct an early intervention for mitigating the identified risk.

The identified risk for the VCN project can be better accessed by quantifying the same, which can enable the project leaders to measure the risk impact and thereby develop an effective risk management plan. However, prior to the quantification of the identified risk, it is important to comprehend the purpose of the risk quantification process. According to the illustration provided by Alsharef et al. (2021) in the study of quantitative risk analysis methods and process, it is stated that risk quantification is an evidence-based method to ascertain the control over risk and thereby conduct a decision-making process based on the nature and the likelihood of a given risk.

Quantification of risk is conducted by providing numerical value to the risk depending on the quantifiable data such as delivery time, cost or resource utilisation and so on.

The below figure represents the risk matrix and the risk score that can be provided to the identified risk in the case of the mixed-use commercial project of VCN consortium, which is likely referring to the probability of risk occurrence and the consequences of a certain risk if it occurred in the process of executing the project.

Figure 2: Quantification of the identified risk of the mixed-use commercial project

Operational risk

The risk mainly associated with the poor execution of the project activities starting from the planning phase to the closure of the project. Risk in these operational activities according to Harris, McCaffer Baldwin and Edum-Fotwe, (2021) includes unclear objectives among the project members or lack of leadership within the project team. Apart from that, supplier relations and procurement of materials and goods also adds to operational risk in construction projects. Thus, training and development along with proper comprehension of the project objectives can help in eliminating such operational risk. In addition to this, the VCN project may have contractual risk with the developers the contractor and the designers in case the quality of the project design is not taken as a high priority.

Stakeholder risk

The risk of stakeholder as stated in the risk quantification matrix above shows high consequences. It has been stated earlier that dissent or conflict among stakeholders may result in the closure of an ongoing project or delay in the project completion. It is important for the project leaders to consider the stakeholders’ interest in its highest regard. It is evident from the case study provided in the case of the VCN project where the company is facing resistance from the local heritage group in the process of executing the commercial project. However, the cause of resistance is not specified, yet, it can be assumed that stakeholders resist such a project in case their interest is not fulfilled is if such project pose threat to the healthy sustenance of a community in a particular area.

Environmental risk

Compliance with the environmental policies is essential for a construction project in order to ensure that objectives of sustainable development are thoroughly achieved. Apart from that, natural events and unforeseen disasters are driving factors that hamper constriction project further affecting the safety requirements of the construction project members. In the case of the VCN project of a commercial building, it has been noted that site development is considered before the execution of the project as the project leaders stated to conduct soil remediation before starting the project operations in the specific site. The site may contain organic waste or harmful waste that can cause severe health impact on the safety and health condition of the project members.

Technical risk

Technical risk arises from lack of proper resources or optimum use of available technology for project execution. Moreover, as stated by Arora, (2021) technical risk mainly arises in case the overall project members do not define the project scope thoroughly. As stated earlier in the discussion above inability to define the project scope in a proper manner can lead to cost overrun and delay in project delivery. Accordingly, the project leaders also need to comply with the regulatory requirements in order to eliminate technical risk. In this context, it has been stated by Isah and Kim (2021), that failure in the estimation of the budget or assumption of the project cost and constraints also acts as a technical risk in the case of construction projects, which is relevant to the VCN mixed-use commercial project.

Conclusion

The construction project is conducted in a varied environment and as a result, the complexities of the project arises. The study has identified the approach to deal with project risk and has highlighted that removal of project complexities can help in tackling risk associated with the same. Moreover, the discussion above has sated the significance of different parties and their role in managing the risk of such projects. thus, based on this approach, it can be stated that risk transfer is an effective method to mitigate various risk in a project thereby increasing the potential to deliver successful and quality projects to the clients and the stakeholders. Hence, risk management requires multiple approaches and the inclusion of the stakeholders can be stated as a positive approach towards the process of executing and identifying risk and accordingly eliminating the same.