Download - KFUPM: Department of CEM
![Page 1: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/1.jpg)
CEM 520: ConstructionCEM 520: Construction ContractingContracting & Administration& Administration
Professor Saadi AsafProfessor Saadi Asaf
By: Talal Al-Hawsawi
Hani Al-Mofarij
Hussain Al-Rukhaimi
Mansour Al-afaliq
-
KFUPM: Department of CEM
Assessment Perceptions and Practices
Of Risk Management Of construction In Saudi Arabia
![Page 2: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/2.jpg)
OUTLINE
Introduction Literature Review Risk Management Perception and Trends in Construction. Risk Response Sample Size Research Design Risk Categories Description of Result Risk Allocation Risk Important Risk Effect Conclusion& Recommendations
![Page 3: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/3.jpg)
INTRODUCTIONThe construction process is one of the most risky and
challenging industries.
Risk in construction cannot be eliminated.
Risk can be controlled, minimized, transferred or shared.
Different types of resources is needed : manpower, equipment, money, time and materials.
Resources are risks associated.
![Page 4: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/4.jpg)
CHARACTERISTICS OF THE REGIONCHARACTERISTICS OF THE REGION
High temperatures and humidity conditions. The temperature can reach up to 50 "C. Variations of temperature 20 "C between day and night. The relative humidity ranges from 40% to 100%.
These are impacting: The construction workers' productivity , The project schedule and Work quality which in turn affects the project cost
and increases risks.
![Page 5: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/5.jpg)
RESEARCH OBJECTIVES To investigate the assessments and management of construction risks.
To present the perception and attitude of the typical contractor towards construction risks.
To present the allocation of risks, risk importance and their effects on the project.
To compare the perception of the typical local construction contractor towards allocation of construction risks to the common practice of allocating these risks.
![Page 6: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/6.jpg)
RESEARCH SCOPE AND LIMITATIONS
In the Eastern Province.
The results and conclusions can be applied to the other areas of Saudi Arabia.
This research is limited to:
Medium to large construction contractors,
The construction contractors in the Eastern Province.
General contractors lump sum type of construction contracts.
![Page 7: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/7.jpg)
LITERATURE REVIEW Definition of Risk & Risk ManagementDefinition of Risk & Risk Management
Decisions are based on three elements:Certainty:
The decision maker is certain of the consequences and the outcome of that decision during that period of time.
Risk : is the possibility of loss or injury.
Uncertainty
![Page 8: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/8.jpg)
LITERATURE REVIEW Definition of Risk & Risk ManagementDefinition of Risk & Risk Management
Risk could be defined as
A situation in which there is a lack of information, data or
previous experience to that particular situation being
considered by the decision-maker at that time.
![Page 9: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/9.jpg)
LITERATURE REVIEW Definition of Risk & Risk ManagementDefinition of Risk & Risk Management
Erikson (1979) defines Risk as:Exposure to possible economic loss or gain arising from involvement in the construction process.
IRMl (1984 and 1995 supplement) defines Risk Management as:“The process of identifying and analyzing risk, determining the
most appropriate techniques for handling those risks, implementing the techniques, and monitoring the results”.
![Page 10: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/10.jpg)
LITERATURE REVIEW History of Risk Management in Construction
"Risk Analysis" first originated with Hertz (1964), He proposed
simulation by utilizing the computer to derive the probability distribution of the rate of return of an investment project. Zack (1996) states that, in the past, normal risks associated with
construction contracts were primarily physical in nature. The risks of underground conditions, availability and productivity of labor, the effect of weather, Both owners and contractors knew these risks.
Baker, Ponniah and Smith (1999), formal risk management in construction has become an integral process.
Risk & Risk Management , have become a specialized subject.
![Page 11: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/11.jpg)
LITERATURE REVIEW Current Practice
Hayes (1986) state that The construction industry is one of the most dynamic, risky and
challenging businesses. The industry has a very poor reputation for managing risk.
Risks are either ignored, or dealt with in a completely arbitrary way, adding 10 per cent contingency onto the estimated cost of a project.
Akintoye and MacLeod (1997), Construction Risk influence project objectives of cost, time and
quality. Because of the lack of knowledge and doubt on the suitability of risk
analysis procedures, formal and systematic Risk Management procedures are rarely used in the construction industry.
![Page 12: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/12.jpg)
LITERATURE REVIEW Risk Assessment/Systematic Risk Management importance
Godfrey, (1996):
Identify, assess, and rank risks, and make the risks explicit.
Focus on the major risks of the project.
Make informed decisions on the provision for adversity.
Minimize potential damage
Control the uncertain aspects of construction projects.
Clarify and formalize the company's role and the roles of others in the risk management processes.
Identify the opportunities to enhance project performance.
![Page 13: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/13.jpg)
LITERATURE REVIEW Importance of Risks and Risks Allocation
Strassman and Wells (1988): Client's perspective, Risks are: Costs will escalate unpredictably Structure will be faulty and need frequent repairs. The project will simply be abandoned and partially paid for but incomplete
and useless.
contractor's ,the Risks are: Fears of inclement weather Delays in site availability Unforeseen subsoil conditions Inadequate detail drawings Late material deliveries Unanticipated price changes Faulty subcontracting Unproductive labor and strikes
![Page 14: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/14.jpg)
LITERATURE REVIEW Importance of Risks and Risks Allocation
![Page 15: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/15.jpg)
LITERATURE REVIEW Importance of Risks and Risks Allocation
![Page 16: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/16.jpg)
LITERATURE REVIEW RISK CLASSIFICATIONS
Jaafari and Schub classify Risks as: Technical Risks are those related to the fundamental properties, processes and
concepts.Technological Risks are those related to plant and manufacturing and construction
processes, Al Bahar and Crrandal (1990) classify the potential Risks according to their
nature and potential : (1) Acts of God (2) Physical (3) Financial and economics (4) Political and environmental (5) Design (6) Construction related risks.
Assaf and Jannadi (1994) classify Risk into two types pure and speculative risks."There are two types of risk that contractors need to manage. These are pure and speculative risks. Speculative risks expose the risk taker to either profit or loss”
![Page 17: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/17.jpg)
RISK RESPONSE
There are four ways to deal with risk in construction:
1. “The umbrella approach” where you account for every possible eventuality by adding a large premium to the price. This will increase the bidding price and eventually lead to few contracts.
2. “The Ostrich approach” where you bury your head in the sand and assume everything will be alright, and that somehow you will manage.
![Page 18: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/18.jpg)
RISK RESPONSE
3. “The intuitive approach” where you only depend on intuition and gut feeling, ignoring any formal analysis.
4. “The brute force approach” where you focus on the uncontrollable risks and say that you can force them to be controlled, which of course they cannot be.
![Page 19: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/19.jpg)
RISK RESPONSE
Responses to risks in construction can have one of four approaches:
1. Risk Retention
2. Risk Reduction
3. Risk Transfer
4. Risk Avoidance
![Page 20: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/20.jpg)
1. Risk Retention
It is sometimes called risk absorption.Risks that produce small and repetitive
losses that can be best controlled should be retained.
![Page 21: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/21.jpg)
2. Risk Reduction
Risk reduction is sometimes called risk control.
Usually risks related to safety can be reduced.
1. The education and training programs. 2. The physical protection of people and
equipments.3. The consistent company’s systems and
procedures.
![Page 22: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/22.jpg)
3. Risk Transfer
It shifts the risk to another party to deal with it. Risk transferring tools:
1. Insurance.2. Performance bonds.3. Warranties.4. Guarantees…etc.
Cost plus contracts are used to transfer the cost risk to the owner.
Fixed-price contracts will transfer the risk to the contractor.
![Page 23: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/23.jpg)
4. Risk Avoidance
It is sometimes called risk elimination. Pre-contract negotiation or including
exemption clauses in the contract is a way of eliminating risks.
![Page 24: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/24.jpg)
RESEARCH DESIGN
Clarifies:
1. The selected strategies for conducting the research.
2. The type of data required.
3. The techniques for collecting the data
![Page 25: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/25.jpg)
RESEARCH METHODOLOGY
It includes:1. A comprehensive literature review
2. Definition of important risk parameters and categories
3. Design of a questionnaire
4. Conclusion of the research, recommendations and suggestions
5. Collected data was analyzed
6. Results from the analyzed data were summarized and presented
7. Data was collected and compiled
![Page 26: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/26.jpg)
DESIGN OF QUESTIONNAIRE
The questionnaire contains 31 short and straight-forward questions.
The questionnaire includes two sections.1. Will provide general information about the construction contractor.2. Includes the main questions about the assessment of construction
risks.
It starts with a brief description to help the applicants better understand the components of each question before answering this part of the questionnaire.
The responses to each question are divided into four groups:
risk allocation (both perception and common practice) risk importance The effect of that risk on the project.
![Page 27: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/27.jpg)
SAMPLE SURVEY
The sample survey was selected from the list obtained from the Chamber of Commerce, Eastern Province Chapter.
Only medium to large construction contractors working in the Eastern Province of Saudi Arabia
![Page 28: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/28.jpg)
Sample Size
n˚ = (p*q) / v²
n = n˚ / [ 1 + (n˚ / N) ]Where:
n˚ = First estimate of sample sizep = The proportion of the characteristic being
measured in the target population= 0.5 (assumed)
q = 1 – pv = The maximum percentage of standard error allowed= (10%)N = The population size=(82)n = The sample size
![Page 29: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/29.jpg)
Sample Size
n˚ = (0.5 * 0.5) / (0.1)² = 25
n = 25 / ( 1 + (25/82) ) = 19.2
The minimum required response rate was (19.2/82) * 100 = 23.4%.
The actual response rate was (28/82) * 100 = 34.15, which exceeded the minimum requirements.
![Page 30: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/30.jpg)
Risk Categories Allocation, Importance, & Effects
The survey discusses the following areas:
Risk allocation to either contractor, owner, or shared.Risk allocation to either contractor, owner, or shared.
Importance of each risk category to the contractor and project.Importance of each risk category to the contractor and project.
Effect of each risk category on the project such as budget, schedule, safety & qualityEffect of each risk category on the project such as budget, schedule, safety & quality
![Page 31: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/31.jpg)
Risk Categories
There are 25 risk categories in the survey questionnaire:
Permits & regulation. Site access. Scope limitation & work definition. Labor, material, & equipment availability. Labor and equipment productivity. Defective design. Changes in work. Differing site condition.
![Page 32: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/32.jpg)
Risk Categories
Adverse weather conditions. Acts of God. Defective material. Changes in government regulations. Labor dispute. Safety/Accidents. Inflation. Contractor competence. Change order negotiation.
![Page 33: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/33.jpg)
Risk Categories
Third party delays. Coordination with subcontractors. Delayed dispute resolution. Delayed payment on contract. Quality of work. Financial failure. Actual quantities of work. Accuracy of project program.
![Page 34: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/34.jpg)
Risk Importance & Effects
Risk Importance: The questionnaire will bring out a general assessment of the importance of each risk category from the Saudi contractors’ viewpoints.
Risk Effects: All of the risk categories will have potential effect on the project parameters namely schedule, budget, safety and quality and these will have a great impact on the project if they aren’t correctly assessed and managed.
![Page 35: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/35.jpg)
Results Discussion
Difficulties encountered:
Difficultiesencountered
Low response rate
Slow delivery to contractors
E-mails were notavailable
Difficult to fax questionnaire
![Page 36: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/36.jpg)
Results Discussion
Response rate:
1- at the beginning the contractors were contacted by telephone.
2- questionnaire was sent to 82 contractors by snail mail and only 2 responded.
3- questionnaire was sent by email to 82 contractors again and 28 responded.
4- 30 of the contractors replied to the questionnaire and 2 of them apologized because they are not interested and didn’t complete the questionnaire.
5- 28 replies; we got a response rate of 34.15
![Page 37: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/37.jpg)
Five main parts were included:
Description of Results
Part 1: General background information
![Page 38: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/38.jpg)
Description of Results
Part 2: Risk Allocation
Respondents were asked to allocate these risks
![Page 39: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/39.jpg)
Description of Results
For a risk category to be fully appropriated, an allocation method, it requires at least a 60% response rate. If a risk category receives less than 60% response rate for any party, it will be considered as undecided allocation.
For this study, a 65% response rate is assumed for a risk category to be fully allocated to a construction party.
For a risk category to be fully appropriated, an allocation method, it requires at least a 60% response rate. If a risk category receives less than 60% response rate for any party, it will be considered as undecided allocation.
For this study, a 65% response rate is assumed for a risk category to be fully allocated to a construction party.
![Page 40: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/40.jpg)
Description of Results
![Page 41: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/41.jpg)
Description of Results
In practice, not a single risk is allocated to the owner and
the contractor assumes most of the risks while in the
contractor’s opinion, they want to allocate some risks that
they think the owner has better control over, like
delayed payment in contract.
Also, contractors want owners to share more risk with them.
![Page 42: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/42.jpg)
Description of Results
![Page 43: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/43.jpg)
Part 3: Risk Importance
The most important risk is quality of work. It is ranked first.
Delayed payment on contract and financial failure are very important risks, 89%.they were ranked second.
Acts of god and labor disputes are low importance risks.
Adverse weather condition is the least important risk category.
![Page 44: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/44.jpg)
![Page 45: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/45.jpg)
![Page 46: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/46.jpg)
Part 4: Risk Effects
From table5.11 scope limitation, work definition, change in work and quality of work will not affect the safety.
From table 5.11, permits and regulation affect the schedule of project by 62%.
Coordination with contract will affect the schedule by 54%.
![Page 47: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/47.jpg)
![Page 48: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/48.jpg)
![Page 49: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/49.jpg)
Risks Effect on Four Project Parameters
![Page 50: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/50.jpg)
Summary of the survey Results
![Page 51: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/51.jpg)
Part 5: Added risk categories
![Page 52: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/52.jpg)
CONCLUSION
Risk assessment is a new concept.
The perception of construction contractors in Saudi Arabia in allocating risk is different from the common practice
Quality of work is the most important risk while an adverse weather condition is the least .
![Page 53: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/53.jpg)
CONCLUSION
The surveyed risk has the highest impact on the schedule of a project with 38.5%. While the same risk affects the safety of the project least (8.5%).
Construction contractors in Saudi Arabia want owner to accept and share more risk with them.
![Page 54: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/54.jpg)
RECOMMENDATIONS
Encouraging construction contractors to consider the results of research to have a better understanding of risks.
The results and conclusions can be applied to the construction industry in other areas of Saudi Arabia.
![Page 55: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/55.jpg)
Questions
Name Three Tools of Risk Transferring?
1. Performance bonds.
2. Warranties.
3. Guarantees…etc.
What is the other name of Risk a voidance? it is Risk Elimination
![Page 56: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/56.jpg)
Thank you
![Page 57: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/57.jpg)
Survey Questionnaires: GBI
![Page 58: KFUPM: Department of CEM](https://reader035.vdocuments.site/reader035/viewer/2022062408/568142dc550346895daf35ad/html5/thumbnails/58.jpg)
Survey Questionnaires (SQ)