final thesis_locnguyen

INTEGRATED SCHEDULE AND COST RISK ANALYSIS USING MONTE CARLO SIMULATION

A CASE STUDY IN A CONSTRUCTION PROJECT IN NAM ARUN CHAISERI LTD

Author

Nguyen Tan Loc

Supervisor

Roland G Langhé, KTH

Nguyen Ngoc Anh Tuan, Nam Arun Chaiseri Ltd. (Vietnam)

Master of Science in

Project Management and Operational Development (1yr)

Stockholm, Sweden 2010

KTH – Royal Institute of Technology Address: SE-100 44 Stockholm, Sweden Phone: +46 8 790 60 00 Fax: +46 8 790 65 00 Website: http://www.kth.se Email: [email protected] School of Industrial Engineering and Management KTH Södertälje (Campus Telge) Address: SE-151 81 Södertälje, Sweden Phone: +46 8 790 90 00 Fax: +46 8 790 95 11 Email: [email protected]

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SUMMARY Background formulation In Vietnam’s construction projects, there have been enormous losses and delays, which cause a waste of capital and lag Vietnamese economic development. One of the major reasons is that cost and schedule risk analysis is not properly undertaken in construction projects. Some scholars have pointed out several fail points of traditional quantitative risk analysis methods displayed in project management literature. A new approach of integrated schedule and cost quantitative risk analysis using risk drivers is initiated by these critics. Purpose The purpose of this research is to explore a state-of-the-art method of quantitative schedule and cost risk analysis that can be modified and customized into construction project management in Vietnam’s context. Methods Case study of Nam Arun Chaiseri Ltd., a Vietnam-based construction consultancy company is used to investigate quantitative risk analysis application in practice and a project undertaken by this company is utilized for illustrating how to implement the new method. Primary data and secondary data are both collected. In secondary data, multiple and reliable sources from journals, websites, text books, peer-reviewed articles, etc. relating to project risk management and construction projects in Vietnam are utilized to synthesize updated methods and tools of quantitative schedule and cost risk analysis, so as to find a suitable model customized for Vietnam. In primary data, there are two data groups: Data group 1: Semi-structured interviews with experts in the company are performed to further explore information about practical conditions in Vietnam’s construction context as well as information of a sample project that is going to be used for implementation illustration. Data group 2: Structured interviews with Vietnamese practitioners in construction project management are conducted to gather experts’ estimation data on probability and impacts on time/cost of listed risk factors. Findings According to the new method, it is showed that the current practical method to deal with uncertainties in the case study fails to be aware of some critical impacts of risks. This new method satisfies the criteria requested in construction projects in Vietnam, that is, accuracy, easy-to-use, processing time and solution cost. An illustrative implementation for this new method in a sample project is produced for reference. The new method has several strengths over the traditional methods as well as offering some improvements from the ones recommended by Hulett and Maher & McGoey. In comparison to the traditional method: it enables practitioners to identify whether probability or impact of a specific risk factor should be prioritized. Integrating schedule and cost risks can highlight all major potential risk factors, some of which might be overlooked in the separating methods. The new method also allows practitioners to run simulation of various risk mitigation plan scenarios and evaluate their consequences which serve as the basis for decision making. In comparison to the methods initiated by Hulett and Maher & McGoey, the new method offers a more holistic solution when integrating both relative and absolute risk types into the same model. Moreover, unlike Hulett’s method, this new one can run simulation of both schedule risk and cost risk analysis simultaneously. This improvement helps simplifying time-related cost calculation method. Limitations The incompatibility between the researcher and the interviewees in terms of knowledge and practice plays as a major hindrance and as a result, it was time-consuming in achieving mutual understandings. Geographical distance and time zone difference between Vietnam and Sweden are among impediments hampering the research’s investigation.

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FOREWORD

I would like to express my deep gratitude to Mr Roland G Langhé, my supervisor and my professor, for his dedicated guidance during the Master course. His wonderful teaching of risk management has inspired me greatly to make further research in the field. An honorable place of this acknowledgement should be kept for Mr Nguyen Ngoc Anh Tuan, my advisor in this thesis. His enthusiastic support and valuable information as well as constructive advice have enormously contributed to this study and remarkably enriched my knowledge of construction area for research development. Without Tuan’s willingness and help, this thesis could have been hardly accomplished. I would like to give many thanks to Mr Cao Van Hung, Mr Bui Huu Phuoc and other experts in Nam Arun Chaiseri for their sharing of professional knowledge and their valuable advice on the thesis work. I also appreciate Ms Cao Thi To Trinh, Ms Nguyen Thi Le Tuyet, Mr Nguyen Hai Phong, and Mr Tran Huu Hieu for their networking support for data collection. Last but not least, I would like to show my gratitude and respects to my parents, who are always by my side through trials and tribulations. To Kungliga Tekniska högskolan and Sweden, I say tack for such wonderful experience studying here! Södertälje, June 2010 Nguyen Tan Loc

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TABLE OF CONTENTS

FOREWORD ............................................................................................................................................................. v

ABBREVIATIONS AND ACRONYMS ......................................................................................................................... ix

LIST OF TABLES AND FIGURES ................................................................................................................................. x

Chapter 1. INTRODUCTION ............................................................................................................................... 1

1.1. Background ............................................................................................................................................. 1

1.2. Problem formulation .............................................................................................................................. 2

1.3. Goals ....................................................................................................................................................... 3

1.4. Scope ....................................................................................................................................................... 3

1.5. Limitation ................................................................................................................................................ 3

1.6. Synopsis of Chapters ............................................................................................................................... 3

Chapter 2. METHODOLOGY .............................................................................................................................. 5

2.1. Nature of research .................................................................................................................................. 6

2.2. Research philosophy ............................................................................................................................... 6

2.3. Research approach ................................................................................................................................. 8

2.4. Research design ...................................................................................................................................... 9

2.5. Data collection ...................................................................................................................................... 10

2.6. Data analysis strategies ........................................................................................................................ 11

2.7. Reliability and Validity .......................................................................................................................... 12

Chapter 3. THEORETICAL FRAMEWORK ......................................................................................................... 13

3.1. Risk, Schedule Risk, Cost Risk and Risk analysis .................................................................................... 13

3.2. Quantitative techniques for schedule and cost risk analysis ................................................................ 14

3.3. Critiques and new suggestions for MCS ............................................................................................... 16

3.3.1. Critiques on limitation of MCS Simulation in Project Management ............................................. 16

3.3.2. Integrated Cost-Schedule Risk Analysis using Risk Drivers and Prioritizing Risks ......................... 16

3.3.3. Golder Associates Ltd: Quantitative Project Risk Assessment ..................................................... 19

Chapter 4. FINDING AND RESULT ................................................................................................................... 20

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4.1. Background on Nam Arun Chaiseri Ltd. ................................................................................................ 20

4.2. Is quantitative risk analysis method applied in the company? ............................................................. 21

4.3. Is new risk analysis method suitable for construction project risk management in Vietnam? ............ 21

4.2.1. Criteria for new risk analysis method in construction project in Vietnam ................................... 21

4.2.2. Chosen quantitative risk analysis method .................................................................................... 22

4.4. Implementation of quantitative risk analysis method .......................................................................... 24

4.4.1. List of risk factor............................................................................................................................ 24

4.4.2. Creating task dependencies in MS Excel ....................................................................................... 26

4.4.3. Implementation of new quantitative risk analysis method .......................................................... 28

4.5. Findings ................................................................................................................................................. 37

Chapter 5. DISCUSSION AND CONCLUSION .................................................................................................... 38

5.1. Discussion ............................................................................................................................................. 38

5.2. Conclusion ............................................................................................................................................. 38

Chapter 6. CAVEATS AND RECOMMENDATIONS ............................................................................................ 40

REFERENCES .......................................................................................................................................................... 41

Appendix A. Risk factor analysis questionare (Vietnamese version) ................................................................ 44

Appendix B. Risk factor analysis questionare (English version) ........................................................................ 50

Appendix C. List of identified risks .................................................................................................................... 55

Appendix D. Probability data from experts ....................................................................................................... 56

Appendix E. Impacts on schedule data from experts ....................................................................................... 57

Appendix F. Impacts on cost data from experts ............................................................................................... 58

Appendix G. Plan of a project in Nam Arun Chaiseri Ltd. .................................................................................. 59

Appendix H. Budget plan of a project in Nam Arun Chaiseri Ltd. ..................................................................... 60

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ABBREVIATIONS AND ACRONYMS

CPM PERT MCS CBS NAC MS Project MS Excel @Risk

Critical Path Method Program Evaluation and Review Technique Monte Carlo Simulation Cost Breakdown Structure Nam Arun Chaiseri Ltd. ©Microsoft Project ©Microsoft Excel Palisade @RISK 5.5 for Excel

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LIST OF TABLES AND FIGURES

Table 2.1 Comparison of positivist and interpretivism ........................................................................... 7 Table 3.1 Schedule and cost risk in project........................................................................................... 14 Table 3.2 Gantt chart for single activities .............................................................................................. 14 Table 3.3 Three risk types in risk drivers method .................................................................................. 16 Table 3.4 Identified impact of risk on task in risk driver method .......................................................... 17 Table 3.5 Correlation between task in risk driver method ..................................................................... 18 Table 3.6 Integrating schedule and cost risk analysis in risk driver method ......................................... 18 Table 3.7 Risk analysis in Golder’s QPRA process ............................................................................... 19 Table 4.1 Relative and absolute risk type in combined method ............................................................ 23 Table 4.2 Identified impact of risk on task in combined method........................................................... 23 Table 4.3 List of identified risk factors in construction projects in Vietnam ........................................ 25 Table 4.4 List of risk factors processed to be input of Monte Carlo Simulation ................................... 26 Table 4.5 Example of task dependencies converted to MS Excel from MS Project ............................. 27 Table 4.6 Project tasks transferred to MS Excel .................................................................................... 29 Table 4.7 Assigned risk impacts on task duration ................................................................................. 30 Table 4.8 Time-related cost and time-unrelated cost in project ............................................................. 31 Table 4.9 Burn rate of time-related cost................................................................................................. 31 Table 4.10 Assigned risk impacts on cost item ...................................................................................... 32 Table 4.11 Summary of risk result from Monte Carlo Simulation ........................................................ 33 Table 4.12 Simulated risk mitigation plan scenarios ............................................................................. 36 Table 4.13 Simulated risk mitigation plan for a risk factor ................................................................... 36 Figure 2.1 Summary of research methodology ........................................................................................ 5 Figure 4.1 The process of a construction project ................................................................................... 20 Figure 4.2 Comparison of available risk tools ....................................................................................... 22 Figure 4.3 Distribution of project date completion and total cost from MCS ....................................... 24 Figure 4.4 Example of task dependencies in MS Project....................................................................... 27 Figure 4.5 Probability of Project finish date .......................................................................................... 32 Figure 4.6 Probability of total project cost............................................................................................. 33 Figure 4.7 Correlation coefficient between project finish date and risk factors .................................... 34 Figure 4.8 Correlation coefficient between project total cost and risk factors ...................................... 35

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INTEGRATED SCHEDULE AND COST RISK ANALYSIS USING RISK DRIVERS IN CONSTRUCTION PROJECTS IN VIETNAM A case study in a construction project in Nam Arun Chaiseri Ltd.

CHAPTER 1. INTRODUCTION

1.1. Background

In recent years, construction industry is on the increasing trend and has made major contribution to Vietnam's economic growth. According to Daiwa Capital Markets, quoted from Bloomberg (2010), it was cited as among the drivers of growth in recent years in Vietnam. Unfortunately, construction projects may have risks and uncertainties, especially in developing countries where the construction environment is much riskier. According to VietNamNet Bridge (2003), the capital loss ratio in basic construction accounts for 30 percent of the total construction capital. Although project management has been considered as a profession and a subject of study, it is still quite a new concept in Vietnam. Even in construction area where project features are shown most clearly in Vietnam’s context, scientific management technologies are occasionally implemented. There are several scientific papers examining the failure causes of construction projects in Vietnam such as Long (2004) and Le-Hoai et al. (2008). Long (2004) finds that schedule delays and cost overruns are rated as the most frequently factors for failure in construction projects in Vietnam. He also explains it happens because construction projects are being poorly managed in Vietnam. Le-Hoai et al. (2008) claim that poor project management assistance is the key reason for project delays and cost overruns. From those findings, it can be argued that construction projects are being poorly managed especially cost and schedule risks are not properly analyzed in Vietnam. As a matter of fact, budget and schedule are considered the two most critical measures of a construction project success (Chua et al. 1999). Schedule and cost quantitative risk analysis has been widely applied in the world. However, in developing countries like Vietnam, it remains to be on the dark side and out of attention. There are several methods that have facilitated project managers to control and estimate schedule-related and cost-related risks more effectively and more accurately. The most popular methods that have long been taught in project management training courses and utilized in practice are Program Evaluation and Review Technique (PERT) and Monte Carlo Simulation (MCS) (K.A. Kirytopoulos et al. 2008). In conventional project management literature, cost and schedule risks of a specific project are analyzed separately and from task to task (Project Management Institute. 2008). In other words, risk analysis is commonly undertaken from task approach, and in each task, cost risks and schedule risks are analyzed individually. And in practice, the standard PERT/CPM method is used for estimating duration of each activity, which lies on critical paths, in order to calculate the project date completion. Similarly, PERT/CBS is used for total cost project. Recent years, however, MCS method has been increasingly applied thanks to powerful computers. Researchers criticize that PERT/CPM does not statistically account for path convergence and tends to underestimate project duration (PMBOK Guide quoted in Kandaswamy, 2001) and consequently no longer suitable for risk analysis (Simon et al. 1997). Instead, MCS method has increasingly superseded PERT/CPM as it enables project managers to achieve better estimation by running simulation on hundreds or thousands of project cycles. Although PERT and MCS methods are both widely taught in orthodox project management academic courses at the current time, the latter is becoming more favorable

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among practitioners (Kwak & Ingall 2007). However, generally speaking, in both PERT and MCS methods, schedule and cost factors are separated in risk analysis process.

1.2. Problem formulation

As mentioned above, although effective quantitative risk analysis like MCS have been widely implemented in projects in global scope, those tools remain to be unknown and rarely applied in construction project management in Vietnam. Long (2004) and Le-Hoai et al. (2008) have pointed out the most critical reasons that explain failures in construction projects in Vietnam. Yet, the questions as to how such problems can be solved and prevented in effective way remain unanswered. According to their findings, most project managers in Vietnam are young with less than 10-year-experience (Long 2004 and Le-Hoai et al. 2008). This factor has engendered their limited project estimation abilities, which usually leads to underestimation and inappropriate analysis of schedule and cost risks in projects. It is possible to argue that in Vietnam’s context, incompetence in schedule and cost risk analysis is a severe problem hampering construction projects’ success. From those reasons and facts, it is an urgent demand that there should be some scientific and effective method to facilitate young and inexperienced project managers in construction areas to better undertake schedule-related and cost-related risk analysis. In other words, a method for schedule and cost risk analysis which is specifically customized for Vietnamese project managers is still lacking. Currently, in the world, some project management consultants and researchers have pointed out several limitations of above mentioned traditional approaches. There are two critical problems: first with the task-approach; and second with the cost and schedule separation approach. Regarding task approach, Hulett (2010) in his conference presentations strongly indicates its shortcomings. He criticizes that traditional approaches merely can tell which tasks or activities are crucial but fail to identify which risks are driving (ibid). In other words, according to Hulett (2010), conventional methods and their approaches can prioritize activities but not risks. On the other hand, Hollmann (2007) points out the failing points of classic MCS-based task-approach, arguing that it fails to establish the relationship of risk drivers and impacts on cost and schedule. Regarding the separation of cost and schedule risk analysis in conventional methods, Hulett (2010) argues that many traditional cost analyses assume the schedule is fixed and consequently ignore the impacts of time-related risks (i.e. increased labor cost on schedule delay). Moreover, even if schedule risk is taken into cost risk analysis, it is just ad hoc impacts not impacts of the whole schedule (Hulett 2010). Hulett (2010), Maher & McGoey (2006) and Hollmann (2007) have given some suggestions to overcome the weaknesses of traditional methods. That is, they recommend using “risk drivers” (Hulett 2010) or “risk-based” (Maher & McGoey 2006) as the key criterion for risk analysis rather than using task-based approach. And they suggest integrating schedule risks and cost risks into the aggregate risk analysis. The critiques and proposals by pioneers like Hulett (2010), Maher & McGoey (2006) and Hollmann (2007) have generated new perspectives on risk analysis and more effective methods. The radical approach of integrated schedule and cost risk analysis using risk drivers inspired by Hulett (2010), Maher & McGoey (2006) and Hollmann (2007) promises to be a feasible, effective and convenient method for project managers to gain better control over

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project risks relating to time and cost issues. This new method has interested and encouraged me to examine and specifically adjust to construction projects in Vietnam context.

1.3. Goals

The aim of this research is to introduce a new effective model for schedule and cost risks management and customize in Vietnamese construction context. The suggested model is expected to help project managers in Vietnam who lack practical experience to estimate project time and cost more effectively and conveniently. The tasks of this thesis comprise:

• Is “Integrated schedule and cost risk analysis using risk drivers” suitable for construction project risk management in Vietnam?

• If so, how to implement it in practice? The study will be useful for project managers, especially project managers with limited experience in construction areas to improve the accuracy of project plan, reduce time & help manage project better. It’s also useful for other companies in Vietnam and developing countries which have similarities with Vietnam's context.

1.4. Scope

The research will be restricted in schedule and cost risk analysis. And the main subject for investigation limits in construction projects within Vietnam, which bear specific local characteristics (environment, legislative regulations, processes, procedures, etc.)

1.5. Limitation

The thesis scope is bounded within construction projects in Vietnam. In that context, however, only one company and one of its projects are utilized as case study for research. Case study method might entail lacking possibility of generalization for all the cases in the defined scope. That is the typical limitation of case study as agreed by several scholars although case study helps researchers to gain insight understanding of the subject of investigation.

1.6. Synopsis of Chapters

The study has been divided into the following broad chapters: Chapter 1 Introduction: This section introduces the study, discusses research objectives and questions as well as relevance of the study Chapter 2 Methodology: This section looks at methodology applied in the thesis, research context and the appropriateness of the underlying research philosophy Chapter 3 Theoretical framework: Reviews theoretical background of the study Chapter 4 Finding and Results: This section gives results from empirical data

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Chapter 5 Discussion and Conclusions: This section discusses and concludes the study Chapter 6 Caveats and Recommendations: recommendations for future research and on outcome of the study

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CHAPTER 2. METHODOLOGY

According to Proctor (1998, cited in Crossan 2003, p.48), “consistency between the aim of a research study, the research questions, the chosen methods, and the personal philosophy of the researcher is the essential underpinning and rationale for any research project”. Furthermore, research philosophy plays a key role in assisting researchers to evaluate different methodologies in avoidance of unnecessary and inappropriate work (Easterby-Smith et al. 1991). Therefore, in methodology chapter, discussion will focus on clarifying the research philosophy which will, in turn, enable establishing argumentative basis for selection of research approaches and relevant methods.

Figure 2.1 Summary of research methodology

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2.1. Nature of research

So as to find out a suitable research design and methods, nature of research should be clarified beforehand. Nature of research depends on the specific objective of each research. According to (Kothari 1990, p.2), research can be categorized as exploratory, descriptive, diagnostic or hypothesis-testing studies depending on the purpose of research inquirers. As Kothari (1990) defines:

• Exploratory studies (also known as formulative studies) serve to gain familiarity with a phenomenon or achieve insights into it.

• Descriptive studies aim at giving an accurate portrayal covering all the characteristics of a specific individual, situation or a group.

• Diagnostic studies are to determine the frequency with which something occurs or with which it is associated with something else.

• Hypothesis-testing studies are used to test a hypothesis of a causal relationship between variables.

The purpose of this research is to examine Vietnam-based construction projects with a focus on quantitative risk analysis method. The purpose of research inquirer is not restricted in purely describing Vietnam’s construction projects and risk analysis methods available in Vietnam. But more deeply, this study would to go further to find a better method of analyzing schedule and cost risks for construction project managers in Vietnam. Therefore, descriptive study does not fully characterize my research nature. As argued above, the researcher is interested in finding a better method for Vietnamese project managers in quantitative risk analysis. This intention has no relations to diagnostic studies which emphasize on frequency and association. Consequently, diagnostic study is consequently rejected. Given that major of study centers on risk management and risk analysis, construction industrial is quite unfamiliar to my expertise. Due to lack of knowledge on construction projects, it is unfeasible to set up a hypothesis at the beginning of research and thus hypothesis-testing study seems to be irrelevant in my case. Above all, the nature of exploratory study is deemed to be the most relevant to my research objective. The research questions seek to understand the current situation of construction projects in Vietnam as well as choosing a better method based on specific requirements and conditions in Vietnam. This purpose suits well with exploratory study’s features described by (Kothari 1990, p.2).

2.2. Research philosophy

Research philosophy can be seen as the starting point and the stance of researchers when examining the issues of their interests. There is not a consistent classification for research philosophy. Several research methodology books label it with different names and classify various types of philosophies. However, generally there are two major research philosophies: Positivism and Interpretivism (Bryman & Bell 2003). A recently mentioned type of research philosophy that is the combination of the two above is Critical Theory (Saunders et al. 2007, Neuman 2000). Critical theory is rejected on the ground that it is mostly used for ideological

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critiques, transformation i.e. feminist/gender research (Neuman 2000, Carr & Kemmis 1986). This philosophy is clearly not suitable the exploratory study and the thesis purposes. Then, only positivism and interpretivism are evaluated for the choice of research philosophy. According to (Bryman & Bell 2003), positivism is a research philosophy that advocates the applications of the methods of natural sciences. The distinguished feature of positivism is that phenomena can be warranted as knowledge (observable, quantifiable, measurable) (Bryman & Bell 2003, Saunders et al. 2007, Carr & Kemmis 1986). Interpretivism is contrary to positivism on the fact that it emphasizes on understanding human behavior whereas the latter is concerned with explanation of human behavior (Bryman & Bell 2003).

Table 2.1 Comparison of positivist and interpretivism

Research philosophy

Characteristic Positivist Interpretivism

Basic Beliefs The world is external and objective

The world is socially constructed and subjective

Science is value-free Human interests are the drivers behind science

The observer should be independent of what is observed

The observer is part of what is observed (i.e. the element of subjectivity).

Researcher’s Tasks

The focus is on facts The focus is on meanings

Seek for causality and fundamental laws

Endeavour to understand what is happening

Formulation and testing of hypothesis

Idea generation through induction from the gathered data

Reduction of phenomenon to simplest elements

Looking at the totality of each situation (helicopter view).

Methods of preference

Making concepts operational to ensure that they are measurable

Multiple methods are exploited to establish different views of phenomena

Taking large samples Small samples are investigated in depth over time

(adapted from Easterby-Smith et al. 1991) Taking into consideration the pros and cons of both positivism and interpretivism indicated in the table, I decide to choose interpretivism stance because of following reasons: As identified by (Easterby-Smith et al. 1991), researchers from positivist approach try to find the facts, fundamental laws and seek for causal relationships between variables. My

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research’s aim, however, does not emphasize either on finding facts or any causality relationships but exploring what is happening in practice. To be exact, that is whether new quantitative risk analysis method can be applied in projects within Vietnamese construction context. This thesis objective is finely in line with the descriptions of interpretivism approach. Moreover, positivism requires researchers to generate hypothesis and have it tested. As stated before, my knowledge of construction area is not adequate to formulate hypothesis right from the beginning of research. On the contrary, interpretivism allows researchers to generate ideas through data collection. In other words, it facilitates me to increasingly enhance my knowledge and understanding of the current situation in construction projects. In positivist research, a large sample should be taken to ensure statistical significance. It is time-consuming to achieve such large samples. In this sense, positivism is not an appropriate approach because of limited time allowed for this thesis. A small sample for in-depth understandings in interpretivism research, therefore, proves to be more feasible in my case.

2.3. Research approach

Interpretivism is chosen as the research philosophy of this thesis. Thereof, my research approach to the subject of investigation and the knowledge will be mainly determined by assumptions of interpretivism philosophy. That is:

Quantitative, Qualitative or Mixed method Qualitative approach is selected when examining the thesis problem because it enables me to gain insights into the implementation of risk analysis methods in Vietnam’s projects on a small sample. Quantitative research and mixed method (both quantitative and qualitative approaches) are taken into consideration but they fail to show feasibility. Quantitative research does not seem to be a favorable choice because it requires time-consuming collection of large sample. More importantly, my objective identified at the beginning is emphasized on exploratory study to gain in-depth knowledge on a specific area rather than describing a general fact or testing a fundamental law.

Inductive or Deductive Interpretivism assumes that researchers generate ideas through induction from gathered data (Easterby-Smith et al. 1991). As obviously indicated before, inductive approach is more relevant than deductive approach in this context and thus will be applied in the thesis research.

Theoretical or Empirical Theoretical research is mainly concerned with review of existing literature whereas empirical research is underpinned by researchers’ experiments or observations (Remenyi 1998). My research questions involve not only with the current application of quantitative risk analysis methods in construction projects in Vietnam but also with finding a suitable method customized for Vietnam project managers. Empirical research is necessary to collect data about practical conditions and requirements of quantitative risk analysis method application in project management in Vietnam. On the other hand, theoretical research is another indispensible task, enabling me to reference state-of-the-art methods that might be suitable

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and useful for Vietnamese project managers. For those reasons, both theoretical and empirical researches are utilized.

Subjective or Objective As Easterby-Smith et al. (1991) describe, in interpretivism research, researcher is part of the observed. In other words, he is involved in the investigation and interprets the phenomenon by his understandings and biases. In this sense, subjective approach predominates and is the stance I choose to do the research.

2.4. Research design

Research design is defined as the framework used in collecting and analyzing data (Bryman & Bell 2003). As reasoned above, qualitative research is applied for this thesis investigation. The research design will be thereby influenced by qualitative research features. According to Creswell (2007), the most common qualitative approaches include: narrative research, phenomenology, grounded theory, ethnography and case study. These five major qualitative approaches will be evaluated for selection.

Narrative research Creswell (2007) suggests this type is most suitable for story-telling purposes (i.e. individual experiences), which is not relevant for my thesis research.

Phenomenology According to Creswell (2007), phenomenology implies description the essence of experience of a phenomenon. Descriptive study required by phenomenology, however, does not match with exploratory purpose of my research. Phenomenology is, therefore, rejected.

Ethnography It is defined as “a way of studying a culture-sharing group” (Creswell 2007). This research design entails researchers to be involved in day-to-day lives of the people. However, my research context is located in Vietnam, whereas I am in Sweden during the research. Due to geographical distance, involvement in the daily life of construction projects is completely impossible. Ethnography is thus rejected in this research design.

Grounded theory Grounded theory focuses on developing a theory grounded in data from the field (Creswell 2007). This design is not suitable to my research aim. Because I would like to explore more about risk analysis application in projects in Vietnam rather than develop any kind of theory.

Case study The focus of case study is to develop an in-depth description and understanding of a specific case. Creswell (2007, p.73) defines it as “the study of an issue explored through one or more cases within a bounded system”. This definition suits well with my objectives of research. My thesis involves exploring the application of risk analysis methods (practical method and new method of integrated schedule and cost using risk drivers) in construction projects Vietnam. I consider this is the most suitable and relevant research design for this thesis.

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Types of case study According to Creswell (2007), in terms of intent of case analysis, there are three variations: single case study, multiple case study (or collective case study) and intrinsic case study. Intrinsic case study which makes emphasis on unique or unusual (Creswell 2007) is irrelevant in this thesis research. Because my objective does not aim at giving an exception example and a typical case would be preferable. Multiple case study is used when researchers expect to show different perspectives on the issue (Creswell 2007). In other words, the breadth of topic issue is achieved from all angles. In this sense, however, the in-depth of the topic issue discussed in multiple case is less than that of a single case study (Berg 2004). On the other side of the coin, due to obstacles in searching time and confidentiality conditions of several Vietnamese firms, accessibility to various construction projects in Vietnam is quite limited. Although it is interesting, multiple-case is rejected. Single case study turns out to be the best and the most appropriate choice to examine the research.

2.5. Data collection

According to Remenyi et al (1998) data can be gathered either directly by the researcher (primary data) or indirectly by someone else in other studies (secondary data). The multiple sources for data collection suggested by Yin (2004) and Creswell (2007) are interviews, observations, documents, artifacts, archive records, etc. In this thesis, both primary and secondary data will be utilized and the main sources come from interviews and documents given that they are easily and quickly conducted via Internet.

Data for exploring current usage of quantitative risk analysis methods in Vietnam’s construction projects and potentially effective alternatives Primary data is collected from interviews with experts in Nam Arun Chaiseri Ltd. (NAC) who are well-experienced and able to provide with enriched information for insight understanding. For case study, interviews are considered the most suitable and conventional tool, facilitating exploratory purposes (Remenyi et al 1998, Creswell 2007). These experts are asked about the current method and process for identifying, preventing and analyzing schedule and cost risks in their company’s projects. The requirements and criteria for an efficient quantitative risk analysis method that can help improve the current situation are also asked during the interviews. Because of geographical distance, interviews are undertaken via on Skype. Video-chatting function on Skype has similar features and qualities as face-to-face interview. For that reason, benefits and advantages of direct interview, such as encouraging the respondents to disclose their knowledge thoroughly on the concerned aspects Fisher (2007) can be achieved equally in Skype-based interviews. In addition, secondary data from the company’s documents, peer-reviewed articles, consultant documentations, previous studies in related areas in reliable websites, journals and other trustable sources (i.e. risk analysis methods, integration of schedule and cost in risk analysis, construction projects, etc.) will be also utilized. These sources form valuable basis for augmenting the interviews’ quality and enabling the author to find the most relevant method for Vietnam.

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Data for illustrative model of implementation Beside data gathered on quantitative risk analysis methods, the second group of data is collected to serve the research purpose of illustrating how to implement the new method into practice. This data group involves a particular project of the case-study company. A list of risk factors identified in Long (2004) and Le-Hoai et al. (2008) is utilized as the sinew of the structured questions which are used in primary data collection for illustrative implementation example. These risk factors are then adjusted in accordance of the research’s purposes. The primary source of illustrative data comes from structured interviews with Vietnamese experts in construction. Interview is selected instead of questionnaire survey mainly because the questions are quite complicated that require direct communication for clarification and elaboration. More importantly, interviews are the most advantageous means to provide respondents with “seeds” (Roland 2010a). Therefore, interviews can deliver higher quality than non-human communicated questionnaire. The interviewees are asked to give estimation on probability and impacts on time/cost of each risk factor. According to Roland (2010a), there are two popular styles of estimation. The fist one is that the experts are required to propose a single figure supplemented by a variance such as “50 - +/- 20 %” or “50 +/- 10”. Another way, which is min – max range, is sometimes supplemented with a most likely figure (Roland 2010a). Nonetheless, as Roland (2010a) indicates, the drawback of the former is that the variance tends to be forgotten until someone has to bear the blame for a miscalculation. Therefore, in this research the second style is mainly applied to enable the respondents to estimate more easily and conveniently. For each probability coefficient of risk factors, the respondents are asked to provide the maximum and minimum value according to their experiences. For “impact on time and cost”, “the most likely” values are also consulted. For reliability and relevance, the prepared questions have been adjusted and consulted beforehand by experienced experts. The data sample includes four experts who have more-than-five-year experience in construction area. There are two consultants from NAC, including one contractor and one owner. An alternative sample of just one seasoned expert is taken into consideration for simplicity reason. However, the sample size of more-than-one respondent is chosen in support of “Wisdom of crowd” theory stating that under certain conditions, a group is often smarter than the smartest person in them. The prerequisite conditions stipulated in this theory are stringently followed in interview execution. That is, diversity is guaranteed (experts as consultants, owner and contractor); the respondents are interviewed separately to ensure independence; and lastly, they are under no pressure of authority when answering the questions, which satisfies decentralization requirement (Surowiecki 2004).

2.6. Data analysis strategies

These strategies below are used for processing data on risk factors in the new risk analysis method. As it is mentioned before, this study was planned to use Wisdom of Crowd hypothesis to investigate frequent risk factors in Vietnam’s construction projects. The interviewees are inquired to give a distribution of each attribute of risk factors (probability, impacts on time

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and impacts on cost). The next processing step is to unify these collected figures. Because the sample is quite small, the results might be invalid and not trust-worthy. MCS technique can be utilized to generate a new data set, which is proved to be of reliability (Meyer et al. 1991). This technique is also supported by Roland (2010b). In the simulation, the new data set contains 10,000 values. @Risk add-on tool is exploited in searching of the best-fitted distribution for the new data set. This distribution will be made use of in the new quantitative risk analysis method.

2.7. Reliability and Validity

According to Bryman & Bell (2003), reliability and validity are among the key measurements of how well the research is fared. In other words, they have been commonly used to test the quality of social research to prove credibility and trustworthiness (Yin 2004). Validity and reliability are divided into internal and external dimensions. Internal validity is widely seen as the strength of qualitative research (Bryman & Bell 2003). In this research, high level of validity can be achieved because pro-longed participation and investigation in the company enable the researcher to match the observation with the relevant concepts (ibid). External validity: in qualitative research, high level of internal validity is, however, compensated by low level of external validity. That is, in qualitative research in general and in single case study as in this particular thesis, the study’s findings can hardly be generalized. To fix the caveat, in the implementation section, the thesis will pinpoint which parts can be generalized and which parts are influenced by specific characteristics of the sample case. Internal reliability measures if there is consistency and agreement among the researchers in the research. Given that this thesis is conducted solely, the result analysis is interpreted consistently. In other words, internal reliability of this research can be confirmed. External reliability: So as to enhance external reliability, as suggested by Bryman & Bell (2003), data collection procedure is described in details for augmentation of reliability. In this way, other research can replicate the processes described to check whether similar results can be produced.

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CHAPTER 3. THEORETICAL FRAMEWORK

This chapter will present background knowledge of risk-related issues. The theoretical framework embarks on definition of risk (schedule risk and cost risk) and risk analysis. Available quantitative techniques for schedule and cost risk analysis will be then examined. Lastly, critical discussion on these methods and suggestions for improvement will follow to be on the agenda.

3.1. Risk, Schedule Risk, Cost Risk and Risk analysis

Risk is a multi-facet concept. Project risk is an uncertainty event or condition that, if it occurs, has an effect on project’s objective, including scope, schedule, cost and quality (Project Management Institute. 2008, p.275). According to Hertz & Thomas (1983), risk implies a lack of predictability about the outcomes of a plan or a decision. In the context of construction industry, risk is defined as the likelihood to happen of a factor or a combination of several factors which damage a project (Willis Faber 1979). Lifson & Shaifer (1982) develop definition on risk by viewing it as uncertain consequences which can be either more positive or negative than expected. Scholars converge on admitting that risks are inherent, difficult to handle and occur frequently in any projects (Wang et al. 2004; V. K. Diamantas et al. 2007). Consequently, it requires an efficient system to manage risks. As Flanagan & Norman (1993) argue, construction projects can be improved significantly by adopting risk management process. Risk analysis is a crucial element in the process of risk management. Risk analysis entails steps of quantitatively or qualitatively assessing risks. This involves an estimation of both the uncertainty of the risk and of its impact (Galway 2004). Together with performance, schedule and cost risks are the underlying concepts in project management. As a matter of fact, budget and schedule are considered the two most critical measures of a construction project success (Chua et al. 1999). Schedule risk is defined as the probability that a project will overrun its schedule (Galway 2004). Cost risk is the probability that a project will overrun its budget (ibid). If the deadline for the project is 22 Sep 2017, this analysis indicates that the probability of completing the project in that time is 80%. Similarly, there is 80% chance of total project cost will be 10.55 million $.

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Table 3.1 Schedule and cost risk in project

(adapted from Galway 2004).

3.2. Quantitative techniques for schedule and cost risk analysis

Schedule risk analysis The first quantitative technique of modern project management for schedule risk analysis was the Gantt chart, developed by Henry Gantt in 1917 (Morris 1997, p.7). It provided an easy-to-understand graphical summary of activities in project. This technique, however, have some limitations. It do not show the interdependencies of the activities, the results of either an early or a late start in activities, and the uncertainty involved in performing the activity (Kerzner 2009, p.557). The Gantt chart is widely used today, in project management software such as MS Project, is the combination of CPM and PERT.

Table 3.2 Gantt chart for single activities

(adapted from Kerzner 2009)

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Later in 1959, PERT was developed to plan and schedule activities in large and complex projects where the techniques of Gantt were inapplicable (Kerzner 2009, p.557). According to Malcolm et al. (1959) in PERT, project task’s duration was modeled by a beta distribution with the mean and the variances were estimated as:

𝜇𝑖 = 16

(𝑚𝑖𝑛𝑖 + 4𝑚𝑜𝑠𝑡𝑙𝑖𝑘𝑒𝑙𝑦𝑖 + 𝑚𝑎𝑥𝑖)

𝜎𝑖2 =1

36(𝑚𝑎𝑥𝑖 − 𝑚𝑖𝑛𝑖)2

The project’s duration is calculated base on the Central Limit Theorem with the mean value equaling the sum of the means of the critical activities. The variance of the project duration is the sum of the variances of the same critical activities (ibid). At the same, a similar technique known as The Critical Path Method (CPM) was developed by DuPont. It also used a network representation, but did not use probability distributions for task durations. This technique is easy for computation because it also facilitated the computation of the critical path, the set of tasks that drove the final project length (Galway 2004). In the following years, PERT/CPM is used popular for calculating project duration and date completion. Similarly, PERT/CBS is used for total cost project. In 2003, according a survey of project management professionals, nearly 70% of the respondents used critical path analysis (Pollack-Johnson & Liberatore 2005). Recent years, however, MCS method has been increasingly applied thanks to powerful computers. Researchers criticize that PERT/CPM does not statistically account for path convergence and tends to underestimate project duration (PMBOK Guide quoted in Kandaswamy, 2001) and consequently no longer suitable for risk analysis (Simon et al. 1997). Instead, MCS method has increasingly superseded PERT/CPM as it enables project managers to achieve better estimation by running simulation on hundreds or thousands of project cycles. Although PERT and MCS methods are both widely taught in orthodox project management academic courses at the current time, the latter is becoming more favorable among practitioners (Kwak & Ingall 2007). In MCS, project manager and experts were asked to assign a probability distribution function of duration to each task. A three-point estimate is often used, where the most-likely, min, and max durations for each task is defined. The project manager can then fit these three estimates to a duration probability distribution, such as a normal, Beta, or triangular distribution, for the task. Once the simulation is complete, the probability distribution of completing the project will be available (Kwak & Ingall 2007).

Cost risk analysis Most quantitative cost risk analysis has been done with techniques largely separate from those for schedule risk analysis (Galway 2004). The technique used for cost analysis of complex projects is based on the Cost Breakdown Structure (CBS). Instead of assigning a probability distribution to the project task durations, project manager assigns the distribution to the project costs. The project total cost is sum of cost of each item. After simulation process, a probability distribution of the final total project cost is available (Kwak & Ingall 2007).

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3.3. Critiques and new suggestions for MCS

3.3.1. Critiques on limitation of MCS in Project Management Although MCS simulation is an extremely powerful tool, it still has some limitation. The traditional approach does not take full advantage of risk register which is usually available. It can tell which activities or schedule paths are crucial, but not which risks are driving because of it prioritize only task, not risks Hulett (2010). It does not present the relationship or risk drivers to impacts (cost or schedule) (Hollmann 2007). Most methods use a “line-item” model with item cost ranges as the sole inputs to the MCS. Risk drivers play no part in this method: i.e., it violates basic risk management principles (ibid). Maher & McGoey (2006) and Hulett (2010) both disapprove of separating schedule and time cost risk analysis because this approach fails to quantify time-dependent costs, i.e. labor costs when projects are extended or delayed. In reality, projects usually skip from planned schedules and improper attention has been paid to actual costs rendered by time delay (ibid).

3.3.2. Integrated Cost-Schedule Risk Analysis using Risk Drivers and Prioritizing Risks

Schedule and cost risk analysis using risk drivers approach To overcome the above mentioned limitations, Hulett (2010) proposes a new approach – risk drivers approach. He argues that the schedule and cost risk should be driven directly by the risk already analyzed in the risk register. For each risk, practitioners will specify the probability of occurrences or proportion of iterations it affects project activities. Then its impact on time and cost in terms of multiplicative factors will be identified. These data come from interview or workshop with knowledgeable people (Hulett 2007).

Table 3.3 Three risk types in risk drivers method

Risk Prob. Schedule Impact Cost Impact

Min Most likely Max Min Most

likely Max

Labor productivity may vary 100% 95% 110% 120% 100% 120% 140%

Inaccurate schedule 100% 80% 110% 130%

Key personnel is unavailable 60% 95% 110% 120% 95% 100% 110% (adapted from Hulett 2010) Hulett (2010) divides risks into three types. Uncertainties: labor productivity is an uncertainty which could be lower or higher. Ambiguities, such as the accuracy of cost estimates or schedules: these always occur but may have a range of impacts. Inaccurate schedule is an ambiguity. It has 100% probability of occurrence but its impact range is both good and bad.

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Risk events may or may not occur. The possibility of quality, key personnel unavailability is a risk event. It may or may not occur, and in this case its impact is never to the good. This new method makes an emphasis on risks themselves not the impacts of risks on specific tasks. This way has a distinguished advantage over the conventional ones, that it pinpoints the authentic roots of uncertainties in projects. Thereby, as he points out, a prioritized list of risks generated will be exploited for mitigation plans. In addition, the time spent on expert interview is shorter than the old methods in the sense that the number of risks identified is normally less than that of the tasks in a particular project. In the next step, practitioners will assign the task is impacted by identified risks.

Table 3.4 Identified impact of risk on task in risk driver method

Risk Assignment of Risks to Activities

Task 1 Task 2 Task 3

Labor productivity may vary x x

Inaccurate schedule x x

Key personnel is unavailable x x (adapted from Hulett 2010) If a certain task is impacted by multiple risks, for example task 1 is impacted by 2 risks: Risk 1 has 90%, 100% and 115% Risk 2 has 100%, 110% and 130% The resulting risk has ranges of, approximately: • Optimistic: 90 % (0.9 x 1.0) • Most Likely: 110 % (1.0 x 1.1) • Pessimistic: 150 % (1.15 x 1.3) He argues that in this way, the correlation between tasks is naturally integrated into the model. The correlation coefficient is the result, not the assumption like in the old approach (Hulett 2010).

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Table 3.5 Correlation between task in risk driver method

(adapted from Hulett 2010)

Integrating schedule and cost risk analysis According to Hulett (2010), schedule risk analysis will be implemented first. Then the total project cost is divided into time-related cost and time-unrelated cost. In the time-related costs like labor; “burn rate” is calculated. Burn rates for time-related costs are calculated by dividing the labor estimate by the duration in the Baseline Schedule. Later in the simulation, the time-related cost will be calculated by multiple of “burn rate” and duration which is from schedule analysis. This duration is fitted in distribution by a MSC tool such as Crystal Ball. For the time-unrelated cost, it is driven directly by using risk drivers method. These distributions of different time-related cost need to be correlated in the cost risk analysis because it would be unrealistic that one span would be long and another short in the same iteration (Hulett 2007).

Table 3.6 Integrating schedule and cost risk analysis in risk driver method

(adapted from Hulett 2007)

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3.3.3. Golder Associates Ltd.: Quantitative Project Risk Assessment In parallel, Golder Associates has developed a new quantitative project risk assessment process, which is mainly used in public sector transportation clients in North America. To date, this method has been implemented in over 100 large international infrastructure projects. The approach raised by Maher & McGoey (2006) has similarities to that of Hulett (2010). However, there are some differences. First, they recommend only major project tasks should be considered. For example, in a £100 million project, practitioners should consider tasks which are equal or greater than £100K in magnitude (Maher & McGoey 2006). Secondly, while Hulett (2010) presents risk impacts as a multiplicative factor, or in ratio percentages, Golder Associates’ method illustrates these impacts in absolute figures. Thirdly, they use a concept of risk branching, which mean the impact of risk may have 60% in this case and 40% in others. In this case, the risk “Rainfall delays” has effect on 3 activities: Utilities, Grading and Paving but with different consequences. Impact of this risk on Utilities is ignored because its probability of occurrence in Utilities is minor. Regarding to Grading, estimated change in schedule as follows: 70% change of no change, 20% chance of a 2 million $ overrun cost and 10% chance of a 3 million $ overrun cost. Similarly for paving, there is an 80% chance of no delay, a 15% chance of a 1 month delay and a 5% chance of a 2 month delay.

Table 3.7 Risk analysis in Golder’s QPRA process

Risk or Opportunity Affected Activities Probability

Cost Change (million$)

Time Change (Month)

Rainfall Delays Risk • Significantly wet year delays

start of construction or cause other construction problems.

• Significant rainfall has been experienced during the summer in both 2003 and 2004, resulting in construction delays.

Utilities minor

Grading

A. 70% 0

B. 20% 2

C. 10% 3

Paving

A. 80% 0

B. 15% 1

C. 05% 2 (adapted from Maher & McGoey 2006) Impacts of risks in Hulett’s method are presented only in terms of multiplicative factors whereas Maher & McGoey (2006) illustrate merely them in absolute figures. On the other hand, in Hulett’s method, the schedule risk analysis is simulated before cost risk analysis. This, as a result, makes his time-related cost calculation a little complicated.

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CHAPTER 4. FINDING AND RESULT

4.1. Background on Nam Arun Chaiseri Ltd.

Nam Arun Chaiseri Engineering Co., Ltd is a Vietnam-located company belonging to Arun Chaiseri Group (Thailand). Engineering consultant company is one of the four pillars of Arun Chaiseri group founded in 1979. The company has officially offered project and construction management services since 1988 and has earned prestigious reputation for its professional performance on construction management services (http://www.eptg-acsc.co.th). Since establishment, the company has been involved in several major construction projects in Thailand. In 2006, it has expanded engineering consultancy services to Vietnam’s market. As a result, the Vietnam-based subsidiary company which is officially named Nam Arun Chaiseri Engineering Co., Ltd was established in 2007. Like its mother engineering company in Thailand, Nam Arun Chaiseri Engineering Co., Ltd specializes in engineering consultant services, in which construction project management is one of its pivotal services and strengths. Normally, in Vietnam, the process of a construction project includes five major stages: pre-design, design, procurement, construction and pre-opening. Consultant services provided by Nam Arun Chaiseri Engineering Co., Ltd cover almost those five stages.

Figure 4.1 The process of a construction project

In pre-design stage, after receiving appointment from the owner, the company produces a thorough and extensive survey on the project concerning requirements, feasibility, design procurement (architecture, mechanical and electricity-M&E, etc.). In design stage, once designated by the owner, the company goes on with comprehensive design and interior designs of item units as well as undertaking permit application in compliance to legal regulations stipulated by the government (i.e. internal traffic arrangement, underground construction, construction license). In construction procurement, the company can provide construction estimation and advise the owner on selecting the best qualified bidder based on evaluating relevant criteria. In construction stage, the company provides construction management consultant service undertaking control and supervision on constructors to ensure they perform in accordance to the detailed project plan prepared by project management team. In preopening stage, infrastructure elements are to be installed and handed over to the owner. In almost all the above mentioned stages, in the consultant company’s perspective, risk analysis is found to take an indispensible part. In the pre-design and design stages, it is crucial that risks on schedule and budget should be analyzed properly for project planning

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purpose. If risks are well identified and estimated in these stages, finished time and project expenditure could be confidently announced at high probability level, which subsequently enables the owner to take control of their investment as well as create confidence among their stakeholders. In construction procurement, risk analysis forms the fundamental basis for decision making in choosing the most feasible and efficient tender. The essential role of risk analysis in construction stage is highly visible. If the risk impacts are analyzed and properly aware of, risk control plan can be generated so as to mitigate their hindrances and unfavorable detriments to the overall project, especially in terms of schedule and cost. Generally speaking, it can be argued that implementation of proper risk analysis method in construction projects can bring in several benefits and most notably, that is the reputation and performance efficiency for the consultant company.

4.2. Is quantitative risk analysis method applied in the company?

From the interview staff and expert in the company, it is found that there is not any quantitative risk analysis which is applied in schedule and cost planning. Project managers usually identify risk by their intuitive senses and own experience. Cost risk analysis has been done separately from those for schedule risk analysis. The current technique is based on the Cost Breakdown Structure (CBS). Each cost item in the projects is estimated by historical data. To deal with uncertainty, contingency rate is added to base cost. The total cost of project is the sum of subtotal items. Schedule risk: each activity in project is estimated based on historical data and practitioners’ personal adjustments. For the project date completion, the method is used is CPM. All activities in the critical path will be calculated to get the total project duration. Unlike in cost risk, there is no contingency rate in project schedule. In general, the current method used in Nam Arun Chaiseri mainly depends on the practitioners’ expertise and their “sixth-senses” to make rough estimation rather than relies on scientific methods. In this way, there casts doubts on the efficiency and accuracy of risk analysis way that is undertaken at present time in this company. Hands-on experience is not powerful enough to help anticipate and take proper prevention and mitigation measures of all potential risks in construction projects.

4.3. Is new risk analysis method suitable for construction project risk management in Vietnam?

4.2.1. Criteria for new risk analysis method in construction project in Vietnam The following criteria for new risk analysis method used in construction projects are identified based on interviews with experts in Nam Arun Chaiseri Engineering Co., Ltd. Accuracy: Risk analysis output plays as the fundamental pivot based on which risk mitigation plan will be established. In evaluation of risk analysis methods, accuracy, or in other words, reliability of the method output results, is always the most vital criterion. A warning, however, should be made that method accuracy should be validated by means of application in a number of projects.

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Easy-to-use is another essential requirement. Especially, in Vietnam context, the majority of project managers are lacking of experience, which hinders the accuracy of their risk factors’ estimation. Besides, according to the experts, the other criteria include: processing time; solution cost.

4.2.2. Chosen quantitative risk analysis method The method chosen in this research is the combination of the two methods proposed by Hulett (2010) and Maher & McGoey (2006). As previously indicated, these are the most radical methods approaching risk analysis from an innovative perspective which facilitates practitioners to gain better performance on risk management. The combined measure is determined so as to take full exploit of the two methods’ advantages in an attempt to generate an extensive solution for project management practitioners. These two methods have been widely applied in various projects. Therefore, the accuracy criterion can be fulfilled. For implementation, several software programs which include both commercial and non-commercial ones are evaluated. Commercial programs taken into consideration are Oracle Primavera, @Risk for Excel and @Risk for Project. @Risk for Project requires that practitioners have a certain amount of knowledge on VBA programming skill (Visual Basic for Application), which turns out to be an impediment for users in Vietnam. As a result, it fails to satisfy the “easy-to-use” criterion in this case. Also, Oracle Primavera is rejected due to its complicatedness and exorbitant price (USD 9,500), which are unfavorable for Vietnamese project management practitioners. @Risk for Excel-based add-on tool is selected to implement this method into practice thanks to its outstanding features suitable for specific demands in Vietnam. This is the commercial software developed by Palisade based on Excel, which proves to be user-friendly and popular among Vietnamese. Moreover, it does not request practitioners to be computer programming masters. Furthermore, reasonable price is another advantageous determinant supporting the chosen tool. Besides, free software programs such as Simulación 4.0 are also considered for economy criterion. However, the standards of accuracy, friendly and processing time are not reliable. Subsequently, they are declined to be chosen.

Figure 4.2 Comparison of available risk tools

Detail of new method will be described below:

Step 1: Identify probability of risks and their impacts on time and cost

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Potential risks are to be identified by the practitioner. Then, the probability and impacts on time and cost will be assessed quantitatively.

Table 4.1 Relative and absolute risk type in combined method

Risk Prob. Schedule Impact Factors Cost Impact Factors

Min Most likely Max Min Most

likely Max

Labor accident 80% 95% 110% 120% 105% 110% 115%

Price fluctuations 100% (no effect) 80% 110% 130%

PmH contract may be late 60% 30days 45days 60days (no effect) (Source: the author’s own example) Impacts on time/cost are illustrated in two types: relative type and absolute type. Relative type originates from Hulett (2010) and impacts of this type are presented in percentage. Absolute type comes from Maher & McGoey (2006) and impacts are presented in forms of particular figures. Initiated by Hollmann (2007), risks are categorized into two types: systemic risks and project-specific risks. Systemic risks are those that have the same impacts (on time or cost) in various projects in the similar environment and it should be presented in relative type. Project-specific risks are defined as risk events that only occur in a particular project and have different impacts. The underlying reason for risk classification is that systemic risks and their impacts can be utilized in other projects later on. The researcher holds an intention to formulate a prepared list of systemic risks whose impacts are significant on schedule and cost in Vietnam context. This list serves as an efficient reference for young Vietnamese practitioners in construction project management. They are just supposed to make some adjustments or modifications based on their specific project.

Step 2: Assign activities’ duration are impacted by schedule risk In this step, project activities impacted by risk will be assigned

Table 4.2 Identified impact of risk on task in combined method

Risk Assignment of Risks to Activities

Task 1 Task 2 Task 3 Risk 1: Labor accident x x Risk 2: Price fluctuations x x Risk 3: PmH contract may be late x x

(Source: the author’s own example) A certain task can be affected by many risks. Then the duration of task will be calculate by (Base plan) * (Relative Risk) + (Absolute Risk)

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In this case, Task 1 is impacted by risk 1 and 2. Thus, the duration of task 1 is calculated by (Base plan) * [Triangle (95%, 110%, 120%)] + [Triangle (30 days, 45 days, 60 days)]

Step 2: Assign cost’s items are impacted by cost risk Similarly to Hulett (2010), project cost is divided into time-related cost and time-unrelated cost. (time related cost) = [(burn rate) x (duration)] x (Relative Risk) + (Absolute Risk) (time unrelated cost) = (base plan) x (Relative Risk) + (Absolute Risk) (total project cost) = (time related cost) + (time unrelated cost) In Hulett (2010)’s method, because schedule risk analysis is simulated first, duration of using time-related cost must be fitted in distribution from schedule simulation result. In this combined method, because schedule and time simulation are processed simultaneously, this duration could be calculate directly. Thus, the correlation coefficient mentioned in Hulett (2010)’s method, is removed. This means the formulation is much simpler.

Step3: Compute MCS for schedule and cost risk at the same time From the simulation, we’ll have distribution of project date completion and total cost

Figure 4.3 Distribution of project date completion and total cost from MCS

(Source: the author’s own example)

4.4. Implementation of quantitative risk analysis method

4.4.1. List of risk factor From (Long 2004), there are 21 risk factors were rated as high impact in Vietnam context construction projects. Two more factors were added through interviews with the experts in construction industrial: Slow site clearance, Labor accident.

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For each risk factor, probability of occurrence impact on time and cost is identified as in Table 4.3:

Table 4.3 List of identified risk factors in construction projects in Vietnam

(Source: list of risks are developed from Long (2004) through the author’s own interviews with experts) These raw data are processed to be input for simulation as in table 4.4 Column M (Occurrence): this cell value determines if risk factor occurs or not in each iteration of simulation process. Ex: M5==RiskDiscrete({1;0}, D5:E5) If M5=1, risk factor R01 occurs, otherwise, M5=0, it does not happen. Column N (Enabled): this cell value determines if impact of risk is taken into calculation or not. Ex: N5=1, impact of risk factor R01 is calculated in the model. Otherwise, N5=0, its impact is ignored. Columns O &Q: schedule and cost impact of risk factors is presented in triangle distribution which is used for simulation process

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Column P &R: impact on schedule and cost of risk factors if it occurs and is enabled. Ex: P5=IF(M5*N5,O5,1) R5=IF(M5*N5,Q5,1)

Table 4.4 List of risk factors processed to be input of Monte Carlo Simulation

(Source: the author’s own equations created in @Risk) Risk factors which are labeled with Rxx (i.e. R01, R02…) are relative type risks. Risk factors which are labeled with Axx (i.e. A24) are absolute risks.

4.4.2. Creating task dependencies in MS Excel After project tasks are transferred to MS Excel, their dependencies must be established. There are 4 types of task dependencies in MS Project: Start-to-Finish (SF), Finish-to-Finish (FF), Finish-to-Start (FS), Start-to-Start (SS). For simplicity, an example illustrating how to set up these 4 dependencies is given as below:

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Figure 4.4 Example of task dependencies in MS Project

(Source: the author’s own example) In this case: 2 SF + 1: Task 2 must Start 1 day before task 1 Finishes. It mean Task 2(Start) + 1 <= Task 1 (Finish) In the other hand, we always have Task 1 (Finish) = Task1 (Start) + Task 1 (Duration) So Task 1 (Finish) = MAX [Task1 (Start) + Task 1 (Duration), Task 2(Start) + 1] 1FF +3 days: Task 1 must Finishes 3 days before task 3 Starts. It mean Task 1(Finish) + 3 <= Task 3 (Start) In the other hand, we always have Task 3 (Finish) = Task3 (Start) + Task3 (Duration) So Task 3 (Finish) = MAX [Task3 (Start) + Task 3 (Duration), Task 1(Start) + 3] 1FS + 4days: Task 1 must finish 4 days before task 4 starts It mean Task 1(Finish) + 4 <= Task 4 (Start) So Task 4 (Finish) = Task 1(Finish) + 4 In the other hand, we always have Task 4 (Finish) = Task4 (Start) + Task4(Duration) 1SS + 1 day: Task 1 must start 1 day before task 5 starts. It mean Task 1(Start) + 1 <= Task 5 (Start) So Task 5 (Start) = Task 1(Start) + 1 In the other hand, we always have Task 5 (Finish) = Task5 (Start) + Task5 (Duration) In summary, these task dependencies are illustrated in MS Excel as below:

Table 4.5 Example of task dependencies converted to MS Excel from MS Project

A B C E F G 1 ID Name Duration Start Finish Predecessors 2 1 Task 1 2 days Jun 25 '10 =MAX(E2+C2,E3+1) 2SF+1 day 3 2 Task 2 3 days Jun 28 '10 = E3 + C3

4 3 Task 3 3 days Jun 29 '10 =MAX(E4+C4,F2+3) 1FF+3 days 5 4 Task 4 3 days =(F2+4) = E5 + C5 1FS+4 days 6 5 Task 5 7 days =(E2+1) = E6 + C6 1SS+1 day

(Source: the author’s own example)

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4.4.3. Implementation of new quantitative risk analysis method

Implementation procedures A project in NAC is chosen to illustrate the new method. This project starts on 1 Sep 2009 and is planned to finish on 3 Apr 2013. The detailed schedule and budget plan could be found in appendix F. Implementation procedures include 6 steps

Step 1. Transfer tasks to MS Excel Step 2. Identify task’s duration impacted by risk Step 3. Divide project cost into time-related & time-unrelated cost Step 4. Calculate burn rate for time-related cost Step 5. Identify task’s cost impacted by risk Step 6. Compute MCS

The process is in described in details below

Step 1: Project tasks are transferred to MS Excel. Then task dependencies are defined as mentioned in section 4.4.2 Risk impact is divided into 2 types as mentioned in section 4.2.2.

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Table 4.6 Project tasks transferred to MS Excel

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Step 2: Identify task’s duration impacted by risk Project activities’ durations which are impacted by risks will be assigned by practitioners. For example, Task ID6 (Approve concept by PMH) is impacted by risk R12 and A24.

Table 4.7 Assigned risk impacts on task duration

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Step 3: Project cost is divided into time-related cost and time-unrelated cost.

Table 4.8 Time-related cost and time-unrelated cost in project

Step 4: Calculate burn rate for time-related cost Table 4.9 Burn rate of time-related cost

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Step 5: Identify task’s cost impacted by risk Table 4.10 Assigned risk impacts on cost item

Step 6: Compute MCS to get result

Figure 4.5 Probability of Project finish date

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Figure 4.6 Probability of total project cost

(Source: the author’s own compilation from simulation in @Risk)

Result analysis Simulated result can be summarized in the Table 4.11 below

Table 4.11 Summary of risk result from Monte Carlo Simulation

(Source: the author’s own compilation from simulation in @Risk) In the result shown in Table 4.11, it is indicated that the probability of meeting project target as estimated in the practical method currently used in NAC is very low (<1% for schedule and 5.4% for cost). In other words, it is 99% of confidence that the project cannot be finished on 04 Mar 2013 as speculated in the base plan. And there is more than 90% of confidence that the cost will overrun the estimated budget.

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Correlation coefficient From @Risk simulation, correlation coefficient between project finish date and risk factors can be determined as shown below:

Figure 4.7 Correlation coefficient between project finish date and risk factors

(Source: the author’s own compilation from simulation in @Risk) The higher the coefficient value of a factor is, the higher its impact on project finish date becomes. As it is indicated, “poor site management and supervision/occurrence” and poor site management and supervision/schedule impact” both have large impacts on project finish date. However, the coefficient value of the former (0.59) doubles that of the latter (0.23). Consequently, it is more effective and beneficial to decrease the probability of this risk rather than to minimize its impact. This is an outstanding feature of the new method over the traditional ones because the latter fails to pinpoint either to minimize probability or impact of risk factors. Likewise, we also obtain the coefficient value between project cost and risk factors. Notably, Figure 4.8 shows that “poor site management and supervision/schedule impact” and “labor accident/schedule impact”, which have direct impacts on schedule, influence substantially on

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project cost. It is explained that these risks cause schedule delay, leading to time-related cost overrun. This is another noticeable advantage of integrated schedule and cost risk analysis. In separate schedule and cost risk analyses, these risks might be overlooked.

Figure 4.8 Correlation coefficient between project total cost and risk factors

(Source: the author’s own compilation from simulation in @Risk)

Simulated risk mitigation plan scenarios Compared to traditional methods, the new method is more powerful in the way that it is able to generate multiple simulation scenarios for mitigation plans. Each risk is in turn taken out and the project schedule and cost will then be re-calculated. After excluding risk factors, one by one, from the model, and running simulation, the result is achieved as shown in Table 4.12 below

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Table 4.12 Simulated risk mitigation plan scenarios

Remarkably, if “poor site management and supervision” factor is eliminated, the project finish date will be on 22 Dec 2015, which is shortened 2 years (696 days) before the estimated schedule which take that risk into calculation and 20% of the estimated cost can be saved. Besides, preventing “Inaccurate estimates” and “Incompetent subcontractors” does not bring us a good result. Based on the result in Table 4.12, “poor site management and supervision” is the critical factor that should be highlighted and be the focus of mitigation efforts. If this risk factor can be prevented or at least controlled, the project will be enormously improved in terms of schedule and cost.

Analysis of risk mitigation From the above illustrated figures, it is clearly pointed out that “poor site management and supervision” is the most critical fail point in this sample project. Prudent care should be emphasized on this risk factor during the project undertaking. It would be at best to eliminate completely this risk factor before the project starts. However, in practice, it is common that the risk is just partially controlled and mitigated. Then, the mitigation plan can be also evaluated by assistance of @Risk simulation tool. For example, assume that NAC decides to perform a mitigation plan to minimize impact of “poor site management and supervision”; this plan’s consequence can be calculated by simulation

Table 4.13 Simulated risk mitigation plan for a risk factor

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Assume that after mitigation, the probability, schedule impact and cost impact of this risk are reduced as shown in Table 4.3. From simulation, the project finish day and project cost can be shortened by 532 days and decreased by $ 1,488 million respectively. This can serve as the basis for decision-making.

4.5. Findings

The new method customized for construction projects in Vietnam and an example of implementation are illustrated in detail in the previous sections. It is found to be a better method for construction project management modified for Vietnam’s context. The new method has several strengths over the traditional methods as well as offering some improvements from the ones recommended by Hulett and Maher & McGoey. In comparison to the traditional MCS: Whereas the traditional MCS mentioned in orthodox project management literature just simply points out which are major risk factors, correlation coefficients calculated in the new method enable practitioners to identify whether probability or impact of a specific risk factor should be more considered. Integrating schedule and cost risks can highlight all major potential risk factors, some of which might be overlooked in the separating methods. The new method also allows practitioners to run simulation of various risk mitigation plan scenarios and evaluate their consequences which serve as the basis for decision making. In comparison to the methods initiated by Hulett and Maher & McGoey, the new method offers a more holistic solution when integrating both relative and absolute risk types into the same model. Moreover, unlike Hulett’s method, this new one can run simulation of both schedule risk and cost risk analysis simultaneously. This improvement helps simplifying time-related cost calculation method. More importantly, this new method proves to be more advantageous than the practical application to deal with uncertainties that is currently used in construction project management in Vietnam. This new method has provided practitioners in Vietnam with a powerful tool for efficiently controlling their construction projects in terms of quantitative schedule and cost risk analysis. Thereby, critical fail points in the project can be identified for decision making based on scientific consideration of various mitigation plan scenarios.

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CHAPTER 5. DISCUSSION AND CONCLUSION

5.1. Discussion

The research has encountered various difficulties during execution. The main obstacle is the author’s lack of experience in construction area, which hinders understanding of several profession-related issues in construction projects. On the other hand, the respondents are engineer-background practitioners who have abundant practical knowledge but do not obtain proper academic training in risk management. In other words, their expertise basically derives from hands-on experience. The incompatibility between the researcher and the interviewees in terms of knowledge and practice plays as a major hindrance and as a result, it was time-consuming in achieving mutual understandings. Geographical distance and time zone difference between Vietnam and Sweden are among impediments hampering the research’s investigation. Difference in time zone made it difficult for the researcher and the respondents for appointment arrangement. Geographical distance restricted the researcher to get involved directly into the studied company. Indirect observation acts as a disadvantage for the researcher because it restricts the researcher’s integration into the case to make further detailed judgments. If direct involvement was feasibly undertaken, findings of higher quality and more in-depth details could be produced. Besides, the research enjoyed some fundamental advantages. Because the researcher and the respondents are all Vietnamese, there were no cultural and language barriers. Communication thus turned out to be easier. Thanks to the same language spoken, to some extent, it can be said that information was precisely conveyed. Some key contact points in the researcher’s network has facilitated opportunities for consulting from experts in construction area in Vietnam. The valuable comments from these experts have made a great deal of contribution to the overall quality of this thesis’s work. In the world, there are several commercialized software programs which are of high quality but, at the same time, at high price. That is one of the reasons hindering the researcher to validate and make proper evaluation. Another hindrance concerns with the thesis’ time limitation, disabling the researcher to expend further time on investigating potential programs. The list of risk factors is made based on only four interviews. A larger sample might be better to enhance the generalization of the result.

5.2. Conclusion

At the present time, it is found that in NAC, no quantitative risk analysis is made use of. Instead, a contingency rate based on practitioners’ own expertise and speculation is used to deal with uncertainties. However, this rough and manual estimation method fails to meet necessary reliability requirement of a standard method because potential risks are not excluded and/or mitigated properly. Based on understanding of the current process and specific demands of the case study- NAC, a new method customized for Vietnam’s construction projects is suggested in this research. This method is a combination of the methods initiated by Hulett (2010) and Maher &

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McGoey (2006), in which their advantages are exploited and their disadvantages are avoided. In general, the new method can satisfy well all the criteria set by the case-studied company, which include accuracy, easy-to-use, calculation time and economy. According to the calculation of this new method, the schedule and cost estimation made currently at NAC is of very unlikely probability to occur. An underlying reason for this stark difference is because the fact that in the current way, practitioners do not take proper consideration of potential risks. The outstanding advantage of the suggested method over the current manipulation is that it can enable estimating project completion data and total project cost with a specific confidence level. However, a notice should be pointed out that the reliability of all quantitative risk analysis methods is required to be tested in several projects. A list of identified and quantified risk factors adjusted for Vietnam’s construction context is expected to serve as a reference for project management practitioners, especially the young and inexperienced ones. Detailed implementation illustrated in this thesis is hoped to provide readers with a simple guideline of how to apply integrated schedule and cost risk analysis using risk drivers in practice. The research is hoped to bring in convenient implementation and produce efficient risk analysis results so that Vietnamese project managers can take full control of their construction projects.

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CHAPTER 6. CAVEATS AND RECOMMENDATIONS

The implementation in a sample project displayed in this case study serves as merely an illustration and guideline for practitioners as to how to apply the suggested new method. In the example, estimation is made primarily based on experts’ advice and consultation and the result might be accurate for this case study. A notice should be highlighted here that output results of this new method are fundamentally dependent on practitioners’ own estimation and expertise. Conditions and risk factors may vary in different projects and project contexts. Thus in practice, the estimation must be modified accordingly by actual practitioners for the possible best analysis results. Also, as a matter of fact, all quantitative risk analysis methods are supposed to be implemented and validated in several projects before relevant conclusion on those methods’ quality is made. The thesis research project is, however, undertake within a period timeframe. As a consequence, thorough evaluation of the recommended method and its accuracy is not possible to carry. Escalation coefficient is not mentioned in the new method raised in this thesis for simplicity. Integrating this coefficient into the method can be carried and in further research. The approach and method of integrating schedule and cost risk analysis can be a potential topic for further investigation in other fields of project management.

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APPENDIX A. RISK FACTOR ANALYSIS QUESTIONARE (VIETNAMESE VERSION)

BẢNG KHẢO SÁT CÁC RỦI RO LÀM CHẬM TIẾN ĐỘ VÀ VƯỢT KINH PHÍ TRONG CÁC DỰ ÁN XÂY DỰNG Ở VIỆT NAM.

+) Thông tin cá nhân +) Quý vị là:

[ ] Chủ đầu tư

[ ] Nhà thầu

[ ] Đơn vị tư vấn

+) Chức vụ của quý vị

( ) Kỹ sư (engineers)

( ) Quản lý dự án (functional/project managers)

( ) Quản lý cấp cao (top management)

+) Loại hình dự án quý vị tham gia

[ ] Dân dụng (cao ốc, khách sạn, trường học...)

[ ] Công trình trong công nghiệp

[ ] Cầu đường

[ ] Dự án khác

+) Số năm kinh nghiệm trong xây dựng

( ) < 5 năm

( ) 5 - 10 năm

( ) > 10 năm

Bảng câu hỏi: Bảng khảo sát bao gồm 21 yếu tố rủi ro có ảnh hưởng nghiêm trọng nhất trong các dự án xây dựng tại Việt Nam. Mỗi yếu tố rủi ro có 3 thông số cần khảo sát:

• Khả năng xảy ra (%): xác suất, tần suất xảy ra trong thực tế (%)

• Ảnh hưởng lên thời gian hoàn thành công việc (%): trong các dự án khác nhau, thời gian hoàn thành các công việc thường khác nhau nên thông tin cần khảo sát dưới dạng %.

• Ảnh hưởng lên chi phí của công việc (%): tương tự như ảnh hưởng lên thời gian nhưng đối với chi phí của công đoạn.

Ví dụ:

• Trình độ và năng suất lao động của công nhân kém làm cho thời gian thi công kéo dài thêm 30%-50%. Rủi ro này xảy ra thường xuyên, cứ 10 dự án thì có 8-9 dự án mà trình độ nhân công không đáp ứng yêu cầu -> xác xuất xảy ra là 80% - 90%

A. Nhóm các rủi ro liên quan đến chủ đầu tư công trình 1.) Khó khăn về kinh phí của chủ đầu tư (Financial difficulties of owner)

Đây là rủi ro về phía Chủ đầu tư trong việc huy động nguồn vốn cho Dự án. Chủ đầu tư không chi trả đúng hạn cho các nhà thầu như trên hợp đồng, huy động vốn chậm, ngân hàng giải ngân chậm... Ảnh hưởng của rủi ro này đến Dự án thường rất nặng nề như làm ngừng hẳn hoặc gián đoạn Dự án cho đến khi Chủ đầu tư giải quyết được các khó khăn về kinh phí.

Thấp nhất Cao nhất

Xác suất xảy ra (%) ___ ___

Ảnh hưởng đến thời gian hoàn thành công việc (%) ___ ___

Ảnh hưởng đến đến tổng chi phí của công việc (%) ___ ___

2.) Chậm thanh toán các hạng mục đã hoàn thành (Slow payment of completed works)

Thanh toán chậm cho các hạng mục công việc đã được nghiệm thu: Rủi ro xảy ra do Chủ đầu tư trì hoãn hoặc không thanh toán cho Nhà thầu theo đúng tiến độ thanh toán của Hợp đồng. Rủi ro này ảnh hưởng đến tiến độ của Dự án khi Nhà thầu tạm ngưng hoặc giảm dần khối lượng công việc thực hiện. Đây là rủi ro khá phổ biến ở các nhà thầu, nhất là trong các dự án do Chính phủ tài trợ, quá trình thanh toán thường kéo dài rất lâu.





3.) Bàn giao mặt bằng không đúng hạn (Slow site clearance)

Chủ đầu tư tiến hành giải phóng mặt bằng để bài giao cho đơn vị thi công bị vướn mắc về giá thành đền bù, tái định cư...dẫn đến chậm





B. Nhóm các rủi ro liên quan đến nhà thầu 4.) Quản lý và giám sát thi công yếu kém (Poor site management and supervision)

Rủi ro xảy ra do trình độ yếu kém trong việc tổ chức thi công, quản lý công trường của Nhà thầu. Đây là một rủi ro phổ biến ở các Nhà thầu thiếu kinh nghiệm của Việt Nam. Rủi ro xảy ra do kỹ sư giám sát thiếu kinh nghiệm và năng lực quản lý công trường kém. Quản lý máy móc thi công của nhà thầu giữa các dự án không hợp lý.





5.) Tai nạn lao động (Labour accident)

Rủi ro này rất thường xảy ra. Khi xảy ra tai nạn lao động hoặc hư hỏng thiết bị. Các tổn thất thường được bảo hiểm chi trả nhưng tiến độ dự án bị ảnh hưởng





6.) Khó khăn về kinh phí của Nhà thầu (Financial difficulties of contractor)

Đây là rủi ro trong việc huy động vốn tạm ứng để thi công công trình của Nhà thầu. Dự án sẽ bị ảnh hưởng lớn khi Nhà thầu không thể huy động đủ kinh phí để mua vật tư, thuê mướn nhân công/thầu phụ, máy móc phục vụ cho việc thi công.





7.) Khó khăn trong việc ứng dụng công nghệ thi công mới (Obsolete or unsuitable construction methods)

Rủi ro xảy ra khi Nhà thầu sử dụng không đúng hoặc không thành thạo các công nghệ thi mới theo yêu cầu của Dự án. Các công nghệ xây dựng tiên tiến khó áp dụng vào hoàn cảnh Việt Nam: huấn luyện nhân công, môi trường thi công...





8.) Dự toán đấu thầu thiếu chính xác (Inaccurate estimates):

Ước lượng chi phí và thời gian thi công không chính xác. Rủi ro xảy ra trong quá trình tính toán khối lượng, chi phí, ước lượng thời gian thi công của Nhà thầu cho các hạng mục công việc. Tính toán, uớc lượng thời gian và chi phí cho các công đoạn không chính xác.





9.) Rủi ro liên quan đến các nhà thầu phụ (Incompetent subcontractors)

Rủi ro xảy ra khi Nhà thầu chính lựa chọn các Thầu phụ không đủ năng lực để thực hiện các hạng mục công việc của Dự án. Vật tư giao bởi nhà cung cấp không đạt chất lượng (ví dụ như bê tông không đủ độ sụt; thời gian vận chuyển dài; cát đá không đạt yêu cầu...)





10.) Sai sót trong thi công (Mistakes during construction)

Rủi ro xảy ra liên quan đến các vấn đề kỹ thuật của Nhà thầu trong quá trình thi công xây dựng. Đây là rủi ro rất thường xuyên xảy ra và có khả năng ảnh hưởng lớn đến Dự án.





C. Nhóm các rủi ro liên quan đến nhà tư vấn 11.) Quản lý Dự án yếu kém (Poor project management assistance)

Rủi ro xảy ra do trình độ yếu kém của Tư vấn Quản lý Dự án, không đảm bảo việc phối hợp nhịp nhàng giữa nhiều đơn vị cùng thực hiện Dự án.





12.) Quản lý hợp đồng kém (Poor contract management)

Hợp đồng thi công không rõ ràng dẫn đến khó khăn trong giải quyết mâu thuẫn tranh chấp.





13.) Chậm trễ trong kiểm tra nghiệm thu các công đoạn đã hoàn thành (Slow inspection of completed works)





14.) Sai sót trong thiết kế (Mistakes in design)





15.) Thay đổi thiết kế (Design changes)





16.) Khối lượng công việc tăng so với dự kiến ban đầu (Additional works)





17.) Trao đổi thông tin không hiệu quả giữa các đơn vị tư vấn thiết kế (Kiến trúc, kết cấu, cơ điện...) (Slow information flow between parties)





D. Nhóm các rủi ro về nguyên vật liệu và lao động 18.) Thiếu vật tư thi công (Shortages of materials)

Rủi ro xảy ra trong việc cung ứng vật tư đúng chủng loại, đúng yêu cầu thiết kế phục vụ cho thi công.





19.) Thiếu công nhân có trình độ (Shortages of skilled workers)

Rủi ro xảy ra với các Nhà thầu trong việc thuê mướn hoặc huấn luyện đủ số lượng công nhân có trình độ để phục vụ thi công.





20.) Dự đoán sai về điều kiện thi công (Unforeseen site conditions)

Các rủi ro không lường trước được liên quan đến điều kiện thi công tại công trường như: địa hình, địa chất khác với thiết kế/khảo sát, ảnh hưởng của các công trình lân cận.





21.) Biến động giá cả xây dựng (Price fluctuations)

Rủi ro xảy ra khi giá cả vật tư, nhân công, máy móc thay đổi bất thường trong quá trình thi công xây dựng.





E. Nhóm các rủi ro do tác động khách quan bên ngoài 22.) Thời tiết xấu (Bad weather)

Rủi ro về thời tiết ảnh hưởng trực tiếp đến việc thi công của Nhà thầu.





23.) Các khó khăn liên quan đến Chính phủ (Obstacles from government)

Mặc dù Việt Nam đã có nhiều chính sách khuyến khích đầu tư nhưng vẫn còn tồn tại nạn tham nhũng, quan liêu, thủ tục rườm rà gây ảnh hưởng không nhỏ đến các dự án xây dựng





24.) Ngoài những nhân tố rủi ro đã đề cập ở trên, theo Quý vị, còn có nhân tố nào khác ảnh hưởng nghiêm trọng lên tiến độ và chi phí?

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XIN CHÂN THÀNH CÁM ƠN!

APPENDIX B. RISK FACTOR ANALYSIS QUESTIONARE (ENGLISH VERSION)

RISK FACTOR ANALYSIS FOR SCHEDULE DELAY AND OVERRUN COST IN CONSTRUCTION PROJECTS IN VIETNAM.

Personal information: +) You are

[ ] Owner

[ ] Contractor

[ ] Consultant

+) Your position

( ) Engineers

( ) Functional/project managers

( ) Top management

+) Types of projects you are involved in

[ ] Building projects

[ ] Industrial construction projects

[ ] Road projects

[ ] Others

+) Number of experience years

( ) < 5 years

( ) 5 - 10 years

( ) > 10 years

Questionares: The questionnaire includes 21 risk factors which have most severe impacts on construction projects in Vietnam. In each risk factor, there are 3 coefficients to be investigated:

• Probability (%): frequency of occurence in practice

• Time impact: completion duration varies from project to project, therefore, this coefficient is illustrated in percentage.

• Cost impact: similar to time impact, but this coefficent involves the impact of cost on each task.

For example

• Poor labor productitivity and capability extend construction duration by 30-50%. This is a very frequent risk, i.e. out of 10 projects there are 8-9 projects in which labor competence does not meet requirements -> we say, the probability of this occurence is 80-90%.

A. Owner-related risks 1.) Financial difficulties of owner

The owner fails to pay contractors and raise funds in due time, or the owner’s bank is late in disimbursement. Commonly, this risk impact fatally engenders interruptions of the project until financial difficulties are solved.

Lowest Highest Probability (%) ___ ___ Impact on schedule (%) ___ ___ Impact on cost (%) ___ ___

2.) Slow payment of completed works

Slow payment for completed works: the risk occurs due to the owner’s delayed payment to the contractor as accordance to agreements. This risk has impacts on the project’s schedule as the contractor interrupts or reduces the workload.


3.) Slow site clearance

The owner gets hindrances in compensation prices, rehabitation, etc. Leading to slow site clearance.


B. Contractor-related risks 4.) Poor site management and supervision

This risk occurs due to incompetence in construction management and site supervision. It is frequent among Vietnamese inexperienced constractors.


5.) Labour accident

This is a very common risk. In occurence of labour accident, although monetary costs are covered by insurers, the project schedule is definitely affected.


6.) Financial difficulties of contractor

The project will be severely affected by the contractor’s lack of finance to cover construction costs i.e. materials, labors, sub-contracting, machinery,...


7.) Obsolete or unsuitable construction methods

The risk happens when the contractor misuse or apply new technologies improperly as required in the project or when it is hard to implement the modern technology into Vietnamese context due to incompatibilities in labor training, construction conditions,...


8.) Inaccurate estimates

Cost and schedule estimates are inaccurate. The risk occurs when the contractor makes estimations for workload, costs, construction duration of each individual task.


9.) Incompetent subcontractors

The risk happens when the contractor fails to designate competent and reliable sub-contractors i.e. the designated sub-contractor delivers low quality materials.


10.) Mistakes during construction

This risk is found to involve with technical errors made by contractor during construction process. The risk commonly occurs and has major impacts on projects.


C. Consultants-related group 11.) Poor project management assistance

The risk is caused by incompetence of project management consultants as smooth cooperation between all partners involved in the projects.


12.) Poor contract management

The construction contract is unclear which causes difficulties in conflict arbitration.


13.) Slow inspection of completed works


14.) Mistakes in design


15.) Design changes


16.) Additional works


17.) Slow information flow between parties


D. Material and labor group 18.) Shortages of materials

The risk occurs in supply chain of appropriate materials serving construction needs.


19.) Shortages of skilled workers

The risk relates to contractor in terms of hiring or training proper number of competent laborers.


20.) Unforeseen site conditions


21.) Price fluctuations

The risk occurs when there are fluctuations in the prices of materials, machinery, labour during construction process.


E. External risks 22.) Bad weather

Weather risks affect directly to the construction process undertaken by contractors.


23.) Obstacles from government

Government-related difficulties i.e. red tape, corruption, bureaucratic procedures cause several troubles for construction projects.


24.) Beside potential risks mentioned above, in your opinions, are there any other factors that might have serious impacts on schedule and cost estimates of construction projects?

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THANK YOU VERY MUCH!

APPENDIX C. LIST OF IDENTIFIED RISKS

N Name Probability Schedule Impact Cost Impact Min ML Max Min ML Max

R01 Financial difficulties of owner 70% 1.39 1.80 2.12 1.12 1.63 2.29 R02 Slow payment of completed works 56% 1.09 1.28 1.60 0.71 1.31 1.40 R03 Site clearance problem 45% 1.01 1.52 1.80 0.56 1.65 1.80 R04 Poor site management and supervision 70% 1.20 1.45 1.82 1.00 1.57 1.99 R05 Labor accident 62% 1.10 1.10 1.54 0.91 1.09 1.60 R06 Financial difficulties of contractor 73% 1.30 1.46 2.54 1.10 1.17 2.73 R07 Unsuitable construction methods 31% 1.00 1.20 1.69 1.00 1.15 1.50 R08 Inaccurate estimates 65% 1.20 1.39 2.45 1.32 1.64 2.68 R09 Incompetent subcontractors 50% 1.11 1.53 2.10 1.00 1.31 1.40 R10 Mistakes during construction 56% 1.10 1.67 2.09 1.11 1.67 2.19 R11 Poor project management assistance 56% 1.20 1.40 2.21 1.10 1.31 2.39 R12 Poor contract management 56% 1.10 1.17 1.51 1.00 1.15 1.69 R13 Slow inspection of completed works 35% 1.10 1.14 2.15 1.00 1.15 1.68 R14 Mistakes in design 53% 1.50 1.65 3.00 1.00 1.29 2.07 R15 Design changes 46% 1.10 1.14 2.95 1.20 1.62 2.68 R16 Additional works 53% 1.00 1.59 2.10 1.00 1.28 1.60 R17 Slow information flow between parties 48% 1.07 1.43 1.70 1.00 1.29 1.59 R18 Shortages of materials 61% 1.00 1.78 1.90 1.00 1.77 2.00 R19 Labor productivity 31% 1.10 1.12 2.68 1.00 1.19 2.20 R20 Unforeseen site conditions 74% 1.00 1.82 2.29 1.10 1.20 2.54 R21 Price fluctuations 59% 1.10 1.12 2.91 1.00 1.80 2.01 R22 Bad weather 40% 1.00 1.08 1.70 1.12 1.63 2.29 R23 Obstacles from government 30% 1.00 1.66 2.31 1.12 1.63 2.29 (Source: list of risks are developed from Long (2004) through the author’s own interviews with experts)

APPENDIX D. PROBABILITY DATA FROM EXPERTS

N Name Interview 1 Interview 2 Interview 3 Interview 4 Fit Dis. Min ML Max Min ML Max Min ML Max Min ML Max Mean

R01 Financial difficulties of owner 0.7 0.8 0.6 0.8 0.6 0.9 0.5 0.7 0.70 R02 Slow payment of completed works 0.6 0.7 0.2 0.5 0.4 0.7 0.70 0.56 R03 Site clearance problem 0.50 0.3 0.4 0.3 0.6 0.50 0.45 R04 Poor site management and supervision 0.95 0.5 0.7 0.5 0.8 0.60 0.70 R05 Labor accident 0.75 0.6 0.8 0.4 0.7 0.50 0.62 R06 Financial difficulties of contractor 0.90 0.6 0.9 0.4 0.7 0.70 0.73 R07 Unsuitable construction methods 0.3 0.4 0 0.1 0.2 0.5 0.4 0.6 0.31 R08 Inaccurate estimates 0.75 0.5 0.7 0.5 0.8 0.5 0.7 0.65 R09 Incompetent subcontractors 0.50 0.3 0.4 0.6 0.9 0.3 0.5 0.50 R10 Mistakes during construction 0.30 0.4 0.5 0.7 1 0.5 0.8 0.56 R11 Poor project management assistance 0.40 0.4 0.6 0.6 0.9 0.5 0.7 0.56 R12 Poor contract management 0.8 0.9 0.4 0.5 0.5 0.8 0.2 0.4 0.56 R13 Slow inspection of completed works 0.35 0.3 0.4 0.3 0.6 0.2 0.3 0.35 R14 Mistakes in design 0.65 0.5 0.7 0.3 0.6 0.3 0.5 0.53 R15 Design changes 0.5 0.6 0.3 0.4 0.3 0.6 0.4 0.6 0.46 R16 Additional works 0.80 0.3 0.4 0.4 0.7 0.3 0.5 0.53 R17 Slow information flow between parties 0.60 0.4 0.5 0.2 0.5 0.4 0.6 0.48 R18 Shortages of materials 0.90 0.6 0.8 0.2 0.5 0.4 0.6 0.61 R19 Labor productivity 0.5 0.6 0.2 0.3 0.0 0.3 0.2 0.4 0.31 R20 Unforeseen site conditions 0.80 0.7 0.9 0.7 1 0.4 0.6 0.74 R21 Price fluctuations 0.6 0.8 0.5 0.7 0.5 0.8 0.3 0.5 0.59 R22 Bad weather 0.6 0.7 0.3 0.5 0.0 0.3 0.3 0.5 0.40 R23 Obstacles from government 0.4 0.5 0.1 0.3 0.1 0.4 0.2 0.4 0.30 (Source: list of risks are developed from Long (2004) through the author’s own interviews with experts)

APPENDIX E. IMPACTS ON SCHEDULE DATA FROM EXPERTS

N Name Interview 1 Interview 2 Interview 3 Interview 4 Fitted Dist. Min ML Max Min ML Max Min ML Max Min ML Max Min ML Max

R01 Financial difficulties of owner 1.60 1.80 1.90 1.50 1.80 2.00 1.80 2.00 2.10 1.40 1.60 1.70 1.39 1.80 2.12 R02 Slow payment of completed works 1.20 1.40 1.40 1.10 1.20 1.30 1.20 1.40 1.50 1.10 1.40 1.60 1.09 1.28 1.60 R03 Site clearance problem 1.20 1.30 1.40 1.50 1.60 1.80 1.30 1.50 1.60 1.00 1.50 1.70 1.01 1.52 1.80 R04 Poor site management and supervision 1.30 1.40 1.50 1.50 1.60 1.80 1.40 1.60 1.80 1.20 1.50 1.50 1.20 1.45 1.82 R05 Labor accident 1.10 1.10 1.20 1.30 1.40 1.50 1.10 1.20 1.50 1.10 1.20 1.40 1.10 1.10 1.54 R06 Financial difficulties of contractor 1.70 1.80 1.80 1.30 1.50 1.70 1.80 2.30 2.50 1.40 1.50 1.60 1.30 1.46 2.54 R07 Unsuitable construction methods 1.20 1.30 1.30 1.00 1.50 1.70 1.20 1.20 1.40 1.10 1.20 1.20 1.00 1.20 1.69 R08 Inaccurate estimates 1.20 1.40 1.60 1.20 1.40 1.50 0.90 1.30 1.70 1.50 1.80 2.00 0.90 1.39 2.02 R09 Incompetent subcontractors 1.30 1.40 1.40 1.50 1.50 1.80 1.10 1.90 2.10 1.30 1.50 2.10 1.11 1.53 2.10 R10 Mistakes during construction 1.60 1.70 1.70 1.50 1.60 1.80 1.30 1.90 2.10 1.10 1.40 2.10 1.10 1.67 2.09 R11 Poor project management assistance 1.50 1.50 1.70 1.20 1.40 1.50 1.30 1.50 1.70 1.80 1.80 2.20 1.20 1.40 2.21 R12 Poor contract management 1.10 1.20 1.20 1.20 1.40 1.50 1.10 1.20 1.40 1.20 1.40 1.40 1.10 1.17 1.51 R13 Slow inspection of completed works 1.30 1.50 1.50 1.10 1.20 1.20 1.50 1.50 1.70 1.80 1.80 2.00 1.10 1.14 2.15 R14 Mistakes in design 1.70 1.80 1.80 1.50 1.70 1.80 1.50 2.30 2.50 2.00 2.50 3.00 1.50 1.65 3.00 R15 Design changes 1.60 1.70 1.80 1.10 1.20 1.30 1.50 1.60 1.80 1.90 2.40 2.90 1.10 1.14 2.95 R16 Additional works 1.50 1.60 1.60 1.10 1.20 1.20 1.30 1.90 2.10 1.40 1.60 2.00 1.00 1.59 2.10 R17 Slow information flow between parties 1.30 1.50 1.60 1.10 1.40 1.50 1.20 1.50 1.70 1.10 1.10 1.70 1.07 1.43 1.70 R18 Shortages of materials 1.70 1.80 1.80 1.10 1.20 1.20 1.20 1.70 1.90 1.10 1.30 1.90 1.00 1.78 1.90 R19 Labor productivity 0.90 1.40 1.60 1.00 1.10 1.20 0.80 1.20 1.60 1.00 1.30 1.50 1.10 1.12 2.68 R20 Unforeseen site conditions 1.70 1.80 1.90 1.10 1.20 1.20 1.80 1.80 1.90 1.50 1.50 2.30 1.00 1.82 2.29 R21 Price fluctuations 1.70 1.80 1.90 1.10 1.20 1.20 1.20 1.80 2.00 1.70 2.20 2.90 1.10 1.12 2.91 R22 Bad weather 1.00 1.10 1.20 1.00 1.20 1.30 1.30 1.30 1.40 1.10 1.10 1.70 1.00 1.08 1.70 R23 Obstacles from government 1.50 1.70 1.80 0.95 1.30 1.40 1.30 2.10 2.30 1.20 1.50 2.30 0.95 1.66 2.31 (Source: list of risks are developed from Long (2004) through the author’s own interviews with experts)

APPENDIX F. IMPACTS ON COST DATA FROM EXPERTS

N Name Interview 1 Interview 2 Interview 3 Interview 4 Fitted Dist. Min ML Max Min ML Max Min ML Max Min ML Max Min ML Max

R01 Financial difficulties of owner 1.80 1.80 1.90 1.50 1.60 1.70 1.20 1.60 1.80 1.10 2.00 2.30 1.12 1.63 2.29 R02 Slow payment of completed works 1.20 1.30 1.40 1.10 1.20 1.30 1.00 1.20 1.40 0.70 1.10 1.40 0.71 1.31 1.40 R03 Site clearance problem 1.00 1.10 1.20 1.50 1.60 1.80 1.20 1.50 1.80 1.40 1.50 1.80 0.56 1.65 1.80 R04 Poor site management and supervision 1.30 1.40 1.50 1.50 1.60 1.80 1.20 1.60 2.00 1.00 1.10 1.60 1.00 1.57 1.99 R05 Labor accident 1.00 1.10 1.20 1.00 1.20 1.30 1.00 1.10 1.30 1.00 1.10 1.60 0.91 1.09 1.60 R06 Financial difficulties of contractor 1.60 1.60 1.70 1.10 1.30 1.40 1.10 1.20 1.60 1.60 2.40 2.70 1.10 1.17 2.73 R07 Unsuitable construction methods 1.10 1.20 1.30 1.00 1.10 1.20 1.00 1.30 1.50 1.00 1.10 1.30 1.00 1.15 1.50 R08 Inaccurate estimates 1.60 1.70 1.70 1.50 1.70 1.80 1.50 1.60 2.00 1.30 2.10 2.70 1.32 1.64 2.68 R09 Incompetent subcontractors 1.20 1.30 1.40 1.10 1.20 1.30 1.00 1.20 1.40 1.00 1.20 1.40 1.00 1.31 1.40 R10 Mistakes during construction 1.60 1.70 1.80 1.50 1.70 1.80 1.40 1.50 1.80 1.10 1.70 2.20 1.11 1.67 2.19 R11 Poor project management assistance 1.60 1.70 1.80 1.20 1.40 1.50 1.10 1.30 1.60 1.40 1.90 2.40 1.10 1.31 2.39 R12 Poor contract management 1.05 1.10 1.20 1.20 1.40 1.50 1.00 1.30 1.70 1.00 1.40 1.50 1.00 1.15 1.69 R13 Slow inspection of completed works 1.05 1.10 1.20 1.10 1.20 1.40 1.00 1.10 1.50 1.00 1.50 1.70 1.00 1.15 1.68 R14 Mistakes in design 1.70 1.80 1.90 1.10 1.30 1.40 1.00 1.20 1.60 1.20 1.40 2.00 1.00 1.29 2.07 R15 Design changes 1.70 1.80 1.90 1.50 1.60 1.70 1.20 1.60 2.10 1.60 1.80 2.70 1.20 1.62 2.68 R16 Additional works 1.20 1.30 1.30 1.10 1.20 1.50 1.00 1.20 1.60 1.00 1.40 1.60 1.00 1.28 1.60 R17 Slow information flow between parties 1.20 1.30 1.40 1.10 1.20 1.50 1.00 1.10 1.40 1.00 1.40 1.60 1.00 1.29 1.59 R18 Shortages of materials 1.70 1.70 1.80 1.10 1.20 1.30 1.00 1.20 1.60 1.60 1.80 2.00 1.00 1.77 2.00 R19 Labor productivity 1.70 1.80 1.80 1.10 1.20 1.30 1.00 1.20 1.50 1.10 1.70 2.20 1.00 1.19 2.20 R20 Unforeseen site conditions 1.70 1.80 1.80 1.10 1.40 1.50 1.10 1.20 1.60 1.50 2.20 2.50 1.10 1.20 2.54 R21 Price fluctuations 1.70 1.80 1.80 1.10 1.20 1.30 1.10 1.40 1.70 1.60 1.90 2.00 1.00 1.80 2.01 R22 Bad weather 1.00 1.10 1.20 1.00 1.20 1.40 1.00 1.10 1.30 1.00 1.30 1.70 1.12 1.63 2.29 R23 Obstacles from government 1.20 1.20 1.30 1.00 1.20 1.40 1.00 1.10 1.30 1.00 1.40 1.60 1.12 1.63 2.29 (Source: list of risks are developed from Long (2004) through the author’s own interviews with experts)

APPENDIX G. PLAN OF A PROJECT IN NAM ARUN CHAISERI LTD.

(Source: Nam Arun Chaiseri Ltd.)

APPENDIX H. BUDGET PLAN OF A PROJECT IN NAM ARUN CHAISERI LTD.

(Source: Nam Arun Chaiseri Ltd.)

final thesis_locnguyen

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