Risk And Value Management Construction Essay
Value management aims to add value to projects in terms of time, cost and quality. It is a service that maximises the functional value of a project by managing its development from concept to occupancy through the audit of all decisions against a value system determined by the client. This service is achieved through the application of a job plan. Value engineering is a part of value management which considers specific aspects of the design, construction, operation and management. It is helpful for reducing wasteful processes and inefficiency in specific aspects of the design, construction and maintenance. Workshops are organized to enable stakeholders to participate in defining and achieving their needs. Issues of clearly defined objectives of the project, the various alternatives and the choice of the correct one, health and safety, sustainability, design quality, buildability, operation and maintenance and disposal should all be considered during value management reviews and evaluation of options
Value management and value engineering should be carried out at regular stages in the project. They can be used for (i) establishing what value means to the client in terms of business benefits and priorities, (ii) identifying and agreeing business needs, (iii) identifying and evaluating options (including Private Finance Initiative options) for meeting business needs, (iii) selecting and agreeing the best option to meet business needs (that is, confirming whether or not a project is required), (iv) defining clearly and agreeing the project objectives (through stakeholder buy-in), (v) selecting and agreeing the best project option, (vi) setting and weighting the selection and award criteria for the appointment of the integrated supply team, (vii) evaluating the integrated supply teams’ bids against the selection and award evaluation criteria, and (viii) refining the design to maximise value and eliminate waste and those aspects not directly related to meeting the project objectives
Value engineering usually follows a job plan, which involves a series of steps that need to be followed in order to determine the most promising options or proposals. The steps are (i) orientation/identification - this involves the identification of the business problem, the customer needs and priorities, (ii) information - this step involves the collection of information/data regarding values, costs, risks, programme and other project constraints, (iii) speculation generation - this involves the generation of ideas to meet the needs and priorities previously identified. This is usually best undertaken via a workshop with all the stakeholders and project team members. The principle is that ideas are generated in a ‘criticism-free’ atmosphere, which promotes free thinking and creative ideas, (iv) idea evaluation - this step identifies the most promising options from the last stage, (v) idea development: the most promising options are developed and appraised, (vi) recommendation/decision/implementation - the results from the last stage are presented to the workshop group and a decision is made on which proposal to pursue. An action plan is prepared to take the proposal forward, and (vii) feedback - the success of the options implemented is assessed to provide lessons learned and inform future projects
Such an approach provides benefits like (i) simple, clear definition of stakeholders needs, (ii) identification and analysis of all alternatives and the correct option to be considered, (iii) proposing how value for money can be achieved, (iv) proposing means to reduce waste and inefficiency and therefore prevent unnecessary expenses, (v) improved teamworking with joint ownership of solutions.
Risk can be defined as uncertainty of outcome, whether positive opportunity or negative impact. Some amount of risk-taking is inevitable, whatever the project. There has to be a deliberate acceptance of some degree of risk because the value to the business makes it worthwhile. Risk management includes all activities required to identify and control the risks relating to the preferred project option.
Risk management in construction projects involves identifying and assessing the risks in terms of impact and probability, establishing and maintaining a joint risk register, agreed by the integrated project team, establishing procedures for actively managing and monitoring risks throughout the project and during occupation on completion, ensuring that members of the team have the opportunity to engage in a dialogue that will promote agreement of an appropriate allocation of risk, updating risk information throughout the life of the project, ensuring control of risks by planning how risks are to be managed through the life of the project to contain them within acceptable limits, allocating responsibility for managing each risk with the party best able to do so. Management of risk is an ongoing process throughout the life of the project, as risks will be constantly changing. Risk management plans should be in place to deal quickly and effectively with risks if they arise.
Risks should be allocated to individual risk owners within the integrated project team, who should fully understand the risks for which they are responsible. The risks should be managed actively throughout the life of the project in accordance with a risk management plan which should deal with all risks, whether retained by the client or transferred to others in the integrated project team. The business case should include a time element and the risks of that changing should be kept constantly under review.
The risk register is the document used to record the above information. It should be maintained collectively by the integrated project team and regularly updated throughout the project lifecycle, as risks will be constantly changing. Risk management plans may be recorded on the risk register.
The aim of risk management is to ensure that risks are identified at project inception, their potential impacts allowed for, and where possible the risks or their impacts minimised. Risk management involves several stages, that is (i) risk identification – to determine what the risks are, (ii) assessment of risks to determine the probability of occurrence and potential, impact or severity, (iii) taking appropriate remedial actions, (iv) monitoring, updating and controlling risks and (v) feedback on how well risks were managed and lessons learned.
After a risk’s possible causes and effects have been considered and fully understood, a risk response should be decided. The management actions that may be taken include either (i) avoidance – where risks have such serious consequences on the project outcome that make them totally unacceptable, measures might include a review of the project objectives and a re-appraisal of the project which may lead to the replacement of the project, or its cancellation, (ii) reduction (including elimination) – typical action to reduce risk can take the form of redesign, more detailed design or further site investigation to improve the information on which estimates and programmes are based, use different methods of construction: to avoid inherently risky construction techniques, or change the procurement route: to allocate risk between the project participants in a different way, (iii) transfer – to another party in the integrated project team, who would be responsible for the consequences should the risk occur. The object of transferring risk is to pass the responsibility to another party better able to manage it, (iv) retention/acceptance – risks that are not transferred or avoided are retained by the client although they may have been reduced or shared. These risks must continue to be managed by the client to minimise their likelihood and potential impact. A ‘do-nothing’ approach is unacceptable. Even when risks have been transferred, the client still needs to track management of the risk to ensure the aims of the project continue to be delivered satisfactorily.
In Mauritius there are currently many major construction projects that are being realized, most of them from the Public Sector. Other projects have recently being completed while there are others that need to be carried out, mainly from the Public Sector. Value and risk management seem to be at embryonic stage in most of the projects. In some projects, the client objectives have not been clearly defined, in others stakeholders have not been involved, proper risk management process has not been carried out, alternate options have not been considered, value management has not been performed. These have resulted in project being abandoned after investing huge amount of money, protests from the public and other socio-cultural groups leading to back-pedalling of projects or legal actions being taken, accidents due to scaffold collapse causing deaths and serious injuries, with the consequence that prohibition notices have been served by the Ministry of Labour. A few examples are the Ferney by-pass project, Pailles-Terre Rouge link road, City Powerwaste recycling/energy production project, Trianon Shopping Mall of Mauritius, Ebene Cybercity.
The Ferney by-pass project consisted of creating a 25-km South Eastern Highway through the Valley of Ferney, aimed at primarily to promote tourism, by providing a shorter route from the airport to east coast resorts. This Government $19 million project was funded by the African Development Bank. The Valley of Ferney offers a unique forest vegetation with endangered tropical birds. The project caused great upheaval all over the island with many environmentalists and conservationists voting against such an act stating that such a project will destroy the natural biodiversity. Protestors argued that an alternative could have been upgrading of existing road or construction of another road passing through the villages to the benefit of local residents who could easily set up antique shops, restaurants and the like. In this way, neither the stakeholders had been consulted nor alternatives of the project considered. This shows pure lack of value management. The result was the project was rejected after the analysis of the damages it would cause to the ecosystem, reinforced by petitions submitted to the government and the Government suffered great loss in this project, in terms of initial expenses and damages for breach of contract with the contractors.
Pailles-Terre Rouge link road is a Government project to alleviate the problem of traffic congestion towards the Capital Port Louis, by the creation of a ring road linking Pailles to Terre Rouge, as an alternative to the route towards the Capital. The project has been halted on several occasions due to protests from the local inhabitants causing delay in project completion. Lack of stakeholder involvement is the major cause of such a problem.
The recent construction of a highway in the region of Caudan by the Government, still in its concern to reduce traffic congestion towards the Capital, has been a source of major critics. The project scope has been changed on three occasions, the cost almost doubled and the project delivered with a delay of nine months – a clear case of absence of Value Management with no clear cut definition of the project scope, no proper management of change in terms of scope, cost and schedule.
The Bagatelle Mall of Mauritius, situated in the area of Bagatelle is a recent Private Sector project. The Promoter – ENL Limited has invested around one billion rupees in this major project, which attracts diverse shoppers from all over the island. Mall of Mauritius blends the world’s most desirable brands with shopping convenience along with world class entertainment and personal attention all in one magnificent setting. However, recently dark clouds of problems have been looming over its heads. Taxed already to cause the foul smell which emanates from the freeway, the Mall of Mauritius is now accused of discharging its wastewater in the river Martingale, located not far from the site. The river water ultimately merges with the Bassin Canard from where the Central Water Authority draws out water to be distributed to the population of the vicinity. Water samples were then taken from the rain water/storm drain pipe to be analyzed. Based on the test results, the Ministry of the Environment and Sustainable Development issued a Prohibition Order to Bagatelle Mall of Mauritius to stop all kinds of discharge of water in the river coupled with a fine of Rs 50 000. They were equally sanctioned by the Ministry of Health due to bad odor emanating from the discharge and they spent around Rs 15 M in the upgrading of the filter treatment. The problem was due to an overflow of wastewater used for washing the thrash storage area. The excess of this waste water was mistakenly directed into the rainwater/storm drainpipe which terminates into the river. Such flaws in this Mega project is due to lack of value and risk management. Involvement of all stakeholders and carrying out Value and Risk Management activities throughout the lifecycle of the project would have highlighted such issues and value would have been added accordingly through anticipation and early mitigation.
The Ebene City Mall of Mauritius project with an estimated cost of Rs 11 billion on a surface area of 53,000 square metres, had to be abandoned shortly after start of construction because of the construction of another Mall of Mauritius less than two kilometres away. Had value management been performed, the Promoter would not have lost time and money in this project.
Lack of safety and risk management in yet another recent major construction project in the region of Ebene has led to collapse of the scaffolding causing 2 deaths and 17 injured. The Senior Site manager and Scaffolding Supervisor of the main construction contractor were arrested and charged for involuntary homicide. A prohibition notice was equally served on the Main Contractor, Ireko Ltee.
The actual Gamma-Covanta energy production project at La Chaumière, with incineration of waste has raised serious national protest on ground of severe environmental pollution and release of toxic waste in the neighbourhood. Value management was absent from the start, alternatives of the project like alternative rubbish disposal with accompanying land and water-table pollution from a land-fill, or methanisation project, if discussed with all the stakeholders including environmentalists would have produced concrete proposals and risk management would have taken into account the type and amount of toxic waste into the environment, the direction of blowing of the trade winds, the relative effects on carbon emissions and subsequently on global warming. Proper Value at the Strategic level and Value and Risk management at the tactical level would undoubtedly have brought value to the project.
From the above examples, it is evident that in the majority of the construction projects, absence or inadequate application of value and risk management at different stages of the project life cycle has had negative impact on the project. There are however recent projects carried out both by the Public and Private sector where early involvement of all stakeholders and application of Value and Risk Management have produced value to the project in terms of quality, cost and schedule. The MCB Headquarters construction in the region of Trianon, the first phase of Terre Rouge Jin Fei project, Construction of Midlands dam, Brand-Baie La Croisette Shopping Mall are examples of such successful projects.
There are several future mega projects that the Government of Mauritius intends to go ahead with. They include the construction of light rail system to alleviate the traffic congestion towards the capital with an estimated cost of 25 Billion rupees, the construction of the Bagatelle Dam to assist in the water shortage problem, Terre Rouge Jin Fei Phase II.
For all future projects to be successful in terms of quality, cost and schedule, it is important the Government comes forward with a Procurement Process similar to the OGC3 Procurement
There are three main construction contractors in Mauritius which are involved in most of the major construction projects. They are – (i) The General Construction Co Ltd, (ii) Rehm Grinaker Cons
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