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The construction life cycle of a project has four distinct stages, planning, design, construction and completion (Cushman et al 2001). Management planning should be instigated at the start and developed through the project stages. Effective communication is essential to the management process, so that essential data can be shared and used to manage a scheme (Chitkara 1998).
A successful project is, on time, within budget and to the client's aesthetic, functional and quality requirements. It is more likely to be profitable and could lead to procurement of further work (Flanagan and Norman 1993).
Westland (2007) argues that a number of separate but inter-related plans are required to effectively co-ordinate, control and monitor a project through its life cycle. Each deal with separate management issues but are closely inter-related (Woodward 1997).
A project plan details the activities, tasks and timeframes of a project. It highlights critical and non-critical activities. A resource plan is based on the project plan; using the detailed design and specification, with knowledge of construction materials, equipment and manpower; it forecasts the labour, equipment and materials required for each activity and task.
Statistics show that the construction industry had approximately 28% more bankruptcies than other industry in 2010 (Construction Europe 2010). A major cause of bankruptcy is inadequate cash flow resources. Monitoring cash flow is important to ensure that the contractor has sufficient funds or credit to cover his financial obligations (Harris et al 2006). A financial plan must include monitoring cash flow by means of resources costs, interim and final payments received and paid out (Westland 2007).
Quality must be planned and monitored with targets, assurances and quality control measures to ensure the client is handed a functional scheme that satisfies all design and planning regulations (Chitkara 1998).
Construction is inherently a dangerous industry. Statistics show that there is an unacceptable rate of 2.2 deaths per 100,000 in construction, compared with 0.9 for manufacturing (www.hse.gov.uk ). A project health and safety plan will minimise accidents and casualty rates.
It is likely that a project will encounter problems during its life cycle. The impact of these problems will depend on the hazard involved; however a problem once presented must be dealt with and this takes, time, effort and money (Flanagan & Norman 1993). Risk management reduces the likelihood of an unforeseen problem occurring (Akintoye & MacLeod 1997).
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It is believed that management of risk is the most important issue during the construction project life cycle, as it increases the likelihood of success. This view is shared by Cushman et al (2001) who state that litigation will often result when project risks have not been fully addressed.
Risk management is essential to a project as it involves identifying, assessing and evaluating, potential risks at every stage of the project life cycle. It does not necessarily remove a risk but it prioritises risks in terms of their potential impact on a project with respect to time, cost and quality. After a risk is identified, the financial consequences of it occurring can be calculated. The likelihood of a risk occurring can be assessed and the risks can be prioritised according to impact on a project (Clough et al. 2000).
If risks are known and quantified, a project team decide upon mitigation and control measures. A risk can be reduced by making changes to an activity such as the design, a material or construction process. It can be avoided altogether or to can be off-loaded to another party or by insuring against it (Edwards 1995).
In this way, risk management informs every other management process. A risk assessment of resources for example, will highlight the likelihood of a particular product being unavailable and provide a suitable alternative. A risk assessment of project health and safety will highlight dangerous construction practices, for example working at height which can be controlled by changing the design or by using off-site manufacturing techniques (Edwards 1995). In effect risk management provides a back-up plan should thing go wrong.
A fundamental problem in management is demonstrated by the new Wembley Stadium project. The client WNSL chose to avoid all risk, by off-loading the risk to the contractor. Multiplex, the contractor, agreed to a lump sum, fixed price contract valued at £352million.This may appear to be a great incentive to Multiplex to complete on time and within budget, however the strategy will only work if the contractor has sufficient resources, time and cashflow (Myliu 2007). The pressure of this risk filtered to others on the team. Multiplex hired Cleveland Bridge to fabricate and erect the roof, for an agreed £60million fixed lump sum. However Cleveland eventually walked off the project in 2004, claiming serious delays due to late and incomplete design and frequent design changes (Myliu 2007). The project finished late and substantially over -budget. (www.designbuild-network.com ).
This is an example of a lack of management control on critical path activities such as the essential steel design and fabrication. It could be argued that risk analysis would have identified this risk and included mitigation measures such as, but not limited to, amending the design, ensuring the project plan allowed time for a signed off completed design prior to it being delivered to the sub-contractor and defining clear lines of communication.
During the construction of Terminal 5 at Heathrow, the client BAA, believed that even if risk can be offloaded to another party; the client would ultimately suffer if a
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project was late. BAA therefore accepted all of the risk and mitigated this risk by taking out £4.0 billion worth of insurance They imposed risk control measures by ensuring that all parties were involved in risk analysis and management from the concept stage; a shared information system was used to avoid the use of superseded data. The project was delivered on time and within the budget at £4.3billion (Myliu 2007). This project demonstrates that using risk management techniques can fundamentally improve the likelihood of a successful project. (www.terminal5.mottmac.com ).
"A well-planned, carefully monitored and controlled contract reflects directly on the profitability of the contract" (Harris & McCaffer 2001: 66).
Issues such as programme, quality, cost and safety can be planned, using technical ability, knowledge and experience. It is argued that a project can only be controlled if there are no surprises for the project team. Risk management empowers the project team to identify potential problems, put control measures in place or to transfer the risk to an appropriate source (Edwards 1995).