Great Northern Hotel Refurbishment Project Construction Essay

A risk management report was undertaken to determine potential risks that may occur alongside the refurbishment of Great Northern Hotel. The chief executive of RAM-led consortium, which has been selected by King’s Cross Central to refurbish the Great Northern Hotel, appointed our team to identify, analyze and develop proper recommendations for managing potential risks.

Our team used a cause-effect analysis based on a set of conclusions identified after several meetings with experts and brainstorming sessions to highlight areas of possible concern for the project. Another method used was to analyze historical records and reports from previous construction projects.

The results of the report outline the fact that, without an accurate risk management applied before setting the baseline for the project, various factors may affect the overall duration and the necessary budget to refurbish the Great Northern Hotel.

2. INTRODUCTION AND METHODOLOGY

This report was requested by the chief executive of RAM-led consortium, before the beginning of Great Northern Hotel refurbishment. Our team was asked to submit its findings by 26th of May, 2010.

The purpose of this report is to investigate what are the possible threats for this refurbishment project and to analyze how their impact can be minimized. Our team has responded to this request by developing a list of potential risks that might affect the refurbishment project and by carrying out a thorough risk analysis, as understanding the nature of risks is a precondition for a proper response, and also by suggesting appropriate recommendations for minimizing negative impact on the project. The objective of this report is not to eliminate risk or uncertainty, but to take a fundamental look into the future of the refurbishment project and to identify possible threats.

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By risk, our team understands the “possibility of something happening that can affect the prospects of achieving project goals” (Maylor, 2003, page 192). Nevertheless, our team also took into consideration several other risk definitions, all of them underlying the same idea. Some examples of definitions our team has worked with are listed bellow:

Risks are those factors that may cause a failure to meet the project’s objectives (Burke, 2003, page 253)

Risk is the expected consequences of an event and the probability that the event might occur (Kendrick, 2003, page 2)

The possibility of suffering harm or loss (Maylor, 2003, page 192)

Considering its limitations of identifying all risks that might affect the refurbishment project – as it is almost impossible to foresee all future events – our team used these definitions in order to outline major areas of risks for construction projects, especially for the refurbishment project.

To tackle risks, our team applied the risk management plan proposed by Burke (2003), which included the following steps:

Identify and categorize risks

Quantify and prioritize risks

Develop risk response/managing risks

Risk identification is considered to be the most significant part of risk management process (Burke, 2003), as risks that are not identified can have negative consequences on the project. For this step, our team chose to consider multiple techniques in outlining major areas of risk for the refurbishment project. Our main method implied categorizing risks, as this method can lead to the identification of specific problems (Kendrick, 2003). Our team mainly looked at project’s objectives to define potential external and internal sources for risks.

In doing this, our team focused on some of the methods indicated by Burke (2003), such as having meeting with experts and with members of the personnel to share risks experiences – as previous experience can contribute to risk identification -, having constant brainstorming sessions and also analyzing historical records and reports on previous construction projects. After collecting results from the methods mentioned, our team applied a cause-effect analysis to identify risks for the refurbishment project.

After having identified a range of potential risks, our team tried to measure the impact they could have on the project. Assessing how likely an event is to occur and determine the extent of the effect of the event (Maylor, 2003, page 195) is known in project risk management as risk quantification procedure. Risk quantification also implies undertaking a risk priority analysis (Burke, 2003), in order to establish what areas of risks to address first. For this maneuver, a Probability/Impact Matrix has been created to measure the level of risk and to prioritize potential risks.

Final step undertaken by our team was to develop responses for the identified risks. In risk management, after identifying risks, they can either be reduced or mitigated in some way (Maylor, 2003). There are several procedures to respond to risks (Burke, 2003), among which:

Eliminate risks – avoiding the risk by removing cause (Burke, 2003, page 262)

Mitigate risks – reducing risk probability and impact (Burke, 2003, page 262)

Deflect risks – transfer the risk to another party (Burke, 2003, page 263)

Accept risks

As eliminating risks completely cannot always be a successful procedure, our team has chosen to combine the above mentioned procedures and offered solutions for eliminating, mitigating and deflecting risks.

3. FINDINGS

3.1 GENERAL CONSTRUCTION RISKS

Before listing the results of the analysis undertaken for the refurbishment project, this report will outline some of the risks that are generally affecting construction projects. This information will contribute to a better understanding of potential risks a construction project may imply and it can influence part of the decisions concerning further risk monitoring and control for the refurbishment project.

Based on data collected from meetings with experts and with members of the personnel, from brainstorming sessions and from the analysis of different reports of previous construction projects, out team concluded that there are several ways of classifying risks in construction projects.

Our team has elaborated the following classification to underline possible areas of risks for construction projects:

Financial risks – which can include labor and material work or extra charges from contractors or suppliers

Time risks – which can include delays caused by different factors, major discrepancies between estimate and actual durations

Technological risks – which can include misinterpreted construction procedures or design assumptions or unplanned site conditions

Socioeconomic factors – such as environmental organizations or economic instability

Organizational factors – such as communication between workers, contractual relations

Operational risks – such as construction defects, labor risks, quality insufficiencies

Generally, data analyzed revealed the fact that construction projects are more inclined to risks, as they rely on multiple factors to achieve their goals, such as material suppliers, labor force, site conditions, quality surveillance and fixed budgets. Moreover, results also suggested that construction projects have a higher degree of uncertainty than other types of projects, as they can be easily influenced and affected by weather condition or political and economic climate.

The conclusion our team reached is that the refurbishment project can also be affected by the above mentioned factors and that a detailed risk management plan is compulsory to be developed for the project to reach its goals.

3.2 IDENTIFYING RISKS FOR REFURBISHMENT PROJECT

Results collected from our meetings with experts and personnel members, from our brainstorming sessions and from the analysis of previous reports on construction projects indicated that for the refurbishment of Great Northern Hotel multiple areas of risks should be taken into consideration.

From the areas identified, our team will outline through this report the first major categories of risks that could affect the refurbishment project. These categories are:

Time risks

Costs risks

Quality risks

A cause-effect analysis has been undertaken in order to identify time, costs and quality risks by considering the objectives of the refurbishment project. The findings are listed in the following pages.

For a better understanding of our analysis, our team included the objectives of the refurbishment project. The project has three main objectives:

Refurbish the Victorian-build Great Northern Hotel by early 2011

Constructing a new boutique hotel, with 94 luxury bedrooms, a bar and a restaurant by late 2011

Open the hotel in time for London Olympics 2012

By applying a cause-effect analysis, our team identified risks on time, costs and quality, their causes and effects. The risks are listed in the following pages:

I. Time risks

Severe delays in refurbishing the hotel

Major differences between estimate time and actual time in constructing the new boutique, the bar and the restaurant

Grand opening postponed with two months

Workers strike

Causes:

Personnel causes – illness, deaths

Technical problems – problems with work equipment

Problems with suppliers – equipments not delivered on time

Weak communication among personnel

Changes in contract between client and contractor

Lack of risk management among workers

Organizational culture conflicts

Weather volatility

Lack of detail work plans from contractor

Necessary approvals not given on time

Effects:

Severe delays

Slow progress

Delays in money allocation for work equipment

Project failure

II. Costs Risks

Insufficient budget for refurbishment

Higher costs for construction of new boutique

Currency fluctuation

Hotel not opened in time for the Olympics

Causes:

Increases in labor and material costs from suppliers

Higher bills from contractor on work progress

Instable economy

Emergency situation, such as extra equipment or extra personnel

Effects:

Over-budget

Slow progress

Activity stopped

Project failure

III. Quality risks

Poor building condition

Low quality refurbishment

Weak structure for new construction

Law quality of material used

Causes:

Unstable structure of old building

Lack of professionalism

Misinterpretation of work tasks

Incorrect design assumptions

Effects:

Delays caused by additional works

Objectives not achieved on time

Over-budget

Project failure

RISK QUANTIFICATION

Next step undertaken by our team was risk quantification, in order to measure risks probability and to establish their priority. This report includes a Probability/Impact Matrix for the risks identified.

The Matrix has been developed using the analysis results following our meetings with experts and staff members, our brainstorming sessions and from the analysis of previous reports on construction projects.

Risks Probability/Impact Matrix – Probability and Impact have been rated on a scale from 1 to 4, where 1 = Unlikely/Minor, 2 = Possible/Moderate, 3 = Likely/Major, 4 = Almost certain/Critical

Risks

Probability

Impact

1. Severe delays in refurbishing the hotel

3

4

2. Major differences between estimate and actual time in constructing new boutique, bar and restaurant

2

3

3. Grand opening postponed with 2 months

2

2

4. Workers strike

2

1

5. Insufficient budget for refurbishment

2

3

6. Higher costs for construction of new boutique

2

2

7.Currency fluctuation

2

1

8.Hotel not opened in time for the Olympics

3

4

9.Poor building condition

3

4

10.Low quality refurbishment

1

2

11.Weak structure for new construction

2

3

12.Low quality of materials used

1

1

By rating Probability and Impact for the identified risks, our team also prioritized them, as follows:

I. Major risks (Major Impact, Likely Probability):

Severe delays in refurbishing the hotel

Hotel not opened in time for the Olympics

Poor building condition

II. Moderate risks (Moderate Impact/Possible Probability):

Major differences between estimate and actual time in constructing new boutique, bar and restaurant

Grand opening postponed with 2 months

Insufficient budget for refurbishment

Higher costs for construction of new boutique

Weak structure for new construction

III. Minor risks (Minor Impact/Unlikely Probability)

Workers strike

Currency fluctuation

Low quality refurbishment

Low quality of materials used

RISK RESPONSE AND RECOMMENDATIONS

Based on the results of risk identification, quantification and priority, our team makes the following recommendations:

For eliminating risks, the client/contractor should:

Obtain necessary approvals before starting the refurbishment

Check material quality before beginning the refurbishment

Before signing contract with suppliers, include statements on fixed costs and material delivery schedule/replacement

Have more meetings between client and contractor before signing the contract, to clarify each detail

Severely check workers background before hiring them

For mitigating risks, the client/contractor should:

Name a risk management committee and include a risk management plan

Carry out condition surveys and measure surveys to establish building condition

Elaborate a risk management plan focused on individuals

Monitor timetables and ask for weekly detail work plans and proof on progress

Include weekly quality controls

Allocate extra money for unplanned events in the tendering period

Include morning meetings with workers to explain details on tasks

Offer common lunch for workers to improve communication

For deflecting risks, the client/contractor should:

Hire an Audit company to keep track of accuracy in billings and work progress

4. CONCLUSIONS

This report outlines what potential risks can a refurbishment project encounter alongside its duration. By using appropriate methods for identifying the risks and their causes, the report highlights what impact these risks can have on the project and to what extent they can be measured and prioritized. The report also includes a set of recommendations for eliminating, mitigating or deflecting potential risks.

By making this report, our team reached the following conclusions:

Most decisions in construction projects are based on incomplete information with an associated level of uncertainty about the outcome (Burke, 2003, page 252)

In construction/ refurbishment projects, level of uncertainty can reach a high level in multiple areas

No project should start before developing a risk management plan

Managing risks should follow fixed steps – Identification, Quantification, Prioritizing and Risk response – and use as many sources as possible when reaching these steps

Risk response should combine different procedures to eliminate, mitigate, deflect or accept risks

Before deciding for one of these procedures, a cost/benefit analysis should be undertaken

For refurbishment projects it is very difficult to identify all risks, as they are more inclined to risks than other types of projects and can be easily affected by politics or by economic climate

This report also includes outputs from Microsoft Projects on project scheduling, resources, task and finances developed by our team, in the Appendices chapter.

This report counts 2365 words.