Relationship Between Management Support For Risk Management Processes Construction Essay

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In this section, the student should introduce the major variables of his/ her study and relate them to previous research and theory. To do this successfully the student needs to look [or studies or articles published as currently as possible so that whatever is discussed or reviewed is not something out-of-date or even irrelevant. Even if a major variable is not included in the study, the student should mention this fact, to indicate that he/ she is aware of the problem. The background discussion will highlight the current state of knowledge and possible gaps in the area. Hence this section will indicate the researcher's intention and reasons for undertaking this research. For applied research studies, the background section will discuss and highlight the management problems or organizational situations that warrant this study.

Research Background

Due to various uncertainties and unforeseen risks, the majority of construction projects are going through budget overruns, schedule slippages or disagreement on the scope of work or work quality or both. Due to the complexity of the construction projects the risks that appear in all construction project processes starting from conceptual design and preliminary budgeting up to the last payment and the end of probation period and project closeout; are so difficult to be bound or predetermined.

Although construction business is started since human left caves, the rate and building complexity is strictly related to the general wealth and the spread of civilization.

In recent years, intensive research and development has been done in the area of project risk management. It is widely recognised as one of the most critical procedures and capability areas in the field of project management1 (E.g. Artto, K., Kujala, J., Martinsuo, M., 2005, Royer, P.S., 2000 and Turner, J.R. , 1999). Voetsch, Cioffi, and Anbari2(Voetsch, R.J., Cioffi, D.F., Anbari, F.T., 2004) found a statistically significant

relationship between management support for risk management processes

and a reported project success. However, shortcomings and improvement

opportunities in this field3 (Kähkönen, K. in Artto, K., Kähkönen, K., Management of Uncertainty, unpublished) have been identified. Some of the shortcomings

are related to the ever increasing complexity of projects4(Cheng, E. W. L., Li, H., Love, P.E.D., 2001). Subcontracting is expanding since many companies are focusing solely on their core businesses, which results in more complex project networks and greater

numbers of project participants. The scarcely studied viewpoint in the

project risk management field is related to this complexity. Although the

interaction between project actors occurs at many different levels, research

done to study how networks act in preventing or mitigating risks is


Construction projects are characterized as very complex projects, where

uncertainty comes from various sources5 (e.g. Miller, R., Lessard, D., 2001). Construction projects gather

together hundreds of stakeholders, which makes it difficult to study a

network as a whole. But at the same time, these projects offer an ideal

environment for network and risk management research. Additionally,

construction projects are frequently used in management research, and

several different tools and techniques have already been developed and

especially for this type of project. However, there is a gap between risk

management techniques and their practical application by construction contractors6(Baloi, D., Price, A.D.F., 2003).

This study tries to find reasons for this gap and works to decrease it. Special applications for construction projects are discussed in the literature review.

This study is based on the assumption that by understanding better both

the relationships in a project network and risks related to the network

structure, project risk management can be more effective. It has already

been recognized that a clear understanding of the risks born by each

participant leads to better risk allocation7. The objective of the study is to

find means of risk management that can be utilized by the network and to

make new suggestions on the use of these risk management methods. It is

of a particular interest to find the means to manage those risks that are the

most effectively managed with the co-operation of several project actors.

Initially however, the relationship between the existence of a network and

the existence of risks needs to be established.

This study was conducted in the later part of the year 2005 as a part of the

"Innovative Cooperation in Construction Projects" (InCoPro) research

project. The study started in June 2005 with a literature review and

interviews that were made during July and August 2005. The study was

completed in March 2006.

b. Research Problem(s).

The background discussion will lead to statements of the problems. which will be addressed by this research.. Problem statements can be presented LD the form of research questions. In the problem statements, the student should highlight the variables of concern and the type of relationships between them. The subjects of the study or the target group should also be mentioned.

Research problem

Contemporary project management practice is characterised by late delivery, exceeded budget, reduced functionality and questionable quality (Williams, 1999) and while risk management is a recognised practice that helps client deliver projects on schedule and within cost (Project Management Institute 2002), risk management performed in the construction industry has traditionally been that of gut feel or series of rule-of-thumb (Al-Bahar and Crandall, 1990). Consequently, project risks are often not adequately dealt with (Thomason and Perry, 1992) and complexities of projects, locations types of contacts are significant contributions to risks in construction projects (Ahmed et al. 1999).

Clients' estimating policies usually focus on the preparation of unlikely to be exceeded but not excessively conservative estimate (Flyvbjerg et al., 2002). In the case of highway client organisations, this usually means that the estimate prepared at any stage of a project has a 90% confidence factor of not being exceeded at the cost-at-completion (Queensland Department of Main Road, 2000).

Cost overruns in transport infrastructure projects do not isolate from other uncertainties or risks. Cost overruns combined with other deviations and uncertainties translate into significant financial risks. Design/construction risks and financial risks interact and affect the entire project. Scope changes or optimistic cost estimates, and delay in construction due to external or internal factors often yield cost overruns. Political atmosphere and financial issues also contribute to cost overruns. Those risks due to social or political factors are important. In this research, risks in design, construction and financial affecting project budget and schedule are the main focus because of the unmanageable characteristics of political risks.

Transportation projects have historically experienced significant construction cost overruns from the time the decision to building been taken by the client (Molenaar, 2005). To produce accurate construction programmes, three conditions need to be met. Firstly, an accurate assessment of the future funding (i.e. supply of funds) need to be available. Secondly, the cost of individual projects needs to be accurately estimated. Thirdly, any potential project risks that can lead to cost increases when the facility is constructed are to be adequately identified and managed accordingly (Wang and Chou, 2003).

Project owners, such as highway agencies, are usually engaged in specific type of construction projects with unique features. For example, highway construction projects are characterised by their complexity, with their greatest risk lying below ground level due to the relatively larger footprint, as compared with say building structure (Halligan et al., 1987). Project risk can be derived by reviewing historical data and thus ensuring consideration is given to potential cost overrun (Touran, 2003). Historical data may be used as a guide; however estimators and project managers also use their experience and professional judgement to weigh the competing factors to arrive at the most likely value (Yeo, 1990).

The analysis of project risks is a necessary step for the improvement of any given estimating system and can be used to diagnose trouble spots and to pinpoint areas where greater improvement can be obtained (Touran, 2003). Risk analysis methodologies have been developed and implemented over the years in many industries. Transit projects generally have large scales and have various parties involved including many related communities and numerous ordinary people who might become the potential clients. The unique characteristics of transit projects make project management and risk analysis more important than in other project sectors.

A continuous risk analysis is not a totally new concept in transportation infrastructure industry. New Zealand Transport Agency (NZTA) is government organization looking after all transportation activities within New Zealand, NZTA states that risk analysis and risk management are continuous processes that start at the project inception stage and proceed through to project completion and ideally should involve all relevant parties (New Zealand Transport Agency, 2007).

However, current practices seldom incorporate this concept in real transportation projects, due to various reasons, such as cost effectiveness; difficulty in seeing the benefits; human/organisational resistance; lack of accepted industry model for risk analysis; lack of dedicated resources; lack of expertise in the techniques; lack of familiarity with the techniques; lack of information; and lack of time were low to moderately relevant (Terry Lyons and Martin Skitmore, 2004). Terry Lyons and Martin Skitmore have conducted a survey concerning the usage of risk management techniques. The survey results on the factors preventing organisations from implementing risk management showed no dominant reason for this , the survey results also indicates that the use of risk management is moderate to high, with very little differences between the types, sizes and risk tolerance of the organisations, and experience and risk tolerance of the individual respondents and risk management usage in the execution and planning stages of the project life cycle is higher than in the conceptual or termination phases. This contrasts with the view that risk management application in the conceptual phase is the most important.

Stakeholder management, i.e. the involvement of all relevant parties in the project is also critical factor to success of every project in every organisation, and the ultimate purpose of every project is to satisfy stakeholders. To help ensure a successful project, there is need to continually identify the stakeholders, determine their needs and expectation, and then mange those needs and expectations. Managing the expectations helps to increase the probability of project success by ensuring the stakeholders understanding the project benefits and risks. This enables them to active supporters of the project and to help with risk assessment of project choices (Project Management Institute, 2008). The advantages of an effective early stakeholders dialogue will be mutual understanding of project goals and interests, early identification and dissolve of possible issues preventing costly incidents and juridical and regulatory conflicts leading to time and cost overruns. The establishment of shared agreement within the initiation will minimize surprises and provide a higher level of acceptance from the project team, client and stakeholders (Martin and Green, 1995).

c. Objectives of the Study

The objectives of the study should be stated clearly. This is important because the results and achievements of the study will be evaluated based on these stated objectives. The objectives of the study must be linked to the issues and problems stated in (b).


The objectives of the study are to:

Explore risk management frameworks with focus on the New Zealand transport risk management methodology;

Analyse risk management process applications to identify risk analysis techniques;

Undertake risk management processes comparison to identify key points that potentially contribute to innovate and improve the risk analysis techniques for the New Zealand transport projects; and

Establish prospective risk analysis framework that effectively support risk project management to achieve ultimate project risk management.

d. Significance of the Study

A research work is justified if it can contribute something to theory building and practice in its field as well as policy development in the area. Hence the student should be able to highlight the significance of his/her study based on these considerations.

Aim and Justification of the study:

Planning and programming future highway construction projects are vital important tasks in highway organisations (Wang and Chou, 2003). A construction program outlines how highway funds are to be spent over time and any deviation from the stated program often brings a quick response from the public, the press and politician. When this occurs, the highway organisation loses creditability and time is often taken defending deviation from the published program (Flyvbjerg et al., 2002). On the other hand, if a highway organisation can produce realistic program estimates, especially at the decision-to-build stage that it is able to abide by, then the agency's image can be enhanced.

Risk management is one of the components that have high level of influence on the project program, any potential project risks that can lead to cost increases when the facility is constructed are to be adequately identified and managed accordingly.

The construction industry, perhaps more than most, is overwhelmed by risk. Too often this risk is not dealt with satisfactorily and industry has suffered poor performance as a result. Infrastructure projects being huge in nature and involving a large amount of money, any sort of wastage (time, resources, and etc.) lead to huge monetary losses. The losses are due to various risk associated with such mega projects. Reliable risk analysis is important to transportation project cost benefit analysis and managing the project risk to have better project cost/time forecasting and management.

Little research appears to exist that relates the client project risk in highway construction and their correlation to the identification of risk factors specifically in highway projects types and their relationships to budget cost overrun (Williams, 2003).

The aim of this research is to identify areas in the process of various risk management frameworks potentially contribute to improve risk management in transportation sector and be a factor to minimise the impact of the risks in the transportation projects.

e. Definition of Terms

All variables used in the study should be operationally defined so that we know the bases upon which the research was carried out. The student should state clearly the sources of these definitions if these were taken from somewhere else, or explained how these were developed if these were developed by him/her self.

f. Limitations of the Study

In this section, the limitations and constraints of the research should be highlight Some common limitation faced by researchers are, for example, limitations due to small sample size, measuring instruments, or generalizability of the results. (Some writers prefer 10 discuss limitations of the study at the end of the research report, that is, at the end of Chapter Five: Discussion Chapter. Students should discuss with their respective supervisors about this).