Risk management in highway construction

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1.1 Background describe

Risk management is vital when tendering for construction contracts. Risk is described by Atkinson (2001) as the "probability of an occurrence of a hazard and the magnitude of the consequences". Consequently risk can be considered as the likelihood of an experience occurring and the resultant effect of that experience if it takes place.

As defined by RICS (2009) risk management is a means of processes where risks are identified, analysed and managed. It is a constant cycle that begins at the pre-tender stage; this means that risk can be priced into the bid and continues after post contract stage. During the different phases of a project, new risks will emerge throughout the contract. Identifying in advance allows quicker mitigation; to reduce impact risk has on the project.

This study has examined the inaccuracy of pre-tender risk management by using both pre-tender and post contract risk registers. As well as risks there were opportunities and these were also recognised in the processes of risk management.

This subject area was chosen to be researched after discussion with line managers and work colleagues, during my 2010 placement year with Sir Robert McAlpine (SRM). This topic was considered as an ideal subject area for a research project because SRM were improving their risk management procedures.

Therefore the plan of the study was to feedback findings, to further enhance the Tender risk management process. The line manager gave me risk registers for two different project types, and explained how SRM assess risk at all stages of a job. The emphasis being on highway construction, as this information was available from my placement and SRM.

1.2 Rationale

The subject of what to research developed from consultations with colleagues and the line manager at SRM. The line manager was involved in risk management and was working to improve SRM's pre-tender risk process to make it replicate the post contract phase. This therefore illustrated a requirement in the business and indeed construction for research in to this topic area. The main reason for eventually electing the subject area of risk was the open access of information provided by SRM and the contact with knowledgeable personnel in my placement. This gave a better understanding of the processes currently used, which allowed me to gain a greater grasp of the subject area. Also access was gained during placement to potential data in the form of contract and tender risk registers from various Highway works undertaken by SRM.

The aim, objectives and hypothesis came about from carrying out the literary research, it wasn't until that point that the information was collected, and a plan formulated of how to use it. The research aimed to understand how the pre-tender risk process may be inaccurate. After that considering how it could be improved and whether it was possible to do so. Subsequently, recording any conclusions of pre-tender process in order to develop and better it.

1.3 Aim, Objectives and Hypothesis

1.3.1 Aim

To see whether the post contract risk process identifies significant additional risks that the pre-tender risk process failed to identify and thus determine how inaccurate the pre-tender risk process is.

1.3.2 Objectives

Identify processes currently used to manage risks at post contract and pre tender stage in recognising and measuring risks.

Analyse whether the key additional post contract risks identified were included at pre-tender stage.

Compare SRM's risk management processes with other contractors and analyse to find the best solution.

If possible, note any resulting conclusions and input results into the pre-tender risk process to produce a new accurate tender risk management.

1.3.3 Hypothesis

The post contract risk process in Highway construction successfully identifies additional risks and as a result pre-tender appraisal is inaccurate.

1.4 Overview of work done / Methodology

1.4.1 Literature Review

In order to understand the processes used to manage risk in the industry a literary review was embarked on. This meant the research would gain an appreciation of how risk is perceived by the industry, as prior to this my personal experience had only come from SRM's perspective and the processes they use. In order to gain real understanding and to funnel clearly on what my hypothesis stated, it was decided to split the literature review into two sections. One section, comprising of processes used by industry, taken from an assortment of books. The second section being that of SRM's highways process and accompanying documents. This makes it possible for an assessment to be conducted between SRM and the other contractors, so as to gain a better view of how Risk management at different stages of a contract work in Highway works.

1.4.2 SRM Projects

The 3 SRM projects looked at were M1 J25-28, A19 upgrade (both Highways Agency) and M74 Glasgow council, they were all Highway maintenance contracts although they differ slightly. A19 was Term Maintenance Contract (TMC) whereas M1 J25-28 and M74 upgrade were (MAC) contracts.

When examining the A19 upgrade the contract risk register was acquired but the tender risk register for this contract was not. However the contract risk register for this project was compared with a tender risk register from another contract. Not ideal but the only solution at the time. The majority of the risks are common and on most projects registers, so comparable/related risks were drawn from the tender register, and included in the A19 contract risk register.

An evaluation was done involving the contract risk costs, and tender risks. This was done by incorporating the maximum, minimum, most likely costs and the probabilities from contract and tender appraisals. A total assessment for each risk occurred via averaging the maximum, minimum and most likely costs then multiplied by probability of risk occurrence. All risks types were identified, in order to distinguish trends in risks that were identified at tender stage and found at contract stage or were not found at all.

For M1 J25-28 a similar analysis to the one for A19 upgrade was done, except it compared the contract risk register to the M74 tender risk register. The M74 contract risk register was distinctive to M1 J25-28 and A19 upgrade registers as it didn't contain costs. Every risk was divided by its probability and impact, whether that was high, medium or low assessment. Having a pre-tender risk register for this project, meant risks from the tender risk register was matched up with the contract risks. Assessing if each risk was covered was done by assigning costs and probabilities to every risk. To find the overall assessment, the probability and cost were multiplied. These costs were then evaluated against the overall pre-tender costs, as with the A19 upgrade.

1.4.3 Interviews

Interviews via telephone were conducted with a few companies to really see what processes are used at post contract and pre-tender. Also to find out how precise these methods are. Companies interviewed were:

Morgan EST.

Vinci

Balfour Beatty

May Guerney

1.5 Overview of main conclusions

1.6 Guide to the report

Chapter by Chapter overview of report:

1 - Introduction - An opening on risk management in relation to the project and validates the basis for choosing the subject area. It also states the aims, objectives and hypothesis which the project is established upon, as well as outlining the work done and an overview of the Conclusions.

2 - Methodology - Explains the methods used to investigate my hypothesis, from Literature review, approaches used data collection, analysis and interpretation of results. This describes the reasons for using the methods chosen and any research boundaries/ limitations.

3 - Literature Review - This chapter contains my understanding and background reading for the subject area. This was done by, studying the risk process used in management. Allowing a greater comprehension of risk in Highways work, and how it's viewed and used.

4 - Results and Analysis - Confirms the results of the research, and the subsequent analysis for the SRM projects and other contractor's interviews. It outlines the assessment made concerning the pre-tender risk register and the post contract risk registers. From this it then cross-examines the data so as to be able to test the hypothesis.

6 - Conclusions and Recommendations - This analyses all the results in relation to the hypothesis and whether they support it or not. It details any limitations that affected the project, while also imparting proposals for both industry and any future dissertations.

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