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Risk is very common in construction industry and it can occur at any stage of the project. It could be predictable or completely unforeseeable. The potential effects of risks range from trivial inconvenience to project disaster. These risks will have a monetary value or time associated with them. If these risk are not monitored and controlled. It will give impact on project in terms of time which delay the project or incur a cost which could be due to further work needing to be done or interest charges because of the delay. Risk management is require to identify all the foreseeable risks, assessing the chance and severity of those risk and then deciding what might be done to reduce their possible impact on the project or avoid them altogether.
According to the incident above, crimes will be one of the risks that shall put more focus on it. This risk is considered as a large risk. If crimes keep often occur during this project, it will give a huge impact to the client in the certain of time and cost. Common forms of crime in the construction industry are theft, vandalism and health and safety neglect. These crimes contribute to the UK industry suffering millions of pounds worth of losses every year. These costs relate to not only the crimes themselves but also the resulting financial penalties, such as increased insurance premiums and project delays.
Constructions for Olympics 2012 have started and this will cause uncertainty over the source and materials in this project. Previously, there is high demand of materials for construction of Olympics 2008 in China which lead shortage of materials in construction industry especially steels. A lot of projects in China need to pause or find another alternative ways to solve this problem. In addition, there is another impact that leads by shortage of materials which is increase the materials price. For example, steel prices have been sore due to the high demand driven by China for Olympic 2008. And now, construction for Olympic 2012 has begun. This would create a high demand of materials in construction industry.
To solve this risk, several actions could be taken. Although it may not be standard practise but if the site conditions are allow, materials shall purchase as much as possible as early in the project and then store the materials on site. This could lock in on prices and ensure there is an adequate supply of materials for the project even if a market shortage occurs later in the project. Besides that, if the price of materials increasing rapidly, it is beneficial to purchase materials at the same time to receive bulk discount, some of the same furnishings and finishes in this project could utilize in order to obtain better bulk discounts.
It is necessary and beneficial for the contractor to be proactive with the owner. Client shall renegotiate the contract with the contractor in some situations. For example, if the duration of the project as well as the price of the project increases significantly, the contractor may be put at financial risk. In this situation, the client shall make certain allowances for increases rather than risk the entire project. Using alternative materials which give similar functionality could also be a solution when shortage of materials occurs. Contractor could negotiate with client in using similar materials which is available and give similar functionality rather than risk the entire project.
Unavailability of Fund
Funding is very important to the project. A project could not start or run if the fund is unavailable. In this project, the destruction of the clubhouse was an uninsured loss. This gives a huge challenge for the project in fund raising.
There are several funding sources such as football foundation (FF) for redevelopment of Salford Football club. It seeks to provide funds to smaller clubs in order to upgrade their facilities. However, club normally 'bid' for funds from the FF and it is subject to satisfying certain conditions. Besides that, the total of monies available from the FF is unlikely to cover the rebuilding of the clubhouse.
To solve this problem, financial manager can be appointed in this project. Financial manager of the project could find more funding resources which can benefit the project. Financial manager will identify the requirements of each funding resources and choose resources that suitable for this project. For example, there is Football Stadia Improvement Fund (FSIF) under FF. It stated that a grant for the project will not be approved if this project start work or appoint a contractor before approval by FSIF. So, financial manager could discuss with FSIF technical adviser in this project to improve the possibilities of obtaining more funds.
That will be a huge risk to the project if the planning approval is not obtained. The project could not go ahead if planning approval is not granted. Therefore, it is important that everything is prepared and done to ensure the risk is avoid or controlled as much as possible.
During the design and pre-planning stage, more meetings with the planner and council's members is required to minimise the risk of not obtaining planning approval. Regular updates and review of draft versions of the document and also the proposal is essential. The planners and group members shall take this action to have early involvement in the project. Their input can be implemented and used to ensure the application is meeting the requirements and improve the chances of the planning approval being granted.
Perhaps, a planning supervisor could be employed to minimise the risk. He is a consultant who is solely focussed on planning matters. They could know the local council well from previous work and therefore what will the planners expect. Their experience and knowledge is vital to the success of a planning application. They will understand the Local Councils framework and development plans well because they are familiar with it. Suggestions or advice by them can be very helpful in this project. They could help the design to meet the criteria set out in these documents.
Insolvency of suppliers
Insolvency of suppliers is list as a risk due to it can cause the project delay and incur large cost to the project. There is a huge problem if supplier were to go insolvent. The purchaser would have to find another manufacturer or supplier of the product to make new order. Project could be delay if the supplier was supplying goods which need more time to transport. It would also incur a cost if the purchaser would need to place a new order and pay for the goods again. In addition, there are possibilities that the second supplier may be more expensive. The costs of the goods would be duplicated and have to paid twice. The original payment to the first supplier would then need to be recompensed, but if the supplier became insolvent then their assets will be distributed to their main parties first. If the supplier's assets are not available, the purchaser may never received the money back due to the purchaser will be further down the line of payment.
Supplier's goods only belong to the purchaser if they have been paid in full if a supplier goes insolvent. However, suppliers may only be paid at the end of each month or at a designated payment period. This could mean there are goods on site which have not been fully paid for, as they are due to be paid for in the next period. A supplier would therefore be within their rights to reclaim these goods. There are delays for purchaser as they look to find new goods to replace those which have been recovered by the supplier, meaning work could be postponed. This will give huge impact to the project if those items are part of works which are on the critical path. It is also common in the construction industry for items to be fully paid for, but to be retained at the supplier's premises as the items are too bulky to be stored on site, or are not needed yet on site. If this occurs, and the supplier was to become insolvent, the purchaser would have to prove the goods were fully paid for and belong to them, which can be a time consuming process and could delay work. A Vesting Certificate could be use by purchaser to minimise this risk. This is a document which certifies that items belong to the purchaser and have been fully paid for; therefore they are the property of the purchaser. Details of purchaser such as purchaser name, date, and amount paid, list of items and when it is to be delivered will includes in the Vesting Certificate. Besides that, the Escrow service could also be used to ensure the suppliers is paid direct rather than through a second party such as a contractor. If the supplier is being paid direct, there can be a clear audit trail to show when the funds were transferred to the supplier. Once these funds have been transferred and received, the goods and materials are then the property of the purchaser.
The client can minimise the risk of a supplier becoming insolvent by obtaining a credit check of the supplier. There is a company named Dunn & Bradstreet which will give each company a rating, by using a calculation which includes financial strength, tangible net worth and a risk indicator. Via Dunn & Bradstreet, the client can undertake a credit check and only obtain goods and materials from suppliers who have a strong credit background, thus lessening the risk of them becoming insolvent.
For Uncertainty over the source and availability of materials, it is advised that the materials could buy as early as possible. This could lock in on prices and ensure there is an adequate supply of materials for the project even if a market shortage occurs later in the project. Besides that, if the price of materials increasing rapidly, it is beneficial to purchase materials at the same time to receive bulk discount. It is recommend to use alternative materials if there is shortage of materials. Similar materials that will give similar functionality is prefer to use rather than stop the project or use higher price to obtain the materials that written in the specifications. This could give cost benefit to client and let the project to continue proceed.