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“A STUDY ON RISK MANAGEMENT WITH RESPECT TO

CONSTRUCTION”

At

SKY LINE BUILDERS

CHEPAUK, Chennai.

A final project submitted to the

University of Madras

In partial fulfillment of the requirements for the award of

Master of Business Administration

Submitted by

MOHAMED HASSAN.M

(Reg.No.MA90551)

Under the guidance of

Mr. M.S. Vijaya RaoLecturer

NEW COLLEGE INSTITUTE OF MANAGEMENT

(Affiliated to University of Madras)

#87, Peter’s road, Royapettah,

Chennai - 600014

April-2010

1



NEW COLLEGE INSTITUTE OF MANAGEMENT

(Affiliated to University of Madras)

#87, Peter’s road, Royapettah,

Chennai - 600014

April-2010

CERTIFICATE

This is to certify that the dissertation titled “A STUDY ON RISK

MANAGEMENT WITH RESPECT TO CONSTRUCTION COMPANY”

submitted by Mr. MOHAMED HASSAN (Reg. no: MA90551) in partial fulfillment

of the requirements of the Post Graduate Degree course in Masters of

Business Administration (M.B.A) for the academic year 2009-2011 in the

subject of Finance is the original work of the above candidate.

Mr. M.S. Vijaya Rao

GUIDE

2



DECLARATION

I, MOHAMEDHASSAN.M (Reg. no: MA90551) Bonafide student of

Business Studies, New College Institute of Management, affiliated to

University of Madras hereby declare that Project entitled “A STUDY ON

RISK MANAGEMENT WITH RESPECT TO CONSTRUCTION COMPANY”

was prepared towards the partial fulfillment of Master of Business

Administration (M.B.A) final year Degree course from the University of

Madras. The report was prepared by my own effort and it has not been

produced earlier towards the award of any other degree or diploma from the

same university.

PLACE : Chennai

Signature

DATE : (MOHAMED

HASSAN.M)

3



ACKNOWLEDGEMENT

First and the foremost wishes, I would like to thank the ALMIGHTY for

the blessings to complete this project successfully.

I owe my sincere thanks to Dr. Balasubramanian, Director (Academic)

and C.Kaleemulah, Principal of New College Institute of Management,

Chennai for their advice to carry out this project

It is with immense pleasure and respect that i express my deep sense

of gratitude to

Mr. MOHAMED IBRAHIM. General Manager for his valuable technical

inputs, marketing methods, constant encouragement, care and

inspiration throughout the period of my project work.

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I express my deep sense of gratitude to my guide Mr. M.S. Vijaya

Rao, Lecturer, New College Institute of Management for his valuable

guidance and who has always been the source for visualization and

presentation for this project.

I express my deep sense of gratitude to my guide Mr. B.Siva,

Librarian, New College Institute of Management for his valuable

guidance and who has always been the source for Books and journals

for this project.

I owe my sincere thanks to other teaching as well as non teaching staff

of New College Institute of Management for their constant

encouragement and guidance through out the project.

I wish to thank Mr. Hussain, engineer, Mr. Philip, Business

Development Executive and

Mr. Ramu, Field Executive for their valuable help and support during

my project work.

I would like to express my deepest sense of gratitude to my best

friends, who remain constant source of encouragement and

inspiration throughout my life and academic career.

5



6



CONTENTS

Introduction………………………………………………………………………………………………………

…..7

Objective of the study

………………………………………………………………………………..8

DATE : (MOHAMED HASSAN.M) ............................................. 3..................................................................................................................... 4

.................................................................................................... 7

CONTENTS ........................................................... 7

CONSTRUCTION PROJECTS ............................................................................. 14

RISK MANAGEMENT PROCESS ....................................................................... 18

.................................................................................................................... 31

CONSTRUCTION PROJECT RISKS AND UNCERTAINTIES ................................. 31

SUGGESTIONS ................................................................................................ 33

RISK ALLOCATION THROUGH CONSTRUCTION CONTRACTS ...........................33

DESIGN-BID-BUILD .......................................................................................... 34

COLLABORATIVE RELATIONSHIP IN CONSTRUCTION PROJECTS ......................34

RELATIONAL CONTRACTING AND PARTNERING .............................................35

JOINT RISK MANAGEMENT ............................................................................. 35

7



*******INTRODUCTION*******

OBJECTIVES

SCOPE OF STUDY

LIMITATIONS

8



OBJECTIVES:

To study Risk management strategies adopted in skyline is Human Resource, time

management and regulation of employees work time.

To analyze various types of projects undertaken by skyline are constructing

domestic houses, commercial building and complexes in and around Chennai.

To identify various types of expansion strategies adopted by skyline are to

concentrate on existing market and promote the business till national boundaries.

SCOPE:

The scope of the study is related to construction of buildings and new businesses

as it is not restricted to new works, repairs and maintenance.

The study is related to risk management process and assessment.

The study is confined to the state level market and limited to Chennai city.

LIMITATIONS:

The study is confined only to Chennai city in due consideration of traveling timeand expenses.

The constraints of time limit is too short elaborative study was not possible

The data revealed in the study was a secondary data collected in skyline builders

in a short period of time

9



COMPANY PROFILE

SKY LINE BUILDERS

Date of Establishment

1978

Turnover

Rs.7612130

Market Cap

Rs.382000

Corporate Address

Sky Line Builders,

#14 Venkatesan street,Chepauk, Chennai-5.

Management Details

Chairperson – Mohamed Ibrahim

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We are being in this construction field since 1978. We are having our inventory from

were our materials are being processed. We construct different individual houses and

commercial apartments. Specialist in making interiors for commercial offices.

The work of our company is under the control of chief engineer, especially who have

been trained from sophisticated construction firms. We have around 25 employees and

200 labours in our concern. The material capacity for making a building is around

35lakhs.

Our mode of payment is through letter of credit, commercial banks and liquid cash. We

are happy to welcome our customers who want to buy a house. We make their dream

comes true by providing best services.

Objectives of the company:

Primary objective:

The main and the basic objective of the firm are to satisfy our customer’s needs and to

retain their loyalty for longer period.

Secondary objective:

After the accomplishment of the above stated primary objective the firm’s main aim is to

expand its business from local to national.

11



*****REVIEW OF LITERATURE*****

12



CONSTRUCTION PROJECTS

A project is an endeavor in which human, material and financial resources are organized

in a novel way; to undertake a unique scope of work of given specification, within

constraints of cost and time, so as to achieve unitary, beneficial change, through the

delivery of quantified and qualitative objectives. The definition suggests three key targets

of the project, i.e. time, cost and quality, which are to be in focus when undertaking the

project. It also highlights the importance of efficient organization of available resources

in order to achieve a good final result.

Flanagan and Norman (1993) emphasize two aspects of any construction project: the

process, i.e. project phases, and the organization, i.e. project actors. From the process

perspective, any construction project comprises a number of sequential phases. Different

authors suggest a different number of project phases. The simplest approach identifies

two main phases – project development and project implementation. These two can be

further detailed and developed into a larger number of phases, e.g. feasibility, design,

procurement, construction, commissioning, and operation. Risk management process take

place in programme, design, procurement and production. The maintenance phase was

excluded because no risk management activities are to be found in this phase.

PROGRAMME PHASE

In the programme phase the client has an idea about the project and analyses conditions

for its execution.

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DESIGN PHASE

During the design phase the architects and engineers produce construction drawingsaccording to the client’s requirements.

PROCUREMENT PHASE

In the procurement phase the client appoints the contractor to carry out the project.

Depending on the form of contract, the procurement phase follows either the programme

phase (DB contracts) or the design phase (DBB contracts).

PRODUCTION PHASE

Finally, the contractor executes the job in the production phase. Figure overviews the

different models presented in the literature and the model used in the thesis.

15



PRODUCTION PHASE STRUCTURE

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Another important aspect of the construction process is project organization. Different

participants are usually involved in a construction project. These are clients or owners,

contractors, sub-contractors, manufacturers and suppliers, architects, engineers,

consultants, local authorities, funding organizations etc. The more participants that are

involved, the more

Complex the task of project management becomes. In risk management three main

groups of construction industry actors are in focus: clients, contractors and consultants.

CLIENT

A client is a party that carries out or assigns others to carry out construction, demolition

or land work. There are two main groups of construction clients: public and private.

Privately owned companies undertake the projects to make a profit. The public sector

includes the central government and local authorities and undertakes the projects to

provide a public service and/or benefit to the citizens.

CONTRACTOR

A contractor is an organization that provides a service for the client, i.e. executes the

construction works. The contractor organizations have different complexities and provide

different ranges of services – from ground works to electrical installations and

telecommunications.

17



CONSULTANTS

The role of consultants is to assist clients and contractors and provide architectural andengineering services. Due to their dynamic nature, projects change continuously. Thus a

great amount of risk and uncertainty is involved in construction activities. This

uncertainty may have a significant impact on the project objectives and, therefore, has to

be properly managed by the project actors during the whole project life cycle.

RISK MANAGEMENT PROCESS

Risk management is a systematic process of identifying, assessing and responding to

project risk. The overall goal of the risk management process is to maximize the

opportunities and minimize the consequences of a risk event. A variety of risk

management models with different numbers of stages can be found in the literature. The

international standard “Project risk management – Application guidelines” (IEC 2001)

offers a model with four steps: risk identification, risk assessment, risk treatment, and risk

review and monitoring. PMBOK’s model (PMI 2000) is similar but divides risk

assessment into two processes of qualitative risk analysis and quantitative risk analysis.

Baloi and Price (2003) include an additional step of risk communication. Chapman and

Ward (2003) present the SHAMPU (Shape, Harness, and Manage Project Uncertainty)

framework which involves nine stages: define the project, focus the project, identify the

issues, structure the issues, clarify ownership, estimate variability, evaluate implication,

harness the plans, and manage implementation. Del Cano and de la Cruz (2002) propose

an integrated methodology for project risk management in large and complex

construction projects. The model is divided into four process phases: initiation, balancing,

maintenance and learning.

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Each phase consists of several stages, which, in turn, are divided into different activities.

Despite the variety of models, risk identification, assessment and response form the core

of project risk management. Therefore, a model consisting of these three stages is mostly

used in construction projects.

STAGES OF RISK IN CONSTRUCTION

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RISK IDENTIFICATION

Risk identification is the first step of the risk management process. It is aimed at

determining potential risks, i.e. those that may affect the project. PMBOK (PMI 2000)

suggests that as many project stakeholders as possible should participate in the risk

identification process. There are a number of tools and techniques for identifying the

project risks these are brainstorming, expert opinion, structured interviews,

questionnaires, checklists, historical data, previous experience, testing and modeling,

evaluation of other projects. Empirical studies of risk management practice show that

checklists and brainstorming are the most usable techniques in risk identification. They

also highlight that risk identification often relies on individual judgments of the project

participants. In this context, it is interesting to mention a recent study by Maytorena et al.

(2007) that suggests that the role of experience in risk identification is less significant

than is commonly assumed. During the risk identification process the potential risks fall

in the different groups. There are several approaches to classifying project risks and risk

sources. In general, the sources of risk in construction projects may be divided into three

Groups:

Internal or controllable risks design, construction, management and relationships.

External or uncontrollable risks financial, economic, political, legal and

environmental.

Force major risks

Several studies contributed to knowledge by identifying unique, specific and country-

related risks.

20



RISK ASSESSMENT

During risk assessment, identified risks are evaluated and ranked. The goal is to prioritiesrisks for management. The research literature offers a large number of models that use

both qualitative and quantitative methods for assessment of project risks. A fuzzy system

is used by Motawa et al. (2006) to evaluate the risk of change in construction projects.

Poh and Tah (2006) have developed an integrated model that takes into account both

duration and cost risks and can be used for modeling risk impacts that affect the project.

Dikmen and Birgonul (2006) propose a methodology for both risk and opportunity

assessment of international projects.

RISK RESPONSE PROCESS

The risk response process is directed at identifying a way of dealing with the identified

and assessed project risks. There are four main risk response strategies: risk avoidance,

risk reduction, risk transfer and risk retention Risk avoidance deals with the risks by

changing the project plan or finding methods to eliminate the risks. Risk reduction aims

at reducing the probability and/or consequences of a risk event. Those risks that remain in

the project after risk avoidance and reduction may be transferred to another party either

inside or outside the project. Risk retention or acceptance indicates that the risk remains

present in the project. Two options are available when retaining the risk: either to develop

a contingency plan in case a risk occurs, or to make no actions until the risk is triggered.

21



RESEARCH:

It is a scientific and systematic search for pertinent information on a specific topic. It is

the art of scientific investigation and gaining knowledge.

RESEARCH DESIGN:

Every research activity carried out follows a specific frame work in collecting and

analyzing the data, ensuring the accuracy in an economic way, this frame work is known

as research design. A good research design aims to collect only data that is needed by the

researchers.

DESCRIPTIVE DESIGN:

Descriptive research includes surveys and fact findings, inquires of different kinds the

design which simply describes demographic characteristics of customers to use the

product. The research has undertaken descriptive study to find out the customer

satisfaction level.

DATA COLLECTION:

There are two types of data collection methods. They are primary and secondary. And the

secondary type of collection is used in this type of research design.

23



SECONDARY DATA:

Secondary data is collected from the past record and past performance of the firm and

from other construction projects. This gives a strong base to carry out the research in a

smooth and planned manner. Thus secondary data is considered as polished information;

it gives a clear picture about the market condition and fierce competition faced by the

firm.

24



*******DATA ANALYSIS AND

INTERPRETATION*******

25



DESCRIPTION OF CONSTRUCTION PROJECTS

Project 1 included the new construction of a house at ECR. The project was executed

over 8 months in the year 2009. The contract sum was 41.1 Lakh and the final cost was

43.5 Lakh. Design-build, with a lump sum payment mechanism, was the chosen form of

procurement. The technical characteristics and functionality of the final product were

evaluated as high by all actors. However, the project implementation in terms of cost was

unsatisfactory from the contractor’s perspective. The contractor’s costs increased

significantly due to the poor quality of design documents. Time constraints for project

execution were kept and the project was finished earlier than planned. The client was

involved in all four phases of the project: programme, design, procurement and

production. The architect participated in the programme and design phase, but was not

involved in the production phase. From the perspective of dealing with risks, non-

participation of the architect in the production phase created problems and conflicts

because there was a need for design changes during the project execution.

The contractor joined the project in the procurement phase, which is the traditional

approach for design-bid-build contracts.

26



PROJECT 2

Project 2 included the rebuilding, refurbishment and additional construction of building

in ECR. The project was undertaken in the year 2009 and took 10 months to complete.

The contract sum was 30.9 Lake and the final cost of the project was 32.6 Lake. A lump

sum payment mechanism was chosen and a performance based contract was signed

between the client and the contractor. The technical characteristics of the final product

were evaluated as high and the time constraints for project execution were kept.

However, the poor quality of design documents increased the contractor’s costs

significantly. Identified risks occurred in the project and had a large effect on the project

cost; even so, the consequences of unforeseen risks were fairly small.

27



BROAD RISK ANALYSIS:

Broad Ris

10%

20%

30%

40% construc

technical

legal

logistics

INFERENCE:

The Broad risk mainly divided into four types

10% of the risk is contributed by the construction

20% is given by the technical processes

30% is given by the legal laws

40% part is contributed by the logistics of the project

28



COMPANIES DEVELOPMENT CHART

0

10

20

30

40

50

60

70

80

90

2006 2007 2008 2009

urb

rur

INFERANCE:

20% of the customers were satisfied without the implementation of the risk management

strategies. After the implementation of the risk strategies in the firm the customer’s

satisfaction was increased to 40%, 75% and so on in the following years..!!!

29



*******FINDINGS*******

30



CONSTRUCTION PROJECT RISKS AND UNCERTAINTIES

Construction projects are characterized as very complex, always unique projects,

where risks raise from a number of different sources. These projects are

characterized by a continuous decision making due to numerous sources of risk

and uncertainty, many of which are not under the direct control of project

participants.

Construction projects have a bad reputation of failing to meet the deadlines and

cost targets. That’s why identifying risk sources are extremely important, since it

is not necessarily possible to identify single risks.

The most typical reasons for construction delays in construction projects. They

found seven significant causes of delays: owner interference, inadequate

contractor experience, financing and payments, labor productivity, slow decision

making, improper planning and subcontractors.

Authors emphasize the meaning of experience and capability of project

participants to have the most effect on these causes of delays

The most important risks in construction projects include weather, productivity of

labor and plant and quality of material. For example these areas are not easily

controllable by a contractor before the project execution.

Changes in projects scope and requirements

Design error and omission

Inadequately Defined roles and responsibilities

Insufficient skilled staff

New technology

Political and legal problems

31



******* SUGGESTIONS*******

32



SUGGESTIONS

The company should go for advertisement to expand the business

The company risk can be reduced through three factors they are

Risk allocation through construction contracts

Design bid build

RISK ALLOCATION THROUGH CONSTRUCTION CONTRACTS

It is impossible to eliminate all potential risks in a construction project. Therefore, an

appropriate allocation of risks among project actors is very important. Risk allocation

influences the behavior of project actors and, therefore, has a significant impact on the

project performance in terms of the total cost. Unclear allocation of the project risks leads

to disputes between the client and the contractor. One of the problems identified in the

Literature is the actors’ different perceptions of to whom a specific risk or group of risks

should be allocated. Usually, contractors indicate that they have to bear the majority of

project risks and price these risks through adding a contingency to the bid price (Andi

2006). A number of models providing a framework for risk allocation decisions can be

found in the literature (Lam et al. 2007, Li et al. 2005, Olsen and Osmundsen 2005).

Smith et al. (2006) highlight the importance of considering the following issues when

making risk allocation decision:

who has the best ability to control risk events;

who has the best conditions to manage risks;

who should carry the risks that cannot be controlled;

How much does it cost to transfer the risks?

33



Risk allocation strategy in construction projects is defined through the contractual

arrangements. The contract is a written agreement between a client and a contractor

where the liabilities and responsibilities of each party are assigned. The contract can also

be defined as a trade-off between the contractor’s price for executing the project and his

willingness to take the risks (Flanagan and Norman 1993).

DESIGN-BID-BUILD

Separated contracts are characterized by a traditional separate appointment of a design

team and a construction firm. First, the client appoints an architect or engineer to produce

design documents (Design) and then procures (Bid) the contractor to execute (Build) the

project. Thus the client is responsible for the planning, design and function of a

construction and the contractor is responsible for the job execution

COLLABORATIVE RELATIONSHIP IN CONSTRUCTION

PROJECTS

Adversarial and opportunistic behavior is common in the construction industry (Cox and

Thompson 1997, Zaghloul and Hartman 2003). It means that the actors are focused on the

short-term relationship and economic results rather than on long-term cooperation. In

response to this behavior, many researchers try to find the concepts for more

collaborative relationship between the project actors. Two concepts are of special interest

in this research: relational contracting and joint risk management. Both focus on

improvement of contractual relationships, better risk allocation, and, therefore, on more

effective risk management.

34



RELATIONAL CONTRACTING AND PARTNERING

Over the last decade, the researchers and practitioners have recognized that the

relationships between the client and the contractor play a significant role for successful

project implementation. Relational contracting (RC) is a concept that concentrates on the

relationship between the contract parties. RC recognizes mutual benefits and win-win

JOINT RISK MANAGEMENT

Even efficient allocation of the identified risks through the contract in the procurement phase does not guarantee that no conflicts occur in the project. During the project life

cycle the nature and extent of identified risks may change and new risks may appear.

Sometimes new risks may require joint efforts to manage them effectively.

35



CONCLUSION:

Risk management often focuses on matters of insurance. However, there are

several other major considerations when assessing areas of risk in your business.

Risk Management aims to facilitate the exchange of information and expertise

across countries and across disciplines. Its purpose is to generate ideas and

promote good practice for those involved in the business of managing risk.

Risk management strategies helps to manage risk and transferring the risk to

another party, avoiding the risk, reducing the negative effect of the risk, and

accepting some or all of the consequences of a particular risk

36



BIBLIOGRAPHY

RISK MANAGEMENT: CHALLENGE AND OPPORTUNITYMichael Frenkel, Ulrich Hommel, Gunter Dufey

The essentials of RISK MANAGEMENT

WIKIPEDIA

CONSTRUCTION MANAGEMENT

W. D. Mc George, Angela Palmer, Kerry London

final hassan

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