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 Rao

Lecturer

NEW COLLEGE INSTITUTE OF MANAGEMENT

(Affiliated to University of Madras)
#87, Peters road, Royapettah,
Chennai - 600014
April-2010

NEW COLLEGE INSTITUTE OF MANAGEMENT

(Affiliated to University of Madras)
#87, Peters road, Royapettah,
Chennai - 600014
April-2010

CERTIFICATE

This is to certify that the dissertation titled A STUDY

MANAGEMENT

WITH

RESPECT

TO

CONSTRUCTION

ON RISK
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

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 :
HASSAN.M)

(MOHAMED

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.

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.

CONTENTS
Introduction

..7

Objective of the study

..8
Scope of the
study.
..8

Limitation fo the study

..8

Company
profile.
..9

Review of literature..
..11

Risk
methodology
...21

Data interpretation and

analysis...24
Findings
.29

Suggestions
31

Conclusion
35

Bibliography
..36

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

OBJECTIVES
8

 SCOPE OF STUDY
LIMITATIONS

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 time
and 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

10

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

11

COMPANY PROFILE

SKY LINE BUILDERS

12

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 customers needs and to
retain their loyalty for longer period.

Secondary objective:
After the accomplishment of the above stated primary objective the firms main aim is to
expand its business from local to national.

13

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

14

Risk Management in
Constructions Project

15

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.

16

DESIGN PHASE
During the design phase the architects and engineers produce construction drawings
according to the clients 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.

17

PRODUCTION PHASE STRUCTURE

18

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.

19

CONSULTANTS
The role of consultants is to assist clients and contractors and provide architectural and
engineering 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. PMBOKs 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.

20

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

21

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 countryrelated risks.

22

RISK ASSESSMENT
During risk assessment, identified risks are evaluated and ranked. The goal is to priorities
risks 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.

23

****RESEARCH METHODOLOGY****

24

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.

25

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.

26

*******DATA ANALYSIS AND

INTERPRETATION*******

27

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 contractors perspective. The contractors 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, nonparticipation 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.

28

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 contractors 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.

29

BROAD RISK ANALYSIS:

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

30

COMPANIES DEVELOPMENT CHART

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

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

32

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. Thats 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

33

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

34

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?

35

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 contractors 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.

36

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.

37

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

38

BIBLIOGRAPHY
RISK MANAGEMENT: CHALLENGE AND OPPORTUNITY
Michael Frenkel, Ulrich Hommel, Gunter Dufey
The essentials of RISK MANAGEMENT
WIKIPEDIA
CONSTRUCTION MANAGEMENT
W. D. Mc George, Angela Palmer, Kerry London

39