Investigation of Optimization of Risk Allocation in Construction Projects

INVESTIGATION OF OPTIMIZATION OF RISK ALLOCATION IN CONSTRUCTION
PROJECTS

Abstract
ii

Table of Contents
Abstract......................................................................................................................................ii
Table of Contents......................................................................................................................iii
List of Figures...........................................................................................................................vi
List of Tables...........................................................................................................................vii
CHAPTER ONE: INTRODUCTION........................................................................................1
1.1 Introduction..........................................................................................................................1
1.2 Statement of the Problem.....................................................................................................1
1.3 Research Aim.......................................................................................................................3
1.4 Objectives of the Study........................................................................................................3
1.5 Research Questions..............................................................................................................3
1.6 Research Methodology.........................................................................................................4
1.7 Significance of the Study.....................................................................................................4
1.8 Organisation of Chapters......................................................................................................4
Chapter 2: LITERATURE REVIEW.........................................................................................6
2.1 Introduction..........................................................................................................................6
2.2 Construction Industry Overview: Global and United Kingdom..........................................6
2.2.1 Global Construction Industry........................................................................................6
2.2.2 Construction Industry in the United Kingdom..............................................................8
2.3 Risks in the Construction Industry.....................................................................................10
2.3.1 Construction Risks: Definitions and Meanings...........................................................10
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2.3.2 Types of risks in the construction industry.................................................................11
2.3.3 Classification of Risks in Building Construction Industry.........................................12
2.4 Risk Management...............................................................................................................16
2.4.1 Meaning and Implications...........................................................................................16
2.4.2 Conceptual Framework...............................................................................................16
2.4.3 Risk Management in construction industry: Scenario in United Kingdom................19
2.5 Risk Allocation in the Construction Industry.....................................................................19
2.5.1 Methods for Risk Allocation.......................................................................................20
2.5.2 Problems in existing Risk Allocation Methods...........................................................23
2.6. Optimal Risk Allocation...................................................................................................24
2.6.1 Definition and Implications.........................................................................................25
2.6.2 Factors for optimal allocation of risk..........................................................................25
2.7 Literature Gap....................................................................................................................26
Chapter 3: RESEARCH METHODOLOGY...........................................................................27
3.1 Introduction........................................................................................................................27
3.2 Problem Statement.............................................................................................................27
3.3 Research Design.................................................................................................................28
3.3.1 Research Approach.....................................................................................................28
3.3.2 Research Purpose........................................................................................................28
3.3.3 Research Methodology................................................................................................28
3.4 Research Objectives...........................................................................................................28
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3.5 Research Questions............................................................................................................29
3.6 Data Collection Questionnaire...........................................................................................29
3.7 Research Assumptions.......................................................................................................29
3.8 Target Population and Sampling methods.........................................................................30
References................................................................................................................................31
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List of Figures
Figure 1: Region-wise division of the Global Construction Industry Output............................7
Figure 2: Trends of growth of global construction output over the years..................................8
Figure 3: Economic output of the construction sector of the UK over the years.......................9
Figure 4: Sector wise construction output in the United Kingdom over the years....................9
Figure 5: Risk Management Process in Construction Industry................................................17
Figure 6: Steps involved in a robust risk management............................................................18
Figure 7: Risk Management Approach....................................................................................19
Figure 8: Risk Allocation Procedure by the Contract Clauses Method...................................21
Figure 9: Risk Allocation in the Risk Assessment Model.......................................................22
Figure 10: Risk Analysis and Allocation of Risk in PPP Construction Projects.....................23
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List of Tables
Table 1: Construction output by types of work in UK (2015).................................................10
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CHAPTER ONE: INTRODUCTION
1.1 Introduction
In comparison to other industries (organisations involved in the production of goods
or services) the “Construction Industry” is different in largely due to the diversification of the
projects. Moreover, projects in the construction industry occur in a dynamic environment
(Zhang et al. 2014). The assortment of projects together with the dynamic environment of the
construction industry leads to an increase in situations of high uncertainty (Mitkus and
Mitkus 2014). Hence, risks involved in construction industry are higher as compared to other
industries.
A proper evaluation of the risks involved in a construction project would aid in
identification of processes to be allocated to minimize the risks (Arashpour at al. 2016).
Minimization of risks in the industry would translate into larger profits for the industry.
Moreover, judicious allocation of resources would lead to reduction in friction amongst the
workforce at the workplace, thus increasing the efficiency of the project (Hwang et al. 2013).
The present research would search for measures being taken in the construction
industry for risk optimisation and thus to suggest best possible measures. However, it is to be
taken into consideration that the practice of risk optimisation and allocation does not fully
lead to reduction of the risks. It is but just a means of reduction in risks and thus increase in
the probability of success of industry in a particular situation.
In the construction industry risks has a broad concept. Various researchers have
identified the risks prevalent in the construction industry. According to Shehu, Endut and
Akintoye (2014) the Malaysian construction industry is plagued with to time and financial
risks. Goh and Abdul-Rahman (2013) have emphasized on health and safety risks, schedule
risks and contractual risks. In the informal building construction industry in Nigeria sub-
contracting creates labour risks (Olusanya 2018).
1.2 Statement of the Problem
Every construction project is unique in the sense that it carries its own set of risks.
The risks involved in a construction project affect each and every stakeholder (Aminbakhsh
et al. 2013). All stakeholder involved in a project carry a proportion of the risk. The
difference between the actual results and the expected can be defined as risk. “Risk” in a
project cannot be ignored, however, the stakeholders through their endeavour can manage