Risk Management Practices and Cost Reduction in Construction Projects

This research proposal explores risk management practices within the construction industry, aiming to identify strategies for cost reduction. The report begins with an executive summary and introduction, followed by an extensive literature review that examines existing risk management techniques and their impact on project costs. The study poses key research questions regarding risk management processes, cost relationships, and effective practices for reducing overall project expenses. The methodology section outlines a survey-based approach targeting Australian contractors to gather primary data, which will be analyzed using statistical tools. The anticipated results will highlight strategies for mitigating cost overruns and improving project outcomes. The project includes detailed planning, a Gantt chart, and a work breakdown structure to ensure organized execution, culminating in conclusions and recommendations for the construction sector.

Research Proposal
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Contents
Executive Summary.........................................................................................................................3
Introduction......................................................................................................................................3
Literature Review............................................................................................................................4
Research Questions, Aims, Objectives and Sub-Goals...................................................................5
Objectives of the study................................................................................................................5
Sub goals......................................................................................................................................5
Research Questions......................................................................................................................6
Theoretical Methodology.................................................................................................................6
Experimental Setting.......................................................................................................................7
Result, Outcome and Relevance......................................................................................................8
Project Planning and Gantt chart.....................................................................................................9
Work Breakdown structure (WBS).................................................................................................9
Conclusion.....................................................................................................................................13
Bibliography..................................................................................................................................13
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Executive Summary
The project is related to the risk management of the construction industry. Various risks that that
are associated with the construction sector will be identified and how these risks can be mitigated
will be identified. Further various methods will be suggested through which the cost of the
project will be mitigated. Moreover, risk management in construction's cost management is
regarded as a comprehensive as well as systemic manner of identifying, analyzing, as well as
responding towards the risks so that the defined project objectives can be achieved. It assures
that the resources are utilized effectively and efficiently. This research report has been conducted
so that complexity of the research report can be identified. Initially in a report a brief
introduction relating to the research topic has been given. Further literature review has been
conducted. Through the literature review secondary data has been collected for the report.
Moreover, research questions have been stated that is "what are the major process of the risk
management? How cost is related with the risk management? How risk management practices
can reduce the overall cost of the construction projects? In order to answer the research question
properly research data has been collected through primary source and secondary source. Primary
data was collected so as to gather first-hand information relating to the project. Primary data has
been collected from the Australian contractors through the survey. After collecting primary and
secondary data, it has been analyzed through MS excel. On the basis of the analysis relevant
conclusion and significant recommendations have been stated.
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Introduction
Construction sector is one of the growth engines of the economic growth of a country. The
increased pressure to improve the quality and productivity of the projects and reduce the
construction costs there is need to adopt the project strategies that can appropriately and
effectively manage the project risk (Augustine, et al., 2013).
Risk is defined as a positive or negative deviation of the variable from its expected value. Risk
management involvement the strategies that avoid the losses and use the available chances that
arise from the risk (Macomber, 2017). Risk management in the construction projects includes the
identification, analysis and response to the risk in a comprehensive and systematic way to
achieve the project objectives. The risk management is the process of identifying and analyzing
the risks and then improving the processes of the construction projects and achieving effective
use of the resources (Shaikh, 2015).
The current economic conditions have forced the contractors of the construction sector to
manage the risk by themselves. This paper include the research aims to examine the risk
management practices that can reduce the overall cost of the projects (Gajewska & Ropel, 2011).
Literature Review
Construction projects can be managed with the use of various tools and techniques of the risk
management. Risk can be considered as the biggest driver of the claims and projects that transfer
more risk to the contractor are more likely to have more claim. Hence the drivers of risk are
aggressiveness of the contractors' bids, fast track projects and the contracting strategy (Wilson, et
al., 2014; PM4ID, 2017).
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The project risk management is an effective tool to identify and manage a risk to obtain the
objectives of the projects, including cost quality and schedule (Hak, et al., 2017). A number of
studies have focused on the project risk management but only a limited number of studies have
provided a proper guidance for the proper risk management and cost reduction. Managing risks
in construction projects is considered as a very important procedure in order to achieve project
objectives in terms of cost, time, quality, safety and environmental sustainability (NAP, 2017;
Nap, 2016).
The categories of risk include the technical, environmental, external organizations and project
management. Formal risk analysis and management techniques are important to construction
projects to minimize time and cost of projects and enhance profitability (Schieg, 2006; TheIRM,
2013).
As per a study risk and uncertainty are the primary factors for the cost overruns and schedule
delay. The study suggested the project risk management tool to manage the cost overruns and
time overruns in the construction projects (Banaitiene & Banaitis, 2012).
Research Questions, Aims, Objectives and Sub-Goals
The major aim of the study is to identify the risk management practices in the construction
projects that can help to reduce the overall cost of the project.
Objectives of the study
 To identify the most suitable risk management technique to reduce the cost of the
construction project
Sub goals
 To identify the current risks that exist in the construction industry
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 To evaluate the risk management practices that are related to the cost
 To identify the risk management practices that can reduce the overall cost of the
production
 To identify the target audience most suitable for the research analysis
Research Questions
1. What is the process of the risk management?
2. How cost is related to the risk management?
3. How risk management practices can reduce the overall cost of the construction projects?
4. Which risk management technique is the most suitable technique to reduce the cost in the
construction industry?
Theoretical Methodology
As the research study is related to the construction industry and the risk associated to this hence
the theoretical basis of the research will be based on the understanding the types of risk that may
occur in the construction industry. Further the theoretical methodology will include the steps of
the risk management such as identification of the risks, analyzing risk, accessing risk, controlling
risk and monitoring risks. Further the study will look into the risk management importance in the
progress of the projects (Stakeholdermap, 2017).
No hypothesis will be developed in the study as here the study is not related to identify the
relationship between the risk management and cost reduction rather it is related to identify the
risk management practices that help in reducing the overall cost of the construction project.
Risk management is regarded as one of the nine knowledge areas and this has been given by the
project management institute (PMI). First chapter of the report is related to the relevance of the
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report which indicates the background of the report. Once it has been completed after that
literature review have been conducted which contains viewpoint of the previous report. Third
section of the reports contains aims, objectives, and research questions. These are related with
the risk management practices and its impact on the cost of the construction project. After
defining aims and goals theoretical methodology of the report has been stated (Burtonshaw-
Gunn, 2017).
Experimental Setting
As the aim of the study is to identify the opinion of the contractors on the significance of the
construction project risks and to explore the risk analysis and risk management practices to
reduce the cost hence a survey will be conducted with the contractors of the construction project.
To conduct the survey and analyze the results first of all the literature review will be evaluated
and research gap will be analyzed. After that on the basis of the research gap and research
objectives as set of questions will be prepared conduct the survey with the target audience. The
target audience will be decided as per the suitability of the researcher and the respondents. As the
contractors are the one who carry out all the construction projects so they are well aware of all
types of risks related to the construction projects and how they handle those risk of cost and time
with the help of various risk management practices. A questionnaire will be prepared and
distributed among the contractors and they will be asked to sill the questionnaire on the basis of
their experience.
The study is based on the Australia so the eligible respondents for the research will be all the
contractors working in the country but it will not be possible for the researcher to collect data
from the all the contractors as it will very time consuming and costly hence a single city will be
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selected and all the contractors from that city or region will be considered as respondent for the
survey. The collected data will be evaluated with the help of the statistical tools and final result
will be derived accordingly. Data collection from the contractors will provide the actual scenario
of the construction industry and real situation of cost overrun handled by the contractors by
performing the risk management practices (Serpella, et al., 2014).
The practical implication for the research will be related to the generalization of the collected
data on the overall population. There may be situation that contractors from different location
follow the different risk management practices to reduce the overall cost of the construction
because the risk management practices are dependent upon the types of risk that may arises and
type of risk include the environmental risk, external risk and political risk. These risks may differ
for different locations.
Result, Outcome and Relevance
In this research study both quantitative and qualitative data will be considered to research to the
final results. As explained above the data will be collected from the contractors of the
construction project.
The variables of the project will include the risk management practices and cost control. Through
this research the results related to how the risk management practices in the constructions sector
reduce the overall cost of the project will be derived.
From the final results the research will conclude the strategies for the construction sector of the
country to overcome the issue of the cost overrun and complete the project within the stipulated
determined cost. As construction industry is most prone to risk of the cost overrun and timely
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delay of the projects hence this research study will be beneficial for the construction industry of
the country (Khemani, et al., 2010).
Project Planning and Gantt chart
The outline of the research paper will include the introduction, theory, survey, result, discussion
and conclusion (Eldosouky, et al., 2014).
Work Breakdown structure (WBS)
Work breakdown structure is defined as the detailed list of tasks explaining the entire project
execution and implementation. This helps in understanding the project in detail and helps in
productive planning considering all risks and time factors. Work break down structure is in
general created so that clear understanding relating to the application development can be
provided to everyone. The work breakdown structure for this project to conduct a study to
identify the risk management practice that reduces the overall cost in a construction project is as
follows
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Figure 1: Gantt Chart
Figure 2: Gantt Chart
Milestone Activity Task
Preliminary Study Identification of the Reviewing the current trends in the
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& Survey problem construction industry
Listing out the current risks and challenges
Development of the
Aims and Objectives
Reviewing the previous studies on the same
topic
Understanding the reasons for cost overrun
Research Planning
Development of
Schedule of
conducting the
research List out various tasks involved
Identify required manpower
Identify timelines to finish various tasks
Prepare a baseline schedule for the project
Research Analysis
Technical
Requirements Preparation of process flow for application
Exploring statistical tools and other
requirements
Finalize the technical details
Cost Analysis Prepare cost sheet for completion of each task
Estimation of total project cost
Approval on cost & requirements
Timelines Prepare a detailed timeline
Estimate the project period
Approval on timelines & requirements
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Theoretical
Background Literature review Completion of final literature review
Progress Report Methodology Design Prepare the methodology design
Define research Approach
Research Strategies
Define Target Audience
Questionnaire Design Selection of the type of questionnaire
Sub-division of the questionnaire in sub-
segments
Reliability testing
Testing the reliability and validity of the
questionnaire
Resolving the loopholes and updating the
questionnaire accordingly
Data collection,
data analysis and
findings of the data
Data Collection
Data collection from the target respondents
through mode of survey
Final preparation of data in the report form in
the MS Excel
Data Analysis
Use of statistical tools to evaluate and
generalize the data
Final evaluation of the data to deduce results
Closure
Final conclusion, implications and
recommendations
Submission of report & supporting documents
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Conclusion
On the basis of the above discussion about the layout of the project, aims, objectives,
methodology, theoretical framework, literature review and key review of the milestones and
deliverables the paper will conclude the most appropriate risk management practice in the
construction industry that will reduce the overall cost or cost overrun of the project. The
contractors are the main player in the successful execution of the risk management practices.
This research paper will impact the overall construction industry in a long run as this research
paper will provide the significance of using the risk management practices in the construction
projects. Finally, by covering the research gap of the previous literature this research paper will
provide significant knowledge to the future researchers about the current construction industry
scenario and suitable risk management factor on the basis of the situation.
References
Augustine, I. E., Ajayi, J. R., Ade, B. A. & Adakole, A., 2013. Assessment of Risk Management
Practices in Nigerian Construction Industry: Toward Establishing Risk Management Index.
International Journal of Pure and Applied Sciences and Technology, 16(2), pp. 20-31 .
Banaitiene, N. & Banaitis, A., 2012. Risk Management in Construction Projects. In: Risk
Management-Current Issues and Challenges. s.l.:InTech.
Burtonshaw-Gunn, i. A., 2017. Risk Management in Construction Projects. [Online]
Available at: http://www.gpmfirst.com/books/risk-and-financial-management-construction/risk-
management-construction-projects
[Accessed 2017].
Eldosouky, I. A., Ibrahim, A. H. & Mohammed, H. E. D., 2014. Management of construction
cost contingency covering upside and downside risks. Alexandria Engineering Journal, 53(4),
pp. 863-881.
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Gajewska, E. & Ropel, M., 2011. Risk Management Practices in a Construction Project – a case
study, Göteborg, Sweden: Chalmers University of Technology.
Hak, C. et al., 2017. Risk Management Model of Construction Projects Using WBS Generator
linked 4D CAD. [Online]
Available at: http://itc.scix.net/data/works/att/b763.content.08955.pdf
[Accessed 2017].
Khemani, K., Walters, N., Wolff, J. & Kearney, A., 2010. Improving Construction Cost and
Schedule Performance Through Risk-based Estimating and Contracting, PennWell Corporation.
Macomber, J. D., 2017. You Can Manage Construction Risks. [Online]
Available at: https://hbr.org/1989/03/you-can-manage-construction-risks
[Accessed 2017].
Nap, 2016. Risk Identification and Analysis. [Online]
Available at: https://www.nap.edu/read/11183/chapter/6
[Accessed 2016].
NAP, 2017. Methods for Reducing Claims. [Online]
Available at: https://www.nap.edu/read/11846/chapter/9
PM4ID, 2017. 11.2 Risk Management Process. [Online]
Available at: https://pm4id.org/chapter/11-2-risk-management-process/
[Accessed 2017].
Schieg, M., 2006. Risk management in construction project. Journal of Business Economics and
Management.
Serpella, A. F., Ferrada, X., Howard, R. & Rubio, L., 2014. Risk Management in Construction
Projects: A Knowledge-based Approach. Procedia-Social and Behavioral Sciences, Volume 119,
pp. 653-662.
Shaikh, M. M., 2015. Risk Management in Construction Projects. International Journal of
Current Engineering and Scientific Research , 2(2), pp. 150-155.
Stakeholdermap, 2017. Risk Management in Construction. [Online]
Available at: https://www.stakeholdermap.com/risk/risk-management-construction.html
[Accessed 2017].
TheIRM, 2013. Managing Cost Risk & Uncertainty In Infrastructure Projects, The Institute of
Risk Management.
Wilson, C. R., Tran, D. & Molenaar, K. R., 2014. Program Risk Management Approach To
Reducing Cost Uncertainty In Highway Projects.
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