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ProfessionalProjectManagementEducation:RiskManagementInThePakistanConstructionIndustry:AContractorsPerspective
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Tuesday,11May2010

RiskManagementInThePakistanConstructionIndustry:
AContractorsPerspective
TheConstructionIndustryinPakistanhasgonethrougharoughpatchwithitscompoundannual
growthrate(CAGR)inthethreeyearsuptoFY2002beingwellbelowthetwopercentas
comparedtoaCAGRofnearlyfourpercentfortheoverallGDPofthecountryduringthisperiod.
Thisshowsthatinsteadofbeingasourceofeconomicstimulus,theconstructionindustryhas
actuallylaggedbehindtherestoftheeconomyintermsofgrowth.Thisnegativeperception
regardingthemacroeconomicandpoliticalinstabilityandthelawandordersituationhasdeterred
seriousinvestors(JCR,2003).
TheproblemsfacingtheconstructionindustryofPakistanhaspersisteddespiteeffortsmade.Itis
importantthattheconstructionindustryofPakistanismorefullyunderstoodinorderformore
appropriatesolutions,relevanttoitscontexts,tobefound.Thisindustryrequiresseparate,special
treatment.
NowthereisaneedtosearchthedifficultiesandproblemsbeingfacedbythePakistan
constructionindustry,alongwithrecommendedsolutions.Researchers,Developers,Buildersand
Contractorsworkingtogethercanidentifythesolutionstotheproblemsandcanboostthe
PakistanConstructionIndustry.
Constructionisahighriskbusinesswhichhauntseveryparticipantinthebusiness,theproject
owner,constructioncompanies,consultants,bankers,financialinstitutions,vendors&suppliers
andeventheserviceproviders,eachhashisownfearsoffacingrisksintheconductofbusiness.
Riskmanagementisimportantpartofthedecisionmakingprocessintheconstruction.Riskis
alsotheobjectofattentionbecauseoftimeoverrunassociatedwiththeconstructionprojects.
Althoughtheriskanalysisandmanagementisimportanttotheactivitiesoftheconstruction
industry,littleisknownabouttheindustryresponseandthetechniquesemployedfortherisk
managementinthePakistanconstructionindustry.Thereisaneedtoinvestigatetheconstruction
industry'sperceptionofriskassociatedwithitsactivitiesandtheextenttowhichtheindustry
usesriskanalysisandmanagementtechniques.
Mr.AsifHameedMalikmadeastudywhichmainobjectivetoinvestigatetheriskmanagement
practicesoftheconstructioncontractorsinpublicsectorprojectsofPakistanandtorecommend
theappropriateriskmanagementtechniques,whichbetterfitthePakistancontextand
environment.
Toachievehisobjective,thesubobjectivescanbeidentifiedasfollows:
a)Toevaluatethecurrentattitudeofthecontractorsregardingtheimportanceofriskandrisk
allocation.
b)Touncovertheunderlyingrelationshipsbetweentheidentifiedrisksusingthefactoranalysis.
c)Toinvestigatethedifficultiesandthebenefitsrelevanttotheriskmanagementandthecurrent
usageofriskmanagementtechniquesintheconstructionorganizations.
d)Toproposerecommendationstothecontractorstocopewiththemajorrisksintheindustryand
manageriskeffectivelyinlongterms.
Conclusions
Thefollowingaretheconclusionsbasedontheworkcarriedoutandtheresultsoftheanalyses.

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1.RiskImportanceandallocation

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a.Thetentopmajorrisksidentifiedare:(1)Delaysinresolvingcontractualissues(2)Delayed

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ProfessionalProjectManagementEducation:RiskManagementInThePakistanConstructionIndustry:AContractorsPerspective
paymentoncontracts(3)Politicaluncertainty(4)Financialfailure(5)Scopeofworkdefinition
(6)Warthreats(7)Suppliers/subcontractorspoorperformance(8)Changeinwork(9)Defective
design(10)Laborandequipmentproductivity.
b.Outofthirtyonelistedconstructionrisks,thirteenconstructionrisksareallocatedtothe
contractorseventotheownerandelevenaresharedbetweenthecontractorandowner.
Although,itisgenerallyrecognizedthattheriskshouldbetransferredtothepartythatisinthe
bestpositiontodealwithit,thesurveyindicatesthatPakistanicontractorsareoftenresponsible
formostoftherisk.Contractorsconsiderthemselvesresponsibletotakecareoftherisks
associatedwithphysicalandenvironmentalproblems.Therisksofthistypeincludedifferingsite
conditionsandadverseweatherconditions.
c.Experiencedengineershaveratedtheimportanceofriskeventslowerthanlessexperienced
engineers.Themainreasonsareexperiencelevelandmanagementleveloftheexperienced
engineers.Theexperiencegainedinconstructionlifemayhaveenabledtheengineerstodevelop
additionalabilityandcompetencyinmanaging,anticipatingandsolvingpossibleproblems.This
resultiscontradictorytothefindingsoftheDung(2004)andThuyet(2003),inwhichthey
concludedthatexperiencelevelhasanobiginfluenceonengineersattitude.Howeverthisresult
issupportivetosomeextenttothefindingsofSantoso(1999).
d.Theresultshowsthattherespondentsworkinginlargecompanieshaveratedtherisksless,
whichareoftechnicalandmanagerialnature.Thismaybeduetothereasonthatthelarge
contractorshaveformalmanagementpracticesintheirorganizationsandalsotheyhaveenough
resourcestomitigatetheencounteredrisksmoreefficientlythanthesmallcontractors.

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2.Groupingofidentifiedrisks
Factoranalysisisappliedtofindanyinterrelationshipexistingamongtherisksintermsoftheir
importance.Thecomponentsextractedarelabeledasmanagerialandtechnicalrisksproject
scopeanddesignriskspolitical,economicandregulatoryriskscontractualdelayrisksandsite
andweatherrisks.
3.Riskmanagementpractices
Theresultsofriskmanagementpracticesaresimilartothefindingsoftheothersurveys
conductedindevelopingcountriesbyDung(2004)andThuyet(2003).
a.ImportanceofsystematicriskmanagementiswellrecognizedinthePakistanconstruction
industrywhilethepracticeisfarbehinditsimportance.

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b.Theimportanceoftrainingcannotbeignoredinanyorganization.Conversely,theconstruction
organizationsinPakistanprovidepoorjobtraininginriskmanagementtotheirstaff.
c.Thereisalackofformalriskidentificationteamsintheorganizations.Alsotherolesand
responsibilitiesarenotstated.Evensometimesonlyonepersonisresponsiblefortherisk
managementprocess.
d.Themaindifficultiesintheriskmanagementprocessarelackofqualifiedexperts,lackof
budgetandtopmanagementcommitment.
e.Qualitativeriskanalysistechniquesaremorepopularduetotheirsimplicityandeffectiveness.
Inqualitativeanalysis,themostusedtoolsarechecklist,brainstormingandinterviewing.
Quantitativeriskanalysistechniqueshavebeenrarelyusedduetolimitedunderstandingand
experience.
f.Theeffectivenessoftheriskresponsesinthedescendingorderare:risktransfer,riskreduction,
riskretentionandriskavoidance.
g.Preventiveactionsareusedtoavoidandreducerisksattheearlystageofprojectconstruction.
Produceaproperschedulebygettingupdatedprojectinformationandproduceaproperprogram
usingsubjectivejudgmentarethetwomosteffectiveriskpreventiveactions.
h.Mitigativeactionsareremedialstepsaimedatminimizingtheeffectsofrisks.Themost
effectiveriskmitigativemethodsaretocoordinatecloselywithsubcontractorandtoincrease
manpowerand/orequipment.
i.Contractmanagementisquitewellperformed,helpingmuchriskallocationthroughcontracts.
Insuranceserveasasecondrisktransferforthepartiesinvolved.However,inrealitytheyface
lotsofdifficultiesonthewayoffindingtheinsurance.Highpremiumininsurancebuying,long
claimcoverageprocedureandlackofqualifiedexpertsarethemostperceptibleproblemsin
purchasinginsurance.
Recommendations
Basedontheresearchresults,therecommendationsaremadetotheconstructioncontractorsto
copewiththemajorrisksintheindustryandtoimprovetheirriskmanagementpractices.

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ProfessionalProjectManagementEducation:RiskManagementInThePakistanConstructionIndustry:AContractorsPerspective
1.StrategiestoMitigatetheMajorRisks
Forprojectstobesuccessful,itisextremelyimportantthatthemajorrisksaffectingtheprojects
shouldbethoroughlyexamined.Thecausesandcharacteristicsmustbecarefullyanalyzedin
ordertoproposethemostappropriateandpracticalstrategiestomitigatethem.Forthetopten
majorrisks,theproposedstrategiestomitigatethemareshowninthetablebelow.

2.StrategiestoImprovetheRiskManagementPractices
a.Integrateriskmanagementinorganizationalcultureinwhicheverybodyisariskmanager.This
ismoreimportantthandevelopingandissuingextensivepoliciesandprocedures.Managementof
riskisembeddedinthemanagementphilosophy.
b.Implementingriskmanagementrequiresresources.Investmentswillberequiredin:training,
developingprocessesandtechniques,managementsystems,specialistgroups.Senior
managementmustbecommittedtosupporttheinitiativewiththerequiredresources.
c.Opencommunicationisnecessaryforriskmanagementtosucceed.Withoutopen
communicationriskmanagementcannotbe"everybody'sbusiness".Managersrequiredirect
communicationchannelsup,downandacrosstheirbusinessunitstohelpidentifyrisksandtake
appropriateactions.Informationmustbeshared.
d.Informalandformalteamsareamechanismthatorganizationsshouldusetomanagerisks.
Teamingbringstogethervariousriskattitudesandbringsfreshthinkingtoissuesandsolutions.It
alsofocusesdiversedisciplinesoncommonobjectives.
e.Acommonbusinessrisklanguageenablesmanagerstotalkwithindividualsintermsof
everybodyunderstanding.Thisisimportantalsoincaseswhereeverybodyisexpectedtomanage
risks.
f.Setuparesponsibilitycenterforriskmanagement.AChiefRiskOfficer(CRO)whodefines
consistentapproachestomanagingriskshouldheadit.TheCROistheorganizationalrisk
championandisresponsibleforprovidingleadershipandestablishingandmaintainingrisk
awarenessacrosstheorganization.
g.Communicatetheriskperformancetotopmanagementandstakeholders/shareholders.The
reportsshouldoutlinethemajorrisksandhowtheyaremanaged.
h.Thereisaneedforriskmanagementtraining,aspartofacorporatetrainingcurriculum.Topic
areasinclude:objectivesformanagingrisk:riskawareness,riskassessments,safetyand
legislativerequirements.
i.Theauthoritiesshouldimplementtheperformanceassessmentscoringsystem(PASS)asa
mechanismforevaluatingtheeffectivenessofacontractor'sabilityandtochangetheattitudeof
thecontractorstosimplywintheprojectsratherthantodelivertheprojectstospecified
standards.
j.Theinternalauditfunctionplaysakeyroleinimplementingriskmanagementthroughoutan
organization.Examplesofthispracticeare:monitoringandreportingonthemanagementof
significantrisksandreviewingprocessesformanagingrisks.
Histhesisabstractiscopiedandposted.
ABSTRACT
Theresearchstudy,onthebasisofaquestionnairesurvey,describestheperceptionof
constructioncontractorsinPakistanabouttheriskassociatedwithitsactivitiesandtheextentto
whichtheindustryusesriskanalysisandmanagementtechniques.
Thestudyhasinvestigatedtheperceptionofthecontractorsregardingriskimportanceandrisk

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ProfessionalProjectManagementEducation:RiskManagementInThePakistanConstructionIndustry:AContractorsPerspective
allocation.ThepurposewastoprovideinsightintothecurrentattitudeofPakistanicontractors
towardsconstructionriskallocationandalsotoexaminetheimportanceofdifferentrisk
categories.
RiskmanagementpracticesintheconstructionindustryofPakistanhavealsobeenpresented
anddiscussed.Firsttheorganizationalcultureandsupporttotheriskmanagementisdescribed
anditisfoundthattheimportanceofsystematicriskmanagementiswellrecognizedinthe
Pakistanconstructionindustrywhilethepracticeisfarbehinditsimportance.Thenthe
extent/scope,responsibilitiesandproblemsintheriskidentificationriskanalysisriskresponse
riskmonitoringandcontrolprocessesarediscussed.Theresearchresultsindicatedthatthe
applicationoftheformalriskmanagementtechniquesinthePakistanconstructionindustryis
limited.Itisalsoinvestigatedthatthereisalackofformalriskmanagementteamsin
organizationsandrolesandresponsibilitiesarenotstated.Themaindifficultiesduringtherisks
managementprocessesinthedescendingorderare:thelackofqualifiedexpertslackofbudget
complexityoftoolsandtechniqueslackoftopmanagementcommitmentandsupportandlackof
historicaldata.Thisresearchalsopresentstwotypesofriskmanagementmethods:preventive,
whichareeffectiveattheearlystagesoftheprojectlife,andmitigative,whichareremedial
actionsaimedatriskminimizationduringconstruction.Attheend,riskallocationbetweenthe
partiesinvolved,throughcontractandinsurance,isdiscussed.
PostedbyCEIMReporterat11:21
Labels:Research

8comments:
GraniteinCalgarysaid...
Foracontractorriskcanbeanywhereinanycountry
11May2010at14:06

samplesaid...
Thiscommenthasbeenremovedbytheauthor.
11May2010at17:53

Andrewsaid...
Hey.Ifoundthispostwasniceabouttheriskmanagementinpakistanconstruction.Ifyou
wanttoknowmoreaboutitthenyoucaneasilyvisitonthesoftwarecalled
ProofHub(http://www.proofhub.com/).Inthissoftware,youwillknowmoreaboutthe
constructionofriskmanagement.Thanks!!!
15May2010at19:46

Jhonsmithsaid...
reallyinlifethosewhotooktheriskrichedathigherposition.
23September2010at19:48

Bhimashankarsaid...
reallynicepost.takethechancesandplayfrothewin.
23September2010at19:49

vichusaid...
Thanksforsharing,Iwillbookmarkandbebackagain...

ConstructionCompanies
13December2012at16:13

JohnMichlesaid...
Itsreallyinformative,somefactsandotherpointsgivenherearequiteconsiderableandto
thepointaswell,wouldbebettertolookformoreofthesekindforefficientresults.
ConstructionServiceManagementSoftware
10September2013at16:37

Websaid...
Inconstructionindustries,somanyrisksarefacedbasedontheconcernrulesand
procedures.
Constructionmanagementsoftware

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12January2015at14:13
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