INTEGRATINGINTEGRATINGRISK MANAGEMENTRISK MANAGEMENTWITH COST WITH COST CONTROL& CONTROL& COMMUNICATIONCOMMUNICATION

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RISK MANAGEMENT Risks have a significant impact on a

construction project’s performance in terms of:

cost Time quality Size and complexity of the projects

have increased over the past 30 years. The ability to manage risks throughout

the construction process has become a major factor for preventing risk.

RISK MANAGEMENTSupply chain must share the risk.Risk to a large extent is governed

by the procurement option and the content of the related contract documents.

Selecting an appropriate project procurement option is a key issue for risk reduction.

RISK MANAGEMENTA systematic process of: identifying assessing and responding to

project risk The aims and objectives 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 obtained.

RISK MANAGEMENT The international standard “Project risk

management – Application guidelines” (IEC 2001) is a good source for risk management.

IEC suggest a model with 5 steps: 1.risk identification 2.risk assessment 3.risk treatment 4.risk review5.monitoring

RISK MANAGEMENT PMBOK’s model (PMI 2000) is

similar but divides risk assessment into two processes. They are:

1. qualitative risk analysis2. quantitative risk analysis Baloi and Price (2003) include an

additional step of risk management process it is:

communication.

RISK MANAGEMENT

Risk Transfer & Indemnification

Two most problematic areas for construction management teams are:

1.contractual risks2.the insurability of projects.

RISK MANAGEMENT Risk management can reduce risk in

the different procurement options. Design and build contracts and

collaborative form of partnering. Better understanding is expected to

contribute to a more effective risk management.

Therefore, a better project output and better value for both clients and contractors.

RISK MANAGEMENT

A clear link between the procurement option and risk management

Design-build projects offer better cooperative work by the architects and contractors in early phases

Therefore, more thorough risk management.

RISK MANAGEMENT

effective communication; information exchange;open attitudes and good relationship;

all have open discussion of project risk and a strong determinant for project success.

RISK MANAGEMENTRISK ASSESSMENT-SUPPLY CHAIN1. identify risks2. evaluated risks3. ranked risks4. use both qualitative and quantitative

methods for assessment5. based on fuzzy estimates of risk

components or a better option 6. Identify risk to cover all KPI’s (TIME-

COST-QUALITY-CUSTOMER SATIFACTION-SAFTEY)

RISK MANAGEMENT

RISK MANAGEMENT

PredictiveMetrics

DiagnosticMetrics

RetrospectiveMetrics

RISKIDENTIFYASSESS

TREATMENTREVIEW

MONITOREtc.

RISK MANAGEMENT

Y

ResourcesLabour

MaterialsMachinery

Etc

N

Microin UK-Public

orPrivate

Civil EngineeringBuildingHousingschools

hospitalsother

Level of Risk with:

Projects in EUProjects in UAE

Projects elsewhere

Is itMacro

Identifyrisk

DemandFluctuationFinance

Weather

Use ofnew construction

methods

Designcomplexity

RISK MANAGEMENT

RiskMetrics

Predictivemetrics

Retrospectivemetrics

y Diagnosticmetrics

yes

yes

Forward-looking,based on

expectations.Y

Drawn fromcurrent project

status-throughoutthe work

Y

Backward-lookingderived from

resultsY

RISK METRICS:RELATES TO DISCOVERY ANDMINIMIZATION OF RISK

COST CONTROLCost control is a key factor and an

important determinant during construction for achieving project’s KPIs.

Construction costs control includes:performing an adequate constructability

review to minimize unexpected costs;establishing a construction cost cash flow

plan;monitoring cost performance to detect

and understand variances from plan;

COST CONTROLensuring that all appropriate

changes are recorded;preventing incorrect, inappropriate,

or unauthorized changes from being included in the project;

Informing appropriate stakeholders of authorized changes;

Acting to bring expected costs within acceptable cost limits.

COST CONTROLCost control must be thoroughly integrated with the other control processes such as:

scope change control; schedule control and quality control.

Any inappropriate responses to cost variations can cause quality or schedule problems.

COST CONTROLRemoving gang members from one job to another can increase the contract duration.

Decreasing gang members can also increase the cost.

It also can produce an unacceptable level of risk later in the project.

COST CONTROL

construction costs include:contractor costs; the client cost;consultant costs;Any other hidden cost such as in case of any major dispute between contractor and the client.

COST CONTROLRESPONSIBILITIESProject Manager (PM): The PM is responsiblefor overall project cost control, running of theproject. The PM should work closely with the

Construction Site Manager, Site Engineers to ensure that changes are minimized.

Make sure the project is completed within budget.

COST CONTROLConstruction Manager (CM)-Project

manager (PM)-Site Manager (SM) Once the construction work starts on

site, the management team on site will be responsible for day-to-day cost control as well as other responsibilities.

The CM,PM, must not only know the project’s costs to date, but also be able to project costs For any additional work.

The CM, PM,.. is responsible for controlling costs to ensure that construction is completed within budget.

COST CONTROL If any changes are anticipated during

the construction process, immediate steps must be taken and they are:

1. the CM must notify the senior management as soon as possible;

2. an informed decision can be made on whether or not to proceed with the change;

3. Once the decision is made can the necessary funding be obtained?

COST CONTROL

Step 1-pull information from bill of quantity

Productivity measurement table -related to case no.1

CRAFT/LABOUR

PRODUCTIVITY

CASE NO.1 POOR

Total MD =Cost of material

Waste Waste Craft Optve

Craft Optve

Labour Labour

Productivity Loss or Gain £

Total loss/Gain =PR x TQ

Unit

3x3 Bed House -2 Story level

Quantity (TQ)

Delivered to site

(Estimate)

(Actual)

Hrs Hrs Hrs Hrs- PR=MD[A-X]+HC(EC-AC) +HL(EL-AL)

LOSS £

Description -Activities

(Act-) % % (EC) (AC) (E L) (AL)

SUPERSTRUCTURE

Facing Brick P.C £350 PER 1000 /Common Block

156 31.14 5% 6.50% 2.55 2.58 1.95 1.97 -0.9 -140 M2

Common Brick/Block

264 18.88 5% 6.50% 2.25 2.26 1.75 1.76 -0.47 -124 M2

Internal Walls -LWC Block

282 8 5% 7.00% 1.45 1.47 1.1 1.12 -0.38 -107 M2

Internal Walls -Plastering -13mm thick

708 1.71 5% 6.50% 0.45 0.45 0.23 0.23 -0.03 -24 M2

Internal Finish-Ceiling finish -set

504 0.47 5% 6.50% 0.25 0.25 0.13 0.13 0.47x (-0.02) 4 M2

Wall Tiling-152x152

75 14.5 5% 6.50% 1 1 0.6 0.6 1.71x (-0.02) 22 M2

carry outcalculations-useformulas (ACTUAL)

Informationfrom bill of quantity(ESTIMATION)

Net Rate

Gross Total Total Total Total Total Time

Total Time

Total Cost

Total Cost

Total Time

Total Time

Total Cost

Total Cost

Unit

(£) Rate Quant-

Quant-

Cost Cost Est- Est- Est- Est- Act.- Act.- Act- Act-

(Est-) (Act-) (Est-) (Act-) Craft Labour

Craft Labour Craft Labour Craft Labour

(£) (£) (£) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) 64.5

5 72.94 160 - 1167

0 - 464 688 3257.3 3969.7

5 - - - - M2

57.29

64.73 130 - 8414.9

- 63.75 315.9 447.15 1822.75

- - - - M2

40.81

46.12 225 - 10377

- 506.25

393.75

3553.9 2271.95

- - - - M2

35.24

39.82 410 16326

- 922.5 451 6475.95

2602.25

- - - - M2

13.91

15.98 440 - 7031.2

- 638 484 4478.75

2792.7 - - - - M2

5.04 5.69 1125 - 6401.3

506.25

258.75

3553.9 1492.95

- - - - M2

3.99 4.5 785 - 3532.5

196.25

102 1377.7 588.55 - - - - M2

26.88

30.37 90 - 2733.3

- 90 54 631.8 311.6 - - - - M2

Net Rate

Gross Total Total Total Total Total Time

Total Time

Total Cost

Total Cost

Total Time

Total Time

Total Cost

Total Cost

Unit

(£) Rate Quantity

Quantity

Cost Cost (Est-) (Est-) (Est-) (Est-) (Act.-)

(Act.-) (Act-) (Act-)

(Est-) (Act-) (Est-) (Act-) Craft Labour

Craft Labour Craft Labour Craft Labour

(£) (£) (£) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs) (Hrs)

64.5 72.94 114 - 8315. - 330.6 490.2 2320.8 2828.4 - - - - M2

1 3 82 11 15

12

0

0

14

14

40

40

4

55

43

43

47

47

55

55

61

61DU=14 DU= DU= DU= DU=54

44

58

9

44

47

7

55

59

14

45

45

6

55

55

13

70

70

17

43

46

5

45

59

10

59

66

16

26

DU=4

DU=1

DU=1

3

DU=2

DU=1

DU=1

DU=1 8

DU=1

DU=4

DU=3

DU=2

DU=2

Network Programming(AOA)-ESTIMATION

GanttChart-ACTUAL

GanttChart-ESTIMATION

1 3 82 11 15

12

0

0

14

14

40

40

4

55

43

43

47

47

55

55

61

61DU=14 DU= DU= DU= DU=54

44

58

9

44

47

7

55

59

14

45

45

6

55

55

13

70

70

17

43

46

5

45

59

10

59

66

16

26

DU=4

DU=1

DU=1

3

DU=2

DU=1

DU=1

DU=1 8

DU=1

DU=4

DU=3

DU=2

DU=2

Network Programming(AOA)-ACTUAL

LABOURYESNOMATERIALS(wastage)

YESNO

MACHINERYYESNO

COST OVERRUN(YES)

COSTOVERRUN(NO)

COST OVERRUN(NO)

YES A

A

Carry outcalculationsuse formula(ACTUAL)

Productivi ty measurement table-rela ted to case no.1

CRAFT/LABOUR

PRODUCTIVITY

CASE NO.1 POOR

Total MD =Cost of material

Waste Waste Craft Optve

Craft Optve

Labour Labour

Productivity Loss or Gain £

Total loss/Gain =PR x TQ

Unit

3x3 Bed House-2 Story level

Quantity (TQ)

Delivered to site

(Estimate)

(Actual)

Hrs Hrs Hrs Hrs- PR=MD[A-X]+HC(EC-AC) +HL(EL-AL)

LOSS £

Descr iption-Activities

(Act-) % % (EC) (AC) (EL) (AL)

SUPERSTRUCTURE

Facing Brick P.C £350 PER 1000 /Common Block

156 31.14 5% 6.50% 2.55 2.58 1.95 1.97 -0.9 -140 M2

Common Brick/B lock

264 18.88 5% 6.50% 2.25 2.26 1.75 1.76 -0.47 -124 M2

Internal Wal ls-LWC Block

282 8 5% 7.00% 1.45 1.47 1.1 1.12 -0.38 -107 M2

Internal Wal ls-Plastering-13mm thick

708 1.71 5% 6.50% 0.45 0.45 0.23 0.23 -0.03 -24 M2

Internal Finish-Ceiling finish -set

504 0.47 5% 6.50% 0.25 0.25 0.13 0.13 0.47x (-0.02) 4 M2

Wall Tiling -152x152

75 14.5 5% 6.50% 1 1 0.6 0.6 1.71x (-0.02) 22 M2

SITE ENGINEERS

MANAGEMENT

CHIEF EXECUTIVE

LOWPRODUCTIVITYCOST OVERRUN

HIGHPRODUCTIVITY

COST CONTROLCost Control

CostEstimate

(CE)Actual cost

(AC)

Stored dataprice book(Spons,

Laxton, etc.

SuppliersManufacturers

etcprice list

Stored data frompast experience

/projects

IsCE>AC Yes

HighProductivity

No

IsAC>CE

Data Base

No

Productivityloss

Yes

Send reportto managers

COST CONTROLCost

controlInput

DataProcessing

Output

ContractDocuments

Stored DataPrice book

etc

DataBase

DisplayCost

Overrun

LabourActivities

1-2,2-3,...

15-16

Materials

Machinery

FormulasAC = a EC (1+? xi) and similarly AL = a EL

(1+? xi)

FormulaPR (Loss/Gain)=MD [A-X] + {(EC . HC)+ (EL

. HL)}-{(AC . HC)+ (AL . HL)}

Labour Productivity (Pi) for time periodi=WHi / Qi

Total MD =Cost of material

Waste Waste

Quantity (TQ)

Delivered to site

(Estimate)

(Actual)

(Act-) % %

156 31.14 5% 6.50%

264 18.88 5% 6.50%

282 8 5% 7.00%

708 1.71 5% 6.50%

Costoverrun?

c

Yes

No

Highproductivity

DATA MODEL-ESTIMATED COST COMPARED TO ACTUAL COST

Labour(Actual)

1-2

2-3

3-5

4-6

1-12

3-4

5-7

4-6

n activities

Labour(Estimates)

1-2

2-3

3-5

4-6

1-12

3-4

5-7

4-6

n activities

Materials(Actual)

1-2

2-3

3-5

4-6

1-12

3-4

5-7

4-6

n activities

Machinery(Actual)

1-2

2-3

3-5

4-6

1-12

3-4

5-7

4-6

n activities

Materials(Estimate)

1-2

2-3

3-5

4-6

1-12

3-4

5-7

4-6

n activities

Machinery(Estimate)

1-2

2-3

3-5

4-6

1-12

3-4

5-7

4-6

n activities

Controlcost

overrun

Controlcost

overrun

Controlcost

overrun

No Yes

Database

c

c

c

c

c c c

No

Yes

NoYes

DATA MODEL FOR LABOUR, MATERIAL AND MACHINERY COST OVERRUN

Labour(Actual)

with cost overrunactivities

4-6

1-12

3-4

Labour(Estimates)

4-6

1-12

3-4

5-7

Materials(Actual)

with wasteincrease

4-6

1-12

4-6

Machinery(Actual)

Lossof

efficiency(%)

1-2

2-3

Materials(Estimate)

4-6

1-12

4-6

Machinery(Estimate)

1-2

2-3

3-5 Database

5-7

PR (Loss/Gain)=MD [A-X] +HC(EC- AC)+HL(EL- AL)

AC = a EC (1+? xi) and similarlyAL = a EL (1+? xi)

xi = % of influential factorssuch as weather, crew size,

absenteeism, machinery,accidents on site, etc.

c

Cost overrun documentLabour

MaterialsMachinery

send tomanagement team

COMMUNICATION

Every year defects in the UK construction industry cost at least £20 billion to repair or rebuild

Some of the defects are as the result issues such as:

Poor communication; Poorly detailed drawing; Incorrect instructions or technical

information not being available on time;

COMMUNICATIONMeeting types and frequencies;Method's of drawing transfer;Use and control of revised

drawings, or unconfirmed drawings;

Reporting and tracking of defects;Lack of knowledge in detecting

defects on time.

COMMUNICATION

Single points of contactConsideration should be given to appointing defined, single points of contact at suppliers, design offices and contractors.

This should help to avoid delays, confusion and duplication of effort.

COMMUNICATION

Upwards feedback Establish means by which

information can be effectively fed back up through the formal management structure.

Two key areas where this can be particularly important are as follows:

COMMUNICATION

1. operatives to site office (e.g. reporting on an incorrect drawing);

2. Site office to head office (e.g. where an incorrect detail is discovered;

3. this should be reported back to the design office and the drawings corrected).

COMMUNICATIONThere are different communication

instruments, suchas: e-mail document telephone meeting contracts specifications reports manuals schedules calculations

COMMUNICATION drawings computer files Disks print-outs photographs agenda’s and minutes of meetings The management of documentation

and communication used in a project is used by a number of subcontractors, the storage and retrieval thereof for further use.

Communicationon site

Contractorsub-contractor

site engineers,clerk of work,..

communicationresponsibilitiesand methods

Suppliers1-2-3

Suppliers4-5-..

Single points ofcontact

Head Office

Subcontractor BSubcontractor A

Web Browser

General Contractor

Web Browser

Web Browser

XML XML

XML

Message Agent

Message Agent

Message Agent

Platform: IBM PCOS: Window 2000 ProfessionalFTP server: IIS 5.0

Platform: IBM PCOS: LinuxFTP server: WuFTP

Platform: IBM PCOS: Window 2000 ProfessionalFTP server: IIS 5.0

DataSynchronization

Subcontractor BSubcontractor A

Web Browser

General Contractor

Web Browser

Web Browser

XML XML

XML

Message Agent

Message Agent

Message Agent

Message Agent

Message Agent

Message Agent

Platform: IBM PCOS: Window 2000 ProfessionalFTP server: IIS 5.0

Platform: IBM PCOS: LinuxFTP server: WuFTP

Platform: IBM PCOS: Window 2000 ProfessionalFTP server: IIS 5.0

DataSynchronization

External communication

Indirect

Direct

Client