Various Risks Involved in Highway Projects

IJIRST –International Journal for Innovative Research in Science & Technology| Volume 3 | Issue 06 | November 2016 ISSN (online): 2349-6010

Various Risks Involved in Highway Projects Dr. R. R. Singh Professor Department of Civil Engineering PEC University of Technology, Chandigarh

Gopesh Chugh M.E. Scholar Department of Civil Engineering PEC University of Technology, Chandigarh

Abstract The construction industry is exposed to wide array of risks such as financial, design and contractual ones, which might have direct impact on their performance towards achieving the desired objectives. This study aims to identify the actual process of risk management that is being applied in construction projects & to determine the effects of risk management implementation on performance of construction project in terms of time and cost. Risk management is decision making process used to minimise and manage the risk in efficient and appropriate manner. Most of construction employees involved in risk management are not fully aware of available risk management technique that applied in highway projects. The construction industry and its clients are associated with a high degree of risk due to the complex nature of the construction process. Construction Risk Management must be given adequate attention in order to ensure a successful project that meets the expectation of project goals and objectives thus risk management practice in a country with respect to highway projects is explored in this study. The study recommended adequate training for all stakeholders in highway construction sector to improve management of risks thus meeting project goals of time, approved budgets, and quality, imbibing the health and safety culture, and in an environmentally acceptable manner.

Keywords: Risk Management, Risk Assessment, Risk Drivers, Highway Construction, Operational Risks _______________________________________________________________________________________________________ I.

INTRODUCTION

The construction process has numerous uncertainties and risks, which increase with the size and the complexity of a project. Risk has been defined in different ways. Project Management Institute (PMI) defines project risk as an uncertain event or condition and that its occurrence has positive or negative effect on at least one project objective, such as time, cost, scope, or quality (PMI 2004). According to Smith et al. (2002). Risk is an unforeseen event that occurs during the process of construction projects.

Study shows that construction industry is subjected to more risk and uncertainties than any other industries. The reason for that is mainly due to complex nature of construction business activities, process, environment and organization. Risks that occur in highway projects will lead to inability to achieve desired project objectives. Delays, cost overruns and reduction of availability of resources are negative effect of risk inherent to highway projects. Ashley et al. (2006) have emphasized the importance of risk assessment, risk allocation, and risk management in effective management of highway construction projects. Risk management must be forward looking and identify potential problems.

II. RISK MANAGEMENT IN THE CONSTRUCTION INDUSTRY Zaghoul and Hertman (2003) described risk in construction projects as significant element by the total project cost and thus their allocation has a major effect on project budget. Baloi and Price (2003) described construction project as an open system rather than a closed system, which add to variability and riskiness of the project. Klemetti (2006) stated that risk management in the construction industry still rely heavily on contract and the industry has the bad reputation of involvement in numerous dispute and claims. Floricel and Miller (2001) stated that various studies have shown that contractual structures are the main sources of the lack of flexibility and they have a significant negative effect on actors’ relationship. Risk management should be implemented; contracting risks to other parties does not mean they are managed since nothing is done to deal with these risks; rather there will be increase in the cost of contract.

Cost overruns and late completion times in large infrastructure projects have been widely recognized as risks impacting project performance (Flyvbjerg et al. 2002). Controlling project budgets over project construction life cycle for mega infrastructure projects is a major challenge for both the public and the private sectors. Accurately estimating cost is an important factor for a successful project cost management from the start of planning phase to the completion of construction (Akintoye & MacLeod 1997; Nassar et al. 2005). Contingency has been used to manage uncertainty and risk in construction projects. To adequately calculate the project contingency, planners should focus on analysing the potential risk drivers. Contingency amount is greatest in the beginning of a project and is gradually reduced as the project is designed, risks are resolved, or the contingency amount is spent (Ashley et al. 2006).

Klemetti (2006) however asserted that the biggest barrier in construction project risks management are a drive for cost effectiveness; risk management is seen only to consume resources and benefit are difficult to measure in financial terms. Lack of risk management resources and know how restricts the use of risk management techniques. Several studies have shown that there

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are not enough capable personnel to conduct the risk management process and risk management is only in the hands of a few key people. Hence, this study has the following objectives: 1) To assess factors affecting implementation of risk management practices of highway projects in Malaysia.

2) To assess if there is any difference in the way stakeholder’s management risks associated with highway projects in Malaysia.

III. METHODOLOGY There are two stages involved in this research project: First, the key operational risks for highway projects in Malaysia and some selected developing Asian countries were identified through literature review. This stage of research focuses on determining the types of operational risk that had been identified by previous researchers, which have great potential of occurring in the highway projects and causing significant impact to the project if occur.

Second, extensive interviews were conducted with a number of key personnel from the MHA in order to get their personal opinions and views about the possibility of the operational risks identified from literature review to occur in the highway projects in Malaysia. The selection of the personnel involved in the interviews was made based on a thorough background check in regards to their knowledge and experience working as well as managing highway projects in Malaysia. For example, the Regional director of the MHA who used to manage and also currently managing the operational contracts of highway projects within its region. The personnel involved in the interviews then justified the possibility of the operational risks identified from literature review to occur in the highway projects Malaysia.

IV. FINDINGS Operational risk in construction projects like bridges, highways and hospitals reflects activities or events that have significant impact towards the operation of the project if occur. Time and cost overrun in the operation and maintenance are among key operational risks that have the possibility to occur in a construction project during the operational stage. Some References outlined several factors that may dictate the occurrences of these risks in construction projects. The costs for operating and maintaining a construction project are usually considered as overrun when the allocated expenses are found insufficient to carry out the scheduled activities or works, after arising from unexpected escalation in the costs of equipment, labour, utilities and other supplies. Reference identified other possible factors that can be associated with the occurrences of cost overrun in particular, during the operation and maintenance of a construction project. These include the operator’s failure to meet the desired performance standard or produce the required capacity, output and efficiency from the procured assets and/or facilities as specified. However, in order to achieve the aim of this research, only findings related to operational risk for highway projects in some selected developing Asian countries that had been identified by past researcher will be specified under this heading.

A study on the operational risk of Senai–Pasir Gudang– Desaru Expressway (SPGDE) resulted in the identification of potential environmental pollution to the water quality of the surrounding area caused by spillage of dangerous and hazardous chemicals from the travelling heavy vehicle along the highway. This prospective environmental pollution was identified as part of the risks for this project due to the location of the SPGDE where some part of the 77 km expressway had been built across the Layang River catchment area, which situated between the Upper Layang Reservoir and Lower Layang Reservoir.

Inappropriate operation and maintenance of the procured assets was another type of potential operational risk identified for highway projects. A study conducted by past researcher on the expressway in China determined about the importance of proper asset management to ensure that the procured highway projects are fully operational to the public. Generally, the quality of road surface procured had been identified as part of the key assets towards a successful delivery of highway projects in China.

Thus there are two key risk sources identified that could affect the quality of road surface where the latter is also known as an expressway asset for highway projects in China; man-made risk and natural risk. The man-made risk refers to activity or event created by human being that could cause damage to the expressway asset either deliberately or not. Among the examples of manmade risks identified from the study on highway projects in China include over-loaded freight transportation and leakage of dangerous material/cargo on the road surface. The studies on the over-loaded freight issue for the highway projects in China had resulted in the identification of the fact that direct loss of highway assets caused by overloading freight transport in a year was equivalent to the total annual maintenance fee collected from highway projects nationwide. The natural risks in the highway projects in China meanwhile are seen as events with negative consequences that occur beyond the control of human being such as flood and fog.

A study on highway projects in Thailand had also been conducted in the past to determine their potential risks during operation. The study had resulted in the identification of several risks, which could affect the effectiveness and efficiency of highways’ operation. Among the key operational risks identified from the highway projects in Thailand include poor road sign and delineator, road side hazard, inefficient road safety device and poor road surface. Several potential sub-risks that have great potential to occur in highway projects in Thailand under each key operational risk were also identified by the researcher as shown in Table 1.

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Table – 1 Risk Poor road sign and delineator

Road side hazard Inefficient road safety Device Poor road surface

Sub-Risk Hidden signage Fade/Defect/Inappropriate signage No proper marking/delineator for road side obstruction (warning sign).

Improper existence of road side fix objects such as tree and lamp post Uncovered side drainage Poor condition of bridge pier/ pedestrian foot bridge Defect device Poor visibility Improper installation Debris on surface Uneven surface

V. CONSTRUCTION RISK DRIVERS Project Scope   

Project purpose is poorly defined Changes by owner’s request Changes to unforeseen site environment requirements Right of Way

 

Right of way analysis in error Land acquisition delay Utility Conflict

   

Inadequate plan reviews by designers and contractors design errors Poor involvement of utility companies in planning stage High number of utilities in the site Inaccuracy of existing utility locations and survey data A/E Services

    

Surveys late and/or surveys in error Inexperienced professionals for this type of project Design errors and omissions Inadequate constructability reviews Delay in Quality Assurance/Quality Control (QA/QC) services Project Construction Management

    

Poor communication with owner and contractor Delay of permits Subcontractors errors and delays Maintenance of traffic/staging/auxiliary lanes Safety issues VI. RISK IDENTIFICATION

Some of the major Risks are as following: 1) Regulatory Risk: Crop up due to lax regulatory framework fixing of tariff and charges, dispute resolution, lack of independence of regulator comes under this risk.

2) Legal Risk comes with lack of a standard model for PPP agreements that leaves general and special contract conditions vulnerable to challenge and poor execution management. Force Majeure risk is the risk which is beyond the control of the project developer (floods, earthquake, war etc.)

3) Land Acquisition: The primary reason for certain segments of the GQ phase of the NHDP exceeding the project completion deadline had been due to problems in land acquisition. The effects of this can be mitigated with the project starting only after all the required land is procured and handed over by the government.

4) Environmental risk & Social risk: delay in getting environmental clearance and pollution issues may impact performance of the project. There should be an effective R&R policy for social and environmental impact assessment and findings of such assessments should be discussed in public with affected stakeholders 5) Financial Risks: Financial risk is the risk of debt service and failure to pay adequate returns.

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6) Funding Risks- Failure to reach financial close, this is largely carried by the Promoter. Interest rate risk arises due to changes in interest. Interest-rate movements between the submission of bids and financial close. Debt servicing risk is the next in criticality appropriate debt–equity mix and proactive managerial strategies in financial restructuring would be the risk mitigates.

VII. RESULTS AND DISCUSSION This section specifies the outcomes generated from the extensive interviews conducted with a number of key personnel from the MHA in order to get their personal opinions and views about the potential occurrence of operational risks identified from the literature review. The selection of the personnel involved in the interviews was made based on a thorough background check in regards to their knowledge and experience working as well as managing highway projects in Malaysia. The personnel involved in the interviews then justified on the possibility of operational risks identified from other highway projects in some developed Asian countries to occur in Malaysia.

There were thirteen risks identified from the highway projects in Malaysia and some selected developing Asian countries through the literature review. Table 2 indicates the types of risks identified from the highway projects in Malaysia and some selected developing Asian countries via the literature review and also consensus achieved from personnel involved in the interviews in regard to the probability occurrence of these risks in the highway projects in Malaysia. All the thirteen risks identified from the literature review were found to have the potential of occurring in the highway projects in Malaysia. Out of thirteen risks identified, only one was classified by the personnel involved as risk with high probability of occurrence in the highway projects in Malaysia; the initial toll-tariff decided by the government.

Table – 2 Probability Occurrence of Operational Risks in Highway Projects Probability Risk (Low/Med/High) Environmental pollution to water supply quality Low Over-loaded freight transportation Medium Leakage of dangerous material/cargo on road surface Medium Flood/ fog Low Initial toll-tariff decided by the government High Sudden increase in toll-tariff Low Traffic congestion Medium Change of road network Medium Change of government policy Low Poor road sign and delineator Low Road side hazard Low Inefficient road safety device Low

However, this type of pre-commissioning decision would somehow have an effect on the low-income user if the initial tolltariff decided is expensive and hence preventing them from using the newly-procured highway project. Therefore, there is a high possibility of this risk occurring in the highway projects in Malaysia. Unlike the highway projects in the UK where payments are made by the Government through “shadow toll” estimate via the government’s popular choice Private Finance Initiative (PFI) procurement strategy, Basically, the shadow tolls reflect payments made by Government to the private operator based on an estimated number of vehicles using the road where drivers do not need to pay tolls directly, thus minimizes the toll collection costs.

Four other risks were classified by personnel involved in the interviews as risks with medium probability of occurrence in the highway projects in Malaysia; over-loaded freight transportation, leakage of dangerous material/cargo on road surface, traffic congestion and change of road network. According to the MHA personnel, most of lorry drivers in Malaysia have very poor attitude specially to abide by the rules and regulations set by the Government for heavy vehicles such as speed limit, type of carried material/cargo and also maximum loading limit. Although continuous actions have been taken by the road network, there is low probability of occurrence in the projects in Malaysia due to proper initial planning prior to project implementation between the Malaysian Government and other public sector agencies such as the MHA and Public Works Department Malaysia.

However heavy traffic congestion usually occurs in the highway projects in Malaysia during festive seasons and alternatively change of road network would be initiated by Malaysian Government and the MHA to overcome the problem temporarily. Thus the personnel involved in the interviews had classified these risks as risks with medium probability of occurrence.

VIII. CONCLUSION Majority of responders (80%) indicated that risk assessment was important for highway construction projects. It has been used more often in design build projects than design bid build highway projects. This might be due to the fact that formal risk assessment is more required and it is considered an essential part in planning phase. Operational risks are events that would have an adverse impact towards a particular construction project like highway if occur once it is commissioned. Although different Asian countries explored in this research might have different type of operational risks due to geographical and cultural

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differences, still there is a great potential for each risk identified to occur in the highway projects in Malaysia except the level of probability occurrence could be different. Thus there is a huge likeliness for the thirteen key operational risks identified to also occur in other highway projects around the world. These operational risks ought to be carefully considered and mitigated to appropriate project parties as a result, to ensure highway projects can be delivered in the most effective and efficient manner around the world.The use of risk assessment lowered the rating of Cost growth(CG) and/or Schedule growth(SG) for the following risk drivers:  Changes to unforeseen site environment requirements  Poor coordination among utility agencies, designers, and contractors  Inexperienced professionals for this type of project  Inadequate constructability reviews  Unforeseen hazard conditions  Inexperienced project manager  Safety issues REFERENCES [1] [2] [3] [4] [5] [6]

PMI. (2004). "A Guide to the project management body of knowledge." Project Management Institute, Newtown Square, PA, 237-268.

Ashley, D., Diekmann, J., and Molenaar, K. (2006). "Guide to risk assessment and allocation for highway construction management." FHA, International Technology Scanning Program. Office of international program, FHA, Washington, DC, 4-17.

Molenaar, K. (2005). "Programmatic cost risk analysis for highway megaprojects". Journal of Construction Engineering and Management 131(3), 343-353.

Zaghoul and Hertman (2003) "Risk analysis and management" International Journal of Highway Construction, 18 (2), 80-88.

Hashim, A. and Ku Hamid, K.H. (2007), Pollutant removal system on Senai-Desaru Expressway, 9th Joint Technical Conference (JTC) 2007 Penang, Malaysia.

Akintoye, A. and MacLeod, M. (1997) "Risk analysis and management in construction." International Journal of Project Management, 15 (1), 31-38.

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