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Most of the existing risk assessment models identify the critical risks by analysing
data based on expert opinions. Only a few studies have evaluated risks using hard
data from previous projects. The aim of this research is to develop a risk assessment
model that uses project data to facilitate quantification of risks assessed. From
analysis of literature on risks and claims it was noted that the nature of claims are
similar to impact of risks, claim amount indicates monetary estimates of impact, and
the evidences for making claims indicate occurrence of risks. Hence, the potential of
claim statements as basic source of data for risk assessment was recognized. To
develop the model, 276 claims from 28 arbitration awards were analysed. Content
analysis was adopted to code the statements of claims into risks and their impacts.
The extracted data was compiled by mapping the claims with the risks in matrix form.
In this research, frequency of risks denotes number of claims affected by each risk
whereas impact of each risk is expressed as percentage of contract sum. Scope
variation and schedule delays were identified as most frequent risks. Average impact
due to scope variation along with unpaid work was over nine percent of contract sum.
The findings of the research converge with the critical risks identified though opinion
survey and observations made in live projects. This research demonstrates an
innovative approach to analyse past data on claims and disputes for project risk
management. Significance of the research lies in the fact that it utilizes data already
available with the industry and identifies risks which are most difficult to manage.
However, a larger set of claims needs to be analysed to obtain comprehensive list of
risks.
INTRODUCTION
This research work is based on integration of literature on constructions project risks
and claim management. Construction projects have been considered inherently risky.
With increase in projects' complexity and size, decrease in durations, and
diversification into adverse locations, risks associated with projects are getting even
more challenging. Researchers have proposed several models to identify and assess
the risks in construction projects. Core philosophy underlying most of these models is
to measure probability or likelihood and impact of risks based on inputs from the
industry experts. Relative values of risk exposures, calculated as product of likelihood
and impact measures, help in identifying critical risks in projects. Even though the
studies based on expert opinions are conducted in particular contexts, they are
conveniently generalizable as an outcome of collective wisdom. If some risks are
found critical in a study based on expert opinion, it has not been documented that
these risks indeed turned out to be critical when projects are executed.
Small number of studies on construction risks conducted using empirical studies of
project data is limited only to schedule risks (Al-Momani 2000), cost overruns risks
and quality risks. Traditionally, project management teams maintain documents to
track only schedule, cost, quality and scope in projects. Apparently, a suitable
databased pertaining to construction risks which can support empirical studies is not
available in construction industry. This shifted focus on those studies which rely on
empirical data from projects.
Unlike studies on risk management, researchers have dealt with claims and dispute
management relying mostly on analysis of reports from the previous projects (Love et
al. 2010, Semple et al. 1994, Ramachandra and Rotimi 2015). These reports include
claim submissions, arbitration awards and litigation cases. Relevant data extracted
from these report have identified and assessed various factors leading to claims (or
sources of claims), and categories/types of claims and disputes. The studies on claims
management have not delved deeper to explore why the phenomenon of claim arise in
projects. An attempt to answer this question provided valuable insight and starting
point for the proposed study.
From comparative analysis of literature on risk management and claim management,
this research work has observed an important connect between 'risks' and 'claims'. This
connect indicates existence of causal relationship between risks and claims.
Establishment of the causal relationship between risks and claims have shown
immense potential for analysis of construction risks as all reports of claim
management can be exploited for risk identification and assessment. The goal of this
research work is to develop a risk assessment model to facilitate identification and
assessment of risks using data from previous projects, reduce reliance on expert
opinion, and estimate the impact of risks in tangible terms (monetary value). The
study is presented broadly in two stages. First, summary of observations from
literature along with arguments are presented to formulate the proposition that risk and
claims have causal relationship. Second, based on inferred relationship of risks and
claim, a risk assessment model is proposed that can utilize vast amount of data
available in every organization in the form of claim management documents. The
proposed approach has shown potential of several other benefits to complement
existing risk models which are brought up through discussions.
RESEARCH BACKGROUND
A comparative analysis of literature on risk management and claim management has
revealed the causal relationship between risks and claims. This analysis includes
comparison of basic characteristics of risks and claims (or disputes) followed by
comparison of various risks and sources of claims reported in literature.
A relook at definitions of risks and claims
Risks
British Standard (BS 6079-3:2000) defines risks as "the uncertainty of an event
happening that can affect the prospects of achieving business or project goals." Project
Management Institute (PMBOK 2013: 310) provides more elaborate definition of risk
as "an uncertain event or condition that if occurs have a positive or negative effect on
one or more project objectives such as scope, schedule, cost and quality." Though,
researchers have noted that there is no universally accepted definition of risk, a risk is
characterised by- 'the risk event', 'the uncertainty associated with that event' and
'potential loss or gain' (Al-Bahar and Crandall 1990).
Claims
Similar to risks, there are varying definitions of claim proposed by the researchers.
Following three definitions help in putting forward the arguments.
1. Any application by the contractor for payment that arise other than under the
ordinary contract provisions (Jergeas and Hartman 1994).
2. A claim is a request for compensation for damages incurred by any party to the
contract. Claim represents basis of claim (cause and effect), explains the
contractual and legal basis for payment (entitlement), and quantifies the
resulting damages (Semple et al. 1994).
3. A request by a construction contractor for compensation over and above the
agreed-upon contract amount for additional work or damages supposedly
resulting from events that were not included in the initial contract (Ho and Liu
2004).
A focus on phrases from first definition of claim, other than under ordinary
contract provisions and from third definition, resulting from events not
included in the initial contract' suggests that claims arise from events/conditions which
are different from ordinary events/conditions. Since these events are also not
envisaged in contract, there will be uncertainty associated with these
events/conditions. Further, a focus on second definition, ' damages incurred by any
party ' and third definition, ' compensation over and above the agreed-upon
contract amount for additional work or damages implies that claims are
assessment of impact or damages. From these two observations, an inference can be
drawn that claims are assessment of impacts of those events/conditions which have
uncertainty associated with them. Moreover, claims are raised only after damages and
additional cost have been incurred. Put differently, claims are characterised by
'assessed losses' resulting from 'uncertain events' that have 'already occurred' in the
projects.
Comparison of characteristics of risks and claims described above raised an important
question - 'Are the claims actually the assessed impact of the risks that that have
already occurred in the project?' Answer to this question came from the comparative
analysis of various risks and sources of claims available in literature.
Comparison of risks and sources of claims
Risks reported in several research papers are compiled. The phrases used by
researchers to describe a particular risk (for instance, land acquisition and site
handover risk) vary slightly across studies (see Table 1). Next, phrases used by
researchers to describe factors leading to claims or sources of claims are also
compiled. A comparison of risks and sources of claims dealing with similar issues in
projects exhibits that researchers have used similar phrases to describe 'risks' or
'sources of claims'. In Table 1 first column lists the phrases used by researchers to
describe land acquisition and site handover risks and second column lists land
acquisition and site handover as source of claims.
In general, an owner has responsibility of handing over hindrance free site to its
contractors. Problems such as compensation, rehabilitation and resettlement issues in
land acquisition, incompletion of work by the preceding contractors engaged by the
owner or any other reason, may delay handing over of hindrance free site to the
contractors. Delayed or piece meal availability of work front leads to suboptimal
allocation and productivity of resources. Due resource idling and suboptimal
productivity, the contractors can incur costs higher than the costs agreed in the
contract. Since the responsibility of handing over hindrance free site is with the owner,
the contractors may raise claims for additional costs incurred due to delayed or
intermittent availability of sites. Hence, when the land acquisition risk impacts a
project claims rooted into its impact are likely to occur. Similar comparisons are made
for other risks reported in literature but not included here due to space constraints.
Table 1: Sample comparison of descriptions of 'risks' and 'sources of claims' pertaining to
land acquisition and site handover
Risks Sources of claims Remarks
Land acquisition (2.12), Site Late giving of possession (a.3), Similarities can be
availability (2.70), Land Delayed possession of site (f.5), observed in phrase used by
acquisition and site availability Delay by other contractors researchers for describing
(3.18), Delay in land acquisition employed by the client (e.g., land acquisition and site
(9.2), Rights of access to sites utility companies) (f.6), Delayed handover risk, and
(11.11), Delayed site access or site possession (g.10), Limited or claims/disputes rooted into
right of way (13.2), Delays in delayed site access (h.4), the same.
obtaining site access (15.6), Site Restricted access to project site
access (16.9) (k.3)
Sources: Sources:
Table 2 shows the scheme of structuring data in matrix form. Claim statements are
listed column and reasons for making each award as provided by the arbitrator are
listed along row. Each case, claim and reason extracted from dispute cases is assigned
a systematic unique reference number. Numeric 1 is used to denote the mapping of
claims to the reasons provided for making the award. Mapping of reasons with claims
in matrix form revealed that a claim could be result of one or more reasons. Similarly,
several reasons are sighted in more than one claim. This observation suggests many-
many relationship between claims and reasons and subsequently between claims and
RF. This captures the phenomenon of interrelationships among risks. Right most
columns included claim amounts, counter claim amounts and awarded amount. To
avoid ambiguity, convention is adopted such that positive values are amount to be paid
by the respondent to the claimant. In depth analysis of 28 arbitration cases dealing
with cumulative 276 claims is done. Among 28 cases, 3 cases were closed with nil
awards. In only one case, award was in favour of respondent, and data from only 24
cases are included in final analysis. In all cases claimant were contractors and
respondent was a particular public company in India.
Data Analysis: Open coding
Principles of open coding are adopted to analyse two sets of data - types of claims and
reasons for making awards. Open coding is the process of converting textual
information into categories that represents a common phenomenon. It is iterative
process. Open coding of data on 'reasons for awards or claims' is done to similar types
of reasons into categories and then into risk factors (RF) taking clue from risks
reported in the literature. Similarly, the data on claims were open coded into
categories and further into major heads of claims. A sample of coding is included in
Table 3. Here frequency refers to number of claims in which a particular reason was
sighted.
Table 3: Coding of extracted data from sources of claims to risks factors (RF)
Ref. Reasons for award Frequency Coding (RF)
C3.R1 Work done beyond BOQ scope 2 Scope variation
C3.R2 Delay in site handover by owner 1 Delayed site handover
C3.R8 Price increase due to Escalation 1 Inflation
Interpretation of impact
Similar to likelihood, impact of risks are expressed as severity index for ranking of the
risks. Apart from few publications (PMBOK, ), studies are also silent on how to
interpret these values. Say, if design risks has assessed severity index of 40% - what
message does it convey? How these values can facilitate estimation of contingencies?
Contingency has been a popular practice of making allowances for risks (Mak and
Picken 2000). Hence, assessment of impact of risks in terms of monetary value has
higher potential to support decision makers. In this study, arbitration award amount is
assumed as true assessment of impact. Among analysed dispute cases, projects were of
different range of contract sums. Further, project and arbitration durations were also
spread over several years. To normalise the effect of size of projects and inflation
across years on impact assessment, award amounts are expressed as % of contract
sum. In analysis of claims prepared by an organization, claim amount is assessment of
impact.
Impacts are observed under the 12 different heads (see Table 5). V-Interest over
delayed payments appears in all 24 analysed cases with average value of 4.5% of
contract value. II- Cost of extra work and XI-Cost of unpaid work are observed in 14
cases with cumulative impact of 9.5% of contract value. These two claims are directly
related to scope variation which is mapped to maximum number of claims. Overheads
and resource idling has impact in 19 projects with average value of 4.5%. The average
impact of all risks 24 projects is 18.7% of contract value. Some claims heads not
shown.
Table 5: Mean (M) awards amounts as percentage (%) of contract sum, see legend below
Ref. I II IV V VI VII VIII IX X XI Total
N 18 14 15 24 4 3 19 10 12 14 24
M 1.1 3.0 2.6 6.9 1.2 7.5 4.5 0.5 1.2 6.5 18.7
Legend: I-Cost of arbitration , II-Cost of extra work, IV-Escalation amount, V-Interest
over delayed payments, VI-Refund of levy of compensation, VII-Loss of profit, VIII-
Overheads and idling of resources, IX-Refund of recoveries made from bill, X-
Refund of conditional rebates deducted, XI-Unpaid work. 'N' is the number of cases in
which awards under particular claims are observed. 'M' is mean award value
calculated as sum of all awards under a claim categories expressed as percentage
divide by N.
Comparison of results with other ongoing studies
An ongoing study by the authors based on opinion survey of 41 experts with average
experience of 15 years have assessed design risks, quality and rework risk, scope
variation risk, time-over run risk and inaccurate feasibility assessment as five most
critical risks. Another research by the authors, based on empirical case studies of six
under construction projects across India has found time delay having catastrophic or
major impact on 5 projects. Impact of design risks, delay in bill processing and poor
contract management are observed in 5 projects whereas that of scope variation is
observed in 4 projects. These findings support the trends observed in presented study.
Limitations of the proposed model
With small sample of analysed claims, the study has not identified all risks possible in
construction projects. Whether a larger sample will represent all risks, remains to be
explored. Due to various forms of contracting and risk allocations, some risks may not
find its way into the claims. Intermediate effects and impact of isolated risks has not
been analysed, instead cumulative impact of all risks is assessed under different claims
heads. Future studies with larger sample of claims will provide more insights.
SUMMARY AND CONCLUSION
The study has evolved from linking the literature on risk management and claim
management. Sufficient evidence and arguments has been presented from literature to
deduce that 'claims in a project are actually assessment of impacts of risks. In fact,
'risks' and 'sources of claims' reported in literature are almost similar. Identification of
this causal relationship between risks and claims is adopted to develop the risk
assessment model based on analysis of claims. The study has employed techniques of
content analysis to analyse 276 claims. Scope variation, execution delays, delay in
release of payment, design related issues and poor contract management are the most
frequent risks affecting over 50% of claims. The study has quantified impact of extra
work and unpaid work to over 9% and impact of overheads and idling to 4.5% of
contract sum. Convergence of the findings with other ongoing researches highlights
the potential of the proposed model.
The most important contribution of the study lies in established the presence of causal
relationship between risks and claims. This has open up a new world of possibilities
where data for risk assessment can be extracted from vast amount of claims and
dispute documents available in the industry. This approach avoids subjectivity
inherent with opinion based studies. The study also illustrates that defining frequency
of risks in terms of number of claims they may result into is more objective
assessment of likelihood. The model is also able to quantify the impact of the risks in
terms of percentage of contract sum, thus making the results readily interpretable.
With limited amount of data analysed to far, the robustness of the model is not yet
tested. Some intricate questions related to relationships among risks and their
influence on types of impacts will be explored in future studies.
ACKNOWLEDGEMENT
The research team would like to acknowledge NBCC (India) Ltd. the sponsored
research project titled 'Identification, evaluation and strategic management of risks in
infrastructure projects in India' being conducted at Indian Institute of Technology,
Delhi.
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