RISK MANAGEMENT IN HOUSING: A Review under RBA Plan of Work (PoW) 2013

Source: Architecture

The concern of Risk Management for any Organisation, especially from the sector of Construction is a matter that needs pre-planned assessments and well researched base. According to Banaitiene and Banaitis (2012) instances of economic and financial crises can led to adverse impact over the organisation while managing a Construction project. These researchers further added that the construction projects can remain relevantly unpredictable and thus management of risk in this domain is a task. There is the need to manage probabilities related to construction risks for the
attainment of predetermined success of the project. The core domains of risks, to be analysed by a managers in case of constructions sectors are well identified by Zou, et al., (2007). Zou, et al., notes that proper management of cost and the issues of ‘environmental sustainability’ are the current demands of this sector and a manager must remain well equipped while handling the same. Following the guidelines as noted by RIBA Plan of Work 2013 appears effective in handling these basic concerns in the construction business, housing in particular (RIBA, 2013).

- Owner of the Construction Company,

- High-profiled Buyers, and

- Project Manager

- Offering enough dumpster in respect of collecting all kinds of wastes from the construction site

- Sorting of mixed weigh and waste to get maximum benefits from the collected materials

- Recording done through inventory form

- Summing up of total collected waste quantity for proper disposal.

In reference to specified risk management of a construction project from housing sector, the project manager should be well aware of the norms that must be counted with an iterative process, especially matter of cost and environment, in particular. It is through this iterative process that the manager can add beneficial norms to the housing project.

This research in particular is making an effort to understand a current project with different kinds of risks involved in it. The approach is to note the aspects that can create threats for this current housing project and thereby attempts to know the provisions to manage or prevent the same.   

1.1 Current Project

The owner of a reputable firm of construction is currently planning to initiate a moderate-sized housing project. The core idea behind this plan is to note adequate availability towards the higher-income group. In respect of location the client notes that it will be placed outside the down town area of the city. Further additions were made about the amenities facilitated for the residents by the construction of a leisure club, provision for multi gym, space for private swimming pool as well as auditorium for general functions and gatherings. The selected site is an under-developed location, as against the main city. Moreover, the place is absolutely disconnected from city. This is the reason that even the owner of this project understands the demands and needs of the high-profile buyers or probable residents to these apartments. Further there is an assurance that these stakeholders will also assist the owners in adding finance for facilitating scopes to get connected to the city. As a result, there is the possibility that this area will soon take the shape of a lucrative site for all the other construction companies.

1.2 Analysing Risk in Current Project

A notable risk, analysed under the norms of RIBA Plan of Work 2013, in context of this current project can identified as Environmental concerns that can be referred to the wastages that a construction project can create in a location that is far from city.

1.3 Financial Assistances

In context of the current project, the owner of this moderate housing project is very much optimistic about the financial support that he will get from the high-profiled buyers or the residents of the apartments. This is definitely a good sign, yet there still remain the ambiguity about the amount that will get generated thereby. As the location is far from the city a serious emphasis on cutting cost in the process of collecting materials and labour transportation must get managed well by the owner. There should be a proper understanding in the owner about the fact that cost cutting in terms of housing project, with equal emphasis over value is possible through sourcing cheaper routes of investment (Peiser and Schwanke, 1992). Excessive cost in a construction sector is noted in the process of implementing invested capital that is marked under diversified rates of interest. As the manager opts for the cheapest financial source from the market, the costing gets reduced without harming the project in general. The manager also needs to assess all the possible financial products that comes with different kinds of project-oriented benefits. As for instance, terms of equity finance remain different from those of the terms considered in the debt finance sectors (Miller, et al., 2009). Through the process of analysing different options for the housing projects, determine selection of cash flows can lead to the scheme of finance, leading to highest mode of value to the project.  The manager can also initiate long-term loan that can be repaid in smaller units rather than picking up short term loans with higher repayment options.

2. Risk Management in Housing Project

According to Mateo (2008), the risks in the housing domain, is relevantly very complex and difficult to manage under the pressure of environmental sustainability. Prediction of risks in the construction industry is beyond reality and it is practically very hard to initiate projects with the ability to quantify risk, developing practical risk management ventures and most importantly detect the risk before time for the reduction of drastic effect. RIBA (2013) on a very specific note refers to the risk related concerns in the construction sector and the basic issues are mismanagement of cost, followed by the sustainability that refers to safety and environmental concern.

Housing risks are hard to predict, but through some systematic analytical approaches from the past, the same can be accurately rated on the basis of collected data and necessary risk-related practical information.

According to Dallas (2006) severity of risks can be estimated through simple 3 to 5 point scales in respect of the probable impact of the project over the stake holders and the sense of likelihood on them. Through the process of multiplying likelihood by impact, the project can attain rating of risk of severity) (see Appendix 1 for details). In reference to the current housing project the 5x5 point Risk-analysis Matrix, specifically notes that the owner of this project cannot rely totally on the stakeholders. Though the buyers are from high-profile social circle, yet as their likelihood for the project gets multiplied by the impact, the factors of being away from the city and the scope of additional expenditure that is supposed to get added to the project are very likely to reduce financial support of these buyers. Thus on the basis of Dallas (2006) 5x5 point Risk-analysis Matrix, the current project will have budget risk in the following pattern -

Chart 1 Adapted for Current Project

It can be noted that the impact and likelihood will remain proportionate and will meet at the range of 3 to 4 points, whereby the buyer can compromise his likelihood to that range and can offer some finance within this margin. Further analysis on this are followed hereafter.

     

2.1 Role of Stakeholder

The role of a stakeholder in a business is very vital, especially in handling risk related consequences (Kaklauskas et al. 2010). The basic stakeholders of the current project are-

The contractors, labours, designers are all under Project Manager and thus there is no scope to count them as stakeholders in this context. Thus concentration over the aforementioned stakeholders and the count of their trust in the project can remain supportive enough in adding that extra developmental edge to this housing project. The matter of trust among the stakeholders in housing projects, as analysed by Ward and Chapman (2008) is at the margin. After the impact on crisis on global economy in 2007, there is enough distrust noted among the stakeholders and the investors in particular. The context of trust reinforces the connection of being a critical stakeholder who can support the success of a project. This is equivalently related to the current project whereby the high profile buyers might find it difficult to trust the project and disagree to offer the expected financial support to the same. In this matter, it is apt to consider Wilkinson’s (2001) statement about the companies managing housing projects to overcome hurdles with other professionals and support the project team as well as client in gaining excessive profit out of the project. In order to gain success son a long term basis, the owner of the current housing project need to create an alignment of trust between the owner and the relevant stakeholders, especially the buyers.

2.2 RIBA Plan of Work 2013

Declarations of RIBA Plan of Work 2013 (RIBA, 2013) about the construction project are more concerned about the maintenance of environmental sustainability through absolute strategies, and above all proper management of cost allotted to the project. These are the core aspects that will be analysed about the current project and necessary strategy led under Waste Management, will be focussed in handling the issues of Environmental Sustainability Strategy.

3. Risk Management Strategies

Following RIBA Plan of Work 2013, this research approach concentrates in following the concerns related to environmental sustainability and stages for saving cost of the project. In this approach, the context of risks related to the housing domain are subject to get pre-recorded, especially at a very initial stage of the risk for proper monitoring and further handling to avoid any loss led by the same (RIBA, 2013).

3.1 Environmental Sustainability Strategy       

The issue of environmental sustainability can turn up severe to the owners and the stakeholders of this current project. Building materials that get recognised as waste can be noted as insulation, electrical wiring, nails, and rebar. Moreover, waste collected from site preparation, like dredging materials, stumps of trees and rubble are all part of these wastes. There is also the inclusion of asbestos, lead and other kinds of hazardous substances, especially those like toxic gases as hydrogen sulphide from landfills by plasterboard (Li, 2014).

3.1.1 Waste Management          

For the attainment of the reputation of having environmental sustainability in the project, it is necessary for the current project to concentrate specifically on managing waste at the construction site (see Appendix 2 for construction wastes in UAE in general). Construction waste gets generated during clearance of site, use of material, damages due to poor storage and non-use, excessive procurement with mismanagement. There are five stages of construction, where the owner must lay serious importance in managing the derived wastes. These are noted as –

Table 1 Major Construction Wastes at Different Stages

It is through waste quantification at every stage that management of the waste can be handled well for preventing and environmental hazard. Some suggested proceedings are -

Further, it is recommended that necessary waste assessments for the current project can be the calculation as noted by Poon, et al., (2004) as –

that represents

W as Total Waste from Every Stage (in tonne)

GFA as Gross Housing Floor Area

C as Rate of waste generated (where construction of 1 m² gross housing floor area leads to C tonne wastes)

Thus, potential approach of rate of waste generation as well as trend can lead to necessary benefits to the current business owner.

4.  Generate Benefits: Cost Cutting      

As noted above, this approach for the current project demands the implementation of lean management under Value Engineering, that should be in synchronization with value management. The aspects related to lean synchronization gets identified as a determined approach, whereby the project manager initiates an audit in order to eliminate wastage and any kind of duplication of the collected resources. This will cut the wastage and ensure that resources are applied optimally. This stage involves analyzing each step in the value chain to remove unnecessary steps or duplication of roles (Miller, et al., 2009).

4.1 Value Engineering

In order to generate excessive benefits from this project the core emphasis must be on cutting cost through Value Engineering. For meeting the demands of the high-profile buyers, the owner of the current project must get more productive. For this affordable housing project value engineering must increase productivity to manage cost and time by 30% and 40 to 50% respectively and as noted below -

Source:MGI (2014)

Thus, savings made in designing, developing structure, and the MEP (Mechanical, Electrical and Plumbing) domains, adequate time and cost can be managed within the pre-determine limited budget.

4.2 Remove Unused Resources

An effective method is the removal of all those resources from the value chain, which was of no use. Under the proceeding of lean method for the implementation of resources in an optimal way, this particular approach must be led by the manager by considering different strategic options prior to the selection of lean synchronization. This is followed by the incorporation of value management with diversified project stages. The cost cutting or reduction under value management is noted in respect to the activities that can attain highest value for implementation. Thus, here value is in context of financial viability, social positioning, comfortability, functionality, environmental concerns, etc. (Yu, et al., 2005). In case, a determined proceeding fails to enhance value, then the same gets removed from scheduled tasks. By means of using modern software - Ms Project, it is the responsibility of the project manager to carry scheduled activity in order to confirm relevant proceedings in a very logically structured manner. The core approach of this software is in enabling the mode of levelling of resource that can confirm capital resources, human resources and other related resources for the maintenance of the project tasks. This restricts resource duplication in the process of implementation and removes the unnecessary resources (Adams, 2008). Implementing resource levelling for cutting costs without disturbing value gets the allocation of staff towards tasks and further enables the process of managing manual hours. The allotted tasks need to be performed within the determined time span and must remain economic in structure. In case of situations where the employees spent idle hours, get eliminated as the same encourages the process of monitoring performance. This particular software is famous for setting milestones for the implementation process of the project, especially in order to assess development and further confirm project implementation within determined time slot and equivalently helps in saving money (Adams, 2008).

Then there is the removal of steps that can never develop stakeholders’ value. This removal process eliminates the resource wastes and comprises of the process that can implement specific project within the predetermined phases. This confirms the phases that will be implemented and will be followed thereafter. Consequently the same reduces cost and never disturbs the status of the value. As a result the project manager gets the independence in managing the necessary services for the welfare of the project. As for instance, in case of the housing project, the assigned manager can buy lumber, subflooring, sheathing etc. from some local lumberyards. This is subject to generate an effective cost cutting venture under traditional construction frameworks.

4.3 Materials from Diversified Sources

The last process of opting for cheaper, yet high-quality mode of materials for construction can be noted from diversified sources. It is the responsibility of the project manager to involve adequate research in the collection of raw materials for the housing project. The research must concentrate in offering the client with high quality materials at least possible price and without any negative impact over the substantiality factor of the project. Under the mode of modern global procurement, it is necessary for the procurement manager needs to make a selection amidst some highly rated quotations from different suppliers; this is an act that must be acted prior to the decision of placing the order. Application of such practice in terms of managing procurement of the relevantly assessed capital-intensive equipment is liable to prevent unnecessary cost in the housing project as the sourcing will be from the best offered deal with highest value for the capital invested for the project (Miller, et al., 2009). 

These are the convenient methods that a project manager can consider in cutting cost of the project, especially in the time of implementation and can also maintain the value of the project in a best form (Adams, 2008).

6. Conclusion

Eventually, it can be noted that the basic concern for any construction project is the management of environmental sustainability, offering necessary and immediate developmental scopes to the people working at the site and managing the entire project within the timeline and determined cost of expenditure. Mismanagement of these categories as identified under RIBA Plan of Work 2013 can lead to failure of the project (RIBA, 2013).

REFERENCES

Adams, F.K., (2008). Construction Contract Risk Management: A Study of Practices in the United Kingdom. Cost Engineering, 50(1), pp. 22-33

Al-Aomar, Raid (2012) Analysis of lean construction practices at Abu Dhabi construction industry. Lean Construction Journal 2012 pp 105-121

Dallas, M.F. (2006) Value & Risk Management a Guide to Best Practice. Baclkwell

Mateo, J. L. (2008) Global Housing Projects: 25 buildings since 1980.  ACTAR, ETH Zürich

Miller, R., Strombom, D., Iammarino and M. Black, B. (2009) The Commercial Real Estate Revolution: Nine Transforming Keys to Lowering Costs, Cutting Waste, and Driving Change in a Broken Industry. Wiley; 1 edition

Peiser, R. B and Schwanke, D. (1992). Professional Real Estate Development: The ULI Guide to the Business. Washington, D.C.: ULI and Dearborn Financial Publishing Inc.

Poon, C. S., Ann, T. W. Y. and  Jaillon, L. (2004) “Reducing building waste at construction sites in Hong Kong,” Construction Management & Economics, vol. 22, no. 5, pp. 461-470

Kaklauskas A, Zavadskas EK, Bagdonavicius A, Kelpsiene L, Bardauskiene D, Kutut V. (2010) Conceptual modelling of construction and real estate crisis with emphasis on comparative qualitative aspects description. Transformations in Business & Economics 2010;9,1(19): 42–61.

RIBA (2013) RIBAPlan of Work 2013 Overview. RIBAPlanofWork.com http://www.architecture.com/Files/RIBAProfessionalServices/Practice/RIBAPlanofWork2013Overview.pdf [Retrieved on 25th Nov. 2014]

Ward S, Chapman C. (2008) Stakeholders and uncertainty management in projects. Construction Management Economics 2008;26(6):563–577.

MGI (2014) Blueprint for Addressing the Global Affordable Housing Challenge. McKinsey Global Institute. McKinsey & Company. October 2014 http://www.slideshare.net/ganil/mckinsey-global-institute-a-blueprint-for-addressing-the-global-affordable-housing-challenge-full-report-october-2014

Wilkinson S. (2001) An analysis of the problems faced by project management companies managing construction projects. Eng Constr Arch Manage; 8(3):160–170.  

APPENDICES

Appendix 1 A 5x5 point Risk-analysis Matrix   

Source: Dallas (2006)

Appendix 2 Major 27 Construction Wastes in UAE

Source: Al-Aomar, (2012)