A RISK MANAGEMENT FRAMEWORK FOR HIGHWAY

CONSTRUCTION COMPANIES IN VIETNAM

By

Pham Quang Cuong

Abstract

             

Highway construction industry is long known to contain more risks than many other industries because of the effect of a variety of uncontrollable factors and the severe competition degree. However currently in Vietnam the understanding of highway construction companies about risk management is very poor, lacking of a clear identification of risks and the methods to deal with these risks systematically. The purpose of this study is to identify and rank the risks facing the highway construction companies as well as to determine the risk responses that effectively help the contractors to handle them.

This research is based on quantitative method, using questionnaire for data collection and utilizing SPSS software to analyze the data.

The respondents in this research are directors and experienced project managers from sixty different contractors. The respondents are asked to assess the risks and the degree of the application of risk responses in their company as well as to provide the information related to the corporate performance. The risks afterwards are ranked in terms of probability of occurrence, severity and impact and then the risk responses with strong correlation with corporate performance are pointed out.

The outcome of data analysis is the ranking of risks that will help increase the attention of the Vietnamese contractors to the critical ones which might threaten their project success.

The effective risk responses with strong correlation with project performance are listed and are put into the relevant stages of project life cycle to form the risk response framework.

This framework can be considered as an action guide that the highway construction companies should apply as strong as they can to make their projects more secured against the risks.

Executive summary

Rationale of research

This research has been conducted to develop frame work for risk management in high way construction projects in Vietnam.

Objectives of study

To identify major risks & emerging risk to highways contractors, risk responses and its relation with company’s corporate performance and to develop a framework for highway contractors.

Methodology  

The exploratory research method is used to study risk management in highway construction companies, through literature review, case study from Vietnam.

Findings and conclusion

The first objective is to assess the risks in terms of probability of occurrence; severity and impact, afterwards the ranking of risks are made in order to increase the contractors’ awareness towards critical ones. The second objective is to examine the application of risk responses which are developed through a deep literature review and interviews with Vietnamese experts. The risk responses will be evaluated based on the belief that the contractors with good performance will have better responses to risks and in turn, the good risk responses will enhance the performance of the contractors at both project level and corporate level.

As a result the correlation between the application of risk responses and the corporate performance is analyzed and the ones with the correlation coefficient larger than 0.7 are pointed out. The final objective is to put the effective risk responses into the relevant stages of project cycle to form the risk response frame work that can be applied by highway contractors to their projects.

Critical risks

The analysis result reveals the fact that the unstable economic conditions and the macroeconomic factors such as high inflation (rank 1), high interest rate (rank 2) are putting a lot of difficulties upon the highway contractors. Other big concerns come from the owners including Delay in delivering the site (rank 3), delay in progress payment (rank 4) and financial difficulties (rank 5). In top 15 of critical risks, there are some risks resulted from the poor management of the contractors themselves including Shortage of cash flow (rank 6), Too low bidding price under competition (rank 7), Inappropriate construction methods (rank 9), Poor performance of sub-contractors and suppliers (rank 10) and Poor quality and rework (rank 11). Consultants are an important party in projects and they contribute some significant risks to the work of contractors namely Site condition discrepancy (rank8) and Delay in testing and acceptance procedure of supervisors (rank 13).

Effective risk responses and risk response framework

The risk responses that can be applied to deal with every single risk are discussed in depth and the effective one which have the strong correlation with the corporate performance are pointed out. These risk responses are grouped into action categories and are put into the relevant stages of project lifecycle with the hope to provide a more systematic approach to these risks. The data analysis and the interview with experienced experts during data collection reveal many weaknesses of the contractors that make them vulnerable to risks. The cost estimate is the first thing that requires the more careful consideration and preparation of the contractors because it directly relates to the chance of winning the contract and the profitability of their work.

The contract content is another problem to the contractors because if the contractual clauses are provided poor and unclear they will become the source of many risks in the next stages. In the opinions of many respondents the contract in highway projects are still in a very low level in comparison with the contractual form suggested by FIDIC. The quality of construction planning and the tight construction control play the important role to mitigate or even eliminate the impact of many risks especially the on-site risks.