Risk Management During the Preconstruction Process for High-rise Commercial Projects in Vietnam

Risks often have negative impacts on project’s objectives during project life cycle which Figure 1 shows that the level of risk versus with the level of knowledge on the project throughout project life cycle. This figure also indicates that pre-construction process is the most risky process. In addition, pre-construction process is very important in the development of commercial project in particular and construction project in general. Because almost the project cost, schedule and quality are defined initially in this process. Therefore, any change at this time is easier and take lower cost and time than the following time (see Figure 1 and 2). Fabrycky & Blanchard (1991) and Paulson (1976) stated that the ability to change decreases continually as the project progresses, from 100% at project sanction to typically 20% or less by the time construction starts (Kishk et al., 2003). However, the pre-construction process in construction industry often involves with risks and uncertainties (Flanagan & Norman, 1993). Political, social, environment and other related risk influence pre-construction process while uncertainties arise from the incomplete knowledge and information of project. Therefore, risk management is important and essential aspects of the pre-construction process. Moreover, as much research suggested, addressing project risks earlier rather than later in the project life cycle can minimize the negative consequence brought by the risks (Ward and Chapman, 1995; Smith, 2003 cited in P. X. W. Zou, Zhang, & Wang, 2006).

In residential real estate, Owner relates with project until construction phase finished and project is delivered to client. On the contrary, Owner involves with whole life cycle of project in commercial real estate. Flanagan & Jewell (2005) state that an office building will consume about three times its initial capital cost over a 25 years period. Therefore, O&M cost is significant element of whole life cycle budget. Risks which related with pre-construction process not only impact on the design phase but also construction phase and O&M phase. According to Kirk & Dell’Isola (1995); Kishk et al. (2003); MacKay (1999), 80-90% percent of the O&M costs is determined at the design stage. Hence, effective risk management in pre-construction process can mitigate negative impact and enhance positive impact of risks on whole life cycle of project.

Although risk management is studied well in theory but its application in Vietnam construction industry is still very poor, especially in pre-construction process. That’s the reason why this research is conducted. The findings of this research are expected to improve current practice of risk management during pre-construction process in Vietnam commercial project.

Figure 1 The relationship between life cycle cost saving and time of implementation

       Source: Flanagan, 1989

Figure 2 WLC committed, cost incurred, knowledge and ease of change

            Source: Fabrycky & Blanchard, 1991

Mr. Tran Thanh Cong made a research aimed to investigate the risk management practice in preconstruction process in Vietnam commercial project and help the practitioner aware of existing critical risk factors associated with early stages of preconstruction process. This research objectives were to:

1. Investigate the critical risk factors and its impact on project life cycle of Vietnam commercial project during the preconstruction process;

2. Assess current practice of risk management during preconstruction process in Vietnam commercial project

3. Propose recommendations for manage effectively the critical risks during preconstruction process for Vietnam commercial project

Conclusions

1. Critical risks in preconstruction process

With the combination of both quantitative data and qualitative data, this study has systematically examined the critical risks affecting Vietnam commercial projects during pre-construction process. Hence, the critical risk factors are identified. These critical risks include the following:

a. Impact on design phase:

i. (A12) Excessive approval procedure in administrative government departments;

ii. (A13) Variations by the client;

iii. (B04) Lack of communication and withholding of information between stakeholders

iv. (C09) Late apply for detailed planning for approval;

v. (C20) Errors, omissions and discrepancies in design

vi. (C19) Design changes by owner or his agent       

vii. (D18) Adversarial relationship between project stakeholders

b. Impact on construction phase:

i. (A15) Change in economic parameters

ii. (C15) Delay in design approval and drawings approval

iii. (C20) Errors, omissions and discrepancies in design

iv. (D18) Adversarial relationship between project stakeholders

v. (D12) Unknown capability of bidder

c. Impact on O&M:

i. (D18) Adversarial relationship between project stakeholders.

These critical risks above should be paid more attention to during preconstruction process.  The result reflect the risk perception in Vietnam commercial industry that the risks during preconstruction process have more critical impact on the design phase and construction phase than O&M phase.

2. Assessment of current risk management practice

a)      Risk management plan

Risk management planning is often performed in some projects which applied risk management procedure. The risk register is usually integrated into risk management plan which is updated rarely during project life cycle. Although risk management should be carried out throughout project life cycle, but it’s usually performed at early stage of project pre-construction process (inception/ feasibility stage). Because that project managers of three projects agreed that risk management is very important during pre-construction process while almost the options are open to consideration and all of the cost, schedule and quality are estimated initially in this process.

Moreover, the earlier risks are managed in this process, the more effective project implemented. However, risk management process is often performed unsystematically because the lacking of top management’s commitment toward risk management and the lacking of assigned risk management who assist project manager to manage risks.

b)      Risk identification

This process is the most important one in risk management process. In general, this process is well performed in Vietnam commercial projects. The project scope and project management plan are often used as key input for this process. The expert judgment is frequently employed in this process with the expert usually is risk owner. However, project using the first-of-its-kinds technology, should perform brainstorming session technique to identify the project risks. The major difficulties existing in this process are the lacking of historical data and the lacking of top management’s commitment toward risk management.  

c)      Risk analysis

The most common technique employed in this project is expert judgment; the probability and impact matrix. Because the levels of probability and impact are defined in risk management plan, the risk owner who is consider as an expert often judges the level of probability and impact qualitatively. Therefore, bias of risk owner can effect to his judgment. Each risk is rated based on its location in probability and impact matrix which is specified in each project. However, quantitative risk analysis isn’t often conducted. The main reason is the lacking of assigned risk management officer and lacking of knowledge and experience about risk analysis.

d)     Risk response

This study indicated that risk reduction is the most frequently employed during pre-construction process. This response strategy is applied on the basis of reduction of risk’s probability and/or impact. The risk transfer strategy is the second frequently using in this process. This response strategy can influence the procurement strategy and the selection of contract type. The common difficulties in this process are related with the selection of risk response strategy and specific response action.

e)      Risk control and monitoring

This study indicated that the risk control and monitoring is often performed unsystematically. The main reason is the lacking of the top management’s commitment toward risk management. Risk monitoring process should be integrated into project monitoring process in order to assess the effectiveness of risk management process along with the performance of project during project life cycle.

f)       Major difficulties in the implementation of risk management

Based on the result of this study, the most common difficulties in the implementation of risk management are revealed namely: (1) lack of historical data of similar completed projects; (2) Lack of top management’s commitment towards risk management; (3) lack of experience in risk management. By solving these difficulties, risk management have more opportunities to performing successfully in Vietnam commercial projects.

 

His thesis abstract is copied below.

Abstract

During preconstruction process, from project has been established until the end of tendering phase when construction phase prepare to start, the construction project is highly involved with risk and uncertainties. Project risks related with preconstruction process impact on not only design phase but also construction and O&M phase. Therefore, risk management in this process is very important and essential in order to obtain project objectives. Moreover, owner of commercial project has been involved to whole life cycle of project, from inception stage until project disposal. Therefore, the construction cost and long-term O&M cost, which is determined in preconstruction process, can effect significantly into profit margin of Owner Company. For this reason, risk management during preconstruction process is very important aspect of project management for commercial projects. This research focus on the major risks that commercial project in Vietnam encounter during preconstruction process and its impact on the objective of project life cycle. In addition, current practice of risk management during preconstruction process in Vietnam also is investigated to find out the difficulties in the implementation of risk management. Thus, recommendations for improving risk management practice in Vietnam are proposed.

Keywords: Risk Management; Preconstruction Process; Vietnam Commercial Projects; Critical Risks; Project Life Cycle.