Case Studies On Risk Allocation In Highway Projects Under BOT Scheme In Vietnam

Private investment in public infrastructure can be traced back to 18th century, such as the Suez Canal and Trans-Siberian Railway, as well as canals, turnpikes, and rail-roads in Europe followed by Americas, China, and Japan (Walker et al. 1995; Levy 1996).

According to Parker and Hartley (2002), public-private partnerships have become popular in a number of countries in recent years. The eagerness to reduce government spending, loan, and awareness of the private enterprise to provide necessary capital investment, has introduced PPP programmes as an alternative for investment in infrastructure development.

The relationship between public and private sector is described by Merna and Smith (1999) as a contractual relationship where a private party takes responsibility for all or part of government’s functions. It is a contractual arrangement between a public sector agency and private sector concern, whereby resources and risks are shared for the purpose of delivering a public service, or for developing public infrastructure.

Most of the times the public sector retains responsibility for deciding on the nature of service to be provided, the quality and performance standards of these services to be attained, and taking corrective action if performance falls below expectation (Smith, 1999).

However, beside advantage which collaboration between two sectors bring about, risks in implementation process of project is not also avoidable. “A risk occurs where either the outcome or consequence of an activity or decision is less than certain.”(Boothroyd & Emmett, 1996). “Both the outcome and consequence of a decision could simultaneously be uncertain. The presence of risks in a project could hinder the achievement of its objectives. Therefore, risks must be managed carefully to achieve project objectives.”(Akintoye, Beck & Hardcastle, 2003)

A Build-Operate-Transfer (BOT) project, which a model of Public-Private-Partnership (PPP) is defined by Walker and Smith (1995) as a project model where the private company is given a concession to build and operate a facility that would normally built and operate by the government. The private company is responsible for financing and designing the project. At the end of the concession period, the private company returns ownership of the project to the government. A research about BOT highway project will help readers perceive and understand deeply advantages and disadvantages, especially in risks occur (Identification and allocation) in partnership process between public and private sector.

Mr. Nguyen Tuan Nghia made a research regarding the condition in Vietnam where its existing infrastructure facilities are inadequate to meet the requirements of the growing population, modernizing and industrializing country, integrating into the global economy. Therefore, the government has the prime responsibility, to develop infrastructure. In this way some projects have been started in the past and finished or in progress and some are planned to start soon. However, the problems of projects in Vietnam can be briefly described as follows:

- Lack of coordination between public & private sectors;
- Urgent needs for infrastructure development, especially Road Systems in Vietnam. But limited government financial resources.
- Lack of management experience in planning, managing, implementing, risk allocating, etc. development projects in general and BOT projects in particular.

The problems mentioned above can be attributed to one of the important problems, that is, the inaccurate identification of the critical risks of BOT projects. If there had been a proper identification and allocation of the risks, many of these problems could not have been arisen. The problem statement now becomes as stated below:
The BOT projects in Vietnam are suffering from many problems due to inaccurate identification and allocation of risks in the projects. This problem is a major hindrance for future prospects of these projects and the economic development of Viet Nam.

Mr. Nghia set five objectives for his study such as:

- Understand the BOT structure, its applications & limitation in highway projects in Vietnam.
- Identify risks in highway projects under BOT system in Vietnam.
- Investigate the risk allocation arrangement used by the public sector agency & private sector concern.
- Finding potential risk allocation practice through case study.
- Propose recommendations for public & private partnership in developing human resources in order to build proper risk allocation strategies, leading to control risks occur in future highway projects speed road system under BOT scheme more effectively.

His Conclusion

The concept of BOT is relatively new in Vietnam, especially for transportation infrastructure construction industry. The government now has taken steps to initiate projects. These projects meet different challenges under different phases of life cycle from pre-investment to operation phase.

This study focusing on highway projects under BOT scheme in Vietnam in term of risk and risk allocation is deemed to be beneficial to stakeholders. To evaluate the severity of the listed risks, survey questionnaires were used. The suitable current risk allocation finding was implemented through case study method. In both parts, the research samples were separated into two sectors, public and private.

All of study objectives have been achieved: (1) The BOT structure, its application & limitation in highway projects in Vietnam was sketched, (2) major risks in there were determined, (3) The risks allocation attitude between public and private sector have been determined. (4) Allocation practice has been implemented through case study. (5) Recommendations for the shareholder to cope with risks as well as control effectively through proper allocation are made.

Major risks in BOT highway projects in Vietnam

In the order to determine the major risks, total weighting score, which is product of frequency of occurrence and degree of impact, has been calculated. The risks were then ranked according to the total weighting score. The top-ten risks from public respondent attitude, private, and whole were determined in the table below.

Beside, the survey results showed risk allocation opinion base on the percentages of total counts of participant responses such as risk should be allocated to the public sector, to private sector, shared between them, or strongly depend on individual project circumstances.
Hypothesis testing also revealed that risks allocation attitude by the public and private sectors in Highway projects under BOT scheme in Vietnam is not different.

Finding risk allocation in BOT AnSuong-AnLac highway project

“BOT project of improving and upgrade 1A highway for stretch of road AnSuong-AnLac” is selected as case study in this project, because it meets criteria as follows: (1) It has enough number of stakeholders; (2) It is recently completed and open for public use.

General respondents’ perception of risk allocation in AnSuong-AnLac project base on percentages of total counts of participant responses showed that participants accepted risk allocation is important to the success of project, but they have never allocated risk properly and systematically by paying most attention to other important things.
From the point of view of all the parties discussed and retransmitted by Managing director, significant risks as potential risks in this project were identified are: land acquisition and compensation, unstable material prices, change in traffic planning, and inflation rate.
The factors limiting the application of risk identification was ranked and listed based on the result of total weighting score in the table. It is necessary of reason explanation for impact level of those factors to risk identification in this project.

Finding out potential risks proper allocation approaches in this project is the most important in this chapter. The risk allocation opinions in BOT highway project in Vietnam is really useful in risk allocation practice between shareholders. Specifically in land acquisition and compensation, compensation was assigned to the private sector; acquisition thus should be allocated to the public sector. For unstable material prices, the project cost should be adjusted since it is accepted that this risk may be from external factors. There is no choice for the investor if host government changes traffic network planning in future, they are forced to sell the project to the government if they do not want to lose in the project if operational revenues are below expectation. It is seemingly accepted that the government will adjust toll in future if inflation rate volatility at that time.

The potential problems in the risk allocation strategies were evaluated and listed by interviewees in this project base on total weighting score. As the factors limiting the application of risk identification, it is essential for explaining impact level of those factors to risk allocation strategies in this project.

His Recommendation

Both the public and private sector has different goals and purposes for the project, thus they have different level of willingness to accept the risks if they are allocated to them. Moreover, the willingness for undertaking those risks of each participant in each factor is unready by their responsibility. The risk allocation manners in two sectors are deemed to be very much behind those in developed or even other developing countries. These originate primarily from human resources. Considering the policy is in need for solving these problems by the feasibility in mind, three fundamental recommendations are given:

(1) The government has to introduce proper laws or policies for allocating risks to stakeholders.
(2) An education and training policy and framework should be established to bring out the best of current human resources. It must help encourage responsibility, knowledge sharing, continuous improvement in coping with risks in BOT projects.

(3) Establish benchmarking strategy for risk allocation which properly applied in the future.

His thesis abstract is copied and posted.

ABSTRACT

This study focusing on highway projects under BOT scheme in Vietnam in term risk and risk allocation is deemed to be beneficial to stakeholders. This research comprises of two distinct parts. The first part is determining the major risks and allocation opinion between stakeholders in BOT highway project through a survey on practitioners in public sector agency and private sector in Vietnam. The second part is finding out a proper risk allocation potential through using case study method.

It has been concluded that all of three objectives of the study have been achieved: (1) major risks in BOT highway project were determined, (2) The risks allocation attitude between public and private sector. (3) Allocation practice has been implemented through case study. (4) Recommendations for the shareholder to cope with risks as well as control them effectively through proper allocation are made. Building a framework and policy for risk allocation and establish benchmarking strategy utilization are the two basic recommendations to shareholder in highway construction projects under BOT scheme in Vietnam. Finally, some suggestions for further study have been given.

Improving Project Performance In The Public Sector: The Case Of Thailand

Prior to the economic crisis that started in 1997, Thailand’s economy experienced sharp growth compared with other developing countries in South-East Asia. During the economic boom of 1986-1996, domestic and foreign companies invested heavily in the country. The investors were interested in starting or expanding businesses. In addition, the country’s population continued to grow; fueling the need for new buildings and offices. This resulted in expansion in the real estate sector. The construction industry flourished both the public and private sectors. The need for public infrastructure also tremendously increased in order to support the population and communities. Consequently, government investment in infrastructure development increased sharply. Unfortunately, the public construction budget seemed to be used without a systematic consideration regarding value for money. Ogunlana et al. (1996) stated that since the boom in Thailand’s construction industry was unanticipated, the participants in the industry were not adequately prepared for the project management problems that followed.

In the wake of the economic crisis, most of the government divisions in the public sector, whose main duty was to build the necessary facilities, (such as roads, bridges, dams, schools and civic buildings), received less funding. This was also true with the private sector. In fact, many business companies either postponed their investments or stopped putting money into construction business. Commercial banks also became stricter in giving bank loans to their customers. As a direct consequence, many project developers lacked money and a lot of construction projects had to be abandoned or suspended.

The contractors and designers were also affected because of the competitive construction market during and after the crisis. For example, there was increased uncertainty regarding the ability of their owners to pay for the completed works. As a result, growth in the construction industry stunted and the management of the construction projects became more complex and difficult.

The need to improve the performance on the construction projects has become obvious to all the involved parties in the construction industry. All parties now seek efficiency in project implementation. Each project participant is supposed to identify and develop effective management practices that contribute to higher performance in their relevant involvements in the construction process.

Public owners need to be informed and to realize that the process of construction is as important as its final product. Walker (1996) stated that working with the public sector usually causes more constraints and difficulties than with the private owners, because of many bureaucratic rules. Elinwa and Joshua (2001) noted that, in the Nigerian construction industry, the majority of public construction projects end up with delay because of economic instability, greed, insincerity in formulating policies and incompetence. Ofori (1991) commented that the construction industry in the developing countries should give more efforts to improve contractors’ operating environment. However, this will be less effective if the public clients lack the support of contractor development programs, especially in relieving the financial constraints on their projects.

Such professional comments suggest that, in order to receive a satisfactory finished product, owners in public organizations should be advised on how to go through the process of constructions with new attitudes and work practices that should be different from those in the past. They also need to be informed and to realize that the process of constructions is as important as its final product. The question then concerns what actions should be improved and how the involved parties should accomplish them during the construction process by the involved parties. Moreover, as a client has an important role to play in developing the construction industry, clients need to know what factors account for the differences between their successful and unsuccessful projects in the implementation stage. These are the factors that should be given more attention, if the clients wish to improve their project performance.

Mr. Suphachoke Meeampol addressed these needs in his research, where three major research questions are raised and considered to help address this deficiency in improving project performance in highway construction projects.
1. What factors affect project performance in the construction process?
2. What critical success factors are most predictive of project performance?
3. What factors account for the improvement in project performance?

His study addressed the problems of how project performance can be better achieved in public construction projects through an integrated approach to improve the efficiency of the construction process.

His study aimed to give suggestions regarding how to improve project performances on construction projects in the public sector and attempts to gain better general knowledge in the construction area related to project management. Specific objectives were needed to achieve the aims of the study. These were to: (1) identify the success factors affecting project performance in the construction process; (2) examine the relationship between critical success factors and project performance; and (3) determine what factors account for improvement in project performance.

Conclusions

Success factors affecting project performance in the construction process

It was initially thought that cost and time performances are affected by the thirteen success factors identified from literature; which are: internal complexity, external complexity, supervision and control, owner involvement, design effectiveness, schedule management, budget management, quality management, human resource management, construction resource management, construction method, communication and report, and team relationship. However, the results from the two analytical methods used showed that, factors such as internal complexity and external complexity, do not contribute significantly to project success or failure.

Regarding the perception of owners, factors related to owners’ characteristics, namely supervision and control, owner involvement and design effectiveness, are not significant predictors of cost performance on projects. However, better supervision and control and less owner interference can reduce construction duration.

The most important factors in discriminating between success or failure on projects are the eight factors grouped under managerial practices, which are under the direct control of the contractor. Only six managerial factors are important contributors to improved cost performance. The management of construction resources, budget management, construction method, and communication and report should reduce the chance of cost overrun. However, reduced emphasis on schedule performance and human resource management can reduce cost overrun.

All the eight factors are significant in discriminating between successful and unsuccessful projects in time performance. Improvements in construction method, construction resource management, schedule management, human resource management, supervision and control, schedule management, and communication and report, can reduce project delays. By contrast, project delays are associated with increased quality management, budget management, human resource management, owner involvement, and team relationships.
Regarding the data from final reports, only three managerial factors are important contributors to improve cost performance index. The management of quality, and team relationship should reduce the chance of cost overrun. However, reduced emphasis on communication and report can reduce cost overrun.

Five success factors are significant in predicting time performance index. Improvements in owner involvement, human resource management, and construction resource management can reduce project delays. By contrast, project delays are associated with increased quality management, and communication.

The relationship between critical success factors and project performance

Regarding the subjective measures of project performance, two sub-hypotheses were tested using discriminant analysis.

Sub-Hypothesis 1A: Perceived cost performance of the public construction projects can be clarified through the general managerial practices in response to the challenges created by the environment and the characteristics of the project.

Sub-Hypothesis 1B: Perceived time performance of the public construction projects can be clarified through the general managerial practices in response to the challenges created by the environment and the characteristics of the project.

The relationship between critical success factors and perceived cost performance was modeled through discriminant analysis and was shown to have a cross validation value of 71.0%. While the relationship between critical success factors and perceived time performance was modeled through discriminant analysis and was shown to have a cross validation value of 83.9%.

Regarding the objective measures of project performance, the following two study sub-hypotheses were tested using multiple regression analysis.

Sub-Hypothesis 2A: Cost performance index of the public construction projects can be clarified through the general managerial practices in response to the challenges created by the environment and the characteristics of the project.

Sub-Hypothesis 2B: Time performance index of the public construction projects can be clarified through the general managerial practices in response to the challenges created by the environment and the characteristics of the project.

The relationship between critical success factors and cost performance index was modeled through regression analysis and was shown to have an R-Squared value of 46.9%. While the relationship between critical success factors and time performance index was modeled through regression analysis and was shown to have an R-Squared value of 63.2%.

What factors account for improvement in project performance?

As a positive consequence of the economic crisis that affected Asia in 1997, the Thai government has attempted to increase the efficiency and effectiveness of managerial procedures on construction projects. However, most managers in the public sector do not know what to improve in order to boost cost and time performance. Identifying the sources of performance variations is the first step in dealing with the problem and corrective action is the logical second step. In this study, an investigation of owners’ management was done to distinguish between success and failure in perceived cost and time performance and to determine the effect on cost and time performance indexes. The focus was on construction management of public highway projects. The study sheds new light on successful project performance on public projects.

By establishing the objective and subjective measures of cost and time performance, and evaluating each against success factors, some improvement areas can be made. The areas that should be improved are those where there are disagreements in results between the perceptions of owner and the data from final reports. Regarding cost performance, quality management and team relationship need to be improved because they show positive effect on cost performance from the final reports, though owners perceived that they do not affect project time and cost performances. At the same time, communication and report should be reduced or make consistent because the data from final reports show that more communication and report can reduce success in cost performance, though owner perceived that it can increase cost performance. It would therefore seem that quality, rather than volume, of communication is important to performance. Regarding time performance, owner project managers should involve more in construction process than they did in the past because they always perceive that the construction process is not their responsibility. Human resource management should be understood that it can improve time performance, although it does not directly contribute to the physical achievement on projects. At the same time, communication and report should be also reduced or make consistent because the data from final reports show that more communication and report can reduce success in time performance, while owners perceived that it can improve time performance.

General conclusions relating to the hypothesis

The main conclusion that can be drawn from this study is whether project performance in the public sector can be clarified through the general managerial practices, in response to the challenges created by the project’s environment and the characteristics. Also, based on the research results, the relationships between success factors and project performance can be quantified through the four equations. Given the lack of previous research in this area, these findings are significant to the improvement of construction management in the public sector.

The results of the discriminant models show that success in perceived cost performance depends on the management of construction resources, budget management, construction method, and communication. By contrast, schedule management and human resource management inhibit perceived cost performance. Success in perceived time performance depends on choice of construction method, management of construction resources, schedule management, supervision and control, and communication. Quality management, budget management, human resource management, owner involvement, and team relationships impede time performance.
Accordingly, the results of the regression models indicate that cost performance index depends on team relationships and quality management. On the other hand, increasing the volume of communication is detrimental to cost performance index. Confirmation with time performance depends on choice of construction method, human resource management, and owner involvement. Meanwhile, increased quality management is detrimental to time performance.

His thesis abstract is copied and posted.

Abstract

This study investigates cost and time performance of highway projects from the viewpoint of the public owner. It differs from previous studies which focused on the contractor’s perspective on project performance. A total of 13 success factors were identified from literature and the opinions of experienced engineers. Data from 99 projects handled by the Department of Highways (DOH) in Thailand were used to develop and test discriminant and regression models of cost and time performance. Discriminant analysis was used in this study to build the perceived cost and time predictive models, which were generated from samples of cases, which had already been grouped and known as successful and unsuccessful projects. The models were then applied to new cases with measurements for the predictor variables, to predict that the projects were either successful or unsuccessful. Meanwhile, regression analysis was also used to build cost and time performance models, which were generated by regressing 13 success factors against the indexes of cost and time performance which were referred to as the actual construction budget and duration, which varied from the plan.
The results of the discriminant models show that success in cost performance depends on the management of construction resources, budget management, construction method, and communication. By contrast, schedule management and human resource management inhibit cost performance. Success in time performance depends on choice of construction method, management of construction resources, schedule management, supervision and control, and communication. Quality management, budget management, human resource management, owner involvement, and team relationships impede time performance. Accordingly, the results of the regression models show that cost performance index depend on team relationships and quality management. On the other hand, communication restrains cost performance index. Confirmation with time performance index depends on choice of construction method, human resource management, and owner involvement. Quality management and communication impedes time overrun.

Development Of A Performance Model For International Construction Joint Ventures: A System Dynamics Approach

Global business has moved towards more competitive environment over the past two decades. As local markets erode due to competition, firms need to change their business strategy and expand their traditional markets. According to Yoshino and Rangan (1995) joint ventures (JVs) have emerged as a popular strategy in an environment in which fast access to up-to-date technology and emerging markets is more critical than ever before. Geringer (1991) defined JVs as when two or more legally separate bodies from a jointly owned entity in which they invest and engage in various decision making activities.

In Thailand, the International Construction Joint Venture (ICJVs) has marked increase over the last two decades. A joint venture may be termed International where at least one of the parties (or parents) is based outside the country where the venture is taking place (Geringer and Herbert, 1989).The remarkable increment of foreign investment was continuing until the economic crisis of 1997. After that there has been a steady progress in the construction industry.

According to Lim and Liu (2001), the number International Construction Joint Ventures (ICJVs) are growing worldwide at an increasing pace, especially in developing countries. Developing countries see ICJVs as one of the best instruments for meeting the competing interests of national development and the prevention of the domination of the economy by foreign investors (Sornarajah, 1992). Despite the apparent importance, interest and frequency of international ventures many of these report only limited success (Adler et al., 1992). But why do these joint ventures fail? More importantly, is it possible to promote higher alliance performance through a better match between strategic outcomes? And what will be the effective strategy to make the joint venture successful?

The role of IJVs in international business operations has been significant and there are no signs that their role would, at least significantly decrease in future. The situation may be in fact the opposite. The great importance and high failure rates of IJVs raises the question of how to evaluate IJV performance and how to secure success in IJV operations? The goal of this study is to make a review of previous studies analyzing the IJV performance especially in an Asian context and to develop dynamic hypotheses about the relationships between various identified variables and IJV performance to be tested by system dynamic approach.

Mr. Muhammad Nateque Mahmood made a research which aimed to address the critical issues in developing International Construction Joint Venture performance model for a successful Thai-Foreign Joint Venture using System Dynamics Approach. The sub-objectives of his study were to: (1) identify factors that affecting performance of International Construction Joint Ventures; (2) develop the generic system dynamics model to explain how the factors affect the performance of International Construction Joint Ventures; (3) develop adopted system dynamics models for different cases of International Construction Joint Ventures; and (4) formulate implementable policies that may aid to achieve desired performance level for an International Construction Joint Venture.

Conclusion

ICJVs have become increasingly widespread in the business environment and the need to understand the dynamic nature of performance of these complex collaborative arrangements increase, as managers are struggle to find patterns and indications of how to effectively manage successful joint venture. Therefore, a generic system dynamics model has been developed by integrating a number of endogenous and exogenous factors to make dynamic interactions visible and facilitate managers to make decisions about the observed patterns and intervene, as appropriate, to increase the likelihood of partnership success.

In this study, the performance of an ICJV has been measured in terms of value, project output (cost, time and quality) and satisfaction factors. The critical factors associated with these three factors and their interrelationships can be highlighted as follows:

Value factor is significantly influenced by adaptability and complementary resources. Value factor is positively influenced by adaptability, mutual trust and commitment factor. Where, adaptability is positively induced by complementary resource sharing and also by commitment level of parent partners. Difference in working climate reduces the technology and knowledge transfer rate and in consequence value by hindering the improvement of adaptability. Mutual trust is accelerated by effective information sharing and reduced by dysfunctional conflict between partners, higher legalistic changes and partners’ misinterpretation factors. Commitment factor is highlighted through collaborative approach of the partners and also induced by higher level of mutual trust.

Project output is significantly influenced by productivity in construction. Project output factors such as cost overrun, schedule pressure and poor quality factors are negatively influenced by productivity in construction, work completion rate, coordination, and positively influenced by rework, conflict and uncertainty of work. Whereas, productivity in construction is accelerated by resource availability, motivation level of workers, business competency of partners and coordination and negatively influenced by government bureaucracy.

Satisfaction factor is significantly controlled by value gap (deviation of actual value to desired value), project output (cost, time and quality) and negotiation approach (either problem solving, compromising, forcing or legalistic strategy) factors which are organized in accordance to most significant factor to significant factor. Problem solving approach towards negotiation process tends to make a relationship more satisfying. Conversely, compromising and forcing attitude in negotiation process adversely affects on satisfaction level. A party’s higher reliance on legal mechanisms towards negotiation process decreases satisfaction level.

The generic performance model, when calibrated and tested with data from two ICJVs in Thailnad, the simulated behavior (base run) of the adopted model has been replicated with the historic behavior (reference mode) for both cases. This implies that the generic system dynamics performance model can be able to facilitate managers of an ICJV to identify the factors and causes of problems related to performance gap by adjusting inputs of exogenous variables with their real scenario.

While simulating the adopted models for different ICJVs, several problems related to performance of ICJVs have been observed from the base runs of both cases such as: (1) cost overrun, schedule pressure and poor quality due to low productivity in construction; (2) negative value gap; and (3) low level of effective information sharing between partners.

To minimize above mentioned problems related to performance of ICJV, the following component based recommendations are addressed to improve the performance of ICJV for both cases.

- In order to improve productivity in construction, three complementary HRM practices such as Performance Based Incentive (PBI) for the workers, problem solving team and multiskilled training are suggested. PBI can increase motivation of worker but the practice has flaws (free riders and inefficient evaluation technique) too. Firms can overcome free-rider problems by developing a “norm” or “culture” through peer pressure. Evaluation technique can be improved by incorporating other valued dimension such as workers’ dependability, corporation, or problem-solving initiative. The problem solving team should be developed in order to get feedback from the workers regarding productivity improvement and suggested best practices. Multiskilled training can lead to increased productivity as multiskilling leads to more efficient use of time on construction sites, affects the attitude of workers and increases the desire to perform. It will reduce layoff frequency of workers and subsequently reduce the probability of unavailability of skilled labors during the project progress.

- In order to diminish negative value gap through improving adaptability or absorptive capacity of the parent companies, training, workshops and high-performance team policies are suggested for both ICJVs. Three levels of training programs involved in managing collaboration and competition at the same time, open communication and trust for the smooth transfer of know-how and acquisition of a specific competence should be conducted. Workshops are useful for adjusting and regulating the partnering goals with the internal goals as well as the project goals to ensure that they are compatible. Most often, the partnering goals consist of some tangible project goals, such as quality, cost, schedule, safety, and time, and some intangible contextual goals, such as communication, trust, commitment, etc. The high performance team will focus on value gap to overcome. Besides, the team should look for continuous improvement in response to the turbulent environment. The team can then prescribe actions to induce changes, seize opportunities, and rectify the course.

- In order to enhance effective and efficient information sharing, Integrated Proactive Team (IPT) and “Project Web” are suggested for both ICJVs. IPT can aid in building of mutual trust and providing decision makers with the necessary information to make the right decisions at the right time. Whereas, “Project Web” can improve in communication and coordination of information between all project participants resulting an increased efficiencies, better-facilitated decision making and improved project control and in turn increase mutual trust.

Maximum benefit can be attained by integrating above three policies and applied at the same time.

His thesis abstract is copied and posted.

ABSTRACT

The uncertain and dynamic nature of ICJV performance is evolved with many critical factors which lead to make partner relationships more complex in respect of making decisions to maintain a cohesive environment that creates desired strategic outcomes. Addressing to the fact, a generic system dynamics performance model for ICJV is developed by integrating a number of exogenous and endogenous variables as to get an overall impact on performance of ICJV and to make effective decisions based on that. During performance model development process, several key feedback loops are developed with the endogenous variables incorporated with exogenous variables which lead the path to formulate stock and flow mapping under three sub models (value, project output and satisfaction). In order to formulate and validate the model both structurally and behaviorally and also to find out the causes of poor performance, both qualitative and quantitative data are gathered by conducting intensive interviews from two ICJVs in Thailand and also backup with literature review. The performance model, when tested with data from two ICJVs, replicates historic data well. This implies that the system dynamics performance model can be able to facilitate managers of an ICJV to identify the factors causing problems related to performance gap by adjusting inputs and or structure of variables. After conducting intensive simulations of model, three major problems are identified related to negative value gap, low productivity in construction and high rate of ineffective information sharing of both ICJVs. In terms of diminishing negative value by improving adaptability, the suggested effective policies are: (1) training, (2) workshops and (3) high performance team. In order to stimulate productivity in construction, the recommended effective policies are: (1) performance based incentive, (2) multiskilled training and (3) problem solving team. Regarding improvement of effectiveness of information sharing (1) integrated proactive team and (2)“Project Web” are suggested. Integrated application of these policies provides a maximum improvement to the performance of the ICJV.

Modeling Contractor’s And Subcontractor’s Trust: A System Dynamics Approach

Modern constructions processes rely on the contributions of diverse functional specialists working in inter-organizational teams to design, cost, procure and manage modern construction projects. Moreover, construction companies are increasingly dependent on the organizations; they supply to and buy from, particularly leading contractors who in most cases act as management contractors, subcontracting work in packages to a range of specialist contractors (Constructing Excellence, 2004). The critical importance of subcontracting to the success of construction projects has long been recognized. Gray and Flanagan (1989), in their comprehensive study of subcontracting, concluded that it would account for an increasing proportion of total construction workload. Lead contractors can use specialist contractor’s cash flow as a means of surviving the volatility of the construction business cycle a practice that still causes much tension in the supply chain. Co-operative relationships between and among supply chain partners are crucial to successful supply chain implementation.

According to Hsieh(1998), the benefit of subcontracting is that it not only allows the general contractor to acquire various construction services efficiently from the resource market but also is an effective means of cost control and risk management. Unfortunately, this practice may also pose tremendous barriers to site productivity. Hsieh (1998) attributed that the institutional gaps between the general contractor and the subcontractors are crucial factors affecting site productivity. This is due to the lack of trust and negative attitudes. Moreover, this attitude towards many of the essential requirements of supply chain management suggest that the industry is a long way off being able to align systems and procedures for improved project performance (Constructing Excellence, 2004). The key barriers to develop trust as well as greater integration seem to stem from the industry’s traditional approach of vertically differentiating the construction process, which results in a subordinate position for subcontractors within the hierarchy of relationships forming the traditional design–management– construction process. Consequently, main contractor–subcontractor–supplier relationships are often found to be strained and adversarial (Hinze and Tracey, 1994; Latham, 1994).

Alternatively, poor performance of subcontractor, conflicts with payment generates distrust of the contractor towards the subcontractor. Indeed, the cultural issue of mistrust between the parties has been seen as a fundamental barrier to the increased understanding of each others’ needs and further supply chain integration (Dainty et al., 2001).

Trust is dynamic and either growing or diminishing (Hawke, 1994). It is often associated with situations involving personal conflict, outcome uncertainty and problem solving. It is a prediction and expectation of future events. Varying in intensity, this is the confidence in and reliance upon the prediction (Nyhan and Marlowe, 1997). As trust is the fundamental element for a successful project team and is also varying with time thus it is very difficult to managers to make decisions effectively in order to maintain good trust between team members during several stages of project. Most of the time project participants interpret the team-relationship in one direction and hence make decision without thinking other negative factors that may impact on the team performance. However, the uncertain nature of trust is involved many critical factors which leads to make contractual relationship more complex in respect of maintaining trustworthy environment. Trust can be regarded as glue that fosters cooperation among organizations and different team members and an essential lubricant that helps to complete the project smoothly (Wong and Cheung, 2005). As trust is dynamic e.g. if either one deteriorates, this will have a negative impact on the other, thus a system dynamics model related to trust in creating project team can help to make decisions effectively and encounter the problems related to parties’ relationship as it involves two major characteristics: 1) changes over time and 2) allows feedback. System dynamics model are well suited to representing multiple interdependencies, to deal with dynamics nature and involved in significant feedback processes (Ogunlana et al., 1998).

Ms. Azmeri Rahman made a study which focused in developing a system dynamics model of trust from both contractor and subcontractor point of view in order to experience the impact of factors on trust.

The primary objective of her study was to address the critical issues in developing trust model for effective supply chain integration between contractor and subcontractor in construction industry using System Dynamics Approach. The secondary objectives of the study were specified as follows:

- To identify attributes of trust in a contractor’s and subcontractor’s relationship.
- To develop generic system dynamics model of trust from both of contractor and subcontractor perspectives in order to explain how the factors affect the trust in developing an effective relationship.
- To develop adopted system dynamics models for different construction projects.
- To formulate implementable policies that may accelerate the trust level between the contractor and subcontractor.

Conclusion

The lack of trust between contractor and subcontractor on the adversarial nature of their working relationships has been characterized as a fundamental barrier to the increased understanding of each others’ needs and further supply chain integration. This appears to be preventing the active involvement of supplier companies to the construction process. As trust is path dependence phenomenon, thus it is extremely difficult to capture the behavior of trust in a construction project relationship at a holistic view. Therefore, by adopting system dynamics approach, two generic trust models from both of contractor’s and subcontractor’s perspectives have been formulated in the study to facilitate the contractors and subcontractors easily understanding trust related issues during their contact period.

Permeability, performances, satisfaction, business competency and equitable contract terms enhance trust building, where as bad experiences during interaction, negotiation approach towards conflict and unsatisfactory dispute resolution techniques deteriorate mutual trust between contractor and subcontractors. These are the key factors that have been found during generic model formulation. However, these issues are further influenced by several factors which have been explained briefly as follows.

- Permeability is positively influenced by effective information flow, frequent communication and openness of the contractual parties. Situation ineffective, inaccurate and unorganized information generate work uncertainty, increase rework amount as well as project risk. In addition, changes in project scope also accelerate uncertainty and enhance subcontractor’s claims regarding extension of time and extra/advance payment. Conversely, claim and risk make conflicts among parties which disrupt trust level.

- Performance level of subcontractor is directly measured by productivity which is extremely affected by work competency, joint approach of problem solving and adaptability of the subcontractor. Moreover, commitment towards completion of the project and on time resource availability enhances the productivity level positively.

- Satisfaction levels of subcontractor are comprised of complete and effective information and drawings from contractor, win-win negotiation and getting prompt payment from contractor. Problem solving or compromising attitude towards negotiation bring its efficiency. However, forcing attitude of contractor generate adversarial relationship as well as develop conflict between the parties.

- Frequent changes in design and project scopes, induce extra work and decline the business competency of contractor. Moreover, these additional works interrupt the flow of work as well as make the subcontractor to claim for advance and extra payment. Furthermore, claims reduce negotiation efficiency.

When the models have been calibrated for the case study projects, the simulated behaviors and historic behaviors have been found similar as long as relevant parameterizations have been undertaken. This implies that the model is able to simulate the dynamics of the trust relationship between contractor and subcontractor. After observing modified models, the following features have been concluded.

Commitment of subcontractor towards resource availability, work competency regarding technical, managerial and financial aspect and adaptability has been observed major barriers to the sufficient productivity. Knowledge sharing between the parties play significant role for information flow. Poor information and variation of honesty have been found as critical issues in permeability aspect. Making claim by searching contractual loophole has been found another problem, which erode trust level between the parties from contractor’s perspective.

Conversely, a forcing attitude toward subcontractors at negotiation and unfair dealing, especially when paying subcontractors, has been identified as being ways of destroying main contractor–subcontractor trust level as well as relationships. Financial stability of the contractor company has significant affect on business competency of the contractor as well as subcontractor’s trust. Moreover, incomplete drawings, frequent changes of design, lack of frequent communication and transparency in relationship have been identified other major attributes in diminishing trust between contractor and subcontractor.

Recommendations for the improvement of the contractors-subcontractors relationship

To encounter above mentioned problems related with trust, the following recommendations are suggested to the contractors and subcontractors to improve their relationships.

1. The contractor should change their contracting process by shifting from ‘‘Price Only’’ single criterion to multiple performance criteria. This criterion facilitates a competitive contracting process, which requires projects to be awarded to the contractor offering the best combination of price and qualifications, instead of just the lowest bid. Conversely, it is also concluded that subcontractor should give considerations in selection of main contractor based on the reputation as well as business competency of the contractor company.

2. The contractor should consider the subcontractors as internal team and manage as a site employee of the construction firm by putting more emphasis on the job training, project safety systems, documentation and evaluation of work ethics and performance, and team building. Alternatively, subcontractor should pay higher concern in achieving these improvement techniques by including more skilled workers and by reducing frequency of worker switching from site to site, and most importantly, by maintaining higher commitment to the project.

3. The most significant recommendation has been made here for integrating subcontractors into partnering approach. Partnering aims to reduce the adversarialism which is said to be typical in the industry and which has confounded previous attempts to encourage better integration and cooperation between contractual partners. It is also consistent with the general philosophy of partnering, in integrating all key participants and inculcating a common sense of project purpose, commitment, teamwork, and problem-solving. This established need for main contractor-subcontractor partnering must therefore be incorporated in the subcontractor selection criteria and reflected in the selection process itself. The needs to incorporate other non-price criteria in selecting subcontractors can also be addressed by drawing on appropriate approaches from innovative and ‘‘better practice’’ contractor selection methodologies that are also scanned in this paper. Examples include the incorporation of (1) indicators of responsiveness, responsibility, and competency; (2) performance ratings derived from previous projects; and (3) capacity ratings of potential participants.

Her thesis abstract is copied and posted.

ABSTRACT

A general mistrust within the contactor and subcontractor companies has identified one of the significant barriers to derive benefits from true downstream supply chain integration, can further lead to the development of adversarial relationships. Moreover, this kind of relationship is reflected in projects delays, adversarial attitudes, cost overruns, litigation and a win-lose climate. Using the general theory of trust in inter-organizational relations and conducting interviews, this research discusses factors that influence development of trust and cooperation in contractor–subcontractor relationships in construction projects. System dynamics is the simulation method is selected in this theory-building effort, based on qualitative data collected from two projects of a construction company in Thailand. Reference mode which leads to the formulation of dynamic hypothesis of trust is drawn by interviewing parties. Explanation of the changes or dynamic hypothesis is done based on the principles of feedback loop. Two generic models from both of contractor’s and subcontractor’s perspective, focusing on the aspects of trust formation, evolution, and propagation is formulated incorporating the dynamic hypothesis along with the other essential detail of the system relating to the problem being addressed. The simulation experiments show plausible path dependent behaviors with the characteristic asymmetries between trust and distrust described both in the literature as in the case data. Performance, permeability, satisfaction and system- based trust are found to make significant contributions toward parties’ trust level. In addition, the result suggests that the contractor’s trust level is more sensitive towards a wider range of action and behavior of their counterpart than vice versa. However, subcontractor’s trust level relies strongly on both of system based trust and permeability of the main contractor. Three strategic policies such as best value contracting, management of subcontractors as internal team and semi project partnering approach are recommended to stimulate the trust factors as well as cooperative long term relationship. The reliability of the findings is augmented by a confirmatory study with interviews with field experts.

Problems Affecting Contractor Cost: A Case Study In Indonesia

Construction is one of the ways doing business. As a financially risky business, construction will have sensitive behaviors towards the market cycle (booming, normal and recession) (Cooke & Williams, 2004). When the market is good the construction industry will rise great profit, however if the crisis comes, it will suffer more than any other industries. This is true because construction business is a capital intensive industry. It requires high up front capital investment to start and run the business. If the market is fierce and the demand is drop than the idle equipment will create waste cost. These will lead to the idea to point out that financial resources management is a key critical system to be installed in the management of a contractor company.

There are many financial problems during construction operation that need to be solved. The first main issues are in the operation point of view. The operation wise problems will address both revenue sides and cost sides because these two sides will determine the profitability from the operation (Fellows, et. al. 1988). The most important function that facilitates construction organizations to accomplish profit maximization is cost control (Charoenngam, 2001). A good construction company needs to know how to secure its timely revenue. A smart client tends to delay payment to safe opportunity cost (Harris and Mc Caffer, 2001).

The second issue which needs to be observed is the financing effect of the either project or head office operation and significantly its equipment procurement (Halpin, 1985). A company will have two sides of financial management these are operation management and equipment management. Operation management falls within short-term financial management. In another hand, equipment management is placed in long term financial arrangement (Ross, et. al. 2005). A company or project that is financed its assets/equipments mainly by its own cash basis will have quite different behaviors from those which borrow from the third parties or even leasing arrangement. This situation will create additional complication. Borrowing creates particular constraints on its operation and cash flow that must be generated to satisfy the money provider. Inadequate cash to pay its obligation will put the company into trouble (Barboza and Pimentel, 2001) and insufficient growth to attract shareholder will make the market company price toward shareholder drop. The exit methods that are common to happen are voluntary insolvency (liquidation), merger (Buehler, 2005), private work out, etc.

From the four big problem groups above, it is required for the contractor to be able to solve financial problems in the project level directly before the problem causing further damage to the company performance. The company needs to identify what kind of cost variances will likely to happen on site, develop the indicator and monitor the project financial performance. The same things also applicable to the company level cost variances solution. If the company fails to manage their short-term finance then what the company should do later on to secure its asset and sustain profitable. If they still can not manage the current financial problems then the contractor probably can suffer from bankruptcy and other solution such as liquidation, private work out will be discussed throughout this research. In summary the company needs to create a systematic decision support system to help them behave and solve its current cost variances before it is going worse and to provide the implication chains of its serious cost variances.

Mr. Ariono Dhanisworo Indra Budhi made a case study which main objective was to explain within a systematic approach, the problems affecting contractor cost which happened in Indonesia. The developed approach can be used by contractor as decision support system, in order to make right decision at the right time to save the shareholder interest. His study objective was subdivided into several sub-objectives to: (1) identify and classify the adverse specific problems arisen during construction period affecting contractor cost, (2) investigate the cause and implication of identified specific problems, (3) make recommendation on how to reduce the effect of the problems on contractors finance; and (4) derive model of explanatory critical parameters leading to cost variances.

CONCLUSION & RECOMMENDATION

Based on the data analysis, the major problems affecting cost variances with the general effect in Indonesian contractors are summarized in the table below.



As not all problems can be treated the same way, the solutions and preventive actions are developed from previous grouped unit of analysis.

His thesis abstract is copied and posted.

ABSRACT

As Indonesian contractors perform their business day to day they are subjected to hidden problems affecting their cost. Therefore the main goal of this research is to explain and explore the source cost during construction period specific to Indonesian contractors. The research is conducted with qualitative method: a case study from 6 companies as sample.
The research result is that the identified problems are not controlled by the contractor. These problems are hurdle escalation claim, bad intention change order, un-match between BOQ and drawing, and loss from government auditor volume re-measurement. The other problems are happened in finance department including interest rate increment, tax restitution problem, double taxation for interest income, late payment without interest rate compensation and promissory note problem. Serious identified crisis are also happened in legal department: client doesn’t pay on time, foreign design hidden error, fail claim to insurance company under CAR policy and permit to build a building without official written evidence from government. These cost harms need to be managed and controlled in integrated corporate management system to avoid unnecessary sub optimization.

Keywords: integrated cost; contractor; Indonesia; escalation; payment; change order; promissory note; design liability; insurance; CAR.

Consistency Of Safety Management System Implementation: A System Dynamics Approach

Site safety issues have always been a significant concern in the industrial world. As in any other industry, the construction industry also has a deep impact because of accidents. Accidents do have greater impact on human life and health but besides these, there are several other issues affected by an accident in a working area. Site accidents can have serious effect on the company’s position and reputation in the extremely competitive construction marketplace due to the direct impact on the company’s business.

Different researchers have attempted to identify the factors attributable to a successful construction project. It was obviously seen that, in the components of project management factors, safety management or safety program is one of complementary factors contributing to a project success.

There are several questions and concern that every policy maker trying to focus on safety matters in a company. The basic drawback of the policy maker is that they always search for the defect in their policy rather than evaluating the working environment and conditions under which it had been adopted. It should be noticed that the policy that has been effective 10 years back may not produce the same result today. Also the policy that has successful in one region may not bear the same outcome in the other. The effectiveness of policy depends not only in the content of policy itself but also on factors like time, working culture, hierarchical need, human attitude, behavior etc.

Throughout the entire construction projects life starting from the design phase to the very end of execution phase, numerous project management actions are deployed in terms of planning, scheduling, quality assurance and communication system (Chan et. al, 2004). Action involving safety issues is also a basic process included in order to execute the project safely. This is because a major accident during execution phase can leads to many problems for company.

As a result, many companies have established own safety program for preventing the occurrence of accidents, as they have recognized the potential impacts of accidents and their impacts in the longer run. But do they ever review “What are the impacts of such safety program”, “Are these safety programs consistent or are they being followed with great care” or in other words whether the program positively or negatively affected their execution or is there any consistency in their Safety Management System Implementation. National Occupational Health & Safety Commission (NOHSC) has stated that most of companies have traditionally focused only on outcome measures of performance, for example, the accident records.

Therefore, Mr. Niraj Baidya made a study to review the actual position which main aspect is that, under their safety program, do they know these:

1. Whether the root causes of accidents still exist or were eliminated.
2. Whether the safety program implemented is effective or not.
3. Whether project participants are satisfied with the program.
4. How consistency they are in terms of their Safety Management System Implementation

This study primarily aimed to investigate the Consistency of Safety Management System Implementation using the System Dynamics Approach under safety operation of Case Study Company i.e. Bovis Lend Lease (Thailand) Limited. The main objectives of the study were to: (1) identify the endogenous and extraneous factors which affect safety performance; and (2) develop a system dynamics model to explain how the factors affect the safety performance

Conclusion
This research investigated the impact of various components on the site condition in terms of unsafe act and condition in the various Bovis projects. The objective of this modeling exercise was firstly to understand the mechanism of various endogenous and exogenous factors affecting the safety performance of various Bovis projects and develop a system dynamics model to explain how the factors affect the safety performance and secondly to identify the general guidelines for policy formulation. Budget, attitude and behavior, BLL employee commitment, BLL employee understanding, BLL supervision, equipment on hand, knowledge, pre contractual communication, safety practice, safety training, subcontractor supervision, subcontractor understanding, top management commitment, understanding BLL requirement, and worker understanding are the primary focused variables. Going into details of each factors helps to give a clear picture of the problem existing in the site. These are the key factors that have been found during generic model formulation. However, these issues are further influenced by several factors which have been explained briefly as follows:

1. Unsafe site condition is positively influenced by the work speed, uncertainties and the skilled fraction in the project. Complexity of project and weather influenced the uncertainties whereas the total number of workers and skilled workers generates skilled fraction. Unsafe condition causes accident generation, thus affecting the progress rate. Progress rate results the increment of schedule pressure and thus increasing the work speed.
2. Understanding of worker, subcontractor and BLL staff directly affected by the knowledge flow gained from the safety training. With the improvement of understanding, supervision and commitment level of the different parties enhances, thus affecting the attitude and behavior or workers and improve the site condition.
3. Subcontractor safety understanding, experience working with BLL and BLL work system comprising of pre contractual document, safety practice and coordination positively affects the subcontractor understanding of BLL safety requirement. In addition to subcontractor understanding, intention of subcontractor affects the subcontractor budget allocation and safety expenses.
4. Complexity of project, client and the desired goal of safety condition implemented by the BLL management influence the budget allocation.

A dynamic simulation model representing the perceived mode was built using the system dynamic methodology. Simulation describes the current behavior and the inferred future. Site condition is measured in terms of unsafe act, condition and accident record of the project. The model structure is based on the literature reviews and the information gathered from the interview conducted with the different parties namely Bovis Project team, subcontractors and the workers involved in the project site.
Sensitivity test indicate the potential parameters for behavioral improvement. The model was applied to the investigation for various components affecting the safety performance. Real life practices were explored to make practically possible changes in the sensitive parameters. Three policies in order to improve the safety training and knowledge flow, Proactive subcontractor awareness and improving supervision were presented in the model for an improved and safe site condition. The implementation methodology of the derived policies was also described in a reasonable detail.

Recommendation
To enhance the project site condition, the following recommendations are suggested:
1. To develop a Proactive Awareness to Subcontractor. BLL should not only to provide the written documents and formal meeting but also arrange some kind of workshop where the sub contractor are provided with training and demonstration about all the safety need so that they have thorough with the Bovis safety requirement before the commencement of the work.

2. Supervision is a critical process for maintaining proper site condition. Thus BLL should provide sufficient training and information to all supervisors. They could also provide a specialist supervisor in the site. Providing a supervisor who is specialist to his work increases the effectiveness of supervision on the site by. Having a specialist leads to not only proper quality of work, but the attitude and behavior of workers to quality and safety increases.

3. Training is the most common method of responding to employee’s performance deficiencies. BLL should make their training program more effective by providing focused group training, survey based training and interactive training. For the focused training, workers should be divided into groups based on their skill and scope of work. The training program content and method of presentation should reflect the needs and characteristics of the work force. Safety program should also comprise of evaluation procedure to determine its effective and to provide feedback for future improvement.

His thesis abstract is copied and posted

ABSTRACT

The construction industry is notorious for its poor safety record when compared with other industries. The major causes of accidents have been identified, and can be directly attributed to unsafe design and site practices. Accidents arise from different causes that can generally be classified as physical incidents posing hazardous situations, and behavioral incidents caused by unsafe acts. These studies is concerned with understanding the mechanism of various endogenous and exogenous factors affecting the safety performance in terms of unsafe act and condition of various Bovis projects from different prospective of BLL employees, Subcontractors and workers. Based on the factors, an applicable simulation model was built using the system dynamic methodology. The model was calibrated to investigate its dynamic problem to explain how the factors affect the safety performance and to formulate and evaluate the practical policies to improve the performances. In order to considerably improve performance and to be able to adapt to different scenarios, four integrated policies combining the individual policies having the most potential were evaluated. The results reveals that Developing a Safety Culture, Effective and Focused Training Program, Proactive Awareness to Subcontractor and Specialist Supervisor are the most effective policies for improving the exiting safe site condition.

A Study Of Safety Budgeting Process In Thai Construction Projects

Most incidents in the construction industry are caused by human act more than improper conditions. Heinrich (1920), who studied accidents in industrial, mentioned that there are three main causes of accidents. First, 88% are human causes, 10% are mechanical failures or improper conditions, and acts of God are 2%. In order to reduce the accident, construction companies have to emphasis on safety programs which relate to human act more than the working condition.

The Social Security Office in Thailand has classified the construction industry at the high risk of accident. In order to avoid accidents, construction companies have to allocate some budget to manage site safety. Since this safety budget will be a part of the total bidding price, contractors must be able to estimate the budget for a competitive bidding price. Otherwise, the contractor might not be able to get the project.

In the competitive construction environment, the essence of estimating safety budget is emphasized not only preventing accidents, but also minimizing the total cost and time of project. There are three exiting methods in order to estimate safety budget. Firstly, estimate by using optimal cost of safety, this method try to find the optimal cost between accident costs and investment costs of safety. According to Son et al. (2000) and Tang et al. (1997), the optimization of safety cost in construction is proposed. They collected accident costs and safety investment costs from the companies and studied the relationship in order to find the optimal cost of safety. Second method, estimating by manual calculation, the lists of all safety requirements in design state will be calculated into cost. Third method, estimate by using percentage of safety budget from the total budget. Unfortunately, each method of safety budget estimation has its own limitation and not applicable for all types of construction project. It is still skeptical and questionable why different project has a different safety budget.

In Thai construction industry, base on an interview with several construction companies, most of safety budget in local construction companies was estimated by two approaches: experience of estimator and requirement of owner. In case of estimating safety budget by the estimator’s experience, a problem mostly occurring was inadequacy of safety budget during construction stage. They had to use another cost item as a budget for safety work. For some of international construction companies, on the other hand, they estimate safety budget in percentage of total budget. Therefore, the project’s safety budget exceeds the actual cost can be happened. Both of methods are unreliable and not systematic. Clearly, there is currently no competency and reliable systems for estimating of safety budget.

Mr. Siwachon Limpakornkul made a study which main objective is to investigate the safety budgeting processes in building construction projects. In order to achieve the main objective, his study sub-objectives were to (1) identify the process of safety budgeting; (2) identify problems occurring in the existing safety budgeting practice; (3) identify the factors that affect safety budget; and (4) recommend a better safety budgeting mechanism.

Conclusions

Nowadays, Thai construction companies pay attention in safety construction more than the past. Because the development of construction industrial changes from developing to developed country, the contractor must improve their quality of work in order to qualify for ISO. The safety management system is one of the systems that need a number of improvements especially in the context of developing country like Thailand. Some of the companies lack of understanding the safety management and thus perceive safety cost as a necessary evil as well as a fortune. The way capable of changing their perception is to promote the knowledge of safety such as in term of costs. The safety cost is the main focus in this research. The purpose is to give an idea that the safety cost or the safety investment is not a useless cost when compared with the accident cost.

The weakness of the current bidding system is that a contractor who bids a project with minimum price will get the project. This system will have an impact to the safety budget and the safety program approach to be included in the project and thus generate the occurrence of an accident. This research aims to identify the safety items and study the estimating process of safety budget and to find out the factor affecting the safety budget by interviewing several respondents in Thai construction companies and making a summarization into four case studies.

The data collection requires a lot of cooperation from the companies and some of the companies did not wish to support or attend an interview or did not cooperate with the academic approach. Only the companies that realize the importance of academic research have paid attention in the study and thus allow for data collection. These included 8 companies and 20 respondents in data collection. The framework of this research was thus generated and concluded into safety budget life cycle including planning, budgeting, and monitoring state. In the addition, the estimation processing on safety budget, the development of safety budget and calculation, affecting factors on safety budget, problems of safety budget and monitoring safety budget would be explained.

The process of safety budget
Normally, most of the investigated companies divided their business operations into two parts; head office and site operation units. The major goal of the head office is to get the project from project’s bidding or direct hired. The major goal of site operation is to operate the project within time, cost, quality, and safety. The project manger is the person who has the highest authority in the project. The safety budget is one of duties that the project manager has to handle. The estimation of safety budget can be concluded into three methods; manually calculation safety items or unit price, using lump sum cost, and percentage. The arrangement of safety items were organized by each of the companies. Safety budget in views of most of the companies includes PPE, safety programs, safety items which used only for safety. However, there were still such safety items that were hidden in main construction items or direct cost.

The problems occur in the existing safety budgeting practice
According to the data analysis, most of the contractors had the same problems on safety budget. The main problem was safety budget overrun. It was evident that most of them estimated safety budget by using their experience with lack of a systematic calculation. In addition, they were not able to identify the safety items clearly in the safety budget which includes: cost of PPE, safety programs, and supportive items for safety.

The factors that affect safety budget
The factors affecting the safety budget of the company were divided into two groups. The first group of factors was identified by the contractors who has clearly separated safety budget from the total budget and has been monitoring safety budget during construction. These factors included type of project, safety programs approach, number of workers, subcontractors, worker’s experience, and type of owner. On the other hand, several factors were also identified by the contractors who were not clearly separate safety budget from the total budget and lacked of monitoring the safety budget including location of project, market condition, consultant, total budget, and project duration.

Recommendation
The four stages recommendation was given in order to improve the existing process of safety budget for Thai construction contractors.

First is a planning stage, the project manager must involve in every project in order to select the suitable safety items and prepare the safety programs to a particular project.

Second is a budgeting stage, this aims to group the safety items into one group of safety budget. There are six accounts related to safety items; small tools, safety materials, wage & OT, subcontractor, rent, and special items.

Third is a monitoring safety budget by reporting every month.

Final stage is recording the actual cost of safety budget into a database. The database can be such intelligent system when input the information. This system should be able to predict the future safety budget and current safety cost expended.

His thesis abstract is copied and posted.

ABSTRACT

The safety cost is one major element of the total cost that a construction company has to control as it can cause the construction organization to have a loss or accomplishment the goal of profit. Because of the problems on a lack of understanding of safety management as well as a lack of allocating safety budget management, Thai contractors have encountered with such accidents in the job site. To overcome these problems, studying the exiting safety budget process and the requirements for achieving such effective system were conducted. Besides, factors affecting safety budget, problem of safety budget, and monitoring of safety budget were also identified in this study. This study assessed four case studies from different contractors (i.e. foreigner international contractor, Thai international contractors, and local contractor). Data from Thai construction companies which have experience in high-rised building was collected by in-depth interview technique. It was found that each of the companies has different perception on factors affecting safety budget, depending on the company’s safety budget process. Most of the companies were struggling to the problems on inability to control their safety budget due to the ambiguous calculation of safety budget as well as the difficulty in predicting the safety items before construction. Moreover, Thai construction regulations were too weak to force the contractor to emphasize more on safety. This study, thus, recommended that a safety manager must be involved in establishing a safety budget as well as recognizing the safety items from both indirect and direct costs into one safety budget. After that, monitoring the safety budget from the beginning until the completion of the project must be performed. The actual cost of safety should be recorded into a database. By following these, the safety budget could be more predictable and controllable and the safety performance of the project was believed to be improved as a consequence.