Owner’s Risk Management for Civil Construction Projects in Vietnam

Construction is one of the riskiest industries compared to others. Risk in construction often causes time and cost overrun. As a result, the projects were delayed or exceeded the estimated budget, behind the schedule. Moreover, risk can affect productivity, performance, quality and the budget of a project.

Nowadays, risk management is considered as one of the most important factors of decision making of every business as well as the construction industry. As construction projects are becoming more and more complex, dynamic, they are bared to more risks and uncertainties. Hence, effective risk management has become one of the key problems that deal with the industry.

Vietnam is now on its way of modernization, industrialization and trying to integrate with the world economy. Industries are faced many kinds of risks due to the continuous changes in social and economic condition. Therefore, construction industry is not only provided many opportunities, many chances but also many risks, uncertainties and threats.

In construction projects, many parties are involved such as owner, consultant, contractor, sub-contractor, and supplier etc. Each party has its own risks. There are some researches about the contractors’ risk in Vietnam’s construction industry. Consequently, it is significant to have a research about the risks that owners have to face in their financial investment in construction projects and the way they managed their risks as well as how to control construction risks smoothly because they are one of the most important parties that are involved in the projects from the beginning until completion and afterwards.

Based on the necessity for improving and escalating the owner’s risk management in construction projects mentioned in the statement of the problems, Mr. Nguyen Thanh Huy made a study intended to achieve the following objectives:

1. To determine, rank, classify risks facing owners in civil construction projects in Vietnam from the view of frequency of occurrence and degree of impact.
2. To determine the difficulties in applying risk management in civil construction projects.
3. To investigate how risk management is practiced by project owners in civil construction projects in Vietnam.
4. To give recommendations for improving risk management in practice.

General conclusions

This study focuses on the risks and risk management in the owner’s perspective in civil construction projects in Vietnam. It seems to be beneficial to owners in civil construction projects. In this research, the survey questionnaires were used to get the ideas of respondents about the listed risks in terms of frequency of occurrence and degree of impact. Moreover, a case study was conducted in two subjective chosen public entities in order to determine the level of risk management in practice by owners.

Major risk factors affected owners in civil construction projects in Vietnam

The mean values are carried out to determine and rank the risks in terms of frequency of occurrence and degree of impact. The top twenty risks in terms of frequency of occurrence and degree of impact are determined.

The top twenty risks which have high frequency of occurrence are: (1) Long procedure for approval and permits; (2) Unable to finish work on time; (3) Contractor takes jobs in several projects; (4) Design changes; (5) Corruptible government officials; (6) Late internal approval process from the owner; (7) Frequent changes in law; (8) Incomplete design scope; (9) Improper project feasibility study; (10) Increase of resettlement cost; (11) Improper project planning and budgeting; (12) Ineffectiveness and lack of supervision of consultants; (13) Inadequate or ambiguous specifications; (14) Lack of funds to proceed with work; (15) Delays in approval; (16) Inadequate tendering price; (17) Lack of knowledge and experience on construction; (18) Increase of material cost; (19) Impractical planning and scheduling; (20) Communication and coordination problems.

The top twenty risks which have high degree of impact are: (1) Inefficient and poor performance of contractors; (2) Lack of knowledge and experience on construction; (3) Long procedure for approval and permits; (4) Improper project planning and budgeting; (5) Ambiguous clauses of contract; (6) Shortage of experienced and skillful workmanship; (7) Poor design; (8) Poor quality of procured materials; (9) Unable to finish work on time; (10) Inadequate or ambiguous specifications; (11) Lack of funds to proceed with work; (12) Design changes; (13) Impractical planning and scheduling; (14) Inadequate tendering price; (15) Improper project feasibility study; (16) Ineffectiveness and lack of supervision of consultants; (17) Low quality of work; (18) Dispute with residents around site; (19) Incompetence of project team; (20) Late internal approval process from the owner.

The four risks which have high ranks in both frequency of occurrence and degree of impact are: “Long procedure for approval and permits”, “Unable to finish work on time”, “Design changes” and “Contractor takes jobs in several projects”

Moreover, factor analysis is used to test the interrelations among top twenty highly ranked risk events in terms of degree of occurrence. These risks could be grouped into five factors with most significance. They are: (1) Incompetent consultant/designer/project owner, (2) Social issues, (3) Contractor issues, (4) Approval issues, and (5) Improper feasibility study.
Hypothesis testing also pointed out that perceptions towards risk events were not dependent upon the level of experience and the size of public entities. One of the reasons explains these results: within 5-7 years until now, project management is considered one of the most important parts in project. Therefore, people are more and more interested in this. Many young engineers have the conditions to be trained their knowledge of project management as well as risk management. As a matter of fact, even without having much work experience yet, they still can have nearly the same perceptions towards risk events as those experienced ones. Moreover, even there is a difference in size of organization, but both of large and small entities are state-owned corporations and use the government budget, have the same policy about budget usage. Therefore, it is not surprising that both of them have the same awareness about risk events.

Major difficulties during risk management implementation
Risk management is relatively a new area in project management in Vietnam. Hence, the people who carry it out in projects face many difficulties. During this research, some difficulties that owners face when they apply risk management in their projects were determined. They are: (1) Lack of qualified experts, (2) Lack of historical data, (3) Poor communication among responsible people and (4) Unfamiliarity with tools and techniques. These finding difficulties seem to be important because it provide useful experiences for other companies who intend to apply risk management in their business.

The practice of risk management by owners in civil construction projects in Vietnam
By interviewing respondents in both the two public entities (large public entity and small public entity), risk management in practice by owners are investigated. There are some main points about risk management in practice in the two public entities.

- Regarding to risk management planning, there are some remarkable points to ponder. Risk management planning is considered most important and significant step in risk management. However, there is no policy, procedure, specific department or people assigned to manage risk in both public entities. Experience is considered the important factor to face risks. In the LPE, project documents, project budget, project size and project scope are most frequently used while in the SPE, project documents and project budget are most popularly used for risk management planning.

- Related to risk identification: The Risk identification in the LPE is better than in the SPE. Project management team, board of directors, contractors, consultants and external experts are involved in risk identification in LPE while in SPE, management team, board of director and consultant are involved. The approval project profiles, project budget, time schedule, project output, some government policies towards those projects, policies of lenders or law, experience from past projects, all information related to projects are inputs for risk identification in both entities. In terms of tools used, project document review, risk checklist, brainstorming are most frequently used techniques while fish-bone diagram and influence diagram are seldom employed. In general, risk identification is quite well performed.

- Risk analysis: Qualitative and quantitative risk analysis is used simultaneously by interviewees in both entities. In terms of qualitative analysis, ‘external consultations’ is the most frequently used method by both entities. Moreover, in terms of quantitative analysis, ‘interviewing’ and ‘expected monetary value’ are most frequently used tools by most interviewees. In contrast, ‘simulation’ and ‘sensitivity analysis’ are least frequently used tools. Nevertheless, there is no specific risk management software used by both entities.

- ‘Sharing based on agreement’ can be considered the most frequently used strategy by owners to allocate risks between them and contractors in risk response. In both entities, all five strategies to cope with risks are used frequently. Furthermore, ‘risk transfer’ is most frequently used and most effective strategy. While ‘risk retention’ is the least frequently used and effective strategy. Noticeably, contract management is well done in both entities.

- Risk monitoring and control, ‘Technical performance measurement’ is the most frequently used and effective procedure in the LPE and second most frequently used and effective procedure in the SPE. ‘Additional risk response planning’ is also the second most utilized tool in the LPE but it is least frequently used in the SPE. However, most respondents agreed that risk monitoring and control in their entities is not effective.

Generally, ‘risk management planning’ and ‘risk identification’ are best carried out while ‘risk analysis’ and ‘risk response’ are poorly done in SPE. But in LPE, ‘risk management planning’ and ‘risk identification’ are best carried out in their entities while other processes are poorly done. Most respondents evaluated the current risk management in their entity also in the medium level. In addition, it is noticeable that in both entities there is no formalized framework, procedure and system for risk management. Moreover, there is also no person or department assigned to manage risks. The practitioners depend on their experiences from past projects to handle risks.

Recommendation

Risk management is considered a new field applied in project management in Vietnam. Therefore, it is still not paid much attention. Based on the case study about the practice of risk management in Vietnam, risk management is poorly applied in projects. Moreover, most entities don’t have the policy, procedure or systematic risk management. Furthermore, they do not assign professionals or department for managing risks. Hence, as compared to other developing or developed countries, in Vietnam, risk management is simply carried out and doesn’t have much effect. Consequently, the author would like to suggest some recommendations in order to improve the current situation. They are as follows:

First, corporation should set up framework, policy or system for risk management. It is essential to apply risk management in every type or scale of projects in corporation.

Second, it is necessary for corporations to assign risk experts or department to take care of risk management in projects.

Third, corporation had better have periodic risk training program for its employees and purchase some software for risk management. Therefore, they can recognize the benefits of risk management and also know how to handle risk management in their projects.

Fourth, it is required to have top management commitment or support in risk management. It is better to allocate some budget or contingency for risk management.

Last but not the least, the government should set up standard, policy or framework for project management that include risk management. Relatively, the government also needs to enforce risk management as a requirement in each project (prior to approving project).

His thesis abstract is copied and posted.

Abstract

Risk and uncertainty are inherent in all construction works irrespective of size, complexity, location, or even the speed of construction. For years the construction industry has had a very poor reputation for coping with risk, with many major projects failing to meet deadlines and cost targets. Both clients and contractors have suffered as a result of this. Nevertheless, like many other developing countries, Vietnam has encountered many problems that caused negative impacts on many construction projects. One of them is the lack of systematic risk management. Consequently, an assessment of present risk management practiced in civil construction projects may be useful to those involved as well as to improve this system in the future.

This research focuses on the identification of major risk factors that owners often face in civil construction projects. A questionnaire survey involving sixty seven engineers from owner organization was designed and executed. The perceptions about the influence of experience and companies’ size levels towards risk events are tested. Moreover, the research identified major difficulties that owners often face when they apply risk management on projects. In addition, in this research, the case study about the application of risk management in practice was conducted by interviewing the respondents in two chosen public entities (one large public entity and one small public entity). The above main points are useful because they can serve as lessons learned for the companies which are going to implement or improve risk management.

The key risk factors identified are: (1) Incompetent consultant/designer/project owner, (2) Social issues, (3) Contractor issues, (4) Approval issues, and (5) Improper feasibility study. Major difficulties that owners faced with when they applied risk management in practice are: (1) Lack of qualified experts, this is the main obstacle thoroughly appearing in many main processes in risk management cycle, (2) Lack of historical data, (3) Poor communication among responsible people and (4) Unfamiliarity with tools and techniques. Hypothesis testing also pointed out that perceptions towards risk events were not dependent upon the level of experience and the size of companies. Furthermore, by conducting the case study, the application of risk management in practice was only evaluated at the medium level. Additionally, it is noticeable that in both entities there is no formalized framework, procedure and system for risk management. Moreover, there is also no person or department assigned to manage risks. The practitioners depend on their experiences from past projects to handle risks.