ASSIGNMENT ON

RISK MANAGEMENT AND INSURANCE

(PGPM - 31)

Submitted
To

NATIONAL INSTITUTE OF CONSTRUCTION MANAGEMENT

AND RESEARCH (NICMAR) PUNE.

SCHOOL OF DISTANCE EDUCATION (SODE)

By

Mr. Naveen Jacob

(PGPM)

Reg.no:- 214-11-11-31-12361-2161

ASSIGNMENT

For the successful implementation of a project, it is essential is that persons involved in its
implementation be sensitive to the risk involved in the project and formulate the most suitable
structure for the management of such risks. There are certain variables and uncertainties are common
to most of the infrastructure projects. Many risk mitigation techniques are applied to infrastructure
projects. Discuss in details the risk management in construction with special reference to any project
currently in progress with your company.

SYNOPSIS

Introduction
Risk identification in the project
Types of risk
Risk mitigation
Risk assessment in a project
Scope of the work
Risk assessment sheet
Risk control measures
Conclusion

INTRODUCTION

The project of any industry depends upon the following uncertainties

1.
2.
3.
4.

Time
Money
Manpower and
Resources

Type of Risk Management

Generic

Project Risk Management

Business Risk Management

Safety risk management

Technical risk management

Security risk management

Description
Risk: Any uncertainty that, if it
occurs, would affect one or
more objectives
Project Risk: Any uncertainty
that, if it occurs, would affect
one or more project objectives
Business Risk: Any uncertainty
that, if it occurs, would affect
one or more business objectives

Sample Objectives
-

Time,
cost,
performance,
quality,
scope,
client
satisfaction
Profitability, market share,
competitiveness, internal rate of
return (IRR), reputation, repeat
work, share price.
Safety Risk: Any uncertainty Low accident rate, minimal lost
that, if it occurs, would affect days,
reduced
insurance
one or more project objectives
premiums,
regulatory
compliance.
Technical Risk: Any uncertainty Performance,
functionality,
that, if it occurs, would affect reliability, maintainability
one or more technical objectives
Risk: Any uncertainty that, if it Information security, physical
occurs, would affect one or security,
asset
security,
more security objectives
personnel security.

It is also a key factor to note that as the project value increases, the risk also increases. But as project
duration decreases, the risk also increases. Thus on the successful running for a project, optimum
duration and optimum utilization of the resources are the most important to be considered. Thus risk
minimization is the most key role for project profit maximization by any project manager.
In the present assignment, I have tried to assess the risks involved in the project at which I have
involved in my career. I have also explained the risk mitigation techniques undertaken by us to reduce
the risk in the project.

RISK IDENTIFICATION IN THE PROJECT

Risk identification occurs through each of the two phases of project development:
1. Planning
2. Construction
1. Planning phase
In the planning phase risk is been identified from one of the following methods,
1.1

Brainstorming
It is an effective method. Brainstorming can range from a small informal project team.
Effort for simpler projects to a full-blown CEVP workshop and
Effective brainstorming requires a skilled Facilitator, working together with the project team
and specialists who can bring additional expertise.

1.2 Checklists and/or Questionnaires to specialty groups

Checklists/questionnaires are a quick and easy-to-use technique but limited in nature; they
only deal with the items on the list.
Each project is unique; hence a standard list will often not capture the project specific risks of
most concern.
Nonetheless a checklist/questionnaire can spark thinking prior to a more formal brainstorming
process
1.3 Examination of past similar projects
Lessons learned from past projects help us to avoid repeating mistakes; using past examples
requires prudent and objective judgment, since a previous project may be similar but is
nonetheless different because each new project has unique requirements and features,
including uncertainties and risks
1.4 Combination of above methods and/or others
It is quite likely that for most projects a combination of the above methods will be used to
identify risks. The important thing is that once identified the risks are properly documented
2. Construction Phase
Among the most common risks encountered during the construction of a project by a civil
engineering contractor under a standard type of construction contract, are the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Design errors, quantification errors.

Design changes found necessary, or required by the employer.
Unforeseen physical conditions or artificial obstructions.
Unforeseen price rises in labour, materials or plant.
Theft or damage to the works, or materials and equipment on site.
Weather conditions, including floods or excessive hot weather.
Delay or inability to obtain materials or equipment required.
Inability to get the amount or quality of labour required, or labour strikes.
Errors in pricing by the contractor.

RISK MITIGATION
The following are the ten ways to mitigate risk in construction projects
1. Ensure the adequacy of project funding
2. Obtain more geotechnical information

3.
4.
5.
6.
7.
8.
9.
10.

Conduct constructability reviews

Set realistic contract performance times
Work & rework cost information
Introduced phase pricing
Pre-plans for permits, utilities & zoning
Pre-defined rates, equations & procedures
Use experienced project personnel
Use the contracting process as a risk avoidance measure

The above techniques are the most commonly used to prevent the risk in any project.
Ensure the adequacy of project funding
Certainly, all parties have a legitimate concern that there will be sufficient funds to design and
construct the project. Owners also need protection against the risk of running out of money. such
as that provided by a termination-for-convenience clause that expressly limits or precludes
recovery of anticipated but unearned profits.
Furthermore, owners need to understand, in advance, that changes and cost increases are virtually
inevitable. Accordingly, a reasonable contingency should be incorporated into the budget to deal
with inevitable changes and unexpected omissions.
Obtain more geotechnical information
It should go without saying that the more information a contractor has about subsurface
conditions. The more accurate the bid - and less likely will be claims for differing site conditions.
There is a decided trend toward (1) investing a little more money during project planning and
design for the purpose of obtaining more geotechnical information and (2) making all of the
geotechnical information available to contractors.
Some owners and their counsel will argue that this open disclosure will lead to claims if the
geotechnical Information is wrong. This misses the basic point that if the bid was based on lessthan-complete information, that becomes the bargain.
Accordingly, if the actual underground conditions are worse than the geotechnical information
provided. The owner should pay because, if the contractor had been advised of the more severe
conditions, it certainly would have increased its bid.
Conduct constructability reviews
Contractors sometimes complain that the designs they are required to follow are not constructible
or practical. If this is the case, there may be delays and additional costs incurred in coming up
with alternatives. Even if the design is constructible the owner may have to pay more to get the
same results. By having the plans and specifications reviewed for "constructability" before
contractors bid on them, owners have been able to modify the designs and thereby make
construction easier.
Set realistic contract performance times
If the contract performance time is insufficient. either it will cost more to do By having the plans
and specifications reviewed for "constructability " before contractors bid on them, owners have
been able to modify the designs and thereby make construction easier.

Either scenario is disadvantageous to the owner. Owners are avoiding these problems by obtaining
contractor advice and input on setting a realistic time to allow for construction of a.given project
Work & rework cost information
The owner can require as a contract obligation that the contractor make full disclosure of its cost
estimates for all aspects of the work. i.e . procurement of materials. subcontractors selfperformed work and even overhead and profit. In doing so, the owner and its staff can better
assure themselves that no significant mistakes have been made in pricing .the work and that
allowances and alternatives are reasonable.
Introduced phase pricing
As the design is being developed, each phase of the design can be provided to the contractor for
review, analysis and submission of progressive cost estimates. Obviously contractors may talk at
this intrusion into their pricing domain.
However, in order to win the project, the contractor will be more likely to agree to this process
which in the end will reduce the likelihood for cost-overrun claims.
Pre-plans for permits, utilities & zoning Given the various regulatory requirements that have to be
complied with in the course of designing and constructing a project, it is obvious that, if these
requirements are not known and considered in advance delays will result.
To avoid this astute owners and their engineers are now beginning to specifically identify
permitting requirements in advance of bidding and signing the contracts
Pre-defined rates, equations & procedures
In order to eliminate many issues from the contract administration phase, smart owners will
specify clear and accurate formulae or methods to predetermine values for disputable items.
Home office overhead rates, although subject to wide variation within the industry, can be preset
and a contract generally accepted manual for determining the equipment rates to be used in,
pricing change orders.
It is equally important for the contract to contain very clear provisions with respect to how change
orders will be processed and what information should be included in a request for change orders.
The same is true for farceaceount provisions; which would enable the contractor to be paid on a
timely is for disputed work, pending negotiation of a change order modification. Also give some
consideration to including as a unit price. A per diem value for extended project time.
In the event of an owner-caused delay.this value could be included in any cbange order carrying
with it entitlement to an extension of time.
Use experienced project personnel
No matter how enlightened the management and allocation of risk .the project personnel (i.e..
people) will still have to design. Build and adminiSter the project, Experience counts, particularly
for big projects With a construction boom underway. Design and construction firms are often
maxed out in terms of experienced project managers and superintendents. Notwithstanding this
reality. no design flrm or contractor wants to lose a good job.

Consequently, many projects are being led and managed by inadequately trained and
inexperienced personnel. which inevitably leads to problems. claims. disputes and terminations.
No owner, who has the leverage in a megaproject to do so. should pass up the opportunity to
investigate the credentials and backgrounds of the key parties' personnel and require, as a matter
of contract, that only experienced project managers and superintendents will run the high-profile
project.
Use the contracting process as a risk avoidance measure
The contract documents are an early opportunity to anticipate. define and deal with potential
issues and thereby avoid disputes.
Essentially. the contracting process is a "what if' exercise, whereby the parties attempt to
determine what may go wrong, what issues may arise between the parties, and the best way to
resolve these challenges, in advance, by informed and enlightened risk allocation. This approach
is of course, the American way of doing things, and at least two downsides to a comprehensive
contract are typically a lengthy document and sometimes lengthy negotiations.

SCOPE OF THE PROJECT

Name of the project

Metro Rail Project Proposal

Location

Mumbai, India

Project definition
:
The Government of India has decided the increase the
infrastructure facility in India, so as to increase economic growth of the nation by increasing the
import & export facility.

Project duration

3765 days

Type of contract

Item rate contract

Project funding

Finance arranged by the Government of India

Design responsibility
Price fluctuation

:
:

Renovation of existing structures needs to be considered

Not allowable

Extension of time

Not permitted

Liquidated damages

2% of the contract value per week of the project

Limit upto 15% of the contract value

Project Summary
The project considered for analysis is the construction of an underground corridor for metro rail
operations in the capital city of an emerging economic nation in South Asia. Phase-I of the project is
about 65 kms with 59 stations. The estimated capital cost of Phase-I is about INR 105 billion. The
project under study for this research work is a part of Phase I. The scope of work is the design and
construction of a 6.6 km underground metro corridor with six underground stations and a twin tunnel
system. The underground stations are referred to as S1, S2,. S6. Here S6 is the terminal station
equipped with an over-run tunnel (where an up train can be converted to a down train). The client is a
public sector company floated jointly by the State and Central Government.
The principal contractor is a Joint Venture (JV) of three foreign contractors and two domestic
contractors. The type of contract is a Design Build Turnkey (DBT) where the principal contractor is
required to design the underground corridor and execute the project. The project cost for the execution
of 6.6 kms is about INR 18 billion. The contract period is about five years (exclusively for execution).
Table 1: Major Activities and their Time Estimates in the Underground
Corridor Construction Project (Terminal Station S6)
Activity
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P

Description
Feasibility Studies
Design
Technology Selection
Traffic Diversion
Utility Diversion
Survey works
Shoulder/King Piles
Timber lagging
Soil Excavation
Rock Excavation
Fabrication and erection of
Fabrication and erection of steel
Rock anchor installation
Shotcreting and rock bolting
Subfloor drainage
Waterproofing
Diaphragm wall construction

Immediate
A
A
B
C
B
D
C
G,F,H
L
C
C
N
L
O
I,K,J,M
C

Duration
1875
29
90
47
31
29
35
24
33
16
17
69
28
12
17
12
14

0
1875
1875
2280
1965
2280
2755
1965
3111
2655
1965
1965
2280
2655
2110
3441
1965

1875
2170
1965
2755
2280
2570
3111
2205
3411
2820
2135
2655
2565
2775
2280
3561
2110

0
1985
1975
2280
1965
2821
2755
2871
3111
3276
2941
2421
3156
2871
2821
3441
2604

1875
2280
1965
2755
2280
3111
3111
3111
3441
3441
3111
3111
3441
2991
2991
3561
2749

Q
Top down construction
O
12
R
Permanent Structure
N
57
S
Mechanical/Electrical
P
22
T
Backfilling & Restoring works
N
22
ES: Early Start, EF: Early Finish, LS: Late Start, LF: Late Finish

2110
2280
35612
2280

2232
2850
3789
2505

2749
2991
3561
3561

2871
3561
3786
3786

METHODOLOGY
Risk Analysis by Expected Value Method (EVM)
Assume a network of deterministic time and cost. We also assume that the critical path model network
has N activities which are indicated by j = (1 N) and there are M risk sources indicated by i
= (1..M). We extend the work of Roetzheim (1988) and Nicholas (2007), and explain, in this
section, the concept of risk analysis by the Expected Value Method (EVM).
Define the variables as follows:

Lij

Likelihood of i th risk source for j th activity

Wij

Weightage of i th risk source for j th activity

Iij

Impact of i th risk source for j th activity

CLFj

Composite Likelihood Factor for j th activity

CIFj

Composite Impact Factor for j th activity

BTEj

Base Time Estimate for j th activity

BCEj

Base Cost Estimate for j th activity

CCj

Corrective Cost for j th activity

CTj

Corrective Time for j th activity

RCj

Risk Cost for j th activity

RTj

Risk Time for j th activity

ECj

Expected Cost for j th activity

ETj

Expected Time for j th activity

Base time estimate (BTE) of the project is the estimated basic project duration determined by critical
path method of the project network. Similarly, the estimated basic cost of project determined by the
cost for each activity is termed as the base cost estimate (BCE). The BTE and BCE data of all the
major activities of the project have been obtained as per the detailed construction drawings, method
statement and specifications for the works collected from the project. The corresponding corrective
time (CT) or the time required correcting an activity in case of a failure due to one or more risk
sources for each activity and their corresponding corrective cost (CC) have been estimated based on
the personal experiences and have been tabulated. An activity may have several risk sources each
having its own likelihood of occurrence. The value of likelihood should range between 0 through 1.
The likelihood of failure (Lij) defined above, of the identified risk sources of each activity were
obtained through a questionnaire s u r v e y . The target respondents were experts and professionals
involved in and associated with the project under analysis and also other similar projects. The
corresponding weightage (Wij) of each activity has also been obtained from the feedback of the
questionnaire survey circulated among experts. The summation of the weightages should be equal to
1.
M
Wij = 1 for all j ( j = 1 . N) . (1)
i1
The weightages can be based on local priority (LP) where the weightages of all the sub- activities of a
particular activity equal 1. Also, weightages can be based on global priority (GP) where the
weightages of all the activities of the project equal 1. The mean of all the responses should desirably
be considered for analysis. Inconsistent responses can be modified using a second round questionnaire

survey using the Delphi technique. The next step is to compute the risk cost (RC) and risk time (RT)
of the activities of the project. RC and RT for an activity can be obtained from the following
relationship:
Risk Cost for activity j (RC)j = (CC)j x Lj for all j. (2)
Risk Time for activity j (RT)j = (CT)j x Lj for all j (3)
The total risk time for an activity is the summation of the risk time of all the sub activities along the
critical path.
The likelihood (Lij) of all risk sources for each activity j can be combined and expressed as a single
composite likelihood factor (CLF)j. The weightages (Wij) of the risk sources of the activities are
multiplied with their respective likelihoods to obtain the CLF for the activity.
The impact of a risk can be expressed in terms of the effect caused by the risk to the time and cost of
an activity. This time impact and cost impact can be considered as the risk time and risk cost of the
activity. A similar computation as that of likelihood can be done for obtaining a single combined
composite impact factor (CIF) by considering the weighted average as per the relationship given
below:
M
Composite Impact Factor (CIF)j = Iij Wij (5)
i1
M
0 Iij 1 and Wij = 1 for all j.
i1
Risk consequence or severity can be expressed as a function of risk likelihood and risk impact. Thus
the numerical value will range from 0 to 1. This severity can also be expressed in terms of qualitative
rating as no severity for value 0 and extremely high severity for value 1. The numerical value of
the Risk Severity (RS) is obtained from the below mentioned relationship:
Risk Consequence / Severity (RS)j = Lj x Ij for all j .. (6)
The risk consequence derived from this equation measures how serious the risk is to project
performance. Small values represent unimportant risks that might be ignored and large values
represent important risks that need to be treated.
The expected cost (EC)j and expected time (ET)j for each project activity and subsequently the
computation of the expected project cost and time was carried out from the concept of the expected
value (EV) of a decision tree analysis.
Expected value (EV) = probability of occurrence (p) [higher payoff] + (1-p) [lower payoff].
Expected Cost (EC)j = Lj (BCEj + CCj) + (1-Lj)
BCEj = BCEj + CCj (Lj)

= BCEj + RCj for all j. .. (7)

Expected Time (ET)j = Lj (BTEj + CTj) + (1-Lj) BTEj
= BTEj + CTj (Lj) = BTEj + RTjfor all j. . (8)
CASE ANALYSIS
The sample stretch under analysis consists of a 530 metre(m) cut and cover tunnel connecting station
S5 and S6, a 290m S6 station box and a 180m cut and cover over run tunnel adjoining the S6 station
box. S6 station being the terminal station, the down trains towards this station after leaving station S5
will travel through the 530m cut and cover tunnel and enter the platforms of the terminal station S6.
After the commuters vacate the train at this terminal station, this down train will travel through the
180m over run tunnel and will be converted into an up line train which will travel from station S6 to
S1.
The activities of the sample stretch under analysis consist of the installation and erection of temporary
supporting and retaining structures to enable construction by cut and cover technology and for the
construction of permanent structures like tunnels and station boxes which are RCC single boxes / twin
boxes for tunnels and RCC boxes with intermediate concourse slab for station boxes.
We have considered some basic assumptions during the analysis. These assumptions are (i) the
maximum cost overrun permissible is 25 % of the basic cost estimate beyond which the project
becomes less feasible and (ii) the maximum permissible time overrun for infrastructure projects is
about 30% of the base time estimate, beyond which the feasibility of the project reduces.
Table 2: Identification and Classification of Risks Involved in the Project
Sr.
No.

Risk Classification Nomenclature

Risk Description

FPR
PEPR1
PEPR2
EPR1
EPR2
EPR3
EPR4
EPR5
EPR6
EPR7
EPR8
EPR9
EPR10
EPR11
EPR12
EPR13
EPR14
EPR15
EPR16
EPR17
EPR18

Feasibility Project Risk

Pre execution Project Risk Design Risks
Pre execution Project Risk Technology Risks
Execution Project Risk Risks in traffic
Risks in utility diversion works
Risks in survey works
Risks in soldier piling and king piling works
Risks in timber lagging works.
Risks in soil excavation works
Risks in rock excavation works
Risks in installation of construction decks
Risks in installation of steel struts