Definition of Risk
Risks, in general parlance, are comprehended as a loss. It refers to the affirmative or the negative divergence of a variable for its expected value. It is imperative for any business owner to understand and foresee the risks that are associated with the business to change such risks into chances. Every organization must adopt risk management process to avert any losses and make use of the chances that are available or rather use the chances that may arise from the risks associated with the business. A risk management process requires the person who is taking action to have a precise consideration and careful assessment of the scenarios and situation that may likely take place in the future. This procedure enables the management of any business organization to recognize the potential risks and dealing with the risks by reducing, avoiding or evading the negative impact of such risks (Sousa, Almeida and Dias 2014).
In the given scenario, in order to prepare a good and efficient plan, it has been divided into two categories:
- Pre-construction Stage
- Construction Stage
The scope of the Pre-Construction stage includes documentation preparation requiring permission and approval of the documents. Time schedules and frames for all the work related activities; experienced staffs and a safe working environment. The scope of the Construction Stage includes the manner of the construction; maintenance of safe and healthy environment and the completion of the construction within the allotted time.
Risk identification is one of the most critical procedures in the risk management process. If the risks associated with the business is not identified then it would become difficult for the business organization to reduce or mitigate such risks (Aminbakhsh, Gunduz and Sonmez 2013). The identification of risks is essential to risk management, as an unidentified risk cannot be treated in a rational manner. The risks associated with construction business derive from various sources such as construction delays, cash flow situation of the contractor, quality, availability and cost of labor; responsiveness of the subcontractor and other external influences.
Inherent risks are the consequences of the unpredictable nature of the construction industry (Taroun 2014). The inherent risks that may arise from both the pre-construction and construction phase include risks related to the following:
- Construction plan
- Statutory Regulations
- Project schedule
Construction- the contractor is responsible for any risks that are associated with the construction plan. When the engineer makes a layout of the construction plan and architecture mention specifications that are to be maintained while constructing the project, the decisions relating to the methods of construction are left to the contractor (Zhou, Goh and Li 2015). Therefore, the ethical dilemma that may arise is that the contractor is required to act according to the plan and in good faith. The construction plan is the foundation of completing the project; hence, in the event the contractor is unable to mitigate or reduce the risks associated with the plan or purposely avoids the risks, it would affect the construction of the project.
Workers- the contractor is mostly accountable for the risks associated with workers engaged in the construction project. The contractors must maintain an effective collective bargaining system while bargaining with the workers regarding their wage rate and working conditions. The contractor must also ensure that the workers are skilled and are well experienced with the nature of work for which they are hired (Serpella et al. 2014). The inherent ethical dilemma related to the workers may be the profit-making mind of the contractor who would pay low wages to th workers and is only concerned with getting the work done may give rise to disruption, strikes, work stoppages on the part of the workers.
The workers may cause disruption with respect to the satisfactory progress of a construction project. The workers may also go on strikes or demand work stoppage due to unsatisfactory negation with the contractor during the collective bargaining process and the negligence of the contractor towards the health and safety of the workers. Under such circumstances, the contractor is required to resolve the issues wisely and peacefully and ensure health and safety of the labors.
Engineering- While developing a construction project, the engineer is required to exercise a reasonable standard of care. The engineer is required to exercise due care and diligence while working on the construction project. He must exhibit his skills while analyzing any deficiency in the construction plan, rectify the same, and exercise the standard of care and diligence that is expected of him under such circumstances. The ethical issue associated with the engineering of the construction project may rise from the fact that the engineer is entitled to a relatively small financial share of a project; the liability of an engineer is unlimited. The engineer may be involved in any form of professional malpractices Therefore, in the best interest of the project efficiency and the participants of the project; owner must ensure protection to them and may plan for some mutual indemnification for the participants.
Statutory regulations- the ethical issues associated with pre-construction and construction phase may include non-compliance of the statutory codes and regulations. The engineer is best able to handle the risks associated with the construction project and therefore the engineers must ensure that the participants of the construction project are adhering to the relevant codes and regulations that are applicable to the project.
Operations- the construction industry is complex and fragment by nature and the span of the project may be extended to several years. The inherent risk that may arise out of operations of the project is the environment in which the project is being carried out. The condition of the sites of the project may be different from what was predicted. The contractor may not deal with the ethical issues associated with the operation of the construction project on purpose, which would not only affect the construction project but it would also lead to a financial loss. Hence, the contractor of the project must ensure that the operational risks are avoided or is dealt with effectively.
Project schedule- In the construction industry, every construction project shall have a stipulated time within which the work should be completed. It is the statutory obligation of the contractor to complete the project not only within the stipulated time but also in a cost-effective manner. The ethical dilemma related to the project schedule is that in order to finish the project within the stipulated time, the contractors or engineers may act dishonestly purchase bad quality products and rush into developing the construction plan for the project. Such haste may result in poor quality of the project and may ultimately lead to a financial loss. Although a reasonable and a properly framed schedule for the project is preferable, but the owner must take into consideration any other external factors which may be beyond the control of the contractor, thus, causing unnecessary delay in the completion of the project.
Another essential risk associated with the pre-construction and the construction phase is the health and safety of the work environment. Since the contractor is mostly responsible for the labors or the workers involved in the construction project, he must ensure that the workers are informed about the safety rules of the workplace. The contractors must conduct regular meetings to ensure the effectiveness of the safety rules and the resolve any issues related to the safety issues within the workplace environment (Hosseini et al. 2013).
Risk management in construction projects is fundamental as it enables the management to identify the risks and mitigate the same or analyze potential opportunities out of such risks. Firstly, although it is not possible to identify all the risks but risk management would enable to identify the essential risks that are associated with the project such as quality risks, cost risks, personnel risks, strategic decisive risks, deadline risks and external risks. Secondly, the risks must be analyzed precisely and should prioritize the analyzed risks.
Thirdly, the risk must be assessed either qualitatively or quantitatively for the purpose of comparing the same with others. Fourthly, after analyzing the risks, the organization must adopt cause-related measures and effect-related measures (Walker 2015). The cause-related measure enables to avert or diminish the risks whereas the effect-related measure enables to safeguard or reduce the amount of loss or damages in the event the organization incurs such damages or loss. Fifthly, the risks must be monitored on regular basis to ensure the efficacy of the risk-control measures. Lastly, after the risks are identified, analyzed, assessed and monitored, the organization must adopt controlling goals and in order to confirm that risk control goals have been implemented effectively, the process of identification, analyzation, assessment and monitoring the risks must be carried out as a permanent process.
Dispute Resolution Process
The construction industry is considered as one of the most dispute and conflict prone industries. In the event of any dispute arising out of the industry, the parties to the dispute would engage into litigation, which is not only expensive but also a time consuming process. However, various dispute resolution processes has been introduced into the construction industry in order to avert the expensive and time-consuming litigation procedure. In this case, the dispute resolution processes that are available to the construction project include expert determination, mediation, conciliation, arbitration adjudication (Pryor 2016).
However, in this context, the expert determination may be used as the dispute resolution process to resolve the issues that may arise in the pre-construction and construction phase of the project. Here, in case there is a valuation dispute an expert may determine the dispute and the parties to the dispute shall agree with the expert and shall agree to be bound by the determination of the expert (Yarn 2014). This process is not only economic but also quicker. Another dispute resolution process that may be applicable in this case, is arbitration. Moreover, the parties or the contract might incorporate a provision for the appointment of an independent expert who would decide the disputes within a stipulated period.
However, this process is subject to disadvantages such as the experts is tied to the legal process, hence, it becomes difficult to challenge the decision of the expert. Further, the report made by the expert cannot be enforced without further arbitration or court proceedings.
Arbitration is a process where the parties to the dispute may consensually agree to refer to a third party in order to resolve their disputes. The third party is known as the arbitrator who would address the issue and resolve the same based on the principles of law (Ware 2016). In this case, I would refer to the arbitration process in order to resolve the ethical issues that may arise during the pre-construction and the construction of the project. The arbitrator shall resolve the ethical issues based on the documents, the relevant principles of law and the material facts. The arbitrators are under statutory obligation to arbitrate any dispute without being biased and partial towards either of the parties to such dispute (Fisher 2017). Moreover, the process of arbitration is not only less time consuming but also a cost-effective dispute resolution process. Further, since the process involves adjudication on the basis of legal principles and material facts, the arbitration process shall be in compliance with the statutory codes and regulations.
The process of arbitration is a confidential process and the parties to the dispute may agree to select an arbitrator who is experienced in the matter. The process of the arbitration is flexible as compared to the court proceedings (Spencer and Hardy 2014). Therefore, in the event of any dispute arising out of the construction project, I would resort to the arbitration process to resolve the matter in dispute. The decision given by the arbitrator is enforceable as well as binding upon the parties to the dispute. However, the appropriate dispute mechanism forum depends on the role played by each participants involved in the construction project, the contractual relations between each participants and the nature of the project.
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