Risks Management on Building Projects in Bali.

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442 | PART A. APPLIED AND NATURAL SCIENCES

ISSN: 2075-4124

INTERNATIONAL JOURNAL of ACADEM IC RESEARCH Vol. 7. No. 2. Iss.2. M arch, 2015

RISKS MANAGEMENT ON BUILDING PROJECTS IN BALI

I.N. Budiartha R.M

1

Senior Lecturer at Faculty of Engineering, Udayana University (INDONESIA)

budiartharm@gmail.com

DOI: 10.7813/2075-4124.2015/7-2/A.62

Received: 08 Jan, 2015

Accepted: 04 Mar, 2015

ABSTRACT

Bali has been well-known as a tourism place; therefore the development of infrastructures including building projects

in this area has also increased significantly.

Constructing a building project particularly in the southern part of Bali, which is

recognized as a heavy congested area of tourism activities, is likely to face difficulties and risks related to the access and the

delivery of materials and equipment to the project location, as well as problems dealing with social, political and regulations.

This paper aims to evaluate and assess risk factors that impact on the construction of building projects in Bali. A

questionnaire survey was developed based on extensive literature review. The survey involved 20 participants that were

selected based on purposive sampling method. It covered contractors, clients (project owners), and consultants those have

experienced on constructing building projects located in this particular area. The collected data was analysed using

descriptive statistic to identify and calculate the likelihood and consequences of risks. Mitigation actions were formulated

after classifying risk in terms of risk acceptability. The findings indicates that the identified risks covers three negligible risks,

six acceptable risks, twelve undesirable risks and eight unacceptable risks. Risk mitigation should be taken to address the

major risks (undesirable and unacceptable risks) that mainly rooted from four sources, i.e. Social, political and regulations;

environm ent and nature; finance; and technical of the project.

Keywords: risk assessment, building projects, likelihood, consequences, major risks

1. INTRODUCTION

The economic development in the southern part of Bali has grown-up rapidly, which is dominated by tourism

business. It can be seen by the increasing numbers of infrastructure and building projects such as hotels that particularly

located in Badung regency. This situation indicates that construction business in this area is well-promised. Badung regency

is known as a congested area thus it generates challenges when constructing a building in this location. For instance, heavy

traffic jam can impact on the accessibility to the project location, difficulties to load materials and equipm ent, the noise and

pollutant impact on the environment and other technical risks during the constructions period. Contractors should be able to

manage these risks, so, they can achieve the project’s objectives, i.e.: to meet time, cost and quality as being planned.

Practically, realizing these three objectives often becom es a critical issue.

There are many factors that influence the success of a project completion. Risks that particularly related to the

construction of the project are one of the factors that should be identified in order to minimize the consequences that likely

impact on the project completion. Therefore, identification of risks that likely occurred during the construction phase is an

important early stage prior formulating strategies for managing them. This paper aims to identify and assess risk factors

related to construction of building projects in Bali. The identification of risk factors was conducted based on an extensive

literature review. Subsequently, the identified risks were examined through a questionnaire survey. It involved 20 participants

(contractors, consultants, and clients) those experienced on constructing building projects in the area of Badung Regency

(i.e.: Seminyak, Legian, Kuta, and Tuban). This paper begins with a review on risk identification in construction industry and

risk assessment.

2. RISKS FACTORS IN CONSTRUCTION INDUSTRY

Construction industry has often faced the negative effects of change that lead to the failures of many projects to

achieve the deadline, cost and quality as being set. Risk occurs due to uncertainty that lead to the possibility of adverse

events. However, Al-Shibly

,

et al [1] argue that if it was practiced in the correct way, risk can becom e a positive key factor for

the company

.

Smith

,

et al [2] suggest that employing the principles of risk management will enable engineers to improve the

management of this change effectively.

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Table 1. Risk Identification based on previous studies

No Sources of Risk Risk Factors References

1 Social, Political and

Regulations

Local regulations [3, 5]

2 Government regulations & regulation change due to government change [5-7]

3 Public opinion, Norms disturbance to the local society due to the construction of

project, protest from local people, legal environment.

[7-9]

4 Unstable politic of the country [6, 7]

5 Long bureaucracy and corruption [9]

6 Environment & Nature The loss of green open space [8]

7 Environmental pollution (soil, noise, inconvinience,view obstruction) during

construction

[7, 8]

8 Unforeseen ground condition, weather, earthquake, fire of explosion, archaeology

discovery

[7]

9 Finance The increase of interest rate, bad market, inflation [4-7, 9]

10 The increase of material and delivery cost [8]

11 Late payment by the client [3, 10]

12 Technical of the project Design changes, incompleted specification, inapplicable design. [3, 5-7, 9]

13 Difficulties to supply and deliver man, materials and equipment to project location [3, 5-7, 9]

14 Failure to achieve quality due to unstandarized handling work and low quality

control

[5, 7]

15 Organisation, communication and culture [7]

16 Working hours management and procurement strategies [7, 8]

17 Project team competencies [5, 7]

18 Limited parking area for project vehicles and materials loading, and difficulties to

access the project location

[8]

19 Safety Labour sickness, tiredness [7]

20 Safety, theft, disruption during construction [5-7]

21 High rate of accident during construction due to less awareness to wear safety

equipment

[4-6]

22 Destruction, riot, sabotage and terorism [4, 5, 7]

3. RISK ASSESSMENT

The first step of risk assessment is by determining the degree of likelihood and consequence of each risk factor. It

can be represented by the frequency of mode in descriptive statistics. Multiplication between the mode score of likelihood

and consequence will result the degree of risk or called as risk index (RI). The value of RI indicates the level of risk

acceptability. Godfrey [7] provides a guidance for classifying risk acceptability level based on the value of RI, as depicted in

Table 2.

Accordingly, risk assessment can be formulated as [7]:

RI = P x I

where:

RI –

the degree of risk (Risk Index)

P –

Probability (or likelihood) of occurrence of a risk.

I –

the consequence or perceived impact on a project

Table 2. Assessment of Risk Acceptability

ASSESSMENT OF RISK ACCEPTABILITY

CONSEQUENCE →

LIKELIHOOD ↓

Catastropic (5) Critical (4) Serious (3) Marginal (2) Negligible (1)

Frequent (5) Unacceptable ₂₅ Unacceptable ₂₀ Unacceptable15 Undesirable ₁₀ Acceptable ₅

Probable (4) Unacceptable

20 Unacceptable 16 Undesirable 12 Undesirable 8 Acceptable 4

Occasional (3) Unacceptable

15 Undesirable 12 Undesirable 9 Acceptable 6 Acceptable 3

Remote (2) Undesirable

10 Undesirable 8 Acceptable 6 Acceptable 4 Neglegible 2

Improbable (1) Acceptable

5 Acceptable 4 Acceptable 3 Neglegible 2 Neglegible 1

Key: Description Guidance

Unacceptable 15 ≤ x ≤ 25 (Intolerable, must be eliminated or transferred)

Undesirable 8 ≤x < 15 (To be avoided if reasonably practicable, detailed investigation and cost benefit justification required, top level approval needed, monitoring essential) Acceptable 3 ≤ x < 8 (Risk can be accepted or managed)

Neglegible 1 ≤ x < 3 (There is no further consideration required)

Source: Godfrey [7]

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444 | PART A. APPLIED AND NATURAL SCIENCES

ISSN: 2075-4124

which is associated with the degree of risk. Norman and Flanagan[4] suggest four methods for risk mitigation that includes

risk retention, risk reduction, risk transfer and risk avoidance. Based on the degree of risk categorised by Godfrey [7],

acceptable and negligible risk are indicated as low risks, so, risk retention can be taken. Meanwhile, unacceptable and

undesirable risks have higher degree of risk, therefore proper mitigation actions should be focused on these types of risk.

Finally, risk ownership must be defined to specify the parties that responsible and control the risks[4].

4. METHODS

The identified risk factors from the literature were used to develop a questionnaire that consists of 29 questions that

were derived from 5 (five) sources of risk. The questionnaire was distributed to 20 participants, involved contractors,

consultants and clients those experience on constructing building projects in the area Badung Regency (i.e.: Seminyak,

Legian, Kuta, and Tuban). The questionnaire used Likert scale format for measuring respondents’ opinion related to risk

likelihood (probability) and risk consequence. The scale used for measuring risk likelihood is: 1(never), 2(rarely),

3(sometimes),

4(often), 5(very often); while, for measuring consequence is: 1(very low), 2(low); 3(moderate), 4(high), 5(very

high). The retrieved data was tabulated based on its frequencies (mode). The mode score of likelihood and consequence

was multiplied in order to define the degree of risk and to classify the level of risk acceptability. Then, formulation of risk

mitigation was focussed on major risks (undesirable and unacceptable), which followed by specifying of risk ownership.

5. RESULTS AND DISCUSSION

The responses retrieved from 20 participants of the questionaire survey was tabulated. Reliability and validity test was

conducted and confirm ed that the instrument (questionaire) is reliable and valid. This was indicated by the values of

Cronbach’s alpha that above 0.70 and the calculated ”r” that above 0.444 (r table)[11]. Subsequently, the data was analyzed

using descriptive statistics (employed SPSS version 19) to determine the mode (frequency) of ”likelyhood” and

”consequences”. Risk index (RI) was obtained by multiplying them. The result is presented in

Table

3

. This table also indicates risk acceptability that classified into: three negligible risks, six acceptable risks,

twelve undesirable risks and eight unacceptable risks. Risk mitigation was focused on major risks that cover undesirable and

unacceptable risks.

Table 3. Response to risk likelihood, risk consequences and risk acceptability

No Source

of Risk

Risk Factors P

Mode I Mode RI= PI (Risk Index) Risk Acceptability 1 S o c ia l, P o lit ic a l & R e g u la ti o n s

Social problems that arise from local regulations and

pressure from local society. 3 2 6

Acceptable

2 Public opinion that assume the construction of the project will

destruct the local society norms. 3 3 9

Undesirable

3 Problems deal with obtaining authorization of the project

construction from the government/ related institution. 4 4 16 Unacceptable

4 E n v ir o n m e n t & N a tu re

The loss of some green open space due to the project.

3 3 9 Undesirable

5 Pollution to the environment due to the construction and

operational of the project. 2 2 4

Acceptable

6 The increase of noise during the construction phase that

causes disturbance to the local society. 4 4 16

Unacceptable

7 The decrease of cleanness and convenience in the

surrounding of the project. 4 3 12 Undesirable

8 Disturbance to the local society due to unfitting block view.

3 3 9 Undesirable

9 _{Potential landslides if the project located in the hilly place and}

other unpredicted risk such as earthquake and fire. 4 4 16

Unacceptable 10 F in a n c e

The escalation of project cost due to the increase of interest

rate if the project is financed by using bank loan. 2 3 6

Acceptable

11 The increase of project cost due to the need to build a new

access from the main road to carry out materials to the project location.

5 4 20

Unacceptable

12 The decrease of contractor’s profit due to delays and

difficulties as the project is located in a high density area of tourism activities.

5 4 20

Unacceptable 13 T e c h n ic a l o f P ro je c t

Delay on project execution due to the design is unfitting with

the real condition of the project location. 3 2 6

Acceptable

14 The disruption on project construction due to inaccurate the

project scope definitions. 4 3 12

Undesirable

15 The disruption on project construction due to ineffective

strategy for delivering materials and equipment. 3 3 9

Undesirable

16 Unable to meet the quality as specified due to the

unstandarised work handling. 2 4 8

Undesirable

17 Unable to meet the quality as specified due to low control on

work quality. 2 4 8

Undesirable

18 Unable to maximize the project execution due to improper

structure of project organisation, in particular that deal with 2 4 8

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INTERNATIONAL JOURNAL of ACADEM IC RESEARCH Vol. 7. No. 2. Iss.2. M arch, 2015

No Source

of Risk

Risk Factors P

Mode I Mode RI= PI (Risk Index) Risk Acceptability

the competencies / expertise of the project team.

19 Unable to maximize the project execution due to improper

work methods for each item of work, includes the management of resources-man, materials and equipment.

3 4 12

Undesirable

20

Disruption on project construction due to less competencies

of the project team (consultant & contractor). 2 4 8

Undesirable

21 Unable to meet the quality technically as the material is

unable to pass the test for its resistance as specified. 2 2 4

Acceptable

22 Limitted of land availability for project vehicles during the

construction. 4 4 16

Unacceptable

23 Limmited of land for materials loading.

4 3 12 Undesirable

24 Difficulties to access the project location.

4 4 16 Unacceptable

25 Disruption on working schedule due to the construction

working hours that need to be adjusted with the activities period of the local environment (local society, activities of the nearby hotels).

4 4 16

Unacceptable 26 S a fe ty

The increase of the sick workers during the project

construction due to tiredness. 2 2 4

Acceptable

27 Threats from safety, destruction and stealing in the project

location. 1 1

1 Negligible

28 High rate of accident due to less awareness to wear safety

equipment during the construction. 1 1 1

Negligible

29 Terorism and chaos that threats during the project

construction. 1 1 1 Negligible

In order to simplify the formulation of strategies for mitigating risks, the following These actions were formulated

based on interviews and brainstorming with the same respondents. The major risks include twelve undesirable risks and

eight unacceptable risks, are embedded from three main sources of risk, i.e. Social, Political and regulations; Environment

and Nature; and Technical of the project.

Table 4 depicts the actions that should be taken by the related parties (determined by risk ownership). These actions

were formulated based on interviews and brainstorming with the sam e respondents. The major risks include twelve

undesirable risks and eight unacceptable risks, are embedded from three main sources of risk, i.e. Social, Political and

regulations; Environm ent and Nature; and Technical of the project.

Table 4. Mitigation action for the identified Major Risks

No Source

of Risk

Risk Factors Acceptability of

Risk

Mitigation Actions Risk Ownerships

1 P o lit ic a l & R e g u la ti o n s

Public opinion that assume the construction of the project will destruct the local society norms.

Undesirable  Provide information and approach

to the public to convince them that the project will not desruct the norms of the local society

 Do not change / remove the

existing public acces near the project location, such as the access to the beach for religious ceremonies.

 Project Owner

 Society

2 Problems deal with obtaining

authorization of the project construction from the government/ related institution.

Unacceptable _ Fulfilling the government

regulations and policies, e.g. related to the river banks, building design and others.

 Having discussions and

coordination with the related institution to avoid misinformation.

 Contractor

 Project Owner

 Goverment

3 E n v ir o n m e n t & N a tu re

The loss of some green open space due to the t project.

Undesirable Maximizing planting of trees on the

remaining land 

Project Owner

4 The increase of noise during the

construction phase that causes disturbance to the local society.

Unacceptable _ Design a method that can reduce

noise, e.g. prefabricating of project component be pursued outside the project location.

 Coordination with all stakeholders

in order to determine proper time that can tolerate the noise.

 Project Owner

 Contractor

5 The decrease of cleanness and

convenience in the surrounding of the project.

Undesirable  Provide guidance to contractors as

well as perform regular inspections to maintain cleanliness during construction phase.

 Remove project trash and debris

periodically so it does not pile up and dirty.

 Project Owner

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446 | PART A. APPLIED AND NATURAL SCIENCES

ISSN: 2075-4124

No Source

of Risk

Risk Factors Acceptability of

Risk

Mitigation Actions Risk Ownerships

6 Disturbance to the local society

due to unfitting block view.

Undesirable Make a strict isolation block to limit

the project area. 

Contractor

7

Potential landslides if the project located in the hilly place and other unpredicted risk such as

earthquake and fire.

Unacceptable Create the design that suitable for

the real condition of the location, involving professional and experienced team.

 Project Owner

 Contractor

 Consultant

 Society

 Government

8 F in a n c e

The increase of project cost due to the need to build a new access from the main road to carry out materials to the project

location.

Unacceptable Conduct a feasibility study to analyse

the project investment. 

Project Owner

9 The decrease of contractor’s

profit due to delays and difficulties as the project is located in a high congested area

of tourism activities.

Unacceptable _ Contractor must carefully assess

the bid price related to the cost of changes that caused by other party(s).

 Contractors must ensure that the

contract covers clauses of compensation cost due to changes and delays caused by other party(s).

 Contractor

10 T e c h n ic a l o f th e p ro je c t

Disruption on project construction due to inaccurate

the project scope definitions

Undesirable _ Carefully list the project scope and

determine work descriptions which refer to the contract.

 Project Owner

 Contractor

 Consultant

11 Disruption on project

construction due to ineffective strategy for delivering materials

and equipment.

Undesirable _ Evaluate the time schedule and

associate it with the schedule for supplying material and equipment.

 Contractor

12 Unable to meet the quality as

specified due to the unstandarised work handling.

Undesirable _ Create and implement standard

procedures of work handling.

 Build a quality control team

 Provide documentation, report,

photos, etc.

 Contractor

13 Unable to meet the quality as

specified due to low control on work quality.

Undesirable

14 Unable to maximize the project

execution due to improper structure of the project organisation, (e.g.: incompetent

project team)

Undesirable Create an effective structure of

project organisation that assign the right people on the right position, associated with their skill and experience.

Make a clear line of command and job description, so everyone will be aware of their responsibility and position.

 Contractor

15 Unable to maximize the project

execution due to improper work methods for each item of work, includes the management of resources – man, materials and

equipment.

Undesirable Create the detail of work method for

all items of works (e.g.: process, procedures, technical work handling, technical planning for material, equipment and labour).

 Contractor

16 The disruption on project

construction due to less competencies of the project team (consultant & contractor).

Undesirable Select a reputable and profesional

consultant and contractor 

Contractor

 Consultant

17 Limitted of parking area for

project vehicles during the construction.

Unacceptable Provide additional temporary parking

area near the location of the project 

Project Owner

 Contractor

18 Limmited of land for materials

loading.

Undesirable _ Create an efficient logistic

planning to avoid excess storage

 Increase prefabrication and

assemblying outside the project location.

 Provide temporary area for

loading materials

19 Difficulties to access the project

location.

Unacceptable Adjust the suitable time and use the

proper type of vehicles that are allowed to enter to the project location.

 Contractor

20 Disruption on working schedule

due to the construction working hours that need to be adjusted with the activities period of the local environment (local society,

activities of the nearby hotels).

Unacceptable _ Contractors need to consider and

estimate the cost that likely occur due to this disruption.

 Create a written commitment

related to the permitted working hours.

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INTERNATIONAL JOURNAL of ACADEM IC RESEARCH Vol. 7. No. 2. Iss.2. M arch, 2015

6. CONCLUSION

The related parties (contractors, consultants and project owners) those will be involved in constructing a building

project located in a congested area as like as in the south of Bali, should consider these risk factors. The suggested actions

need to be taken by the risk owner for mitigating the adverse impacts on project completion, which particularly embedded

from four sources, i.e.: Social, Political and regulations; Environment and Nature; and Technical of the project.

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