T ECHNICAL A RTICLE

PEER REVIEWED

Managing Risks of Large Scale

Construction Projects
Dr. Prasanta Dey
ABSTRACT: The main purpose of this article is to develop an integrated framework for managing risks of large-scale construction projects. Conventional project risk management frameworks emphasize managing business risks and often ignore operational risks. There are
instances of project failure because of operational risks (e.g., failure of project leadership, contractors and suppliers incapability, technical complexities etc.). A hierarchical approach deals
with such shortcomings by analyzing risks in different levels (e.g., project, work package and
activity). It helps identify the least risky project alternative through project level risk analysis and
subsequent work package and activity level risk analysis to help identify both business and operational risks. The proposed framework has been applied to a 17000 km long oil pipeline construction project in India in order to demonstrate one effective example of its use.
KEY WORDS: Analytic hierarchy process, construction, pipeline projects, and risk management

lthough today's organizations

appreciate the benefits of managing
risks in construction projects,
formal risk analysis and management
techniques are rarely used because of a lack
of knowledge and doubts on the suitability
of these techniques for construction
industry activities [1].
Managing risks is one of the most
important tasks for the construction
industry as it affects project outcomes.
Today's project managers believe that a
conventional approach to project
management is not sufficient, as it does not
enable the project management team to
establish an adequate relationship among
all phases of the project, to forecast project
achievement for building confidence of the
project team, to make decisions objectively
with the help of an available database, to
provide adequate information for effective
project management and to establish close
cooperation among project team members.
The current literature on construction
risk management consists of empirical
researches on risk management practices of
the construction industry and conceptual
frameworks of risk management using
various tools and techniques. The Project
Management Body of Knowledge,
(PMBoK) introduces a six step method of
risk management [5]. Although, these steps
are very generic and act as a guideline for
managing the risk of projects, they fail to
provide a risk management framework for a
specific project.
The conventional project risk
management approaches in the project

feasibility stage emphasize on managing

business risks and often ignore operational
risks. However, there are instances of
project failures because of operational risks
such as technical complexities, contractors'
and suppliers' incapability, government red
tape etc., which remain unidentified until
they occur.
Prasanta Dey reported time overrun
because of implementation issues of a river
crossing section for cross-country oil
pipelines in the eastern part of India [2].
S.O. Ogunlana and others reported cost
overrun in high rise building projects in
Thailand because of contractor's failure
[4]. Social and environmental issues
caused prolonged postponement of the
Chand-Cameroon oil pipelines [3].
Several projects in the Vietnam oil industry
were delayed because of government
approval [7].
Risk management approaches in the
feasibility stage, although helping to
mitigate business risks (external in nature),
however fail to identify operational risks.
Although they are valuable to identify the
least risky project, but fail to provide a
framework for managing every risk across
various levels of the project.
The integrated hierarchical approach
to risk management not only combines the
risk management processes (identification,
analysis and development of responses) in
an analytical framework, but also integrates
the risk management processes in every
level of the projects that helps identifying
all the possible risks in the early planning

Cost Engineering Vol. 51/No. 6 JUNE 2009

phase of the project enabling the project

team to make decisions on their responses.
The objective of this study is to
develop a framework for managing the risk
of large construction projects using an
integrated hierarchical framework with the
active involvement of the concerned
stakeholders.
There are two approaches to
construction risk managementproject
level risk analysis and work package level
risk analysis, which are carried out during
the feasibility analysis and implementation
phases respectively. Both the approaches
have limitations.
The project level risk analysis reveals
mostly the business risks, which are
external in nature covering market,
economical and political factors. Although
it helps identify the least risky project, it
fails to identify operational risk factors.
On the other hand work package level
risk analysis reveals operational issues,
which in many cases are too late to address
and the responses are constrained by the
business risks. Moreover, the current
literatures demonstrate applications of
various tools and techniques in managing
project risk, but none of the research
reports risk analysis across various levels,
which help identify the least risky project
alternative, critical work packages and
activities along with the associated risks
during the early project phase.
Therefore,
the
contemporary
approaches to risk analysis lack establishing
an integrated risk management framework
covering every level of the project, which
helps to manage the project effectively.
This study is for bridging this gap.

Proposed Risk Management Framework

The proposed risk management
framework has the following steps:

Identifying the alternative projects.

Analyzing project level risks and
selecting the least risky project.
Developing the work breakdown
structure of the selected project.
Analyzing work package level risks.
Developing risk responses.
Analyzing activity level risks. And,
Developing risk responses.

This study uses the analytic hierarchy

process for analyzing risks in the project,
work package and activity levels [6].

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Figure 1 Project Level Risk Analysis Using AHP

Application
The proposed framework has been
applied to a newly conceived cross-country
oil pipeline transportation project in the
Western part of India. A typical oil pipeline
project consists of laying oil pipelines,
constructing pumping and delivery
stations, constructing tank farms,
constructing communication and a
cathodic protection infrastructure. A risk
management group consisting of nine
executives with more than 15 years of
project experience was formed. They
performed the following steps to analyze
risk of the project under study.

Step 1: Identifying the alternative

projects
In the oil pipeline industry, alternative
projects are identified through feasible
routes. The geological information system
helped identify a few alternative feasible
routes.
Step 2: Analyzing project level risks and
selecting the least risky project
The risk management group in a
brainstorming session first identified
project level risks. They were market,
financial, economical, environmental,
technological and political risks. A few
subfactors were also identified against each
factor. The likelihood of the risks were then
derived using the analytic hierarchy
process (first, the likelihood of risk factors
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and subfactors were determined through

pair wise comparison at each level using
the verbal scale [6]. Second, the likelihood
of failure of each alternative with respect to
each risk subfactor was determined by pair
wise comparison and subsequently, the
results were synthesized across the
hierarchy to determine the overall risk of
each work package).
Figure 1 shows the project level risk
analysis in an AHP framework. The
analysis revealed that the likelihood of
environmental and technological risks
were very high and the project with
pipeline route 2 was the least risky.
However, the selected route (2) was
vulnerable from both environmental and
technological risks. The group decided to
mitigate the project level social and
environmental risk by acquiring statutory
approval from relevant government
authorities and technological risk by
communicating with the concerned
contractors and consultants. The group
decided to further analyze in order to
mitigate the risks of the selected pipeline
option.
Step 3: Developing the work breakdown
structure of selected project
The entire project had been
hierarchically classified to form a work
breakdown structure (WBS). Figure 2
shows the WBS of the project under study.
Step 4: Analyzing work package level risks

Cost Engineering Vol. 51/No. 6 JUNE 2009

The risk management group decided

to analyze only pipeline laying, station
construction and the tank farm work
package risk after a short brainstorming
session. They identified various technical,
organization and environmental risks.
Risks related to selection of
appropriate technology, site selection,
implementation methodology selection,
information
and
communication
technology selection, and operational risk
were identified under technical risk.
Similarly, risk created by project team,
operating team, consultant, contractors,
suppliers and communication framework
were considered as organizational risk and
environmental
damages
during
implementation and operations, negative
impact on society during implementation
and operations and statutory clearance for
implementation and operations were
identified as environmental risk.
Figure 3 shows the work package level
risk analysis in an AHP framework. First,
the likelihood of the risks was derived by
pair wise comparison in factor and
subfactor levels using the verbal scale.
Second, the likelihood of failure of each
package with respect to each subfactor was
derived through pair wise using same
verbal scale. Finally, the results were
synthesized to determine the overall risk of
the work package.
The analysis revealed that the pipeline
stretches had the highest risk followed by
tank farm and stations. Technical and
environmental risks were more likely to

happen compared to organizational risk. In

the subfactor level, risk related to
implementation
method
selection,
environmental damages and negative
impact on society were most likely.

contractors for each work package,

selection of appropriate implementation
methodology for every pipeline section,
appropriate
environmental
impact
assessment and social impact assessment of
pipelines package and dynamic operational
risk analysis of stations package.

They identified four major risks in this

level. They include the following.

Step 5: Developing risk responses in work

Step 6: Analyzing activity level risk
package level
The risk management group decided
The group decided to take the following to further analyze risk of pipeline work
responses to mitigate work package level package by classifying it to four stretches.
risks. They were selection of quality

design risk(design quality and

communication framework);
procurement risk (procurement
method,
quality
consultants,
contractors and suppliers, and
communication framework);
implementation risk (specification,
organization,
natural
hazards,
environmental and social impact, and
communication framework); and,

Figure 2 Work Breakdown Structure of Oil Pipeline Construction Project

Figure 3 Work Package Level Risk

Cost Engineering Vol. 51/No. 6 JUNE 2009

25

Figure 4 Activity Level Risk

operations
risk
(throughput, Step 7: Developing risk responses in
inspection,
maintenance, activity level
The risk management group through
environmental and social impact and
brainstorming developed the following
communication framework).
responses (see table 1) for each stretch.
Subsequently, they derived the
riskiness of each factor and subfactor and
onstruction projects often fail
calculated the likelihood of failure of each
because of wrong technology
pipeline stretch using the AHP framework
selection, poor environmental
(as demonstrated in step 2 and 4). Figure 4 management plan, political red tape, poor
shows the risk structure for activity level design
specification,
wrong
risk analysis. The analysis revealed that implementation
methods,
poor
implementation risk was most likely performance of contractors, and lack of
followed by procurement risk and pipeline maintaining materials delivery schedule by
stretch 3 is the most vulnerable.
the suppliers along with many other
As pipeline stretch 3 was routed reasons.
through the most difficult terrain, it was
The causes of failure could be
likely to experience risks in relation to classified into business risks (external) and
procurement method selection and operational risks (internal). Unless they are
possible poor performance of consultants, addressed in the early project-planning
contractors and suppliers. Additionally, this phase and adequate responses are planned
stretch was vulnerable from poor and implemented, projects inevitably fail
implementation method specification and to achieve their objectives.
organizational issues for implementation.
In the conventional approaches to
Pipeline stretch 1 was vulnerable from project appraisal and planning, quite often
environmental and social impact as it only business risks are addressed in order to
mostly traversed through normal terrain. justify the investment. Therefore, as the
The pipeline stretch 4 was exposed to projects progress with added learning,
mainly operational risk as it was connected there is need for additional resources and
to an offshore terminal.
knowledge in order to accomplish project
outcomes as planned, which become
impossible in many cases.

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Cost Engineering Vol. 51/No. 6 JUNE 2009

Analyzing project risks hierarchically

helps prioritize activities, which are
vulnerable for not achieving time, cost and
quality. Thereby it helps achieving
successful completion of the work packages
and in turn projects. Additionally, it helps
identifying risk in each level (project, work
package and activity).
Analysis of project level risk helps
identify the least risky project alternative
and calls for additional planning for
mitigating the risks that are present in the
selected project option. Work package level
risk analysis firstly, identifies the risky work
packages and prioritizes work packages on
the basis of risk vulnerability for additional
planning.
Second, it analyzes risk factors
associated with each work package and
derives the mitigating measures for each
risky work package. Activity level risk
analysis on one hand identifies the risky
activities within the risky work packages
and on the other hand, identifies risk
factors, analyzes them and derives
responses. Risk analysis using a
hierarchical approach not only justifies
additional planning and resource
requirement at the early project phase, but
also helps achieving project schedule,
budget and specification. This study reveals
that the project level is affected by external
risks, work package level is affected by both

Table 1 Risk Responses in Activity Level

external and internal risks and activity level

is affected by internal risks.
The proposed risk management
framework using the analytic hierarchy
process helps project executives to make
decisions dynamically during the projectplanning phase with the involvement of the
project stakeholders. This provides an
effective
monitoring
and
control
mechanism of projects across various levels
of management of the organization. The
proposed framework uses Expert Choice to
analyze
the
decision
situation.
Additionally, the sensitivity utility of AHP
provides an opportunity to the risk
management group to observe the nature
of the model outcome in different
alternative decision situations.

REFERENCES
1. Akintoye, A.S. and M.J. MacLeod,
Risk Analysis and Management in
Construction, International Journal
of Project Management, Vol. 15, No.
1, (1997): 31 - 38.
2. Dey, P.K., Decision Support System for
Risk Management: a Case Study,
Management Decision, Vol. 39 No. 8.
(2001): 634 - 648.
3. Ndumbe, J.A., The Chad-Cameroon
Oil PipelineHope for Poverty
Reduction?.
Mediterranean
Quarterly, 13 (4), (2002): pp. 74-87.
4. Ogunlana, SO, H. Promkuntong, V.
Jearkjirn, Construction Delays in a
Fast Growing Economy: Comparing
Thailand With Other Economies,
International Journal of Project
Management, 1996.
5. PMBOK, A Guide to Project
Management Body of Knowledge,
Project Management Institute, US,
2004.
6. Saaty, T.L., The Analytic Hierarchy
Process, McGraw-Hill, US, 1980.

Cost Engineering Vol. 51/No. 6 JUNE 2009

7.

Thuyet, N.V., S.O. Ogunlana, and

P.K. Dey, Risk Management in Oil
and Gas Construction Projects in
Vietnam, International Journal of
Energy Sector Management, Vol. 1,
3, 2007.

ABOUT THE AUTHOR

Dr. Prasanta Dey is with the University
of West Indies, Department of
Management
Studies,
Bridgetown,
Barbados. He can be contacted by sending
e-mail to: pdey@uwichill.edu.bb

2009 Editorial Calendar

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