Mitigation of Risks

Associated with Construction

Equipment

Prof.S.S.Pimplikar
Asst.Professor of Civil Engg.
Maharashtra institute of Technology
Pune 411038
 For Successful project completion use of reliable
construction equipment fleet is necessary

Risks Associated with Use of Construction Equipment :

Business Risks Losing of tender, Prequalifying Criteria

Financial Risks As regards equipment, dead investment in
Idle equipment
Technology Risks Obsolescence due to upgradation
Project Risks Time, cost overruns due to unsatisfactory
performance
Political Risks Equipment Performance, Loss of socio-
economic benefits
 Beneficiaries from the study
1. Officials construction equipment bank Grading
2. Lenders Engineer decide amount of Loans.
3. Bidding Contractor Assessment of risks with certainty before
bidding.
4. CIDC-ICRA rating of firms
5. Equipment owners where to invest..
6. Tendering authorities evaluation of bids.
7. Equipment manager Strategic maintenance , replacement
policies
8. Site engineer optimal assignment of available machines for
the existing field tasks
9. CIDC Deciding the risk premium in their insurance schemes.
Impact of Management Decisions on
the Intensity of risk potential
Management unable to take any effective
measure either due to technological, financial
or managerial problem.
Use of available Standby equipment
Hiring alternate equipment
Assigning associated equipment to other
work locations.
Repairing original equipment
Rescheduling works in shifts.
A typical Failure Cost Profile
Duration of
Failure Cost
the repairs
Profile
(FCP)

Total Time lapse of

start repairs Additional cost Area under
hourly
of repairs the graph
cost
helps to
of all
determine
the
FCS (ma)
resour Cost of
ces Entire work
affect cycle
Normal
ed by disrupted
Operations
the
Resume
failure
in
(Rs.)
Start time of failure
of key equipment Duration of failure in
say excavator due hours
to say hydraulic
pump leakage
 Establishing Failure Cost Profile
The failure cost profile surcharge in Rs/100 hours can be calculated from the area under the curve as follows,
Hr = Hm
FCSMa = GM x RM x FCPMa Vorster Sears Model
Hr = 0
Where,
FCSMa = Failure cost surcharge for a machine M in application a
FCPMa = Carefully established failure cost profile for a machine M in application a
GM = Average number of unscheduled failure experienced by the particular machine
per 100 hours.
[No. of unscheduled failures experienced by
the machine in that particular period (V)]
= x 100
[Number of hours worked by the machine
In a particular period (W)]

RM = Standard ratio of owning cost : operating cost.

HM = Average duration of the unscheduled failures experienced by the particular machine.
[No. of hours machine was broken in a particular period (D)]
HM =
[No. of failures experienced by the machine in that particular period (V)]
 FCP DATA (SOFT MURUM)
1. No. alternate
Hou 6 6780
7000 decision
rly
cost 5 6380 1 6280 2. Use of standby
of 6000
4 5820
equipment
all 3. Hiring a m/c within
reso 5000
urce
2 hours
Area under the graph
s 4000 FCP (Ma) for hiring a m/c 4. Assigning
affe Associated
cted 3000 equipment
by
3 1200 5. Repairing original
failu
2000
re in m/s in 3 hours
2 1000
Rs. 1000 6. Replacing spare
parts from
0 1 2 3 5.25
inventory.
4 5

Duration in Hours
 Application of Vorster-Sears Model

No. of failures experienced by the machine (V) = 34

No. of hours worked by the machine in a particular period (W)
= 265 x 7 = 1855 hours
Therefore Gm = 34 / 1855 x100 = 1.833 per 100 hours
Rm = 2.25
Hm = 5.25 hours
Now downtime cost surcharge can be found out using the following equation,
Hr = Hm
FCSMa = GM x RM x FCPMa Vorster Sears Model
Hr = 0
Case 1 :
1.833 / 100 x 2.25 x 5.25 x 6280 = Rs.1359.75 / hour
Case 2 :
1.833/100 x 2.25 x 5.25 x 1000 = Rs. 216.75/hour
Case 3 :
1.8333/ 100 x 2.25 x {2 x 6280 + 3.25 x 1200} = Rs. 678.85/hour
Case 4 :
1.833 / 100 x 2.25 x 5.25 x (6280 460] = Rs.1260.15/hour
Case 5:
1.833 / 100 x 2.25 x 3x (6280 + 100] =Rs.789.40 / hour
Case 6:
1.833 / 100 x 2.25 x 4 x [ 6280 + 500] =Rs. 1118.50/hour

Discussion
The case study indicated that through the use of the Vorster Sears model it
is possible to assess the additional costs per hour associated with
construction equipment as regards ARI and SLI costs. Further it helps in
assessing the minimum level of risk as far as the increase in costs is
concerned and also the maximum level of the risk in terms of additional
costs. Now if the AMI cost is less than the maximum value of EFCS(ma)
then authorities can decide to alter the methodology of work. Otherwise they
can decide to continue with existing methodology.
Construction equipment which have very less values of EFCS(ma) can be
treated as highly reliable equipment. The rent of such equipment can be
high. Also firms possessing reliable equipment could avail of a higher rating
in CIDC-ICRA, grading.
Construction equipment which have very high values of EFCS(ma) indicate
that they must be replaced by more economic equipment.
Maximum loans could be released to those equipment which posses very
less risk hazards as regards their satisfactory performance, which can be
predicted through the concept of EFCS(ma)
Tendering authorities could make a prequalification criteria to submit either
the values of EFCS(ma) in different applications or at least submission of
the equipment performance daily/monthly records to investigate into reliable
performance of existing equipment, before awarding the works.
CIDC has formulated the LOPCE policy to insure the contractor/owner
against the profit lost on construction equipment. Based on expected values
of EFCS(ma) the premium and the total value of the policies can be
decided.
Risk Assessment Table - Likelihood.
This table categories risks according to their probability of
occurring at least once at some point during the whole
project life-cycle.

Description Scenario Probability Scale Value

Highly likely Very frequent occurrence Over 85% 16

Likely More than even chance 50 85 % 12

Fairly likely Quite often occurs 21 49 % 8

Unlikely Small likelihood but could well 1 20 % 4

happen

Very unlikely Not expected to happen Less than 1% 2

Extremely unlikely Just possible but very surprising Less than 0.01% 1
Risk Assessment Table -
Consequence

Description Scenario Scale Value

Disastrous Business investment could not be sustained (e.g. deaths, 1000

bankruptcy)

Severe Serious threat to business or investment 100

Substantial Reduces profit significantly 20

Marginal Small effect on profit 3

Negligible Trivial effect on profit 1

Risk Assessment Table-Acceptance
of Risk

Likelihood Consequence

Disastrous Severe Substantial Marginal Negligible

(1000) (100) (20) (3) (1)

Highly likely (16) 16000 1600 320 48 16

Likely (12) 12000 1200 240 36 12

Fairly likely (8) 8000 800 160 24 8

Unlikely (4) 4000 400 80 12 4

Very unlikely (2) 2000 200 40 6 2

Extremely unlikely (1) 1000 100 20 3 1

Key to Acceptance of Risk
Points Category Action Required

Over 1000 Intolerable Must eliminate or transfer risk

101 1000 Undesirable Attempt to avoid or transfer risk

21 100 Acceptable Retain and manage risk

Up to 20 Negligible Can be ignored

Use of Risk Assessment Tables

From the data of the breakdowns in the case study, one can describe
the risk scenario as more than even chance (Probability 50-85%)
hence having a scale value of 12 and posing serious threat to
business or investment thus giving a scale value of 100. The
combined score is therefore 12 x 100 = 1200. According to the
suggested decision rule the category of risk is Intolerable and
hence the action required is that it must either be eliminated or be
transferred. The various agencies associated with use of
construction equipment can make use of the Risk Assessment tables
in a speedy manner to decide whether the risks need to be
transferred or they could be managed or could be ignored.