Friday 18 August 2023

Risks in Engineering Construction Projects: Strategies for Project Success


Engineering Construction Projects

The construction of an engineering project is usually a large investment and a long construction period, generally speaking, as short as one year, as long as nearly ten years, or even longer. It is understandable that investors, out of their instinctual desire, want the project to achieve satisfactory results after completion. 


However, the construction of a project, especially the construction of major projects, due to the relatively long span of time, in the construction of the scene, the influence of various factors is likely to deviate from the purpose of the project construction. 


The design scheme is not perfect, the construction organization plan is insufficient, and the management mechanism is not perfect, which is very easy to cause greater economic losses. Even if the project is completed, there are regrets that the effect is unsatisfactory. 


Some key issues were mishandled, and even brought significant economic losses, and even failed construction projects.


First, several major sources of risk: construction projects come from all sides, it is difficult to predict accurately, but it is often present. There are usually the following major items.


(1) Ideological decision-making risks


The idea decision of the project, the initial idea decision of the project is the most important link in the entire project construction, and it is the first risk. It is necessary to be very deliberate, brainstorming and making comparisons. 


The project owner should determine the location, scale, grade standards and construction period of the project construction according to several factors such as its own use needs, economic strength, financing conditions and loan repayment ability. 


At the same time, it is also necessary to consider the trend of regional economic development, and even consider the stability and development prospects of the regional political situation.


 As for the feasibility of technology, generally after the owner's request, the "design unit" or "R&D and investment unit" is considered according to the advanced technological conditions of the society at that time and the actual situation of the owner, as long as the comparison of the scheme can generally reach the average advanced level of society.


(2) Scale decision-making risks


The scale of project construction is determined according to the owner's own economic strength. A wise landlord should stop at moderation, not expand arbitrarily without purpose. The scale of the project is not scaled in direct proportion to the project investment. 

When the scale of the project is expanded:

1. It may increase the depth of the foundation and the height of the building. The cost of the building after a certain height of the building, the frame structure and wall should be appropriately increased, the stressed steel bar will also increase accordingly, and the corresponding power equipment and facilities may be added, and the corresponding cost needs to be increased, and the cost will accelerate to proportional to the curve.

2. Increase the financing amount and extend the repayment period, and there may be risks of interest rate changes.

3. The price change of building materials caused by the lengthening of the construction period and the increase in construction management costs. Alliance of Project Manager, Project Management Issues.


(3) Financial Risk This article is transferred from the Project Manager Alliance


The owner shall use his own funds to complete the project construction in the construction project as much as possible. 


However, project construction often requires a large amount of funds, and financing loans for construction has become a common thing in society. But large amounts of financing, interest and possible exchange rate changes are often not a small amount, and savvy landlords should be wise.


In the event of a fault in the construction capital chain, the stoppage is the last terrible event in the construction of the project, so it will lead to a rapid increase in investment:


1. Site stoppage, lost work, nest work, labor, mechanical equipment often adds up to not a small amount.

2. During the foundation construction period, the maintenance cost of the foundation pit will increase, and the equipment will arrive, and the finished product protection cost will occur in the middle and later stages.

3. There are various lawsuits in many construction projects in society, but most of them are brought out due to the suspension of work. Project Manager Alliance article, deep dive.


(4) Construction process risks.


Decision makers in project construction often start construction in a hurry due to various reasons that they are "eager to build" or rush to achieve quick results or think that they have sufficient reasons and do not perform various construction procedures. 


The practice of reform and opening up over the past 3 years has proved that the management procedures of project construction have been greatly improved, especially in recent years, managements at all levels have greatly improved the management procedures in planning, regulation, supervision and service to the society, especially functional departments, and in cooperation with computer records and information-based management, especially the accountability system. 


So that the management of construction projects has entered into procedure, legalization and specialization means of economic penalties, etc. Disorder and irregularities are more likely to escape legal and economic penalties. 


When violations of laws and regulations occur, the relevant personnel should be personally held accountable, punished, or trivial. The bigger problem is the stoppage of the project being ordered to rectify, and the corresponding costs are dire as described in point <> above, which requires the attention of decision-makers and cannot be taken seriously.


(5) The risk of major accidents


Major accidents occur during the construction of the project, one is a personal safety accident, and the other is a project quality accident. 


The author mainly discusses the risks of the owner, the risk of the owner will involve the pond fish is involved in the inevitable problems that may affect the aesthetics of the finished product, damage to the structure, reduce the use effect and delay the production of the product. 


Moreover, the loan interest and the loss of production income for deferred production are often difficult to calculate for the designer, constructor, and supervision party.


(6) The risk of the owner's preparation team


At this stage, India's engineering project agency system is not yet perfect, and the project management system is still being explored and implemented. Under normal circumstances, most owners or investors will establish their own or self-centered construction preparation team to manage the construction of the project. 


Because many units do not have long-term continuous engineering construction, their own team personnel are generally not professional enough, or there are "emphasis on economy, light design, emphasis on technology, light management, emphasis on progress and not according to the mechanism" and other situations, although engineering and technical personnel with professional backgrounds may not be complete and experienced, and overall, their strength is weak. 


When encountering major projects, although they do their best, it is inevitable that because of "irregular mechanisms and inexperience", they are often inadequate, and their efficiency and results can be imagined. It took a lot of time to prepare the project, but it never progressed, and that's why. Time is money, and the loss of delayed production is a big account that is difficult to calculate and clearly argue.


(7) Price risk of materials and equipment


For larger engineering projects, it is inevitable and necessary to use more materials and equipment. Under India's system at this stage, material and equipment suppliers generally bear limited price risk, and most of the practices are borne by construction owners. 


The current building materials, that is, the "material difference", fluctuate up and down quarterly, and are fickle, very irregular, and the fluctuation range is also large, up to 10%-50% or more. The cost of building materials generally accounts for 60-70% of the cost of engineering construction, which is a large value, and must be carefully selected and planned. 


In addition to manufacturing materials, changes in equipment prices often involve changes in foreign exchange rates of imported equipment, and the difference between changes is 10%-30%.


Two. In order to avoid these risks, the authors believe that the following countermeasures should be taken decisively:


(1) Sufficient market research and research:


Adequate market research and research is the basis and way to achieve things


Through research, ideas are developed, countermeasures are planned, and results are achieved. Adequate market research is the necessary and most basic means to make good project decisions. 


In general, the following factors should be taken into account and programmed:

  1. Own economic resources and consider the reliability of capital accumulation.
  2. The use of functions of the project and the needs of scheduled business development.
  3. The needs of market development prospects and the scale of preparatory project development.
  4. Construction scale, standard grade and forecast total project cost.
  5. Loan interest rate and repayment ability.
  6. Construction period requirements.
  7. Feasibility study obtained by comparative analysis of multiple schemes.

(2) Risk avoidance.


Risk avoidance is a matter of profit that ordinary people want to gain. However, for owners who have not been engaged in the construction of engineering projects for a long time, it is generally only a general concept, not so full and specific as imagined. 


This is especially true for owners who lack construction experience, and they often substitute an additional percentage for all potential risks, which is unreliable. 


Reliable avoidance measures must be developed to fully take into account each possible risk matter. The following circumvention measures should be considered:


1. Scheme demonstration


Despite the optimized construction feasibility report after many comparisons. It is still necessary to brainstorm, after repeated demonstration in many aspects and levels. 


It is best to ask an engineering consulting company with rich experience and strength to assist in formulating and special expert demonstration, and then finalize the plan after listening to the experts' argumentation opinions.


2. Scheme design


Find a design unit with strong strength for preliminary design and select the design scheme after careful comparison through scheme bidding. 


Which can play a stable guaranteed role in controlling the quality of construction drawings and controlling the construction cost, avoiding major modifications and usually only increasing the cost, in major design modifications, the opportunity to greatly reduce the cost is extremely rare.


3. Strict procedures


Reasonable setting procedures is the basis for ensuring that the construction project is in accordance with laws and regulations, investment project approval and improvement of the design plan, and it is also the key to whether the construction organization plan is sufficient and whether the internal operation is standardized. 


Do one thing well, one person can't, do a bad thing, one person is enough. Countless "rotten buildings" and "corruption projects" have proved that "dead sheep make up for the prison" is also late! It is very necessary to declare and approve the territorial government and relevant functional departments in accordance with the construction project application procedures. 


Such as construction planning, design scheme, project application, construction organization plan, start report, sludge discharge, noise impact, etc. 


The approval procedures of many departments, even if the approval procedure is omitted, will be subject to expensive penalties or the possibility of stoppage or missed work and quickly and greatly increase the cost of the project.


4. Hire supervision


Selection of engineering construction supervision companies (engineering consulting companies) with good reputation, strong technical force, and project management experience through bidding. 


Under the current system of low construction supervision remuneration, it is a reliable and effective risk avoidance measure to assist the owner to manage the quality, construction period, cost and safety of the project. 


At the same time, the whole process of project construction can be tracked and sorted out relevant technical data and document files, eliminating the need for the owner to invest a lot of talents.


5. Selection of construction unit


Through bidding, the selection of construction engineering companies with good reputation, strong technology, economic strength, and construction equipment capabilities to undertake construction has a reliable guaranteed role in ensuring the quality and construction period of the project.


In particular, the adaptability of adopting many new technologies and new processes in major projects, or the ability to respond in case of major basic geological anomalies, shows its unique role in emergency response such as economy, technology, and equipment strength.


6. Price control of materials and equipment


Experienced owners usually transfer some risks to suppliers in order to ensure that their investment plans can be effectively controlled rather than making small profits. 


Measures to be taken to set the annual price of major materials such as steel and cement for building materials and sign them in the terms of the contract, so as to prevent the construction unit from saying that it cannot purchase the stop as a bargaining chip when the price rises, forcing the owner to agree to provide too high a price. 


There is also an appropriate increase in the proportion of the advance payment, and the price of materials for a certain period of time is specified when the contract is signed. The material float of the equipment is taken to set the supply price of the equipment. 


However, because exchange rate changes involve international practices in countries and regions, it is generally difficult to set dead prices, so it is more realistic to use strict supply periods to control.


7. Purchase engineering insurance


Engineering insurance is considered based on the long construction period of the project and the difficulty of predicting the unaccountable factors affecting the quality of the project and construction safety at the construction site. It can be divided into owners, investors and participating units are all purchased. 


The owner's risk is based on significant losses caused by unmet factors other than the responsibility of the participating units such as geological anomalies, natural disasters or natural or man-made disasters. It is necessary to ensure that the owner avoids major losses caused by major geological changes and extraordinarily large natural disasters within the scope of the planned project expenditure. 


Engineering construction projects have large investment and long construction period, large amounts of materials, required power equipment and facilities, endless technological innovations, and large amounts of manpower, material resources and inputs, and it is easy to cause major economic losses if you are not careful. 


Equipping a strong preparatory team, hiring professional consultants, and bidding and selecting participating units is an effective way to effectively avoid construction investment risks.


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