**4. Results**

As outlined in Section 2, risk factors on construction projects can be split into two major groups:

Risk Management in Construction Projects 439

97% of the respondents answered that risks must be managed at the early stages of the

1.66

01234

1.86

2.43

2.42

2.42

2.29

2.23

2.86

2.69

2.53

2.48

2.57

2.94

2.86

2.62

2.02

0 0.5 1 1.5 2 2.5 3 3.5

1.98

2.79

3.28

3.39

2009 2008

2009 2008

3.44

3.61

2.21

2.32

In terms of the sources and providers of the data and information required in the risk analysis, the most frequently used technique is experiential or documented knowledge analysis with 92% of the respondents' agreement in the first survey, and 93% of the respondents' agreement in the second survey (Fig. 3). And the project documentation reviews, project team brainstorming, and analysis of other information resources are

Comparison between the two surveys in terms of risk analysis showed a decrease in reviews of project documentation, from 63% in the first survey to 47% in the second survey, as well as greater use of experts' judgement, from 26% in the first survey to 43% in the second

construction project.

**Figure 1.** Probability assessment of external project risks

Exchange fluctuations

Inflation and interest rate

Globalisation

Political controls

Natural forces

Fiscal policies

**Figure 2.** Impact assessment of external project risks

Exchange fluctuations

Inflation and interest rate

Globalisation

Political controls

Natural forces

Fiscal policies

frequently used in the risk assessment.


The potential risk sub-factors were adapted from studies by Chapman and Ward [25], Tah and Carr [32], Perera et al. [40], Pinto et al. [51], Baloi and Price [63], Kartam and Kartam [66], Lahdenperä [67], Majamaa et al. [68], Mbachu and Nkado [69], Mitkus and Trinkūnienė [70], and Yang et al. [71].

In order to illustrate the respondents' opinions regarding the importance of analysed risk factors, an average was calculated for each factor. Next, the Kendall coefficient of concordance W [72,73] was calculated to test the reliability of the responses, and significance testing was based on the Chi-square distribution at the 1% significance level. The *W* coefficients were calculated for each defined group of risk factors created by the analysis perspectives.

In both surveys, the respondents agree as regards the external risks impact and probability. The respondents agree as regards the external risks impact, what can be judged by values *W*=0.183; *χ*2=34.7 (*α*=0.01), in the first survey; *W*=0.10; *χ*2=12.4 (*α*=0.01), in the second survey. The identified external risks according to their potential effect on construction project objectives were ranked. In the first survey, the top three important external risks identified are:


In the second survey, the top three important external risks identified are:


Probability assessment of risks of the external project constrains is reflected in Fig. 1. Impact assessment of risks of the external project constrains is reflected in Fig. 2.

The risk management perceivers are the project participants, and a contractor is any entity which has the power to influence project decision making directly. Related to experience, only 11% of the respondents affirmed that they have experience in risk management. Most of them are project manager and have more than 15 years' experience; it proofs that the relationship between risk perception and experience of respondents. And even 34% of the respondents affirmed that they have no experience in risk management, while 55% of the respondents affirmed that they do not have enough experience in risk management. And 97% of the respondents answered that risks must be managed at the early stages of the construction project.

**Figure 1.** Probability assessment of external project risks

438 Risk Management – Current Issues and Challenges

As outlined in Section 2, risk factors on construction projects can be split into two major

The potential risk sub-factors were adapted from studies by Chapman and Ward [25], Tah and Carr [32], Perera et al. [40], Pinto et al. [51], Baloi and Price [63], Kartam and Kartam [66], Lahdenperä [67], Majamaa et al. [68], Mbachu and Nkado [69], Mitkus and Trinkūnienė

In order to illustrate the respondents' opinions regarding the importance of analysed risk factors, an average was calculated for each factor. Next, the Kendall coefficient of concordance W [72,73] was calculated to test the reliability of the responses, and significance testing was based on the Chi-square distribution at the 1% significance level. The *W* coefficients were calculated for each defined group of risk factors created by the analysis

In both surveys, the respondents agree as regards the external risks impact and probability. The respondents agree as regards the external risks impact, what can be judged by values *W*=0.183; *χ*2=34.7 (*α*=0.01), in the first survey; *W*=0.10; *χ*2=12.4 (*α*=0.01), in the second survey. The identified external risks according to their potential effect on construction project objectives were ranked. In the first survey, the top three important external risks identified

Probability assessment of risks of the external project constrains is reflected in Fig. 1. Impact

The risk management perceivers are the project participants, and a contractor is any entity which has the power to influence project decision making directly. Related to experience, only 11% of the respondents affirmed that they have experience in risk management. Most of them are project manager and have more than 15 years' experience; it proofs that the relationship between risk perception and experience of respondents. And even 34% of the respondents affirmed that they have no experience in risk management, while 55% of the respondents affirmed that they do not have enough experience in risk management. And

In the second survey, the top three important external risks identified are:

assessment of risks of the external project constrains is reflected in Fig. 2.

1. Internal risks, which fall within the control of clients, consultants and contractors. 2. External risks, which include risk elements that are not in the control of key

**4. Results** 

stakeholders.

[70], and Yang et al. [71].

perspectives.

1. Natural forces;

3. Fiscal policy.

1. Fiscal policy; 2. Natural forces; 3. Political controls.

2. Inflation and interest rate;

are:

groups:

**Figure 2.** Impact assessment of external project risks

In terms of the sources and providers of the data and information required in the risk analysis, the most frequently used technique is experiential or documented knowledge analysis with 92% of the respondents' agreement in the first survey, and 93% of the respondents' agreement in the second survey (Fig. 3). And the project documentation reviews, project team brainstorming, and analysis of other information resources are frequently used in the risk assessment.

Comparison between the two surveys in terms of risk analysis showed a decrease in reviews of project documentation, from 63% in the first survey to 47% in the second survey, as well as greater use of experts' judgement, from 26% in the first survey to 43% in the second

survey, and project team brain-storming, from 45% in the first survey to 53% in the second survey, in the risk assessment.

Risk Management in Construction Projects 441

second survey, and resource reservation, from 61% in the first survey to 50% in the latter survey; as well as greater use of risk transference to another party, from 50% in the first survey to 53% in the second survey, and insurance, from 55% in the first survey to 57% in

In last survey (2010-2011), the respondents agree as regards the project level risks impact, what can be judged by values *W*=0.54; *χ*2=51.3 (*α*=0.01). As regards the assessment of the project level risks probability, respondents also agree what can be judged by values *W*=0.51; *χ*2=48.5 (*α=*0.01). The identified project level risks according to their potential effect on construction project objectives were ranked. The top three important categories of internal

Overall assessment of risks of the internal project risks is reflected in Fig. 5. Risk priority is utilized during response planning and risk monitoring. It is critical to understand the priority for each risk as it allows the project team to properly understand the relative

1.3

2.7

2.0

4.0

Environmental risks

Probability Impact

External risks

3.5

3.3

3.8

Table 1 shows that the controllable risk sources as identified in the study could be further broken down into seven sub-categories: design risks, external risks, environmental risks, organizational risks, project management risks, right of way risks, and construction risks

the latter survey, for the risk responses.

risks identified are:

1. Construction risks; 2. Design risks;

importance of each risk.

3. Project management risks.

**Figure 5.** Assessment of project level risk categories

risks

3.5

Right of ways risks

3.3

3.3 3.7

Organizational risks Project management

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Design risks

1.5

3.0

4.0

Construction risks

which fall within the control of the project team.

**Figure 3.** Risk analysis practices in construction projects

**Figure 4.** Risk response techniques employed for construction projects

In terms of the risk response tools and techniques, the most frequently used tool is performance bonds and warranties with 95% of the respondents' agreement in the first survey, and 77% of the respondents' agreement in the second survey (Fig. 4). And the some resource reservation, insurance, and risk transference to another project party are frequently used risk response techniques.

Comparison between the two surveys in terms of risk response tools and techniques showed a decrease of performance bond and warranties, from 95% in the first survey to 77% in the second survey, and resource reservation, from 61% in the first survey to 50% in the latter survey; as well as greater use of risk transference to another party, from 50% in the first survey to 53% in the second survey, and insurance, from 55% in the first survey to 57% in the latter survey, for the risk responses.

In last survey (2010-2011), the respondents agree as regards the project level risks impact, what can be judged by values *W*=0.54; *χ*2=51.3 (*α*=0.01). As regards the assessment of the project level risks probability, respondents also agree what can be judged by values *W*=0.51; *χ*2=48.5 (*α=*0.01). The identified project level risks according to their potential effect on construction project objectives were ranked. The top three important categories of internal risks identified are:


440 Risk Management – Current Issues and Challenges

**Figure 3.** Risk analysis practices in construction projects

Experiential or documented knowledge analysis

Project team brainstorming

Analysis of other information resources

> Project documentation reviews

Experts judgement

Historical information analysis

**Figure 4.** Risk response techniques employed for construction projects

Resource reserve

Insurance

Other

Performance bond, warranties

Risk transference to another project party

used risk response techniques.

In terms of the risk response tools and techniques, the most frequently used tool is performance bonds and warranties with 95% of the respondents' agreement in the first survey, and 77% of the respondents' agreement in the second survey (Fig. 4). And the some resource reservation, insurance, and risk transference to another project party are frequently

8%

3%

Comparison between the two surveys in terms of risk response tools and techniques showed a decrease of performance bond and warranties, from 95% in the first survey to 77% in the

survey, in the risk assessment.

survey, and project team brain-storming, from 45% in the first survey to 53% in the second

16%

17%

92%

95%

77%

61%

55%

57%

50%

0% 20% 40% 60% 80% 100%

50%

53%

93%

2009 2008

2009 2008

63%

45%

53%

47%

0% 20% 40% 60% 80% 100%

39%

43%

26%

30%

3. Project management risks.

Overall assessment of risks of the internal project risks is reflected in Fig. 5. Risk priority is utilized during response planning and risk monitoring. It is critical to understand the priority for each risk as it allows the project team to properly understand the relative importance of each risk.

**Figure 5.** Assessment of project level risk categories

Table 1 shows that the controllable risk sources as identified in the study could be further broken down into seven sub-categories: design risks, external risks, environmental risks, organizational risks, project management risks, right of way risks, and construction risks which fall within the control of the project team.


Risk Management in Construction Projects 443

High PM2, C1 D1

Low R2 Ex1, En1, En2,

Once the risks and probabilities are determined, the risk score can be calculated. Risk score is detailed in Table 1. The probability and impact matrix (Fig. 6) illustrates a risk rating assignment for individual risk factors in the identified risks categories. The risk matrix shows the combination of impact and probability that in turn yield a risk priority (shown by the red, yellow, and green colour). Qualitative risk analysis can lead to further analysis in

Twenty risk factors were established to be significant under the internal risks categories. Under the design risk category, design errors/omissions and design process delays were the most frequently mentioned risk factors attributed to the contractors. Under the project management risk category, scheduling errors and failure to comply with contractual quality requirements were the most frequently mentioned risk factors. Under the construction risk category, construction cost overruns and technology changes were the most frequently mentioned risk factors attributed to the contractors. Respondents believed that these risk events are responsible for poor quality of work, delays and associated losses. Risks with high impact and high probability, such as D1 (design errors and omissions), C1 (construction cost overruns), and PM2 (scheduling errors, contractor delays) are required

An effective risk management process encourages the construction company to identify and quantify risks and to consider risk containment and risk reduction policies. Construction companies that manage risk effectively and efficiently enjoy financial savings, and greater

Risk management in the construction project management context is a comprehensive and systematic way of identifying, analyzing and responding to risks to achieve the project objectives. The research results show that the Lithuanian construction company significantly differ from the construction companies in foreign countries in the adoption of risk management practices. To management the risk effectively and efficiently, the contractor must understand risk responsibilities, risk event conditions, risk preference, and risk

Very low Ex2, Ex3 Ex4, R1 Rare Occasional Somewhat

O2, PM3 D2, PM1

O3, C2

frequent Frequent Very frequent

Moderate D3, D4, O1,

 **Likelihood** 

quantitative risk analysis or directly to risk response planning.

further analysis, including quantification, and aggressive risk management.

productivity, improved success rates of new projects and better decision making.

**Impact** 

Very high

**Figure 6.** Risk matrix

**5. Conclusions** 

management capabilities.

**Table 1.** Risk categories

**Figure 6.** Risk matrix

Categories

D4 Failure to carry out the works in accordance with

En2 New alternatives required to avoid, mitigate or

PM1 Failure to comply with contractual quality

requirements

**Table 1.** Risk categories

Likelihood 1 (rare)-5 (very frequent)

Design risks

the contract 3 3

External risks

Environmental risks

minimize environmental impact 2 4

Organizational risks

Project management risks

Right of way risks

Construction risks

En1 Environmental analysis incomplete 2 4

O1 Inexperienced workforce and staff turnover 3 3 O2 Delayed deliveries 3 3 O3 Lack of protection on a construction site 2 4

PM2 Scheduling errors, contractor delays 4 4 PM3 Project team conflicts 3 3

R1 Expired temporary construction permits 1 4 R2 Contradictions in the construction documents 2 3

C1 Construction cost overruns 4 4 C2 Technology changes 2 4

Ex1 New stakeholders emerge and request changes 2 4 Ex2 Public objections 1 3 Ex3 Laws and local standards change 1 3 Ex4 Tax change 1 4

D1 Design errors and omissions 4 5 D2 Design process takes longer than anticipated 3 4 D3 Stakeholders request late changes 3 3

Impact 1 (very low)-5 (very high)

3 4

Once the risks and probabilities are determined, the risk score can be calculated. Risk score is detailed in Table 1. The probability and impact matrix (Fig. 6) illustrates a risk rating assignment for individual risk factors in the identified risks categories. The risk matrix shows the combination of impact and probability that in turn yield a risk priority (shown by the red, yellow, and green colour). Qualitative risk analysis can lead to further analysis in quantitative risk analysis or directly to risk response planning.

Twenty risk factors were established to be significant under the internal risks categories. Under the design risk category, design errors/omissions and design process delays were the most frequently mentioned risk factors attributed to the contractors. Under the project management risk category, scheduling errors and failure to comply with contractual quality requirements were the most frequently mentioned risk factors. Under the construction risk category, construction cost overruns and technology changes were the most frequently mentioned risk factors attributed to the contractors. Respondents believed that these risk events are responsible for poor quality of work, delays and associated losses. Risks with high impact and high probability, such as D1 (design errors and omissions), C1 (construction cost overruns), and PM2 (scheduling errors, contractor delays) are required further analysis, including quantification, and aggressive risk management.
