Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

Bahir Dar University (BDU)

Bahir Dar Institute of Technology (BiT)
Faculty of Civil and Water Resources Engineering (FCWRE)
Construction Technology and Management (CoTM) Chair

Program: MSc in Civil Engineering (Construction Technology and Management)

Development of a Risk Management Plan for a building

construction project in Bahir Dar /Ethiopia/

By Abebe Taye-(BDU1315132)
Setegn Mohamed-(BDU1315130)
Sileshi Fenita-(BDU1315124)
Solomon Abate-(BDU1315123)
Melkamu Andualem-(BDU1315125)
Ruhama wale-(BDU1114454)
Submitted to: Dr. Solomon M(PhD)

Date of Submission: OCT. 20, 2022

Bahir Dar, Ethiopia

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

Table of Contents
Abstract ......................................................................................................................................................... ii
List of tables and figure................................................................................................................................. iii
1. Introduction....................................................................................................................................... - 1 -
2. Objective ........................................................................................................................................... - 1 -
3. Study area.......................................................................................................................................... - 1 -
4. Risks of construction industries ......................................................................................................... - 2 -
4.1 External Risks .................................................................................................................................. - 3 -
1.1.1 Environmental risk ............................................................................................................ - 3 -
1.1.2 Political risk ....................................................................................................................... - 3 -
1.1.3 Economic risk .................................................................................................................... - 3 -
1.1.4 Legal and order ................................................................................................................. - 4 -
1.1.5 Natural risk ........................................................................................................................ - 4 -
4.2 Internal risk ..................................................................................................................................... - 4 -
4.2.1 Design risk ......................................................................................................................... - 4 -
4.2.2 Technical Risk .................................................................................................................... - 4 -
4.2.3 Construction Risk .............................................................................................................. - 5 -
4.2.4 Management risk .............................................................................................................. - 5 -
4.2.5 Finance Risk....................................................................................................................... - 5 -
5. Identification of Various Risks in Building Construction Projects ....................................................... - 6 -
6. Questionnaire Structure .................................................................................................................... - 6 -
7. Data Collection .................................................................................................................................. - 6 -
8. Data Analysis using RII Method.......................................................................................................... - 8 -
9. Conclusion ........................................................................................................................................... 14
10. Recommendation ............................................................................................................................ 14
11. References ....................................................................................................................................... 15

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

Abstract
Using Risk Management Plan in projects is an effective tool for planning and controlling
cost, time and achieving the technical performance of a building construction project.
Construction projects often face a lot of uncertainties, which places building construction
projects at the risk of cost, time overruns as well as poor quality delivery. Considering the
limited resources, there is need to complete building projects on-time, on-budget, and to meet
optimal quality hence, risk management is an important part of the decision-making process in
construction industry as it determines the success or failure of construction projects. In line with
this need, this paper aims to know awareness, condition and development of Risk management
plan in building construction projects focused in bahardar town, Ethiopia.
Organized and Non-Organized building Construction projects at Bahardar town are
subjected to risky situations that affect the client requirements, satisfactions as well as the socio-
economic of the country. Therefore, to establish a system which improves the time, cost and
quality performance of building construction projects at bahardar town, this paper involves the
identification, classification, and assessment of the development of risk management plan in the
construction of building projects by gathering information in selected building projects using
questionnaires, discussions and supervisions.
At the end the paper will answer the following important questions
1. What is the level of understanding and the degree of implementation of risk management
plan by the construction sector in bahardar town?
2. What level of awareness do project managers have about risk management plan?
3. Are there any existing risk management measures that are being utilized to manage risk
factors in building projects and how successful have these been applied?
4. Is there a cost-effective risk management model that guides companies in the
construction sector in bahardar town to identify, analyze and manage risk in their
business environment?
The findings will guide construction organizations in Bahar Dar town, particularly construction
practitioners to abandon inappropriate risk control processes and implement better practice. It will
further be an initiation for risk management research focused in Bahir Dar town as well.

Key words: (1) Risk, (2) risk management, (3) risk factor, (4) risk allocation, (5) risk
identification.

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

List of tables and figure

Table 1: Distributed questionnaire and response returned/based on parties……… page--7
Table 2: Distributed questionnaire and response returned/based on profession……page-.9
Table .3 level of awareness and level of implementation extent…………………. page-10
Figure -1 level of implementation of risk management plan----------------------- --page-11
Figure-2 level of implementation of risk management plan----------------------------page-12
Figure-3 level of implementation of risk management plan---------------------------page--13

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 1. Introduction

Risk management is one of the ten project management areas (i.e., integration, scope,
time, cost, quality, human resource, communications, risk, procurement and stakeholders)
propagated by the Project Management Institute (PMBoK, 2013). Risk management is the
culture, processes and structures that are directed towards realizing potential opportunities whilst
managing adverse effects (AS/NZS 4360, 2004), Zou et al (2007) define risk management in the
construction project management context as a systematic way of identifying, analyzing and
dealing with risk as associated with a project with an aim to achieve the project objectives.
According to the British standard 31100 (2011) risk management is the process whereby
decisions are made to accept a known or assessed risk and/or the implementation of actions to
reduce the consequences or probability of occurrence.
According to Smith et al (2006), clients, project owner (companies, organization, etc.) have an
overall risk management strategy and policy included in the strategic documents and quality
management system. The project owners risk strategy are risk ownership (which party owns the
risk; risk exposure and transfer) and risk financing (how to include and use budget risk
allowance or contingency), client risk management policy includes the risk procedure or
guidelines and reporting, clients and contractor are concerned with the magnitude and pattern of
the investment and the associated risk (Smith et al, 2006). Risk management for construction
projects according to Smith et al (2006) is illustrated in
Figure 1.1.
2. Objective
This study is aimed at assessing the extent to which building construction undertaking in
BAHIRDAR cities are aware of the risk management concept, the source of their awareness,
the level of implementation and if there is a formal/regular plan to be
evaluated/checked/reported as the normal physical tasks.
3. Study area

Hence finding of problems and making solution starts from the surrounding area, building
construction projects which are under construction in Bahir Dar town is our selected study
areas for our issues. Bahir Dar is the capital city of Amhara region in northern Ethiopia located at

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

Latitude 11.59364000, Longitude 37.39077000. It is a port on the south shore of the huge inland Lake
Tana. Dek Island is one of the many islands in the lake that are home to mediaeval monasteries. On
the Zege Peninsula, the Ura Kidane Mihret monastery is known for its elaborate colorful murals. The
Blue Nile River snakes southeast of the city toward the towering cliffs at the Blue Nile Falls. The
data was collected from different building construction stakeholders in the town like
owner/client, contractor, and consultant.

4. Risks of construction industries

Many development policies in many countries aim to promote the construction industry in
order to prevent companies from collapsing unexpectedly [8]. The construction industry's
growth necessitates an understanding of risk management principles. Every stage of the
building process, from the initial investment appraisal to the construction and operation of
the completed facility, is fraught with risk for all parties involved. Risk and uncertainty
have the potential to be detrimental to construction projects [8]. Even though risk is
inherent in all project endeavors, it is widely recognized that risk can be properly managed
to limit its negative effects on project objectives. As a result, risk analysis and
management are still an important part of construction project management nowadays in
order to cope effectively with uncertainty and unexpected events and achieve project
success. Risk management helps key project participants – client, contractor or developer,
consultant, and supplier – in meeting their obligations and minimizing negative effects on
construction project performance in terms of cost, time, and quality [7].

Risks of construction industries are generally categorized as internal and External Risks.
Risks that are beyond the project team's control were classified as environmental risk,
political risks, economic risks, legal risks, social risks, and nature risks.

External risks are not directly related to the construction process, but they have a significant
weight in terms of the completion of the project.
Internal risks On the other hand, internal risks that arise from the specific nature of the
project and events and are within the control of the project team were divided into design
risks, financial risk, construction risks, and management risks. In this paper, both external
and internal risks, as well as the categories that correspond with them, are identified and

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

used for the Assessment of the development of Risk Management Practice in the Building
construction Projects in Bahardar Town.
4.1 External Risks
1.1.1 Environmental risk

Climate change has an adverse effect on projects all around the world. Although
environmental risk cannot be eliminated, it can be decreased by taking the required
actions. Environmental risk plays a significant role in large building projects, notably
transportation projects. To avoid material durability being reduced owing to climatic
change, construction supplies should be appropriately stocked. During the construction
material selection process, the material that is most suited to the site location and climatic
circumstances should be considered [4].
1.1.2 Political risk

Political risk definitions can be divided into two categories [5]. The first approach focused
on the causes of political risk, such as the possibility of negative consequences from
political events (such as wars, regime changes, revolutions, political violence, riots,
insurgencies, terrorist attacks, and coups) and government activities (e.g., expropriations,
unfair compensations, foreign exchange restrictions, illegal interferences, changes in
laws, corruption, poor enforcement of the contract, and labor restrictions) [6]. The second
approach focused on the repercussions of political risk, which was characterized as
negative effects on businesses as a result of a deterioration in the political environment
1.1.3 Economic risk

In terms of economic risk, inflation and unexpected price fluctuations are the most
significant [18]. Currency fluctuations are an economic risk to consider when designing a
significant construction project, especially for international enterprises. Many countries
have recently used foreign cash to build privately financed infrastructure, putting their
local currencies in danger of depreciation. International lenders are rarely willing to take
such a risk, preferring to get payments in foreign currency. In the past, public corporations
or governments were willing to absorb currency risk; but now, with the increased need for
private financing, the risk of currency depreciation now falls mostly on the project
promoter, and the lender is unwilling to assume it . This risk factor refers to challenges or

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

concerns about the project's macroeconomic impact on the community and region in which
it will be built [2]
1.1.4 Legal and order

Some of the legal and order-related risks include project partner breach of contract, lack of
enforcement of legal judgment, improper verification of contract documents, lack of knowledge
of arbitration, and uncertainty and unfairness of court justice .
1.1.5 Natural risk
The nature risks can be floods, earthquakes and other natural phenomena that damage construction
sites and make work inaccessible.
4.2 Internal risk

Internal risks in large building projects are frequently linked to the management team's
control. They can be categorized as follows.
4.2.1 Design risk

Defects in the design that causes the asset to be built yet fail to meet the specified
standards, legal requirements, and any environmental or other constraints. Such situations
necessitate a revision to the project, resulting in delays and, most importantly, cost
increases. Defects or failures in the design that cause the project to fall short of the
contract's service standards, or that cause a rise in operation and maintenance (O & M)
expenses to fulfill the contract's service requirements.
Some design risks include design flaws and omissions, the design process taking longer
than expected, stakeholders requesting late revisions, and failing to complete the work in
line with the contract 1.

4.2.2 Technical Risk

Anything that prevents from creating a product that fits a customer's desire is considered
as technical risk. This can be due to a lack of funding and materials, a lack of site
assessment, or an imperfect design. Changes in project scope and needs, as well as design
flaws or omissions, are major causes of these risks.
Material shortage, poor quality of procured material, unknown site physical condition,

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

Obsoleteness of building equipment, wastage of materials by work are also some of the
technical risks
4.2.3 Construction Risk

Contractors and subcontractors are more likely to be the sources of most construction
risks. Experienced contractors must be involved in the project as early as possible to
make sound preparations for generating legitimate construction programs in order to keep
the construction activity on schedule. Construction phase risks include machinery, delays
due to rain and other factors, uncertain market conditions, contractor productivity issues,
time. Construction risks also include labor productivity, labor disputes, site conditions,
equipment failures, design revisions, too high-quality standards, and new technologies
4.2.4 Management risk

The wrong project team selection, lack of a proper project manual, lack of procedures, a
project being too complex for the available resources, inability to take prompt remedial
actions, poor quality control, poor control of status review, lack of an experienced person
in the project team, and inadequate communication infrastructure are some of the
construction management risks.
Short tendering time, improper project feasibility study, time constraint, and no past
experience in similar projects, are also some of the management risks.

4.2.5 Finance Risk

The ability to overcome the project's financial risk all the way to ultimate completion and
operation is referred to as "financial risk." This risk factor refers to challenges or concerns
about the project's funding, such as the execution period, operations, or equity financing.
Finally, the findings of the study will contribute to risk management practice in the
Ethiopian construction sector, more specifically in Bahardar town, as well as provide
useful information to international companies interested in providing construction
project management services to
Bahardar and the country of Ethiopia.

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

5. Identification of Various Risks in Building Construction Projects

Building construction risk management information was gathered by looking through old
journals and reviews. The information was then gathered from people who were involved
in construction projects. we also used our own experience and exposure on the industry.
This information pertains to the risk management awareness and implementation in the
construction company during project implementation. These facts are gathered from
team leaders, managers, site engineers, office engineers, project managers, and laborers
participating in building projects.
6. Questionnaire Structure

The questionnaire survey comprises of four parts, the first part is dealing with the level of
awareness for risk management in a building construction project, the second part is
dealing with the source of the awareness, the third part dealing with the level of
implementation/practice of the risk management, and the fourth part is dealing whether
there is a risk management plan or not.

the risk variables that are involved in building construction projects were input and
arranged according to the type of risk involved. Thirty main categories of risk involved in
construction projects are selected, such as: owners’ risk, designer risk, contractors’ risk,
subcontractors’ risk, supplier risk, external risk, social and cultural risk, economic risk, natural,
legal, environment, physical and others. Under these thirty categories of risk, sixty-two risk
factors are selected.
7. Data Collection

After the questionnaire Structure is done, the data collection process is started. The
questionnaire was prepared in the form of a five-point Likert scale, i.e., 1-very low, 2-
low, 3-moderate, 4-high, and 5-very high importance. A total sample of 8 questionnaires
was distributed to the respondents in BHIRDAR city, and 8 respondents returned the
questionnaires.

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

Table 1: Distributed questionnaire and response returned/based on parties

Parties in the Questionnaire Questionnaire % Of responses

construction industry distributed returned
Owner/client 1 1 100
Contractors 5 5 100
Consultants 2 2 100
Total 8 8 100

Table 2: Distributed questionnaire and response returned/based on profession

Under Under Number of Percentage of

Stakeholders Under Contractor
owner Consultant Respondents responses
Office 3 3 37.7
Engineer
Project 1 1 12.5
Manager
Site Engineer 2 2 25
General 2 2 25
Manager

Total 1 5 2 8 100.00

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

8. Data Analysis using RII Method

The required information from the questionnaire survey is retrieved and graded using the
quantitative method of the relative importance index. The RII approach is used to analyze
the data. Following the analysis, the level of awareness and implementation were graded on the
building construction project. The relative importance index (RII) was determined as
follows:

Where,

w = Weight allotted to each risk (by response to questionnaire

survey) A = Highest weight (A=5 for five-point Likert scale)
N = Total number of people (responses) who completed Questionnaire survey
∑𝐖 𝟓𝐧𝟓 + 𝟒𝐧𝟒 + 𝟑𝐧𝟑 + 𝟐𝐧𝟐 + 𝐧𝟏 𝟓𝐧𝟓 + 𝟒𝐧𝟒 + 𝟑𝐧𝟑 + 𝟐𝐧𝟐 + 𝐧𝟏
(1)
𝐑𝐈𝐈 = 𝐀𝐍 = 𝟓𝐍
= 𝟓(𝐧𝟓 + 𝐧𝟒 + 𝐧𝟑 + 𝐧𝟐 + 𝐧𝟏)

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

Risk management level of awareness and implementation (%) =

Table .3 level of awareness and level of implementation extent.

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

Figure -1 level of implementation of risk management plan

Level of Awareness
V.LOW LOW MIDIUM HIGH VERY HIGH

difficulty to access the site

hot weather effects on construction
rain effect on construction
flood
no specialized arbitrator
modification in laws
breach of contract
poor performance
in accurate project program
poor communication
unmanaged cashflow
lack of departure of qualified staff
contractors in compitency
technical problem
low productivity
RISK CATAGORY

poor quality
construction accidients
in accurate quantities
shortage of qualified firms
lack of consistency
document not issued on time
change in design
deficiency in drawing
defective design
breach of contract
sudden bankruptcy
delay in obtaining site access
lack of scope definition
change design
improper integration
an reasonabily imposed tight schedule
delayed payment to contractor

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

LEVEL OF AWARENESS

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

Figure-2 level of implementation of risk management plan

Level of Implementation
V.LoW LOW MIDIUM HIGH VERY HIGH

0.25 0.375
in accurate project program 0.125 0.25
0.25
0.25
poor communication 0.125 0.375

unmanaged cashflow 0.25 0.375

0.375
0.375 0.5
contractor risk

lack of departure of qualified staff 0.125

0.125 0.5
contractors in compitency 0.375
0.375
0.375
technical problem 0.25
0.125 0.375
low productivity 0.5
0.5
poor quality 0.5

construction accidients 0.25 0.375

0.375

in accurate quantities 0.375 0.625

0.25
0.25
shortage of qualified firms 0.5
0.25 0.5
0.25
Designer Risk

lack of consistency

document not issued on time 0.375

0.625

change in design 0.5

0.5

deficiency in drawing 0.375 0.625

defective design 0.25 0.375

0.375
0.125 0.375
breach of contract 0.25
0.25
0.375 0.625
sudden bankruptcy
0.25 0.5
delay in obtaining site access 0.25
owners risk

lack of scope definition 0.5

0.5

change design 0.5

0.5
0.25
0.25 0.375
improper integration 0.75
0.25 0.375
an reasonabily imposed tight schedule 0.375
0.125 0.5
delayed payment to contractor 0.125 0.25

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

Figure-3 level of implementation of risk management plan

Rank Of level of awareness

in accurate project program

poor communication
unmanaged cashflow
contractor risk

lack of departure of qualified staff

contractors in compitency
technical problem
low productivity
poor quality
construction accidients
in accurate quantities
shortage of qualified firms
Designer Risk

lack of consistency
document not issued on time
change in design RANK
deficiency in drawing
RII
defective design
breach of contract
sudden bankruptcy
delay in obtaining site access
owners risk

lack of scope definition

change design
improper integration
an reasonabily imposed tight schedule
delayed payment to contractor

0 2 4 6 8 10 12 14 16 18 20

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

9. Conclusion
The study indicated that the following significant risk factors have better level of awareness (1)
inaccurate quantity, (2) change in design, (3) Quality problems of material, (4) document not
issued on time, (5) delay in approval, (6) inflation, (7) currency fluctuation, (8), shortage in
material availability, (9) shortage in equipment availability. And those which have low level of
awareness are (1) hot weather effect, (2) change in low, (3) sudden bankruptcy. The study also showed
that the above risk factors have better level of implementation as well.

In BAHIRDAR, Ethiopia, risk management is still in a very low level of awareness and practice
in the construction industry, and this needs to be changed as quickly as possible.
This research determined that risk management is not considered as one part of the task (project
management tasks) to be planned executed, evaluated and held accountability for those whom
they failed to implement (plan, control/monitor & mitigate) the probable risks in a building
construction project very well.
It is more or less ignored by the whole stakeholders. This research provides a thorough grasp of
the awareness and implementation of risk management in building constructions at Bahir Dar. In
the construction industry, risk management is a useful tool for assisting decision-making and
corrective actions.
This management of risk will help assist in risk planning, controlling/monitoring, mitigating risks
that might be happened at a building construction projects. Furthermore, this will aid in
enhancing the performance of building construction projects in ways such as maintaining project
cost and quality, and completing projects on time.

10. Recommendation
The majority of building construction stakeholders in BAHIRDAR city, Ethiopia is unaware of
proper risk management techniques. As a result of this discovery, it is critical and must be
implemented to educate stakeholders about risk management. Academic institutions such as
universities, colleges, and construction management institutes should incorporate risk
management in their formal education curriculum and career development training as informal
education.
The results of this finding also recommended that in Bahir Dar, Ethiopia, there is an essential
need for more standardization and effective forms of contract that address issues of clarity,
fairness, roles and responsibilities, allocation of risks, dispute resolution, and payment. All
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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

building construction stakeholders are called for the identification of possible risk factors that
could be faced and the allocation of them contractually.
Finally, this week level of awareness and level of implementation shall be alleviated by making a
proclamation, codes & directives and making the risk management task to be recognized as a
mandatory.

11. References
1. a review of project risk management mohamed, h.f.-projects contracts department - petroleum
marine services company.
2. risk management system to guide building construction projects’ in developing countries: a case
study of nigeria by odimabo otobo, onengiyeofori bsc, msc.
3. understanding the key risks in construction projects in china patrick x.w. zou a, *, guomin zhang
b,1, jiayuan wang ca faculty of the built environment, university of new south wales, sydney 2052, nsw,
australia b school of architectural, civil and mechanical engineering, victoria university, melbourne 8001,
australia c college of civil engineering, shenzhen university, shenzhen, pr china
4. the project risk management process, a preliminary study luiz henrique rodrigues-da-silvaa,*,
josé antónio crispima auniversity of minho, campus of gualtar, braga. 4710-057, portugal
5. the application of project management standards and success factors to the development of a
project management assessment tool antonio g. sanjuana,*, thomas froeseb abritish columbia institute of
technology, ne01 332h, 3700 willingdon ave., burnaby, bc, v5g 3h2 canada buniversity of british
columbia, 6250 applied science lane, vancouver, bc, v6t 1z4 canada
6. increase the projects’ success rate through developing multi-cultural project management process
ipek sahra ozguler* ipek sahra ozguler, istanbul, 34377, turkey
7. review of project risk management and risk assessment lilis sulastri1*, sri utami ady2, tomy
fitrio3, angga hapsila4, miftahus surur5 1universitas islam negeri sunan gunung djati, indonesia
2economic and business faculty, dr. soetomo university, indonesia 3sekolah tinggi ilmu ekonomi
indragiri, indonesia 4sekolah tinggi ilmu ekonomi indragiri, indonesia 5stkip pgri situbondo, indonesia
received: 13/09/2019 accepted: 22/11/2019 published: 20/12/2019
8. risk analysis and management in construction akintola s akintoye* department of building and
surveying, glasgow caledonian university, glasgow, g40ba, uk malcolm j macleod 1risc technical
services, international loss adjusters, 35 seething lane, london, ec3n 4ah, uk
9. assessment of risk management practice in construction projects using rii method: a case study of
gondar city, ethiopia amare tilahun tessemaa*, getachew asefa aleneb, natnael melsew wolelawc
a,b&cdepartment of civil engineering, faculty of technology, debre tabor university, south gondar,
ethiopia.
10. risk management practices in a construction project – a case study master of science thesis in the

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Development of a Risk Management Plan for a building construction project in Bahir Dar /Ethiopia

master’s programme ewelina gajewska mikaela ropel.

11. critical risks in construction projects in ethiopia andualem endris yadeta
department of construction technology and management, college of engineering, mada walabu
university, bale robe, ethiopia. p.o box: 247, bale robe, ethiopia e-mail: [email protected]
12. the impact of risk management practices on the performance of construction projects nasser
alsaadi1, norhayatizakuan2 1faculty of management, universititeknologi malaysia, e-mail:
[email protected] 2faculty of management, universititeknologi malaysia, e-mail:
[email protected]

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