QUESTIONS ONE AND TWO ARE BASED ON THE FOLLOWING CASE STUDY:

A risk and cost management analysis for changes during the construction phase of a project

One of the primary ways in which value is generated in modern societies, is through projects that create physical assets, such as factories, commercial buildings, hospitals, schools and highways, which can then be exploited to social and economic ends.

Most of these assets are created through construction projects, and as the size and complexity of these projects increase, a more intensive level of project management is required to successfully meet the expectations of time, cost and quality.

However, managing a construction project is difficult in that all the relevant information is not always available at the initial stage of the project to plan and design the project accurately and make the best possible decisions.

As information becomes available during the construction phase of the project, it can lead to various changes, which can in turn affect productivity, planned schedules, deadlines, work methodology, resource procurement and budget, all of which could result in the project objectives not being achieved. Design errors or variations, unforeseen site conditions and vagueness in the original scope are merely some of the reasons for change.

It is expected of a project manager to effectively manage the cost, time and risk impacts of all project changes, and complete the project within the project constraints regardless of any challenges. To manage projects more effectively, a fresh approach in project management is required. A project manager must understand the implications of changes and must manage these changes in such a way that all the project objectives are obtained within the time, budget and quality constraints.

Over and above the cost, time and risk consequences, changes can also affect stakeholder relationships and team morale.

The uncertainties associated with change are often the result of iterative cycles or further changes due to unanticipated side-effects of the current change during the construction process. It is thus imperative to understand change, the types of changes, its impact on the project, and how to analyse, manage and control it.

Change could also result in rework. Construction is the physical manifestation of a design, and thus rework usually entails the demolition or modification of work already constructed. For this reason, rework is perceived to have a greater impact on construction performance than change.

When project managers are under time or resource constraints, they would rather avoid rework by modifying the design and specifications. In the case study under review, the value spent on changes is more than double the amount spent on rework.

It is thus clear that change may have a greater impact on the works than rework.

Source: http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S1021-192016000400003

QUESTION ONE [25]

1.1 With regards to the case study, analyse the relationship between cost of risk and risk management. Your answer should focus on examples such as insurance costs and unreimbursed losses.