UNIVERSITI PUTRA MALAYSIA RISK ANALYSIS OF HOUSING PROJECTS IN MALAYSIA USING AN INDUSTRIALISED BUILDING SYSTEM SAIFUL AZRI BIN ABU HASAN SAZALLI FK 2008 35
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UNIVERSITI PUTRA MALAYSIA
RISK ANALYSIS OF HOUSING PROJECTS IN MALAYSIA USING AN INDUSTRIALISED BUILDING SYSTEM
SAIFUL AZRI BIN ABU HASAN SAZALLI
FK 2008 35
RISK ANALYSIS OF HOUSING PROJECTS IN MALAYSIA USING AN INDUSTRIALISED BUILDING SYSTEM
By
SAIFUL AZRI BIN ABU HASAN SAZALLI
Thesis Submitted to the School of Graduate Studies, Universiti Putra Malaysia, in Fulfilment of the Requirements for the Degree of Master of Science
May 2008
ii
Abstract of thesis presented to the Senate of Universiti Putra Malaysia in fulfilment of the requirement for the degree of Master of Science Project Management
RISK ANALYSIS OF HOUSING PROJECTS IN MALAYSIA USING AN
INDUSTRIALISED BUILDING SYSTEM
By
SAIFUL AZRI BIN ABU HASAN SAZALLI
May 2008
Chairman: Salihudin Hassim, Ir. Faculty: Engineering
The use of industrialised building system (IBS) has attracted many countries like
Singapore, Sweden, Germany, and Japan. This system can replace the conventional
building system that uses labour intensive force. However, although this system has
been used since 1964, its acceptance in Malaysia among constructors is not
satisfactory due to its failure in managing the construction system risks. Therefore in
order to address this issue, this study has identified risks faced by developers in
housing projects that use industrialised building system. The study also identifies
highly risked construction stages, determines risk allocation for sources of risk, and
proposes a computer program for the risk management. The techniques to identify
risks being used in this study are through analysis of past research publications like
journal, conference and discussion with parties involves in construction industry.
Data is compiled through questionnaires that are distributed and collected from
housing developers. The data is then analysed using statistical techniques like Chi-
Square Test and Pearson Correlation Coefficient. It is found that there are twenty
eight sources of risk that contribute to six types of risk in construction project. The
top five sources of risk are inexperienced contractor in IBS project, complexity in
iii
design, contractor performance failure, inappropriate estimate of construction cost,
and variety of design. Based on four stages of construction which are the initial
stage, tendering stage, procurement stage and implementing stage; initial stage
contributes to the highest risk in industrialized building system. The problem of
quality, poor productivity, defective materials, labour disputes and loss or delay due
to resources availability are on contractors’ shoulder. The building owners are
responsible on variation of work, sales and marketing, and deficiencies in
specification and drawing. The result of this study reveals that there is no relation
between types of industrialized building system being used and types of risk. Three
categories of risk which are financial risk, construction risk and design risk are
interrelated with each other. A tentative risk register tool produced in this study is
based on computer application. It may help developers to identify sources of risk,
evaluate and manage the identified risks as part of decision making. In conclusion, it
is hoped that this study could help developers in making risk management planning
besides improving decision making and achieving project objectives.
iv
Abstrak tesis yang dikemukakan kepada Senat Universiti Putra Malaysia sebagai memenuhi keperluan ijazah Master Sains Pengurusan Projek
ANALISIS RISIKO DI DALAM PROJEK PERUMAHAN MENGGUNAKAN
SISTEM PEMBINAAN BERINDUSTRI DI MALAYSIA
Oleh
SAIFUL AZRI BIN ABU HASAN SAZALLI Pengerusi: Salihudin Hassim, Ir. Fakulti: Fakulti Kejuruteraan
Penggunaan sistem bangunan berindustri telah menarik minat banyak negara untuk
mengaplikasikannya dalam pembinaan perumahan seperti Singapura, Sweden,
Jerman, dan Jepun. Sistem bangunan ini boleh menggantikan sistem bangunan
konvensional yang mana berorientasikan buruh. Bagaimanapun sejak projek pertama
yang menggunakan sistem bangunan ini pada tahun 1964 sehingga kini, penerimaan
sistem bangunan ini di Malaysia di kalangan pihak pembina adalah tidak memuaskan
disebabkan oleh kegagalan mengenalpasti risiko-risiko sistem bangunan berindustri.
Untuk menangani isu ini, kajian ini akan mengenalpasti risiko-risiko yang dihadapi
oleh pihak pemaju di dalam projek perumahan yang menggunakan sistem bangunan
berindustri, mengenalpsti peringkat-peringkat pembinaan yang berisiko tinggi,
memperuntukkan punca-punca risiko kepada pihak-pihak terlibat dalam projek dan
seterusnya mencadangkan satu pengurusan risiko bagi projek sistem bangunan
berindustri berdasarkan komputer. Teknik-teknik mengenalpasti risiko yang
digunakan ialah melalui analisis kajian-kajian lepas seperti jurnal, persidangan dan
perbincangan dengan pihak yang terlibat dalam industri pembinaan dan data-data ini
dikumpulkan melalui borang soal selidik yang diedarkan kepada pemaju perumahan.
v
Data-data ini kemudiannya dianalisis menggunakan analisis statistik iaitu Chi-Square
dan Pearson Correlation Coefficient. Didapati terdapat 28 punca risiko kepada 6 jenis
risiko dalam projek pembinaan. 5 punca risiko kedudukan teratas adalah kekurangan
pengalaman kontraktor dalam projek IBS, kerumitan rekabentuk, kegagalan
perlaksanaan kontraktor, anggaran kos pembinaan yang tidak tepat dan rekabentuk
yang pelbagai. Berdasarkan 4 peringkat pembinaan iaitu, peringkat permulaan,
peringkat tawaran, peringkat perolehan dan peringkat perlaksanaan, peringkat
permulaan merupakan peringkat berisiko tinggi di dalam projek sistem bangunan
berindustri. Masalah kualiti, produktiviti lemah, kerosakan bahan binaan,
pertelingkahan antara pekerja dan kerugian atau kelewatan perolehan sumber adalah
dipertanggungjawab kepada kontraktor. Manakala pemilik dipertanggungjawabkan
ke atas perubahan kerja, penjualan dan pemasaran, dan kekurangan dalam spesifikasi
dan lukisan pembinaan. Kajian ini mendapati jenis-jenis sistem bangunan berindustri
yang digunakan mempunyai perhubungan dengan jenis-jenis risiko. 3 kategori risiko
dikenalpasti iaitu risiko kewangan, risiko pembinaan dan risiko rekabentuk
mempunyai hubungan antara satu sama lain. Pendaftaran risiko yang dihasilkan
berdasarkan aplikasi komputer dapat membantu pemaju untuk mengenalpasti punca-
punca risiko, menilai dan menguruskannya sebagai sebahagian daripada proses
membuat keputusan. Kesimpulannya melalui kajian ini diharap dapat membantu
pemaju dalam membuat perancangan pengurusan risiko selain membantu membuat
keputusan untuk mencapai objektif sesebuah projek pembinaan.
vi
ACKNOWLEDGEMENT
I wish to thank to my supervisor, Ir. Salihudin Hassim who has given invaluable
guidance and supervision throughout the study. Thanks to Assoc. Prof. Ir. Dr. Mohd
Saleh Jaafar, my Nominated Committee Member for the guidance, tips, comments,
criticisms and suggestion in this study.
My endless gratitude and deepest appreciation also goes to my parents, and my
siblings for their unfailing support, love and encouragement. Without them I may not
come this far in my education.
Lastly, my thanks to all my close and special friends, Mr Ramli Kasin and Mr
Wilson Suai and other lecturers for their advice and support. I am indebted to all of
you.
vii
I certify that an Examination Committee has met on 28 May 2008 to conduct the final examination of Saiful Azri Bin Abu Hasan Sazalli on his Master of Science thesis entitled “Risk Analysis of Housing Projects in Malaysia Using an Industrialised Building System” in accordance with Universiti Pertanian Malaysia (Higher Degree) Act 1980 and Universiti Pertanian Malaysia (Higher Degree) Act 1981. The Committee recommends that the student be awarded the Master of Science. Members of the Examination Committee were as follows: Jamaloddin Noorzaei, PhD Professor Faculty of Engineering Universiti Putra Malaysia (Chairman) Ir Abang Abdullah Bin Abang Ali Professor Faculty of Engineering Universiti Putra Malaysia (Internal Examiner) Thamer Ahmed Mohamed, PhD Associate Professor Faculty of Engineering Universiti Putra Malaysia (Internal Examiner) ABDUL KHALIM BIN RASHID, Ph.D. Associate Professor Department of Development Management Universiti Kebangsaan Malaysia (External Examiner) ________________________________ HASANAH MOHD. GHAZALI, PhD Professor and Deputy Dean School of Graduate Studies Universiti Putra Malaysia Date: 22 July 2008
viii
This thesis was submitted to the Senate of Universiti Putra Malaysia and has been accepted as fulfilment of the requirement for the degree of Master Science. The members of the Supervisory Committee were as follows: Ir. Salihudin Bin Hassim Lecturer Faculty of Engineering Universiti Putra Malaysia (Chairman) Ir. Mohd Saleh Bin Jaafar, PhD Assoc. Professor Faculty of Engineering Universiti Putra Malaysia (Member) ________________________________ AINI IDERIS, PhD Professor and Dean School of Graduate Studies Universiti Putra Malaysia Date: 14 August 2008
ix
DECLARATION I declare that the thesis is based on my original work except for quotations and citations which have been duly acknowledged. I also declare that it has not been previously, or is not concurrently, submitted for any other degree at Universiti Putra Malaysia or other institutions.
______________________________________ SAIFUL AZRI BIN ABU HASAN SAZALLI
Date: 4 September 2008hhshshsshhss
x
TABLE OF CONTENTS Page ABSTRACT ii ABSTRAK iv ACKNOWLEDGEMENTS vi APPROVAL vii DECLARATION ix LIST OF TABLES xii LIST OF FIGURES xiii LIST OF ABBREVIATIONS xiv CHAPTER 1 INTRODUCTION 1 1.1 General 1 1.2 Statement of the Problem 3 1.3 Research Questions 5 1.4 Significance of Study 6 1.5 Objectives 7 1.6 Hypotheses 7 1.7 Scope of Study 7 1.8 Thesis Overview 8 1.9 Closure 10 2 LITERATURE REVIEW 11 2.1 Introduction 11 2.2 Industrialised Building System 13 2.2.1 Industrialisation 14 2.2.2 Standardisation 14 2.2.3 Modular Coordination 15 2.2.4 Open and Closed System 16 2.2.5 Success and Failure of IBS 17 2.2.6 IBS in Malaysia 20 2.2.7 Risks in IBS 22 2.3 Risks 26 2.3.1 Risk and Hazard 27 2.3.2 Components of Risk 28 2.3.3 Risk and Construction 29 2.3.4 Risk Management 30 2.3.5 Type of Risk in Construction 35 2.3.6 Sources of Risk 40 2.4 Closure 54 3 RESEARCH METHODOLOGY 55 3.1 Introduction 55 3.2 Data Collection 56 3.3 Sampling Design 58 3.4 Variables 60 3.5 Data Analysis 61
xi
3.5.1 Chi-Square Test 62 3.5.2 Pearson Correlation Coefficient 63 3.6 Development of Tool 65 3.7 Closure 67 4 RESULT AND DISCUSSION 68 4.1 Introduction 68 4.2 Sample 68 4.3 Data Analysis 69 4.4 Respondents 69 4.5 Sources Contribute to Risk in IBS Project 79 4.5.1 The Extent of Risk at Different Phases 80 4.5.2 Risk Allocation 81 4.6 Risk Management Action 84 4.6.1 Preventive Actions 85 4.6.2 Mitigation Actions 87 4.7 Hypotheses Testing 88 4.8 Closure 95 5 COMPUTER-BASED RISK REGISTER DATABASE
TOOL DEVELOPMENT 100 5.1 Introduction 100 5.2 Risk Management Methodology 101 5.2.1 The Role of the Risk Register 102 5.2.2 Examples of Information to be held in the Risk Register 102 5.3 Risk Register Database Tool 104 5.3.1 Data Acquisition 104 5.3.2 Risk Register Form 106 5.3.3 Data Storage 108 5.3.4 Data Processing 109 5.4 Use of the Risk Register Database Tool 112 5.4.1 Use of the Risk Register 112 5.4.2 Use of the Risk Assessment 113 5.5 Closure 114 6 CONCLUSION 115 6.1 Conclusion 115 6.2 Recommendation 117 REFERENCES APPENDIX A APPENDIX B BIODATA OF STUDENT LIST OF PUBLICATIONS
xii
LIST OF TABLES Table TITLE Page 2.1 Summary of Types and Sources of Risk of Construction 49 Project 3.1 Summary of Analysis Conducted 65 4.1 Projects Characteristic 74 4.2 The Priority Implementation of IBS Project 77 4.3 Level Failure of IBS 78 4.4 Ranking Sources of Risk in IBS Project 79 4.5 The Extent of Risk at Different Phases 81 4.6 Risk Allocation 81 4.7 Summary of Risk Allocation 84 4.8 Relative Effectiveness of Preventive Methods 85 4.9 Relative Effectiveness of Mitigative Methods 87 4.10 Sources of Risk to Type of IBS 90 4.11 Crosstabulation of Type of IBS vs. Sources of Risk in IBS 92 According to Category of Risk 4.12 Correlation Between the Types of Risk 93 5.1 Information Within a Risk Register 103 5.2 Probability and Impact Value 107 5.3 The Risk Ranking Table 107
xiii
LIST OF FIGURES Figure TITLE Page 1.1 Structure of Thesis 8 3.1 Research Process Flow 55 3.2 Scatter Diagram Indicating a Upward or Positive Slope 63 3.3 Flowchart of Risk Register Database 66 4.1 Respondents Category of Company 70 4.2 Respondents’ Designation 70 4.3 Professional Background 71 4.4 Company’s Experiences in IBS Project 72 4.5 Knowledge of Risk between Organizations 73 4.6 Awareness of Risk between Organizations 73 4.7 Types of IBS Used 75 4.8 Types of Houses 76 5.1 The Risk Management Methodology 102 5.2 General Information Form 105 5.3 Risk Register Form 108 5.4 Risk Assessment 111 5.5 Risk Register Report 112
xiv
LIST OF ABBREVIATIONS CIDB Construction Industry Development Board CRMS Construction Risk Management System IBS Industrialised Building System PRM Project Risk Management REHDA Real Estate and Housing Developer’s Association Malaysia UK United Kingdom
CHAPTER 1
INTRODUCTION
1.1 General
The construction industry is one of the most dynamic, risky, challenging and
rewarding fields. It involves numerous uncertainties and is widely associated with
high degree of risks due to the nature of construction business activities, processes,
environment and organization (Kartam and Kartam, 2001). The complexities of
projects, locations, types of contract, familiarity with the work and breakdown in
communication are some of the significant contributors to risks in construction
industry.
Risk has been defined in various ways. Porter (1981), Healy (1982), Barrie and
Paulson (1992), and Perry and Hayes (1985) have expressed risk as an exposure to
economic loss or gain arising from involvement in the construction process;
Moavenzadeh and Rosow (1999) and Mason (1973) have regarded this as an
exposure to loss only. Bufaied (1987) and Boothroyd and Emmett (1998) described
risk in relation to construction project whose variation results in uncertainty in the
final cost, duration and quality of the project. In order to emphasize the major
objectives of survey on risk management action, risk has been defined as the
probability of occurrence of some uncertain, unpredictable and even undesirable
events that would change the prospects for the profitability of a given investment.
2
According to Ahmed, Ahmad and Saram (1999), failure to adequately deal with
uncertain, unpredictable and undesirable event has shown to cause serious effects of
risk that are summarized as:
Failure to keep within cost estimate.
Failure to achieve the required completion date.
Failure to achieve the required quality and operational requirements.
In the 8th Malaysia Plan, the country continues to embark in developing an affordable
and sustainable low and medium cost house. However, Malaysia is facing the risk of
failure to accomplish the target of 600,000 to 800,000 unit of houses during this
period because the conventional building system being practiced by the construction
industry is unable to cope with the huge demand (Thanoon et al.(i), 2003). Hence,
risk management consequently becomes an important mechanism to be adopted to
ensure achievement of the planned objectives in committing to these great targets.
Instead of improving the efficiency of managing project risks, the Malaysian
government has been promoting the application of new building system strategies for
the implementation of building construction, in particular, the mechanism of
industrialised building system (Thanoon et al.(ii), 2003; Trikha, 1999; Lian, 2002).
The Malaysia government through CIDB encourages constructors to use
industrialised building system in construction and to reduce the dependency on
foreign labour, to increase productivity, quality and safety in the local construction
industry, and also to minimize the risks in construction works (Shahrul, 2003).
3
1.2 Statement of the Problem
Risk is an abstract concept. It is difficult to define and in most cases it is impossible
to measure with any precision. Risk is a situation where the actual outcome for a
particular event or activity deviate from the forecast value. In construction, risks are
related as a barrier in achieving the project goal which are cost within the budget,
quality according to specification and time within the construction period.
Risks always exist in any construction projects and often cause failure to achieve the
objectives of project. Usually, risks exist from the early stage of the project
development until the completion of the project. The types and levels of risk are
different according to the stage of the development. All parties involved in
construction project are exposed to the risks in the construction (Liebing, 2001;
Cooper et al., 2005; Smith and Bohn, 1999).
The IBS is an industrialised building system in which almost all building
components are mass produced either in factory or at site under strict quality control
and minimal on site activities (Trikha, 1999). The industrialisation is essentially an
organisational process – continuity of production implying a steady flow of demand;
standardisation; integration of different stages of the whole production process; a
high degree of organisation of work; mechanisation to replace human labour
wherever possible; and research with organised experimentation integrated with
production. It can speed up construction process with less labour on site and, if
possible, at less cost and minimized effects of risk. With these advantages, a lot of
4
countries have chosen to use the IBS in their construction industries including the
Malaysia government (Thanoon et al.(i), 2003).
However, since the first project of IBS in year 1964 till today, IBS in Malaysia is not
well accepted by the construction parties despite numerous incentives and promotion
especially to encourage housing developers to invest in IBS housing project (Ismail,
2001). One of the causes is the failure to adequately deal with risks in the IBS
projects. Failures to keep within cost estimate in IBS projects are still common in
Malaysia and it is one of the reason that limits the development of IBS (Lian, 2002).
In fact, research done by Warszawski (1999) supports that there are risks in IBS such
as technical risk and quality risk that cause aesthetic and functional faults, like
cracks, blemishes, moisture penetration and poor thermal insulation in completed
buildings. Hence, there is a need to have systematic identification, analysis and
assessment of risk that may contribute significant success of projects (Barrie and
Paulson, 1992).
The success of a project management exercise depends very much on an efficient and
effective management of the risks involved (Ren, 1994). If risks are to be managed,
those risks must first be identified However, attempts to consider every risk is
doomed to failure: the time taken would be enormous, delaying the possibility of
formulating managerial strategy until after the risk consequences had actually
occurred, and the whole exercise is a waste of resources (Trikha, 1999). Thus, in
practice, the primary aim is to identify the key, critical, important risks in the project
so that they are analysed and appropriate responses are determined (Ahmed, Ahmad
and Saram, 1999; Kangari, 1995).
5
Naturally, the objectives of construction projects differ among nations, and all
nations and regions of the world may have their own characteristics (Kunishima and
Shoji, 1996). Just as there are differences in ways of living, the value systems and the
ways of thinking, there are also different ideas on management of construction risks.
In other words, the managements of risks are greatly influenced by the uniqueness of
the construction industry in a specific country. So far, little is known about risk and
its management in the Malaysian construction industry especially in IBS project.
This study assesses these issues.
This study presents the perceptions of Malaysian developers towards IBS risks in
housing construction in Malaysia since there is no concrete study about it in the past.
The result of this survey should further clarify the perception of developers regarding
IBS in construction project and current circumstances in the industry. A thorough
understanding of current trend may aid developers in risk management.
1.3 Research Questions
These are the research questions that need to be answered in this study:
1. What is the perception of developers involved in the IBS projects towards
risk?
2. Which stages in IBS project are often encountered as critical risks?
3. What are the sources of risks in IBS projects?
4. What are the risks allocation between parties involved in IBS project?
5. What are the factors that are likely to influence the level of risk in IBS
project?
6
6. How does risk management can take action against the risk in IBS project?
1.4 Significance of Study
Due to the current population growth and the increasing housing demand in
Malaysia, construction system becomes a great subject to all practitioners in
construction industry. An effective construction system that can mitigate risks
determines the success of construction companies. In conjunction with this, a new
building systems has been introduced to reduce cost, material saving, better quality
control, shorter construction time and immunity to weather changes.
The industrialised building system is the method introduced for these purposes. This
building system is a new method of construction that uses new modified materials
and new technology. Studies show that it is effective in reducing men power demand,
duration of construction, cost needed and mitigate risks in construction process
(Thanoon et al.(ii), 2003; Lian, Hassim and Kadir, 2003). Nevertheless, the degree of
the effectiveness of this system is being queried.
This research attempts to study and analyse the sources of risk in an industrialised
building system in building construction in Malaysia since there is no concrete study
about it in the past. Through this research, it will enable explicit decisions to be made
to mitigate the potential effect of certain risks. On the contrary, it helps all main
parties involved in IBS to make use of the full extent of other experience and
knowledge by liberating them from the necessity of making simplifying assumptions
7
in order to produce deterministic plans and forecasts to enables decision makers to
improve the quality of their judgement by providing more realistic information.
1.5 Objectives
In recognition of the importance of understanding the concept of risk in IBS project,
this research aims to study the risk involved in development stages of IBS projects in
Malaysia. The main objectives of the study can be listed as:
1. To identify and evaluate the sources of risk in IBS project.
2. To identify the stages in IBS project where critical risks are often
encountered.
3. To determine the parties who contribute to risk in IBS project.
4. To propose a risk register database tool for IBS projects.
1.6 Hypotheses
The hypotheses that need to be tested in this study are as listed below:
1. Relationship between types of IBS and type of risk in IBS projects.
2. Relationships between types of risk in IBS projects.
1.7 Scope of Study
A building system classification done by Badir in year 1998 would be the baseline
for identifying the IBS and types of IBS in this study. This classification is chosen as
8
it was done in Malaysia as it reviewed the availability of IBS in Malaysia. The scope
of this study is described as below:
1. Housing developers registered with the Ministry of Housing and Local
Government.
2. This study focuses on the risks which have relationship with process of
housing development.
3. This study looks into four stages of project development which are initial
stage, tendering stage, procurement stage and implementing stage.
1.8 Thesis Overview
This thesis consists of six chapters. A diagrammatic guide of the thesis is shown in
Figure 1.1 and is briefly described as follows:
Figure 1.1. Structure of Thesis
Chapter 1 – Introduction • Introduction the subjects • Objectives • Significant of study • Thesis overview
Chapter 3 – Research Methodology • Method of data collection • Questionnaire development • Sampling procedure • Data analysis
Chapter 6 – Conclusion • Conclusion • Recommendation
Chapter 2 – Literature Review • Definition of terms • Pertinent previous research • Types of risk • Sources of risk
Chapter 4 – Data Analysis and Discussion
• Establish the issue addressed through appropriate methods of analysis
Chapter 5 – Computer-based Risk Register
• Development of database tool • Testing of database tool
9
Chapter one presents a general introduction to the subject and the problem statement.
It also introduces the aims, objectives, significance of study and a brief summary on
the structure of the thesis.
Chapter two is a literature review on related field of this study. Definitions of terms
used in this study in related field, the industrialised building system, type of risk in
IBS and sources of risk are also discussed.
Chapter three presents the methodology that is carried out to achieve the objective of
this study. Questionnaire development and data collection are also presented together
with the analytic methodology of data collected.
Chapter four presents the analysis and statistical tests to establish the finding from
the survey. The results of the analysis are discussed and conclusions are drawn.
Chapter five presents the development of tentative risk register database tool for IBS
projects based on the findings of this study. Actual practitioners are used to validate
the risk register database tool developed.
Chapter six presents the summary and the conclusions of the findings of this study.
Suggestion and recommendation for further development of research in this area are
also presented.
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1.9 Closure
This current chapter presents the problems statement, objectives of the study,
significant of the study, scope and limitation and thesis overview. This is the
background of the research study. The next chapter reviews and discusses the field of
industrialized building system, risk and construction, types of risk and sources of
risk.
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