Risk Severity Framework for a BOT Highway Project

IOSR Journal of Mechanical and Civil Engineering (IOSR-JMCE)
e-ISSN: 2278-1684,p-ISSN: 2320-334X, Volume 14, Issue 1 Ver. II (Jan. - Feb. 2017), PP 52-56
www.iosrjournals.org
DOI: 10.9790/1684-1401025256 www.iosrjournals.org 52 | Page
Risk Severity Framework for a BOT Highway Project
By K.Srinivas, Assistant Professor,
National Institute of Construction Management and Research (NICMAR)
Abstract: Adequate attention needs to be given to project risk management for reaping the benefits by way of
meeting the objectives of an organisation. Organisations which implement good risk management practices
derive maximum advantage by way of fewer risks which are quite manageable in general and more so in
infrastructure sector which is subjected to plethora of risks. The role of infrastructure in the overall
development of a nation cannot be underscored. Considering this, a study has been carried out for an ongoing
highway project being executed in the state of Telangana (India) under NHAI. The study was carried out by
administering the questionnaire to 250 experts associated with highway sector and the response received was
110. The respondents were asked to identify the risks in four phases of a project namely Feasibility phase,
Development Phase, Execution Phase and Operation phase and also the likelihood and impact of each of the
identified risks. The severity of risk was determined based on the likelihood and impact of risks and was
categorized accordingly. The severity of risk indicates the extent to which the project is exposed to that
particular risk and the mitigation measures need to be taken accordingly to minimise the effect of risk.
Keywords: Risk assessment, Risk severity
I. Introduction
Construction industry right from the conceptual phase to commissioning of project is subjected to risks
which needs to be addressed by the stakeholders concerned. In recent times, the nature, incident and impact of
risk in construction industry has become a topic of interest because of its effects on quality, time and cost of
construction projects (Ojo, 2010, Windap et al 2010 and Joshua 2010) Risk is important to contractors, clients
and consultants within the construction industry. Construction activities are subjected to plethora of risks which
have to be considered by the management if they are to achieve their objectives.As per Project Management
Institute (PMI, 1996) “Risk is uncertainty and result of the uncertainty or lack of predictability about structure,
outcome or consequences in a planning or decision situation”. Risk management is defined as “entire set of
activities and measures that are aimed at dealing with risks in order to maintain control over the project”
Construction risk management is the process of identifying, analyzing and mitigating the risks in the project by
proper response (PMI,2003).According to www.antive.net(2012),project risk management involves risk
identification, risk analysis, creating a risk response action plan, monitoring and controlling of risks in a project.
ISO 31000 defines “Risk Management as identification, assessment, and prioritisation of risks followed by
coordinated and economical application of resources to minimise, monitor, and control the probability and/or
impact of unfortunate events or to maximize the realization of opportunities. Risk Management’s objective is to
assure uncertainty does not deflect the endeavor from the business goals. Martin Schieg (2006) defines “Risk
management constitutes a strategy to avoid losses and use available chances potentially arising from risks. The
strategy demands from the person to take a precise “consideration” and “assessment” of the situation and the
scenarios likely to occur in future. This means recognising potential risks and circumventing a threat by
averting , evading or reducing their negative effects”An infrastructure project by its very nature is subjected to
variety of risks and hence the impact of risks on the project if it were to occur will be substantial. This study is
confined to a highway project in state of Telangana (India) by considering various risks in the four phases of the
project and calculating the severity of each risk based on which suitable risk mitigation measures have been
proposed.
II. Literature Survey
Al-Bahar and Crandall1
on systematic risk management approach for construction projects have
concluded that brainstorming sessions and analysis of historical data of similar projects were found to be the
most preferred methods of risk identification in construction industry and that formal risk management process
is used infrequently. Ahmed et al2
in his study has concluded that complexities of projects, locations and type of
contracts are significant contributors to risk in construction projects. Ijigah Edoka Augustine et al3
on risk
management practices in Nigerian construction industry have concluded that risks are not properly managed
and that there is need for strategy to reduce the risks by way of formulation of effective risk management
index.YYL Florence et al4
have concluded that every infrastructure project is subjected to multiple risks and it
is the responsibility of promoter to promoter to mitigate the risks by having a strong management team and a

Risk Severity Framework For A BOT Highway Project
comprehensive risk management should be conducted and mitigation plan be prepared for ensuing the success
of project. Baloi et al5
did a modeling study on global risk factors affecting the cost performance in construction
projects and have concluded that there is need to incorporate global risk factors in any project for effective
project mitigation. Debasis Sarkar et al 6
on Project Risk Management Framework for PPP models for Indian
highway projects have developed a framework for project risk management for PPP models for Indian Highway
projects. Jonathan k.Fabi et al7
have conducted a study on risk Management practice of highway projects in
Nigeria and recommended that adequate training for all stakeholders in highway construction sector for
effective management of risks and for meeting the project objectives. Kansal RK et al8
in their study on risk
assessment methods and application in construction have concluded that various methods of risk assessment like
brainstorming, checklist, Delphi method and risk significant index methods are used and each method has its
own limitation and that risk assessment methods can be integrated for applying risk management effectively.
Shehu et al9
have stressed that construction is a risk prone industry with poor track record of coping with risks as
a result of which clients are not able to reap full benefits of their investment. Nerija Banaitiene et al10
have
concluded that risk management is the core of project management and that success of any project depends on
how effectively uncertainties are handled. DadaJ O et al11
on evaluation of impact of risk in construction
industry have identified political risk as the main risk factor and that contingency amount in the estimate should
be based on procurement method. Debasis Sarkar et al12
in their study on project risk management in
underground construction of metro rail have concluded that cost uncertainties and risks should essentially be
carried out for infrastructure projects and that risks involved in infrastructure project from concept to
commissioning, if not treated properly, probability of successful completion of project gets diminished.Shen LY
and et al13
in their study on risk assessment for construction joint ventures in china have observed that risk
transfer is an effective tool for mitigating the risks in infrastructure projects. Martina Claudia Garrido et al14
in
their study have concluded that formal risk identification and application techniques in Brazilian construction
industry is rarely used and that more informal methods are applied for risk identification.Rinaj Pathan et al15
in
their study on Risk assessment of BOT projects have evaluated the role of financial stability of the project and
its subsequent effect on risks and concluded that a BOT project gets affected by various parameters like toll
structure, toll revision schedule , extent of government grant etc and that project sponsor and promoter need to
arrive at an agreement on sharing of risks for effective risk mitigation.
III. Research Methodology
Data for the study was collated through a questionnaire that was administered to 250 participants of the
project which is being executed in the state of Telangana (India). The recipients of Questionnaire were clients/
developers, architects, contractors, consultants, engineers etc who were involved in construction of project.. The
response received was 110(44%). The respondents were asked to furnish the likelihood of occurrence of a
risk(L) and its impact(I) on a scale of 1 to 5 whose connotation is given below
Table:1 : Connotation for Likelihood and Impact of risk
Scale Connotation for
likelihood
Connotation
for Impact
1 Improbable Insignificant
2 Unlikely Marginal
3 As likely as not Serious
4 Probable Critical
5 Highly probable Catastrophe
Based on the responses furnished by the respondents, the weighted average likelihood and impact is calculated
as follows:
Weighted average = ∑(Number of responses *Concerned Numerical scale )/response received
After calculating the weighted average likelihood and impact, the severity of risk was calculated as L + I – (
L*I) where L & I are brought on a scale of 0 to 1 by dividing with 5.The connotation for severity of risk is
given as follows
Table 2: Connotation for Severity of Risk
Range of Values Severity of Risk
0.0-0.2 Nil
0.21-0.4 Insignificant
0.41-0.6 Significant
0.61-0.8 High
0.81-1.00 Very high

IV. Risk Assessment
Table 3: Risk Assessment (Feasibility phase)
Risk Responses
( Likelihood)
Responses
( Impact)
Weighted
average
Likelihood of
risk
Weighted
average
impact of risk
1 2 3 4 5 1 2 3 4 5
Reliability of
Feasibility Report
42 34 17 13 6 34 28 29 13 6 2.21 2.35
Approval and
permit risks
11 33 41 14 11 8 14 36 30 22 2.83 3.4
Political risks 30 41 17 14 8 18 25 47 14 6 2.35 2.68
Legal risks 38 41 19 8 4 22 28 30 14 16 2.08 2.76
Environment and
social risks
24 28 35 12 11 21 30 34 19 6 2.61 2.63
Table 4: Risk Assessment (Development phase)
Risk Responses
( Likelihood)
Responses
( Impact)
Weighted average
Likelihood of risk
Weighted
average
impact of risk
1 2 3 4 5 1 2 3 4 5
Land Acquisition 16 31 45 11 7 7 42 38 14 9 2.65 2.78
Resettlement &
Rehabilitation
19 27 48 11 5 23 30 43 11 3 2.06 2.46
Design 24 33 27 16 10 19 24 35 22 10 2.59 2.81
Bidding 20 40 27 13 10 33 44 16 11 6 2.57 2.2
Environment and
social risks
22 30 33 13 12 20 22 38 18 12 2.66 2.81
Market 18 26 37 16 13 23 30 33 17 7 2.81 2.59
Legal 19 38 41 7 5 23 27 30 14 16 2.46 2.75
Political 29 53 13 9 6 22 27 49 8 4 2.18 2.5
Financial closure 27 33 21 18 11 29 36 25 14 6 2.57 2.38
Technology
Selection
28 34 33 9 6 38 34 18 11 9 2.37 2.26
Table 5: Risk Assessment (Execution phase)
Risk Responses
( Likelihood)
Responses
( Impact)
Weighted
average
Likelihood
of risk
Weighted
average
impact of
risk
1 2 3 4 5 1 2 3 4 5
Utility diversion 20 28 16 19 27 16 33 31 23 7 3.05 2.74
Force Majeure 22 30 35 15 8 7 11 22 39 31 2.61 3.69
Traffic diversion 3 18 20 52 17 10 13 25 40 22 3.56 3.46
Safety 20 27 43 13 7 11 25 38 23 13 2.64 3.01
Time over run 9 22 49 21 9 8 10 36 33 23 2.99 3.48
Cost Overrun 11 24 39 26 10 8 16 42 25 19 3 3.28
Construction 24 33 27 16 10 16 34 31 23 6 2.59 2.71
Inflation 25 34 23 16 12 17 25 31 24 13 2.6 2.91
Contractual 29 30 25 15 11 18 20 22 40 10 2.54 3.03
Table 6: Risk Assessment (Operation phase)
Risk Responses
( Likelihood)
Responses
( Impact)
Weighted average
Likelihood of risk
Weighted
average
impact of risk
1 2 3 4 5 1 2 3 4 5
Traffic Revenue 19 26 37 16 12 23 30 33 18 6 2.78 2.58
Market 16 25 30 29 10 21 29 34 24 2 2.92 2.61
Safety 28 30 33 14 5 20 32 37 18 3 2.44 2.56
Force Majeure 29 33 21 17 10 17 22 31 26 14 2.51 2.98
Social and
Environmental
13 42 35 18 2 11 43 35 17 4 2.58 2.64
Legal 19 39 41 8 3 23 29 30 13 15 2.42 2.71
Transportation
of hazardous
chemicals
9 24 29 32 16 7 15 22 40 29 3.2 3.71

5. Risk Severity
Table 7 : Risk Severity(All Phases)
Risk Likelihood Impact Risk value
L+I –( L*I)
Risk Severity
Feasibility Phase
Reliability of Feasibility Report 2.21 2.35 0.704 High
Approval and permit risks 2.83 3.4 0.861 Very High
Political risks 2.35 2.68 0.754 High
Legal risks 2.08 2.76 0.738 High
Environment and social risks 2.61 2.63 0.773 High
Development Phase
Land Acquisition 2.65 2.78 0.791 High
Resettlement & Rehabilitation 2.06 2.46 0.701 High
Design 2.59 2.81 0.789 High
Bidding 2.57 2.2 0.728 High
Environment and social risks 2.66 2.81 0.795 Very High
Market 2.81 2.59 0.789 High
Legal 2.46 2.75 0.771 High
Political 2.18 2.5 0.718 High
Financial closure 2.57 2.38 0.745 High
Technology Selection 2.37 2.26 0.711 High
Execution Phase
Utility diversion 3.05 2.74 0.823 Very High
Force Majeure 2.61 3.69 0.874 Very High
Traffic diversion 3.56 3.46 0.911 Very High
Safety 2.64 3.01 0.812 Very High
Time over run 2.99 3.48 0.878 Very High
Cost Overrun 3 3.28 0.862 Very High
Construction 2.59 2.71 0.779 High
Inflation 2.6 2.91 0.799 Very High
Contractual 2.54 3.03 0.806 Very High
Operation Phase
Traffic Revenue 2.78 2.58 0.785 High
Market 2.92 2.61 0.801 Very High
Safety 2.44 2.56 0.750 High
Force Majeure 2.51 2.98 0.799 Very High
Social and Environmental 2.58 2.64 0.771 High
Legal 2.42 2.71 0.764 High
Transportation of hazardous
chemicals
3.2 3.71 0.907 Very High
V. Conclusions
1. All the risks are in the category of high and very high and hence as such risks in the project are quite
substantial
2. Almost all the risks in the execution phase are in very high category which means that these risks have the
potential to derail the project
3. In the development phase, environment and social risks is in very high category which meant that risk of
displacement of people as well as the effect on the environment is substantial
4. In the feasibility phase, risk of approval and permit is in very high category and hence sufficient attention
should be paid to mitigate this risk.
5. Adequate attention should be given to Market, Force Majeure and Transportation risks in Operation phase.
6. Suitable risk mitigation measures by way of risk transfer, risk sharing and risk reduction is to be put in
place so as to minimise the effect of risk in the event of its occurrence.
7. On the whole it can be inferred that risks in infrastructure projects are of potentially damaging nature and
unless suitable risk management is in place, the chances of a successful project outcome is remote.
References
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Management, ASCE,116(4), pp595-608
[3]. Ijigah Edoka Augustine, Jimoh Richard Ajayi, et al, (2013), Assessment of Risk Management Practices in Nigerian Construction
Industry-Toward establishing Risk Management Index, International Journal of Pure and Applied Sciences and Technology,16(2),
pp20-31

[4]. Florence YYL and Linda H (2006),Risk faced by Singapore Firms When undertaking Construction projects in India, International
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[12]. Debasis Sarkar and Goutam Datta(2011),A framework of Project Risk Management for the Underground Corridor Construction of
Metro Rail, Indian Institute of Management, W.P No:2011-02-05
[13]. Shen LY and Ng, CSK(2001),Risk Assessment for Construction Joint Venture in China, Journal of Construction Engineering and
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[14]. Martina Claudia Garrido, Morano Cassia,Riberio and Assed (2011),Risk Identification Techniques Knowledge and Application in
Brazilian Construction,2(11), pp242-252
[15]. Rinaj Pathan and Dr Pilplikar S S( 2013), Risk Assessment of BOT Road Projects,IOSR journal of mechanical and Civil
Engineering, 5(3), pp 40-59

Risk Severity Framework for a BOT Highway Project

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Risk Severity Framework for a BOT Highway Project