Internal risk of Nepalese construction project

Risk and risk management

Risk is an uncertain event or condition which, if it occurs, has a positive or negative effect on the project objectives (scope, time, cost, quality). It is measured by the probability of the event and the size of its impact: Risk = Probability x Impact.

Project risk management is the systematic process of planning, identifying, analysing, responding to, and monitoring and controlling risks in a project, so that the chance and effect of negative events are reduced and the chance of positive events is increased.

Internal risks faced by a Nepalese construction company

Internal risks arise inside the company or project and can be controlled by management.

1. Estimating and bidding risk: very low bids to win the contract (lowest-bid system), wrong quantity or rate analysis, so loss on the work.
2. Financial risk: cash-flow shortage because of late payment from the client, high bank interest, working capital and bank guarantee limits.
3. Management and planning risk: poor planning and scheduling, weak site management, lack of professional managers, family-based decisions.
4. Human resource risk: shortage of skilled workers, engineers and operators due to foreign migration; low productivity; labour disputes.
5. Equipment and material risk: old equipment, breakdown, shortage of cement and steel, poor purchase planning, high stock cost.
6. Quality risk: weak quality control, rework, penalties and loss of reputation.
7. Safety risk: accidents because of low safety practice; injury claims.
8. Contractual risk: misunderstanding contract terms, claims not made on time, penalty (liquidated damages) for delay, disputes with subcontractors.
9. Technology risk: low use of modern methods and software.
10. Ethical and legal risk: tax, VAT and labour act non-compliance, corruption allegations, blacklisting.
11. Subcontractor and supplier risk: default or delay.

Management of these internal risks

Improve estimate accuracy, keep cash-flow forecasts, train workers and engineers, maintain equipment, set up a quality and safety system, read contracts carefully, keep documentation for claims, and maintain a risk register reviewed monthly.