--- title: "Internal risk of Nepalese construction project" subject: "Project Engineering" chapter: 5 key: "semester_7/project_engineering:risk-internal-construction-nepalese-company" source: https://www.bctengineer.com/q/semester_7/project_engineering/risk-internal-construction-nepalese-company site: BCT Engineering --- # Internal risk of Nepalese construction project Project Engineering · Chapter 5: Project Risk Analysis and Management - Asked in: 2070 Chaitra, 2+8 marks - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_7/project_engineering/risk-internal-construction-nepalese-company - Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-5 ## Question Define risk and risk management. Explain the internal risks of any construction project that a Nepalese construction company is facing. ## Short answer Risk is an uncertain event measured by probability × impact; risk management involves systematic planning, identification, analysis, response, and monitoring. Internal risks for Nepalese construction companies include low bids, cash-flow shortages from late payments, weak planning, skilled labour shortage, equipment breakdowns, quality/safety lapses, contractual misunderstandings, and subcontractor defaults. ## Answer #### 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. ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. Which statement best defines project risk and how it is measured? A. An uncertain event that affects project objectives, measured as probability x impact B. A certain loss that will happen during construction, measured as cost x time C. Only negative events caused by the contractor, measured by the number of delays D. Any change in design, measured by the number of variations Answer: A. Risk is an uncertain event or condition with a positive or negative effect on objectives, measured by Risk = Probability x Impact. (Key point: Definition of risk) 2. What is project risk management? A. Eliminating all uncertainty completely before starting B. Systematic planning, identifying, analysing, responding and monitoring of risks to reduce negative and increase positive events C. Buying insurance for every activity only D. Transferring all risk to the client Answer: B. Risk management is the systematic process of planning, identifying, analysing, responding to and monitoring risks. (Key point: Risk management definition) 3. What is the estimating and bidding risk for a Nepalese contractor? A. Bids that are too high and always win B. Client's payment delay C. Very low bids under the lowest-bid system and wrong quantity or rate analysis lead to loss D. Foreign exchange of imported cement Answer: C. Under-pricing and wrong rate analysis cause losses on the work. (Key point: Bidding risk) 4. Why is there a human resource risk for Nepalese construction companies? A. Too many skilled workers are available at low wage B. Workers refuse to use modern methods because of tax C. There is no labour act in Nepal D. Foreign migration causes shortage of skilled workers and engineers Answer: D. Migration abroad creates shortage of skilled labour, engineers and operators, lowering productivity. (Key point: Human resource risk) 5. Which is a way to manage these internal risks? A. Cash-flow forecasts, claim documentation and a monthly reviewed risk register B. Avoid reading contract terms C. Delay making claims D. Stop quality and safety systems to save cost Answer: A. Management includes accurate estimates, cash-flow forecasts, documentation for claims and a reviewed risk register. 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