Essays on Risk Management in Construction Projects Case Study

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The paper “ Risk Management in Construction Projects” is a fascinating example of the case study on management. The first thing to observe about "rational expectations" is that financial risk analysis is conducted, by agencies responsible for credit ratings. Thus, as an example, Standard & Poor's Credit Week affirms several issues on the grounds that "The ratings reflect the sound economic base of the service area, strong historical and projected financial performance, and the strong cash position of the electric system. The St. John's River Power Park project remains on schedule with commercial operation dates of April 1987 and October 1988 for units 1 and 2.

. . . " A less favorable report lowered ratings because, As of June 30, [1986,] the Gulf States had about $3.2 billion of debt and preferred securities outstanding. The continued absence of rate relief and the prospect of an additional rate cut in Louisiana due to disallowance of Southern Co. contract capacity requirements will result in further deterioration in measures of creditor protection. The highly political regulatory environments in both Louisiana and Texas and a severely depressed service territory substantially heighten bondholder risk. These assessments are supported by an analysis of cash flow models and the exploration of what-ifs.

Thus, if a utility is interested in a target bond rating, or if a regulatory body is concerned with the supply of capital to agencies under its supervision, prefiguring the implications of various local and regional developments seems advisable. 2. Risk AnalysisFinancial risk analysis shares a great deal with risk analysis as practiced in engineering or natural hazards policy. Expert opinion can be polled for anticipated ranges for risk factors and the values most likely to be realized.

Using estimates of the range and distribution of a risk factor, financial risk analysis considers the performance of investments and the balance sheet of an enterprise. Financial risk analysis may contribute to (1) project selection, (2) the selection of financing options relevant to a given project, and (3) perspectives concerning company risk, based on an examination of cash flows.

References

Resources

Artto Karlos A. "Approaches in Construction Project Cost Risk." Annual Transactions of the American Association of Cost Engineers (AACE). Morgantown, W.V.: AACE, 1988, B-4, B.5.1-B.5.4.

BS 8444-3:1996

B-4, B.5.1-B.5.4; and Krishan S. Mathur, "Risk Analysis in Capital Cost Estimating," Cost Engineering 31 ( August 1989): 9-16.

Critall, J. (1997) “Industrial relations risk in the construction industry: a contractual perspective, ” in T. Bramble, B. Harley, R. Hall, and G. Whitehouse (eds), Current Research in Industrial Relations: Proceedings of the 11th AIRAANZ Conference, Brisbane: Association of Industrial Relations Academics of Australia and New Zealand, 432-38.

Hayes R. W., J. G. Perry, P. A. Thompson, and G. Willmer. Risk Management in Engineering Construction. Morgantown, W.V.: Thomas Telford Ltd., 1986.

Mills, Quinn. 1996. Staying Afloat in the Construction Industry. Washington, DC: BNI Publications.

Perry, J. G.; Risk and its management in construction projects. Proc. InstnC io. Engrs, Part 1, 1985,78, Jun.,4 99-521.

Penning-Rowsell, E.C., Parker, D.J., Crease, D.J. and Mattison, C.R. 1983 Flood warning dissemination: an evaluation of some currant practices in the Severn Trent Water Authority Area , Flood Hazard Research Centre, Middlesex Polytechnic, Enfield

Penning-Rowsell, E.C., Parker, D.J. and Harding, D.M. 1985 Floods and drainage: British policies for hazard reduction, agricultural improvement and wetland conservation, Allen and Unwin, Hemel Hempstead

Simon P, D Hillson and K Newland, PRAM - Project Risk Analysis and Management (PRAM) Guide. APM 1997.

Yokoyama Kurazo. Annual Transactions of the American Association of Cost Engineers (AACE). Morgantown, W.V.: AACE, 1988.

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