Critical Risk Factors in Oil and Gas Engineering, Procurement,

Construction (EPC) Projects in India

by

Ravula N V V S S S Sairam

A thesis submitted in partial fulfillment of the requirements for the

degree of Master of Engineering in
Construction Engineering and Infrastructure Management

Examination Committee: Dr. Boventura H.W. Hadikusumo (Chairperson)

Dr. Chotchai Charoenngam
Dr. Djoen San Santoso

Nationality: Indian
Previous Degree: Bachelor of Civil Engineering
Jawaharlal Technological University,
Kakinada, India

Scholarship Donor: AIT Fellowship

Asian Institute of Technology

School of Engineering and Technology
Thailand
May 2016

i
 Acknowledgement
Firstly I would like to thank my advisor Dr. Bonaventura H.W. Hadikusumo, for encouraging
me and giving me an opportunity to do a project on oil and gas EPC projects. I express my
sincere gratitude for his motivation, support and advise while doing my thesis.
I am also equally thankful to Dr. Chotchai Charoenngam, for teaching me many new
techniques in the field of construction and project management. I would also like to equally
thank Dr. Djoen San Santoso for being on the committee and for his valuable suggestions and
recommendations on this project.

I would like to thank my senior Mr. Abdul Qayoom Memon for his efforts in helping me and
for the valuable guidance.

I would also like to acknowledge the respondents who spend their valuable time filling the
survey related to my thesis.

Finally I would like to dedicate this work to my parents Mr. Seshagiri Rao and Mrs. Vani
Varalakshmi my sister Uma and my lovely friends (Dashing Dudes) for their unconditional
love and constant support which kept me going in hard times.

Keywords
Critical risk factors, EPC, Risk Management, Oil and Gas Projects, Construction
Management, Engineering Phase, Construction Phase, Procurement Phase

ii
 ABSTRACT

In developing countries like India, oil and gas construction EPC projects are highly exposed
to various risks. Managing risks in construction projects has been recognised as a very
important management process in order to achieve the project objectives in terms of time,
cost, quality, safety and environmental sustainability. This research focuses on the
identification of the major risks in the oil and gas EPC projects. Questionnaire surveys were
used to collect data. Based on a comprehensive assessment of the likelihood of occurrence
and their impacts on the project objectives, this research identifies 15 critical risk factors.
This research found that these risks are mainly related to contractors, clients and designers,
with few related to government bodies, subcontractors/suppliers

The Top 5 critical risk factors identified in the Engineering phase are 1) Scope uncertainty, 2)
Ineffective planning and management, 3) Design changes and errors, 4) Inadequate project
organization structure, 5) Unclear quality requirements. Top 5 critical risk factors identified
in the Procurement phase are 1) Insufficient resources, equipment and material, 2) Supplier
availability, 3) Unfamiliarity with design, codes, standards and requirements, 4) Defective
materials and 5) Price fluctuations. Top 5 critical risk factors identified in the Construction
phase are 1) Incompetence of project team, 2) Construction cost overrun, 3) Construction
time delay, 4) Tight project schedule and 5) Poor safety management. . This was followed by
correlation analysis which illustrated the relationship between the risk factors and impact on
cost, schedule and quality and the risks which effects cost, schedule and quality were
identified.

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 TABLE OF CONTENTS

CHAPTER TITLE PAGE

Title page i
Acknowledgement ii
Abstract iii
Table of contents iv
List of Figures vii
List of Tables viii

1 Introduction
1.1 Research background 1
1.2 problem statement 2
1.3 Objectives of study 3
1.4 Scope of study 3

2 Literature review
2.1 Traditional contract v/s EPC contract 4
2.1.1 Design-bid-build contract 4
2.1.2 Roles & responsibilities of owner and contractor 5
2.1.3 EPC contract 5
2.1.4 EPC contractual structure 6
2.1.5 Roles & responsibilities of owner, contractor & consultant 7
2.1.6 EPC project- nature & characteristics 7
2.2 Definition of risk 8
2.2.1 Project risk 8
2.3 Risk management introduction 8
2.4 Risk management process 9
2.4.1 Risk identification 11
2.4.2 Risk analysis/assessment 12
2.4.2.1 Qualitative risk assessment 13
2.4.2.2 Quantitative risk assessment 15
2.4.3 Risk control 16
2.4.4 Risk monitor 19
2.4.5 Risk evaluation 23
2.5 Risk factors in EPC projects 23

3 Methodology
3.1 Introduction 26
3.2 Research Framework and methodology 26
3.3 Questionnaire structure and design 28
3.4 Expert validation of content 28
3.5 Questionnaire Distribution 28
3.6 Data collection and Sample collection 28
3.7 Data analysis 29
3.7.1 Descriptive statistics analysis 29

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4 Data Analysis
4.1 Introduction 30
4.2 Respondents characteristics 30
4.3 Verification of factors 32
4.4 Reliability analysis 34
4.5 Independent sample t test 37
4.6 Identification and ranking of risk factors in all phases 37
4.6.1 Descriptive statistics of engineering phase 37
4.6.2 Descriptive statistics of procurement phase 38
4.6.3 Descriptive statistics of construction phase 39
4.7 Critical risk factors in all phases 40
4.7.1 Critical risk factors in engineering phase 40
4.7.2 Critical risk factors in procurement phase 41
4.7.3 Critical risk factors in construction phase 41
4.8 Descriptive analysis for impact of cost, schedule and quality 41
4.8.1 Descriptive analysis for impact of cost, schedule and
quality in engineering phase 42
4.8.2 Descriptive analysis for impact of cost, schedule and
quality in procurement phase 43
4.8.3 Descriptive analysis for impact of cost, schedule and
quality in construction phase 43
4.9 Top five risk factors showing impact on cost, schedule and
quality in all phases 45
4.9.1 Top five risk factors showing impact on cost, schedule and
quality in Engineering phase 45
4.9.2 Top five risk factors showing impact on cost, schedule and
quality in Procurement phase 46
4.9.3 Top five risk factors showing impact on cost, schedule and
quality in Construction phase 47
4.10 Comparison of total risk factors in each phase with their
respective cost, schedule and quality impact values 49
4.11 Discussion of top critical risk factors in each phase with their
Respective cost, schedule and quality impact values 52
4.11.1 Discussion of top critical risk factors with their
respective cost, schedule and quality impact values
in engineering phase 52
4.11.2 Discussion of top critical risk factors with their
respective cost, schedule and quality impact values
in procurement phase 53
4.11.3 Discussion of top critical risk factors with their
respective cost, schedule and quality impact values
in construction phase 54
4.12 Summary of critical risk factors and ranks according to their 55
Corresponding impact values

5 Conclusions and recommendations

5.1 Introduction 57
5.2 Research findings 57
5.2.1 Identification of risk factors 57
5.2.2 Critical risk factors 57

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 5.2.3 Relationship between Risk factors and impact on Cost, 57
Schedule and Quality
5.3 Limitations and further study approach 58

References 60
Appendices 62

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 LIST OF FIGURES

FIGURE TITILE PAGE

Figure 1.1 construction growth trend in India 1
Figure 2.1 Traditional contract approach 4
Figure 2.2 EPC model 6
Figure 2.3 Common model of EPC contract structure 3
Figure 2.4 Risk management process cycle 10
Figure 2.5 Risk identification process 11
Figure 2.6 Qualitative risk analysis process 13
Figure 2.7 Quantitative risk analysis process 15
Figure 2.8 Risk control process 16
Figure 2.9 Risk monitor process 20
Figure 3.1 Research Framework and Methodology 27

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 LIST OF TABLES
TABLE TITILE PAGE
Table 2.1 likelihood of risk 14
Table 2.2 consequences of risks 15
Table 4.1 Frequency of respondent’s company role 31
Table 4.2 Position in the company 31
Table 4.3 Experience in the Construction Projects 32
Table 4.4 Reliability Statistics 34
Table 4.5 Item-Total Statistics 33
Table 4.6 Descriptive Statistics of Engineering phase 38
Table 4.7 Descriptive Statistics of procurement phase 39
Table 4.8 Descriptive Statistics of construction phase 40
Table 4.9 Top critical risk factors in engineering Phase 40
Table 4.10 Top critical risk factors in procurement Phase 41
Table 4.11 Top critical risk factors in construction Phase 41
Table 4.12 Descriptive Statistics values of risk factors in engineering phase 43
Table 4.13 Descriptive Statistics values of risk factors in procurement Phase 43
Table 4.14 Descriptive Statistics values of risk factors in construction Phase 44
Table 4.15 Top 5 risk factors having high impact of cost in engineering Phase 45
Table 4.16 Top 5 risk factors having high impact schedule in engineering Phase 46
Table 4.17 Top 5 risk factors having high impact quality in engineering Phase 46
Table 4.18 Top 5 risk factors having high impact of cost in engineering Phase 46
Table 4.19 Top 5 risk factors having high impact of schedule in engineering Phase 47
Table 4.20 Top 5 risk factors having high impact of quality in engineering Phase 47
Table 4.21 Top 5 risk factors having high impact of cost in engineering Phase 48
Table 4.22 Top 5 risk factors having high impact of schedule in engineering Phase 48
Table 4.23 Top 5 risk factors having high impact of quality in engineering Phase 48
Table 4.24 Comparison of mean risk values of risk factors and their relation 51
With cost, schedule and quality (impacts value)
Table 4.25 Summary of critical risk factors and ranks according to their 56
Corresponding correlation coefficients

viii
 CHAPTER-1

INTRODUCTION

1.1. Background

The construction sector in India is the country’s second-largest economic segment after
agriculture. It employs more than 40 million people and contributed nearly 8.1% to the national
GDP in 2012–13. It is expected to have contributed 7.8% in 2013–14. According to industry
estimates, the Indian construction industry was worth INR8,184 billion in FY13, which is
estimated to be INR9,013 billion in FY14. Prior to the global economic crisis in 2008, the
industry grew at more than 10% during 2005–07. After 2008, the growth moderated, with the
industry registering an average real growth rate of 4.8% during 2008–2014. However, the
industry is now expected to recover with the formation of a stable government at the centre and
its thrust on infrastructure development to revive economic growth.

Growth of India’s construction industry

Figure1.1: construction growth trend in India

Source: Business monitor international, http://www.ey.com/IN/en/Industries/Power---
Utilities/EY-making-India-brick-by-brick
Infrastructure development has been fuelling India’s economic growth over the past decade or so.
Increasing population, rapid industrialisation and urbanisation as well as global trade are driving
the demand for consistent investment in infrastructure development. Recognizing these
requirements, the Government plans to invest INR56.3 trillion in infrastructure during the
Twelfth Five Year Plan (2012-17) and approximately 50% of the investments are to be
contributed by the private sector. Considering this major potential opportunity in the
infrastructure segment, the EPC sector is likely to be benefited.
The Government of India’s continued focus on developing India’s infrastructure The EPC market
of India has been witnessing consistent changes over the last few years with increased project
size and complexity, increasing private clients and entry of several foreign players. In the current
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market landscape, EPC contractors have a healthy mix of both government and private sector
clients, as compared to their heavy dependence on government clients until a few years ago. The
concept of EPC has been evolving over the last few years and has emerged as a preferred form of
contracting by clients along with PPP models. Even when projects are awarded on ppp basis,
there is an EPC opportunity for market players. Currently, clients prefer to go with a single point
responsibility thereby, reducing the interface and the overall duration. Specialized EPC sectors
such as marine, tunnelling, hydro, industrial, and oil and gas continue to prefer awarding projects
in the EPC mode.
However, the construction industry as a whole and the infrastructure sector, in particular, are
currently on a crossroad in the country as interest from the private sector has declined
significantly in the last couple of years due to the economic slowdown and a legacy of unresolved
challenges. Issues impacting projects — right from planning to operation stage — have made
several of them unviable. Significant cost overruns, regulatory bottlenecks and aggressive
bidding positions taken by a few market players are some of the key concerns affecting the EPC
sector.
Moreover, there is a need to introduce robust contract renegotiation and rebalancing framework
to manage project risk over long-term concession, without deteriorating lenders’ confidence in
the sector. EPC companies can improve their wealth creation profile by focusing on performance,
prospects and managing risks and financing costs. While performance is about improving
margins by way of correct estimations, procurement and project management capabilities, and
focusing on adding higher Margin components to the services provided. Lastly, risk management
helps in improving investor perception, and materially bringing down financing costs for the EPC
companies.
Risk Management, one of the newest concepts of project management is interesting to focus on
because of its advantages and capabilities. Utilization of Project Risk Management
methodologies, especially in mega-projects or international projects can lead to huge advantages
on all aspects of projects’ development. It can also be implemented as the main reference and
basis for bidding, tendering and execution (including cost, time, resource, and quality
management). By risk identification, assessment and control, probable gaps between estimated
and real cost, time, and quality of projects can be prevented or decreased.

1.2. Problem Statement:

EPC oil and gas projects in India are currently characterized by increasing project complexity,
different size and intensified international movement. Therefore it is difficult to meet the project
objectives and challenges in terms of timely completion, costs, quality, and revenue. Contracts
are in essence tools for allocation of tasks, responsibilities and risks. It is a principle of
contracting that the party who control risk should carry the risk.

While many and various research studies have been undertaken on risk management in several
industries, including IT, manufacturing and construction sectors, there appears to be a lack of
definitive procedures for EPC projects.

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Gap in the present researches and necessity of doing more studies

EPC projects in India are now growing rapidly. These opportunities have attracted a lot of
international companies to invest in the EPC sector. At the end of the day, we have to deliver the
project safely, smoothly and profitability. In response to the potential demand said above, EPC
projects in oil & gas, petrochemical, power plant, thermal plant, marine, industrial and hydro
sectors are growing rapidly. In order to improve quality, safety and commercial issue of an EPC
project, service companies invests a lot. However there are certain uncertainties in the projects
which are mainly due to the prevailing risk factors in the project.

However, no specific model or methodology has been developed to date, which specializes or
focuses on an individual industry with its own unique applications, although some companies
have developed their own approaches to risk management. Most commonly used standards and
methodologies for risk management cannot be productively applied to all types of projects.
However, until now most research has focused on some aspects of construction risk management
rather than using a systematic and holistic approach to identify risks and analyse the likelihood of
occurrence and impacts of these risks. Therefore there is a need to identify the critical risk factors
effecting the schedule, cost and quality in the oil and gas EPC projects.

1.3. Objectives of the study

The overall objective of this research is:

1. To identify different risks factors in oil and gas EPC projects in India.
2. To suggest risk factors those are critically important and occurring in the oil and gas EPC
projects.
3. To study and analyse the relationship between the risk factors and impact on cost, schedule,
and quality of the project.

1.4 Scope of Study

The scope of the study is restricted to oil and gas EPC projects. The findings from this study will
be helpful to EPC contractors, owners, project managers, project engineers and other stakeholders
to understand the critical risk factors in the oil and gas EPC projects and thereby guiding them in
developing and adopting necessary effective and efficient project management practices to
conduct EPC projects on cost, schedule with good quality providing clients satisfaction and
safety measures. My research is limited to only cost, schedule and quality No of respondents are less
due to the time limitation. Here in this research study only risks in each phase are identified and
the responsible persons for this risks were not studied.

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 CHAPTER-2

LITERATURE REVIEW

2.1 Traditional contract v/s EPC contract

2.1.1 Design-bid-build contract

Design–bid–build also known as Design–tender and is a traditional method is a project delivery

method in which the agency or owner contracts with separate entities for the design and
construction of a project.
There are three main sequential phases in the design–bid–build delivery method

 The design phase

 The bidding (or tender) phase
 The construction phase

With Design-Bid-Build (DBB), the owner engages an architect to prepare the design of the
complete facility, including construction drawings, specifications and contract packages. The
design package is then presented to general contractors who bid for the work and engage
subcontractors to provide various aspects of the project. Usually the lowest bid is selected. The
selected contractor is then responsible for building the facility according to the design.

With this project delivery system, the owner retains more control over the project with the
individual selection of architect and contractor. This project delivery system has been the most
widely used, most well understood because of clearly defined roles for the parties involved.

Owner

Designer Contractor

Sub-contractor Supplier

Figure 2.1: Traditional contract approach

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2.1.2 Roles and responsibilities of owner & contractor:

(1) It is the owner’s duty to decide the scope, program, and budget for a project prior to
design.

(2) The owner in the design-bid-build method has separate contracts with the designer and
the contractor. Those two contracts are governed by two very different standards, since
the designer functions as the owner’s agent during construction.

(3) With Design-Bid-Build the owner usually has liability for design and construction in
contract with the general contractor.

(4) Owner serves as mediator for any design and construction issues that occur for each
party.

(5) Owner has no control or input on subcontractors.

2.1.3 EPC contract

EPC stands for Engineering, Procurement, and Construction and is an important form of
contracting agreement in the construction field. It is a typical type of contract in industrial plant
construction sector, comprising the provision of engineering services, procurement of materials
and construction. The engineering and construction contractor will carry out the
detailed engineering design of the project, procure all the equipment and materials necessary, and
then construct to deliver a functioning facility or asset to their clients. Companies that deliver
EPC Projects are commonly referred to as EPC Contractors. EPC contracts are sometimes called
turnkey construction contracts.

In any EPC type of contracting model the owner has to manage the project either by his
own resources or by awarding these services to a Project Management Consultancy (PMC)
contractor. Such services can consists of consultation, advice, and supervision and assistance of
the owner in defining funding needs. PMC contractor provides resources to manage the project
and delivers effective contract management to achieve the stipulated aims and objectives.

Owner

EPC contractor

Engineering Procurement Construction

Supplier Sub-contractor
5
 Figure 2.2: EPC model

2.1.4 Contractual structure of EPC CONTRACT

Figure 2.3: Common model of EPC contract structure

Source: http://www.epcengineer.com/
As per the operating agreement with the Joint Venture Participants (JV) the operating
company has the right to construct and operate the oil and gas facility. Usually, each JV
participant will sell its own share of the product. This is similar to the case if participants jointly
market the product. Traditionally the operating agreement is a Joint Operating Agreement (JOA)
between the JV participants and one among the participants operates the facility. There is a great
advantage in this structure as only one body is accountable for the delivery of projects,
relationships with Government, customers and contractors. The JOA administers how liability is
spread amongst the participants with respect to any liabilities or obligations incurred by the
Operator. Generally, the participants of JV have several obligations and the Operator makes cash
calls on them in proportion to their respective JV shares to fund the capital expenditure. Many
large companies like oil and gas companies and many projects are financed from the balance
sheet without finance. However, this is not always the case. There are a number of small
companies looking forward to develop assets and can operate profitably but they are treated as
too small for large companies. These companies need finance to achieve these developments. In
6
these cases the EPC Contractor should be a large, experienced participant in the industry who the
sponsors and lenders are confident can successfully handover the project and is large enough to
cope with losses if it does not.
Further, companies with an outstanding track record mean that the insurance for the
project is easier to obtain. The larger Owners are still interested to use an EPC Contract or Design
and Construct Contract for parts of large projects even. There are a number of contractual ways
that can be taken to construct an oil and gas facility. Among them EPC Contract is one approach.
Another approach is to have a Supply contract, a Design Agreement and Construction contract,
off taker contract with or without involvement of project management agreement. The project
management can be mostly controlled by its proponent. Alternatively, an EPC or project
management contract can also be used for the management. The choice of contracting approach
will depend on the number of factors which include available resources, the lender’s
requirements, and the sophistication of the proponent and the identity of the contractor. The big
advantage of the EPC Contract over the other possible approaches is that it provides for a single
point of responsibility. Importantly, the promoter or the JV participants of the project operate and
generates revenues under contracts other than the construction contract. Therefore, the
construction contract must be tailored so as to be consistent with the requirements and
specifications of the other project documents. As a result, it is important to properly manage the
interfaces between the various types of agreements.

2.1.5 Roles and responsibilities of owner, contractor & consultant:

(1) The EPC contractor provides the owner with single point of responsibility,
communication and coordination related to the major activities involved in the project.

(2) Contractor is responsible to deliver a complete facility for a firm contract price and with
guaranteed date. Due to a single point of responsibility and the necessity to meet the
required standards and performance levels according to owner’s requirements, almost
all the risk is allocated to contractor.

(3) Owner provides the necessary project requirements like basic design.

(4) Owner has to manage the project either by his own resources or by awarding these
services to a Project Management Consultancy (PMC) contractor. Such services can
consists of consultation, advice, and supervision and assistance of the owner in defining
funding needs

(5) PMC contractor provides resources to manage the project and delivers effective
contract management to achieve the stipulated aims and objectives.

2.1.6 EPC Project – Nature and Characteristics

The EPC project is “a complex transaction involving a set of products, services and construction
works designed specifically to complete a specific asset for a customer within a certain period of
time: a building, turnkey factory, a power plant, a weapons system, or the like”(Cove B, Hoskins
S. 1997). The projects are all characterized by:

7
  The clearly defined features of each product are characterized with a customized project
mobilizing particular supplier resources),
 Large complexity (various players from different institution, a large outlay that hardly
requires complex credit arrangements, a long duration spread out over an large period of
time, and so on).
 A contract set in the initial phases of the project between a client and a contractor, defining
the delay, the budget and the specifications.
Cost, specifications and delay are included in the contract between the contractor and the client,
thus providing a definite trade-off between the project parameters collectively by the customer
and the contractor). Each modification of this trade-off requires many negotiations of the
contract.
Thus, when starting a project, the EPC or Construction Contractor forecasts a profit based on
payments to be received (amount and schedule) and costs incurred. In order to get this profit, he
has to get control over his costs because he cannot easily modify the payments specified in the
contract. (Mahmoud Jouini et al. – 2004)

2.2 Definition of risk

Many types of risks definitions are there based on the participant viewpoint in the project. As per
the PMBOK guide, the definition of risk is “an uncertain event or a condition if occurs there will
be some effect on the project objective”. According to ISO 31000 (2009)/ISO Guide 73:2002 risk
is defined as the “consequences of uncertainty on the project objectives”. Risk may sometimes
have one or more impacts. The concept of risk includes both the negative aspects and the positive
aspects for the project. In general practise it only focuses on the negative impacts of the project
so that the occurrence for the damage or loss to people, assets etc. can be known. Risk is present
in all that is from the basic simple issues to the highly complicated situations.

According to Webster’s dictionary risk is defined as the probability of injury or destruction or

loss. Similarly construction risk is also deals with the damage or loss but related with major
constraints: time, money and the quality. Only time and money are in the hands of the
contractor’s control. These uncertainties are more about lacking the essential knowledge or using
the wrong method and tools to identify or assess risk and uncertainties. It could also be that there
is lack of information to identify or assess.

2.2.1 Project Risk

(Thompson and Perry, 1992, p.3) defined project as the “organization, system or service with an
objective of extension or replacement”. From this context, projects are considered to have larger
risk than the products. Project risk is generally separate from the commercial or technical risks.
According to the King and O’Connor (2000) risk related to the project is somewhat different
from the hazard; meanwhile hazard is something defined as “the situation which may direct to an
undesirable activity like accident, injury or damage.

Risk is generally involved in almost all the projects. Project risk is treated as the threat or
situation which affects the time, money, quality, work and also project productivity.

8
2.3 Risk Management – Introduction
Risk management is the process of identification, analysis and either acceptance or mitigation of
uncertainty in investment decision-making. Essentially, risk management occurs anytime and an
investor has to analyses and attempts to quantify the potential for losses in an investment and
then takes the appropriate action (or inaction) given their investment objectives and risk
tolerance.
Risk management covers all the processes involved in identifying, classification, control, monitor
and evaluation in order taking actions to mitigate or anticipate them. The management of risk is
not a linear process; rather it is the balancing of a number of interwoven elements which interact
with each other and which have to be in balance with each other. The management of one risk
may have an impact on another. Management actions which are effective in controlling more than
one risk simultaneously may be achievable. The objectives of risk management are:

 To identify and prioritise potential risk events

 Help develop risk management strategies and risk management plans
 Use established risk management methods, tools and techniques to assist
 In the analysis and reporting of identified risk events
 Find ways to identify and evaluate risks
 Develop strategies and plans for lasting risk management strategies
Risk management helps to increase understanding of the project a more thoroughly and create
conditions for a project plan more realistic, more precisely the cost and time. Identifying and
analysing risks accurately, objectively can evaluate its influence to reduce the risks for the parties
to the project or distribution of any risk to the most likely resolution. Knowledge about the risks
of a project can also help project managers identify the appropriate type of contract, forms of
efficient management, make good decisions have a basis in appropriate time without having to
reserve a large amount of resources and time to prevent the consequences of handling risks when
it happens.
The literature review is to understand more clearly and effective to risk management in new
residential development project based on tools and other method to assess and minimize risk. On
the other hand, the aim of the literature review will draw out the main issues in finding out the
risk of this kind of work and identify appropriate practice highlight the implications for policy
and practice in project management.

2.4 Risk management process

Risk management has been widely applied in various fields such as economics, insurance,
industries, and so on. While the word “risk” means that uncertainty can be expressed through
probability, risk management is a structured process for the management of uncertainty through
risk assessment. Project risk is based on a simple equation:
Risk = (Probability of Event) (Consequences of Event).

Based on PMBOK® Guide (PMI, 2008, p.273), “Project Risk Management includes the
processes of conducting risk management planning, identification, analysis, response planning,
and monitoring and control on a project. The objectives of Project Risk Management are to
increase the probability and impact of positive events, and decrease the probability and impact of

9
negative events in the project.” The Project risk management processes include the following
steps:

Risk identification: Risk Identification determines which risks might affect the project and
documents their characteristics.
Risk assessment: Determines the likelihood and consequence of risk if occurs.
Risk control: The purpose of risk control is to determine what will be done in response to the
risks that have been identified, in order to reduce the overall risk exposure.
Risk monitor: How to monitor risk control, new and changing risks for contingency plans,
monitoring residual risks, and reviewing the execution of risk response. Risk evaluation: To
determine how effective is the risk analysis and control.

Risk
managem
ent plan

RiskRisk
Risk
identificati
evaluation
on
Risk
Management
process

Risk
Risk Analysis/
monitor Assessmen
t

Risk
control

Figure2.4: Risk management process cycle

Source: PMI (2004)

10
2.4.1 Risk identification:
Risk identification determines which risks might affect the project and documents their
characteristics. Participants in risk identification activities can include: project manager, project
team members, risk management team and people from outside the project team such as client,
end users, other project managers, stakeholders ...etc. While these personnel are often key
participants for risk identification, all project personnel should be encouraged to identify risks.
Risk identification is an iterative process because new risks may become known as the project
progresses. The frequency of iteration and who participates in each cycle will vary from case to
case. The project team should be involved in the process so that they can develop and maintain a
sense of ownership of, and responsibility for, the risks and associated risk responses actions.
Stakeholders outside the project team may provide additional objective information. The risk
identification process usually leads to the classification process. Alternatively, it can lead directly
to the risk classification process. On some occasion, simple the identification of a risk may
suggest, and these should be recorded for further analysis and implementation in the risk control.

INPUT TOOLS AND OUTPUT

METHOD

 Published
information  Brainstorming  Risk register
 Commercial data  Interviewing  Potential responses
 Academic studies  Checklist analyses  Root causes of risk
 Previous project
 Assumptions

Figure2.5: Risk identification process

Source: PMI (2004)

1. Risk identification input

There is some useful input information to identify risks such as published information,
including commercial databases, academic studies, or other industry studies. Other resource is
information on prior project from previous project documents, including actual and lessons
learned. Project assumptions are found in the project scope statement should be evaluated as
potential causes of project risk.
Key inputs from the risk management plan to the risk identification process are the
assignments of roles and responsibilities, provision for risk management activities and categories
of risk. The risk identification process also requires an understanding of the schedule, cost, safety
and quality management plans found in the project management plan. Outputs of the knowledge
area processes should be reviewed to identify possible risks across the entire project.
11
 2. Risk identification: tools and techniques
It is important of review of project documentation, including project management plan,
assumption, prior project documents and other information. The quality of the plans, as well as
consistency between those plans and with the project requirements and assumption, can be
indicators of risk in the project.
There are some tools and techniques used in identifying risk as follow:
Brainstorming method: This is a method using knowledge of many people in team to
achieve the desired result.
Interviewing: Interviewing experienced project participants such as project manager,
HSE manager, site manager, foreman, stakeholders and experts can identify risks.
Checklist analysis: Risk identification checklists can be developed based on historical
information and knowledge that has been accumulated from previous similar projects and from
other resources of information.
Assumption analysis: Every subject is conceived and developed based on a set of
hypotheses, scenarios, or assumptions. Assumptions analysis is a tool that explores the validity of
assumptions as they apply to the project. It identifies risks to the project from inaccuracy,
inconsistency, or incompleteness of assumptions.
3. Risk identification: output
The primary outputs from risk identification are the initial entries in to the risk register,
which becomes a component of the project management plan. The risk register ultimately
contains the outcomes of the other risk management process as they are conducted. The
preparation of the risk register begins in the risk identification process with the following
information, and then become available to other project management and project risk
management process.
List of identification risk: The identified risk, including their root cause and uncertain
project assumption, are described.
List of potential responses: Potential responses to a risk may be identified during the
risk identification process. These responses, if identified, may be useful as inputs to the Risk
control process.
Root causes of risk: These are the fundamental conditions and events that may give rise
to the identified risk.
Update risk analysis: The process of identifying risks can lead to new risk categories
being added to the list of risk categories.
2.4.2 Risk analysis/ Assessment

12
The purpose of risk assessment is to assess the likelihood and consequence of the risk, to classify
the risk level. Organization can improve the projects performance effectively by focusing on high
priority risks. Risk assessment method is qualitative and quantitative method.

2.4.2.1 Qualitative risk analysis:

The purpose of this step is to prioritize risks in term of likelihood of occurrence and their
consequences. Company can allocate its limited resources to manage the high priority risks.
Specific definition of the level of likelihood and consequence should be developed to avoid
biases during qualitative risk analysis process. The requirement for input, tools and techniques,
and output of qualitative analysis are summarized.

INPUT TOOLS AND OUTPUT

METHOD

 Scope statement  Risk categories  Risk register

 Risk management  Likelihood
 Ranking of risk
plan Consequences
analysis  Priority risk
 Risk register
 Probability & impact  Risk matrix
matrix

Figure2.6: Qualitative risk analysis process

Source: PMI (2004)

1. Input of qualitative Risk assessment

The inputs for qualitative risk assessment are lesson learnt and historical data about risk in
previous project, scope statement, risk management plan and risk register.
Scope statement: scope statement is an essential element of any project, it must be
considered carefully before risk classify and risk assessment. Objective and feature of the project
was used to assess and clarify risks appropriately.
Risk management plan: risk management plan is an important problem in risk
management process. It is covers the analysis of likely risks with both high and low impact, as
well as mitigation.
Risk register: It is a risk management tool commonly used in project management and
organizational risk assessments.

2. Tools and method of qualitative Risk assessment

Some tools and techniques used for qualitative risk assessment are:

13
 Likelihood and consequences assessment: The consequences and likelihood are
assessed for each factor through interview, meeting with project team, risk management team,
and outside experts.
Probability and impact matrix: Rating the risk in the combination of likelihood and
consequence is used in this technique. Then based on the rating, company will develop
classification of risk in term of colour into high risk (red colour), moderate risk (yellow colour),
and low risk (green colour). This technique also helps risk management team to develop risk
response strategies.
Risk categorization: Project risks can be divided into different sources of risk by using
risk break down structure.

3. output of qualitative Risk assessment

Risks are classifies into different levels (high, medium and low risk).The output of
quantitative risk assessment is updated risk register which includes ranking of risk factors,
category of risks, list of urgent risks which require urgent implementation of solution, list of
risk for further assessment and response.

Level Description

5 Frequent

4 Probable

3 Occasional

2 Remote

1 Improbable

Table2.1: likelihood of risk

Category Description

5 Very high

4 Major

3 Medium

2 Minor

14
 1 Negligible

Table2.2: consequences of risks

2.4.2.2 Quantitative risk assessment

In general, quantitative analysis method follows the qualitative risk assessment method. The
difference is it uses other techniques and tool to analyse risk. The quantitative risk assessment
analyses the impact of risks by assigning a quantitative rating. This method uses some techniques
such as Monte Carlo simulation and decision tree.

INPUT TOOLS AND OUTPUT

METHOD

 Scope statement  Quantitative risk  Risk register

 Risk management
plan
 Risk register
 Project management
plan
analysis & modelling  Ranking of risk
techniques  Priority risk
 Data gathering and
representation

Figure2.7: Quantitative risk analysis process

Source: PMI (2004)

1. Input of quantitative Risk assessment

The inputs for quantitative risk assessment are lesson learnt and historical data about risk
in previous project, scope statement, risk management plan and risk register.
Scope statement: scope statement is an essential element of any project, it must be
considered carefully before risk classify and risk assessment. Objective and feature of the project
was used to assess and clarify risks appropriately.
Risk management plan: risk management plan is an important problem in risk
management process. It is covers the analysis of likely risks with both high and low impact, as
well as mitigation.
Risk register: It is a risk management tool commonly used in project management and
organizational risk assessments.

2. Tools and method of quantitative Risk assessment

15
 Some tools and techniques used for quantitative risk assessment are:
Interview and probability distribution: I t is used for gathering and presenting
information.
Modeling techniques: several modelling techniques such as Sensitive analysis, expected
monetary value analysis, decision tree analysis, modelling and simulation (Monte Carlo
simulation) are used to quantify the risk impact.

3. output of quantitative Risk assessment

The output of quantitative risk assessment is updated risk register which includes ranking
of risk factors, category of risks, list of urgent risks which require urgent implementation
of solution, list of risk for further assessment and response.

2.4.3 Risk control

Risk control is the method of developing actions to reduce threats to the project’s objectives. It
follows the risk classification and includes the identification and assignment of one or more
persons to take responsibility for response. Risk control addresses the risk by the priority,
inserting resources and activities into the budget, schedule, and project management plan, as
needed.
Risk control must be appropriate to the significance of the risk, cost effective in meeting the
challenge, timely, realistic within the project context, agreed upon by all parties involved, and
owned by responsible person. Selecting the best risk control from several options is often
required. Risk control section presents commonly used approaches to planning responses to the
risks. The following is the risk control process

INPUT TOOLS AND OUTPUT

METHOD

 Risk management  Risk responsibilities

 Acceptance
plan (roles and  Residual risks
responsibilities)  Avoidance
 Transference  Project management
 Risk register
 Mitigation plan update

Figure2.8: Risk control process

Source: PMI (2004)

16
 1. Risk control: Inputs
Risk management plan: Risk management plan includes roles and responsibilities, risk analysis
definition, risk classification for low, moderate, high risk, extreme risk and the time and budget
required to conduct project risk management. Outputs from the Risk management plan are
important inputs to risk control. Risk management plan can include probabilistic analysis of the
project, probability of achieving the cost and time objectives, prioritized list of quantified risk,
and trends in quantitative risk analysis results.
Risk register: The risk register is first developed in the Risk identification process, and is updated
during the Qualitative and Quantitative Risk Analysis processes. The risk control may have to
refer back to identified risks, root causes of risks, risk of potential responses, trends in qualitative
risk analysis results, root causes, risks grouped by categories, and a watch list of low priority
risks.

2. Risk control: Tools and Techniques

The strategy or mix of strategies most likely to be effective should be selected for each risk. Risk
analysis tools, such as decision tree analysis, can be used to choose the most appropriate
responses. Primary and backup strategies may be selected. A fall back plan can be developed for
implementation if the selected strategy turns out not to be fully effectively, or if an accepted risk
occurs.

Strategies for Negative Risks or Threats

Three strategies typically deal with threats or risks that may have negative impacts on project
objectives if they occur. These strategies are to avoid, transfer and mitigate:
Avoid: Risk avoidance involves changing the project management plan to eliminate the threat
posed by an adverse risk, to isolate the project objectives from the risk’s impact, or to relax the
objective that is jeopardy, such as extending the schedule or reducing scope. Some risks that arise
early in the project can be avoided by clarifying requirements, obtaining information, improving
communication, or acquiring expertise.
Transfer: Risk transference requires shifting the negative impact of a threat, along with
ownership of the response, to a third party. Transferring the risk simply gives another party
responsibility for its management; it does not eliminate it. Transferring liability for risk is most
effective in dealing with financial risk exposure. Risk transference nearly always involves
payment of a risk premium to the party taking on the risk. Transference tools can be quite diverse
and include, but are not limited to, the use to transfer liability for specified risks to another party.
In many cases, use of a cost-type contract may transfer the cost risk to the buyer, while a fixed —
price contract may transfer risk to the seller, if the project’s design is stable.
Mitigate: Risk mitigation implies a reduction in the probability and/or impact of an adverse risk
event to an acceptable threshold. Taking early ‘action to reduce the probability and/or impact of a
risk occurring on the project is often more effective than trying to repair the damage after the risk
has occurred. Adopting less complex processes, conducting more tests, or choosing a more stable
supplier are examples of mitigation actions. Mitigation may require prototype development to
reduce the risk of scaling up from a bench-scale model of a process or product. Where it is not

17
possible to reduce probability, a mitigation response might address the risk impact by targeting
linkages that determine the severity. For example, designing redundancy into a subsystem may
reduce the impact from a failure of the original component.

Other Strategy
Acceptance: A strategy that is adopted because it is seldom possible to eliminate all risk from
the project. This strategy indicates that the project team has decided not to change the project
management plan to deal with a risk, or is unable to identify any other suitable response strategy.
This strategy can be either passive or active. Passive acceptance requires no action, leaving the
project team to deal with the threats as they occur. The most common active acceptance strategy
is to establish a contingency reserve, including amounts of time, money, or resources to handle
known-or even sometimes potential, unknown — threats.

Contingent Response Strategy

Some responses are designed for use only if certain events occur. For some risks, it is
appropriate for the project team to make a response plan that will only be executed under certain
predefined conditions, if it is believed that there will be sufficient warning to implement the plan.
Events that trigger the contingency response, such as missing intermediate milestones or gaining
higher priority with a supplier, should be defined and tracked.

3. Risk control: Outputs

Risk Register (Updates)
The risk register is developed in risk identification, and is updated during qualitative risk
analysis. In the risk control process, appropriate responses are chosen, agreed-upon, and
included in the risk register. The risk register should be written to a level of detail that
corresponds with the priority ranking and the planned response. Often, the extreme, high and
moderate risks are addressed in detail. Risks judged to be of low priority are included in a
“watch list” for periodic monitoring. Components of the risk register at this point can include:

 Identified risks, their descriptions, area of the project affected, their causes, and how they
many affect project objectives.
 Risk owners and assigned responsibilities.
 Outputs from the classification, including prioritized lists of project risks and
probabilistic analysis of the project.
 Agreed-upon response strategies.
 Specific actions to implement the chosen response strategy.
 Symptoms and warning signs of risks occurrence.
 Budget and schedule activities required to implement the chosen response.
 Contingency reserves of time and cost designed to provide for stakeholders risk
tolerances.
 Contingency plans and trigger that call for their execution.
 Fallback plans for use as a reaction to a risk that has occurred, and the primary response
proses to be inadequate.

18
  Residual risks that are expected to remain after planned responses have been taken, as
well as those that have been deliberately accepted.
 Secondary risks that arise as a direct outcome of implementing a risk response.
 Contingency reserves that are calculated based on the quantitative analysis of the project
and the organization’s risk thresholds.

Project management Plan (Updates)

The project management plan is updated as response activities are added after review and
disposition through the risk control process. Risk control is applied in the direct and manages
project execution process to ensure that agreed-upon actions are implemented and monitored as
part of the on-going project. Risk control strategies, once agreed to, must he fed hack into the
appropriate processes in other knowledge areas, including the project’s budget and schedule.

2.4.4 Risk monitor

Planned risk responses that are included in the project management plan are executed during the
life cycle of the project, but the project work should be continuously monitored for new and
changing risks. Continuous monitoring of risk is an important part of implementation,
particularly for large project.
Risk Monitoring is the process of identifying, analysing, and planning for newly arising risks,
keeping track of the identified risks and those on the watch list, reanalysing existing risk,
monitoring trigger conditions for contingency plans, monitoring residual risks, and reviewing the
execution of risk response while evaluating their effectiveness. The Risk Monitoring process
applies techniques, such as variance and trend analysis, which require the use performance data
generated during project execution. Risk Monitoring, as well as the other risk management
processes, is an on-going process for the life of the project. Other purposes of Risk Monitoring
are to determine if:

 Project assumptions are still valid.

 Risk, as assessed, has changed from its prior state, with analysis of trends.
 Proper risk management policies and procedures are being followed.
 Contingency reserves of cost or schedule should be modified in line with the risks of
the project.
Risk Monitoring can involve choosing alternative strategies, executing a contingency of fallback
plan, taking corrective action, and modifying the project manager on the effectiveness of the plan,
any unanticipated effects, and any mid-course correction needed to handle the risk appropriately.
Risk monitoring also includes updating the organization process assets including project lessons-
learned databases and risk management templates for the benefit of future projects.

19
 INPUT TOOLS AND OUTPUT
METHOD

 Risk management  Risk register(update)

plan
 Risk register
 Change request
 Performance reports
 Risk assessment
 Risk audits
 Variance analysis
 Reserve analysis
 Requested changes
 Corrective actions
 Preventive actions
 Risk management plan


Figure2.9: Risk monitor process

Source: PMI (2004)

1. Risk Monitoring: Inputs

Risk Management Plan
This plan has key inputs that include the assignment of people, including the risk owners,
time, and other resources to project risk management.

Risk Register
The risk register has key inputs that include identified risks and risk owners, agreed-upon risk
responses, specific implementation actions, symptoms and warning signs of risk, residual and
secondary risks, a watch list of low priority risks, and the time and cost contingency reserves.

Approved Change Request

Approved change requests can include modifications such as work methods, contract terms,
scope, and schedule. Approved changes can generate risks or changes in identified risks, and
those changes need to be analysed for any effects upon the risk register, risk response plan, or
risk management plan. All changes should be formally documented. Any verbally discussed, but
undocumented, changes should not be processed or implemented.

Work Performance Information

Work performance information including project deliverables status, corrective actions, and
performance reports, are important inputs to Risk Monitoring.

Performance reports
Provide information on project work performance, such as an analysis that may influence the
risk management processes.

20
 2. Risk Monitoring: Tools and Techniques
Risk Reassessment
Risk Monitoring often requires identification of new risk and reassessment of risk, using the
processes as appropriate. Project risk reassessments should be regularly scheduled. Project risk
management should be an agenda item at project team status meetings. The amount and detail of
repetition that is appropriate depends on how the project progresses relative to its objectives. For
instance, if a risk emerges that was not anticipated in the risk register or included on the watch
list, or if its impact on objectives is different from what was expected, the planned response may
not be adequate. It will then be necessary to perform additional response planning to control the
risk.

Risk Audits
Risk audits examine and document the effectiveness of risk responses in dealing with
identified risks and their root causes, as well as the effectiveness of the risk management process.

Variance and Trend Analysis

Trends in the project’s execution should be reviewed using performance data. Earned value
analysis and other methods of project variance and trend analysis may be used for monitoring
overall project performance. Outcomes from these analyses may forecast potential deviation of
the project at completion from cost and schedule targets. Deviation from the baseline plan may
indicate the potential impact of threats or opportunities.

Technical Performance Measurement

Technical Performance Measurement compares technical accomplishments during project
execution to the project management plan’s schedule of technical achievement. Deviation, such
as demonstrating more or less functionality than planned at a milestone, can help to forecast the
degree of success in achieving the project’s scope.

Reserve Analysis
Throughout execution of the project, some risks may occur, with positive or negative impacts
on budget or schedule contingency reserves. Reserve analysis compares the amount of the
contingency reserves remaining to the amount of risk remaining at any time in the project, in
order to determine if the remaining reserve is adequate.

Status Meetings
Project risk management can be an agenda item at periodic status meetings. That item may
take short time or a long time, depending on the risk that have been identified, their priority, and
difficultly of response. Risk management becomes easier the more often it is practiced, and
frequent discussions about risk make talking about risks, particularly threats, easier and more
accurate.

21
 3. Risk Monitoring: Outputs
Risk Register (Updates)
An updated risk register contain:
• Outcomes Of risk reassessment, risk audits, and periodic risk reviews. These outcomes may
include updates to probability. Impact, priority, response plans, ownership, and other
elements of the risk register. Outcomes can also include closing risks that are no longer
applicable.
• The actual outcomes of the project’s risks and of risk responses that can help project
managers plan for risk throughout the organization, as well as on future projects. This
completes the record of risk management on the project is an input to the Close Project
process and becomes part of the project closure documents.

Requested Changes
Implementing contingency plans or workarounds frequently results in a requirement to
change the project management plan to respond to risk. Requested changes are prepared and
submitted to the Integrated Change Control process as an output of the Risk Monitoring.
Approved change request are issued and become inputs to the Direct and Manage Project
Execution process and the Risk Monitoring.

Recommended Corrective Actions

Recommended Corrective Actions include contingency plans and workaround plans. The
latter are responses that were not initially planned, but are required to deal with emerging risks
that were previously unidentified or accepted passively. Workarounds should be properly
documented and included in both the Direct and Manage Project Execution and Monitor Project
Work process. Recommended corrective actions are inputs to the Integrated Change Control
process.

Recommended Preventive Actions

Recommended Preventive Actions are used to bring the project into compliance with the
project management plan.

Organizational Process Assets (Updates)

The templates for the risk management plan, including the probability and impact matrix, and
risk register, can be updates at project closure. Risks can be documented and the Risk breakdown
structure is updated. Lessons learned from the project risk management activities can contribute
to the lessons learned knowledge databases of the organization. Data on the actual costs and
duration of project activities can be added to the organization’s databases. The final versions of
the risk register and the risk management plan templates and checklists are included.

22
 Project Management Platt (Updates)
If the approved change requests have an effect on the risk management processes, then the
corresponding component documents of the project management plan are revised and reissued to
reflect the approved changes.

2.4.5 Risk evaluation

Risk evaluation is to determine how effective is the risk analysis and control. Risk
evaluation is considered about some of sectors as follow:

 The controls already in place or included in project plans.

 The likely effectiveness of those controls.
 The cost impact of managing the risks.
 The risks borne by other stakeholders.
Risk evaluation step compares risk priorities from the classification against all the other risks.
Some risks have been classed too high or too low as real thing. The outcome of risk evaluation is
a list of risks with agreed priority ratings. Adjustments to the initial priorities may be made for
several reasons.

 Risks may be moved down. Typically these will be routine, well-anticipated risks that
are highly likely to occur, but with few adverse consequences, and for which standard
responses exist.
 Risks may be moved up. Typically there will be two categories of risks like this: those
risks that the project team feel are more important than the initial classification
indicates; and those risks that are similar to other high-priority risks to the project and
hence should be considered jointly with them.

2.5 Risk factors in EPC projects:

Based on the study from the various sources these are the list of risks which are affecting the
project performance and productivity. The risk factors are identified from the secondary data
sources like journal articles, international reports.
The following are the list of risk factors

Risk factors Reference

1. National and local laws and regulations (Costa, 2009)
2. Change of government policies
(Costa, 2009)
3. pressure of public opinion (Costa, 2009)

4. Price fluctuations (Nuhu Braimah & Issaka Ndekugri, 2008)

5. Change in currency rates (Rahul Bali & Prof M.R Apte, 2014a)
6. Change in tax rates (Rahul Bali & Prof M.R Apte, 2014a)
7. Change in interest rates (Rahul Bali & Prof M.R Apte, 2014a)

23
8. Poor financial market
9. Inflation rate
10. Language barrier
11. Culture tradition differences
12. Labour market
13. License requirements
14. Supplier availability
15. Security considerations
16. Agency requirements and relations
17. Customs and importing requirements
18. Insufficient labour resources,
equipment, and material
19. Inability to fund such a large project
20. Cash flow restrictions
21. material supply networking
22. Risk of bankruptcy
23. Delays in committing funds for the
project
24. Unfamiliarity with design, codes,
standards, and construction requirements
25. Unfamiliarity with required
subcontractors and vendors
26. Lack of awareness of industry norms,
practices, and standards of care
27. Uncontrollable work scope expansion
28. Inefficient and ineffective planning
and management
29. Inability to schedule project work
accurately
30. Unclear project completion milestones
31. Disproportionate split of risk and
reward benefits
32. Roles and responsibilities of both
parties are unclear, subject to
misunderstanding, and unenforceable
33. Incompetence of project team
34. Late internal approval process
(Abdul Rahman Ayub & Janidah Eman, 2006)
(Nuhu Braimah & Issaka Ndekugri, 2008)
(Adams, 2010)
(Adams, 2010)
(Vance, 2006)
(Zhi, 1995)
(Abdul Rahman Ayub & Janidah Eman, 2006)
(Vance, 2006)
(Costa, 2009)
(Rahul Bali & Prof M.R Apte, 2014a)
(Abdul Rahman Ayub & Janidah Eman, 2006)
(Rahul Bali & Prof M.R Apte, 2014a)
(Adams, 2010)
(Abdul Rahman Ayub & Janidah Eman, 2006)
(Rahul Bali & Prof M.R Apte, 2014a)
(Adams, 2010)
(Pícha, Tomek, & Löwitt, 2015)
(Costa, 2009)
(K.C. Iyer & K.N. Jha, 2005)
(Nuhu Braimah & Issaka Ndekugri, 2008)
(Abdul Rahman Ayub & Janidah Eman, 2006)
(Vance, 2006)
(Vance, 2006)
(K.C. Iyer & K.N. Jha, 2005)
(K.C. Iyer & K.N. Jha, 2005)
(Vance, 2006)
(K.C. Iyer & K.N. Jha, 2005)
24
35. Inadequate project organization (Zhi, 1995)
structure
36. Delay in project approvals and permits (Vance, 2006)
37. Construction cost overrun (Abdul Rahman Ayub & Janidah Eman, 2006)
38. Construction time delay (K.C. Iyer & K.N. Jha, 2005)
39. poor safety management (Rahul Bali & Prof M.R Apte, 2014a)
40. Excessive contract variation (Vance, 2006)
41. Theft (Adams, 2010)
42. Breakdown of machinery (Adams, 2010)
43. Damage to site (Vance, 2006)
44. Accidents (K.C. Iyer & K.N. Jha, 2005)
45. Strikes or labour problem (Adams, 2010)
46. War or hostilities (Adams, 2010)
47. terrorism or rebellion (K.C. Iyer & K.N. Jha, 2005)
48. Failure in the selection of joint venture (Didibhuku Thwala & Mpendulo Mvubu, 2008)
partners or sub-contractors
49. historical findings (Vance, 2006)
50. Unfamiliar with the market (Didibhuku Thwala & Mpendulo Mvubu, 2008)
51. epidemic disease (Vance, 2006)
52. Conflict between client, company and (K.C. Iyer & K.N. Jha, 2005)
parties.
53. Liquidated damages (Nuhu Braimah & Issaka Ndekugri, 2008)
54. Scope uncertainty (Vance, 2006)
55. Inaccurate cost estimate (Adams, 2010)
56. Poor competency of labour (Abdul Rahman Ayub & Janidah Eman, 2006)
57. Variations by the client (Nuhu Braimah & Issaka Ndekugri, 2008)

25
 CHAPTER 3
METHODOLOGY
3.1 Introduction
This chapter presents the framework of the research being used in order to achieve the stated
objectives. It identifies and discusses about the methods being used in process of achieving
objectives of the study. Methodology is developed based on the literature review and objectives
of the study. This research used questionnaire as an effective tool to gather data and statistical
analysis to interpret data into meaningful findings. Finally, method of data collection and data
analysis and interpretation followed by the conclusion and recommendation were explained to
support this study.

3.2 Research framework and methodology

In general research refers to systematic way of studying the sources and materials to find answers
to the required questions with in a field or context. Research framework refers to clearly stating
the steps being used in order to achieve the research objectives.
The framework being used for this mainly consists of three stages namely input, process and
output. Input regarding to this study refers to objectives, scope of the study and literature review
whereas process refers to the methodology being used in order to accomplish the stated
objectives. Output refers to the conclusions and recommendations which will be helpful in
identifying the critical risks and relation with the project performance variables (cost, schedule
and quality).
This is followed by the process which comprised of method of achieving stated objectives
through questionnaire survey by respondents from the construction industry. Thus, it enabled to
generate the desired outcome for identifying the critical risk factors in the oil and gas EPC
projects. The methodology being used to accomplish the objectives consists of mainly five phases
they are
Phase I: It consists of the process of identifying the risk factors based on the literature.
Phase II: Expert validation of the identified risk factors and final questionnaire development.
Phase III: It consists of the process of collection of data through questionnaire from the
respondents.
Phase IV: It used the data collected from surveys for data analysis through Descriptive analysis
and Regression technique in SPSS 22 Software.
This study mainly focused on the studying about critical risk factors associated with the oil and
gas EPC projects and further identified and analysed how these risk factors impact cost, schedule
and quality of the project. Thus the questionnaire is developed using the risk factors from the
literature review and further analysed the impact of top critical risk on cost, schedule and quality
of the project.

26
 Research Methodology Framework

INPUT

Literature review Objectives Scope of study

PROCESS
Figure3.1: Methodology framework
Phase I: Identification of risk factors in oil and gas EPC projects.

Phase II: Expert validation of risk factors and final questionnaire

development

Phase III: Data collection through questionnaire survey from the

respondents

Phase IV: Analysis of the collected data using descriptive analysis

and correlation techniques in SPSS

Phase V:

OUTPUT
 Critical risk factors in the Engineering, Procurement and
Construction phase of oil and gas EPC project and impact of
those critical risk factors on cost, time and quality.
 Conclusions and recommendations

Figure 3.1 Research Framework and Methodology

27
3.3 Questionnaire design and structure
Questionnaire survey was adopted for collection of data. Structured interviews with experts in the
concerned field were carried out after the important uncertainty factors which can be
opportunities are identified using the data collected from the questionnaire survey. The
questionnaire is developed using the risk factors which are identified through the literature
review. The questionnaire consists of three parts
Part 1: This section of questionnaire includes questions related with respondent and construction
project profile.

Part 2: This section of questionnaire comprised of questions related with identifying the critical
risk factors in the oil and gas EPC projects.
Part 3: This section of questionnaire covers the questions related to how these risk factors are
affecting the project performance variables like schedule, cost and quality in the oil and gas EPC
projects.

Part 1 of the questionnaire which consists of questions regarding respondent gives the details
regarding the respondent such as age, experience, position, number of projects involved in, etc.,
whereas part 2 of the questionnaire gives details regarding perception and knowledge regarding
risk management in construction and part 3 of the questionnaire consists of risk factors which
will be assigned with likelihood, impact and the which will be analysed for identifying the
important uncertainty factors.

3.4 Expert Validity of contents

Identified risk factors from the literature were validated by the experts to know whether the
factors are practicable in the Indian oil and gas construction industry. This leads to adding or
subtraction of factors apart from the factors identified in the literature review. Expert validation
of the factors was conducted with 5 experts who are project managers with at least 10 years of
experience. After the expert validation questionnaire was modified according to the required
modifications as suggested by the experts and was used to collect the data from the respondents.

3.5 Questionnaire distribution

After finalizing the risk factors from the expert validation, finalised questionnaire was distributed
to the respondents. Criteria for the respondents are project engineers, project managers or the
project team involved in the oil and gas EPC project. Questionnaire was mainly distributed by
face to face to ensure reliability of the data and clear understanding of the questionnaire for the
respondent and in some cases questionnaire will be distributed through email.

3.6 Data collection and sample selection

Primary data was collected through questionnaire survey and expert interviews. Secondary data
will be collected from the literature (Journals, articles, reports, etc.,) which helped in analysing
the collected data without bias. After the expert validation and finalizing the questionnaire, it was
distributed to the respondents.

28
Data was mainly collected through questionnaire survey from the project engineers or the project
managers who have experience in the oil and gas EPC projects in the southern part of the India.
Questionnaire survey was focused on questions dealing with identification of various risk factors
and relation with project performance.
The data was mainly collected from oil and gas EPC construction projects in Andhra Pradesh and
some responses from rest of provinces in India. It focused on Project staff or any representatives
from the owner and contractor who are engaged in the construction projects. Questionnaire
survey was conducted with project managers, engineers, consultants and contractors to get
information about project’s risks and also the impact on cost, schedule and quality. Sample size
of the questionnaire survey is 52.
3.7 Data Analysis

This section explains how the collected data was analysed. The statistical analysis of results can be
used to provide empirical support for some generally accepted ideas on the matter. The results of the
questionnaire survey were analysed to explore the participants' view on the risk factors and the impact
of those factors on the cost, schedule and quality of the oil and gas EPC construction projects.
Nonparametric statistical techniques were used to analyse the research findings. Specifically as
designed in questionnaire survey, my data is largely quantitative. On the completion of the data
collection, the data was entered for analysis using SPSS 22. The Statistical Package for Social
Science (SPSS) was used to handle the statistical calculations. Several statistical techniques have
been used to analyse data in order to find out the relationship among variables. The techniques like
frequency distribution, descriptive statistics analysis and the Pearson correlation were used.

3.7.1 Descriptive statistics analysis

Descriptive statistics are a set of brief descriptive coefficients that summarizes a given data set,
which can either be a representation of the entire population or a sample. The measures used to
describe the data set are measures of central tendency and measures of variability or dispersion.
Here mean and frequency distribution analysis are carried out. Mean is taken which is an
indicator to report the central tendency to present the average value in the distribution. The
purpose of mean in this research is for ranking. Frequency is the number of occurrences of a
repeating event per time. It is used to identify the number of times that particular variable
occurred.

29
 Chapter 4
Data Analysis and Results
4.1 Introduction
The objective of this chapter is to present the results of data analysis, its interpretation and
discusses the step wise process used to obtain the objectives of the study
In this research key findings from survey questionnaire were presented and analysed which
factors contribute to critical risk factors mostly. This research takes in account all those factors
which contribute to risk factors in oil and gas EPC projects. On the basis of the survey and
analysis the top critical risks in EPC oil and gas projects are identified. The top critical risks in
each phase of EPC were identified and ranked depending upon the questionnaire received. On the
other hand we also analysed the which risk factors influences cost, schedule and quality of the
projects along with the identification and ranking of top critical risks which impacts on cost,
schedule and quality.
4.2 Respondents Characteristics

This research defines that 52 respondents have been interviewed in EPC oil and gas projects in India.
Research has been conducted as mentioned in questionnaire and methodology part. The respondent
levels in the surveyed projects are such as project manager, contract managers, project engineers, site
managers etc.
Furthermore the questionnaire has four parts respondents profile, projects information, risk factors
and impact of risk factors on cost, Schedule and quality. The following four questionnaire parts are as
follows:
1. Respondents Profile
 Company Name
 Respondents Name
 Email address
 Company role
 Positions
 Experience

2. Projects information
 Project Name
 Location of the projects
 Project value
 Project duration

3. Risk factors
These variables are almost 44 variables which are considered to be contributing for risks in the oil and
gas EPC projects.

4. Identification of top risk factors which have impact on cost, schedule and quality

30
Data is primarily collected mainly in provinces of Kakinada, Jamnagar and some provinces from rest
of India from December 2015 to Mid of February 2016. The questionnaire survey was conducted
mostly face to face interview.
a. Respondents company role
Respondent roles are divided into three categories, namely Owner, Contractor and Consultant.
The total respondent in this research is 52. As it is shown in the table 4-1 the frequency of
Owner, Contractor and Consultant occurs 33, 15 and 4 respectively.

Cumulative
Frequency Percent Valid Percent Percent

Valid Owner 22 42.3 42.3 42.3

Contractor 25 48.0 48.0 90.3

Consultant 5 9.7 9.7 100.0

Total 52 100.0 100.0
Table 4.1 showing the frequency of respondent’s company role

b. Respondent role in company

There are four categories of the positions among respondents. They are Contract
manager, Project Manager, Project Engineer and Others. Others include Site
Managers, Procurement officers, Design engineer and some of Office Engineers
According to the Table 4.2, the frequency of Project Managers, Project Engineers and
others shows 13, 29 and 10 times respectively.

Cumulative
Frequency Percent Valid Percent Percent

Valid Others 10 19.2 19.2 19.2

Project Engineer 29 55.8 55.8 75.0

Project Manager 13 25.0 25.0 100.0

Total 52 100.0 100.0

Table 4.2 showing Position in the company

c. Years of experience
Respondent’s years of experience are in grouped by four, they are 1. Less than 5 years of
experience 2. From 6-10 year of experience 3. 11-15 years of experiences 4. Over 15
years of experiences. According the table 4-3 the highest frequency occurs in the years of
experiences is over 15 years followed by 6-10 years of experience among respondents.

31
 Cumulative
Frequency Percent Valid Percent Percent

Valid Less than 5 years 9 17.3 17.3 17.3

6 to 10 years 15 28.8 28.8 46.2

11 to 15 years 11 21.2 21.2 67.3

over 15 years 17 32.7 32.7 100.0

Total 52 100.0 100.0

Table 4.3 showing Experience in the Construction Projects

4.3 Verification of Factors

In this step, all the 56 factors were gathered in form of a questionnaire. Experts were requested to
answer in YES or No, to verify the factors whether they are related to risk factors in EPC oil and
gas projects. The factors with majority of responses were included and some factors were
excluded by the experts as per their experience. Expert selection was on the basis of experience in
the construction field. Out of 56 factors, 44 were verified by experts to be relevant with the most
risk factors and some factors they combined which resembles similar meaning.

32
Construction Phase

33
4.4 Reliability Analysis
Cronbach's Alpha; is an estimate of internal consistency associated with scores that can be
derived from a scale, and reliability is important because in the absence of reliability it is
impossible to have validity with the scores of a scale. It is important to run reliability test before
applying other kind of analysis on the data. Reliability level of the questionnaire was checked in
two stages as per the format of questionnaire. In total 44 factors of questionnaire were analysed in
SPSS 22 for internal consistency. Reliability analysis was conducted to check Cronbach’s Alpha
as shown in table

Cronbach's
Alpha Based on
Cronbach's Standardized
Alpha Items N of Items
.962 .966 44
Table 4.4 showing Reliability Statistics

34
We use Cronbach’s Alpha to determine how reliable the scale is and it can take values between 0 and
1.
0 = No reliability
1 = Perfect reliability
Cronbach’s Alpha should be at least 0.7 then we can say it is reliable.
0.8 = Good reliability
0.9 = Excellent reliability

The Cronbach’s alpha is 0.962 which it basically mean the 96.2% of the variability in the composite
score by conjoining those 44 items. We calculate the composite score to indicate the external thinking
that 96.2% of variance in that score will be considered as a true variance score or internally consistent
reliable score.
However, while checking reliability analysis test this table is very important to have a look on it
specially the corrected item-total correlation. It shows the correlations between the items and the
composite score of all other remaining items or variables. The correlations are very high between the
variables and there were surprisingly very low correlations as well that later on it is removed because
the variances with other variables were very low.

Cronbach's
Scale Mean if Scale Variance if Corrected Item- Alpha if Item
Item Deleted Item Deleted Total Correlation Deleted

"Change of Government
318.7500 22894.505 .333 .962
Policies & National, Local Laws
"License requirements" 315.6154 22682.908 .397 .962
"Ineffective planning and
314.1154 21910.535 .776 .960
management
"Unclear quality requirements" 317.1923 22139.452 .749 .960
"Complex and delay in planning
315.5385 22481.783 .573 .961
approvals and permit"
"Poor financial market" 318.5769 22743.151 .583 .961
"Inaccurate cost estimate 317.4231 22232.170 .733 .960
"Design changes and errors 315.1154 22300.967 .759 .960
"Inability to fund such a large
318.7308 22299.103 .775 .960
project"
"Inability to schedule project
318.7115 22593.268 .710 .960
work accurately"
"Inadequate project
315.2308 22817.005 .335 .962
organization structure"
"Failure in the selection of joint
venture partners or sub- 318.8462 22354.094 .748 .960
contractors"
"Inadequate or lack of proper
318.5000 22657.275 .699 .960
site information"

35
"Scope uncertainty" 313.5769 22420.523 .439 .962
"Insufficient resources,
314.9808 21905.000 .691 .960
equipment and material"
"Material networking" 318.4231 22713.190 .657 .961
"Unfamiliarity with required
317.1154 22455.398 .635 .960
subcontractors and vendors"
"Price fluctuations" 316.1538 22952.368 .425 .961
"Import/export restrictions" 318.2308 22505.828 .652 .960
"Supplier availability" 315.2308 22471.397 .517 .961
""Poor quality materials" 315.9808 22516.294 .527 .961
"Inappropriate procurement
318.8077 22677.570 .676 .960
strategy"
"Change in currency & tax
319.7692 22894.416 .595 .961
rates"
"Unfamiliarity with design,
codes, standards and 315.3846 22381.379 .599 .961
construction requirements"
"Language barrier 320.1538 22913.152 .538 .961
"Unavailability of labour" 316.0769 22289.131 .613 .961
"Cash flow restrictions" 317.5962 22246.559 .740 .960
"Uncontrollable work scope" 318.3462 22254.348 .829 .960
"Unclear project milestones" 318.9808 22532.843 .848 .960
"Construction cost overrun" 313.9038 22503.540 .637 .960
"Construction time delay" 314.3269 22619.009 .519 .961
"Excessive contract variation" 318.1731 22401.126 .798 .960
"Accidents" 315.4231 22607.268 .450 .961
"Strikes or labour problem" 316.8846 22363.241 .718 .960
"Terrorism or rebellion" 318.9423 22763.585 .501 .961
"Liquidated damages" 319.2692 22900.710 .592 .961
"Poor competency of labour" 316.5577 22875.899 .459 .961
"Environmental risks" 317.4615 22565.430 .676 .960
"Tight project schedule" 314.8846 22784.928 .393 .962
"Lack of proper construction
318.7308 22725.652 .640 .961
techniques"
"Incompetence of project team" 313.7692 22845.083 .337 .962
"Poor safety management" 315.1346 22099.687 .714 .960
"Breakdown of machinery" 318.2115 22712.719 .628 .961
"Improper quality control" 318.0577 22655.310 .764 .960
Table 4.5 showing Item-Total Statistics

36
4.5 Independent sample t test
A t-test’s statistical significance indicates whether or not the difference between two groups’
averages most likely reflects a “real” difference in the population from which the groups were
sampled.
Here t test is run in order to check the differences in the means and variance between the owner
respondents and contractor respondents. This is done to check that the risks from the owner
prospective are same with the contractor prospective or not. In the t test all the independent
variables which are the list if the risk factors are entered and the t test analysis is run. The
significant value is greater than 0.05 which means that the two groups were having same means
and variances and the risks are same from the owner and contractor prospective.

4.6 Identification and ranking of risk factors

The final list of risk factors in the form of survey questionnaires were distributed to the
respondents of EPC oil and gas projects as mentioned before. Direct site visit, emailing or face to
face interview were conducted to collect data. In order to determine the major risk factors in
Engineering, Procurement and construction phase of the EPC oil and gas construction projects,
the respondents were asked to rate the risk factors listed in the list. They were requested to judge
two attributes of each risk: the frequency of likelihood (occurrence) and the degree of
consequence (impact). The respondents judged the frequency of likelihood (occurrence) through
the five level judgement scale of frequently, likely, possible, unlikely and rarely. The similar
scale was applied to the degree of consequences (impact) through the five level judgement scale
of very high, high, medium, minor and negligible. Descriptive statistics and frequency
distribution analysis were performed to rank the risk factors followed by the overall ranking
according to the Engineering, Procurement and construction phases of the EPC oil and gas
projects.

4.6.1 Descriptive Statistics of Engineering phase

In engineering phase list of 14 factors are there which are identified from the literature review.
The risk levels of these 14 factors are calculated by using likelihood and consequences and later
mean of all the risk factors in the engineering phase are calculated and is shown in the table.

Mean of Mean of
occurrence impact
N frequency degree Risk index

"Scope uncertainty" 3 3.1731

52 9.5

"Ineffective planning and 2.9038 3.1923

52 9.26
management
"Design changes and errors 2.9423 2.9808
52 8.77

"Inadequate project 2.7308 3.0385

52 8.29
organization structure"

37
 "Complex and delay in planning 2.6154 2.8846
52 7.54
approvals and permit"
"License requirements" 2.1154 2.3846
52 5.04

"Unclear quality requirements" 2.75 2.9231

52 8.03

"Inaccurate cost estimate 2.1346 2.4615

52 5.25

"Inadequate or lack of proper 2.1731 2.5577

52 5.55
site information"
"Poor financial market" 2.1923 2.4038
52 5.26

"Inability to schedule project 2.2885 2.5577

52 5.85
work accurately"
"Inability to fund such a large 2.3462 2.6346
52 6.18
project"
"Change of Government 2.0192 2.4231
52 4.89
Policies & National, Local Laws
"Failure in the selection of joint
venture partners or sub- 52 2.2115 2.8269 6.25
contractors"

Valid N (list wise) 52

Table 4.6 showing Descriptive Statistics of Engineering phase

4.6.2 Descriptive Statistics of procurement phase

In procurement phase list of 10 factors are there which are identified from the literature review.
The risk levels of these 10 factors are calculated by using likelihood and consequences and later
mean of all the risk factors in the construction phase are calculated and is shown in the table.

Mean of Mean of
occurrence impact
N frequency degree Risk index

"Insufficient resources,
52 2.7692 2.9038 8.041203
equipment and material"

"Material networking" 2.2692 2.4615 5.585636

52

"Unfamiliarity with required 2.4231 2.6154 6.337376

52
subcontractors and vendors"
"Price fluctuations" 2.7308 2.8462 7.455636
52

38
 "Import/export restrictions" 2.1538 2.5 5.3845
52

"Supplier availability" 2.8654 2.8269 8.387591

52

""Poor quality materials" 2.4231 3.0769 7.772403

52

"Inappropriate procurement 2.1346 2.4038 5.131151

52
strategy"
"Change in currency & tax 2.0769 2 4.1538
52
rates"
"Unfamiliarity with design,
codes, standards and 52 2.6923 3.1154 8.100199
construction requirements"
Valid N (list wise) 52
Table 4.7 showing Descriptive Statistics of procurement phase

4.6.3 Descriptive Statistics of construction phase

In procurement phase list of 10 factors are there which are identified from the literature review.
The risk levels of these 10 factors are calculated by using likelihood and consequences and later
mean of all the risk factors in the construction phase are calculated and is shown in the table.

Mean of Mean of
occurrence impact
N frequency degree Risk index

"Incompetence of project 2.9808 3.3846

52 10.08
team"
"Construction cost overrun" 2.8269 3.4808
52 9.83

"Construction time delay" 3 3.1538

52 9.46

“Tight project schedule" 2.8654 3.0577

52 8.76

"Poor safety management" 2.4423 3.4423

52 8.40

"Accidents" 2.1923 2.5962

52 5.69

"Unavailability of labour" 2.1346 2.5192

52 5.37

"Poor competency of labour" 2.2115 2.8654

52 6.33

"Strikes or labour problem" 1.9231 2.4423

52 4.69

"Environmental risks" 1.7308 2.8462

52 4.92

39
 "Cash flow restrictions" 2.2885 2.9423
52 6.73

"Improper quality control" 2.5577 2.9038

52 7.42

"Excessive contract variation" 2.3846 2.5

52 5.96

"Breakdown of machinery" 1.9038 2.7115

52 5.16

"Uncontrollable work scope" 2.4038 2.9423

52 7.71

"Lack of proper construction 2.1346 2.7885

52 5.95
techniques"
"Terrorism or rebellion" 2.0192 1.8077
52 3.65

"Unclear project milestones" 2.6346 2.6731

52 7.04

"Liquidated damages" 2.1346 2.7115

52 5.78

"Language barrier” 2.0962 2.3462

52 4.91

Valid N (list wise) 52

Table 4.8 showing Descriptive Statistics of construction phase

4.7 Critical risk factors in all phases

These risk factors are ranked accordingly and the top 5 risks which are critical risk factors are
identified in all the phases.

4.7.1 Critical risk factors in engineering phase

Top Risk factors

S. no N Risk index
1. Scope uncertainty
52 9.5193

2. Ineffective planning and

52 9.269801
management
3. Design changes and errors 52 8.770408
4. Inadequate project
52 8.297536
organization structure
5. Complex and delay in
52 8.038525
approvals and permit
Table 4.9 showing top critical risk factors in engineering Phase

40
4.7.2 Critical risk factors in procurement phase

Top Risk factors

S. no N Risk index
1. Insufficient resources, 8.387591
52
equipment and material
2. Supplier availability 52 8.100199
3. Unfamiliarity with codes,
standards, Design and 52 8.041203
construction requirements
4. Poor quality materials 52 7.772403
5. Price fluctuations 52 7.455636

Table 4.10 showing top critical risk factors in procurement Phase

4.7.3 Critical risk factors in construction phase

Top Risk factors

S. no N Risk index
1. Incompetence of project team
52 10.08882

2. Construction cost overrun

52 9.839874

3. Construction time delay 52 9.4614

4. Tight project schedule
52 8.761534
5. Poor safety management
52 8.407129

Table 4.11 showing top critical risk factors in construction Phase

4.8 Descriptive analysis for impact of cost, schedule and quality

To understand the strength of relationship between risk factors and impact on cost, schedule and
Using 52 questionnaires, SPSS 22 was applied to the actual implementation part of the
questionnaires. For impact on cost, schedule and quality a scale was applied to the degree of
impact through the five level judgement scale of very high, high, medium, minor and negligible.
Descriptive statistics and were performed to find the means of the corresponding risk factors. The
values obtained for the mean represents the impact level of the particular factor corresponding to
cost, schedule and quality. The means of the risk factors corresponding to cost, schedule and

41
quality were ranked accordingly in every phase. The top critical risks in every phase
corresponding to the cost, schedule and quality were identified.

4.8.1 Descriptive analysis of risk factors for impact of cost, schedule and quality in
engineering phase
In engineering phase all the 14 risk factors are analysed using descriptive analysis. The mean of
every risk factor corresponding to cost, schedule and quality in the construction phase is
calculated and is tabulated as shown below.

Impact on Impact on
S. no
Risk factors Impact on cost schedule quality

"Scope uncertainty"
3.19 3.33 2.33
1.
"Ineffective planning and
2.69 3.75 2.35
2. management
3. "Design changes and errors
3.00 3.25 1.88

4. "Inadequate project
2.50 2.92 2.37
organization structure"
5. "Complex and delay in
planning approvals and 2.15 3.04 1.73
permit"
6. "License requirements" 2.02 2.69 1.65

7. "Unclear quality
2.62 2.62 2.42
requirements"
8. "Inaccurate cost estimate 2.88 2.32 1.71

9. "Inadequate or lack of
2.38 2.73 1.72
proper site information"
10. "Poor financial market"
2.60 2.50 2.21

11. "Inability to schedule project

work accurately" 2.48 2.90 1.75

12. "Inability to fund such a

2.52 2.56 2.06
large project"
13. "Change of Government
Policies & National, Local 1.98 2.35 1.94
Laws

42
 14. "Failure in the selection of
joint venture partners or 2.46 2.83 2.02
sub-contractors"
Table 4.12 showing descriptive statistics of impact of risk factors in engineering phase
4.8.2 Descriptive analysis of risk factors for impact of cost, schedule and quality in
procurement phase
In procurement phase all the 10 risk factors are analysed using descriptive analysis. The mean of
every risk factor corresponding to cost, schedule and quality in the procurement phase is
calculated and is tabulated as shown below.

Impact on Impact on
S.no
Risk factors Impact on cost schedule quality

1. "Insufficient resources,
2.33 2.75 2.37
equipment and material"
2. "Supplier availability" 3.17 2.85 1.81
3. "Unfamiliarity with design,
codes, standards and 3.10 2.54 2.60
construction requirements"
4. "Defective materials" 2.71 1.90 2.52
5. "Price fluctuations" 3.37 1.77 2.04
6. "Unfamiliarity with required
2.44 2.17 2.50
subcontractors and vendors"
7. "Import/export restrictions" 2.56 2.69 1.61
8. "Material networking" 2.12 3.15 1.63
9. "Inappropriate procurement
1.63 3.42 1.56
strategy"
10. "Change in currency & tax
2.79 1.75 1.19
rates"

Table 4.13 showing descriptive statistics of impact of risk factors in procurement phase
4.8.3 Descriptive analysis of risk factors for impact of cost, schedule and quality in
construction phase
In construction phase all the 20 risk factors are analysed using descriptive analysis. The mean of
every risk factor corresponding to cost, schedule and quality in the construction phase is
calculated and is tabulated as shown below.

43
 Impact on Impact on
S.no
Risk factors Impact on cost schedule quality

1. "Incompetence of project
2.71 3.65 2.58
team"
2. "Construction cost overrun"
3.31 3.27 1.94

3. "Construction time delay"

2.90 3.83 1.96

4. “Tight project schedule" 2.69 3.71 1.98

5. "Poor safety management"

2.67 3.00 1.83

6. "Accidents"
2.77 2.75 1.62

7. "Unavailability of labour" 2.25 3.33 1.67

8. "Poor competency of labour" 2.54 2.87 2.25

9. "Strikes or labour problem" 2.17 2.73 1.54

10. "Environmental risks" 2.38 2.60 1.61

11. "Cash flow restrictions" 3.12 3.02 1.79

12. "Improper quality control" 2.52 2.50 3.10

13. "Excessive contract

2.70 2.17 1.63
variation"
14. "Breakdown of machinery" 2.33 2.83 1.69

15. "Uncontrollable work scope" 2.94 3.12 1.81

16. "Lack of proper construction

2.58 2.92 2.27
techniques"
17. "Terrorism or rebellion" 1.94 1.73 1.40
18. "Unclear project milestones" 2.63 3.35 1.73

19. "Liquidated damages" 2.27 2.67 1.65

20. "Language barrier” 1.46 1.58 1.33

Table 4.14 showing descriptive statistics of impact of risk factors in construction phase

44
4.9 Top five risk factors showing high impact on cost, schedule and quality in all phases

4.9.1 Top five risk factors showing high impact on cost, schedule and quality in engineering
phase

In engineering phase all the 14 risk factors were analysed using the descriptive analysis and the
means were calculated corresponding to cost, schedule and quality. The top means corresponding
to cost, schedule and quality were ranked accordingly which are the top critical risk factors in
terms of cost, schedule and quality in the engineering phase.

Top Risk factors

S. no N Impact on cost
1. Scope uncertainty
52 3.19

2. Design changes and errors

52 3.00

3. Inaccurate cost estimate 52 2.88

4. Ineffective planning and
52 2.69
management
5. Unclear quality requirements
52 2.62

Table 4.15 showing top 5 risk factors having high impact on cost in engineering Phase

Top Risk factors Impact on

S. no N schedule
1. Ineffective planning and
52 3.75
management
2. Scope uncertainty
52 3.33

3. Design changes and errors 52 3.25

4. Complex and delay in planning
52 3.04
approvals and permit
5. Inadequate project organization
52 2.92
structure

Table 4.16 showing top 5 risk factors having high impact on schedule in engineering Phase

45
 Top Risk factors Impact on
S. no N quality
1. Unclear quality requirements
52 2.42

2. Inadequate project organization

52 2.37
structure
3. Ineffective planning and
52 2.35
management
4. Scope uncertainty 52 2.35
5. Poor financial market 52 2.21

Table 4.17 showing top 5 risk factors having high impact on quality in engineering Phase

4.9.2 Top five risk factors showing high impact on cost, schedule and quality in
procurement phase

In procurement phase all the 10 risk factors were analysed using the descriptive analysis and the
means were calculated corresponding to cost, schedule and quality. The top means corresponding
to cost, schedule and quality were ranked accordingly which are the top critical risk factors in
terms of cost, schedule and quality in the construction phase.

Top Risk factors

S. no N Impact on cost
1. Price fluctuations
52 3.37

2. Supplier availability
52 3.17

3. Unfamiliarity with design, codes,

standards and construction 52 3.10
requirements
4. Change in currency & tax rates 52 2.79
5. Poor quality materials 52 2.71

Table 4.18 showing top 5 risk factors having high impact on cost in procurement Phase

46
 Top Risk factors Impact on
S. no N schedule
1. Inappropriate procurement
52 3.42
strategy
2. Material networking
52 3.15

3. Supplier availability 52 2.85

4. Insufficient resources, equipment
52 2.75
and material
5. Import/export restrictions 52 2.69
Table 4.19 showing top 5 risk factors having high impact on schedule in procurement Phase

Top Risk factors Impact on

S. no N quality
1. Unfamiliarity with design, codes,
standards and construction 52 2.60
requirements
2. Poor quality materials
52 2.52

3. Unfamiliarity with required

52 2.50
subcontractors and vendors
4. Insufficient resources, equipment
52 2.37
and material
5. Price fluctuations 52 2.04

Table 4.20 showing top 5 risk factors having high impact on quality in procurement Phase

4.9.3 Top five risk factors showing high impact on cost, schedule and quality in construction
phase

In construction phase all the 10 risk factors were analysed using the descriptive analysis and the
means were calculated corresponding to cost, schedule and quality. The top means corresponding
to cost, schedule and quality were ranked accordingly which are the top critical risk factors in
terms of cost, schedule and quality in the construction phase.

47
 Top Risk factors
S. no N Impact on cost
1. Construction cost overrun
52 3.31

2. Cash flow restrictions

52 3.12

3. Uncontrollable work scope 52 2.94

4. Construction time delay 52 2.90
5. Accidents 52 2.77

Table 4.21 showing top 5 risk factors having high impact on cost in construction Phase

Top Risk factors Impact on

S. no N schedule
1. Construction time delay
52 3.83

2. Tight project schedule

52 3.71

3. Incompetence of project team 52 3.65

4. Unclear project milestones 52 3.35
5. Unavailability of labour 52 3.33

Table 4.22 showing top 5 risk factors having high impact on schedule in construction Phase

Top Risk factors Impact on

S. no N quality
1. Improper quality control
52 3.10

2. Incompetence of project team

52 2.58

3. Lack of proper construction

52 2.27
techniques
4. Poor competency of labour 52 2.25
5. Tight project schedule 52 1.98

Table 4.23 showing top 5 risk factors having high impact on quality in construction Phase

48
4.10 Comparison of total risk factors in each phase with their respective cost, schedule and
quality impact values.
Based on the analysis risk mean value of all the factors were found. Similarly the correlation
coefficients of all the risk factors are calculated and are tabulated as shown in the figure. This
table represents the overall comparison of the total risk factors in each phase with their respective
cost, schedule and quality correlation coefficients. This is done actually to find out the risk factor
which is commonly affecting more than one phase.
1. In engineering phase the top 5 risks based on risk mean level, cost correlation coefficient
values, schedule correlation coefficient values and quality correlation coefficient values
are marked in yellow colour.

2. In procurement phase the top 5 risks based on risk mean level, cost correlation coefficient
values, schedule correlation coefficient values and quality correlation coefficient values
are marked in green colour.
3. In construction phase the top 5 risks based on risk mean level, cost correlation coefficient
values, schedule correlation coefficient values and quality correlation coefficient values
are marked in orange colour

49
 Impact on Impact on Impact on
cost schedule quality

Risk factors Mean (correlatio (correlation (correlation

Risk value Rank n value) Rank value) Rank value) Rank
Engineering phase
9.5 1 3.19 1 3.33 2 2.33 4
"Scope uncertainty"
"Ineffective planning and management 9.26 2 2.69 4 3.75 1 2.35 3
"Design changes and errors 8.77 3 3.00 2 3.25 3 1.88 9
"Inadequate project organization structure" 8.29 4 2.50 8 2.92 5 2.37 2
"Complex and delay in planning approvals and permit" 7.54 6 2.15 12 3.04 4 1.73 11
"License requirements" 5.04 13 2.02 13 2.69 9 1.65 14
"Unclear quality requirements" 8.03 5 2.62 5 2.62 10 2.42 1
"Inaccurate cost estimate 5.25 12 2.88 3 2.32 14 1.71 13
"Inadequate or lack of proper site information" 5.55 10 2.38 11 2.73 8 1.72 12
"Poor financial market" 5.26 11 2.60 6 2.50 12 2.21 5
"Inability to schedule project work accurately" 5.85 9 2.48 9 2.90 6 1.75 10
"Inability to fund such a large project" 6.18 8 2.52 7 2.56 11 2.06 6

"Change of Government Policies & National, Local Laws 4.89 14 1.98 14 2.35 13 1.94 8
"Failure in the selection of joint venture partners or sub-
6.25 7 2.46 10 2.83 7 2.02 7
contractors"
Procurement phase
"Insufficient resources, equipment and material" 8.44 1 2.33 8 2.75 4 2.37 4
"Supplier availability" 8.38 2 3.17 2 2.85 3 1.81 6
"Unfamiliarity with design, codes, standards and
8.10 3 3.10 3 2.54 6 2.60 1
construction requirements"
"Defective materials" 7.77 4 2.71 5 1.90 8 2.52 2
"Price fluctuations" 7.45 5 3.37 1 1.77 9 2.04 5

50
"Unfamiliarity with required subcontractors and vendors" 6.33 6 2.44 7 2.17 7 2.50 3
"Import/export restrictions" 5.58 7 2.56 6 2.69 5 1.61 9
"Material networking" 5.38 8 2.12 9 3.15 2 1.63 8
"Inappropriate procurement strategy" 5.13 9 1.63 10 3.42 1 1.56 7
"Change in currency & tax rates" 4.15 10 2.79 4 1.75 10 1.19 10
Construction phase
"Incompetence of project team" 10.08 1 2.71 6 3.65 3 2.58 2
"Construction cost overrun" 9.83 2 3.31 1 3.27 6 1.94 7
"Construction time delay" 9.46 3 2.90 4 3.83 1 1.96 6
“Tight project schedule" 8.76 4 2.69 8 3.71 2 1.98 5
"Poor safety management" 8.40 5 2.67 9 3.00 9 1.83 8
"Accidents" 5.69 14 2.77 5 2.75 13 1.62 16
"Unavailability of labour" 5.37 15 2.25 17 3.33 5 1.67 13
"Poor competency of labour" 6.33 10 2.54 12 2.87 12 2.25 4
"Strikes or labour problem" 4.69 19 2.17 18 2.73 14 1.54 18
"Environmental risks" 4.92 17 2.38 14 2.60 16 1.61 17
"Cash flow restrictions" 6.73 9 3.12 2 3.02 8 1.79 10
"Improper quality control" 7.42 7 2.52 13 2.50 17 3.10 1
"Excessive contract variation" 5.96 11 2.70 7 2.17 18 1.63 15
"Breakdown of machinery" 5.16 16 2.33 15 2.83 11 1.69 12
"Uncontrollable work scope" 7.71 6 2.94 3 3.12 7 1.81 9
"Lack of proper construction techniques" 5.95 12 2.58 11 2.92 10 2.27 3
"Terrorism or rebellion" 3.65 20 1.94 19 1.73 19 1.40 19
"Unclear project milestones" 7.04 8 2.63 10 3.35 4 1.73 11
"Liquidated damages" 5.78 13 2.27 16 2.67 15 1.65 14
"Language barrier” 4.91 18 1.46 20 1.58 20 1.33 20
Table 4.24 comparison of mean risk value of risk factors and their relation with cost, schedule and quality

51
4.11 Discussion of top critical risk factors in each phase with their respective cost,
schedule and quality impact values.
4.11.1 Discussion of top critical risk factors with their respective cost, schedule and
quality impact values in engineering Phase
"Scope uncertainty" risk comes up at the first place with the highest mean of 9.5(1) and is
affecting the most of the EPC projects. The impact on cost of the scope uncertainty is 3.19(1),
impact on schedule is 3.33(2) and impact on quality is 2.33(4). It indicates that oil and gas
EPC projects in India are suffering this risk the most often.
From the rating obtained and perception of respondents, it was concluded that scope change
and uncertainty in the scope by the client are the main reasons behind the cost overrun and
schedule delay in EPC projects. From the above comparison table obtained from the survey
we can see that it not only effects time and schedule but also it impacts on the quality of the
EPC projects in India. The biggest contribution for this factor is unclear scope of work and
insufficient data provided by client during front end planning. Hence, incomplete scope
definition is found to be root cause for cost overrun and schedule delay. As per the analysis
from the survey this risk factor is affecting cost, schedule and quality of the oil and gas EPC
projects.
"Ineffective planning and management" risk comes in second place with the mean of 9.26(2).
The impact on cost of this factor is 2.69(4), impact on schedule of this factor is 3.75(1) and
impact on quality of this factor is 2.35(3). This is management related risk which generally
effects the time of the project and also the project cost. From the survey it can be explained
that the owner is lack of ability to plan well, organize, managerial knowledge, skills and
control projects. Incompetence of the owner’s manpower and the lack of systematic approach
are the core causes for the ineffective planning and management in the EPC projects. As per
the analysis from the survey this risk factor is affecting cost, schedule and quality of the oil
and gas EPC projects.
"Design changes and errors" risk comes at third place with the mean of 8.77(3) and generally
leads to much time delays and more budget requirements affecting the total project. The
impact on cost of this factor is 3(3), impact on schedule of this factor is 3.25(3) and impact on
quality of this factor is 1.88(9). As a result of design changes and errors the total project cost
increases effecting the project schedule and even quality. The reasons that lead to design
changes and errors are due to incompetence, lack of experience of design party. Incomplete
drawings, inaccurate design, and incomplete specifications are other sources of design risks.
As per the analysis from the survey this risk factor is affecting mainly cost, schedule and
partially quality of the oil and gas EPC projects.
The fourth top most risk factor is the "Inadequate project organization structure" with the
mean of 8.29(4). The impact on cost of this factor is 2.50(8), impact on schedule of this factor
is 2.92(5) and impact on quality of this factor is 2.37(2). This risk results in poor planning,
low productivity, cost overruns and time overruns. It also results in poor controlling and poor
reporting. For successful completion of the project every project team member should have
sufficient knowledge, skills and abilities for managing complex oil and gas projects. The
team members should have good understanding which increases the productivity and
effectiveness. In addition oil and gas project requires team members who should work with
the foreign partners also. This risk results in poor planning, low productivity, cost overruns
and time overruns. As per the analysis from the survey this risk factor is affecting mainly
schedule, quality and partially cost of the oil and gas EPC projects.

52
The last one in the top five risk factors is "unclear quality requirements" with the mean of
8.03(5). The impact on cost of this factor is 2.62(5), impact on schedule of this factor is
2.62(10) and impact on quality of this factor is 2.42(1). This results mainly in the fulfilling
the quality standards as required by the owner. Because of the lack of quality standards the
project will not be as per desired requirements. Quality and cost are mainly affected by this
factor and schedule is partially affected.
4.11.2 Discussion of top critical risk factors with their respective cost, schedule and
quality impact values in procurement Phase
From the analysis the top most critical risk factor in the procurement phase of EPC projects is
“Insufficient resources, equipment and material” with a mean of 8.44(1). The impact on cost
of this factor is 2.33(8), impact on schedule of this factor is 2.75(4) and impact on quality of
this factor is 2.37(4). This risk leads to work stoppage affecting the project schedule and
finally increases the waiting time causing delay in the schedule and also cost overruns. Lack
of tools, equipment and technical manpower leads to the deficiency in construction as well as
design increasing the scope of reworks and reduction in quality finally affecting the project.
As per the analysis from the survey this risk factor is affecting mainly schedule, quality and
partially affecting cost of the oil and gas EPC projects.
The second top most critical risk factor in the procurement phase is “Supplier availability”
with the mean of 8.38(2). The impact on cost of this factor is 3.17(2), impact on schedule of
this factor is 2.85(3) and impact on quality of this factor is 1.81(6). Delay or lack of proper
supplier effects the detail engineering design and also in placing the resources and materials
etc. Moreover it can affect the whole procurement system causing delay in the delivery of
materials leading to the project schedule delay. Late issue of materials from the supplier also
affects the project schedule. The suppliers’ incompetency to deliver materials on time and
suppliers low management competency may retard the project progress and wreck the project
quality respectively. So a competent supplier should be selected either by tendering or by past
experience so that the project runs smoothly. As per the analysis from the survey this risk
factor is affecting mainly cost, schedule and partially quality of the oil and gas EPC projects.

“Unfamiliarity with design, codes, standards and requirements” comes in third position with a
mean of 8.10(3). The impact on cost of this factor is 3.10(3), impact on schedule of this factor
is 2.54(6) and impact on quality of this factor is 2.60(1). As per the analysis from the survey
this risk factor is affecting mainly cost, quality and partially schedule of the oil and gas EPC
projects. This risk is mainly associated with the contractors and sub-contractors and happens
mostly in the large and cross country projects where codes and standards may vary. This risk
affects mainly quality which in turn affects the cost and schedule of the project. Sometimes it
results in the rework due to lack of specifications and standards resulting in the cost over.
EPC sector especially industrial projects and oil & gas projects require specialized, most
experienced and competent persons to carry out the project. So the contractors or sub-
contractors should be selected carefully.

The fourth top risk factor in the procurement phase is the “Defective materials” with the
mean of 7.77(4). The impact on cost of this factor is 2.71(5), impact on schedule of this factor
is 1.90(8) and impact on quality of this factor is 2.52(2). As per the analysis from the survey
this risk factor is affecting mainly quality, cost and partially schedule of the oil and gas EPC
projects. This risk results in mostly rework which affects mainly the project schedule
increasing the project cost. It will have main effect on quality of the project. Construction

53
defects can be attributed to human factors like unskilled workers or insufficient supervision
of construction work. Additional cost to the contractor and even to the owner.

“Price fluctuations” comes in the fifth position with the mean of 7.45(5). The impact on cost
of this factor is 3.37(1), impact on schedule of this factor is 1.77(8) and impact on quality of
this factor is 2.04(5). As per the analysis from the survey this risk factor is affecting mainly
quality, cost and partially schedule of the oil and gas EPC projects. This occurs mainly due to
the increase in the price of the materials, labour and other resources. This mainly affects the
cost of the project which also shows impact on quality and schedule. From owner to suppliers
all are effected by the price increase. High inflation will definitely affect the construction cost
and other costs significantly and it will be impossible to avoid.

4.11.3 Discussion of top critical risk factors with their respective cost, schedule and
quality impact values in construction Phase

The top most critically occurring risk factor in the construction phase is the “Incompetence of
project team” with a mean of 10.08(1). The impact on cost of this factor is 2.71(6), impact on
schedule of this factor is 3.65(3) and impact on quality of this factor is 2.58(2).This risk
results in the low productivity, poor planning, poor estimating, poor reporting and poor
controlling and all leads to the cost and schedule overrun as well as poor quality of the
project. This risk is mainly associated with the team that is being involved in this project. The
project team includes the project managers, project engineers and other functional members.
It is critical that every project team member should have a good understanding of the
fundamental project requirements, which include project planning, organizing and
controlling. The main reason for the incompetence comes from the lack of knowledge, skills
and abilities. Their knowledge, skills and abilities seem to be not sufficient for managing oil
and gas projects which are generally complex in nature and require high technologies. In
addition the project team members should have to work sometimes with the foreign partners
and that require more knowledge and skills. Moreover the work team is not well organized,
coordinated, directed, motivated and controlled. It may be because of the complex nature of
work team which requires more understanding among them. More communication and has to
manage the conflicts well. As per the analysis from the survey this risk factor is affecting
mainly schedule, quality and partially affecting cost of the oil and gas EPC projects.
The second most critically occurring risk in the construction phase is the “Construction cost
overrun” with a mean of 9.83(2). The impact on cost of this factor is 3.31(1), impact on
schedule of this factor is 3.27(6) and impact on quality of this factor is 1.94(7). This
particular risk factor affects the project cost significantly which further leads to delay or even
termination of project. Construction cost overrun will have significant effect on the cost
which in turn affects the schedule as well as quality. Cost overruns increases as the project
size and construction duration increases. As the scope of the project that is the project size
increases, the complexity of the project increases, thus increasing cost as well as schedule
overruns. Various reasons for construction cost in any project include design error,
inadequate scope, weather, project changes, and underestimating the time needed to complete
the project. Inaccuracies in estimating project cost and change orders also result in the
increase of cost as well as the time of delivery.
“Construction time delay” is the third critical risk factor in the construction phase with a
mean of 9.46(3). The impact on cost of this factor is 2.90(4), impact on schedule of this factor
is 3.83(1) and impact on quality of this factor is 1.96(6). Based on the analysis obtained from
the survey this risk factor is the most critical one which affects the project causing schedule

54
overrun and cost overrun. Time Overrun or time delay is one of the most significant issues
being faced by the construction industry today. There are various factors responsible for the
time overrun which require serious attention to understand and address in order to achieve
successful completion of projects on time. This is because time overrun has great impact to
construction cost which can never be recovered. When the project construction duration
increases, there was a greater chance of disruption in the project, which in turn increases the
cost and schedule overruns of projects. Other factors like ineffective planning and scheduling,
cash flow problems, increase in the scope of project and variations in the change order results
in the delay of the project schedule.
The fourth most critical factor is the “Tight project schedule” with a mean of 8.76(4). The
impact on cost of this factor is 2.69(8), impact on schedule of this factor is 3.71(2) and impact
on quality of this factor is 1.96(5). This risk results in the cost overrun, schedule over run
affecting the quality also. This risk may rise from the contractor or the project organization
team. Ineffective planning, schedule overruns delays in approvals and incompetence of
project team also results in the tight project schedule. Tight project schedule has a significant
impact on cost overrun and the quality of the project. This risk factor from the analysis of the
survey is affecting mainly schedule and quality. This generally occurs due to the
incompetence of the project team.
The fifth critical risk factor is the “Poor safety management” with a mean of 8.40(5). The
impact on cost of this factor is 2.67(9), impact on schedule of this factor is 3(9) and impact on
quality of this factor is 1.83(8). From the survey it can be found that the oil and gas projects
in India are lacking of the poor safety management. This risk factor is mainly affecting the
safety other than cost, schedule and quality of the. This risk results in accidents which further
causes delays in the project schedule. This risk arises from the poor safety standards, poor
safety practices, and lack of personal protection equipment, regular safety meetings, and
safety training. The main factors affecting safety performance include poor safety awareness
of top management, lack of training, poor safety awareness of project managers, reluctance to
input resources to safety and reckless operations.
4.12 Summary of critical risk factors and ranks according to their impact values

The overview of this research is tabulated below. It is the summary of the critical risk factors
and the ranks in the impact of cost, schedule and quality according to their corresponding
correlation coefficients.

55
 Critical Risk factors Risk Rank according Rank Rank
level to impact value according to according to
Rank ( cost) impact value impact value
( schedule) ( quality)

Engineering Phase

1. Scope uncertainty 1 1 2 4

2. Ineffective planning and 2 4 1 3

management

3. Design changes and errors 3 2 3 9

4. Inadequate project organization 4 8 5 2

structure

5. Unclear quality requirements 5 5 10 1

Procurement Phase

1. Insufficient resources, 1 8 4 4
equipment and material

2. Supplier availability 2 2 3 6

3. Unfamiliarity with codes, 3 3 6 1

standards, Design and
construction requirements

4. Defective materials 4 5 8 2

5. Price fluctuations 5 1 9 5

Construction Phase
1. Incompetence of project team 1 6 3 2

2. Construction cost overrun 2 1 6 7

3. Construction time delay 3 4 1 6

4. Tight project schedule 4 8 2 5

5. Poor safety management 5 9 9 8

Table 4.25 showing Summary of critical risk factors and ranks according to their impact
values

56
 Chapter 5
Conclusion and Recommendations

5.1 Introduction

The following chapter discusses conclusion on the basis of analysis undertaken. Data was
collected from the interviewees in India including project managers, project engineers,
contractors and consultants. The main part of this chapter consists of; findings, limitations
and suggestions for further study.

5.2 Research Findings

Emerging mega-projects, ever more complex and highly technical, are addressing new
challenges within the field of project management. Project risk management as one of the
latest areas of project management has become more prominent in recent years as project
managers increasingly realize the effects of risk management on delivering a project on time,
within the budget, with predefined qualitative and technical characteristics.
Managing risks in construction projects has been recognized as a very important process in
order to achieve project objectives in terms of time, cost, quality, safety and environmental
sustainability. This thesis presents the research results obtained through questionnaire surveys
conducted in oil and gas EPC projects in India. A total of 5 critical risks in each phase of EPC
project were identified based on a comprehensive assessment of their likelihood of
occurrence and magnitude of consequence on project objectives.

5.2.1 Identification of Risk Factors

Three experts were asked to verify the team factors which were selected after the literature
review. For the identification of critical risk factors in the Engineering, Procurement and
Construction phase of oil and gas EPC projects, total number of 52 questionnaires were
analysed. Descriptive statistic’s technique was applied by using SPSS 22 to calculate the
mean risk level and among the total 44 risk factors top 5 critical risk factors in every phase
were identified.
5.2.2 Critical Risk Factors
15 out of total 44 risk factors are found to be critically occurring risks in the oil and gas EPC
projects. Top 5 critical risk factors in the Engineering phase are 1) Scope uncertainty, 2)
Ineffective planning and management, 3) Design changes and errors, 4) Inadequate project
organization structure, 5) Unclear quality requirements. Top 5 critical risk factors in the
Procurement phase are 1) Insufficient resources, equipment and material, 2) Supplier
availability, 3) Unfamiliarity with design, codes, standards and requirements, 4) Defective
materials and 5) Price fluctuations. Top 5 critical risk factors in the Construction phase are
1) Incompetence of project team, 2) Construction cost overrun, 3) Construction time delay, 4)
Tight project schedule and 5) Poor safety management.

5.2.3 Relationship between Risk factors and impact on Cost, Schedule and Quality
Correlation technique was applied to find out relationship between the risk factors and impact
on cost, schedule and quality. Each dependent variable that is cost, schedule and quality was
analysed with the mean risk level which is independent variable. Likewise similar process
was carried out with all the 44 factors. According to the analysis, relation between each risk
factor and cost, schedule and quality were obtained. The correlation coefficients of all the

57
values were obtained and ranked accordingly. The top 5 factors in terms of cost, schedule and
quality were obtained.

Based on the correlation coefficients the top risk factors in engineering phase in terms of cost
are 1) Scope uncertainty, 2) Design changes and errors, 3) Inaccurate cost estimate, 4)
Ineffective planning and management and 5) Unclear quality requirements. In terms of
schedule the risk factors are 1) Ineffective planning and management, 2) Scope uncertainty,
3) Design changes and errors, 4) Complex and delay in approvals and permits and 5)
Inadequate project organization structure. In terms of quality the risk factors are 1) Unclear
quality requirements, 2) Inadequate project organization structure, 3) Ineffective planning and
management, 4) Scope uncertainty and 5) Poor financial market.

Based on the correlation coefficients the top risk factors in procurement phase in terms of
cost are 1) Price fluctuations, 2) Supplier availability, 3) Unfamiliarity with design, codes,
standards and requirements, 4) Change in currency & tax rates and 5) Defective materials. In
terms of schedule the risk factors are 1) Inappropriate procurement strategy, 2) Material
supply networking, 3) Supplier availability, 4) Insufficient resources, equipment and material
and 5) Import and export restrictions. In terms of quality the risk factors are 1) Unfamiliarity
with design, codes, standards and requirements, 2) Defective materials, 3) Unfamiliarity with
subcontractors and vendors, 4) Insufficient resources, equipment and materials and 5) Import
and export restrictions. In terms of quality the risk factors are 1) Unfamiliarity with design,
codes, standards and requirements, 2) Defective materials, 3) Unfamiliarity with
subcontractors and vendors, 4) Insufficient resources, equipment and material and 5) Price
fluctuations.

Based on the correlation coefficients the top risk factors in construction phase in terms of cost
are 1) Construction cost overrun, 2) Cash flow restrictions, 3) Uncontrollable work scope,
4) Construction time delay and 5) Accidents. In terms of schedule the risk factors are
1) Construction time delay, 2) Tight project schedule, 3) Incompetence of project team, 4)
Unclear project milestones and 5) Unavailability of labour. In terms of quality the risk factors
are 1) Improper quality control, 2) Incompetence of project team, 3) Lack of proper
construction techniques, 4) Poor competency of labour and 5) Tight project schedule.

5.3 Limitations and Future study approach

This research mostly focuses on the oil and gas EPC project figuring out the critical risk
factors and relation between the risk factors and impact on cost, schedule and quality. But as
each project is complex and unique in nature and involves different participants and
techniques to run the project, these risk factors may vary. This study aims at exploring or
identifying what are the main factors creating cost over runs and schedule overruns and even
factors effecting quality but don’t explains in detail how such factors affect their activities,
their interrelationships. The critical risk factors which are obtained from the analysis effects
the projects in terms of cost, schedule or quality. These risks factors are to be taken care and
risk management plan should be implemented to avoid those risks so that the project runs
smoothly. Here in this research only 3 key performance variables that are cost, schedule and
quality are taken in account but not considering all the performance variables. Based on the
survey it was observed that the respondents saw the direct impact of the risk factors in terms
of cost, schedule and quality. The survey data was assumed to be normal distribution while
doing analysis in spss. Majority of the data was collected from oil and gas EPC projects run
by the private companies in Kakinada province with some data collected from Jamnagar.

58
Therefore, this study might not symbolize the perception of whole oil and gas construction
industry in India. Further studies can be conducted more for improvement of this research to
make a system or a framework for better management to reduce these risks in the oil and gas
EPC projects and by considering all the key performance variables so that risks can studied
more detailed.

59
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Appendix 1

Expert Verification Questionnaire

Name: ______________________
Position: _____________________
Years of Experience: _______________
Based on your experience, what are the factors relevant to the team working at a construction
project?
Please mark YES, if relevant or NO, if not relevant.

Risk factors
S.no Yes No
National and local laws and
1.
regulations
2. Change of government policies

pressure of public opinion

3.

4. Price fluctuations
5. Change in currency & interest rates
6. Change in tax rates

7. Poor financial market

8. Inflation rate
9. Language barrier
10. Labour market
11. License requirements
12. Supplier availability
13. Customs and importing
requirements
14. Insufficient labour resources,
equipment, and material
15. Inability to fund such a large project
16. Cash flow restrictions
17. material supply networking
18. Risk of bankruptcy
19. Delays in committing funds for the
project
20. Unfamiliarity with design, codes,
standards, and construction
requirements
21. Unfamiliarity with required
subcontractors and vendors

62
22. Lack of awareness of industry
norms, practices, and standards of
care
23. Uncontrollable work scope
expansion
24. Inefficient and ineffective planning
and management
25. Inability to schedule project work
accurately
26. Unclear project completion
milestones
27. Incompetence of project team
28. Late internal approval process
29. Inadequate project organization
structure
30. Delay in project approvals and
permits
31. Construction cost overrun
32. Construction time delay
33. poor safety management
34. Excessive contract variation
35. Breakdown of machinery
36. Damage to site
37. Accidents
38. Strikes or labour problem
39. War or hostilities
40. terrorism or rebellion
41. Failure in the selection of joint
venture partners or sub-contractors
42. historical findings
43. Unfamiliar with the market
44. Conflict between client, company
and parties.
45. Liquidated damages
46. Scope uncertainty
47. Inaccurate cost estimate
48. Poor competency of labour
49. Variations by the client
50. Environmental risks
51. Tight project schedule

63
52. Weather and climate
53. Complex planning approvals and
permit procedures
54. Import/export restrictions
55. Lack of proper construction
techniques
56. Change in site conditions

64
Appendix 2 Questionnaire No: ___
Project No.___

Survey Questionnaire for Masters Research

On
Critical Risk factors in EPC projects

Note: Purpose of the questionnaire is collection of data as a prerequisite for Master Degree at
AIT.

Part A: Respondents Profile

Please tick and fill the blanks

1. Company Name: ………………………………………………………………….........

2. Name of respondent: …………………………… Email: .......................................

3. Company role:

Owner Contractor

4. Your Position in the project

Contract Construction
Manager Manager

Project Other……………
Manager

5. What is your experience in this field?

Less than 5 6-10
Years Years

11- 15 Over 15
Years Years

Project information
Please tick and fill in the blanks

6. Project Name: …………………………………………………………………………

65
7. Location of the project: ……………………………………………………………….

8. Project value …………………………………….…………INR

9. Project duration ………………….…………………………………………………….

Part B: Questionnaire for the critical risk factors in EPC projects in India.
Based on your experience please rate the significance of the following factors by ticking the
relevant ranks using this symbol (√) or circle (○).

The questionnaire is designed to find out the critical risk factors in the EPC projects and their
impact on cost, schedule and quality of the EPC projects. Kindly mark your answer with the
numbers that best corresponds to your opinion for each statement.

Questions 10: How the likelihood and consequences of the following factors/variables
will be in the EPC projects and how these factors have an impact on Cost, Schedule and
Quality of the EPC projects?
FIRST TWO CLOUMNS

*** Give the scaling to the prescribed risk according to the chance of occurrence of that
particular risk and also the consequences (damage) in terms of 1 to 5.

Level of determination:

Likelihood of risk

Level Description

5 Frequently

4 Likely

3 Possible

2 Unlikely

1 Rarely

Consequences of risk

Category Description

5 Very high

66
 4 Major

3 Medium

2 Minor

1 Negligible

LAST THREE COLUMNS

*** Give the scaling to the prescribed risk according to how that particular risk shows impact
on cost, schedule and quality in terms of 1 to 5.

1 - Negligible impact
2 - Very Minor impact
3 - Medium impact
4 – Major impact
5 – Very high impact

67
Please check above while filling the survey:
likelihood consequences
S.no Variables Rarely Most Negligible Very
likely high
1. Change of government, National 1 2 3 4 5 1 2 3 4 5
and local laws and regulations
policies

2. Price fluctuations 1 2 3 4 5 1 2 3 4 5

3. Change in currency & tax rates 1 2 3 4 5 1 2 3 4 5

4. Poor financial market 1 2 3 4 5 1 2 3 4 5

5. Language barrier 1 2 3 4 5 1 2 3 4 5

6. Labour market 1 2 3 4 5 1 2 3 4 5

7. License requirements 1 2 3 4 5 1 2 3 4 5

8. Supplier availability 1 2 3 4 5 1 2 3 4 5

9. Customs and importing 1 2 3 4 5 1 2 3 4 5

requirements
10. Insufficient labour resources, 1 2 3 4 5 1 2 3 4 5
equipment, and material
11. Inability to fund such a large 1 2 3 4 5 1 2 3 4 5
project
12. Cash flow restrictions 1 2 3 4 5 1 2 3 4 5

13. material supply networking 1 2 3 4 5 1 2 3 4 5

14. Unfamiliarity with design, codes, 1 2 3 4 5 1 2 3 4 5

standards, and construction
requirements
15. Unfamiliarity with required 1 2 3 4 5 1 2 3 4 5
subcontractors and vendors
16. Uncontrollable work scope 1 2 3 4 5 1 2 3 4 5
expansion
17. Inefficient and ineffective
1 2 3 4 5 1 2 3 4 5
planning and management
18. Inability to schedule project 1 2 3 4 5 1 2 3 4 5
work accurately
19. Unclear project completion 1 2 3 4 5 1 2 3 4 5
milestones
20. Incompetence of project team 1 2 3 4 5 1 2 3 4 5

21. Inadequate project organization 1 2 3 4 5 1 2 3 4 5

structure
22. Delay in project approvals and 1 2 3 4 5 1 2 3 4 5
permits
23. Construction cost overrun 1 2 3 4 5 1 2 3 4 5

68
 24. Construction time delay 1 2 3 4 5 1 2 3 4 5

25. poor safety management 1 2 3 4 5 1 2 3 4 5

26. Excessive contract variation 1 2 3 4 5 1 2 3 4 5

27. Breakdown of machinery 1 2 3 4 5 1 2 3 4 5

28. Accidents 1 2 3 4 5 1 2 3 4 5

29. Strikes or labour problem 1 2 3 4 5 1 2 3 4 5

30. War or hostilities 1 2 3 4 5 1 2 3 4 5

31. terrorism or rebellion 1 2 3 4 5 1 2 3 4 5

32. Failure in the selection of joint

venture partners or sub- 1 2 3 4 5 1 2 3 4 5
contractors
33. Unfamiliar with the market 1 2 3 4 5 1 2 3 4 5

34. Liquidated damages 1 2 3 4 5 1 2 3 4 5

35. Scope uncertainty 1 2 3 4 5 1 2 3 4 5

36. Inaccurate cost estimate 1 2 3 4 5 1 2 3 4 5

37. Poor competency of labour 1 2 3 4 5 1 2 3 4 5

38. Variations by the client 1 2 3 4 5 1 2 3 4 5

39. Environmental risks 1 2 3 4 5 1 2 3 4 5

40. Tight project schedule 1 2 3 4 5 1 2 3 4 5

41. Complex planning approvals and 1 2 3 4 5 1 2 3 4 5

permit procedures
42. Import/export restrictions 1 2 3 4 5 1 2 3 4 5

43. Lack of proper construction 1 2 3 4 5 1 2 3 4 5

techniques
44. Lack of proper site conditions 1 2 3 4 5 1 2 3 4 5

Questionnaire on how cost, schedule and quality in the EPC oil and gas projects are
affected by the risk factors
Based on your experience please rate the significance of the following factors by ticking the
relevant ranks using this symbol (√) or circle

69
 likelihood consequences
S.no Variables Rarely Most Negligible Very
likely high
1. Change of government, National 1 2 3 4 5 1 2 3 4 5
and local laws and regulations
policies

2. Price fluctuations 1 2 3 4 5 1 2 3 4 5

3. Change in currency & tax rates 1 2 3 4 5 1 2 3 4 5

4. Poor financial market 1 2 3 4 5 1 2 3 4 5

5. Language barrier 1 2 3 4 5 1 2 3 4 5

6. Labour market 1 2 3 4 5 1 2 3 4 5

7. License requirements 1 2 3 4 5 1 2 3 4 5

8. Supplier availability 1 2 3 4 5 1 2 3 4 5

9. Customs and importing 1 2 3 4 5 1 2 3 4 5

requirements
10. Insufficient labour resources, 1 2 3 4 5 1 2 3 4 5
equipment, and material
11. Inability to fund such a large 1 2 3 4 5 1 2 3 4 5
project
12. Cash flow restrictions 1 2 3 4 5 1 2 3 4 5

13. material supply networking 1 2 3 4 5 1 2 3 4 5

14. Unfamiliarity with design, codes, 1 2 3 4 5 1 2 3 4 5

standards, and construction
requirements
15. Unfamiliarity with required 1 2 3 4 5 1 2 3 4 5
subcontractors and vendors
16. Uncontrollable work scope 1 2 3 4 5 1 2 3 4 5
expansion
17. Inefficient and ineffective
1 2 3 4 5 1 2 3 4 5
planning and management
18. Inability to schedule project 1 2 3 4 5 1 2 3 4 5
work accurately
19. Unclear project completion 1 2 3 4 5 1 2 3 4 5
milestones
20. Incompetence of project team 1 2 3 4 5 1 2 3 4 5

21. Inadequate project organization 1 2 3 4 5 1 2 3 4 5

structure
22. Delay in project approvals and 1 2 3 4 5 1 2 3 4 5
permits
23. Construction cost overrun 1 2 3 4 5 1 2 3 4 5

24. Construction time delay 1 2 3 4 5 1 2 3 4 5

70
25. poor safety management 1 2 3 4 5 1 2 3 4 5

26. Excessive contract variation 1 2 3 4 5 1 2 3 4 5

27. Breakdown of machinery 1 2 3 4 5 1 2 3 4 5

28. Accidents 1 2 3 4 5 1 2 3 4 5

29. Strikes or labour problem 1 2 3 4 5 1 2 3 4 5

30. War or hostilities 1 2 3 4 5 1 2 3 4 5

31. terrorism or rebellion 1 2 3 4 5 1 2 3 4 5

32. Failure in the selection of joint

venture partners or sub- 1 2 3 4 5 1 2 3 4 5
contractors
33. Unfamiliar with the market 1 2 3 4 5 1 2 3 4 5

34. Liquidated damages 1 2 3 4 5 1 2 3 4 5

35. Scope uncertainty 1 2 3 4 5 1 2 3 4 5

36. Inaccurate cost estimate 1 2 3 4 5 1 2 3 4 5

37. Poor competency of labour 1 2 3 4 5 1 2 3 4 5

38. Variations by the client 1 2 3 4 5 1 2 3 4 5

39. Environmental risks 1 2 3 4 5 1 2 3 4 5

40. Tight project schedule 1 2 3 4 5 1 2 3 4 5

41. Complex planning approvals and 1 2 3 4 5 1 2 3 4 5

permit procedures
42. Import/export restrictions 1 2 3 4 5 1 2 3 4 5

43. Lack of proper construction 1 2 3 4 5 1 2 3 4 5

techniques
44. Lack of proper site conditions 1 2 3 4 5 1 2 3 4 5

71