The document discusses risks in the construction supply chain. It notes that the construction industry is highly fragmented with no single large players, and projects are unique. This leads to low margins and high risk. There are various types of risks like pure risk (accidents), fundamental risk (external factors), and speculative risk (unexpected conditions, delays). Traditionally, clients bear design risk while contractors bear construction risk, but models like design-build shift more risk to contractors. The supply chain involves many entities like owners, engineers, designers, contractors, and each party works to isolate their risks. Factors influencing project risk include disputes, resource availability, design changes, financial issues, the market, and procurement problems. Risk assessment is important to identify

1. Construction Supply Chain
Management
(Part 2)
Construction Supply Chain
Management
(MGT60803/QSB2433)

2. About Construction Industry
Characteristics
• Huge - $4 tr worldwide
• Local
• Project Based
• Unique end product
• Hundreds of firms all working
with dozens of firms
• Low barriers to entry
• High barriers to exit
Traditional Implications
• Few economies of scale
• Fragmentation
• Low margins
• High risk

3. What is fragmented industry?

4. Fragmented Industry
• An industry in which no single enterprise has
large enough share of the market to be able
to influence the industry's direction.
• No big / major players
• Low entry barriers
• Smaller is preferred
• Differentiation

5. Fragmented Industry
• An industry in which there is no clear leader in
market share, and no one company
determines the direction in which the industry
is going.
• It is more difficult to predict market trends for
fragmented industries than for industries with
a clear market leader.

6. Risks in Construction Projects
Types of risk in construction projects
1. Pure and particular risk
• It includes damage to persons and property (such
as fire, water, storm, collapse)
• Insurance cover against these risks
2. Fundamental risk
• It includes external factors such as damage due to
war, nuclear pollution, government policy on
taxes, labor, safety or other laws)
• No insurance cover for such incidents

7. Risks in Construction Projects
3. Speculative risk
• It includes losses in time and money due to
unexpected ground condition, unforeseeable
shortages of labor or materials and other similar
matters beyond the control of the contractor.
• Delays and disputes due to possession of site, late
supply of information, inefficient execution of
work, poor supervision and communication.

8. Balance of risk
Traditional
• The employer (client) is responsible for the
design
• The contractor is responsible for the operations
on site (construction)
Design and build
• Contractor is responsible for both design of the
project and operations on site.
• Most of the risk lies with the contractor.

9. Balance of risk
Management
• In management contracting the balance of risk
lies with the employer (client)
• The risk of delays and defects are associated
with the responsibility for the works contract.
• The management contractor may absorb this
risk with increase the price.

10. Supply Chain:
Owner/Sponsor Isolating Risk
10
Owner/
Operator
Labor Subcontractor
Engineer
Constructor
Designer
Sponsor
Distributor
End
User
Permanent
Finance
Project
Finance
Land and
Permissions
Consultant
Labor
Material
Material
Building
Product
Manufacturer
Finance
Risk
Market
Risk
Design and
Construction
Risk

11. Sponsor
Public Sector Projects
Private Sector Projects

12. Factors Influencing Risk
Construction Risk
• Disputes between labors
• Non availability of resources
• Revision of design
• Safety of workers
Design Risk
• Late changes of design from client side
• Incomplete design

13. Factors Influencing Risk
Financial Risk
• Delay from clients
• Increment for staff benefits
• Unprecedented price in raw materials
Market Risk
• Economy recession
Procurement Risk
• Temporary increase in price of materials

14. Conclusion
• Construction projects are initiated in complex
and dynamic environments resulting in
circumstances of high uncertainty and risk.
• Thus risk assessment need arises.
• Risk assessment is a tool to identify risks in a
project and manage it accordingly with proper
treatment.

15. The End