Risk management process

INTRODUCTION

BACKGROUND OF STUDY

Construction professionals need to know how to balance the contingencies of risk with their specific contractual, financial, operational and organizational requirements. In order to achieve this balance, proper risk identification and risk analysis is required. The risk management process entails identifying construction risks and exposures, and formulating an effective risk management strategy to mitigate the potential for loss.

Many construction professionals look at risks individually and do not realize the potential management approach will enable a firm to identify all of the organization’s business risks. This will increase the probability of risk mitigation, with the ultimate goal of total risk elimination.

Risk will most likely affect the cost of the construction. The concept of quality cost is to quantify the total cost of quality related to the efforts as well as deficiencies. The general perception of the quality cost was that higher quality requires higher cost. Thus, larger investment in prevention drive even larger saves in quality.

As we know, defects or failures in constructed facilities can result in very large amount of costs. Even with minor defects, re-construction may be required. Therefore, any risk should be managed properly in the early stage in order to get the value for money in one construction.

PROBLEM STATEMENT

Quality cost is the sum of all costs a company invests into the release of a quality product. In construction industry, quality product on the quality cost can be defined as the construction that will give value for money for all the parties involve.

Lundvall and Juran (1994) considered that once the quality cost had been identified and when reduced, many associated costs could be reduced as well. A cost of quality system in construction is bound to increase is important because COQ-related activities consume as much as 25 percent or more of the resources used in companies (Ravitz,1991). The value to a company when conducting a quality cost analysis is to focus on its processes and their measurement and non-value adding activity to highlight waste in terms of monetary unit of analysis and pinpoint potential improvements (Roden and Dale, 2000).

According to Adel El-Samadony, Hany El-Sawah and Mohamed Ibrahim Farrag (2006), the construction industry is being viewed as one with the poor quality emphasis compared to other sectors like manufacturing and service sectors. Many criticisms have been directed to the construction industry for generally shoddy workmanship. No matter how clever or elaborate the design of a structure is, any construction project will ultimately be judged on the quality of the finished product.

Moreover, it is not only the final product that is subject to criticisms but the processes, the people, the materials etc are under pressure for better quality in construction (Hendrickson,1998). All this criticisms shows how unimportant the construction teams take note on the quality of the building. It is at least equally important to ensure that the design and construction teams are devoting their full energies to project success and are motivated to work together with this aim.

The construction industry has numerous problems in getting quality performance as a result of the complicated nature of the industry. Therefore, as one of the growing industries, the quality of services is important in order to gain the trust from client to ensure the country’s economic growth will increase continually. Any action in construction stages that can decrease the volume of risk is deemed to be needed to ensure that the construction itself have the ability to satisfy customer`s requirement (Chris Hendrickson, 1998).

AIM

The aim is to find the relationship and effect of risk management on quality cost in construction

OBJECTIVE

  1. To determine the issues surrounding the implementation of risk and how it affect the quality cost in construction/
  2. To identify organization’s practice in the past in dealing with issues of risks and its management.
  3. To develop a risk management system that can control the quality cost in construction.

RESEARCH QUESTIONS

Three research questions shall be used to gain the objective and aim as mention above. The questions mainly discuss are:

  1. How risk identification affected the quality cost in construction?
  2. What procedure is needed in order to control the risk before and after the construction?
  3. Did the organization in Malaysia really care about the risk management? And why?
  4. What is the impact of quality cost in construction

RESEARCH METHODOLOGY

  1. Theory and literature work
  2. A theory and literature surveys was carried out using texts, journals, conference proceedings, dissertations as well as computer network in order to explain and examine the relationship and effects of risk identification of quality cost in construction industry. The theory and literature reviews of general risk management and quality cost were first being examined and reviewed. This will have to go through the following studies such as:

  • Defining the research problem.
  • Reviewing the most significant study that is relevant to the topic.
  • Apprise the relation of the current situation of work with the study.
  • Gather the information around the study.
  • Conclude the findings with the scope of study.
  • Questionnaires
  • Questionnaires are sent to large firms in Malaysia and they will only be analysed if the feedback is 30% or more. These questionnaires include a list of relevant question to the research. Conclusion is made after analysing the responses.

    SIGNIFICANT OF IMPLICATION OF STUDY

    Quality control and safety represent increasingly important concerns for project managers. Defects or failures in constructed facilities can result in very large costs. Even with minor defects, re-construction may be required and facility operations impaired. Increased costs and delays are the result. In the worst case, failures may cause personal injuries or fatalities. Accidents during the construction process can similarly result in personal injuries and larger costs.

    Indirect costs of insurance, inspection and regulation are increasing rapidly due to these costs. A Good project manager will try to ensure that the job is done right the first time and that no major accidents occur on the project.

    As with cost control, the most important decisions regarding the quality of a completed facility are made during the design and planning stages rather than during construction. It is during these preliminary stages that component configurations, material specifications and functional performance are decided. Quality control during construction consists largely when insuring conformance to this original design and planning decisions.

    Thus this study shall give more knowledge on the relationship between the risk identification and the cost of conformance to the parties involves. The effect of non-conformance in quality leads to time and cost overruns in projects. Thus, in order to improve the performance of projects it is necessary to identify the causes and costs of poor quality.

    OVERVIEW OF CONTENT

    Dedication

    Acknowledgement

    Abstract

    Abstrak

    Table of contents

    1. Introduction
      1. Background of the study
      2. Problem statement
      3. Research aim and objective
      4. Research methodology
      5. Significant of implication of study
    2. Risk management
      1. introduction
      2. Risk in construction industry
      3. Risk management
        1. Risk identification
        2. Risk analysis
        3. Risk responses
      4. Conclusion
    3. Quality Cost
      1. Cost of quality in construction
      2. Area of cost of quality in construction
        1. Non-conformance
        2. Conformance
      3. Type of cost of quality
        1. Cost of prevention
        2. Cost of appraisal
        3. Cost of internal failure
        4. Cost of external failure
      4. Conclusion
    4. Research methodology
      1. Introduction
      2. Research methodology
        1. Selecting research topic
        2. Writing research proposal
        3. Reviewing literature
        4. Data collection
      3. Data analyzing
      4. completing dissertation writing
    5. Analysis of research
      1. Introduction
      2. analysis of section A
      3. analysis of section B
      4. analysis of section C
    6. Conclusion and reccomendation

    References

    CHAPTER 2

    LITERATURE REVIEW

    INTRODUCTION

    Risk is the uncertainty of outcome. It can be define as the treat or probability that an action or event adversely and will beneficially affect an organizations ability to achieve its objective. Any professional construction need to be aware with risk in construction project as it will be harmful to all parties. They need to know how to balance and control all the rick occurs within the construction.

    Usually risk tends to occurs when there is a change that needs to be done in construction project. For years industry has had a very poor reputation for coping with the adverse effect of change, with many project failing to meet deadlines and cost and quality targets.

    According to Martin Loosemore (2003), risk is best define as a potential failure event which is uncertain in like hood and consequences and if occurs can affect the company`s liability to achieve its project ability. As Edward L. (1995) define risk as a multiple cost of hazardous consequences and its possibility of occurrence. He added that hazardous event can befall any organization and have adverse effect on the organizational financial well being. Hazard might be physical such as fine or theft which affects directly, occupational injury or illness to employees which will probably reduce output or also injury or damages to third parties which might happen due to non-compliance with statutory regulations.

    RISKS IN CONSTRUCTION INDUSTRY

    Risk in construction is an object that attracts the attention to most because time and cost overrun is associated with the project construction (Tee Siew Siang, 2000). Tee Siew Siang (2000) also divided risk into natural risk and human risk. Natural risk is an unpredictable event that occur outside human agencies or system which can be divided into weather system (typhoon, wave, etc) and geological system such as earthquake, volcanic eruption etc. Whereas, Abdou(1996), divide risk into 3 group; construction finance, construction time and construction design and addressed these risk in detail in light of the different contractual relationship existing among the functional entities involve in the design, development and construction of a project.

    Bufied (1987), describe risk in construction industry as a variable of process of construction project whose variation result in uncertainty as to the final cost, duration and quality of the project. While Low Sui Pheng et al. (2008), stated that risk occurs in a situation when decision are made knowing the probability of risk event. Variation usually concern with changes that is normally regarded in term of its adverse effect on project cost estimates. In extreme case, the risk of these time and cost overrun can invalidate the economic case for the project, turning a potentially profitable investment into a loss-making venture [Nigel J. Smith, Tony Merna, Paul Jobling (2006)].

    According to Patrick X.W. Zou and Guomin Zhang (2007), risk was usually spread through the whole project life cycle and many risks occur at more than one phase. Construction phase is the most risky stage followed by the feasibility stage. Construction industry is always a subject to more risk than any other industry due to the unique features of construction activities such as long period, complicated process, abominable environment, financial intensity and dynamic organizational structures [Flanagan and Norman (1993) ; Akintoye and Macleod (1997) ; smith, (2003)].

    In any construction project each of three primary targets of cost, time and quality will be likely to be subjected to risk and uncertainty. Therefore, a good risk management system is required to ensure that the construction can be done with the minimum potential of risk thus resulting in the quality of cost as well as giving the satisfaction and value for money for all the parties especially the client.

    Construction is one of the most risky jobs which is usually male dominated, dirty, dangerous, unattractive, environmental destructive and unprofessional (Loosemore, et.al. 2004). In nowadays newspaper, often reported about project disaster, the pollution that the world must face, the death of the workers, financial loss that client have to suffer and many more. Such cases are most likely to happen due to ineffective risk management system or do not implement it effectively ( Loosemore, 2000).

    Often reported about construction failure is newspaper, articles and journals. Anthony Mills, 2001 stated that construction industry has a very poor reputation for managing risk; often the major project fails to meet datelines and cost targets. Therefore, a proper process of risk management is needed to ensure the probability for the project to be failed can be minimized. As according to K.C.Lam et al. (2007) risk management is an important tool to cape with such substantial risk in construction industry by:

    • Assessing and ascertaining project viability
    • Analyzing and controlling risk to minimize loss
    • Alleviating risk by proper planning
    • Avoid dissatisfactory project and enhancing profit margin

    RISK MANAGEMENT

    With rapid advancement in construction industry, an increased number of uncertainties are bound to occur as inevitably increase the perceived risk (Vicknayson, 2002). Furthermore M.J. Mawdesley (2002), also added that risk management was produce to response to the increasing uncertainties which provide the client with a project executed within the time frame contracted, within the tight budget and complemented with the specified quality.

    Richard B.Carlett (1998) believed that risk management is a hallmark of development economy. There are several underlying assumptions or belief about risk management:

    1. Risk management evolved into a profession and a set of concept applicable most functional area in business admin.
    2. Risk managers perform their professional duties in relative isolation
    3. Risk manager do not have authority commensurate with their responsibility
    4. Risk manager spend a disproportionate amount of their time on insurance issues.

    Managing risk means minimizing, controlling and sharing the risk and not merely passing them off onto another party (Nabil and Saried, 1999). Basically, risk management goal is to produce a plan to follow in order to execute the rest of the activities in risk management process, the plan is develop through a series of meeting with team and key stakeholders of the project (Shaukat and Milton, 2002).

    Risk management is an action that reduces the impact or probability of less favorable outcome associated with preferred strategies where it actually depends on the risky opportunity, the characteristics of the firm evaluating , as well as the circumstances in which the firm finds it. Decreasing the probability of the most negative outcome will actually reduce the downside risk (K. Chelse and Bodility, 2000)

    According to Patrick X.W. ZOU et al. (2007) risk were prioritized according to their significant of influences on typical project objectives in the term of cost, time, quality, and safety as well as environmental. Start with focusing on what to be achieved in one project; risk management process builds to an understanding to what might put goals in jeopardy and what should be done to ensure success. Risk management aims to identify and quantify all risk to which the business or project is exposed to ensure a conscious decision can be taken to manage the risk correctly (Flanagan R and Norman G, 1993).

    Flanagan and Norman (1993), also added that there are three ways classifying risk; by identifying the consequences, type and impact of risk. In addition, Patrick X.W. Zou et al. (2007) describe a systematic risk management are normally divided into risk identification and risk classification, risk analysis and risk response where risk response include retention, reduction, transfer and avoidance.

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    According to Vicknaysum T. and M.J. Mawdesley (2002), there are four steps of risk management consists of risk identification, risk analysis, risk response and risk monitoring which define the whole concept of risk management as “a continuously monitored integrated formal process for defining objectives, identify resources of uncertainties, analyzing uncertainties and formulating managerial response to produce an acceptable balance between risk and opportunities.

    Managing risks in construction project has been recognized as a very important management process in order to achieve the project objectives in term of time, cost and quality as well as safety and environmental sustainability. Risk management can be described as “a systematic way of looking at areas of risk and consciously determining how each should be treated. It is a management tool that aims at identifying sources of risk and uncertainty, determining their impact and developing management responses” (Uher, 2003).

    It has been clearly stated by Daniel Atkinson (2001) that risk management deals with change, therefore, any tools can be a guide or a checklist which must continuously be re-examined and refined in any construction project. It is important that risk management is adopted throughout the project life cycle to allow the review the procedures in the light of experience.

    An effective risk management method can help to understand not only what kind of risk is faced, but also how to manage these risks in different phases of a project. It also has been recognizing as a necessity in most industry today, and a set of technique have been developed to control the influences brought by potential risks (Schuyler, 2001).

    The benefits of risk management can be summaries as follow:

    • Project issues are clarified, understood and considered from the start.
    • Decision are support through analysis
    • The definition and structure of the project are continually monitored
    • Clearer understanding of specific risk associated with project.
    • Build up historical data to assist future risk management procedure.

    Finally, it can be conclude that the formal risk management process usually divided into three main stages: risk identification, risk analysis and risk response.

    Risk identification

    Risk identification is done to identify and categorize risk which risks have the potential that can affect the project. It will usually begin after the risk management plan is constructed and continues throughout the project execution. Basically, risk identification will documents these risks at a minimum, produces a list of risks that can be assigned to a team member and tracked throughout the project development and delivery process. (Uher, 2003).

    There are several tools and techniques for risk identification that have been highlighted by Elyse (2007):

    According to Redmill (2002) propose of risk identification is to prevent the event that can go wrong and lead to breaches of safety. Whereas, Clark et al. (1990) stated that identification of risk is not a risk unless it is management problems because risk is a factor that can jeopardize the successful conclusion of a project causing cost overruns, time overruns and under-specification.

    Risk identification is actually an essential first step in risk management. It allow risk item to be separated from others as clearly stated by I. Manelele and M. Muya (2008) identifying and planning for uncertainties risk is the best way to achieve project objectives. Identification of risk involves managing potential future event that could affect the decision objectives. Therefore, Martin Loosemore et al. (2006) stated that good identification ability is form from the main companies, thus every construction firm should have a manager that:

    1. Able to recruit people with creative abilities.
    2. By employed more creative people who excel in finding problems, finding new perspective of solution, willing to take risk and able to learn from failure will increase organization`s creative ability which can help the organization to detect risk in such early stage of the construction period.

    3. Train people to work more creative
    4. Every one have their own ability, to train them to be more creative is basically a hard thing to do. Creative training helps staff to find fact, problems, idea, and solution as well as overcome resistance during the implementation. If every staff were able to think out of box, any risk can be avoided. And they will also be ready to face such unforeseen risk which is the main contribution in destroying a quality of one product. Therefore, cost of prevention for quality can be increase thus decreasing the late defects.

    5. Create organizational culture and structure
    6. Organizational culture provides people with high degree of control over their job. Therefore, workers will be more confident to experiment with new ideas and will be able to develop the idea without fear and failure. Such culture help create risk awareness by spending some time at the project and try to find for the better solution that can minimized the risk.

    Real risk in any project are the one that usually fail to identify which conduct to cost overrun and re-construction of the building( Tee Siew Siang, 2000). Therefore, various techniques were obtained such as checklist, bug listing, flow chart, inspection and etc. Frame, 2003 recommended by including brainstorm session with firm`s personal that focus on novel risk sources instead of conventional area to make identification of risk more effectively. Such action can eventually increase the cost of prevention of the quality of total construction whereas prevention is better than cure.

    Moreover, in construction industry, variation is most hard thing to be avoided. Variation was basically due to the absence of risk management. According to Dawood (1998) systematic risk management enables the early detection of risk as risk identification involves identifying the source and type of risk.

    Risk Analysis

    Today’s business world involves a risk of some kind: customer habits change, new competitors appear, and factors outside your control could delay your project. Formal risk analysis and risk management can help you to assess these risks and decide what actions to take to minimize disruptions to your plans. They will also help you to decide whether the strategies you could use to control risk are cost-effective.

    Risk analysis is basically done after risk identification process where after a list of risk has been identified. Such risk need to be assessed and analyzed. According to Perry and Hayes( 1985), risk analysis is limited when use in construction industry outside the large project. Risk analysis will usually quantify the impact a risk will have on project cost, schedule and quality. Basically, it will gather either historical data files or expertise of experienced personal to analyzed information that has gathered. Risk analysis involves the understanding or quantification of the effects of potential risks. Tee Siew Siang (2000) stated several purpose of risk analysis:

    1. Ascertain/ assume/ estimate the effects and chance of occurrence of each factor.
    2. Determine the overall relationship between those factors which threaten and promote project objectives.
    3. Determine the significant of the individual factors to the total outcome.

    Risk analysis usually comprises the following activities:

    • Assessment of consequences
    • Assessment of probability
    • Determination of risk and establishment of priorities

    Risk response

    After the identification process, response must be implicit in order to describe the impact of identified risk. According to Ward, S.C. (1999), risk response is a preliminary consideration of responses that offer some clues to the relative importance of identified risk. Whereas, Edward L. (1995) stated that risk response includes transferring risk to who fulfill such requirement:

    1. Ability to undertake hazardous task
    2. Willingness to rake the risk
    3. Financial capability if the risk event occurs
    4. Continued existence and adequate finance during period of liability.

    Risk responses are basically refers to how the risk should be managed either by transferring or retaining it (Flanagan and Norman, 1993). Where K.C.Lam et al (2007) identified risk responses as a process of formulation of a management strategy leading to identifying action owners and the risk management plan.

    There are several types of responses that need to be considered once the risk has been identified and analyzed. Types of response will basically depend on the attitude that the firm might adopt to avoid the risk completely and seek to eliminate all possible source of risk. According to Lui Sui Pheng et al (2008), responses can be divided into:

    1. Immediate response : alteration is done so that risk is immediately mitigate or eliminate
    2. Contingency response: provision is made in the plan for a cause of action that will only be implemented.

    As stated on above figure, risk allocation/ risk transfer is one of the risk responses actions. Zulhabri Ismai and J.V.Torrance Abudullah (2006) stated that risk allocation is a process of apportioning individual risk relating to project and services delivery to the party best placed to managed each risk. An efficient risk allocation is crucial in order to enhance project performance by way of reducing cost, time and improve quality of complete works which risk allocation can help to reduce the impact of cost of failure in term of quality of the product. (Chapman et al, 1995).

    Moreover, Delmon (2005), considered that efficient allocation of risk will generally result in a more successful and profitable project and will benefit each of the parties involves. Therefore, the total cost of quality can be minimized and the extra money can be used to upgrade the construction process. Zulhabri Ismail and J.V.Torrance Abudullah (2006), also added that to ensure efficiency of risk allocation, risk should be placed to the professional that control the main economic or to the person that have ability to manage and minimize the risk.

    Any risk occurs before or during the construction process should be reduce to an acceptable level which also known as risk-free environment. It can be easily achived by applying a safeguard which can remove vulnerability or protects against one or more specific treats. John Uff and A.Martin Odams (1995) identified 4 basic strategies as follow:

    1. Avoidance
    2. Applying safeguards that eliminate or reduce the remaining uncontrolled risk for vulnerability will prevent the exploitation of the vulnerability. It can be accomplishing trough:

    • Application of policy
    • Application of training and education
    • Countering treats
    • Implementation of technical security control
  • Transference
  • It is the shifting risks to other areas (assets, processes, organisations) which can be accomplish by:

    • Rethinking
    • Revising deployment model
    • Outsourcing
    • Purchase insurances
  • Mitigation
  • It reduces risk by means of planning and preparation to handle the damage cause by the exploitation of the vulnerability. Mitigation will usually depend upon the ability to detect and respond to an attack which is done as soon as possible.

  • Acceptance
  • By understanding the consequences and accept the risk, it can help to control the risk effectively. Usually it requires a sign-off latter.

    Construction risk is hard to be eliminated but it can be transferred or shared from one party to another. A proper risk response come to assume prominence because risk identification and risk allocation action have a clear bearing on risk handling decision. Mills (2001) stated that the productivity, performance, quality and cost of the project are mostly affected by the risk. Therefore, a proper risk action is needed to reduce the impact of adverse conditions, as it can increase efficiency and effectiveness in management. Once the risk has been identified, assessed and analyzed, a properly action (allocation) is need to be done in order to control and prevent the occurrence of harmful consequences (Bunmi, 1997).

    CONCLUSION

    All often the risk is either ignored or dealt with arbitrary way. The greatest uncertainty usually occurs in earliest stages which could cause extra cost and loss of financial return. Unforeseen condition usually produce large claim which remain in dispute after completion. A proper risk management procedure is required to ensure such cases can be eliminated from construction industry.

    Risk management involve identification of preventive measure to avoid risk and reduce effect, the proceeding stage by stage to reduce uncertainty, controlling risk allocation and managing risk allowance in cost estimates, programmers and specification. Risk management do not remove all risk from project but it was produce to aim for managing risk most efficiently and controlling them from becoming worse.

    Risk can usually affect overall project cost overrun as time is money. Therefore, many clients are likely to expect to complete a project as quickly as possible without considering the order of nature and construction activities. As a length schedule undoubtedly wreck project cost benefits, thus minimize risk help work to be done in a good timing and help avoiding cost overrun. Moreover, quality played an important point in client`s thought. Within the tight budget, the completion of construction is deemed to be followed with a specification of agreed quality. By controlling all risk that might or already happened, the cost of overall quality can be properly measured.

    Chapter 3

    COST OF QUALITY

    COST OF QUALITY IN CONSTRUCTION

    Quality is the most important thing in construction industry as it represent company`s work that can attract more buyer and customer. Kenneth H. Rose(2005) seen quality as a set of character that fulfills all requirement needed by the client. Quality may have impact on market share; hence indirectly on production volume as well as unit cost (T.F. Burgess, 1996).

    Quality is viewed as arising from several things such as overall finale products, products that are free from defect, the performance of the product, serve customer need and requirement etc. Moreover, quality also represents features of the product that should meet customer requirement and provide satisfaction (Joseph Juran, 1966). But such quality usually cost more money as requirement from the client/ customer may be vary from time to time. Changes in requirement could affect the cost of construction itself. Therefore, in order to give 100% satisfaction on client, cost may be increase. Usually when the quality satisfied customer, money is not a big deal as client is willing to pay more in order to achieve their need. As stated earlier, when a building is in a very good condition and represent a high quality, it can attract more buyers hence resulting in a high profitable places for client.

    Furthermore, Joseph Juran (1996) in the Juran`s Quality Handbook also stated that quality is a freedom from deficiencies. Deficiencies are errors that required rework which mean more cost and time extension needed. Hamzah A Rahman (1997) has clearly stated that poor quality management project can affect the conformance of quality. As time extended more work need to be done in order to ensure certain quality requirement can be maintain. Freedom from such deficiencies can result in less cost needed. This action can be avoided by managing risk in early stage as preventing is better than cure. Management has to be aware of customer’s requirement and be responsible for creating the right environment and progressive improvement that match the entire requirement in terms of cost, quality and time (Hamzah A. Rahman, 1997).

    Quality serves different perspective to different people. There are several thought that we heard among people about quality. Quality is mostly seen as an expensive process as many people say that they cannot afford for any quality improvement. But Phillip B. Crosby (1980) has different opinion, he stated that quality is free as it does not cost, it pays. Cost of achieving quality is offset by the saving in quality improvement. When quality is improved, defect can reduce. Hence the payback should most likely be higher than the cost.

    Hart (1994) has clearly stated that quality in construction is about getting job done on time, ensure final project fall within required specification as well as getting job done within tight budget. Therefore, risk or uncertainties that increase, reject in the production process should be avoided as quality can be affected thus resulting into increasing cost of construction.

    Furthermore, Hart (1994) also explained briefly about the inter-relationship between cost, quality and schedule. Since these three factors are not isolated from each other, it is known that:

    • During the project, when costs are controlled too strictly, quality and/or the schedule can suffer.
    • When quality is explicitly controlled without regard for anything else, cost and the schedule of the project can be adversely affected.
    • When schedules are too closely adhered to, there is a risk of incurring cost overruns on the project and the quality of the completed facility.

    Hence, Dale and Plunkett (1991) explain the need to measure quality costs because quality costs help to reveal quirks and anomalies in cost allocation and standards which may remain undetected by the more commonly used production/operation and labor-based analyze.

    Generally, the degree of success in quality implementation involves the review of overall organizational success. Without measure the required level of the quality achieved, it is impossible to manage quality. Lundvall and juran (1974) considered that once the quality cost has been identified, and were being reduced, many associated cost could be reduced as well.

    Cost of quality can be clearly defined as preventing, detecting and dealing with defect that caused cost. The information regarding cost of quality should be used to focus on the quality problems and lack of quality system in construction firm. Moreover, it can promote an awareness and understanding of quality process (Mohamed Ibrahim Farrag, 2006).

    It was often said that cost of quality facilitate the identification and elimination of organization`s activities that do not provide or enhance quality from the customer`s perspective and help locate the source of hidden cost (Metizger, 1993). Therefore, it is clearly understood that cost of quality help to reduce risk which aim for customer satisfaction by delivery of defect-free products.

    Moreover, cost of quality is extensive and affects productivity as it incurred when rework is needed. Thus, a piece of work may take twice the amount of time, material and labor needed to complete one project ( Sui Pheng Low and Henson K. C., 1998).

    AREA OF COST OF QUALITY IN CONSTRUCTION

    Prior to its introduction, the general perception of cost of quality was that higher quality require higher cost, either by buying better materials or by hiring/ trained more labor. Company should evaluate investment in quality based on cost improvement and profit enhancement to ensure that cost overrun can be avoided. D. Wilson (1995) stated that total cost of quality can be split into two fundamental areas: non-conformance and conformance.

    Non-conformance

    This area covers the price paid by not having quality system or quality products such as rework, scrap and down time (D.Wilson, 1995). It can cause time and cost overrun. Therefore, in order to avoid suck risk, caused of non-conformance and cost of poor quality should be identified at early stage as information of poor quality which can improve quality performance.

    Usually lower cost of non-conformance lead to enhanced profit and competition thus improve profit margin, competiveness as well as satisfaction among parties involves. Hamzah A. Rahman(1997) also stated that such non-conformance can be avoided by timely inspection and use more skilled, and experienced labor as risk, delay and uncertainties can be avoided.

    Conformance.

    Conformance is aim for quality assurance that can be achieved at a price (D. Wilson, 1995). For example:

    1. Documentation : writing work instruction, producing paperwork
    2. Training : on the job training, quality training
    3. Auditing : internal, external and extrinsic.
    4. Planning : prevention, do the right thing first time.
    5. Inspection : vehicles, equipment, building and people.

    Cost of conformances is obtained where prevention and appraisal cost are equal to external and internal failure costs. Prevention and appraisal costs increase as the level of conformance quality increases. Conformance quality refers to conformance to specifications as opposed to design quality, i.e., service functions or features. Failure costs are expected to decrease as the level of conformance quality increases.

    TYPE OF COST OF QUALITY

    Cost of quality can be well defined as the sum of all costs a company invests into the release of a quality product. It can be divided into four broad groups. These four groups are also termed as 4 types of quality cost which derived from the fundamental area as stated before.

    Costs of Prevention

    Kenneth H. Rose (2005) stated that all prevention begin with planning. The idea was to generate early cost and prevent later cost. Usually changes that occur during implementation are more expensive than changes during planning.

    Cost of prevention is the cost of activities that are specifically designed to prevent poor quality including coding errors, design errors, mistakes in the user manuals, as well as in documentation (Joseph Juran, 1996). It is the money used for trained workers, planning quality and establishes methods as well as procedures. Prevention costs were generally used before the product is actually built.

    Generally the most effective way to manage quality cost is to avoid having defects in the first place. Prevention cost support activities whose purpose is to reduce the number of defects. Company employs many techniques to prevent defects for example statistical process control, quality engineering, training etc.

    As stated by Mohamed Ibrahim Farrag (2006), prevention costs are associated with the design, implementation and maintenance of the total quality management system. It was planned and incurred before actual operation. Usually the direct cost of rework is 25% of contract value which can cut through the use of good, sound quality program etc. thus, by providing a prevention activities, such rework can be avoided.

    A research done by Peter E.D. Love and Heng Li in 1999 have stated that The Building Research Establishment in UK (BRE, 1981) found that errors building had 50% of their origin in design stage and 40% in the construction stage thus 15% saving on total construction cost could be achieved through eliminating rework and spending more time and money on prevention.

    Prevention costs include activities relating to quality circles and statistical process control. Quality circles consist of small groups of employees that meet on a regular basis to discuss ways to improve quality. Both management and workers are included in these circles. Costs considered to be preventive in nature include costs to design a higher quality product, training employees on quality activities, purchasing higher quality materials and increased maintenance on production equipment.

    By clearly understand about prevention of cost, Rob Pirozi (2009) has conclude that dollar spent on prevention cost are the most effective quality dollar because preventing error is much cheaper than fixing it later. Cost can be reduced through smarter test that include high degree of test automation that will leads to high test coverage thus resulting a high quality products. Therefore low technical support can result into fewer patched and high customer satisfaction. Moreover, it will also speed up the release process and decrease the manual test costs.

    “Prevention is better than cure” applies to defects in the software development life cycle as well as illnesses in medical science (Rob Pirozi, 2009). Defects, as defined by software developers, are variances from a desired attribute. These attributes include complete and correct requirements and specifications as drawn from the desired of potential customers.

    Thus, defects cause software to fail to meet requirements and make customers unhappy (Mukesh Soni, 2009). And when a defect gets through during the development process, the earlier it is diagnosed, the easier and cheaper is the rectification of the defect. The end result in prevention or early detection is a product with zero or minimal defects.

    Costs of Appraisal

    It is the cost of activities that are designed to find quality problems such as code inspection and testing (Joseph Juran, 1996). It includes the money spent on actual testing activities including all testing: by the developers themselves, by an internal test team, and by outsourced software test organization (Rob Pirozzi, 2009). Appraisal cost is a cost of evaluating the achievement on quality requirement including inspection and testing, lab acceptance testing and analysis or reporting of test (William Keogh, 2003 ).

    Appraisal cost plays the same when used as prevention cost. It’smain purpose is to keep defective products from falling into the hand of customers. Any defective parts and products should be detected as early as possible. It is also known as inspection cost because the cost is used to identify defects products before the products are shipped to customers. Unfortunately, appraisal activities do not keep defects from happening again and most of managers realized that hiring inspectors is costly and ineffective approach to quality control. Thus, employees are being asked to be responsible for their own quality control (Joseph Juran, 1996).

    Appraisal cost is actually finding defects by inspection, audit, calibration, testing and measurement (D.wilson). It was stated by Rob Pirozi in 2009 that money in cost of appraisal is used on the actual testing activities which help the internal failure of the product to be streamlined and well managed thus preventing the skyrocketing of external failure cost.

    As stated by Kenneth H. Rose (2005), an appraisal begins with inspection of incoming supplies to ensure that the production is followed as plan. Quality of product will usually affected the quality of material in production. Therefore, a testing will verify performance before product is finished and delivered.

    Furthermore, a study has been made by Banks (1992) stated that prevention cost are expected to rise, as more time is spend on prevention activities. As the process improves over a period of time, appraisal cost will be decrease due to less inspection needed. In was clearly seen that prevention and appraisal cost works together in order to reduce failure. Therefore, a good planning is deemed to be done in an early stage and management team should be ready with and probability of risk that can bring to a failure of product.

    Moreover, a research done by Peter E.D. Love(2003) has clarify that higher in expenditure in term of system, equipment, inspection etc will not show immediate reduction in cost failure due to time lag between cause and effect. Appraisal cost is unavoidable and must be borne with design and construction organization to ensure that the service can be delivered on time with almost zero or minimal defects.

    Cost of internal failure

    Internal failure costs are the cost of coping with errors discovered during development and testing. It resulted from identification of defect before the product are shipped to customers (Rob Pirozzi, 2009). If a bug blocks someone in your company from doing her job, the costs of time wasted , the missed milestones, and the overtime to get back onto schedule are all internal failure costs (Joseph Juran, 1996).

    T.F. Burgess (1996) stated that failure cost occurs when a product fails to conform to its design specification. Internal failure cost usually result from the identification of defects before they are shipped to the customers which include scrap, rejected products, reworking of defective units and downtime caused by quality problems. The price that need to be paid to avoid incurring external failure cost is usually devastating because it is more effective for a company’s appraisal activities, the greater the chance of catching defects internally the greater the level of internal failure cost.

    Moreover, internal failure is usually borne by the organizations. It is a cost of coping with errors discovered during development and testing of products. Therefore, if the errors were late to be discovered, the internal failure cost will be increased (Rob Pirozzi, 2009).

    A study done by Kenneth H. Rose (2005) discovered that internal failure occur before a product has been delivered to a customer are scrap & need rework. Scrap can be simplified as the product that cannot be fixed and must be discarded while rework brings an explanation of re-entered into the process and add work to the overall cost of production.

    As clearly stated by Peter E.D. Love (2003), a quality failure is basically due to personal that develops their own objective, goals and value system which bring into miscommunication. An inaccurate information given will eventually lead into ineffective decision making thus resulting into re-draw, re-keying info etc. therefore, it is such a time waste as unnecessary cost will increase as errors increase and lead to misunderstanding and rework.

    William Keogh (1994) found that actual internal failure is a defect at any stage of the process. The cost of internal failure occurs before delivery including scrap, waste and rework. Such error need to be clearly identified during early stages to ensure customers satisfaction and decrease the cost of quality failure.

    Cost of external failure

    As stated earlier, quality management aim for customer satisfaction by delivering defect-free products. Most process are sensitive to the influenced that act on such process as influenced become uncontrolled, defect rate may increase thus increasing inspection cost as well as repairing cost. Usually cost of external failures are the costs of coping with errors discovered after the product is released typically found by customers. These costs tend to be much higher than the internal failure cost due to the stakes which are much higher (Rob Pirozzi, 2009).

    External failure cost is the result that occurs when a defective product is delivered to a customer. It includes warranty, repairs and replacements, product recalls and lost sales arising from a reputation for poor quality which can decimate profits. D. Wilson (1995) stated that cost of external failure is actually borne by the customer himself.

    Rob Pirozi( 2009) has mention that cost of external failure is the cost of coping with errors after product is released. Moreover, cost of external failure may be much higher than the internal failure due to the increasing stakes.

    Eventually, external failure occurs after a product has been delivered to customers. Such cost includes complaints because organization needs to pay skilled staff to handle complaints (Kenneth H. Rose, 2005). Burati et al. (1992) has stated that cost of quality deviations can be as high as 12.4%. Additional cost to construction caused by repairing may be even higher because is it not including schedule delays, litigation cost as well as intangible cost of poor quality. Such mistake that can bring into any internal or external failure, should be professionally avoided because it can dissatisfied customer which bring to unpaid sales representative and company as loss of customers will also bring a loss to company`s business.

    CONCLUSION

    As stated earlier, risk will most likely affect the cost of the construction. A little change can bring into uncertainty which can affected the overall construction project. Quality cost is introduced to quantify the total cost of quality related to the efforts as well as deficiencies. The general perception of the quality cost was that higher quality requires higher cost. Therefore, larger investment in prevention drive even larger saves in quality. Thus resulting in satisfaction for all parties involves.

    As we know, defects or failures in constructed facilities can result in very large amount of costs. Even with minor defects, re-construction may be required. Therefore, any risk should be managed properly in the early stage in order to get the value for money in one construction. Moreover, prevention is much better than cure because prevention is done before the defect or risk occurs thus avoiding any changing and re-estimating of cost.

    Quality control during construction consists largely of insuring conformance to original design and planning decisions. The conformance of any construction project leads to three primary target which is budget, schedule and quality. Thus, in order to improve the performance of projects it is necessary to identify the causes and costs of poor quality as well as tried to figure out how to prevent it from happening.

    As we know, quality is related to time and cost. Poor quality management project bring to an extra cost and time extension which can obviously affect the conformance of requirement.

    CHAPTER 4

    RESEARCH METHODOLOGY

    INTRODUCTION

    In conducting a research, there must be a particular method and technique to obtain the information about the topic. According to Dr. Martin Barnes (2002), project is a task or an activity which has a beginning, a middle and end. Research is a type of discovery which needs researcher knowledge and ability to investigate and analyzed the searching or material. The Concise Oxford Dictionary (1995) defines research as the systematic investigation onto and study material source to establish facts and reach a new conclusion. Therefore, research is basically concerns what (facts and solution) and how (scientific; critical) components.

    The method and the technique for research can be done in various ways such as case study, questionnaire, interview and literature review. The application of the method and technique must be done properly and suit to the research topic. The researcher must understand and be familiar with the research area on the whole. Through these, the researcher will identify the most suitable method and technique to be applied.

    RESEARCH METHODOLOGY

    Research methodology refers to the principles and procedures of logical thought processes which are applied to a scientific investigation (Richard Fellows and Anita Liu, 2002). It concern on the techniques that will be employed in a research project. There are several question involve in research methodology such as what, why, when, how etc as such question will assist researcher to some answer or information that can help researcher to fulfill their investigation.

    According to Dewan Bahasa dan Pustaka, methodology can be defined as a system occupied with methods, techniques and principles which used in any activities, discipline and others. Whereas, Oxford Compact English Dictionary defined methodology as the systematic investigation into and study of materials and sources in order to establish facts and reach new conclusion (ODEC, 1996). On the hand, Graziano and Raulin (1996) have defined the methodology in short as a systematic finding process towards information and it is also a research process.

    Research methodology is a process and a tool to put into action in doing research and getting information. It is also an art in achieving a science work (Adam & Schvaneveldt, 1985). In general, Fielding and Schreier (2001) have classified that there are three types of research methodology which are quantitative research, qualitative research and hybrid research.

    In pursuing an excellent achievement of dissertation, a research methodology has been drawn up in order to enable researcher carry out the research more systematically and structurally. The methodology arrangement can help the researcher to achieve the goal and the objective of the research besides ensure the research can be completely done within the time stipulated. Furthermore, the research methodology also can help in producing a research with a good quality.

    Selecting Research Topic

    The first step in carrying out the dissertation is selecting research topic. Selecting research topic is a basic thing that needs to be done in early stage. During the stage, researcher needs to read many books, articles and journals regarding the topic given. Researcher choose to study about the relationship and effect of risk management on cost of quality in construction because the topic is very wide and it is interesting to find out how every parties involve in construction define their understanding on quality cost and risk management. Due to the very broad topic, the researcher has narrowed down the study to ensure that the adequate depth and proper investigation can be determined.

    Firstly, researcher define what she understand about the topic and try to come out with a solution on how to do the research . Frequently, classification of work is difficult, not only due to the use of fuzzy definition, but more important is because the work that occur within a continuum. Therefore, the researcher needs to find as many information as she can about risk management and cost of quality. There are a lot of books, journals and articles discussed about such topic but researcher said that it is hard to find the information that link both topic in one articles, books or journals.

    The process of selection was continuing for some time as investigations proceed. The goal is strictly to reach a state in which the topic is delineated sufficiently well for the aim and objectives of the research to be identified, and appropriate methodologies considered to enable a research plan to be draft.

    Therefore, researcher divides the topic into two sub-topics because the topic itself is very wide. The first topic is about risk management in construction industry. As we know, in construction industry, implementing a risk management system helps the formulation of more realistic plans in terms of both cost and time estimates.

    Moreover, increasing understanding of risk lead to minimization of risk as the allocation of such risk will be on the party that best able to handle them. The second topic is regarding cost of quality in construction industry. Quality was basically related to time and cost as poor quality management project will cause extra cost and time extension which can affect the conformance of quality. Quality should meet customers need and provide satisfaction to the user. Therefore, the concept of cost of quality is produce to prevent, detect and deal with such defects that can caused cost to produce a good quality product.

    Writing Research Proposal

    Writing research proposal will be the second step taken in order to complete the dissertation totally. Basically, it is an outcome of the initial considerations and investigation. For the period of writing research proposal process, it involves the researcher in preparing problem statements.

    The problem statements are important in helping the researcher to identify problems from any aspects related to the title of the dissertation. The indentified problem statements also can provide a strong point of dissertation’s title. On the other hand, the problem statements recognized must be relevant and logic because the best problem statements can help the researcher to deeply understood about the issue studied.

    Once the researcher has identified the problem statements, the researcher then moved to the next process of writing research proposal which is creating the dissertation’s aims. The aims are very important because it illustrates the researcher on what to achieved. Without the dissertation’s aims, the dissertation could be a waste. Aim is a statement of what to be investigated or what the impact on the dependent variable. For the dissertation, researcher has pretty determined the aims of the dissertation which is:-

    “The aim of the dissertation is to find the relationship and effect of risk management on quality cost in construction”

    The next process after preparing the problem statement and creating the aim is drafting the objectives of the dissertation. It is important to draft and identify the dissertation’s objectives due to support the aims that have been prepared. Objectives take the aim of the research and given the constraints, translate the aim into a more operational statement. Usually, it will specify what it is hoped that will be discovered by the researcher. The drawn up objectives must be accurate and clear-cut with the aim planned to ensure the research can be completed structurally and systematically within the time required.

    Furthermore, the selected objectives need to be narrowly related to the aims. In line to finish the dissertation, the researcher has set a numbers of objectives which are:-

    1. To determine the issues surrounding the implementation of risk and how it affect the quality cost in construction/
    2. To identify organization’s practice in the past in dealing with issues of risks and its management.
    3. To develop a risk management system that can control the quality cost in construction.

    Then, the researcher can start to prepare the research’s question based on the research objective and for the dissertation, the questions prepared are based on the understanding of party regarding risk management and quality cost of construction and how they relate each of the topic.

    Reviewing Literature

    The essential early stage is to search for and examine potentially relevant theory and literature which can be taken from the previous research project. Theory is the principles and law which can be found to hold in one dissertation. On the other hand, literature concern of findings from research into a particular applications of theory.

    Reviewing literature is one of the most important stages that need to be done in completing the dissertation. Literature review is a process where the researcher or writer makes a study throughout a reading process about the authors’ writing that has been published.

    The process of study should be done before detail analysis course of action start. During the reviewing literature stage, the title of the dissertation will be deeply understood, which is about the roles of the quantity surveyor in construction industry. Within the period of reading, every writing resource read will be analyzed according to the scope of dissertation’s discussion.

    The reviewing literature process will be done based on reading from journals, articles, books and dissertations that have been published as well. Other resources which are related to the title of the dissertation also will be choosing to increase the researcher’s knowledge and understanding. Those reading sources will be search out from libraries and internet. The importance of those sources is to ensure the researcher is able to understand about the research that need to be done. For the dissertation, the researcher has divided the study of literature process into two which were literature review about risk management and secondly about cost of quality. Both topics are regarding construction industry.

    Data Collection

    Data collection is a stage where researcher needs to find out sources or any important information relate to the dissertation for the detail study of the research. That information must be collected as many as possible. Information collected indirectly can help the researcher to emphasize new points during the dissertation’s writing process soon. The information to be collected must be factual and truthful. In collecting the data process, accurate resources and data are most needed in order to handle the dissertation’s analyzing and writing process.

    There are two resources accepted and applied by the researcher in carrying out the dissertation. They are:-

    1. Primer resource
    2. Primer resource is an authentic source in getting information which means the researcher will conduct the collecting data himself. There are various methods to get the primer resource, for example, by conducting a case study, interviewing and questionnaires.

      A questionnaire is a research instrument consisting of a series of questions and other prompts for the purpose of gathering information from respondents. Although they are often designed for statistical analysis of the responses, this is not always the case. Usually, a questionnaire consists of a number of questions that the respondent has to answer in a set format. A distinction is made between open-ended and closed-ended questions. An open-ended question asks the respondent to formulate his own answer, whereas a closed-ended question has the respondent pick an answer from a given number of options. The response options for a closed-ended question should be exhaustive and mutually exclusive.

      The researcher chooses to have both open-ended and closed-ended question to achieve the best finding regarding the dissertation. The purpose of the dissertation also was explained clearly by the researcher to the parties throughout the line.

      Ahead of the questionnaire process, the researcher has drawn up two main questions. Those questions were related with the dissertation’s topics and have been approved by the advisor. The purposes of the questionnaire were to collect data, information and explanation about the roles of the quantity surveyor. On the other hand, it was also to get a clear picture about the risk management and cost of quality in construction industry.

      There were a lot of information and data collected from the questionnaire. Those data and information will be valued before carry on with the analyzing process. The valuation of the data and information is due to identify either the data collected is relevant with the objective of the dissertation or not.

    3. Secondary resource
    4. Secondary resource normally is in a form of documents, data and report from departments and certified institution. For the dissertation, the researcher

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