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PROJECT RISK MANAGEMENT IN
RESIDENTIAL CONSTRUCTIONS AFTER FINANCIAL CRISIS IN KAZAKHSTAN
Since there are
various types of construction such as pipeline construction or oil and gas plant
constructions, it is worth narrowing the topic. This research is going to
identify attitudes and approaches of project risk management in residential
construction companies after financial crisis in Kazakhstan. The research
question of the study is “what are project risk management techniques that
companies employ during construction of residential buildings after financial
crisis in Kazakhstan?”. As it was stated in EconomyWatch construction industry
is very important part of economy within every country, especially for
Kazakhstan population. Indexmundi stated that Kazakhstan population is growing,
that’s why it is worth focusing on the risks that restrain successful
completion of the residential construction project. The research will be based
on the interviews of some managers of construction companies.
Nowadays, effectively managing risks plays one of the major roles in
project management (Nasirzadeh et al. 2008). Generally, success or
failure of any project depends on how company managers identify, analyse and
manage risks (Lyons and Skitmore (2004). In other words, an imprudent
approach to identify and assess risks may cause to a disastrous results. For
instance, Smslegel stated that in Texas several construction workers injured
because of collapse of roof during construction.
Today the construction industry as was stated in Economywatch is one of
the major sectors within every country’s economy by generating employment. For
example in UK, as was pointed out in Guardian construction industry occupies 6
percent of total economic output and in USA according to Economywatch it is 8.3
percent. It is in the same time one of the most “dynamic and challenging
business” (Mills, 2001). Like every projects, construction has a degree of risk
that can be driven by various factors like weather, labour, quality and
productivity. Usually in construction
industry risks are ignored or just managed by “simply adding 10% contingency
onto estimated cost of project” (Mills, 2001). However, this approach is not
suitable for such complex project like construction and often leads to
expensive delays, huge costs and even bankruptcy (Mills, 2001).
In Kazakhstan housing construction was one of the main priorities in the
economic development (BTA Bank Report). Fergana News has pointed out that this
sector in Kazakhstan occupies 25 percent of national GDP and employs more than
500 thousand of workers and considered as on of the important sectors within
the economy. Estbase states that residential construction in Republic of Kazakhstan
until 2007 was growing very fast. This is also supported by “Kursiv” newspaper,
they write that growth of construction was coincided with a high development
rates in financial sector of Kazakhstan, because these two markets are
connected with each other. Investment to the construction market has showed a
rapid growth (BTA Bank Report). According “Samryk-Kazyna” the constructions of
residential complexes that consist of group of houses were financed through
local second –tier banks. It argues that Kazakh banks provided around 5$
billion mortgage loans and invested roughly 6,5$ millions in various
construction projects.
But as Estbase state, after 2007 there was sharp decrease in
construction industry when foreign financial intermediaries stopped to give
loans to local banks and money inflow from abroad has decreased. The recent
financial recession in United States, as writes BBC has negatively affected
Kazakhstan’s economy that in turn negatively influenced the construction
industry. According to financial new of Profinance, in 2009 investment to the
construction industry has decreased for 41%. Also BusinessWeek stated that
construction companies were among the first who suffered from that economic
slow-down and most of a companies have stopped working. For instance, “KUAT” was one of the biggest
construction developers in Kazakhstan which also borrowed money to finance its
residential construction projects from banks, but when financial crisis hit
Kazakh economy all “KUAT’s” construction project stalled.
Because of economic down-turn many construction companies face
bankruptcy, which leads to share of financial failure among companies and
changing economic conditions (Kangari, 1995). According to head of National Welfare Fund
“Samruk-Kazyna” Kairat Kelimbetov Kazakhstan construction company’s risk
management has failed to identify and manage potential risks.
To avoid such kind of situations it is crucially important within every
construction organisation to have a risk management department, especially for
resident construction because any deficiency in the final product can lead to
very unpleasant results. For instance, Smslegal stated that in Texas several
people injured because of an accident in construction site.
Currently National
Welfare Fund “Samruk-Kazyna” is striving to resolve that problem. And according
to the forecasts of Ministry of Industry and New Technologies of Republic of
Kazakhstan the residential construction will develop. This mean that
construction companies are still operating in the market, but definitely now
after such economic events they are more prudent towards risk and do not ignore
risk management.
Build Investments Group (BI Group) is found in 1995 and accepted to be a
leader in the field of construction and project developments in Kazakhstan with
more than 3000 qualified employees. Company is specialised not only in
residential constructions, but in the same time in construction of roads and
office buildings. In 2009 company has competed 28 residential complexes with total
of 1 million square meters. Company has brought new construction technologies
from abroad to achieve high standards. During financial crisis company has
constructed several roads and completed buildings with total of 380 thousand of
square meters. Currently BI group is about to finish 12 more residential
buildings and have more than 30 new projects. On of the principles of the
company is to face risk and the ability to manage them.
References:
·
Field M. and
Keller L. (1998), Project Management, Thomson Learning.
·
Tendency of Currency “Tenge” against US Dollars, available
at URL: www.investfunds.kz accessed on 27th
of July.
·
Hedging Currency Risk, available at URL: http://www.buzzle.com/articles/hedging-currency-risk.html accessed on 27th of July.
· Central Asian
News, Kazakhstan: Construction sector still reeling
despite government's bail-out package (2009), available from URL: http://enews.ferghana.ru/article.php?id=2517
accessed on 22nd of July.
·
Heaton J., (1998), Secondary analysis of
qualitative data, Social Research Update, available at URL: http://sru.soc.surrey.ac.uk/SRU22.html
accessed on 27th of July.
· Marketing research and information systems, (1997),
Personal Interviews, Marketing and Agribusiness Texte-4. available at URL: http://www.fao.org/docrep/w3241e/w3241e06.html accessed
on 27th of July.
· Morris A., (2006)
,Provision of research methods teaching in UK LIS departments, New Library
World, 107(3/4), 116-126,.