a) The company profile and motive of the company to invest in luxury property project
Eco World Development Group Berhad, formerly renowned as Focal Aims Holdings Berhad, is one of the most famous public listed corporations in Malaysia dealing in property development industry in the target country. Precisely, the group has been involved in property and infrastructure development activities having a land bank of close to 8,052.7 acres. According to the information given in the corporate company profile of Eco World Development Group Berhad, the business of the brand has been distributed across three leading economic regions in Malaysia (“EcoWorld – Creating Tomorrow & Beyond”, 2017).
Added to that, the corporation has got 18 development projects in the target territory including commercial developments, new township, business parks, and luxury skyscraper apartments. According to the corporate reports, the entire gross development value (GDV) of the land bank occupied by the group has worth RM87.5 billion. During 2013, the group has changed the original name and set up headquarter in Shah Alam, Malaysia.
Evidently, Eco World Development Group Berhad has been involved in a number of infrastructure development supply activities such as the supply of building materials, manufacture of prefabricated building materials, and trade of building materials etc. Added to the infrastructure and development projects, the construction group has been engaged in promotion as well as marketing related activities in construction services in the Malaysian market (Minelle, 2015). Perpetually, the property management of Eco World Development Group Berhad, the group has reached to the international markets such as London in the United Kingdom and Sydney in Australia.
Notably, the entire property development and project management group of the corporation has been served by most reputed industry players available in the Malaysian real estate sector (Mansor Wan Mahmood & Zakaria, 2017). As a result of the visionary ideas and technological efficiency of the team members, the company is setting long-term business footprints in the domestic as well as international property industry.
Malaysian property development projects have been increased at a considerable rate since the last decade or so. As of to the reports, the residential property industry in Malaysia is booming. Meanwhile, the recent real estate development in Singapore has opened the floodgate for the Malaysian property developing firms to show their development power. Precisely, residences situated within the five kilometres of the city of Kuala Lumpur have been priced at $4,600 per square metre.
On the other hand, the condos and other high-rise luxury apartments in the outskirts area have been sold at a rate of $1,900 per square metre (Jusoff, 2016). Meanwhile, as per the comparison of the property valuation in Singapore, the Malaysian property prices are twice as expensive. Based on the pricing concept, Eco World Development Group Berhad has shown the interest to invest in luxury property projects such as high-rise luxury apartments and other development projects in Malaysia.
Apart from the pricing factor, promising growth rate of the real estate sector, as well as the availability of investors and buyers, can be identified as other leading reasons to select the luxury apartment’s development projects in the target market. Evidently, the significant growth and demand from the international buyers have increased the interest of the investors to fund the development projects in Malaysia (Gee, Azmi & Alavi, 2009).
Therefore, there is no shortage of fund in the luxury apartments and condos developments projects in Malaysia. Precisely, the Cambodian property investors have shown their interest in purchasing luxury apartments in Malaysia alluring the property developers to participating in luxury property projects. Therefore, such market influences have encouraged Eco World Development Group Berhad to invest in luxury project developments in the target market. Specifically, the positive outlook and significant return on luxury project developments have pushed the corporation to explore the niche market through investing in luxury infrastructure projects.
b) The potential operational risk faced by the company if the priority of the projects is more on luxury and commercial project
In terms of investing in luxury project development, Eco World Development Group Berhad must identify the major operational risks associated with the business functions and development proceedings. Evidently, in this particular section, the leading potential operational risks in luxury project development in Malaysia have been illustrated. In terms of operational risks, site selection for the luxury development can be termed as one of the most considerable factors to be dealt with (Humphreys, 2017). During the project development of a luxury construction, the identification of the location of the project can be a challenging task. For instance, if the selected land and selling parties create legal obligations during land acquisition, the project initiation can be delayed. Furthermore, a luxury real estate development project is entirely different from the conventional projects. The capital invested in the project can be termed as massive (Sorrill, Cooper & Chapman, 2017). Therefore, the identification of the investment risk must be evaluated before starting the development process.
Since every property development projects include a number of risks, effective risk management techniques must be taken into account as well. In developing such massive construction assignments, breaching of contract can be identified as one of the biggest operational risks attached to a project (Finke, Singh & Rachev, 2010). Meanwhile, the contracts can be breached either by the client or the contractors. In such case, managing the operating costs can be the biggest challenge as the project work can be delayed due to such unexpected events (Bianchi, 2010).
On the other hand, industrial activities directed on the luxury project can be defined as other risks that are significantly high in luxury project development. A number of industrial action can slow down the movement of the project. As a result of the consequences, the operating cost may be overrun the projected cost due to an unanticipated escalation in the cost of technology equipment, workforce, and other emergency utilities (Sorrill, Cooper & Chapman, 2017).
Invariably, in large luxury projects in Malaysia, the brand construction and real estate companies such as Eco World Development Group Berhad must handle market analysis, site investigation, and feasibility study related to the projects through hiring efficient and renowned professionals (Vanhoucke, 2013). Meanwhile, by appointing the best set of management teams and construction engineers can influence the pace of the proceedings.
Alternatively, failing to meet the requirement in this category may lead to comprehensive challenges such as legal issues and financial risks. Evidently, tendering or contracting the luxury projects can be the alternate biggest challenges for the companies (Akinsiku & Akinsulire, 2012). Herein, the property developers must select the best methods to settle the deals following all the guidelines and legal directives stated by the existing law and domestic work culture. Notably, operational risks regarding such circumstances can affect the quality as well as estimated budget of the luxury projects. As a result, the company can face massive loss in luxury projects.
However, identifying the market opportunities can be recognised as one of the most comprehensive ways to minimise the operational risks. For instance, if a real estate developer has been engaged in luxury projects during a financial crisis, the allotment of the fund can be a massive challenge (Finke, Singh & Rachev, 2010). For instance, if Eco World Development Group Berhad has invested significant capital in any luxury project and the global market face a financial crisis, the entire development project can be hampered as investors as well as market buyers will be less interested in property market due to the downfall of property prices. In such cases, a number of losses will be massive, to say the least. Hence, analysing the potential operational risks associated with investing in luxury projects, Eco World Development Group Berhad must develop suitable risk management and mitigation process to deal with the absurd market circumstances affecting the property development business.
a) The tools and techniques being used by project manager and the qualitative and quantitative risk analysis that had been implemented by the company
Different tools and techniques can be used by project managers of Al Sahel Contracting Company LLC to identify and manage the risk that are faced during the tenure of a construction project. The most commonly used tools and techniques are named as Brainstorming, Fishbone Diagrams, Delphi technique, Critical Path Analysis and SWOT analysis. The tools and techniques have been discussed in details herein below:
On the basis of the above discussions, these tools and techniques are effectively used by the project managers of Al Sahel Contracting Company LLC to identify risks and uncertain activities that may impact the completion of the project (McCarthy, 2010). Moreover, the tools and techniques are also used to identify the probability of the occurrence of such uncertainties and the level of impact of the risk over the construction projects (Smith, Merna & Jobling, 2015). Furthermore, two different analysis techniques are used to evaluate the level of impact of the uncertainties and the chances of occurrence of the issues during the course of a construction project (Finke, Singh & Rachev, 2010).
The techniques are known as qualitative risk analysis method and quantitative risk analysis method. The qualitative risk analysis method is based on descriptive analysis and the results are presented in an explanatory format. However, the quantitative analysis is conducted to present the impact of the risk in a numeric format (Gould & Joyce, 2014). Therefore, the qualitative and quantitative risk analysis techniques that have been implemented by the Al Sahel Contracting Company LLC in order to mitigate and control risks in project management have been discussed herein below:
On the basis of the two risks analysis techniques presented above, the management of Al Sahel Contracting Company can effectively evaluate the occurrence and influence of the uncertainties in the construction project (Smith, Merna & Jobling, 2015). However, both the analysis techniques are based on pre-historic data that minimises the efficiency of the analysis techniques to forecast the exact figures of occurrence in the future (Bianchi, 2010).
Moreover, it becomes difficult for the management to always use the quantitative risk management analysis technique due to the lack of high quality data and information. Irrespective of these limitations, the two mentioned techniques are the most effective way of identifying the probability of occurrence of particular uncertainties and observe the impact of the issues (Cretu, Stewart & Berends, 2011). Both of the two analysis techniques helps the project management team to develop a risk mitigation plan on the basis of the evaluation that helps the company to mitigate and control the risk effectively.
b) The content of company’s risk management report and the important of achieving risk efficiency
The management report of Al Sahel Contracting Company LLC must identify the risk management framework including the philosophy of risk management, certain risk appetite, the risk governance structure, and the procedure of risk management (Minelle, 2015).
Although Al Sahel Contracting Company LLC is one of the biggest building construction companies in Dubai, it is important to analyse the risk management efforts of the previous projects that were handled by the group. First of all, the content of the report must involve how the management group of the organisation has segmented the roles and responsibilities significant to the risk management process. Precisely, the risk management process must be overviewed by the Board of Directors under the supervision of the Audit Committee (Finke, Singh & Rachev, 2010). Thus, the analysis of risk will be evidently made supporting the investment decision-making, strategic formulation, capital allocation, and planning of the entire business considering the internal operations of the firm.
Invariably, the report also includes the risk appetite of Al Sahel Contracting Company LLC that will represent the nature and degree of risks featured by the group to achieve the strategic corporate objectives (Shakir, 2016). Evidently, the value framework, as well as the shareholder’s expectations, must be considered before deciding the risk taking attitude (Minelle, 2013). Alternatively, risk profile criteria must be added to the report so that effective risk assessment matrix can be derived. Thus, the risks associated with the earlier projects have been ranked and prioritised.
Based on the ranks, risk mitigation planning can be formulated (Mentis, 2015). In addition, the risk governance structure of Al Sahel Contracting Company LLC must be attached to the report so that the tools and techniques, as well as the facilities determining the risks, can be identified (Cretu, Stewart & Berends, 2011). In such case, multiple layers of corporate roles and accountabilities such as board oversight, independent assurance statement, management communication network, control and monitoring strategy, and ownership responsibilities should be elaborated.
The application of appropriate risk management strategies helps to identify the strengths, weaknesses, opportunities and threats of a project. Proper planning of unexpected events helps the management to respond effectively during the occurrence of the uncertainties (Newell & Osmadi, 2010). Therefore, risk management efficiency is the key to company’s project success. The project management team of Al Sahel Contracting Company needs to plan, prepare, observe the results and evaluate the potential risks in order to achieve the goals of the project.
Firstly, it is important for the project management team to plan the risk management tactics that contributes to the success of the project. The risk management plan can be developed by identifying the external as well as internal risk to the project (Gee, Azmi & Alavi, 2009). The plan typically presents the identified risks, probability of the occurrence of the uncertainties, potential impacts and actions to be taken to mitigate the issues. Secondly, it is important for the project management team to communicate the identified risks and the risk mitigation plan to the stakeholders, project investors, and team members to effectively manage the uncertainties (Najib Razali, 2008). It helps the project management team to get prepare for the risk to be faced during the course of the project.
Thirdly, with increase in the efficiency of the risk management strategies, the success factors for the project increases by minimising and eliminating the negative uncertainties. The efficiency of the risk management strategies helps the project management team to meet the budget, fulfil all desired objectives and complete the work on time (Bott & Milkau, 2015). Finally, the evaluation of the project success is another key factor for the successful completion of the project. It enables the project management team to use the best practices in the next project and evaluate the impact of the activities on mitigating the exposure to risks (Cretu, Stewart & Berends, 2011). Hence, it is important for the Al Sahel Contracting Company to achieve risk efficiency in order to complete the project according to the plan without getting diverted by any uncertainties.
References
Akinsiku, O., & Akinsulire, A. (2012). Stakeholders’ Perception of the Causes and Effects of Construction Delays on Project Delivery. Journal Of Construction Engineering And Project Management, 2(4), 25-31.
Bianchi, E. (2010). Risk Management of Environmentally Constrained Infrastructures. IABSE Symposium Report, 97(32), 1-7.
Bott, J., & Milkau, U. (2015). Outsourcing risk: a separate operational risk category?. The Journal Of Operational Risk, 10(3), 109-137.
Cha, H., & Kim, J. (2013). Quantification Model for Applying Construction Management Practices in Consideration of Project Characteristic Factors. Journal Of Construction Engineering And Project Management, 3(1), 35-38.
Cretu, O., Stewart, R., & Berends, T. (2011). Risk management for design and construction. Hoboken, N.J.: Wiley.
EcoWorld – Creating Tomorrow & Beyond. (2017). EcoWorld – Creating Tomorrow & Beyond. Retrieved June 2017, from https://ecoworld.my/company-profile/
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Gee, L., Azmi, I., & Alavi, R. (2009). Reforms Towards Intellectual Property-Based Economic Development in Malaysia. The Journal Of World Intellectual Property, 12(4), 317-337.
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Sorrill, C., Cooper, D., & Chapman, C. (2017). Risk Analysis for Large Projects: Models, Methods and Cases. The Journal Of The Operational Research Society, 38(12), 1217.
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