A Statistical Analysis of Engineering Project Risks in the Korean Shipbuilding Industry

Risk management in shipbuilding projects is important in practice, but there have been few studies about risk assessment in the shipbuilding industry. The purpose of this study is to identify critical risks in shipbuilding projects and to examine the relationships among them, according to the ship production phases. A survey analysis was conducted with 248 experts from 10 major Korean shipbuilders in April 2007, and association rule mining was used as the research methodology. Twenty-six different risks are deduced. At the beginning stage of shipbuilding, it was discovered that design and financial risks were related, and human resource risks in ship design had relatively more influence but financial risks did not. At the block manufacturing stage, important risk factors were management of production equipment, supply of raw materials and labor, and quality management. Financial, technical, and managerial risks all had an important influence at this phase. At the erection stage, technical risks such as changes in design and managerial risks such as exceeding time and budget limits proved to be important. At the project finalization, phase risks were exchange rates, interest rates, timeline, fulfilling specifications, and natural disasters. The research results could be valuable for industrial participants to understand the shipbuilding risks in each construction stage.6.DiscussionThere is a lot of similarity between the shipbuilding industry and the construction industry in risk factors. However, the characteristics of risk occurrence are different, according to these research results. Most of all, the ship design engineer's capability is critical. The human resources in ship design can be the primary factor to evaluate a shipbuilding company. Especially, in a rapid growth period, the design department may be the busiest in a shipbuilding company. If a medium-sized shipbuilding factory cannot afford to maintain enough manpower, it is not easy for the firm to take prompt action about unexpected changes or faults in design and to meet the schedule. That is why medium-sized shipbuilders try to keep competence in design manpower. In addition, exchange rates and interest rates should be considered with the ship design capability in the shipbuilding industry. The results of this research indicate that the impact of exchange rates and interest rates could be critical factors especially at the final stage of shipbuilding projects. Most of the shipbuilding funding is prepaid by cash, but if it is insufficient, the deficiency has to be filled by loans. The exchange rate is important at each stage of taking a part of shipbuilding payment, but the exchange rate may not be significantly considered, because at the earlier phases most expenses for raw materials are paid by US dollars without exchange. After delivery is completed, when the loan has to be repaid, exchange rate and interest rate become significant factors to assess the performance of the shipbuilding project. Since the 1970s, Korean shipbuilding companies have competed with Japanese companies and have achieved amazing accomplishments, followed by Chinese firms in this industry. However, it is also true that most Korean shipbuilding companies depend on embodied knowledge rather than systematic approach for risk handling. Therefore, the findings of this research can be valuable to manage the shipbuilding project risks. more influence but financial risks did not. At the block manufacturing stage, important risk factors were management of production equipment, supply of raw materials and labor, and quality building firms. The project manager can acquire insight on which risk factors should be carefully managed at each stage of shipbuilding. For example, if in Phase III problems happen in labor supply and the budget is exceeded, the project manager has to check if there is any problem in production equipment supply. If the design should be changed and the project schedule delay expected, one needs to check the possibility of additional costs. Since the risk impact of each individual company may be different from others, its own circumstance should be carefully considered and the risk impact be measured accordingly. Second, the results of this study can be helpful for the practitioners from various departments to understand risks related to not only in his/her department but also in other departments and to recognize the impact of the risks. For example, a breakdown in production facilities not only brings a delayed schedule, but also affects delivery of raw materials. If such a breakdown occurs and if the raw material yard is sufficiently large, then it would be possible to place the raw materials there temporarily. However, if not, the schedule should be adjusted, and undesirable results might occur. In addition, the change in delivery might significantly impact fund operation. Therefore, not only production activities but also financing-related activities could be seriously affected. Finally, for banks and investors who provide funds for shipbuilders, a checklist to evaluate a firm's shipbuilding capability could be useful. A large-scale investment is needed at the beginning of shipbuilding projects. So, it can cause financial disadvan numbers. The results of this study could be applied for nonfinancial criteria of performance measurement, considering shipbuilding risks. In addition, since it takes years to build a ship, project progress check has been done at each development stage of shipbuilding.