A framework for managing global risk factors affecting construction cost performance

Poor cost performance of construction projects has been a major concern for both contractors and clients. The effective management of risk is thus critical to the success of any construction project and the importance of risk management has grown as projects have become more complex and competition has increased. Contractors have traditionally used financial mark-ups to cover the risk associated with construction projects but as competition increases and margins have become tighter they can no longer rely on this strategy and must improve their ability to manage risk. Furthermore, the construction industry has witnessed significant changes particularly in procurement methods with clients allocating greater risks to contractors. Evidence shows that there is a gap between existing risk management techniques and tools, mainly built on normative statistical decision theory, and their practical application by construction contractors. The main reason behind the lack of use is that risk decision making within construction organisations is heavily based upon experience, intuition and judgement and not on mathematical models. This thesis presents a model for managing global risk factors affecting construction cost performance of construction projects. The model has been developed using behavioural decision approach, fuzzy logic technology, and Artificial Intelligence technology. The methodology adopted to conduct the research involved a thorough literature survey on risk management, informal and formal discussions with construction practitioners to assess the extent of the problem, a questionnaire survey to evaluate the importance of global risk factors and, finally, repertory grid interviews aimed at eliciting relevant knowledge. There are several approaches to categorising risks permeating construction projects. This research groups risks into three main categories, namely organisation-specific, global and Acts of God. It focuses on global risk factors because they are ill-defined, less understood by contractors and difficult to model, assess and manage although they have huge impact on cost performance. Generally, contractors, especially in developing countries, have insufficient experience and knowledge to manage them effectively. The research identified the following groups of global risk factors as having significant impact on cost performance: estimator related, project related, fraudulent practices related, competition related, construction related, economy related and political related factors. The model was tested for validity through a panel of validators (experts) and crosssectional cases studies, and the general conclusion was that it could provide valuable assistance in the management of global risk factors since it is effective, efficient, flexible and user-friendly. The findings stress the need to depart from traditional approaches and to explore new directions in order to equip contractors with effective risk management tools

Evaluation of global risk factors affecting cost performance in Mozambique

The effective management of risk is critical to the success of any construction project and the importance of risk management has grown as projects have become more complex and competition has increased. Contractors have traditionally used financial mark-ups to cover the risk associated with construction projects but as competition increases and margins have become tighter they can no longer rely on this strategy and must improve their ability to manage risk. This paper presents the results of a survey conducted to evaluate the impact of global risk factors on cost performance of construction projects in Mozambique. The survey reported upon forms part of a larger study that aims to develop a fuzzy logic decision framework for contractors to better manage global risk factors affecting the cost performance of construction projects. Major global risk factors affecting cost performance were identified through an extensive literature review followed by a workshop and a questionnaire survey of construction contractors in Mozambique. The findings of the questionnaire form the basis for the repertory grid interviews aimed at eliciting relevant knowledge so as to develop a knowledge-based decision support system. There are several approaches to categorising risks permeating construction projects. This paper groups risks into three main categories, namely organisation-specific, global and Acts of God. It focuses on global risk factors because they are ill-defined, less understood by contractors and difficult to model, assess and manage although they have huge impact on cost performance. Generally, contractors, especially in developing countries, have insufficient experience and knowledge to manage them effectively. The surveyed contractors identified the following global risk factors as having significant impact: project size, project location, project complexity, estimator bias, market conditions, level of competition, fraudulent practices, construction, economic and political risk factors. The findings stress the need to depart from traditional approaches and to explore new directions in order to equip contractors with effective risk management tools

Modelling global risk factors affecting construction cost performance

This paper discusses the core issues of global risk factors modelling, assessment and management. The research reported upon forms part of a larger study that aims to develop a fuzzy decision framework for contractors to handle global risk factors affecting construction cost performance at a project level. Major global risk factors affecting cost performance were identified through an extensive literature review and preliminary discussions with construction contractors. The main decision perspectives namely normative and behavioural were explored. Different decision-making technologies, both classical and emergent, such as classical management science techniques and DSSs, KBSs were explored and evaluated. Preliminary indications show that Fuzzy Set Theory is a viable technology for modelling, assessing and managing global risk factors affecting construction cost performance and thus a fuzzy decision framework for risk management can be successfully developed. © 2003 Elsevier Science Ltd and IPMA. All rights reserved