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Importance of Risk Management Implementation to Enhance the Profitability of A Construction Firm

Abstract on Risks Affecting the Construction Projects

Uncertainty is omnipresent in everyday life, projects and in organisations which presents a clear threat to business operations, but in itself, uncertainty can be also be perceived as a new opportunity. Even though risk can represent opportunities, more often than not, it is associated with negative results which is why individuals mainly only take the negative side of risk in consideration. This makes risk management a key aspect of business operations. This is especially vital for success in construction industry as the industry as the industry is widely associated with a relatively much more increased degree of risks mainly because of the presence of distinct micro, meso and macro environment factors that are particular to the industry. Yet, despite the presence of high degree of risk, construction industry has a comparatively poor reputation for taking measures for risk management, which often manifests itself into missed cost targets and deadlines. Considering this, it is not surprising that public, contractors, clients and others suffer the results of the poor management. Therefore, it is safe to say that the construction business is associated with high risk, which in turn effect involved stakeholders and the effective management and analysis of risks remains a challenge to industry’s practitioners. However, truly agile firms do consider risk management as a key aspect of the strategic decisions and try to be proactive in terms of dealing with risks. This suggest an environment of ambiguity towards investing in risk management which some businesses entities exalting its important while other perceiving it as an unjustified expense. Therefore, this study is conducted to assess the way risk management impacts the profitability of construction firms. The research methodology follows the positivism paradigm and descriptive research design and utilizes the deductive research approach for evaluation. Moreover, the purposive sampling method has been used to select 100 respondents for the survey. The survey questionnaire is based on the literature review and includes questions related to the benefits of risk management for construction firms and the way it improves the profitability of the same. The findings of the survey suggest that risk management does add value to construction firms and improves their profitability. But at the same time, it is also important to acknowledge that their needs to be a balance between the threat of risks the firms is exposed to and the number of funds it is investing in risk management. The research arrived at this conclusion by analyzing the survey responses which suggests that risk management improve the profitability of construction firms by facilitating sound decision making and by helping the firms to capitalize on market opportunities and by providing data for sound decision making. Moreover, risk management facilitates so by enabling them to become prepared for risks which can give rise to unexpected costs. Analysing and preparing for risks in advance and by presenting strategies controlling or mitigating risks, construction firms can improve their business image and can improve their attractiveness to investors. Also, risk management not only helps to improve profitability by improving business processes, but it also facilitates the same by safeguarding the existing business and projects of the firm against external and internal threats. By properly understanding the potential risks associated with a given project, construction firms can improve their ability to deliver the expected results with the suggested deadline and budgetary constraints. Supply chain in the construction industry is especially vulnerable to external risks and exposes suppliers, customers, and business alike. By demonstrating their ability to deal with the same, construction firms can improve their market competitiveness and profitability.

Keywords

Risk management; risk analysis; construction; contractors; project management; risk perception; risk allocation; teamwork

Introduction to Risks Affecting the Construction Projects

Uncertainty is omnipresent in everyday life, projects and in organisations which presents a clear threat to business operations, but in itself, uncertainty can be also be perceived as a new opportunity. There is a connection between risk and uncertainty as, the risk in the form of uncertainty which can be measured, while uncertainty is the risk which cannot be measured (Szymanski, 2017). Risk is often regarded as a multifaceted notion which is described as the likelihood of a damaging event happening in a given project, which affects its objectives but does not necessarily result in negative outcomes. Even though risk can represent opportunities, more often than not, it is associated with negative results which is why individuals mainly only take the negative side of risk in consideration (Mhetre, Konnur & Landage, 2016).

Nowadays, risk management is regarded as an integral section of project management (Bahamid & Doh, 2017), in which one of the key activities is to determine the risks associated with the project and the way they should be prioritized (Serpell, Ferrada & Rubio, 2017). Risk management is a key process and most project managers realize it is essential for successful project management (Renault & Agumba, 2016). In project management, risk management is described as the process of identification and assessment of risk, and application of different methods to mitigate the severity and probability of risk (Nawaz, Waqar, Shah, Sajid & Khalid, 2019). Therefore, the key objective of risk management in the project is to identify, evaluate and control risk to ensure successful execution of the project. Overall, the risk management process includes the following: risk planning, risk identification, risk assessment (quantitative and qualitative); risk analysis, risk response, risk monitoring, and recording risk. Considering that construction projects are exposed to a high degree of risk, it is not surprising that the research on risk management in the industry has tremendously grown in the last four decades (Keshk, Maarouf & Annany, 2018). One of the key reason for this vulnerability of construction industry towards risk is the presence of many contracting parties such as designers, contractors, and owners, among others. Thus, risk in construction projects is often analysed from two different perspectives. On one side there is the project owner, major stakeholders and decision-maker of the project, and on the other, there are the contractors (Saeed, 2018). Traditionally, contractors used high mark-ups to cover the risk, but due to a reduction in their margins, this approach is no longer considered as effective. Both of the said groups have dissimilar behaviours in terms of project risk and have different ways to transfer the risk to another party which is in the best position to deal with the same (Gorecki & Bizon-Gorecka, 2017).

In addition to this, risk management includes the adherence to risk consciousness policies that are integrated into organizational operations. This facilitates proactive action, increases transparency and prepares the organization for unavoidable problems (Sivagami & Sarath, 2018). This is an ongoing process as risks associated with the project continue to change throughout their life cycle. The benefits of risk management include a clear understanding of the certain risk associated with the project which is supported by detailed analysis. This also helps to build a record of historical data which assists in future risk management procedures. Yet, numerous project managers still do not implement risk management as an integral aspect of project delivery as it can be quite expensive to implement the same (Adeleke, Bahaudin, Kamaruddeen, Salimon, Khan & Sorooshian, 2018). This creates a problem for many project managers which is to justify the cost of risk management. Within the construction industry, surety bonds, subcontracting, construction insurance, and contracts are often used in order to deal with the ever-present risk in the industry. Risk management is especially important in the construction industry considering the presence of numerous stakeholders and entities with their own functions. Construction operations includes assembly of components and materials manufactured and produced by different manufactures and all of this occurs within the build environment which is also riddled with all kinds of risks. Also, every stage of the construction process has its own risk whether it be designing, planning, maintaining and following decommissioning of structures and buildings. Risks in construction projects are not also a simple question of safety and health. These risk factors, ranging from personnel, planning, strategic decision, quality, financial and external risks also have direct influence over project execution and outcome, which is itself enough to emphasize the important of risk management within the industry. This is especially vital for success in construction industry as the industry as the industry is widely associated with a relatively much more increased degree of risks mainly because of the presence of distinct micro, meso and macro environment factors that are particular to the industry (Pawar & Pagey, 2017). Yet, despite the presence of high degree of risk, construction industry has a comparatively poor reputation for taking measures for risk management, which often manifests itself into missed cost targets and deadlines. Considering this, it is not surprising that public, contractors, clients and others suffer the results of the poor management (Al-Aimi & Makinde, 2018). Therefore, construction business is associated with high risk, which in turn effect involved stakeholders and the effective management and analysis of risks remains a challenge to industry’s practitioners (Saidova, Xodiimuxamedova & Uktamov, 2020). Furthermore, the problem is further exacerbated by the fact that such risks have deeper repercussions and adversely affect every aspect of construction project, whether it be planning or execution. This suggests the importance of a more positive attitude towards risk management in the construction industry. Yet, even though numerous studies have been conducted for the same, most of the papers only deal with the analysis of risk management in terms of the way they impact project outcome, and there is very little information present in the literature regarding the way risk management effects the financial aspect of business, especially its profitability (Omer & Adeleke, 2019). Risk management is also regarded as a key element for efficient execution of construction projects. With the prevalence of demand volatility and unpredictable side conditions, the industry is riddled with high degree of risk and properly managing this risk by developing continency plans is very important for involved stakeholders. This not only makes risk management important for the production process in the industry, in addition to this, this is also important for realizing sustainability in the volatile business environment. In this respect, sustainability refers to operating in such a manner that can support the organization in the long run. Therefore, risk management is not just a defensive strategy, it can provide opportunity to construction firms to promptly react to their business environment. As the pressure is increasing in the construction market to build the backlog and to sustain themselves in such a highly competitive industry, it has never been more important for construction firms to properly understand important of risk management and whether it can help them to improve their business position to get long term strategic advantage.

Literature Review of Risks Affecting the Construction Projects

Since the introduction of risk management in the construction industry is over a decade old, multiple studies have shown that risk management can have a positive impact on the outcome of construction projects. Still, the issue of how risk management can enhance the profitability of a construction firm remains a subject with several hypotheses but few specific answers. This literature is review is conducted to examine the research questions and to assess the current academic opinion on the same.

Characteristics of Construction Industry

Construction industry has several features that are common to both manufacturing and service industry. Yet, construction industry has more in common with the service industry as it does not accumulate considerable capital as compared to industries like mining, petroleum, steel and transportation; however, it does include physical products that are of overwhelming cost, complexity and size as in the manufacturing industry. Moreover Adeleke, Bahaudin, Kamaruddeen, Bamgbade & Ali (2019) mentioned that failure or success in the industry is more dependent on the skills and abilities of the personnel involved in the process, rather than the technologies being implemented which is protected by patents as in the service industry.

Product Properties

In terms of the products delivered in the construction industry, Kumar, Sheikh & Asadi, (2017) stated that the products are changeable in the industry, and they are often, long-lasting, complex, durable, one of a kind, and large in scale. There can also be quite substantial value differences among the end products, and the production is guided by the construction projects that are characterised by the non standardized complexity and diversity. Furthermore, the construction process is more often than not subjected to the influence of highly unpredictable and variable factors (Rostami & Oduoza, 2017). Also, almost every facility takes a long time to be completed, constructed and customer designed. Therefore, to a certain degree, every project related to construction is unique its in own way and not two construction projects are ever completely similar. The possibilities of utilitarian and creative variation and the vagaries of construction come together to make every project a different and new experience riddle with its own problems and risks (Kasapoglu, 2018).

Labour Specialities

In terms of labour specialities, construction industry involves many distinct participants for several different field of expertise, such as design professional, subcontractor, material suppliers and contractors, which their own importance in the project. The success of construction projects hangs on the interrelated roles and coordination of the involved participants. Kumar, Sheikh & Asadi, (2017) stated that during the project life cycle, the project is first contemplated by the owner which involves different activities that vary in their intensity and type and further complicate the process. Such projects also require different type of labour specialities ranging from thermal installation, to sanitary installation and electrical installation. The importance of cooperation among different stakeholders is further emphasized by the facts that most of these trades have experience and knowledge that are necessary for project execution and its more or less impossible for contractor to get such expertise. In addition to this, in case a problem arises the solutions differ according to the type of project and the solutions that can be used for highway project, are not suitable for building projects. Thus, construction projects also required external assistance of subcontractors and consultants (Chang, Hwang, Deng & Zhao, 2018).

On-Site Production

Since the products of the said industry are produced at the point of consumption and are immobile in nature, every project is specific to the given site. Products are coordinated and produced on-site and the contractors set up the factory on the same site. Moreover, as Al-Aimi & Makinde (2018) noted, all complexities of the construction projects are inherent in the differences among the sites under consideration. Weather, transportation, utilities, subsoil conditions, surface topography, local subcontractors and labour conditions are some of the factors that vary according to the construction sites. In addition to this, the project execution is also influenced by natural, social and other conditions of the location such as local building codes, weather and labour supply. Thus, prior anticipation of requirements is fundamentally challenging. Also, alterations in project design plans during construction are not common due to market demand and technological complexity (Forteza, Carretero-Gomez & Sese, 2017). Authors further mentioned that since site conditions are not predictable in construction projects, unexpected natural events can adversely influence the project schedules and budgetary requirements, and one of the most unpredictable and important handicaps in construction project is the external weather conditions. Adeleke, Nasidi & Bamgbade (2016) also noted that weather conditions can unexpectedly change and can result in project slow down and can even completely stop production, along with the destruction of the production. Restricting the construction process to mild seasons is also a side effect of unexpected changes in the weather conditions. Therefore, since it is difficult to execute construction projects during winter season, and unfavourable weather conditions, construction projects often show a trend of seasonality (Demirkesen & Ozorhon, 2017).

Uncertainty and A High Degree of Risk

In addition to this, Jayasudha & Vidivelli (2016) mentioned that construction projects are also often executed with large budgets and over a long time period, under the pressure of irregular demand patters and volatile business conditions. The industry is also significantly influenced by economic factors and during economic recession the demand decreases which further adds to the increasing volatility of the construction industry. With such irregularity in demand patterns, firms operating in the construction industry find it really difficult to keep their overheads down during the time period of low demands. On the other hand, during the period of high demand, in order to respond to a load of irregular demand patterns, contractors are forced to search for other organizational forms that are not the traditional ones being used in manufacturing (Tkachenko, Klymchuk, Tkachenko & Ilina, 2020). This also increases the uncertainty in the decision-making process, with different methods of production being required to execute different projects on different locations. Project types such as highways, buildings and dams are executed with similar uncertainty. Also, every construction project requires different production results and design study which also adds to the high degree of risk and uncertainty in construction projects (Salem, 2019).

Risks

Every construction project is associated with risk taking, and institutions and enterprises should be prepared for likelihood of risk occurrence. More often than not, construction companies have a quite strong tendency to undertake risk at the starting and thus, most of them file for bankruptcy with the first 2 years. On other hand, banks and financial institutions have a relatively poor risk appetite and are quite resistant to risk as they are not dealing with their own assets. Therefore, they mostly tend to support project with a acceptable level of uncertainty and risk (Forteza, Carretero-Gomez & Sese, 2017). Thus, authors recommend that each and every project should go through risk analysis before the implementation to facilitate the identification of probable risks. Risk identification in construction projects are also mainly based on the determining the type of risks which can affect project outcome. This also includes, the identification and estimation of their probability and characteristic parameters in terms of their likely occurrence during the project execution. Furthermore, the underlying need for the identification of risks rise form the circumstance the investors are at a given moment. Such risk analysis and identification results in a list of probable incidents along with their probability, causes and their impact on the project (Chang, Zuo, Soebarto, Zhao, Zillante & Gan, 2016).

Risks in The Construction Industry

The division of construction project risks is mainly conducted in 5 key groups, namely, tender, construction works, preliminary design, detailed design and investment. Here, the term preliminary design deals risks include the denial of the project which leads to the loss of investment made in the planning process (Mhetre, Konnur & Landage, 2016). This also includes the risk of ineffectively market research, poorly identified investor preferences, overestimation of the project cost (project being too costly in respect of the capabilities of investors), and poor self esteem. This type of risk is also obligatory and are undertaken by the institutions and enterprise. In contrast to this, tender is a prerequisite for starting the construction project and this fact also suggests the need for a clearly defined approach for this stage of the process (Renault, Agumba & Balogun, 2016). This stage is also fraught with the risk of tender cancellation, corruption and bad quoting, along with the usage of predatory practices by business competitors for lobbying and marketing. In addition to this, detailed design is the core framework of the project and includes the risk of ineffective selection of design team, risk of decrease of aesthetic value, risk of cost overestimation, risk of inappropriate selection of technology and construction materials (Park, Lee, Choi & Lee, 2019).

Risk Management and Control

As per the research conducted by Brown and Chong, management of risk can be executed in 4 distinct manners, and the selecting a suitable method for responding to risks requires considerable research of the market conditions and project specifications. Yet, some of the most commonly used risk management strategies in the construction industry involve risk avoidance, mitigation of risk, risk dispersion and risk absorption. Here, the risk avoidance strategy aims to change project specifications in order to evade the probable risk and it can also manifest into resigning from making investment in the risky process. In contrast to this, the strategy involving mitigation of risks works towards reducing the risk by restricting the exposure of the project to the risk or simply by curtailing the damage which is anticipated. Moreover, risk dispersion is the development of such a project environment in which project risks can disperse effective which in turn helps to reduce their overall impact on the project outcome. For instance, this strategy can be used to develop a consortium to execute a planned project. Finally, the strategy of absorbing risk is used to strengthen the position of the project and enabling it to bear the shock of the risk without sustaining much damage. This can be achieved with the help of numerous measures such as changing the location of project, increasing the number of personnel, creating capital reserves or creating time buffers to implemented key actions.

Babu (2019) explained the risk management and analysis techniques in detail and as per the author, the following key steps are included in a typical risk management process; risk identification, assessment of risk, mitigating risk and risk monitoring.

The very first step of the process to identify risks and it is also one of the most important steps in the entire process. This step aims to identify the source and type of the risks. This is typified by the recognition of likely risky event conditions and clarification of the responsibilities for risk (Tembo-Silungwe & Khatleli, 2017). Furthermore, risk identification also acts as a base for next steps, namely, control and analysis of the risk. Al Mhdawi, Motawa & Rasheed (2020) stated that an effective risk identification makes sure that further steps of the risk management process are executed effectively.

On the other hand, the terms project risk is defined by the PMBOK guide as an uncertain condition or event which, if happened, will have a negative or positive impact on at least one objective of the project (Saladis & Kerzner, 2017). Risks can take several different forms that can eventually lead to project failure and it is also crucial to understand what risk factors are acting concurrently. Chapman (2019) also mentioned that a number of different project risks that can cause undesirable events can result in excessive spending, project failure, project delays and unsatisfactory results. The present literature suggests many different approaches for classification of risk. Govan & Damnjabovic (2016) reported the classification of risk in 2 distinct groups as per their nature, that is, internal risks and external risks. With the help of work breakdown structure and fuzzy logic, authors grouped risks into 6 different subsets, namely, global, physical, technological, local, economic and political change. Moreover, Rehacek (2017) stated that the categorization of risk is mainly based on whether the project is international or local. As international projects are more often subjected to different external risks such as political and economic scenarios, governing authority and regulatory framework, new and unknown procedural formalities, unawareness of social conditions, and others.

According the Fontaine (2016), risks are categorized into such groups: technical, external, organizational, environmental, or project management. Some categories of risk that affect a construction project are similar to risks for other investment projects, whether it is an investment in common stocks or government bonds, and some are specific to construction. The risk identification process would have highlighted risks that may be considered by project management to be more significant and selected for further analysis (Yembi Renault & Ansary, 2018). Risk identification is an iterative process because new risks may become known as the project progresses through its life cycle and previously-identified risks may drop out (Turac, 2020).

Commonly, there are two broad classes for analysis of risk, namely, quantitative and qualitative analysis. Qualitative analysis facilitates the analysis of key risk factors with the help of qualitative processes like brainstorming, interviews and checklists, while quantitative analysis follows a more data driven methodology to identify risks (Lodhi, Umar, Tahir & Jamil, 2017). Under such analysis process, the evaluation process uses the features of risks and the level of their impact in terms of both likelihood and the risk impact. Therefore, qualitative risk analysis uses the probability and impact to effectively identify risks, and to prioritize them for direct mitigation or further analysis. On the other hand, Kayode (2018) proposed a hierarchical risk breakdown structure (HRBS) which is a formal representation of qualitative assessment of risk. In contrast to this, quantitative risk analysis includes much more sophisticated methods and techniques to analyse and investigate construction project risks. Under such a risk analysis approach the magnitude and the frequency of the risks are estimated with the help of quantitative methods such as cost risk analysis, decision tree analysis and Monte Carlo stimulation (Rane, Potdar & Rane, 2019). The implementation of the quantitative risk analysis approach enables one to quantify and model the likelihood of the occurrence of risk along with their probable impact (Tanjure, 2020).

In addition to this, project success is also highly influenced by the performance of project management team and some of the common risks associated with ineffective project management are as follows (Saidoya, Xodjimuxamedoya & Uktamov, 2020);

  • Unclear or unattainable project objectives;
  • Ineffective estimation;
  • Financial considerations based on incomplete data;
  • Ineffective scoping;
  • Problems related to contracts;
  • Delays;
  • Insurance problems;
  • Quality concerns;
  • Inadequate time for testing.

Authors also recognize the value of trust in the industry and Ugwu, Osunsanmi & Aigbayboa (2019) emphasized that trust can be regarded as one of the key elements of success in most employment, business and professional relationships. According to the authors, trust can be enhanced with the help of inter-organizational relationships between key actors in the development of project such as suppliers, owners and contractors. Omer & Adeleke (2019) also agreed to the same and suggested that trust between project manager and project owner is vital for successful execution of the project.

Benefits of risk management

Forteza, Carretero-Gomez & Sese (2017) suggested that risk management does not simply aim to provide proactive measures for handling project risks, but has far-reaching benefits that can inherently reshape the way the management undertakes decision making. Saladis & Kerzner (2011) claimed that it is also much easier to identify projects that are facing troubles with the help of risk management. With the help of risk management, project managers can effectively recognize key areas that require their attention and promptly respond to them. In addition to this, Szymanski (2017) suggested that risk management also helps to get a proper understanding of project performance through health checks, audits or peer reviews. This also removes or at the very least reduces the possibility of unforeseen incidents. A robust risk management approach enables project teams to effectively community with each other and other stakeholders regarding project progress and other activities. Al-Ahmi & Makinde (2018) also suggested that risk management practices also enable project team to spot probable concerns early on and such an early awareness can help to take proactive measures and helps the right people to intervene in a timely fashion before the problem under consideration becomes too severe.

In addition to this, Bahamid & Doh (2017) claimed that this also helps to avoid the “project manager as hero” scenario which is usually a high effort and expensive way to fix problems. Although management of risks before they actually materialize makes fewer headlines, it is a smoother, cost-effective and more efficient way of operating a business. Besides, risk management also facilitates data collection which can be used for quality decision making and allows senior leaders to have access to high quality data which in turn enables them to effectively orient the strategic direction of the organization which is more grounded in reality. By enabling them to access real time information related to risk with the help of dashboards, risk management allows for better decisions that are based on current data, not on some out of date report. This also helps to improve communication among various entities involved in the process (Rehacek, 2017).

Research Methodology of Risks Affecting the Construction Projects

Sample Size and Sampling Techniques

In a research it is rarely possible to gather data form the entire population which is relevant for the question under consideration. Therefore, it is important to select a sample which represents the population and can facilitate data collection. In order to select an adequate sample, there are mainly two methods; non-probability sampling and probability sampling (Dorsten & Hotchkiss, 2018). While non-probability sampling method include a non-random criterion in which not every individual has a opportunity to be included in the sample, under probability sampling, every member of the population has a chance of being included in the sample (Taherdoost, 2016). Both of these methods are further divided into methods. For instance, some of the major sampling method in non-probability sampling are convenience sampling, voluntary response sampling, purposing sampling and snowball sampling. Similarly, in probability sampling, there are four key methods, namely, simple random sample, systematic sample, stratified sample and cluster sample (Etikan & Bala, 2017). In this research, purposive sampling method is used to collect the required data. Under this method, the researcher uses their judgement to select a sample which according to them is most useful for the research purpose. This sampling method is used mainly due to the fact that the required information is not available to everyone, and can only be gathered from selective individuals involved in the construction business (Fricker, 2016). Therefore, the research cannot use any form of random sampling. Moreover, in accordance with purposive sampling, the research includes a sample of 100 individuals that are involved in the construction business and have various different positions in construction firms. The population for this research is shortlisted on the basis of the required information and researcher concluded that the respective information can only be gathered from the individuals in construction business.

Data Collection

Data collection aspect of a research methodology deal with the process of collecting the required information from the relevant sources in order to investigate the research problem. Research can be conducted with the help of both primary and secondary data. Secondary data is a form of data which has already been published in journals, books, online portals, newspapers, magazines etc (Maxwell, 2018). Therefore, secondary data collection methods include a review of already available information. In contrast to this, primary data collection refers to collection first hand data which is not already available. Primary data collection methods can be divided into two groups, quantitative and qualitative (Groenland & Dana, 2019). Quantitative data collection methods include questionnaires with closed ended questions while the analysis of such data is conducted with the help of mathematical calculations. Conversely, qualitative research methods do not involve mathematical calculations and numbers, and are associated with sounds, emotions, words, colours and other non-quantifiable elements (Flick, 2017). In order to answer the research question, this paper uses quantitative data collection through survey questionnaire. Quantitative survey methodology allows the researcher to gather data from the respondents and enables the researcher to analyse the data for further insight. The questionnaire involves questions related to the way risk managements impacts the construction firms, and its effect on the profitability of the business. Considering that the research seeks to provide insight into the operations of construction firms, quantitative analysis is more appropriate as compared to qualitative one, given the reliability of quantitative analysis.

Results of Risks Affecting the Construction Projects

Research findings suggest that 44 per cent of them agree that risk management saves money on the insurance premium, while 25 per cent strongly agreed with the same. Also, 15 per cent respondents were neutral, 13 per cent disagreed with the statement and 3 per cent strongly disagreed that and suggested that risk management does not save money on insurance premium. It is evident that a large portion of the population agrees that risk management does save money on the insurance premium which is eventually more financially favorable for the construction company. Also, in regards of mitigating the impact of adverse future incidents and capitalizing on market opportunities that are favorable for the company, 43 per cent of the surveyed respondents agreed that risk management helps to provide a realistic and clear understanding of market opportunities and operation issues, while 25 per cent strongly agreed to the same statement. On the other hand, 15 per cent respondents were neutral in the same respect, 10 per cent disagreed with the statement and 4 per cent strongly disagreed that risk management can facilitate a better understanding of market opportunities and operational issues. Survey responses also suggested that 44 per cent of them believed that they agree with the statement and claim that risk management does help to win more bids with higher profit margins, and 24 per cent of them strongly believed with the same statement. In contrast to this, 15 per cent of the surveyed population was neutral regarding the same statement, 13 per cent disagreed and 4 per cent strongly disagreed with the same. Moreover, research findings also mention that 43 per cent of the surveyed population agreed and mentioned that risk management makes a firm more attractive to investors by improving business credit, and 26 per cent strongly agreed with the same statement. In addition to this, 19 per cent of respondents were neutral and did not agree or disagreed with the question statement. On the other hand, 8 per cent respondents disagreed, while 4 per cent strongly disagreed with the same statement and claimed that risk management does not make the firm more attractive to investors by improving their business credit and does not help to improve the profitability of construction firms. On the other hand, 43 per cent of the surveyed population mentioned that they agree with the question statement and that risk management does help to neutralize threats and seize business opportunities, while 26 per cent strongly agreed with the same question statement. Moreover, 15 per cent respondents were neutral with respect to this question, 11 per cent disagreed and 5 per cent strongly disagreed with the same statement. While some of the respondents do believe that risk management is not helpful in neutralizing business threats and seizing business opportunities, a significant portion of the population does believe in the same. Apart from winning bids for a construction project, construction firms also get business from repeated clients and client recommendations. This makes it important to access whether risk management helps the firms in this respect or not. Therefore, the next question of the survey questionnaire was related to the way risk management facilitates additional business from repeat clients and client recommendations. While responding to the same question, 46 per cent of the surveyed population mentioned that risk management, in fact, does facilitate additional business form repeat client and client recommendations, while 26 per cent of the population strongly agreed with the same statement. On the contrary, 16 per cent of the respondents were natural in the same regards, 10 per cent disagreed and 2 per cent strongly disagreed with the same statement. Hence, the survey found that a significant majority of the population under consideration believes that risk management facilitates additional business for construction firms. The profitability of construction firms is also heavily dependent on the soundness of its leadership’s decisions. Organizations that are able to make more effective decision tend to outperform others who do not, which makes effective decision making a valuable variable in improving the profitability of the business. The next question in the survey was related to the same and asked whether respondent believe risk management helps to infer key insights from disparate data and facilitates effective decision making or not. In response to this, 46 per cent of the respondents suggested that risk management does facilitate effective decision making and 25 per cent strongly agreed with the same. On the other hand, 13 per cent of the surveyed population was neutral regarding the statement, 12 per cent disagreed and 4 per cent strongly disagreed with the same statement. Thus, more than 70 per cent of the surveyed population suggested that risk management does help to infer key insights from disparate data which in turn facilitates effective decision making. In addition to this, survey respondents also mentioned that 38 per cent of them agreed with the statement and 30 per cent strongly agreed that risk management reduces business costs by taking proactive measures for unexpected costs. In contrast to this, 20 per cent survey respondents were neutral and did not agree or disagreed with the statement, while 9 per cent disagreed with the same, and 3 per cent strongly disagreed that risk management reduces business costs by taking proactive measures for unexpected costs. Therefore, only 12 per cent of respondents disagreed, while 68 per cent agreed with the question statement under consideration. Lastly, 42 per cent of the surveyed respondents believed that risk management does help to improve the gross profit margin of construction firms, and 22 per cent strongly agreed with the same. However, 18 per cent of the surveyed population was neutral, 14 per cent disagreed while 4 per cent strongly disagreed with the same statement. Therefore, it is evident that a majority of stakeholders in construction firms believe that risk management helps to improve the gross profit margin of construction firms.

Conclusions on Risks Affecting the Construction Projects

The research findings suggest that the conventional wisdom of regarding risk management as an expense in contrary to the experience of industry professionals. As the survey respondents mentioned, construction firms that put a premium on risk management experience increased profit margins. With the integration of risk management into business operations, construction firms can facilitate unison in the business life cycle and even though it might require significant investment, the competitive advantage and payoff can be considerable. In accordance with this. Also, Risk management also facilitates the collection of quality data for decision making. Senior leaders have access to better quality and more helpful data which enables them to make better decisions more grounded in the reality of a project. Being able to access risk information in real time through a project management dashboard means that decisions are made based on the latest data, not a report that is already out of date before it reaches the Exec team. With risks being actively tracked and managed, the project team can maintain a focus on the critical outcomes. Risk management supports this because it serves to highlight where project outcomes may not be achieved, focusing the team on what to do about that particular concern to get the project back on track. With risk management shining a light on the areas of challenge within a project, the team can move swiftly to deal with them, ensuring that actions are taken to mitigate the risk and deliver successfully. Survey results also make it evident that a large portion of the population agrees that risk management, in fact, does saves money on the insurance premium which is eventually more financially favorable for the construction company and the respondents also agreed to the statement that risk management helps to provide a realistic and clear understanding of market opportunities and operation issues. Winning more bids with better profits is one of the most vital variables which effects the financial sustainability of construction firms, as winning such bids is the key source of revenue for construction firms. If key stakeholders in construction firms believe that risk management can help them to win more bids with higher profit margins, it would suggest that risk management improves the profitability of such firms. Survey responses suggested risk management does helps to win more bids with higher profit margins which eventually helps to improve the profitability of the business. Therefore, the research found that risk management does add value to construction firms and improves their profitability. But at the same time, it is also important to acknowledge that their needs to be a balance between the threat of risks the firms is exposed to and the amount of funds it is investing in risk management. The research arrived at this conclusion by analyzing the survey responses which suggests that risk management improve the profitability of construction firms by facilitating sound decision making and by helping the firms to capitalize on market opportunities and by providing data for sound decision making. Moreover, risk management facilitates so by enabling them to become prepared for risks which can give rise to unexpected costs. Analysing and preparing for risks in advance and by presenting strategies controlling or mitigating risks, construction firms can improve their business image and can improve their attractiveness to investors. Also, risk management not only helps to improve profitability by improving business processes, it also facilitates the same by safeguarding the existing business and projects of the firm against external and internal threats. The findings of the survey also mentioned that a significant majority of the population under consideration believes that risk management facilitates additional business for construction firms. Risk management realizes this by facilitating effective execution of the project within the time and budgetary limitations. This helps to improve client satisfaction and enables the firms to get loyal customers and benefit from client references. In addition to this, having a risk management plan allows firms to take a proactive approach and undertake proper measures to mitigate the probable harms beforehand. Simply put, risk management helps to develop contingency plans which can be used to deal with project issues promptly. By properly understanding the potential risks associated with a given project, construction firms can improve their ability to deliver the expected results with the suggested deadline and budgetary constraints. Supply chain in the construction industry is especially vulnerable to externa risks and exposes suppliers, customers, and business alike. By demonstrating their ability to deal with the same, construction firms can improve their market competitiveness and profitability.

Disclosure statement

No potential conflict of interest was reported by the authors.

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