Engineering Construction & Architectural Management

Grant Kululanga; Witness Kuotcha

2010 Engineering Construction & Architectural Management

doi: 10.1108/09699981011056556

Purpose – There is relatively low implementation of formal project risk management methods in practice, leading to the construction industry consistently suffering from poor project performance. This study aims to ascertain the extent to which current project risk management practices are used by construction contractors in one of the countries of the sub‐Saharan region – Malawi. Design/methodology/approach – A management process tool with statement indicators linked to numerical scores was conceived that characterised a series of steps of project risk management process. To ascertain the degree to which project risk management processes were used, a questionnaire survey was employed. Data were elicited from registered Malawian construction contractors on the elements underlining a series of steps of project risk management process as espoused by the literature. Out of 84 sampled construction contractors, 51 completed questionnaires were received. Findings – Apart from large‐sized and more experienced construction contractors, all the small and medium‐sized construction contractors – which constitute the largest proportion of the construction industry – were characterised by a low implementation of the various required steps for the project risk management process. The application of project risk management processes was significantly influenced by the various categories of size and experience of the surveyed construction contractors at p <0.01. Furthermore, contingence planning within the series of steps of project risk management process featured highly among the surveyed construction contractors. The majority of the variables under the series of steps of project risk management process were positively and significantly linked to progression in size and experience of construction contractors at p <0.01. Research limitations/implications – The study forms the basis for further research; replication of this study to other parts of world about how the actual implementation of the series of steps of project risk management process is undertaken could yield rich lessons for the construction industry. Practical implications – The intentional move by industry towards measuring management processes as a precursor to uncovering the root causes that underlie project success or failure to provide quick feedback for remedial action is supported by an approach such as this. Originality/value – The originality of this paper lies in its uniqueness for a systematic approach to quantifying the project risk management processes with the view to understanding the implementation behaviours of construction contractors in one country in the sub‐Saharan region.

S. Thomas Ng; Jingzhu Xie; Mohan M. Kumaraswamy

2010 Engineering Construction & Architectural Management

doi: 10.1108/09699981011056565

Purpose – Unlike other project delivery options, a much larger proportion of risks is borne by the private partner in public‐private partnerships, since a large amount of equity is needed to finance the scheme. As a result, it is of paramount importance for the franchisee to analyse the possible project outcomes with due reference to potential risks affecting cash inflow and outflow. The purpose of this paper is to address the shortcomings of deterministic estimations by developing a proposal for a simulation model that aims to unveil the probability distributions of the equity amount and return on equity. Design/methodology/approach – In this paper, a simulation model is developed to establish the probability distributions of these two indicators under the influence of risks. A simple case study is also presented to illustrate the concept and application of this model. Findings – The simulation model can generate the probability distributions related to the net present value of the equity component as well as the rate of return on equity. Practical implications – The method proposed in this paper should help the private investors analyse the amount of equity to be injected to the project and its corresponding return rate. Originality/value – By referring to the probability distribution, an equity investor can establish whether they can recover their investment and gain a desired return rate. Based upon the risk attitude of the investor, decision‐makers can then decide whether the scheme should be pursued or not.

Irem Dikmen; M. Talat Birgonul; Beliz Ozorhon; Nurdan Egilmezer Sapci

2010 Engineering Construction & Architectural Management

doi: 10.1108/09699981011056574

Purpose – The paper seeks to identify the determinants of business failure in construction and to predict the failure likelihood of construction companies by assessing their current situation based on both company‐specific and external factors. Design/methodology/approach – A conceptual model is designed based on an extensive literature survey. The analytical network process together with the Delphi method is utilised to compute the importance weights of variables on business failure through interviews and discussions with experts. The applicability of the proposed model is tested on five companies to estimate their failure likelihood by using the findings derived from the analysis. Findings – The results suggest the importance of organisational and managerial factors, including the efficiency of the value chain at the corporate level, the appropriateness of organisational decisions, and the availability of intangible resources for the survival of construction companies. Research limitations/implications – The findings of the analysis are limited to the experiences of three professionals in the Turkish construction industry. The performance of the model is only tested in five companies. The accuracy of the model may be improved by using the diverse experiences of a larger group of experts. Practical implications – The proposed tool may act as an early warning system for construction companies by estimating the level of their failure likelihood. Companies may benefit from the findings of the model to assess their current situations and take necessary action to avoid possible business failures. Originality/value – The knowledge and experiences of experts are used to obtain a complete model that accommodates both external and company‐specific variables, and more importantly the inter‐relations among them. Similar models may also be developed for companies in other industries to diagnose their bankruptcy or failure likelihood.

Benson Teck Heng Lim; Bee Lan Oo; Florence Ling

2010 Engineering Construction & Architectural Management

doi: 10.1108/09699981011056583

Purpose – Contractors adopt various strategies to achieve their firms' objectives of continued existence and further development, and to guide the relationship between the firms and the business environment within which they operate. An economic recession drives firms to undertake unusual steps to survive within an environmental context. The purpose of this paper is to examine the survival strategies of Singapore contractors in the eight years of unprecedented recession in the industry from 1997 to 2005 are examined. Design/methodology/approach – In total, 34 interviews were conducted with senior executives of large and medium‐sized construction firms in Singapore to identify their survival strategies during the recession period. Findings – Three categories of strategies are identified: contracting‐related actions, cost‐control related actions, and financial‐related actions. The results show that most contractors opted to bid for more projects that are within their firms' resources and capabilities in contracting for jobs. To control cost, all contractors implemented stricter site management on material wastage, stricter financial management on firms' cash flow, stricter and procurement procedures. The majority of them froze salaries and stopped hiring. In order to remain solvent, most contractors set aside a sum of money from their reserves for unforeseen circumstances. Practical implications – Contractors should learn how to stay adequately lean in managing their business in order to be flexible and responsive to changes within the business environment. The findings highlight the importance of effective cost, risk, relationship and resource management. Originality/value – The findings provide valuable lessons to construction firms in preparing for volatile market conditions during a recession.

Peter Love; Peter Davis; Joanne Ellis; Sai On Cheung

2010 Engineering Construction & Architectural Management

doi: 10.1108/09699981011056592

Purpose – While a considerable amount of knowledge has been accumulated about dispute causation, disputes continue to prevail and disharmonise the process of construction with considerable cost. This paper seeks to identify the underlying pathogens that clients and contractors perceive to contribute to disputes in construction projects. The identification of pathogens can provide an ameliorated understanding of the origin of disputes and therefore enable their prevention. Design/methodology/approach – Case law and focus groups with a client and contracting organisation from Western Australia are used to determine the pathogens of disputes. Findings – Analysis of the case law findings revealed that the underlying issues that were brought to litigation were to do with points of law, namely “civil procedure”. A significant number of disputes are thus settled using alternative dispute resolution methods such as adjudication, arbitration and mediation. For clients the underlying latent conditions that resulted in a dispute were due to the nature of the task being performed (e.g. failure to detect and correct errors) and those arising from people's deliberate practices (e.g. failure to oblige by contractual requirements). For the contractor focus group the circumstances arising from the situation or environment the project was operating in were identified as the main underlying latent condition for disputes (e.g. unforeseen scope changes). Research limitations/implications – Focus groups are only undertaken with clients and contracting groups as they were identified as the main parties involved in dispute during the analysis of litigation cases within Western Australia. Input from consultants and subcontractors may provide a more balanced perspective as to the perceived causes and costs of disputes. Originality/value – The research has been able to provide the initial building blocks for understanding the underlying pathogens contributing to disputes. However, more empirical research is required before conclusive findings can be made, particularly with regard to the influences on subcontractors.

Symeon Christodoulou

2010 Engineering Construction & Architectural Management

doi: 10.1108/09699981011056600

Purpose – The purpose of the paper is to perform bid mark‐up optimisation through the use of artificial neural networks (ANN) and a metric of the selected bid mark‐up's derived entropy. The scope is to provide an alternative, entropy‐based method for bid mark‐up optimisation that improves on the analytical models of Friedman and Gates. Design/methodology/approach – The proposed method enables the incorporation of bid parameters through the use of ANN's pattern recognition capabilities and the integration of these parameters with a mark‐up selection process that relies on the entropy produced by possible mark‐up values. The entropy metric used is the product of the probability of winning over the bidder's competitors multiplied by the natural logarithm of the inverse of this probability. Findings – The case study results show that the proposed entropy‐based bidding model compares favourably with the prevailing competitive bidding models of Friedman and Gates, resulting in higher optimisation with regards to the number of jobs won, the monetary value of contracts awarded and the value of “money left on the table”. Furthermore, the method allows for the incorporation of several objective and subjective bid parameters, in contrast to Friedman's and Gates's models, which are based solely on the bid mark‐up history of a bidder's competitors. Research limitations/implications – While the proposed method is a useful tool for the selection of optimal bid mark‐up values, it requires historical data on the bidding behaviour of key competitors, much like the classic bidding models of Friedman and Gates. Originality/value – The method is suitable for quantifying objective and subjective competitive bidding parameters and for optimising bid mark‐up values.