Risk Management Perceptions of Construction Contractors - Dissertation Example

? HOW EFFECTIVE IS RISK MANAGEMENT EMPLOYED BY CONSTRUCTION CONTRACTORS IN SAUDI ARABIA? TABLE OF CONTENTS Page No. Introduction …………………………………………… 3 Significance of the study ……………………………… 4 Aim ………………………………………….. 4 Objectives …………………………………………… 4 Justification ……………………………………………. 5 Literature Review ……………………………………… 5 Risks faced by contractors …………………………….. 7 Methodology …………………………………………. 7 Ethical considerations …………………………………. 10 Conclusion ………………………………………….. 11 Introduction The construction industry is a source of risks and uncertainties. This is true in any country, especially in Saudi Arabia, which has experienced a construction boom these past three decades because of the vast oil revenues poured into government coffers. Risks account not only in physical terms, but also in abstract terms like financial and economic outcomes. Contractors devise plans to manage risks and to pre-empt problems and risks during and after construction. Managing risks involves taking care of the safety and security of the construction project or the finished building and the workers and employees therein. Risk management also involves analysing problems or surprises that will occur during and after project construction. Risks include environmental hazards caused by construction and demolition wastes, the health and safety of the workers, and risks associated with the design of the structure whether it can withstand natural disasters. Other risks include insurance and value for money or the business side of the construction project. Saudi Arabia has a long, hot summer, with a short, cool, winter season with very minimal rain. Some parts of Saudi Arabia have some of the extreme climatic conditions, which are most unfavorable for contractors to work with. This is very detrimental to the operations of any project, and could lead to loss of productivity on the part of the owners and contractors. Risk management should consider this aspect. (Shublaq, 1999, p. 277) Another aspect contractors have to include in risk management is the importation of laborers who are from other countries. Laborers have to adjust to the kind of unique culture Saudi Arabia has. Culture shock on the part of the laborers affects the kind of work they produce. Significance of the study This paper provides a brief assessment of how construction contractors in Saudi Arabia employ risk management perceptions and practices. The significance of the study brings to light the common practices of contractors in managing risks, and future problems and possible delays that may occur while construction is ongoing. The research will therefore seek to answer the following questions What risk management techniques are available to construction contractor in Saudi Arabia? What is the level of usage of these risk management techniques by the construction contractors? What is the importance of organizational risk management among construction companies in Saudi Arabia? What are the challenges faced be construction contractors in Saudi Arabia in using risk management techniques? Aim of the research The aim of this paper is to determine the extent to which risk management techniques are used construction contractors in Saudi Arabia and also determine the perception of construction professional to various construction risks. Objectives To identify risk management techniques used by contractors in Saudi Arabia To determine the level of usage of identified risk management techniques among Saudi construction companies To determine the importance of organizational risk management among Saudi construction companies To identify challenges faced by Saudi construction companies in using risk management techniques To recommend effective ways to limit the challenges identified in the above objective Justification At the height of the construction boom in Saudi Arabia, many of the buildings, facilities, airports and cities were constructed at a very fast pace making the quality of work and outcome of work at a low standard which resulted into early deterioration of these facilities. Buildings and highways need continuous major maintenance work to improve the performance of such facilities. (Al-Hammad and Assaf, 1996, p. 44) It is significant to conduct study on the assessment of risk management practices of construction contractors so that we can provide recommendations for the solution of problems in the industry. Literature Review The Saudi Arabia construction industry is one of the largest in the world, amounting to $35 billion in 2005 (O’Brien and Al-Biqami, 1999, p. 2327). Between 1997 and 2006, the expected private sector construction projects reached $50 billion (O’Brien and Al-Biqami, 1999, cited in Alalshikh and Male, n.d.). Construction of cities, buildings, highways, airports and many facilities is part of the development efforts of the government. The Saudi Ministry of Planning reported in its National Development Plan from 1980 to 2000 that the industry’s growth accounted for 30-40% of the non-oil productive sectors (Cordsman, 2000 cited in Al-Kharashi and Skitmore, 2008, p. 3). But by 2008, $300 billion worth of projects were injected into the Saudi economy (Oxford Business Group, p. 134). Risk management in construction has become difficult for contractors of public utilities in Saudi Arabia. Traditionally, risk management had been handled by insurance companies, which took charge of the risks caused by errors, or risks caused by planning and designs made by architects and engineers in the initial stages of the construction. Contractors were required a piece of document known as surety bond by owners of construction project. A surety bond is actually a financial instrument issued by a company to guarantee that a construction company would complete the project. (Hansen and Millar, 1997, p. 260). For the financing side, contractors are issued bonds by commercial banks and insurance companies, sanctioned by the Ministry of Finance and National Economy, and these bonds are bank's letters of guarantee with maximum coverage only of up to 30 percent of the contract price. These are also unconditional; meaning the beneficiary (owner) has the right to demand payment pursuant to the issued guarantee without any justification for the demand, forcing the contractor to immediately reimburse the bank for all amounts paid to the beneficiary, and without deduction for any claims pending against the beneficiary. (Bubshait, A. and AL-Juwairah, 2002, p. 32) To manage risks, contractors would rather focus on what opportunities and outcomes would result of the project rather than danger or alternatives. Firms have used several approaches in managing risks by looking at ways to minimise costs, such as value management, and also by making use of subcontractors. (Alyousefi et al., 1999) Risk management in the Saudi Arabia construction industry involves the application of value engineering. Value engineering methods allow for the formation of a VE study team, which will conduct a workshop before construction, or even in the course of construction. The workshop conducts study and analysis of the functions and the different stages of construction. It recommends and institute measures to reduce the unnecessary costs, and work for the best solution of the identified problems. A significant aim of the value engineering study is to minimize risks and to conduct risk assessment. Value engineering applications involve traditional procedure coupled with new procedures in the ‘valuing’ process. Contractors involve the stakeholders of the project to start a value management study. Discussions, brainstorming, and different methods of study are introduced to produce ideas that will benefit the project. Value engineering aims at selecting suitable alternatives to work procedures and materials that would ensure achievement of the same work efficiency while being environment friendly. Risks faced by Contractors Engineers and contractors should have ample knowledge for the project. The planning stage is one of the most important parts of a project in construction. Planning is an integral part of value engineering; in fact, this is what value engineering is all about. If planning is not properly executed, i.e. with many loopholes, incorrect data and not enough resources, surely the project or construction may fail, or if it succeeds, it will not meet the standards of fine construction and the customer or owner’s expectations. Management and labour should have a good or sound relationship in the course of a construction project. Indeed, there is always a gap between management and labour as individuals or human beings have unique behaviour and characteristics. However, this should be kept to the minimum. The relationship can be strengthened by constant communication between managers and personnel through meetings, conferences, seminars; or management can meet the demands of labour for higher wages and benefits. There are countless jobs and parts of the construction project, which need equal attention, and this is no easy job for the construction team. The VE team has to be equally alert and ready for any eventuality, particularly the part on managing finances. These resources have to be controlled – the labour productivity, material availability, and material waste. The contractor or manager must afford appropriate tools, equipment, and good project planning and scheduling. Designers and contractors have to consider the Saudi Arabia environment in planning the construction before project has to start. Many construction projects in Saudi Arabia are delayed because of the use of inappropriate construction materials, and wrong choice of procedures and methodologies, while very less projects are applied with value engineering concepts. Methodology The proposed research will adopt a pragmatic epistemological stance. Pragmatism has an insightful appeal that allows study into areas of interest while adopting methods that are appropriate as per the research question (Creswell, 2003). This strategy has been chosen because it embraces the concept of objective reality by arguing that social entities exist in reality external to social actors (Saunders et al, 2007). This argument applies to risks and risk management techniques, which are to be studied in this research. Furthermore, pragmatism is the most appropriate philosophical position for the study because it emanates from the interpretivist epistemological stance, which advocates the necessity of a researcher to understand the difference interpretation of knowledge (Saunders et al, 2007). The pragmatic paradigm embraces the mixture of qualitative and quantitative approaches within the predisposition of the researcher (Tashakkori and Teddlie, 1998). The research will combine both the inductive and deductive approaches. It is expected that, it will start deductively by testing theories with respect to techniques and risk management and assessing the perception of construction professionals on some other theories. Once validated responses are received, the research will inductively seek to generalize the findings within the population from which the sample was drawn for the study. The strategy adopted for the research is a survey. This has been chosen based on Yin’s (1994) table for strategy selection, according to him, when formulated research questions are ‘what’ questions, then a survey becomes the most suitable strategy to adopt. Furthermore, Saunders et al (2007) explains that survey is used for exploratory and descriptive research therefore allowing the collection of quantitative data, which can be analysed quantitatively using descriptive and inferential statistics. This strategy is also chosen because of the limited time frame for the research and the argument by Naoum (2007) that surveys allow the gathering of large data within a small time frame. He added that, surveys, when used allow for generalization of finding provided data was drawn from a sample that is representative enough of the whole population. The techniques that will be adopted to collect data are literature review, questionnaires and interviews. There will be an extensive review of literature of existing risk management strategies that are available in the construction industry as well as the identification of various risks that have the tendency to affect construction interviews. The literature can be sourced from books, journals, and the internet. Studies and researches from reliable sources, of different authors and experts in risk management are sourced from the university library, online library and other print materials. Questionnaires have been chosen because they are very suitable for descriptive research (Saunders et al, 2007). The research has a descriptive element in it because the researcher intends to identify the opinions and attitudes of construction companies in risk management techniques and strategies. Questionnaires are also used because they can be used to collect generalisable information and provides high amounts of data standardization (Robson, 2002). Both self administered and postal questionnaires will be used. These two are chosen so that they will complement each other. In order to ensure simplicity in questioning and sequencing, closed question will be used (Saunders et al, 2007). The questionnaire will be about risk management applied by contractors in the Saudi Arabia construction industry. Generally, the questions will ask how the participants conduct risk management in their construction contracts in Saudi Arabia It is acknowledge that questionnaires usually have a low response rate; as such, follow-ups will be made to act as reminder to respondents. All questionnaires will be piloted to ensure clarity, unbiasness of questionnaire before the main survey is undertaken (Naoum, 2007). Interviews will used to triangulate the data obtained from the used of the questionnaires. Interviews have been defines by Berg (2007) as a simple conversation with the purpose to gather information. This is considered appropriate because it is necessary to have in-depth discussions with professionals about risk management issues. As such, semi-structured interviews with open-ended questions will be adopted, as this will allow respondent to freely add any information that will be considered salient (Saunders et al, 2007). It will be ensured that the interviewer will be objective as it is acknowledge that characteristics of the interviewer may have influences on the responses of the interviewee (Robson, 2007) The analysis will be analyzed using SPSS to examine any associations that will arise from the use of the questionnaires. The data will consequently be analyzed statically. A descriptive-evaluative method, but it will also include qualitative research. Answers by the participants are analyzed using the descriptive method. Qualitative research allows the participants to answer the questions and explain what they know about the subject matter. (Fraenkel and Wallen, 2006, p. 112). The open-ended data obtained from the interviews will be coded in terms of theme and ideas as this will reduce the large number of individual response to a few general categories (Naoum, 2007) Ethical considerations The following ethics will be in consideration during the period of the research: The privacy of all possible and actual participants will be ensured The voluntary nature of participation will be stated and a right to withdrawal emphasized. The researcher will assume an objective behavior The participants’ identity will not be revealed, as they will be assigned codes in the questionnaires. Their answers will also remain confidential to the researcher. Conclusion Partnership of the government and private sectors should be encouraged in conducting risk management because most constructions in Saudi Arabia involve public buildings, highways and facilities. But this should be improved with more funding coming from many sectors. Trainings and seminars on value management and value engineering should be required of construction contractors. More laws and guidelines and information campaign should be added on the programmes. Value engineering should be a part of the requirements for licensing approval and certification. Contractors should take a closer look at value engineering and its many benefits. VE looks at problems and the many perspectives of construction projects. First, problems which are still unseen can be detected. This occurs at the initial stage of ‘valuing’ when the VE study team examines the different functions. Through the process, risks can be avoided and measures can be instituted before those risks become real and inflict considerable damage to the entire project. References Alalshikh, M. and Male, S., n.d. Proposing a VM approach for the design-bid-build procurement method in the Saudi public sector. School of Civil Engineering, Leeds University, LS2 9JT, UK. Al-Hammad, A. and Assaf, S., 1996. Assessment of work performance of maintenance contractors in Saudi Arabia. Journal of Management in Engineering, Vol. 12, No. 2, March/April, 1996. Available from: http://web.ebscohost.com.ezproxy.staffs.ac.uk/ehost/pdfviewer/pdfviewer?hid=14&sid=6386f73c-6e1a-48ee-88df-9419c7b0ce75%40sessionmgr13&vid=1 Al-Kharashi, A. and Skitmore, M., 2008. Causes of delays in Saudi Arabian public sector construction projects. Construction Management & Economics, ISSN 0144-6193 print/ISSN 1466-433X online # 2009 Taylor & Francis http://www.tandf.co.uk/journals, DOI: 10.1080/01446190802541457 Alyousefi, A., et al., 1999. Value Engineering in Saudi Arabia: Overview and applications in Public and Private Sectors. SAVE International Conference Proceedings 1999. Berg, B. L. (2007), Qualitative research methods for the social sciences, 6th Ed, USA: Pearson Education Inc Bubshait, A. and AL-Juwairah, 2002, Y. Factors contributing to construction costs in Saudi Arabia. Cost Engineering Vol. 44/No. 5 MAY 2002. Available from: http://web.ebscohost.com.ezproxy.staffs.ac.uk/ehost/pdfviewer/pdfviewer?hid=12&sid=beed2cc2-ad7a-42aa-af3d-6797b349e314%40sessionmgr15&vid=1 Creswell. J.W. (2003) Research Design: Qualitative, Quantitative and Mixed Methods Approaches. London: Sage. 2nd ed. Fraenkel, J. and Wallen, N., 2006. How to design and evaluate research in education (6th ed.). New York: McGraw Hill. Hansen, K. and Millar, J., 1997. Constructing reasonably believable edifices: lessons from software, implications for construction, cited in K. Kahkonen and K. A. Artto, eds., Managing risks in projects, London, Thomson Professional, London, p. 260. Robson, C. (2002) Real world research, 2nd Ed. Oxford, UK: Blackwell Publishing Saunders, M., Lewis, P., Thornhill, A. (2007), Research methods for business students, 4th Ed.England: Pearson Education Limited. O’Brien, M. J. and N. Al-Biqami, 1999. Survey of information technology and the structure o the Saudi Arabian construction industry. In: M. A. Lacasse and D. J. Vanier, Ed., 1999. Information technology in construction. Canada: National Research Council of Canada. Oxford Business Group, 2008. The report: Saudi Arabia 2008. UK: Oxford Business Group. Shublaq, E. W., 1999. “Value engineering training in Saudi Arabia with a particular reference to MOMRA’s program”. Available at: http://www.value eng.org/pdf_docs/conference_proceedings/1999/9940.PDF. Tashakkori, A. and Teddlie, C. (1998) Mixed Methodology: Combing Qualitative and Quantitative Approaches. London: Sage Yin, R. K. (1994), Case Study Research: Design and Methods, Sage Publishing Ltd, London Read More