Transportation Agency Use of Owner-Controlled Insurance Programs

Controlled insurance programs are highly efficient risk control mechanisms. With a controlled insurance program, the interest of the owner, designer, construction manager, contractors, and consultants are covered by one insurance arrangement. This paper describes the current state of practice regarding the use of owner-controlled insurance programs by transportation agencies. Departments of transportation that have used controlled insurance programs for their major projects (construction costs greater than $100 million) report that they were satisfied with the results. But contractors are cautious because, when an owner’s controlled insurance program administrator fails to perform, it is the contractor who incurs the residual consequences of increased business cost, and those consequences can extend far into the future.     

Risks in Chinese Construction Market—Contractors’ Perspective

With China’s entry into the World Trade Organization (WTO), the Chinese construction market will be increasingly open and finally become part of the international market. Because of different social and economic systems, as well as different historical and cultural backgrounds, contractors are likely to encounter different risks in different markets. Based on questionnaires and case studies, this paper adopts an importance evaluation index and makes an importance evaluation of various risks encountered by Chinese contractors when contracting for projects in Chinese markets. This paper also makes comparisons between and analyses of the research findings and related available investigation results. The Cox–Stuart trend increase test method is applied in the current research, the results indicating that the variance corresponding to the importance index value tends to increase as the risk event importance decreases. This tendency shows that those investigated tend towards unanimity in terms of higher importance risk events. This paper also examines the reliability of the questionnaires by means of Cronbach’s Alpha Coefficient. The research shows that the main risk currently encountered by Chinese contractors in domestic markets includes owner’s irregular behavior and government departments’ interference in construction markets. China’s accession to the WTO has provided greater opportunities for international contractors to enter the Chinese construction market. Therefore the research results described in this paper can provide valuable data enabling international contractors to gain a better understanding of the potential risks in the environment of the Chinese construction market.     

Evaluation of Legal Risks for E-Commerce in Construction

E-commerce is steadily becoming a reality in the construction industry. However, despite the increasing rate of utilization by owners and contractors alike, the legal implications of using e-commerce in construction have not been studied in depth. This paper fills this gap in literature. It identifies and analyzes the different types of legal risks involved in the use of e-commerce in construction. It also outlines the risk that contractors and professionals may face in their e-commerce implementations. A classification of e-commerce legal risks is also introduced. The legal risks discussed include agency, jurisdiction, contract formation, validity and errors, authentication, attribution, nonrepudiation, privacy, conflict of laws, and conflict between law and technology.     

Understanding and Improving Your Risk Management Capability: Assessment Model for Construction Organizations

Implementing risk management in construction projects and organizations may bring a number of benefits and therefore it is necessary to have risk management as an integral part of a construction organization’s management practice. The aim of this paper is to develop a risk management maturity assessment model for construction organizations. The paper describes the development process of a Web-based RM3 (risk management maturity model), including its contents, its validation and testing, as well as its applications. The RM3 developed has five attributes namely, management, risk culture, ability to identify risk, ability to analyze risk, and application of standardized risk management process/system. These attributes are measured against four levels: initial, repeated, managed, and optimized. It is found that the proposed RM3 was suitable and useful. Using the RM3, it is found that the Australian construction industry’s overall risk management maturity level was relatively low (where 32% rated at Level 2 and 52% rated at Level 3). Furthermore, it is found that the weakest attribute was “analyzing risks” followed by “application of standardized risk management process.” It is therefore necessary to provide more training on qualitative and quantitative risk analysis to construction personnel and to develop and apply standardized enterprise risk management. It is concluded that the proposed RM3 is suitable for construction organizations to assess their risk management maturity levels and find ways for improvement.     

Downside Risks in Construction Projects Developed by the Civil Service: The Case of Spain

The purpose of the work summarized here was to improve the efficiency of the construction project management processes performed by the Spanish civil service, identifying and analyzing the main risks in these kinds of projects, and also establishing potential risk responses. The scope of this effort included a list of 96 risk events, categorized and prioritized first by impact, then by frequency. The most relevant ones are related to issues such as an inadequate prequalification system, insufficient training of public servants, or political considerations prevailing over real needs, among others. A total of 117 potential risk responses were identified, categorized, and prioritized by potential efficiency and difficulty of implementation. Each risk event was associated to a set of potential responses. The paper includes the top 15 risk events with its main potential responses, including qualitative assessments. A survey was carried out among Spanish public servants working in construction projects, to validate risk identification and to obtain a qualitative assessment. Moreover, a Delphi analysis was developed to validate the risk response identification and obtain a qualitative assessment. One of the conclusions is that small and medium-sized Spanish civil service agencies should work toward increasing their maturity in managing projects and, mainly, project risks.     

Comparative Study on the Perception of Construction Safety Risks in China and Australia

Safety is a major concern in the construction industry because fatalities and injuries from construction work bring great losses to individuals, organizations, and societies as a whole. This paper aims to understand how construction personnel perceive safety risks in China as compared with those in Australia. Postal questionnaire surveys were used to collect data on safety risk perceptions from the two nations. The safety risk factors were assessed using a risk significance index based on the likelihood of occurrences and the impacts on safety performance. The survey results revealed that in China the main perception of safety risks came from human-and/or procedure-related issues, with “low/no safety education” paramount, followed by “inadequate fire prevention and electrical prevention procedures,” etc. In contrast, the major safety risks perceived in Australia were related to the environment and physical site conditions with “contamination of land, water and air” ranked first, followed by “unforeseen excavation of soil,” etc. To minimize construction safety risks in China, this paper suggests that the government should develop collective legislation and safety protection procedures, and enforce safety education and training to all site participants. Risks related to environmental and site conditions were generally realized by the Australia construction industry, which were not highly acknowledged in China. This may also bring imminent attention in this regard to the Chinese government.     

Empirical Study of the Risks and Difficulties in Implementing Guaranteed Maximum Price and Target Cost Contracts in Construction

Over the past few decades, both the guaranteed maximum price (GMP) and target cost contracting (TCC) arrangements have been regarded as alternative integrated procurement strategies for clients to mitigate risks, minimize claims, integrate the diverse interests of a complex construction project, and offer incentives to provide value-added services. However, the adoption of GMP/TCC contracts may also generate significant risks and difficulties that merit considerable attention. This paper aims to provide a concise review of the potential pitfalls of the GMP/TCC scheme in general and identifies the key risk factors and potential difficulties associated with GMP/TCC in comparison with other procurement strategies in construction in particular via an empirical survey of clients, contractors, and consultants in Hong Kong. The survey data gleaned from 45 valid replies were analyzed using the mean score ranking technique, Kendall’s concordance test, and Spearman’s rank correlation test. The survey results indicated that “involvement of inexperienced or claim-conscious contractors in a project procured by a GMP/TCC contract” was considered to be the most significant risk factor; while “design development must keep pace with main contractor’s program for tendering the domestic subcontractors’ works packages” as the major difficulty in implementing GMP/TCC projects. The research findings derived from this study are particularly essential in assisting the contracting parties to mitigate the detriments brought about by potential risks or difficulties when embarking on GMP/TCC contracts. It has also generated valuable insights into developing effective recommendations for alleviating the barriers to GMP/TCC success for future construction projects.     

Construction Safety Risk Mitigation

Construction safety and health management has improved significantly following the Occupational Safety and Health Act of 1970. In response to this legislation, contractors began implementing safety programs to reduce occupational safety and health hazards on construction sites. Researchers recently found that the current process of selecting specific elements for a safety program is informal. This paper describes the results of a recent study designed to determine the relative effectiveness of safety program elements by quantifying their individual ability to mitigate construction safety and health risks. In order to determine the effectiveness of individual safety program elements, the following research activities were performed: (1) an appropriate safety risk classification system was created using an aggregation of relevant literature; (2) highly effective safety program elements were identified in literature; and (3) the ability of each safety program element to mitigate a portion of each of the safety risk classes was quantified using the Delphi method. The results of the research indicate that the most effective safety program elements are upper management support and commitment and strategic subcontractor selection and management and the least effective elements are recordkeeping and accident analyses and emergency response planning. It is expected that the data presented in this paper can be used to strategically select elements for a safety program, target specific safety and health risks, and influence resource allocation when funds are limited.     

Multicriteria Financial Portfolio Risk Management for International Projects

While opportunities for international construction firms have been growing with globalization, the risks involved with international construction projects are increasing significantly. However, due to the complex skein of various risks, it is difficult to evaluate the severity of risk variables at the corporate level and to examine key success factors in an attempt to maximize a firm’s value under the challenging global business environment. This paper focuses on a financial portfolio risk management for international projects to integrate the risk hierarchy of both individual projects and at the corporate level, which applies a multicriteria decision making method to maximize the total value of firms. To demonstrate the approach, a case study is conducted based on real projects collected from a multinational general contractor. Finally, we present lessons learned as well as guidelines for the application of these lessons to future projects through a workshop with industry practitioners.     

Quantifying Qualitative Information on Risks: Development of the QQIR Method

The method for quantifying qualitative information on risks (QQIR) bridges the gap between qualitative and quantitative risk assessment methods. It employs fuzzy set theory and results in deriving customized probability density functions (PDFs) for stochastic applications in risk assessment and financial modeling. The QQIR method uses fuzzy sets for capturing expert opinions on uncertain information and it uses the fuzzy weighted average method for aggregating that information. The aggregated opinion then is converted proportionally into a PDF with respect to the possibility–probability consistency principle and the uncertainty–invariance principle. This paper describes the construction of the proposed QQIR method and explains the underlying operations and principles used. The different competing possible methods and principles that exist in fuzzy set theory and could have been chosen for designing the QQIR method will be introduced and numerically tested in detail to determine which method best fits the purposes of making the QQIR method work. The paper refers to possible applications of the method that have been published by the writers and concludes with a summary and limitations of the QQIR method. The QQIR method is generic and has been successfully validated and applied to the impact of political risks on infrastructure projects.     

Portfolio Cash Assessment Using Fuzzy Systems Theory

Gaps between cash outflows and inflows throughout the life cycle of construction projects can create extended periods of low cash availability for a construction contractor, jeopardizing the financial stability of the business. A number of researchers have therefore attempted to model cash availability at a project level. However, at a firm level, financial stability is more thoroughly examined as a function of the cash flows related to multiple projects. This paper proposes a methodology on the basis of fuzzy systems theory to forecast cash requirements of a portfolio of projects for a construction firm, taking into account the effect of changing portfolio composition on portfolio cash-flow risk. Portfolio cash-flow risk is calculated from a variance matrix created by using covariance among cash flows of pairs of projects. Expert opinions of a group of highway construction contractors regarding project selection, project risk assessment and cash control were collected to create a fuzzy proportional derivative (PD) model that predicts portfolio risk for a construction firm. The model was assessed by the same group of contractors for overall logic (if/then rule base), appropriateness of cash-flow calculations (moving weights of cost categories), and practicality through application on a hypothetical test case. The paper concludes that a fuzzy proportional derivative model can be an effective tool to establish trends in cash-flow availability and risk across a portfolio of construction projects.     

Probabilistic Approach for Budgeting in Portfolio of Projects

This paper presents a mathematical model for calculating the budgetary impact of increasing the required confidence level in a probabilistic risk assessment for a portfolio of projects. The model provides a rational approach for establishing a probabilistic budget for an individual project in such a way that the budget for a portfolio of projects will meet a required confidence level. The use of probabilistic risk assessment in major infrastructure projects is increasing to cope with major cost overruns and schedule delays. The outcome of the probabilistic risk assessment is often a distribution for project costs. The question is at what level of confidence (i.e., the probability that budget would be sufficient given the cost distribution) should be used for establishing the budget. The proposed method looks at a portfolio of such projects being funded by the same owner. The owner can establish a target probability with respect to its annual budget. The model can help the owner establish confidence level for individual projects and also examine the effect of changing the confidence level of the portfolio budget on the budget and the confidence level of individual projects. The paper is relevant to practitioners because it provides a methodology for establishing confidence levels by the owner agencies in the emerging field of cost risk assessment for infrastructure projects. A numerical example is provided using actual transit project data to demonstrate the model application.     

Managing Construction Projects Using the Advanced Programmatic Risk Analysis and Management Model

Risk management is an important part of construction management, yet the risk-based decision support tools available to construction managers fail to adequately address risks relating to cost, schedule, and quality together in a coherent framework. This paper demonstrates the usefulness of the Advanced Programmatic Risk Analysis and Management Model (APRAM) originally developed for the aerospace industry, for managing schedule, cost, and quality risks in the construction industry. The usefulness of APRAM for construction projects is demonstrated by implementing APRAM for an example based on an actual building construction project and comparing the results with other risk analysis techniques. The results show that APRAM simultaneously addresses cost, schedule, and quality risk together in a coherent, probabilistic framework that provides the information needed to support decision making in allocating scarce project resources.     

New Method for Measuring the Safety Risk of Construction Activities: Task Demand Assessment

The task demand assessment (TDA) is a new technique for measuring the safety risk of construction activities and analyzing how changes in operation parameters can affect the potential for accidents. TDA is similar to observational ergonomic methods—it does not produce estimates of probabilities of incidents, but it quantifies the “task demand” of actual operations based on characteristics of the activity and independent of the workers’ capabilities. The task demand reflects the difficulty to perform the activity safely. It is based on (1) the exposure to a hazard and (2) the presence and level of observable task demand factors—that is, risk factors that can increase the potential for an accident. The paper presents the findings from the initial implementation of TDA and demonstrates its feasibility and applicability on two different operations: a roofing activity and a concrete paving operation. Furthermore, the paving case illustrates how the TDA method can compare different production scenarios and measure the effect of production variables on the accident potential. The findings indicate that the method can be applied on activities of varying complexity and can account for several risks and task demand factors as required by the user. The selection of task demand factors is a key issue for the validity of the method and requires input from the crew and safety management. The limitations of the methodology and the need for further research are discussed. Overall, TDA provides a tool that can assist researchers and practitioners in the analysis and design of construction operations.     

Partnering Mechanism in Construction: An Empirical Study on the Chinese Construction Industry

Partnering and its principles have increasingly been introduced to the construction industry to improve the efficiency of project delivery. However, little research outlines the mechanism behind its application. This paper presents the findings of a study that was conducted to develop and test a partnering model that reveals the relationships between the critical success factors (CSFs) of partnering and demonstrates their importance to construction. With support of data collected from the Chinese construction industry, this study has revealed strong correlations among partnering CSFs, risk management, total quality management (TQM), use of incentives, and project performance. It is concluded that project success is the outcome of the interaction between a variety of techniques, and that partnering, associated with incentives, is a basic management method through which risk management and TQM can be strongly improved.     

Structural Insulated Panels: Impact on the Residential Construction Process

Uncertainty and risk have contributed to the reluctance of U.S. homebuilders to embrace new construction technologies. This paper explores one innovative, but underutilized building technology, structural insulated panels (SIPs), and its impact on the residential construction process. The paper presents findings from a side-by-side case study of the construction of two Habitat for Humanity homes, one SIP and one conventional wood-framing. Although the study focuses on labor productivity and cycle time during framing, other key construction performance metrics are assessed including worker safety, quality/workmanship, material waste, worker skill levels, and equipment requirements. Findings indicate that SIPs saved about two-thirds of the site framing labor for walls and roofs, with cycle time savings of similar magnitude. No significant impacts on other construction performance metrics were observed, however, size of the panels did require a lift truck and construction crane. While conclusions are limited by the scope of the case study, the writers believe that building with SIPs can be very efficient. The paper identifies key actions required of builders and SIP manufacturers to maximize potential benefits.     

Effective Construction Site Management: A Review

The contribution of site management to the achievement of construction performance objectives is examined. Drawing upon existing empirical data and linking them with research findings in the social sciences, the writers argue that there is often insufficient attention paid towards the range of complex and interdependent variables that can influence construction site activity. As a consequence, the predictive capacity of such research is limited, and the recommendations often derived, particularly concerning appropriate managerial actions, often fail to account for significant variability in circumstances. The applicability of the concept of “leadership” to the construction site situation, and its relationship with key component variables are singled out for attention.     

Model for Fostering Trust and Building Relationships in China’s Construction Industry

Trust is an underlying psychological condition that can cause cooperation or risk-taking. Trust is considered as a predominant feature and a central mechanism in business transactions, especially among Chinese. Trust-based relationships create advantages in conducting business such as lowering cost, shortening duration, and improving performance. Indispensable conditions for trust to arise are relationships and risks. Different risks surface as a result of different levels of relationships. Sustained trust is therefore fostered by various means to counterbalance those risks. In order to assess the links between distinct trust-related features, a model is constructed and tested through a questionnaire survey in China. The findings generally support the model in terms of explaining the dominant relationships, inherent risks, and trust-fostering tools. It is recommended that firms adopt the refined model and utilize successful practices verified in this paper to foster trust and relationships and in turn secure project success.     

Safety Risk Identification and Assessment for Beijing Olympic Venues Construction

New technologies, new materials, and innovative designs have been extensively adopted in Beijing Olympic venues construction. The extreme requirements for time deadline and competition function expose the venues construction to high risks. These risks would potentially bring negative impacts on the site safety performance. Meanwhile, there is a lack of systematic management for safety risks in China’s construction industry, especially for large projects such as the Beijing Olympic venues construction. This paper identifies and assesses safety risk factors inherent in Beijing Olympic venues construction with the involvement of 27 experienced and highly respected experts from government agencies, the construction industry, and academe through brainstorming, workshop discussions, and questionnaire surveys. The finding reveals that more than half of the critical safety risk factors are from contractors and subcontractors such as: lack of emergency response plan and measures; workers’ unsafe operation, and contractors ignoring safety under schedule pressure. Based on these critical safety risks, a risk register is composed and a model is developed in application of the analytic hierarchy process to assess the status of risks on site safety. The model has been attempted in two Olympic venue projects under construction and the validity has been approved. The risk checklist, register, and assessment model developed in the paper were integrated into the risk management system that has been used for Beijing Olympic venues construction.