Risk pricing practices in finance, insurance and construction

A review of current risk pricing practices in the financial, insurance and construction sectors is conducted through a comprehensive literature review. The purpose was to inform a study on risk and price in the tendering processes of contractors: specifically, how contractors take account of risk when they are calculating their bids for construction work. The reference to mainstream literature was in view of construction management research as a field of application rather than a fundamental academic discipline. Analytical models are used for risk pricing in the financial sector. Certain mathematical laws and principles of insurance are used to price risk in the insurance sector. construction contractors and practitioners are described to traditionally price allowances for project risk using mechanisms such as intuition and experience. Project risk analysis models have proliferated in recent years. However, they are rarely used because of problems practitioners face when confronted with them. A discussion of practices across the three sectors shows that the construction industry does not approach risk according to the sophisticated mechanisms of the two other sectors. This is not a poor situation in itself. However, knowledge transfer from finance and insurance can help construction practitioners. But also, formal risk models for contractors should be informed by the commercial exigencies and unique characteristics of the construction sector.

Benchmarking occupational health and safety performance of Australian construction companies.

It is mandatory for Australian construction companies to provide a safe working environment for their workers and sub-contractors. Consequently, occupational health and safety (OHS) is a major issue for construction firms mainly due to the fear of prosecution. The recent introduction of Zero Tolerance by the Victorian government WorkCover Authority provided even higher OHS safety standards for the construction industry. This has placed a increased burden on construction companies especially small firms that are not in a position of financial strength.

The size of the companies has been found to be a major contributing factor to the OHS performance of construction contractors. This research is based on benchmarking study of 44 construction companies in Victoria, Australia. The results show that the major factors influencing safety performance were; company size, and management commitment to OHS.

Measuring the occupational health and safety performance of construction companies in Australia

Many facility managers are now required to deal directly with small firms engaged in the maintenance, alteration and cleaning of physical infrastructure. Increasingly the performance of small firms reflects on the manager of the facility, and so an understanding of their operation is required. It is mandatory for all firms to provide a safe working environment for their workers and subcontractors. Consequently, occupational health and safety (OHS) is a major issue for companies mainly due to the fear of prosecution. The introduction of Zero Tolerance by the Victorian government WorkCover Authority in 1999 provided even higher OHS safety standards for the construction industry. This has placed an increased burden on construction and maintenance companies especially small firms that are not in a position of financial strength. The size of the company has been found to be a major contributing factor to the OHS performance of construction contractors. This research is based on a benchmarking study of 44 construction companies in Victoria, Australia. The results show that the major factors influencing safety performance were; company size, and management and employee commitment to OHS.

Market effects on forecasting construction prices using vector error correction models

Construction price forecasting is an essential component to facilitate decision-making for construction contractors, investors and related financial institutions. Construction economists are increasingly interested in seeking a more analytical method to forecast construction prices. Although many studies have focused on construction price modelling and forecasting, few have considered the impacts of large-scale economic events and seasonality. In this study, an advanced multivariate modelling technique, namely the vector correction (VEC) model with dummy variables, was employed. The impacts of global economic events and seasonality are factored into the model to forecast the construction price in the Australian construction market. Research findings suggest that both long-run and dynamic short-term causal relationships exist among the price and levels of supply and demand in the construction market. These relationships drive the construction price and supply and demand, which interact with one another as a loop system. The reliability of forecasting models was examined by the mean absolute percentage error (MAPE) and the Theil's inequality coefficient U tests. The test results suggest that the conventional VEC model and the VEC model with dummy variable are both acceptable for forecasting the construction price, while the VEC model considering external impacts achieves higher prediction accuracy than the conventional VEC model. © 2014 © 2014 Taylor & Francis.

2nd generation concrete construction: carbon footprint accounting

Purpose – Construction contractors and facility managers are being challenged to minimize the carbon footprint. Life cycle carbon‐equivalent (CO2‐e) accounting, whereby the potential emissions of greenhouse gases due to energy expenditure during construction and subsequent occupation of built infrastructure, generally ceases at the end of the service life. However, following demolition, recycling of demolition waste that becomes incorporated into 2nd generation construction is seldom considered within the management of the carbon footprint. This paper aims to focus on built concrete infrastructure, particularly the ability of recycled concrete to chemically react with airborne CO2, thereby significantly influencing CO2‐e estimates.

Design/methodology/approach – CO2‐e estimates were made in accordance with the methodology outlined in the Australian National Greenhouse Accounts (NGA) Factors and were based on the energy expended for each life cycle activity from audited records. Offsets to the CO2‐e estimates were based on the documented ability of concrete to chemically react with airborne carbon dioxide (“carbonation”) and predictions of CO2 uptake by concrete and recycled concrete was made using existing predictive diffusion models. The author's study focused on a built concrete bridge which was demolished and recycled at the end of the service life, and the recycled concrete was utilized towards 2nd generation construction. The sensitivity of CO2‐e and carbonation estimates were tested on several different types of source demolition waste as well as subsequent construction applications using recycled concrete (RCA). Whole‐of‐life CO2‐e estimates, including carbonation of RCA over the 1st and 2nd generations, were estimated and contrasted with conventional carbon footprints that end at the conclusion of the 1st generation.

Findings – Following demolition, CO2 capture by RCA is significant due to the more permeable nature of the crushed RCA compared with the original built infrastructure. RCA also has considerably greater exposed surface area, relative to volume, than a built concrete structure, and therefore more highly exposed surface to react with CO2: it therefore carbonates more comprehensively. CO2‐e estimates can be offset by as much as 55‐65 per cent when including the contribution of carbonation of RCA built within 2nd generation infrastructure. Further offsets are achievable using blended fly ash or slag cement binders; however, this study has focused on concrete composed of 100 per cent OPC binders and the effects of RCA.

Originality/value – Construction project estimates of life cycle CO2‐e emissions should include 2nd generation applications that follow the demolition of the 1st generation infrastructure. Life cycle estimates generally end at the time of demolition. However, by incorporating the recycled concrete demolition waste into the construction of 2nd generation infrastructure, the estimated CO2‐e is significantly offset during the 2nd generation life cycle by chemical uptake of CO2 (carbonation). This paper provides an approach towards inclusion of 2nd generation construction applications into whole‐of‐life estimates of CO2‐e.

Registry of minority contractors and housing professionals.

MiU has vols. 2-4.

Attitudinal and behavioural approaches to improving waste management on construction projects in Australia: Benefits and limitations

This research aims to understand the attitudes and behaviours of stakeholders towards waste management and consequently identify ways of improving waste management practices in construction projects. Semi-structured interviews were conducted. The findings reveal that most of the decisions in construction projects are based on their financial returns unless there is a special requirement to comply with Green Star or any other sustainable building rating system. Even though there is a trend towards environment-friendly construction, contractors are favourable towards methods involving financial incentives. Results also indicate that private developers are more price-driven compared with government clients. Findings reveal the necessity of enforcing legislation to improve waste management practices until such practices become culturally embedded in organizations across the supply chain. Similarly, end users' motivation towards waste management was also identified as a key to encouraging stakeholders of construction projects and improving their attitudes and behaviours towards waste management practices.

International market selection model for large Chinese contractors

An increasing number of construction contractors are actively participating in international markets. One of the most fundamental issues confronting contractors moving offshore is where to do business. Although international market selection is a much studied topic, the market choices made by construction firms have attracted little attention. This paper aims to identify factors that influence internationalmarket selection and to develop an international market selection model for construction firms. The market entry choices of 39 large international Chinese contractors across 87 countries were investigated through logistic regression analysis. The results indicate that international contractors prefer to enter countries with large market potential, small culture distance, and, surprisingly, high country risk and high competitive intensity. Moreover, large, experienced contractors are more willing to compete in international markets. Contrary to generally accepted belief, geographic distance is not revealed to have any significant influence on international market selections by Chinese contractors. This paper will be of interest to contractors considering international market selection as part of their global expansion strategy.

The identification of Malaysian contractor satisfaction dimensions : a strategy for continuous improvement

The unique characteristics of the construction industry - such as the fragmentation of its processes, varied scope of works and diversity of its participants - are contributory factors to poor project performance. Several issues are unresolved due to the lack of a comprehensive technique to measure project outcomes including: inefficient decision making, insufficient communication, uncertain site conditions, a continuously changing environment, inharmonious working relationships, mismatched objectives within the project team and a blame culture. One approach to overcoming these problems appears to be to measure performance by gauging contractor satisfaction (Co-S) levels, but this has not been widely investigated as yet. Additionally, the key Co-S dimensions at the project level are still not fully identified. ----- ----- This paper concerns a study of satisfaction dimensions, primarily by a postal questionnaire survey of construction contractors registered by the Malaysian Construction Industry Development Board (CIDB). Eight satisfaction dimensions are identified that are significantly and substantially relate to these contractors - comprising: project cost performance, schedule performance, product performance, design satisfaction, site safety, project profitability, business performance and relationships between participants. -Each of these dimensions is accorded different priority levels of satisfaction by different contractors. ----- ----- The output of this study will be useful in raising the awareness and understanding of project teams regarding contractors’ needs, mutual objectives and open communication to help to deliver a successful project.

Critical constructability activities in building projects

Fundamental studies on constructability issue done in United States, United Kingdom and Australia illustrate capability of this concept to affect overall objectives of construction projects. It can result in significant cost and time savings and improved final quality by consideration of construction contractors experiences during conceptual planning and design phases. As intensive as these studies are, they do not attempt to investigate importance of these activities in order to find each of their specific barriers separately. This research explores Constructability Activities (CAs) in all project phases separately based on amount of contractors involvement in each activity and also amount of gap that exists between target and actual effects of each activity on achieving the final objectives of building projects in Malaysia. It ends to development of Critical Constructability Activities (CCAs). This research is crucial to gaining a better understanding of CCAs which are caused based on contractors higher participation percentage and larger gaps between their target and actual effects on achieving the final aims of the project. This research highlights the need to overcome barriers of CAs implementation in building projects. This study recommends construction stakeholders to concentrate more on CCAs in order to achieve the overall objectives of the project much faster and easier.

Contribution of knowledge management activities to organisational business performance

Purpose – Within the construction industry there is a growing awareness of the need for linking knowledge management (KM) to business strategy, organisational objectives and existing performance measures. This study was undertaken within the context of construction organisations, and attempts to provide the empirical evidence about the relationships between KM activities and organisational business performance. Design/methodology/approach – A questionnaire survey was administered to a sample of construction contractors operating in Hong Kong to investigate the opinions of construction professionals regarding the intensity of KM activities and business performance within their organisations. In parallel to the survey, semi-structured interviews were undertaken to provide qualitative insights that helped to clarify and deepen understanding of the KM process within the context of the research target. Findings – The investigation shows that knowledge utilisation is the strongest contributor to general business performance. In addition, the impact of KM activities on the lagging performance indicators of the Balanced Scorecard (BSC), such as “financial performance”, is in an indirect manner, and through the leading indicators such as performance from “internal process” as well as “learning and growth” perspectives. Originality/value – The study empirically establishes the linkage between intensity of KM activities and business performance, and demonstrates that KM strategies need to be explicitly formulated and measured according to organisational business objectives.

Empirical approach to understand the knowledge management process

Knowledge Management (KM) is a process that focuses on knowledge-related activities to facilitate knowledge creation, capture, transformation and use, with the ultimate aim of leveraging organisations’ intellectual capital to achieve organisational objectives. The KM process receives input from its context (e.g. internal business environment), and produces output (i.e. knowledge). It is argued that the validity of such knowledge should be justified by business performance. The study, this paper reports on, provides enhanced empirical understanding of such an input-process-output relationship through investigating the interactions among different KM activities in the context of how construction organisations in Hong Kong manage knowledge. To this end, a theoretical framework along with a number of hypotheses are proposed and empirically tested through correlation, regression and path analyses. A questionnaire survey was administered to a sample of construction contractors operating in Hong Kong to facilitate testing the proposed relationships. More than 140 respondents from 99 organisations responded to the survey. The study findings demonstrate that both organisational and technical environments have the potential to predict the intensity of KM activities. Furthermore, different categories of KM activities interact with each other, and collectively they could be used to predict business performance.

Determinants of contractor satisfaction

Performance in the construction industry is increasingly scrutinized as a result of the delays, cost overruns and poor quality of the industry’s products and services. Increasingly, disputes, conflicts and mismatches of objectives among participants are contributory factors. Performance measurement approaches have been developed to overcome these problems. However, these approaches focus primarily on objective measures to the exclusion of subjective measures, particularly those concerning contractor satisfaction (Co-S). The contractor satisfaction model (CoSMo) developed here is intended to rectify the situation. Data derived from a questionnaire survey of 75 large contractors in Malaysia in respect of a key project are analysed to identify participant factors and their strength of relationship with Co-S dimensions. The results are presented in the form of eight regression equations. The outcome is a tool for use by project participants to provide a better understanding of how they, and the project, affect contractor satisfaction. The developed model sheds some light on a hitherto unknown aspect of construction management in providing an increased awareness of the importance of major Malaysian construction contractors’ needs in the execution of successful projects.

Evaluation of knowledge management performance: An organic approach

Knowledge management (KM) strategy is the planned or actual coordination of a firm's major goals and learning in time; this coordination continually co-aligns the firm's knowledge-based resources with the environment. Based on the organic perspective of strategy, a KM performance evaluation approach should be able to 1) review the knowledge governance mechanisms and learning routines that underpin the KM strategy, as well as the performance outcomes driven by the strategy, and 2) predict the evolution of performance drivers and outcomes into the future to facilitate strategic planning. This study combined a survey study and a system dynamics (SD) simulation to demonstrate the transformation from a mechanistic to an organic perspective on KM strategy and performance evaluation. The survey study was conducted based on a sample of 143 construction contractors and used structural equation modeling (SEM) techniques to develop a KM performance index for reviewing the key elements that underpin KM strategy. The SD simulation predicted the development of KM strategy configurations and the evolution of KM performance over time. The organic KM performance evaluation approach demonstrated by this study has significant potential to improve the alignment of KM strategy within an increasingly dynamic business environment.

Bankable procedures for the technical quality assurance of large scale PV plants

Strict technical quality assurance procedures are essential for PV plant bankability. When large-scale PV plants are concerned, this is typically accomplished in three consecutive phases: an energy yield forecast, that is performed at the beginning of the project and is typically accomplished by means of a simulation exercise performed with dedicated software; a reception test campaign, that is performed at the end of the commissioning and consists of a set of tests for determining the efficiency and the reliability of the PV plant devices; and a performance analysis of the first years of operation, that consists in comparing the real energy production with the one calculated from the recorded operating conditions and taking into account the maintenance records. In the last six years, IES-UPM has offered both indoor and on-site quality control campaigns for more than 60 PV plants, with an accumulated power of more than 300 MW, in close contact with Engineering, Procurement and Construction Contractors and financial entities. This paper presents the lessons learned from such experience.