Editorial
Article Type: Editorial From: Engineering, Construction and Architectural Management, Volume 17, Issue 4
ECAM Volume 17 Number 4 has relied on 17 authors from six countries to produce these six papers. One paper has one author, one paper has two authors, two papers have three authors, and two papers have four authors. The distribution of authors by country is two from Malawi, four from Hong Kong, two from Singapore, four from Australia, one from Cyprus and three from Turkey. Two papers span national boundaries, namely Singapore and Australia, and Hong Kong and Australia. Interestingly there are no Europeans other than Cyprus and no North Americans at all in our list of authors in this issue.
The two overriding features of this set of papers are the focus on risk and the focus on numerical analysis and modelling.
The first three papers directly address risk in the management process of projects, in rates of returns in PPP projects and in business failures. These three all use numerical analysis and modelling approaches. The fourth paper is a description in response to risks brought on by the recession. The fifth paper deals with a different variation of risk by identifying the “pathogens”of contract disputes. Avoid the pathogens to avoid disputes does seem like a risk management approach. The sixth paper is another variation on risk by attempting to optimise the bid mark-up and thereby reduce the risk of a contractor acquiring a loss-making contract. I have strong views on this topic,which are addressed in my summary below. This paper is also based on modelling. So modelling and numerical analysis is a strong feature of this issue, which is welcomed as a shift towards understanding processes and underlying mechanisms rather than simply collecting descriptive data by questionnaire.
Kululanga and Kuotcha are unhappy about the approach to risk management, and they believe that this leads to poor project performance. Like good engineers they wish to introduce some measurability in the process by way of numerical scores relating to statement indicators. These statement indicators were devised to characterise a series of steps in the risk management process. The researchers surveyed 51 registered Malawian construction contractors to test their approach. Their findings are that all the small and medium-sized companies had low implementation of the various required steps. The application of project risk management was greatly influenced by the size and experience of the construction company. The intention of this work is to measure the management processes and then to uncover the root causes. This should provide a framework for developing better processes. Arguably the University of Malawi should be providing training programmes to upgrade the skills of small and medium sized contractors, who seem deficient in the process of risk management. Maybe that is why they are still small. These researchers have set out on a course of action that is only partly completed. Having established their management measuring tool, they must use it as they develop a better industry.
Ng, Xie and Kumaraswamy have been simulating the risks on equity returns for concession-based public-private partnerships. In public-private partnerships a large portion of risk is carried by the private partner, and so the private partner or franchisee has a great interest in understanding the risks. The research team developed a simulation model to generate the probability distributions on the two factors of “cash flow” and “outcome”. This simulation model generates probability, distributions in net present value and rate of return. This is a tool for judging investment. The authors offer what they call a “simple” case study. This work now needs a much more robust case study giving evidence of guiding an investment. This is a good sound engineering approach to financial management.
Dikmen, Birgonul, Ozorhon and Egilmezer Sapci offer us an approach to assessing business failure risks of construction firms. The researchers wish to identify the determinants of business failure and to predict the likelihood of a construction company failing. The authors have designed a conceptual model based on analytical process network with interviews and discussions giving the weights to the variables incorporated.
The results place importance on organisational and managerial factors. The authors admit that the work is limited to three professionals and tested in only five companies. However they have the intention of developing the approach by drawing on the diverse experiences of a large group of companies. The important question to address is how companies respond to the model’s outputs. Do they redesign their organisation and managerial approach? How do the researchers promote this? Do they develop training courses based on the model’s findings to assist the companies in development?
Lim, Oo and Ling examine the currently relevant topic of survival strategies in a prolonged recession. The researchers conducted 34 interviews with senior executives of large Singaporean construction companies. They categorise their findings into actions related to:
contractors;
cost control; and
financial
In summary the contractors’ responses are that:
they bid for more contracts;
they tightened up on cost control and wastage, froze salaries, and stopped hiring staff; and
they managed their cash flow with great care.
This is a useful insight to the companies’ responses to difficult times. The paper seemed weak on the companies’ planning for the emergence from recession. Where do they see the market going? What will be their position?This planning goes on and for the optimist in me, it is more interesting than the cost cutting.
Love, Davis, Ellis and Cheung examine the cause of disputes in construction and identify what they describe as pathogenic influences. The declared aim of the paper is to identify the underlying pathogens that clients and contractors perceive to contribute to disputes. The authors used case law and focus groups in Western Australia to determine the pathogens. One set of pathogens is “points of law”. For the clients, the pathogens are “failure to detect and correct errors” and “failure to oblige by contractual requirements”. For the contractors the main pathogen was “unforeseen scope changes”. The cause of disputes is a much researched and written about topic, and this paper adds to that body of knowledge. What it attempts is to create a different perspective on the framework of causes. How do we use this framework to develop a system without disputes? This seems currently to reside in those trying to develop relationally integrated value networks designed to create more mutually supportive and collaborative construction teams. Perhaps the information in this paper will help that work.
Christodoulou offers us another approach to bid mark up optimisation. Interestingly the author begins with the original papers on the subject by Friedman and Gates dated in the 1950s and 1960s. There have been many papers since, and the goal of being able to optimise a “bid mark up” still seems elusive. My view, formed a long time ago and unchanged is that in the equation bid=estimated cost+mark up, the biggest quantity with the biggest variability across all contractors bidding is the estimated cost, and the size of the estimated cost and the size of its variability overwhelms any marginal contribution by the mark up. So I argue for examining the “total bid”,not simply one element of it, and this means improving the estimating processes. Nevertheless Christodoulou makes a contribution to a topic that is still intriguing to many researchers.
Ronald McCaffer
