9747-Risk management trends in the construction in

Riskmanagementtrendsintheconstructionindustry:movingtowardsjointriskmanagementM.MOTIARRAHMAN&M.M.KUMARASWAMYTheUniversityofHongKong,Pokfulam,HongKong,ChinaAbstractThispaperreportstheoutcomesofthefirstofthreeplannedquestionnairesurveysinthefirstphaseofabroaderHongKongbasedstudyon‘JointRiskManagement’(JRM).Thesurveycomparedperceptionsonbothpresentandpreferredriskallocation,includingJRM,inconstructioncontracts.DatawasmainlycollectedinHongKongandmainlandChina(withmostrespondentshavingworkingexperiencefromHongKong)fromvariousprofessionalsandpractitionersrepresentingbroadgroupsofacademics,consultants,contractorsandowners(clients).Surveyresultsreinforcepreviousobservations(inCanada)ofthedivergencesinperceptionsonbothpresentandpreferredriskallocation,bothwithinandbetweendifferentcontractingparties.Thepresentstudyrevealsquitewide(marked)divergencieswithmanyindividualcasesofdiametricallyopposingviewsonallocatingparticularriskswithinspecificgroups.Despitesuchdivergencies,respondentsprofessedageneralenthusiasmtowardsJRM,irrespectiveoftheircontractualorprofessionalaffiliation.Moreover,theygenerallypreferredtoassignreducedrisksfromeitheroneorbothcontractingpartiestoJRM,ratherthanshiftingmoreriskstotheotherparty.Thisisindicativeofaperceivedtrendtowardsmorecollaborativeandteamworkbasedworkingenvironments.KeywordsHongKong,jointriskmanagement,riskallocation,riskperceptions,teamworkINTRODUCTIONRisksareinherentinallconstructionprojects.Riskscanbetransferred,accepted,managed,minimized,orshared,butcannotbeignored(Latham,1994).How-ever,evidencefromprojectsworldwideshowthatrisksarenotbeingdealtwithproperly(Thompson&Perry,1992).Thegoalofoptimalriskmanagementshouldbeto(1)minimizethetotalcostofrisktoaproject,notnecessarilythecoststoeachpartyseparately(CII,1993),and(2)‘minimizerisk–whomeverriskitmaybe’(ASCE,1979).Althoughmanyriskscanbebroadlyidentifiedasgeneric,theirprecisenature/formonagivenprojectisproject-specific.Thenatureandextentofsuchproject-specificriskscanonlyberealisticallyappreciatedatlaterstagesduringtheprojectexecution.Asaprojectprogresses,thenatureandextentofrisksmaychange,newrisksmayemergeandexistingrisksmaychangeinimportanceorbere-allocated,andanysuchchangesmayalsoaggravateoreasesomeotherrisks.Properandexhaustiveallocationofriskscannotbeachievedthroughcontractconditionsalone.Someoftherisksmayalsorequirethecombinedeffortsofcontractingpartiesfortheireffectivemanagement.Inordertoachievethese,traditionalcontractstrategiesforconstructionandtheirallocationofresponsibilitiesandrisksinstandardconditionsofcontractareinappropri-atefortoday’shigh-riskscenariosandmultipartycomplexprojects.Instead,atailor-madecontractstrategy(i.e.flexible)suitablefortheactivejointmanagementofriskbyallpartiesisseenasmoresuitable(Thompson&Perry,1992),becausenotalltherisksareforeseeableandallprojectinformationisnotavailableattheoutset.TheaboveargumentalignswellwithboththecallformanagingriskssystematicallyandproactivelyintheHongKongconstructionindustry(CIRC2001),andtheparallelcallforacorrespondingflexibilityincontractconditions(RahmanandKumaraswamy,unpublishedobservations).Alongwithabalancedandequitableallocationofclearlyforeseeableandquanti-fiablerisks,unforeseenrisks(thatmayalsoarisefromsomeforeseeablerisks)needtobemanagedusinga‘JointRiskManagement’(JRM)strategy,asandwhentheyoccur(Rahman&Kumaraswamy2001a).SuchflexiblecontractconditionsshouldbeprovidedunderthebroadumbrellaofRelationalContracting(RC)principles(Macneil,1974,1978,1980)thatunderpinvariousapproaches,suchaspartnering,alliancing,jointventuring,long-termcontractingEngineering,ConstructionandArchitecturalManagement200292,131–151131Ó2002BlackwellScienceLtdandothercollaborativeworkingarrangements(Jones,2000).Thisrequirestransformingtraditionalrelationshipstowardsasharedculturethattranscendsorganizationalboundaries(CII,1996).However,thenatureandextentofflexibilitythatmaybeincorporatedinthestandardcontractconditionsmustbecarefullycontrolledinordernottogenerateabuse,misinterpre-tationsandotherproblems,thatmayforexampleleadtoclaimsanddisputes.Exercisestoachievetherightbalanceofriskamongcontractingpartieswouldthere-forebenefitfrom:(1)anevaluationofperceptionson(a)presentandpreferredriskallocationincludingattitudesofprojectparticipantstowardsJRMthroughsuchflexiblecontractconditions,and(b)thepotentialforimplementingJRM;before(2)finallyformulatingandvalidatingaJRMmodel.Previousstudiesinthisareainclude:(1)investigationsintothesubjectivenatureofcontractinterpretation,bothbeforeandafterrevisionofawidelyusedlumpsumstandardformofconstructioncontract,byHart-man&Snelgrove(1996)andHartmanetal.(1997)inCanada;(2)anevaluationofperceptionsofriskimportanceandpreferredallocation(i.e.toowner,contractoror‘shared’)byAhmedetal.(1999)inHongKong;(3)comparisonsanddetectionsofanydiver-gencebetweenpreferredallocationpatternsasper-ceivedbytheindustrybasedonastandardformofcontractcommonlyusedinthestateofNewSouthWales,AustraliabyCheung(1997);(4)anevaluationofperceptionsofriskimportanceandpreferredalloca-tionfollowedbyaconferencetitled‘Construc