Perception and management of risk in the construction industry

The study is concerned with perception and management of risk by decision makers in the competitive bidding sector of the British Construction industry. The purpose of the study was to demonstrate that, contrary to the implicit assumption of earlier research on this subject, perception and management of risk in decision making is not an exclusive preserve of buyers alone, but that sellers also perceive and manage risks in their selling decision making process. The study was concerned mainly with seller organisations. However, customers were also included so that comparisons between the views of sellers and the buyers could be made on a limited number of issues in order to reinforce particular points of view. In spite of the exploratory nature of the study, three hypotheses, based on the literature review, were examined. After a careful consideration of relevant factors, 200 construction companies of different sizes, operating in the competitive bidding sector of the industry, and 150 customers representing nine different sectors, were selected at random for the main and the subsidiary samples respectively. A questionnaire, with a covering letter, was mailed direct to the Managing Director or Chief Executive of each of the organisations included in the samples. From the main sample, 63.5% responded, out of which 47.0% of the replies were usable. In the case of the subsidiary sample, 67.3% responded, out of which 56.0% of the replies were usable. Data analysis indicated that, (a) most construction companies - the sellers - perceived and managed risks in their contract selling decision making process; (b) in spite of the relevance of the marketing concept, most traditional marketing methods were not effective in the competitive bidding sector of the industry; and (c) a careful evaluation of the critical phases through which a contract decision process evolved was essential for effective management of risks inherent in construction contracts.