Financial Risk Estimation in Construction Contracts

Abstract

Risk, as a factor adversely affecting the project, is taken into account as early as at the first stage of the investment process when the tender is won for a contract. The risk level, identified for a particular construction contract, is a serious factor influencing the decision about accepting the contract or not. The key issue is proper identification of contract risk. The risk factors which have a significant impact on the success of the project, and are most common ones, are then analyzed. The method of verification depends on the company's experience in the construction industry. The task of the article is to present the results of studies focused on separating and determining the frequency of financial risk factors in construction projects and their impact on project implementation. We have analyzed 30 construction projects (office buildings, production halls, educational buildings, demolition works, etc.) completed in north-western Poland. The degree of risk (planned and real) for the contract was set as a percentage in relation to the size of contract (costs in million PLN). The aim of the study was to verify the existence of relationship between the kind of structure, the size of contract, and the scope and degree of risk. Statistical approach has been used. This study is a prelude to determining the contract risks identification procedure (i.e., estimating reserves to be used in unforeseen circumstances) so that the company could be competitive, and the price offer to be provided to investors could be advantageous.