Managing risk of construction projects : a case study of Iran

Abstract

The construction industry is one of the most dynamic, risky, and challenging businesses. Due to construction projects’ complexity and uniqueness, the number of risks present invariably goes beyond those found in other industries. Therefore, risk management should be applied as an integral part of project management for managing these risks – in particular in developing countries. Contingency theory was selected as the theoretical framework of this thesis. Since the environment has been considered as one of the important contextual variables being focused on in this theory, the research was situated within a specific environment. Considering the unstable social, economic and political conditions in Iran today in comparison with many other countries, it was found to be a suitable case to be evaluated in this thesis. A questionnaire was designed and twenty-five risks were identified and categorized in five main categories as follows: Political and Governmental, Managerial and Technical, Economic and Financial, Cultural and Social, and Natural. For each of these risks, relevant mitigation strategies were also proposed. Criticality of risks along with effectiveness of mitigation strategies were evaluated via 100 questionnaires which were distributed to the three key categories of actors associated with construction projects namely clients, contractors, and consultants. Out of 76 valid responses received, interviews were conducted with 24 of the participants in order to extract the knowledge and understand how these groups manage the identified risks. Findings of the research revealed that Economic and Financial risks have the greatest influence on construction projects in Iran. Moreover, there is a serious lack of risk management knowledge and expertise among all the three key categories of actors. The conclusion drawn from the evaluation of risk management strategies was that due to high volatility of the economic and political situation of the country, reactive risk management is practiced more than proactive risk management. The results of the case study about the risks and their management strategies have also implications for contingency theory; modifying the theory from a conceptual theory to a more meaningful theory. There is a mixture of proactive and reactive management while utilizing the theory for managing any situation and existence of this mixture needs to be made explicit in the theory. Likewise, utilization of contingency plan needs to be made more explicit in the theory. Moreover, employment of contingency theory for managing situations has been stated to be unique for each particular situation and therefore the situation should be defined in order to refer to a more specific concept. This eventually may lead to a more specific and detailed theory for any situation and hence instead of saying ‘it all depends’, it can be stated that ‘it depends on this and that’.