TRACING RISK PATHS IN INTERNATIONAL CONSTRUCTION PROJECTS: A CASE STUDY

misbe2011 Tracking Number 235

International construction projects are mostly known with poor cost performance. Their large sizes, multi-party environments, along with unfamiliarity of foreign firms with host country conditions create high chances of cost overrun and delay which lead to disagreements, claims and failures. In the case of such disagreements, identification of the responsible parties for a sequence of interdependent events that lead to project failure is a tedious task. Factors that result in cost overrun usually occur in the form of a chain of causally dependent events, each of which are either under the responsibility of one party, or shared among different project participants according to the related contract clauses. The diversity of the factors, namely global, country, company and project specific factors, increases the complexity of negotiation process between the project participants when cost overrun and delays occur in international projects. The major idea in this research is that cost overrun depends on causal relations between various risk sources (namely, risk paths) and sources of vulnerability that interfere with these paths. Using the data of 166 international construction projects and utilizing Structural Equation Modeling (SEM), a Risk-Path Model that represents the interactions among different risk and vulnerability paths is identified. A network of interactive risk paths that can be traced from the initiation stage to its final effect on project cost overrun may help allocation of risk and cost overrun to various parties. Such an approach is believed to ease determination of the responsible parties and the configuration of the final risk and cost sharing scheme in a project. Moreover, SEM can be used to predict potential risk paths and estimate the level of cost overrun. In this paper, through a comprehensive case study, the complex risk emergence pattern in a real construction project is demonstrated. Employing the SEM-based Risk-Path Model, the most significant risk paths are identified, cost overrun is estimated and how the model can be used for risk and cost allocation between the parties is discussed.