Risk Management in Construction Project Networks

Abstract

Project risk management has been intensively discussed in recent years. Projects are becoming shared efforts of multiple parties – construction industry is a good example of an area, where the project outcome is delivered in an extremely complex actor network. Still, research on how the project risk management should be adopted to the network environment is scarce. This study's objective is to identify the risks that are caused by the network structure and the ways to manage risks in the co-operation of the whole project network. The focus of the study is put on the informal risk management means. The purpose is to emphasize other than legally binding contracts as risk management means.\n\nThe study was conducted in the summer 2005, when altogether 14 interviews were made in two different construction projects. Interviews were targeted to the subcontractor's representatives, but also main contractor's and client's representatives were interviewed. Literature searches were done by using HUT library materials and databases.\n\nA lot of the risk management research is targeted to the construction projects, which are seen as extremely risky projects with highly inflexible risk management by contracts. Number of studies are stressing the importance and superiority of the co-operation and less formal risk management means, but concrete methods are not introduced. In addition, the use of already developed risk management methods is modest at construction sites.\n\nNetwork governance literature supports the idea of less formal co-operation and risk management in the project networks. Many benefits can be gained if project network actors are engaged in longer-term co-operation. For example, using these "softer", informal, risk management means, transaction costs can be significantly reduced by cutting the need for expensive contracting efforts.\n\nEmpirical study was used to show the application area for risk management derived from the network governance literature. Based on this, a co-operative risk management model for project networks was formed. The basic idea of the model is to take the advantage of higher level co-operation and to switch a project risk management in construction networks from dyadic relationships more towards the network-level co-operation. According the understanding gained during this study it is suggested that by enabling more co-operative risk management methods, the project risk management will become more efficient and identified inefficient and costly network governance practices – serving as a sources for risks – would be reduced.

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