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Received 4 April 2012; received in revised form 31 May 2012; accepted 7 June 2012
Abstract
Due to the unique character of construction projects, perceived risk is widely used to quantify risks in the construction industry. This study
investigates the two main types of measurement of perceived risk used in construction projects: direct measurement and expected utility-based
measurement. Project managers from contract rms in China assess 15 independent risks using three different strategies: direct measurement, risk
probability and potential impact. The last two are combined to create the expected utility-based measurement. The results show that the risk
ranking order obtained from the direct measurement strategy is signicantly different from that obtained from the expected utility-based
measurement. Moreover, the former measurement is in general a better predictive indicator of relative managerial input than the latter. Based on
these conclusions, some suggestions are presented for better risk management and cooperation in the construction industry.
2012 Elsevier Ltd. APM and IPMA. All rights reserved.
Keywords: Perceived risk; Measurement; Risk management; Contractor
1. Introduction
It is widely acknowledged that risk management is an essential
part of construction projects (Project Management Institute,
2004). Although there has been a large amount of research
devoted to developing methods to identify, analyze and evaluate
the relative importance of risks associated with particular
political, geographic, economic, environmental, regulatory and
cultural factors (e.g., Ashley and Bonner, 1987; Chua et al., 2003;
Dikmen et al., 2007; Khattab et al., 2007), most of these analyses
are heavily dependent on the risk perceptions of the top
management of construction companies (Ramgopal, 2003). In
these studies, a few individuals' perceptions of risk may have a
significant effect on the validity and reliability of the results.
Therefore, our understanding of how construction groups or
individuals perceive risk is still very limited. Although
Corresponding author at: School of Economics and Management, Southwest
Jiaotong university, 610031, Chengdu, Sichuan, China. Tel.: +86 028 87603604;
fax: +86 028 87603822.
E-mail address: shaokailu@163.com (S. Lu).
0263-7863/$36.00 2012 Elsevier Ltd. APM and IPMA. All rights reserved.
doi:10.1016/j.ijproman.2012.06.001
308
309
Table 1
The descriptions of risk factors.
Adapted from Zou et al. (2007).
Risk factors
Descriptions
1. Lack of insurance
2. Lack of professionals
3. Defective materials
4. Poorly trained laborers
5. Inflation
6. Amphibolous contract
7. Design variations
8. Government bureaucracy
9. Inaccurate cost estimate
10. Poor communication
11. Unavailability of funds
12. Long term of investment
13. Deregulation of safety
14. Theft
15. Pollution
3.1.2. Results
The statistical means of the assessments of the 15 risk
elements using direct measurement, probability, impact, the
calculated expected utility-based measurement, and the corresponding rankings are shown in Table 3.
With the help of SPSS 18.0, the Spearman rank correlation
coefficient (rs) is used to measure the agreement between the
rankings in the risk importance indexes generated by the various
risk assessment measurements. The null hypothesis is that there
is no significant relationship between the two groups of data. As
the results in Table 4 show, the two major risk indicators of
direct measurement and expected utility-based measurement
have significantly different risk importance indexes (rs = 0.28,
p N 0.05). For example, Government bureaucracy is ranked
thirteenth in the direct measurement index, whereas it is ranked
third in the expected utility-based measurement index. In sum,
even when identical risks are evaluated by the same respondents, different measurement criteria may produce various
rankings of risk assessment. Moreover, it is also shown that the
direct measurement is significantly related to the impact
measurement (rs = 0.87, p b 0.001), whereas it is insignificantly
related to probability assessment (rs = 0.15, p N 0.05).
Table 2
Numerical scales used in Study 1.
Probability occurrence
Relative impact
Direct measurement
1 Negligible consequence
2 Minor consequence
3 Moderate consequence
4 Significant consequence
5 Extreme consequence
1
2
3
4
5
310
Table 3
Means and rankings by various measurements.
Risk factors
Direct measurement
Probability
Mean
Rank
Mean
Rank
Mean
Rank
Mean
Rank
1. Lack of insurance
2. Lack of professionals
3. Defective materials
4. Poorly trained laborers
5. Inflation
6. Amphibolous contract
7. Design variations
8. Government bureaucracy
9. Inaccurate cost estimate
10. Poor communication
11. Unavailability of funds
12. Long term of investment
13. Deregulation of safety
14. Theft
15. Pollution
2.83
2.92
3.87
3.13
3.53
3.17
3.49
2.75
2.91
2.89
3.79
3.42
3.40
2.68
2.57
12
9
1
8
3
7
4
13
10
11
2
5
6
14
15
0.20
0.33
0.19
0.24
0.50
0.21
0.15
0.44
0.36
0.20
0.46
0.39
0.28
0.37
0.18
11
7
13
9
1
10
15
3
6
11
2
4
8
5
14
2.68
3.08
3.74
2.87
3.13
3.15
3.64
3.00
2.96
2.98
3.91
3.40
3.04
2.25
2.60
13
7
2
12
6
5
3
9
11
10
1
4
8
15
14
0.52
1.08
0.65
0.71
1.61
0.65
0.54
1.48
1.12
0.61
1.84
1.41
0.88
0.89
0.50
14
6
10
9
2
10
13
3
5
12
1
4
8
7
15
3.2. Study 2
3.2.1. Procedure
The following investigation examines which measurement
of perceived risk most accurately predicts the relative
managerial input of contractors. A simplified version of the
questionnaire from Study 1, with only eight risks, is used to
collect data. In this questionnaire participants are asked to
evaluate the real efforts they input into each risk factor, using a
5-point Likert scale (where 1 indicates nearly no input and
5 indicates input as much as possible). Of the 38 project
managers from various contractor firms in this study, 30 (79%)
respondents have greater than or equal to 10 years of
construction related experience and 22 (58%) are highranking or top-post project managers.
Impact
Expected utility-based
measurement
3.2.2. Results
Following Weber and Hsee (1998), we fit the following
regressions from individual levels. As we focus on the
measurements used in the construction field, the model
regresses on the managerial input on the direct measurement
and expected utility-based measurements associated with a
particular respondent. Table 5 shows the means of the
coefficients of the regression models.
As the above regression models have the same number of
predictor variables, their adjusted R 2-values can be directly
compared as measures of model fit. It is clear that the direct
Table 4
Spearman rank correlation test for the risk importance indexes by various
measurements.
Measurement
1. Direct measurement
2. Probability
3. Impact
4. Expected utility-based measurement
1.00
0.15
0.87
0.29
1.00
0.14
0.91
1.00
0.31
1.00
311
Table 5
Mean regression coefficients for managerial input as a function of perceived risk.
Measurement
Direct measurement
Expected utility-based measurement
Managerial input
Model (mean)
Intercept term a
Regression weight b
Adjusted R2 (F-value)
2.25
1.57
0.61
0.25
0.52 (10.28)
0.15 (1.54)
5. Conclusion
Most risk assessments of construction projects are based on
perceived risk. In this study, we focus on the risk perception
behavior of contractors in China. The findings show that the
risk ranking order obtained by the direct measurement strategy
is significantly different from that obtained by the expected
utility-based measurement strategy. Furthermore, the direct
measurement is a better predictive indicator of the relative
managerial input than the utility-based measurement. Understanding how risk perception affects risk assessment has the
potential to become a valuable component of courses on strategies of risk management and on risk allocation negotiations.
This study provides new insight into risk management in the
construction field. However, future research is needed to fully
understand the variation in risk perception across different
contexts. First, our research focuses on contractors in the
Chinese construction industry, and the findings should be taken
as preliminary results. More research needs to be conducted to
confirm the differences within and across industries and
countries. Second, more recent studies in psychology suggest
that the identification of risks in various domains may lead to
different cognitive processes and emotional responses (Qin and
Han, 2009). As risks in construction projects have different
impacts on multiple domains including the economic, social
and safety domains (Fung et al., 2010), it is necessary to
investigate whether there are some differences in the way risk
factors are perceived across domains. Third, more work is
necessary to improve the accuracy of risk assessment. Although
the expected utility-based measurement strategy may provide a
more objective view, the assessment of risk is still mainly
dependent on the subjective feelings of project managers. To
make these evaluations more valid, more analysis of data from
historical documents (Fung et al., 2012) is needed.
Acknowledgements
We thank the participants of the research at the Shenzhen
University of China. This research was supported by NSFC
(70902037 and 71090402), the Hong Kong Polytechnic
University research grant J-BB7D, and the Hong Kong GRF
grant PolyU 5515/10H.
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