Journal of Critical Reviews

ISSN- 2394-5125 Vol 7, Issue 11, 2020

A REVIEW ON RISK MANAGEMENT IMPLEMENTATION IN THE CONSTRUCTION

INDUSTRY
Fauzilah Salleh1*, Salani Palaniappan2, Ivy Leong Pooi Theng3, Huda Nasuha Mohd Helmi4, Amira Abd
Hamid5, Nabihah Md Kassim6
1* Faculty of Business and Management, University Sultan Zainal Abidin (UniSZA), Malaysia. [email protected]
2Faculty of Business and Management, University Sultan Zainal Abidin (UniSZA), Malaysia.
3Faculty of Business and Management, University Sultan Zainal Abidin (UniSZA), Malaysia.
4Faculty of Business and Management, University Sultan Zainal Abidin (UniSZA), Malaysia.
5Faculty of Business and Management, University Sultan Zainal Abidin (UniSZA), Malaysia.

Received: 08.04.2020 Revised: 15.05.2020 Accepted: 06.06.2020

Abstract
One of the most progressive and challenging industries in Malaysia is the construction industry. This is the industry where the risk
considered when a construction project is conducted is more significant compared to the risk in other types of economic activities.
Furthermore, in preventing unnecessary loss and obtaining more profits, Risk Management (RM) is one of the elements in construction
which are essential in creating a successful construction activity globally. This paper mainly aims to examine the application of risk
management in this industry and to recommend this process for companies where this process has yet to be applied. 60 articles dated
from 2007 to 2017, which are associated to the implementation of risk management in the construction industry, are the basis of the
review in this study. Qualitative method was implemented in 66.67% of these articles, while quantitative method was implemented in
this rest of them. Subsequently, risk management process is found to be important, especially during the occurrence of risk in a
construction project. Besides, it also poses a significant impact on the success of construction project especially during the rise of risk.
Risk management also holds a crucial role in making accurate and appropriate decision in the planning of construction. As a result, a
clear state after the implementation of risk management and approaches for acknowledgment of the arising risk is gained.
Keywords: Risk Management, Construction Industry, knowledge-based Decision Support System, SME.

© 2020 by Advance Scientific Research. This is an open-access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/)
DOI: http://dx.doi.org/10.31838/jcr.07.11.102

INTRODUCTION
Risk is an event where its occurrence is uncalled (Aziz, et al, Meanwhile, economic development to take place in a country,
2018; Yazid, 2018; Yazid, 2017) for when a construction project improvement in the construction industry is important. The
is carried out (Smith, Merna and Jobling, 2006). Compared to Market Watch 2006-Construction Industry highlights that this
other industries, the construction industry faces higher level industry can be specified into two areas. One of those areas is the
uncertainty and risks (Hiley and Paliokostas, 2001). Therefore, a general construction. This area is specified into civil engineering
construction project which is void of risk is impossible construction, residential construction, and non-residential
(Loosemore, 2006). This leads to the importance of construction. The other area is associated with special trade
implementing systematic risk management for countering the works, where sewerage and sanitary, plumbing, electrical works,
risks occurring in a construction project. Generally, risk metal, tiling and flooring, glasswork, painting, refrigeration and
management process consists of the identification, assessment, air conditioning works, and carpentry are involved. In risk
and management of risk (Lee and Azlan, 2012; Aziz, et al, 2018; management process, identification, specification, and analysis
Yazid, 2018; Yazid, 2017). In risk management, identification is on risk which would possibly happen is essential. Therefore, it is
carried out, which allows the assessment of the risk occurring in a process which should be implemented in construction activities
a construction project. At this point, the risk is reduced and put (Choi, 2004). This process should not be neglected by any parties
in control for a project to be completed in success. Tang (2007), in the construction industry during any phase of a construction
Yazid, (2017), Aziz, et al, (2018), and Yazid, (2018) mentions that process. Moreover, policy of construction industry needs to be
risk management is essential when decisions related to enacted in preventing sudden fall of organization. Every phase of
construction projects are made. Furthermore, Lee and Azlan a construction process is important for every party which is
(2012) agree that this process functions as a means of creating a involved in it (Chan and Lee, 2008).
project management, and its standardization implies the
necessity of it to be implemented throughout the process of Construction industry is the most prominent as when it comes to
construction, along with the strategies implemented by the most progressive and complicated industry in Malaysia. This
companies. Moreover, it is one of the elements in construction is due to the risk it poses during the construction process, which
which is essential for the prevention of unnecessary losses and is significantly higher compared to the risk posed by other
acquirement of more benefits, which could increase the success economic activities (Zaini, 2003). This can be seen from the
of a project globally (Oehmen, Olechowski, Kenley and Ben-Daya, primary issue occurred in this industry, which is death cases
2014). Besides, it functions in aiding members of a construction where most of them are caused by accidents taken place during
project in identifying, evaluating, and putting risks at the construction activity (NIOSH, 2008). Furthermore, it was
minimum while at the same time optimizing the certainty of cost. revealed by SOCSO that, among 656, 555 accidents occurred in all
Overall, in the process of decision making which is associated to industries (this comprised of 6.5% of all accidents in all
risks, risk management holds high significance (Lee and Azlan, industries) around 2000-2009, 42, 775 of them occurred in
2012; Salleh and Ibrahim, 2013 and Salleh, Sultan and Ibrahim, Malaysia’s construction industry. In the current research, 31, 347
2011). cases, which were around 2009-2014, took place in the

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construction industry (NIOSH, 2017). It can be seen from these risk management process in this sector (Sale, 2005). This
statistics that accidents are frequent in this industry, which indicates the importance of risk management in sectors such as
makes it unsafe. Therefore, risk management process is the healthcare, agricultural, SME, and construction sector.
recommended so that risks in construction projects could be
identified, followed by systematic analysis and manipulation of However, the implementation of risk management in the
them. This paper mainly aims to examine the application of this construction sector is the only focus of this study. There is an
process in the construction industry, and to recommend it for important role played by risk management when the decision-
organizations where this process is yet to be implemented. making process in the planning of a construction project is
concerned upon, where the budget, quality, performance, and
LITERATURE REVIEW productivity of a construction project are affected (Mills, 2001).
In the globalized era nowadays, there has been a wide Therefore, comprehensive and proper approach of risk
implementation of risk management in various industries. This is management for effective counter of risks is important for a
one of the approaches for reducing risks in construction projects, successful construction project (Mohd Yusuwan, Adnan and
which is done through identification of the strengths, Omar, 2008).
weaknesses, opportunities, and threats in an organization (Zaini,
Adnan and Che Haron, 2010). In fact, construction is possibly a RESEARCH METHODOLOGY
complicated operation. Hughes and Murdoch (2001) highlights 60 articles, which dated around 2007-2017, were used in this
that cost, time, and speed are the influencing factors of the size of study. 80% of them were associated with the implementation of
a construction project. Meanwhile, numerous scholars and risk management in the construction industry, while 20% of
researchers have investigated into the implementation of risk them were associated with the implementation of risk
management in this industry due to the factors of delays in the management in other industries. As for data collection,
construction project. This process should be implemented in qualitative method was applied in 66.67% of the articles, while
construction activities, in a sense that identification, quantitative method was applied in the remaining articles. Lee
specification, and analysis on the risks which possibly happen in and Ali (2012) conducted a qualitative research, which was
a construction project should be performed by the construction conducted through email and phone call. The method used for
manager (Choi, 2004). Therefore, this process should not be their study’s interview was Selected Sampling. Moreover, the
neglected by any parties in this industry during any phase of a selection of respondents was based on whether they have
construction project. Moreover, the policy of construction recommended the application of risk management in
industry should be created for prevention of an organization’s construction projects, which was the primary criterion for them.
fall. Each phase of a construction process is important to every Meanwhile, Augustine, Ajayi, Ade, & Adakole, (2013), issued 70
party which is involved in it (Chan and Lee, 2008). According to questionnaires to get the information through perception and
the literature, Tang (2007) highlights that risk management opinion, which resulted in doubts by management regarding the
essential for the decision-making process in planning a performance by the contractor. Furthermore, out of all
construction project. To illustrate this point, this process questionnaires, data retrieval was performed on 81.43% of them
functions in raising the possibility and outcomes of positive through Inductive research method. The targeted population
projects, and reducing the possibility and outcomes of negative consisted of consultants, contractors, and clients/developers
projects, such as excessive time and cost taken for the projects. In associated with the implementation of risk management in
order to achieve these, implementation of risk management construction projects. Next, analysis of the information in the
process in construction projects is necessary. The major questionnaire was conducted, followed by data collection. This
businesses in all Organization for Economic Cooperation and was performed through survey questionnaire distributed to
Development consist of small and medium-sized enterprises participants who were involved in the construction of building.
(SME) (OECD, 2017). The financial flow in this sector is During modification of the questionnaire, feedback from the
important for its economic success and development. However, experts was included. It was focusing on the implementation of
from the lending point of view, the implementation of risk this process in a way which is suitable with the local
management for SME is lacking. The improvement of information environments of this industry, along with information on the
and enough risk models for this sector are the approaches respondents, specifically their names, qualifications, and working
needed for finance flow smoothly to SMEs (Altman, Sabato, experience in the construction industry.
Wilson, 2010; Altman, Sabato, Wilson, 2008). Other than that, it was mentioned in the article by Mustapha and
In the agricultural sector, there is a wide range of choice for Adnan (2015) that qualitative research was the case study
farmers to choose from to counter various risks in their method which was used as a part of the study. Through this
businesses (OECD, 2009). The government plays an important method, interviews were conducted on the management
role in the agricultural sector, making it important among department and employees under two construction
farmers (Tangermann, 2011). Meanwhile, in developed organizations. The number of interviewees were fourteen, which
countries, measures which reinforce risk management in consisted of the employees, executives, top management, and
agriculture are strongly implemented by the government. In risk owners of the organizations. The interview was conducted
order for the government to utilize risk management strategies through phone conversations with the selected respondents in
for countering risks in this industry, it is important for farmers to order to acquire their agreement for participation in the
be aware of the risks which commonly occur in their businesses interview. From the interview, information regarding
(Stefan, 2011). Further, the implementation of risk management consciousness and comprehension of the respondents regarding
in the healthcare sector, especially in the area of clinical risk management and its implementation in their companies.
governance, also holds significance (Cagliano, Grimaldi and Kang, Fazlie, Goh, Song and Zhang (2015) point out on the
Rafele, 2011 & Ferdosi, Rezayatmand, and Molavi Taleghani, intensive and extensive literature review regarding the
2020). Similar to The Joint Commission on Accreditation of implementation of risk management for comprehension of the
Healthcare Organizations and The World Health Organization approaches and instrument involved in this process. In the study
(WHO), The International Healthcare Organizations have written in this literature, a qualitative approach was the method
developed and supported the concept of clinical governance in for data collection. Six sets of interviews were performed, where
the healthcare sector (Liker and Hoseus, 2008; Liker, 2004). Due it involved the use of tape recorder and notes for data collection.
to the role of clinical governance in hospital’s service The interviewees involved comprised of one contractor engineer,
improvement and supervision, constant personal development one project manager, and four project engineers. Five of them
and educational training, staff management, clinical effectiveness were university graduates from universities.
programs, and clinical audit, it is one of the approaches in the

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In the context of these investigations, interview survey was the RESEARCH FINDINGS
basis for most of the application practices by construction Many of the articles published in the previous years were
contractors, which were according to the known process of risk associated with the implementation of risk management in the
project management. Interview survey which was based on construction industry. Kang (2015) claims that risk management
process evaluation was the focus of the study. From this is the most crucial element in the construction industry, and that
interview, the factors of the prominence of under-performance in it provides various benefits as well. Based on the 60 articles
companies, and the fact that it produced construction contractors focused in this study, the expected findings in the articles were
could be seen. Besides, qualitative research was the approach described in percentages, which were put in several categories:
used by majority of the researchers for data collection and result of the implementation of risk management analysis (55%),
analysis. With this, a more accurate collection of data obtained the consciousness of risk management (18%), the construction of
from interviews with the respondents was possible. risk management procedures (15%), and risk factors (12%)
(Figure 1).

Figure 1: Research Finding Summary

According to Mustapha, and Adnan, (2015) and Salleh, Sultan and involved. Moreover, the findings would be useful for the
Ibrahim (2011), education and acquirement of knowledge on the improvement of their risk management plan, which are parallel
implementation of risk management in construction projects are with the primary risk factors considered by the construction
essential for employees under the construction industry. With industry (Hlaing, 2008).
these, their comprehension and consciousness can be improved,
which will result in their capability of associating the risks with Furthermore, the most common result of the risk management
their working environment. Apart from that, it is important for process analysis was primarily about the risks taken place in
them to be aware that although their activities are supposed to construction projects (Lee & Azlan, 2012). It was found that risks
be only for risk owners, their everyday work could be impacted were the most prominent factors of a project’s success, provided
from these. Besides, the employees under Malaysia’s the emergence of risks came along with construction project.
construction industry are still lacking consciousness of risk Furthermore, for precise and proper project planning and
management, in spite of their high perception regarding this decision-making process in this industry, risk management holds
matter (Mohd Yusuwan, 2008). When it comes to types of risk, high significance. Based on this study’s result, risk management
the construction industry equals to economics at the global level. process and methods for identification of risks would lead to a
However, it is a complicated sector, and it does not display a better performance from construction project (Samuel,
positive performance most of the time. The specification of the Ebenezer, Laud Kissi-Mensah and Charles, 2015). With these
objective limitation associated to risk factors holds high results, the development of strategic management planning for
significance for the application of risk management in the construction would be possible. Besides, developers and
construction industry (Aloini, 2012). Particularly, economic and investors would be capable of decision-making for their projects,
financial factors are the primary risks encountered by this and analysis of practicality would be possible for banks
industry, followed by quality factors (Rafiq, 2012). In countering (Augustine, Ajayi, Ade, & Adakole, 2013). Rafiq (2013) mentions
these risks, which emerge in the collective and individual ways in that the study’s result regarding risk management process would
this industry, the systematic application of risk management is lead to stakeholders being aware of the significance of risk in the
crucial. Based on this study’s findings, these risk factors posed construction industry. Supervisors, project managers, Planners,
significant effects on construction projects financially, especially and other key project members would have the opportunity to
projects which had insufficient financial resources from the participate in ongoing and future programs related to risk
contractor and unstable financial state of the client. These management methods which should be used in the future. The
attributes would lead to excessive expenditure, especially due to practices performed by most companies and the risk
delay posing the most prominent effect on the construction management system are unstructured, informal, and reactive.
industry. Besides, generalization of risk factors is impossible the Moreover, lack of communication between employees of
way this industry works. Therefore, through this study’s findings, different levels and inadequate formal risk management are the
reviewing decision factors would be possible for people under obstacles of the application of an efficient risk management
this industry when complicated decision-making process is system. According to Omayma & Kishk (2014), there were
reports on significant findings regarding risk response

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development and project maturity through risk management. construction industry to stakeholders. On the other hand,
These results would be useful in the adjustment of business Augustine, Ajayi, Ade, & Adakole, (2013) agree that research
environment where measuring business processes are necessary result regarding the application of risk management will
for continuous improvement (Grant & Kuotcha, 2010). Argument contribute to strategic management planning of organizations.
on the degree of success of any construction project is based on Subsequently, this will aid construction developers and investors
whether project participants are capable of managing cost in the decision-making process of their project, and this will also
perspective (Hlaing, 2008). On the contrary, development of risk allow practicality analysis to be conducted by banks.
management planning in a project’s early phases would receive
adverse impacts when failure of acknowledging the presence of It can also be concluded that risk management and its practices
potential risks occurs (Ehrlich, 2008). in most companies is still a new concept. This can be seen from
the scarce utilization of its methods and instruments among
Zhoa, Hwang, and Pheng Low (2015) state that, when planning of construction organizations (Byung Gyoo Kang, et al., 2015).
risk management procedures is drawn, there are various Furthermore, the process for risk management process as of
functions of the knowledge-based decision support system for recently is unstructured, informal, and reactive (Rafiq, 2013).
enterprise risk management (KBDSS-ERM). Not only does it Moreover, lack of communication between employees of
evaluate the maturity of ERM in users’ firms, it also devises a different levels and insufficient formal risk management are the
particular action plan which could aid users in providing a better primary obstacles of the application of an efficient risk
implementation of their risk management procedure. Meanwhile, management system (Rafiq, 2013). For this reason, improving
Ying Liu (2009) mentions that with the system, more informed communication between employees and increasing their
decision-making associated with risk management procedures in knowledge of risk management regardless of their positions is
construction projects can be made. This can be done by making necessary. With these steps, the occurrence of risks in companies
timely, organized, and useful information accessible. Besides, can be reduced, and optimization of company’s potential in terms
comprehension regarding the support system of knowledge- of construction is possible. Overall, for a construction project to
based decision for risk management is important. This is because meet its success, communication, participation, and cooperation
the development of it is not solely for users’ decision-making among the members of project team upon the application of risk
process, essential information can also be provided in an management process are very essential (Chapman, 1999).
effective and accessible way. This assists users in making more
informed decision-making. Therefore, the development of system
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