Building risk management strategies into the vertical construction sector: Survey report
BRANZ Project LR10481, The Building Research Levy 2018/2019
Charlotte Brown, Sophie Horsfall, Alice Chang-Richards, Nicky Smith
The construction sector has been a perennial underperformer in the New Zealand economy. The sector’s low productivity reflects very challenging operating characteristics: order-based production, low-task repetition, and site-specific operations are all products of a market that largely deals in bespoke, complex projects requiring unique approaches. However, poor risk management can also play a part in low productivity through increased delays and errors, time-wasting, and ineffective problem-solving. Ongoing construction quality issues and high enterprise failure rates are signs that the sector is currently not managing risk as effectively as it could.
But some parts of the construction sector appear to be doing better than others. The recent success of horizontal infrastructure projects (e.g. pipes, roads, and cables) such as the Northern Toll Road Gateway, Waterview Project, and Christchurch Infrastructure Recovery are in contrast to ongoing challenges faced by the vertical construction sector (e.g. buildings).
The aim of this BRANZ funded project is to uncover core differences in how risk is managed in the horizontal and vertical construction sectors and identify opportunities for cross-sectoral learning. Our focus is on the role risk management plays in improving sector productivity.
This report describes the results from a survey of construction sector risk and resilience practices. This survey was designed to test four hypotheses posed in the project:
- Horizontal contractors are more productive than vertical contractors.
- Horizontal contractors manage risk more effectively than vertical contractors.
- Organisations that manage risk well are more likely to have higher productivity.
- Organisations that are resilient are more likely to have higher productivity.
The survey findings inform the quantification of RiskFlow, a systems dynamics model of the construction sector being built by the research team. RiskFlow is designed to help the sector better understand how risk is managed and how it can be better managed to improve the productivity of the sector.
Summary of key findings
- Respondents believe external factors have the greatest impact on productivity, rather than internal capabilities.
- Contractors adjust margins for risk but only when work is plentiful.
- High risk maturity improves productivity.
- Resilient organisations perform better.
- Horizontal contractors are potentially more nuanced in their consideration of risk than vertical contractors.
- Subcontractors and smaller organisations are less likely to actively manage risk.