Risk management in the South African construction industry

Risk management in the South African 

construction industry 

Opolot, P.K. 1 , Buys, N. S. 2 and Slabber, J. M. 3 

1 Department of Building and Quantity Surveying, Nelson Mandela Metropolitan University, 

PO Box 77000, Port Elizabeth, 6013, South Africa. Tel: (041) 504 2153 Fax: (041) 504 

9935, E-mail: johann.slabber@nmmu.ac.za 

2 Department of Building and Quantity Surveying, Nelson Mandela Metropolitan University, 


9935, E-mail: fanie.buys@nmmu.ac.za 

³ Department of Building and Quantity Surveying, Nelson Mandela Metropolitan University, 


9935, E-mail: johann.slabber@nmmu.ac.za 

ABSTRACT 

Purpose of this paper: To increase the understanding of risk 

management (RM), consider the current implementation thereof during the 

different construction project life cycle stages in the South African 

Construction Industry (CI) and to report on the level of collaboration and 

communication between parties involved during the construction project life 

cycle stages in terms of risk. 

Design/methodology/approach: The descriptive method for conducting 

research was selected which involved the technique of observation. The 

observation included the use of a questionnaire. 

Findings: Research findings indicate an absence of systematic risk 

management during the construction project life-cycle stages in the South 

African CI. It was only during the construction stage of the construction 

project life-cycle that risk management was found to be of importance. 

Collaboration and communication of risks between parties involved during 

the different construction project life-cycle stages was generally found to be 

average, irrespective of the implementation of a formal risk management 

strategy. 

Research limitations/implications: This research, conducted during 

2009, only considered clients, consultants and contractors in Port 

Elizabeth. Further research may include an increased target population 

more representative of the South African CI. 

Practical implications: Research findings confirm the need for the 

implementation of systematic risk management strategies during the 

different construction project life-cycle stages in the South African CI.

2 Risk management in the South African construction industry 

Original/value: The South African CI can only benefit from this research as 

emphasis is placed on creating an understanding of the importance of 

implementing an effective risk management strategy throughout the 

different stages of the construction project life cycle in the South African CI. 

An effective risk management strategy will further improve communication 

among the various parties to construction projects. This should facilitate the 

decision making process in the event of having to deal with specific risks. 

KEYWORDS: Collaboration, Communication, Implementation, Risk 

Management. 

1. INTRODUCTION 

The CI is subject to more risk and uncertainty than perhaps any other 

industry. Yet, surprisingly, managerial techniques used to identify, analyse 

and respond to risks were not applied in the industry until well into the 

1980s. The procedure of taking a project from inception to completion, and 

then into use is a complex one that entails time-consuming design and 

production processes (Ahmed & Azhar, 2004). 

Some of the risks associated with construction are poor quality of 

work, premature failure of the facility, a lack of safety, poor or incorrect 

design, and financial risks (Mahesh & Kumaraswamy, 2007). Edwards and 

Bowen (2005) have identified RM as an important tool in dealing with and 

overcoming some of the above risks on a construction project. 

According to Mills (2001), RM plays a significant role in the decisionmaking 

process. It can affect productivity, performance, quality and the 

budget on a construction project. The purpose of RM is to ensure that all 

parties to a construction project understand the risks specific to the project 

and reach agreement on how these risks should be managed. 

2. RISK MANAGEMENT 

Several definitions of risk exist in the literature. 

According to the Oxford English Dictionary (2009), risk is a situation 

involving exposure to danger or the possibility that something unpleasant 

will happen. Edwards and Bowen (2005) define risk as the probability that 

an adverse event will occur during a stated period of time. The Project 

Management Body of Knowledge (PMBOK) (2000) defines risk as the 

combined likelihood that an event will occur and the impact thereof on the 

project, if the event does occur. 

According to Bower (2009), RM is the sum of all proactive 

management-directed activities within a programme that are intended to 

acceptably accommodate the possibility of failure in the elements of a 

programme; whereas Van Well-Stam, Lindenaa, Van Kinderen & Van den 

Bunt (2004) define RM as the entire set of activities and measures that are

Risk management in the South African construction industry 3 

aimed at dealing with any possible risks, in order to maintain control over a 

project; and PMBOK (2000) defines RM as the systematic process of 

identifying, analyzing and responding to risk. 

For the purpose of the research, the definition of risk was limited to 

the one that has a negative impact on a project; and hence the definition of 

RM is limited to the process of dealing with adverse risks, as these pose 

hurdles to reaching any agreement on the sharing of strategies and 

mechanisms in the CI. 

According to the definition of RM by PMBOK (2000), it is evident that the 

RM process involves three steps, namely: identifying, analysing and 

responding. This definition however, does not provide a detailed and 

substantial picture of the steps involved, as it consists of a number of subprocesses, 

which in themselves can be viewed as steps. 

For the purpose of the research, a simplified RM process of five 

steps was used. This process, according to Rahman (2003), included: 

Risk Identification: The process of systematically identifying, 

categorising and assessing the initial significance of the risks 

associated with a construction project and documenting their 

characteristics; 

Risk Analysis: The consideration of the sources of different risks; the 

consequences associated with each type of risk or combination of 

risks, and an assessment of the impact of such risks by various riskmeasurement 

techniques; 

Risk Evaluation: The process of comparing the level of risk found 

during the analysis process by means of previously established criteria; 

Risk Response: The process of identifying/developing risk-response 

options and determining actions for treating the risk, targeting 

enhancing opportunities and reducing any threats to project objectives; 

and 

Risk monitoring: The process of keeping track of the identified risks, 

monitoring residual risks, identifying new risks, ensuring the execution 

of risk-reduction plans, and evaluating the effectiveness in reducing 

risk with respect to changing circumstances. 

The construction process can be divided into five main stages (Table 1, 

page 4), but for the purpose of this research, only the first four stages will 

be considered, as it is assumed that RM is limited during the final stage.


Table 1 The construction process 

INCEPTION Appraisal 

Client’s needs and objectives are identified; 

Business case and possible constraints on development 

are identified; 

Preparation of feasibility studies and assessment of 

options to enable the client to decide whether to proceed. 

Design brief 

Development of initial statement of requirements into the 

design brief or on behalf of the client, confirming key 

requirements and constraints; 

Identification of procurement method, procedures, 

organisational structure and range of consultants and 

others to be engaged for the project. 

DESIGN Concept 

Implementation of design brief and preparation of 

additional data; 

Preparation of concept design including outlined 

proposals for structural and building service systems, 

outline specifications and preliminary cost plan; 

Review of procurement process. 

Design development 

Development of concept design, including structural and 

building service systems, updated outlined specifications 

and cost plan; 

Completion of project brief. 

Technical design 

Preparation of technical design(s) and specifications, 

sufficient to co-ordinate components and elements of the 

PRE- 

CONSTRUCTION 

project. 

Production information 

Preparation of detailed information for construction. 

Tender documentation 

Preparation of tender documentation. 

Tender action 

Identification and evaluation of potential contractors and 

specialists; 

Obtaining and appraising tenders. 

CONSTRUCTION Mobilisation 

Letting the building contract, appointing the contractor; 

Issuing information to the contractor; 

Arranging hand-over of site. 

Construction to practical completion 

Administration of the building contract to practical 

completion; 

Provision to the contractor of further information; 

Review of information. 

USE Post-practical completion 

Administration of the building contract and making final 

inspections; 

Assisting building user during initial occupation period; 

Review of project performance in use. 

Source: Duncan (2009)


Very early during the inception and design stages, it is essential that 

potential risks are identified, categorized and evaluated. Rather than look 

at each risk independently and randomly, it is much more effective to 

identify risks and then group them into categories or alternatively, draw up 

a list of categories and then identify potential risks within each category. 

3. AWARENESS OF RISK MANAGEMENT 

Parties to construction projects, i.e. consultants, contractors, subcontractors 

and suppliers, are all, in their own right, exposed to various 

risks. This statement is supported by Norazian, Hamimah and Ahmad 

(2008), who stressed that no matter how small or simple the project, it can 

still go wrong. As soon as the two parties, the client and the contractor, 

sign a contract, they inherit risk. 

Risk awareness is of paramount importance to all parties to ensure 

that any possible risk occurrence may be reduced. In the South African CI, 

formal RM is still perceived as a fairly new management concept. Further 

evolution of the industry is required before more parties implement RM in 

the South African CI. Some of the parties are reluctant to change, as they 

remain comfortable in fulfilling their traditional roles within industry, without 

realizing the potential benefits of implementing this management concept. 

With the many technological changes, increased inflation and the 

emerging challenges pertaining to energy and the environment, RM is a 

management tool that CI professionals cannot afford to be without. 

However, even though it cannot be denied that there are some companies 

in the CI which practise RM in their daily operations, RM awareness 

remains limited. Currently the RM culture can only be seen in large 

companies which have a very good reputation, strong financial standing 

and are involved in fairly large scale construction projects (Edwards & 

Bowen, 2005; Norazian, et al., 2008). 

4. THE IMPLEMENTATION OF RISK MANAGEMENT IN 

CONSTRUCTION 

According to Van Well-Stam, et al. (2004), implementing RM is no simple 

task. They further elaborate that the parties to construction projects are 

often inclined to view the performance of risk analysis with a certain degree 

of scepticism, and thus fail to cooperate in the implementation of RM. 

Implementing RM is a process that needs to be tailored to each different 

project, and in most cases it will depend on the following (Van Well-Stam et 

al., 2004): 

the size of the construction project; 

the scale of the construction project; 

the phase of the construction project; and 

the knowledge and experience of RM within the project.


Walewski and Gibson (2003) maintain that the relationship between RM 

and the different construction project life cycle stages is a difficult task, as 

RM is isolated from the progress of the construction project. Construction 

projects have different parties who are responsible for various stages of a 

project’s life cycle. In most cases, the client is largely responsible for the 

inception and programme analysis, while a third party is often appointed to 

manage the design or to meet the initial brief outlined by the client. The 

contractor is then appointed to construct the project. 

The structure of a construction project entails different stages which 

require different responsibilities. An individual party only becomes 

concerned when a particular risk arises. He/she will then try to transfer this 

risk knowingly or unknowingly to other parties (Kim & Bajaj, 2000). 

5. THE RELATIONSHIPS BETWEEN PARTIES 

5.1 Collaboration 

Collaboration is useful for RM, since the aim of RM is to minimise the total 

costs of a project. From a whole project perspective, co-ordinating and 

integrating different parts is the most important task. This can be facilitated 

by close and efficient collaboration. 

Klemetti (2006) has identified collaboration as a key to construction 

success, but indicated that detailed methods of measuring collaboration 

performance are usually missing. 

Construction projects are joint efforts undertaken by a number of 

parties who need to work closely together. Variations in the project (for 

example: schedule changes, incomplete plans and other unexpected 

events) may result in the need to coordinate daily work and implement 

efficient practical problem-solving procedures, together with on-site 

management to ensure efficient performance (Ibid). 

Collaboration is needed in order for the different parties to have a 

comprehensive view of the wide range of risks. Long-term relationships 

encourage longer-term commitments and more efficient risk sharing; trustbased 

relationships can assit to avoid many disclaimer clauses which in 

turn can lead to cost reductions (Norazian, et al., 2008; Klemetti, 2006; 

Osipova, 2008). 

Collaboration can also benefit a client by offering them at least a 

measure of control over other parties: for example, subcontractors in 

construction projects should be selected in a similar way in which the main 

contractors were selected. In a way, collaboration adds to the influence a 

client has on RM (Osipova, 2008). 

According to Klemetti (2006), contracts normally act as an instrument 

for sharing risks, though researchers tend to think that in the CI exhaustive 

risk allocation cannot be achieved solely through contractual arrangements.


Main contractors can benefit from gaining local knowledge by co-operating 

with the local partners on foreign ground. Working together creates similar 

working methods and practices amongst the parties; and co-ordination then 

becomes more effective. Risks are already mitigated when shared working 

methods and common practices create accepted behavioural patterns 

which make parties’ reactions more predictable. 

The more predictable and certain the future, the less the uncertainty is 

likely to be, thereby benefiting all the project parties (Klemetti, 2006). The 

following factors of collaboration are considered to be of importance during 

the implementation of RM (Klemetti, 2006): 

Attitudes of parties (trust and commitment); 

Effective co-ordination; 

Effective information exchange between parties; 

Established process for dispute resolution; 

Fair and open allocation of identified risks; 

Fair and open allocation of unforeseen risks; 

Joint responsibilities; 

Open communication between parties; 

Opportunities for future cooperation; 

Personal responsibilities; 

Understanding of other parties’ goals; and 

Understanding of other parties’ roles. 

5.2 Communication 

Construction organisations must form effective communication links in 

order to realise the benefits of partnerships and alliances. According to 

Cheng, Li, Love and Irani (2001), organisations that rely on co-operation 

and trust have been found to obtain lower costs for as long as the network 

is maintained. It is critical to the success of a construction project that the 

distinct parties to the project are integrated using communication methods 

that allow for the sharing and exchange of resources amongst its members. 

They continue to state that to support and improve communication in the 

construction industry, many alliances and partnering initiatives exist which 

can improve the overall communication and interaction levels within the 

construction environment. Due to the distinct nature of the industry many 

project teams part when the project ends, and therefore the communication 

channels that have been formed are completely dissolved. On private 

projects however, the communication channels and links tend to be strong 

due to the long life cycle of the contract where documentation is shared 

and transferred openly as part of the open but structured communication 

network. 

Communication between the different parties is essential when one 

considers the different responsibilities of the parties associated with a


project. The effectiveness of parties is a function of the effectiveness of the 

communication between the various parties (Edwards & Bowen, 2005). 

6. RESEARCH METHODOLOGY 

This paper presents part of the findings of a research project, conducted in 

2009, that investigated the implementation of RM in the South African CI or 

more specifically, the CI in Port Elizabeth. Data for the research was 

collected and included both primary and secondary sources. The primary 

data was obtained from questionnaires administered to construction 

industry stakeholders. The secondary data was obtained from the internet, 

journals, library books, conference papers, theses, magazines and 

newspapers. This data served as a basis for establishing the theory and 

criteria against which empirical research of the primary data was 

measured. 

The research was quantitative in nature; a descriptive quantitative 

method was used in the study. Some of the data collected was descriptive 

while some was in numeric form. Leedy and Ormrod (2005) point out that 

descriptive research examines a situation as it is; it does not involve 

changing or modifying the situation under investigation, nor does it intend 

to detect cause-and-effect relationships. 

A total of 55 questionnaires were sent to construction industry clients, 

property developers, consultants (architects, quantity surveyors, consulting 

engineers) and contractors. Fifteen (15) responses were received of which 

one was not satisfactorily completed. This resulted in an effective response 

rate of 25.5%, which was deemed acceptable for the research. 

6.1 Questionnaire design 

The questionnaire was developed consisting of four sections. The first 

section consisted of questions pertaining to the respondent’s demographic 

background. In the second section, aspects related to the awareness of RM 

were covered. The third section investigated the implementation of RM 

from inception to completion in construction projects while the fourth 

section investigated collaboration and communication between the parties 

associated with construction projects in terms of risk. 

Closed and open questions were asked. The closed questions had a 

selection of choices which offered the respondents the opportunity of 

selecting answers that they felt were (most) appropriate. Closed ended 

questions are advantageous, especially when a substantial amount of 

information on a subject exists and the response options are relatively well 

known (Walliman, 2006). The use of closed ended questions considers the 

fact that respondents are usually busy and this method enables the 

researcher to obtain responses promptly.


7. FINDINGS 

7.1 Knowledge of risk management 

From the responses it was evident that all respondents were aware of RM 

in the CI. As many as 43% of the respondents became aware of RM 

through study, 21% through workshops, and 29% of the respondents 

through other means, for example, word of mouth, on construction sites 

and application on projects. One respondent became aware of RM through 

both study and workshops. The majority of the respondents (71%) 

evaluated their knowledge of RM as fair, despite the fact that they were 

fully aware of it. 

Table 2 Knowledge of RM 

Ref Stakeholder: 

1=Low 

% 

RM Knowledge level 

2=Fair 3=High 

% 

% 

Total 

% 

Mean 

1 Client/Developer - 100.0 - 100 2.0 

2 Contractor 20.0 60.0 20.0 100 2.0 

3 Consultant 33.3 66.7 0 100 1.67 

Mean 1.89 

Table 2 indicates that all stakeholders had some knowledge of RM in the 

construction industry. Both ‘Client/Developer’ and ‘Contractor’ categories 

have a ‘Fair’ (2.0) knowledge, while consultants’ RM knowledge is slightly 

less than ‘Intermediate’. This category together with the mean rating of all 

categories (1.89) are somewhat disturbing as without a proper knowledge 

of RM, it cannot be used efficiently. 

7.2 Risk management processes during project stages 

Figure 1 (page 10) illustrates the extent to which the various RM steps are 

utilised during the different project stages of construction projects.


The results show that: 

Figure 1 RM processes systematically performed 

All the processes are used during all the project stages; 

Very few processes are utilised during the ‘Inception’ and ‘Design’ 

stages. This is alarming as many potential risks can be identified 

during these stages; 

The construction stage being the most significant stage in terms of 

the utilization of the RM processes; and 

RM is utilised least during the inception stage of a contract. 

7.3 Importance of risk management during project stages 

The respondents were requested to rate the importance of RM during every 

project stage (Figure 2, page 11). The pre-construction and construction 

stages were identified as being most important for the management of 

risks. Interestingly, compared to Contractors and Consultants, Clients do 

not perceive RM to be that important. From the distribution, it can be 

concluded that parties associate the highest incidence of risks with the 

construction stage.


Figure 2 Importance of RM 

7.4 Degree of influence stakeholders have on risk management 

Table 3 presents the respondents’ judgement on the various parties’ 

influence on RM in construction projects. It is evident that clients (mean 

2.93) had a relatively small influence on RM. Consultants (mean 3.71) had 

more influence while it was felt that contractors (mean 4.07) had the 

biggest influence on RM. 

Table 3 Degree of influence on RM 

Ref Category: 

1=Little Influence 5=Big influence 

1 2 3 4 5 

Mean 

1 Client/Developer 0 6 4 3 1 2.93 

2 Contractor 0 1 1 8 4 4.07 

3 Consultant 0 2 3 6 3 3.71 

This phenomenon can be linked to Figure 2 where the parties indicated that 

RM is primarily practised during the construction stage where the 

contractor is heavily involved with operations on site. 

7.5 Responsibility of risk management during project stages 

Table 4 (page 12) shows a matrix of responsibilities of the various 

stakeholders during the different project stages. It shows that there is a 

perception that consultants have a major role to play during the first three 

stages whereas the contractor’s role comes to the fore during the 

construction stage. Although this may seem as contradictory to the 

previous set of results, it may indicate that stakeholders perceive that 

consultants should be more involved with and take responsibility to fulfil the


role of risk manager. It is thus vital that consultants become more involved 

with all aspects of risk management and identify RM as an additional 

service that they can provide to clients/developers. 

Table 4 Matrix of responsibilities during various stages 

Risk Stage: Client Contractor Consultant Jointly 

Inception stage 10 9 24 10 

Design stage 5 8 40 7 

Pre-construction stage 6 15 26 14 

Construction stage 1 34 23 8 

7.6 Collaboration and communication between built environment 

stakeholders 

Table 5 shows that the majority of respondents rated collaboration (mean 

3.07) and communication (mean 3.00) between parties as ‘average’. This is 

a major concern as, from the whole project perspective, co-ordinating and 

integrating different parts is the most important task. This can only be 

facilitated by close and efficient collaboration. 

Table 5 Collaboration and communication between parties 

Ref Category: 

1=Poor 3=Average 5=Excellent 

1 2 3 4 5 

Mean 

1 Collaboration 1 1 8 4 - 3.07 

2 Communication 1 2 7 4 - 3.00 

Mean 3.04 

Similarly, it is critical to the success of a construction project that the 

various parties to the project are integrated using communication methods 

that allow for the sharing and exchange of information and resources 

amongst its members. The CI needs to communicate better, not only with 

the outside world, but also its distinct professions. Communication is a 

professional practice and it is therefore not surprising that the majority of 

people within the construction industry who communicate most often are 

the distinct professions, such as the contractor, the client and the 

consultant. 

8. CONCLUSIONS 

Time, cost and quality are the factors to be considered during the 

implementation of RM. All parties to a project should have a 

comprehensive understanding of the risks involved, and RM procedures 

should be implemented throughout all the stages of a construction project.


The aim of this research was to increase the understanding of RM and 

hence the need for the implementation of RM during the different project 

stages. The survey conducted amongst clients, contractors and 

consultants concluded, amongst others that: 

The majority of the respondents (71%) evaluated their knowledge of 

RM as ‘Fair’, despite the fact that they were fully aware of it; 

The construction stage was identified as being the most significant 

project stage in terms of the utilization of RM processes; 

The pre-construction and construction stages were identified as being 

the most important for the effective management of risks; 

The contractor has the biggest influence on RM; 

Consultants have a major role to play during the first three project 

stages whereas, the contractor’s role comes to the fore during the 

construction stage; and 

The majority of respondents rated collaboration and communication 

between parties as ‘Average.’ 

9. RECOMMENDATIONS 

The findings of this research are expected to contribute to more effective 

RM implementation and, therefore, should benefit the construction industry 

as a whole. To achieve this objective the following recommendations are 

made: 

The majority of respondents evaluated their knowledge of RM as 

intermediate; it would therefore be reasonable to suggest RM 

workshops to further educate all parties involved with construction 

projects. With adequate training opportunities in place, an increase in 

knowledge of the subject and an awareness of the importance of RM 

throughout the construction project life cycle can be achieved; 

All built environment stakeholders should become more involved in the 

implementation of RM. Their early involvement will facilitate a better 

understanding of each party’s roles and enhance collaboration and 

communication within the CI. 

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