Construction risk management in developing countries

Since the final products of construction industry are generally unmovable items such as buildings, facilities or infrastructures, the construction industry has been considered as a local industry in the past. However, through the benefits of globalization, which increased after 1950s, construction industry began to internationalize like many other industries and this internationalization increased rapidly by the help of international institutions and commercial agreements in the late 1990s. Developing countries has a major role in international construction market. When the characteristics of developing countries are examined, it can be seen that they provide the development criteria in economy, social life, human rights or technology at a certain level, but not as much as the developed countries. Besides, when the economic structure of developing countries are examined, it can be seen that the construction industry has an important role in these countries, since its ability to provide a nationwide economic mobility through its various sub-industries. Due to increasing need of complex construction projects, which are beyond the capacity of local contractors, developing countries become an attractive market for international contractors. Financial aids provided for developing countries and increasing income from natural resources in the Middle East, are some of the other factors, which increase the importance of developing countries in the international construction market. All these factors along with the great profit expectations, lead contractors to the international market. However, international construction market contains much more risk than local construction markets. In addition to regular construction risks, international projects are exposed to financial, technical and logistical risks in overseas construction market. Especially in developing countries, these risks exist alongside various local factors such as socio-political and economic stress, lack of resources or institutional inabilities. These facts make it necessary for international contractors to take special precautions against construction risks, especially when operating in developing countries. Risk and uncertainty are inherent elements of construction business. Generally, these risks are gathered under six categories, which are technical, logistical, managerial, environmental, socio-political and economical risks. Construction risks can also be classified according to their sources, characteristics or the factors they are affected by. Risk management is a concept, which became popular at corporate level after 1950s, also with the help of increasing academic studies on this subject. However, it became a popular topic in construction industry in 1990s. Generally, risk management refers to the process of identification and evaluation of potential risks, developing response plans and monitoring the results. Opportunities or positive risks are also identified and evaluated in the risk management process. The response plans against the risks can be avoiding, mitigating or sharing the risk as well as accepting it. As it is already stated, international construction projects are exposed to high amount of risk, since international projects are usually large scaled projects and directly affected by economic or socio-political status of the target country. There is a large number of studies in the literature regarding to international construction risks. However, many studies focus on these risks in a general categorization such as market, country or project level risks. In addition, some of the studies collect data from various projects and from various countries, which may mislead the researcher, since every country and every project have their own dynamics. In this sense, this study presents a detailed case study based on a specific international construction project, which is located in a developing country. The selected project for this case study is "Turkmenbashi International Seaport", which is located in Turkmenbashi, Turkmenistan and under construction by the year 2017. The project value is approximately 1.5 billion US dollars and was undertaken by a single Turkish construction company. It is a complex project consisting of terminals, shipyards, railroads, highways and administration facilities. In the scope of the case study, 50 risk factors are identified, which are common in large-scale international projects according to literature review. In the first part of the study, background information was collected from the participants, which are 20 employees from head office in Turkey and site office in Turkmenbashi. In the second part, participants were asked to evaluate the identified risks in terms of their risk impact level (scale of 1 to 5) and probability of occurrence (percentage) according to their experience and insight. In the final part of the survey, 15 top rated risks were identified through the data collected from the second part of the survey. Afterwards, in order to collect information about the mitigation and response techniques used in the company against these risks, open-ended interviews were carried out with the executives of the related departments. According to the results of the study, highest and lowest rated risks were analyzed. Generally, risks related to delayed payments from employer, budget overruns, missing the project deadline, late submittal of projects and logistics were rated as the highest risks. On the other hand, risks related to force majeure, intercountry relations or company's adaptation to the country were considered as the lowest level risks. The probable reasons for these risk ratings were also explained in the study. Among the responses, the standard deviation values were calculated and it was observed that the results were generally consistent; however, there are some different opinions about certain risks due to the characteristics of the participants. In this context, the risk rankings made by respondents according to their characteristics such as managerial level, gender, profession, working location (headquarters or site) were analyzed using Pearson and Kendall's W correlation tests. The results and correlations are presented in the appendices and fourth chapter of the study. According to the results received in the second part of the case study, 15 top rated risks were identified. After that, interviews were carried out with the executives in the company in order to gather information about risk response and mitigation techniques used at the company and details are presented in the fourth chapter of the study. In general terms, these measures consist of a number of risk avoidance and mitigation methods developed on financial, technical, managerial and logistical risks by taking into account the fact that these risks are directly influenced by the dynamics of the country and geography. Within the scope of this thesis, developing countries, international construction industry, risks in construction and risk management issues are examined. In order to support the findings and obtain new information regarding to the subject, a case study is carried out, of which the details are summarized above. As a result of this thesis, the statements presented in the introductory part of the study are verified and a number of suggestions are provided for the future studies.