Most of the worlds largest international construction firms believe properly managing and pricing risk is their biggest challenge, according to a new survey of 25 megafirm CEOs and top officials by management consulting firm KPMG International.
KPMG says risk management topped the list of company challenges, with 63% of respondents citing it as one of their top three. Shortage of qualified "resources" and securing future workload were the next challenges respondents noted (see chart). The survey was conducted earlier this year among construction megafirms, with 64% of respondents having revenue of more than $1 billion and 59% working multinational. Firms identities were not disclosed, but their base countries include the U.S., U.K., Australia, China, Japan, France, Germany, Malaysia and Sweden. Click here to view chart
"In a sector where risk is high on the corporate agenda, the need to manage risk by engaging with the right clients with the right projects, while retaining an appropriate risk/reward profile is essential to business success," says the study.
About 30% of respondents blame risk "abdication" by clients for contract disputes and 25% say they would not ignore their firms own risk management practices to win work. "We take risks but dont always have allowances and understanding of those risks," says one U.K. firm executive in the survey. Even so, KPMG says nearly 40% of respondents did not list risk management as a top challenge because of existing "advanced risk management frameworks."
The study finds geographical differences in how firms procure work. Of the three-quarters of respondents who do this mostly through competitive bidding, 70% are European. The bulk of Asian and Australian contractors rely mostly on existing relationships or referrals. Those contracts also show lower levels of disputes, says KPMG. About 30% of respondents blame client risk unresponsiveness for contract disputes.
Executives cite poor forecasting, risk identification and cost escalation as the three top reasons for reduced project margins over the last 12 months, says the survey. Says one Australian executive: "We did not fully comprehend the risks when accepting projects in new markets."
Only 29% of respondents have detected internal fraud in the last year, but nearly 30% express little or no confidence in corporate controls.