Developing a fuzzy risk assessment model for target cost and guaranteed maximum price contracts in the construction industry of Hong Kong

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Developing a fuzzy risk assessment model for target cost and guaranteed maximum price contracts in the construction industry of Hong Kong


Author: Chan, Hing-lun Joseph
Title: Developing a fuzzy risk assessment model for target cost and guaranteed maximum price contracts in the construction industry of Hong Kong
Degree: Ph.D.
Year: 2011
Subject: Construction industry -- Risk management -- China -- Hong Kong.
Construction industry -- China -- Hong Kong -- Cost control.
Construction industry -- China -- Hong Kong -- Management.
Construction contracts -- China -- Hong Kong.
Hong Kong Polytechnic University -- Dissertations
Department: Dept. of Building and Real Estate
Pages: xviii, 312 leaves : ill. ; 30 cm.
Language: English
InnoPac Record:
Abstract: Both the Target Cost Contracts (TCC) and Guaranteed Maximum Price (GMP) schemes have been practised worldwide over the past few decades to achieve better value for money and more favourable project outcomes. However, a comprehensive review of previous research studies on TCC/GMP in Europe, the United States, Australia and Asia has indicated that there is a limited amount of empirical research focusing on the TCC/GMP procurement approach, particularly on risk issues in the Hong Kong context. This research study aims to identify, assess and allocate the key risk factors associated with TCC/GMP schemes, and to evaluate the effectiveness of various risk mitigation measures. Based on a comprehensive literature review and a series of structured face-to-face interviews, a total of 34 key risk factors inherent with TCC/GMP contracts were identified. An empirical questionnaire survey was then undertaken to solicit the opinions of relevant industrial practitioners on risk identification and assessment, preference of the allocation on such risk factors and the effectiveness of 18 recommended risk mitigation measures. The key risk factors for TCC/GMP contracts were identified, whilst the preference of risk allocation and the effective risk mitigation measures of projects procured with these procurement strategies were also explored in the questionnaire survey. A Fuzzy Risk Assessment Model for TCC/GMP construction projects was also developed using factor analysis and the fuzzy synthetic evaluation method, based on the results of the questionnaire survey. The top 17 Principal Risk Factors (after the calculation of normalised values) were selected for undertaking factor analysis. Five Principal Risk Groups (PRGs) were then generated in descending order of importance as: (1) Design documentation risks; (2) Third party delay and tender inadequacy; (3) Economic and financial risks; (4) Lack of experience in TCC/GMP procurement process; and (5) Post-contract risks. It was found that "Design documentation risks" are the major hurdles to the success of TCC/GMP projects in Hong Kong.
The developed model was then validated by seven experts of TCC/GMP in Hong Kong and was confirmed as reliable and adequate for use. More importantly, an Overall Risk Index associated with TCC/GMP construction projects and the risk indices of individual PRGs can be generated from the model for reference by project stakeholders. An objective and reliable assessment can be achieved. The model has provided a solid platform to measure, evaluate and reduce the risk levels of TCC/GMP projects based on objective evidence instead of subjective judgments. There are some potential applications of the model which could benefit the construction industry at large. At the pre-contract stage, the clients/developers may input the assessment of the 17 key risk factors into the model to generate a risk index for assessing the use of TCC/GMP schemes for a new construction project. Another possible application of this model is that the contractors may assess the risk level of a new project if procured by a TCC/GMP contract during the peer-review process in bidding at tender stage and they can then decide to bid for it or not. The Overall Risk Index may also help the contractors to quantify the risk exposure of the projects and help in pricing during the bidding exercise. Another useful application of the model is that it has established a norm of TCC/GMP projects with respect to risk assessment in Hong Kong. If there is an adequate number of samples/projects procured with TCC/GMP schemes, a benchmarking model can be built up to help the industrial practitioners to benchmark the risk levels of their own TCC/GMP projects, for example, the Overall Risk Index is 80% of the norm (i.e. lower than the norm ) or 120% of the norm (i.e. higher than the norm). This research study has adopted an innovative approach to overall risk management of TCC/GM P construction projects in Hong Kong, in terms of risk identification, risk assessment, risk allocation and risk mitigation. Further research studies may focus on developing similar risk assessment models for projects procured with traditional fixed-price lump-sum contracts in order to compare and contrast the risk levels of projects procured with different contractual arrangements. The same research methodology may also be applied in different geographical locations to allow an international comparison between the East and the West for risk management of TCC/GMP construction projects.

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