The influence of risk on project performance in Indonesian building contracts

Risks play a significant part in decision making and may affect the performance of a project. If they are not dealt with sensibly, they may cause cost overruns, delays on schedule and even poor quality. The main aims of this study were to collect information to allow the critical risks causing construction delay and cost overrun in building projects in Indonesia to be determined using a new risk assessment approach and to analyse the impacts of perceived project risk on project performance using a path model. Risk factors were identified through an intensive literature review and a total of 30 risk factors were identified and found to fall easily into four major categories. A preliminary questionnaire was designed and respondents in interviews conducted in Indonesia ranked the risk factors in order of their importance. The intention was to produce a manageable list of four critical risks in each category or sixteen risks across all categories. The sixteen risk factors were then used on a multi-project survey to calculate project risk indices. The main survey was predominantly based on interviews with project managers using structured and open-ended questionnaires. A total of 22 building projects under construction were surveyed. The respondents were asked to assess the probability that risks would occur and estimate the impact if the risks did occur using a five point scale. The project managers were also requested to assess the relative importance of each risk using pair-wise comparisons. From this information, a risk index for each project was calculated. It was found that the most critical risks affecting cost overrun and delay perceived by the building contractors were: high inflation/increased material price, design change by owner, defective design, weather conditions, delayed payments on contracts and defective construction work. A common theme amongst the critical risks identified appears to be that they cannot be controlled or managed by the contractors.