Identification of Risk Paths in International Construction Projects Using Structural Equation Modeling

Abstract

The major aim of this research is to demonstrate that causal relationships exist among various risk factors that necessitate identification of risk paths, rather than individual risk factors, during risk assessment of construction projects. International construction projects have more complex risk-emergence patterns because they are affected by global and foreign country conditions and project-related factors. Identification of a network of interactive risk paths, each of which initiated from diverse vulnerabilities of the project system, is considered to be a better reflection of the real conditions of construction projects than the use of generic risk checklists. In this study, using the data from 166 projects carried out by Turkish contractors in international markets and utilizing structural equation modeling (SEM) techniques, 36 interrelated risk paths were identified and the total effects of each vulnerability factor and risk path on cost overrun were assessed. SEM findings demonstrate that every risk path is initiated from a specific vulnerability factor related to project environment, and that contractor-specific vulnerabilities have the most effect on project cost overrun. Risk identification using SEM helps decision makers in answering what-if questions in the early stages of a project, tracing the effects of interdependent risks throughout the life cycle of the project and evaluating the influence of alternative mitigation strategies, not only on specific risks but also on the whole network of interrelated risk factors.