Developing an Enterprise Risk Management maturity model applicable for construction companies

Wubet, Worku Asratie ORCID: 0000-0002-8948-0578 (2023). Developing an Enterprise Risk Management maturity model applicable for construction companies. University of Birmingham. Ph.D.

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Abstract

Risk, a common phenomenon in the construction industry, remains a major challenge for construction companies in developing countries. Enterprise Risk Management (ERM) has been commended as an essential tool for managing a company’s risks in a holistic and an integrated approach. Companies’ ERM competence is measured using an ERM maturity model (ERM3); however, there exists no generic model that can be successfully applied in all companies. The aim of this study was, therefore, to develop an ERM maturity model that will be used to evaluate the risk management (RM) competence of construction companies.
Both qualitative and quantitative research approaches were employed in this research. A detailed review of the literature has showed major shortcomings in the existing ERM maturity models, mainly in the consistency in the content of the models and in following proper procedures while the models were developed. Accordingly, a new ERM maturity model (ERM3-CON) has been developed through a well-established procedural framework. This model contains six different attributes: (i) policy and strategy; (ii) structure and governance; (iii) culture; (iv) process; (v) competence; and (vi) implementation. The first two of these are new attributes introduced in this model, which were rarely considered in the existing models. Four levels of maturity, namely, naive, novice, managed and optimised were found suitable for gauging companies’ ERM maturity.
The suitability of the proposed model was tested by a case study carried out with Ethiopian domestic contractors (EDCs) engaged in major federal road construction projects. Twenty-six (74.3%) out of the total of the thirty-five contractors that were operating in the road sector in 2020 were involved in the study; which also accounted for about 18% of the total of 145 Grade-1 contractors that were registered in Ethiopia in the same year. Thirty-six indicators were utilised for measuring the maturity. The interview survey data, analysed using a fuzzy analysis technique, revealed that contractors’ ERM maturity scores ranged from 1.42 to 2.97 with a weighted average of 2.04 from 4.00 points, which can be generally categorised as a low level of ERM practice. In terms of the maturity levels, 21 (80.8%) of the 26 companies were found to be at a novice level with 4 (15.4%) at managed and 1 (3.8%) at naive levels. These results were found to be consistent with the practices of construction companies in other developing countries.
Several factors can be listed that make this study unique. Unlike many other models, this was developed using a well-defined procedural framework. It also attempts to define the contents of the attributes of the model through a combination of existing ERM maturity models, ERM standards and guidelines, organisational design models and business excellence models. Further, this thesis has managed to reach about three-quarters of the target companies by enabling experts in 26 companies to self-assess the ERM competence of their respective companies through well-established interview questionnaires. Although it was time consuming and demanded a great deal of effort and patience, the achievement of self-assessing 26 companies by a detailed interview was a great success. However, this study clearly has some limitations. The first limitation lies in the lack of validation of the contents of the model involving a large group of experts due to the COVID-19 pandemic’s gathering restrictions. In fact, it was attempted to test the model through three small-scale group discussions. The other potential limitation is that the survey covers only contractors that were engaged in the MFRCPs. Hence, it might require future studies to further verify its application in the other sectors of the industry too. Lastly, appropriate debiasing strategies were also developed that to help overcome the potential limitations that would arise in association with subjectivity and cognitive biases.
This research contributes to foster the RM endeavors in the road construction companies. Most importantly, unlike the traditional RM approach, ERM enhances company performance and the value of a company by enabling companies’ effectively handle their risks in a comprehensive and integrated manner. In addition, as ERM has been proven to improve project performance in the construction industry, practicing ERM is particularly pertinent for companies in the Ethiopian road sector, where successful project completion remains the issue of concern. This suggests that construction companies should start practicing ERM in order to effectively deal with their risks. Further, the proposed ERM3 will helps companies in implementing ERM through an established set of improvement targets.

Type of Work:

Thesis (Doctorates > Ph.D.)

Award Type:

Doctorates > Ph.D.

Supervisor(s):