Post-Pandemic Risk Management in Small and Medium-Sized Construction Companies.

1.0 Introduction

The COVID-19 pandemic posed many challenges and opportunities not just in construction but across all sectors of the economy. In the UK, there was a 9.9% decline in GPD in 2022 due to the impact of the pandemic (Lea, 2021). It brought about unprecedented economic impacts on businesses and the government. The construction industry was among the most impacted industries by the pandemic. The pandemic mitigation measures such as lockdowns, quarantines, and social distance requirements resulted in delays, increased costs, and other risks.

Risk management, identifying, analyzing, assessing, and controlling risks, is particularly challenging in construction and requires expert input (Lima, Crima & Verbano, 2020). Construction contractors and professionals need to manage risks effectively to maximize profits, reduce losses, avoid unsatisfactory projects, protect the company’s image, prevent professional claims, and, most importantly, ensure that the correct measures are in place. Effective risk management enables contractors to price projects according to the risks involved. It is reasonable to provide higher profit margins for projects that are riskier. Risk management also allows the construction team to pick insurance premiums more effectively.

This dissertation will explore post-pandemic risk management of small and medium-sized construction companies in the UK. This will be achieved by first highlighting the background of the study, formulating research questions, defining the scope and limitations of the study, research methodology, the significance of the study, conducting a comprehensive literature review and conducting data analysis.

1.1 Background of the study.

Construction is a high-risk industry with many uncertainties (Senthil& Mathukannan, 2021). Generally, construction risks are social, political, economic, environmental, design, and operational. They include uncertainties such as weather, accidents, and fluctuations in economic conditions. These risks interfere with the project manager’s goal of delivering quality outputs on time and with the client’s initial budget. Before the pandemic, risk management was challenging but manageable. Project managers were aware of the risks associated with different projects and could easily manage them. The risk management measures in place depended on the financial capacity of the different companies. Companies with more elaborate risk management and insurance premiums were less affected by the pandemic.

Small and medium-sized construction firms were impacted the most during the pandemic, especially during the lockdown days. The pandemic caught them off-guard with very little to no savings to operate on. Over 90% of construction, agriculture, and logistics SMEs reported a reduction in revenue ( Alsharef et al., 2021). About a quarter of the SMEs defaulted on loans and needed help to retain their employees. Over 30% of those had to shut down or struggled to stay operational. The pandemic exposed small and medium-sized construction companies to the importance of effective risk management.

COVID-19-related risk management in the UK varied depending on the phase of the pandemic. During the first lockdown in March 2022, non-essential service industries such as construction had to remain shut entirely down (Burki, 2021). This affected the companies’ cash flow, making them default on their loans or release their workers. After the company was eventually opened up, it became necessary to manage the health and safety risks of the workers through measures such as social distancing and the provision of hygiene facilities such as hand washing points. The government made it necessary for companies with more than five employees to provide comprehensive risk management reports before opening up, and failure to do so would constitute a health and safety law breach. Post-pandemic risk management involves covering health and safety risks related to the pandemic and anticipating occurrences such as the pandemic to ensure comprehensive mitigation plans are in place. Small and medium-sized construction companies are now more aware of the importance of risk management for business continuity.

1.2 Research objectives

This research aims to unveil the post-pandemic risk management for Small and medium-sized construction companies to enable them to manage the risks more effectively. To achieve this goal, this research will be based on the following objectives;

1. Determine the extent of the impact of the pandemic on the supply chain management of small and medium-sized construction companies.
2. To determine the effects of the pandemic on the financial resilience of small and medium-sized construction companies.
3. To identify how small and medium-sized construction companies adapted their risk management after the pandemic.
4. To assess the effectiveness of the risk management strategies adopted by small and medium-sized construction companies.

1.3 Research questions

The research will be based on the following questions;

1. How did the pandemic affect the supply chain management of small and medium-sized construction companies?
2. How did the pandemic impact the financial resilience of small and medium-sized construction companies?
3. What risk management strategies did the companies adopt after the pandemic to safeguard themselves from related risks?
4. How effective do the companies adopt risk management strategies?

1.4 Scope of the study.

This research will focus mainly on post-pandemic risk management for small and medium-sized construction companies. As stated earlier, SMEs were among the most impacted by the pandemic. It has become necessary for companies to reevaluate their strategies in order to shield themselves from such uncertainties.

1.5 Limitations of study.

Conducting this study requires the collection of data from construction firms. This may be challenging because some firms may refrain from responding, while others may provide untrue information. In addition, the construction industry is quite dynamic, and generalizing the findings may need to be revised and require further evaluation.

1.6 Research Methodology.

The mixed quantitative and qualitative research methods will be used in this research. Qualitative methods such as interviews and open-ended surveys will be used to understand the risks of the pandemic on small and medium-sized construction companies. Quantitative research methods such as close-ended surveys and secondary quantitative data will be used to provide mathematical data for analysis to test the effectiveness of the various post-pandemic risk management strategies.

1.7 Significance of the study.

This research will be crucial in identifying and accessing the post-pandemic risk management of small and medium-sized construction companies. Companies in this category may use the results of this data to revise their strategies to manage their risks better. In addition, the research has the potential to contribute to the literature on construction risk management.

2.0 Literature review

2.1 Research background.

2.11 Risk management before the pandemic.

Before the pandemic, most standard forms had a general definition of risks. Siraj& and Fayek’s study reports common risks related to inflation, unforeseen environmental conditions, force majeure, and socioeconomic uncertainties. The study reports minimal use of analysis techniques and diagramming. The research reports ambiguities of insurance premiums, especially before the pandemic. This report also indicates that risk management only focuses on managing projects without taking care of the financial resilience of the construction companies.

2.12 The effects of COVID-19 on small and medium-sized construction companies in the UK.

According to Ogunnusi et al., the COVID-19 pandemic disrupted construction asset procurement and facility management. The study elaborates on how the pandemic impacted the industry positively and negatively. It highlights the adoption of technology as one of the positive impacts of the pandemic. The pandemic also made it necessary for stakeholders to redefine risks as unprecedented circumstances with negative and positive impacts. The study carried out in 2020 reported virtual working and other technological advancements as the new normal that was turning out quite well. They classified the pandemic as force majeure, warranting an extension of time. The study established that the company’s specialization influenced the impact of the pandemic, the academic qualifications of its employees, and the firm’s experience. This study reports the COVID-19 pandemic as an eye-opener that exposed construction parties to improving their operations.

2.13 Risk Management post the pandemic

According to Alzoubi (2022), project managers usually eliminate all the risks associated with each project unless such risks are caused by natural disasters such as COVID-19. This research proposes adopting business information management (BIM) as an effective tool for managing construction risks. Jallow et al. propose the adoption of Artificial intelligence as having a great potential for enhancing construction risk management. Artificial intelligence techniques such as automation and machine learning have proven to improve efficiency in other industries and it is high time this is implemented in the construction industry.

2.14 Extend to which the research questions had been solved by existing literature.

The above literature review provides some insight into the research objectives. It is easy to understand the effects of the pandemic on small and medium-sized construction companies, such as the disruption of the supply chain and straining the financial resources of the companies. The review shows that post-pandemic risk mitigation measures such as BIM and AI are apparent. The data that will be collected will help provide more information about the topic and assess the effectiveness of the post-pandemic measures.

3.0 Research methodology.

3.1 Data collection.

This research will be conducted by administering interviews, surveys, and open-ended questionnaires. Fifteen owners of small and medium-sized construction companies will be interviewed. The owners will be interviewed on how the pandemic impacted them, how they overcame it, and how they adapted as a result of the pandemic. In addition, five project managers will be interviewed to give insight into risk management before, during, and after the pandemic and the effectiveness of the strategies. Finally, surveys and closed-ended questionnaires will be administered to 100 respondents to provide mathematical data for analysis.

3.2 Data analysis.

This study aims to identify post-pandemic risk management of small and medium-sized construction companies and assess their effectiveness. The results of this study will be represented graphically using bar graphs for comparisons, scatter plots to test for relationships, and pie charts for better visualizations.

References

Alsharef, A., Banerjee, S., Uddin, S.J., Albert, A. and Jaselskis, E., 2021. Early impacts of the COVID-19 pandemic on the United States construction industry—International Journal of environmental research and Public Health, 18(4), p.1559.

Alzoubi, H. M. (2022). BIM is a tool to optimize and manage project risk management. International Journal of Mechanical Engineering, 7(1).

Burki, T.K., (2021). Lifting of COVID-19 restrictions in the UK and the Delta variant. The Lancet Respiratory Medicine, 9(8), p.e85.

de Araújo Lima, P.F., Crema, M. and Verbano, C., 2020. Risk management in SMEs: A systematic literature review and future directions. European Management Journal, 38(1), pp.78-94.

Jallow, H., Renukappa, S., Suresh, S. and Rahimian, F., (2022). Artificial Intelligence and the UK Construction Industry–Empirical Study. Engineering Management Journal, pp.1–14.

Lea, R., (2021). GDP fell nearly 10% in 2020 but, after first quarter weakness, should recover well in 2021. Arbuthnot Banking Group, p. 15.

Ogunnusi, M., Hamma-Adama, M., Salman, H. and Kouider, T., (2020). COVID-19 pandemic: The effects and prospects in the construction industry. International journal of real estate studies, 14(Special Issue 2).

Senthil, J. and Muthukannan, M., 2021. Prediction of construction risk management in modified historical simulation statistical methods. Ecological Informatics, 66, p.101439.

Siraj, N.B. and Fayek, A.R., 2019. Risk identification and common risks in construction: Literature review and content analysis. Journal of Construction Engineering and Management, 145(9), p.03119004.