Modeling Profitability-Influencing Risk Factors for Construction Projects: A System Dynamics Approach

Abstract

The construction projects are highly complicated, due to their unique nature and the involvement of multiple risks and stakeholders in the construction phase. In the construction works, the companies are not getting the profit due to the existence of risk and complexity, and dynamics during the execution stages. Profit is a major goal in construction and profitability is associated with the survival of the construction firms. In construction projects, profitability is associated with the dynamic nature of risks and construction complexities of the project. Without the minimization of losses and reduction of impacts due to risks, the firm’s profitability cannot be improved. The inherent risks in construction projects have a significant impact and reduce the overall profitability during the execution phase and ultimately the loss in the construction business. This study addressed the complexity involved in integrating the causative risk factors influencing construction profitability. Most of the existing studies cover the individual effects of profitability influencing factors. Very few focus on the systematic impact without incorporating the complexity and associated dynamics, presenting a gap targeted by the current study. The current study aimed to assess causative interrelations and interdependencies between profitability influencing risk factors (PIRF), through systems thinking (ST) and system dynamics (SD) modeling. The SD approach was used to evaluate the integrated impacts on profitability-influencing risk categories (PIRC) in construction projects. The causative influencing factors affecting construction profitability were identified through a comprehensive literature review. These were ranked using content analysis, and categorized into significant issues. Through online surveys from 250 respondents and 15 expert opinion meetings, qualitative and quantitative information was formulated. Following these investigations, a causal loop diagram (CLD) was established using the systems thinking (ST) technique, and the integrated effect was quantified using (SD) modeling. The study finds the rising cost of material, supply chain process, payment issues, planning and scheduling problems, financial difficulties, and effective control of manpower and equipment resources as the most critical PIRFs. The integrated effects of PIRFs on (PIRC) were quantified using (SD) modeling. This study helps field professionals with profitability-influencing factors, diagnosing issues, and integrating impacts regarding decision-making and policy formulation. Furthermore, it presents a list ofxxv factors for which the holistic causal interrelationships and interdependencies are discussed in the study. Systems thinking helps managers grasp management difficulties, not through computations, but by deductions from the system’s behavior. The system dynamics explain the quantitative information (impacts) of the variables in the system over a certain period. However, it is important to remember that qualitative and quantitative models may only help with decision-making by enabling linkages and interdependencies to describe complicated system behavior. They advise field practitioners on particular project-related issues. In addition, the model must be combined with case-based, or expert, systems to provide realtime advice to the project team on issues that arise throughout construction projects. The significant contribution of the study is the system-based learning of the impacts of risks on profitability in construction projects. This study would help field professionals learn about PIRFs, causal relations, and their importance in construction projects. Using the current study, professionals can diagnose profitability issues, and assess their impacts for improved decision-making, to manage risks and enhance profitability. The impact of the research is the translation of risks in terms of profitability can be studied. By reverse engineering to riskbased schedules, critical causal profitability influencing risk factors can be managed and mitigated. Finally using these guidelines, the profitability of the construction projects can be enhanced.