Is it true that high risk yields high returns in international construction projects?

Wooyong Jung, Seung Heon Han, Yong Woo Kim, Jaechul Choi

Research output: Chapter in Book/Report/Conference proceedingConference contribution

1 Citation (Scopus)

Abstract

Two contradictory assertions have been made in the field of international construction risk. One is that high-risk projects should yield high-returns, as in the field of financial investment. The other maintains that high-risk projects have a likelihood of increasing cost overruns, thereby decreasing profitability. This study is aimed at testing empirically these contradictory hypotheses on the basis of utility theory.We investigated 137 international construction projects carried out by 14 Korean contractors in 34 countries. This survey examined contingency, planned overhead and profit, cost overruns, and profit rate. Furthermore, the level of 71 risk factors was evaluated before and after starting construction. This study reveals that projects predicted as high-risk have a slight tendency to appropriate high contingency and planned overhead profit, but moderately experience cost overruns, thereby having a slight negative relationship with profits. In addition, projects that actually experience high-risk events after the start of construction trigger strongly cost overruns, thereby significantly lowering profitability. These results mean that the rules of "high risk, high return" should not be equally applied to the field of international construction. Although these results can be varied if the concept of return is extended to other values, such as obtaining know-how and future opportunities, this study contributes to evaluating the risk behavior for international construction projects.

Original languageEnglish
Title of host publicationISEC 2011 - 6th International Structural Engineering and Construction Conference
Subtitle of host publicationModern Methods and Advances in Structural Engineering and Construction
EditorsSiamak Yazdani, Sai On Cheung, Amarjit Singh, Nader Ghafoori
PublisherResearch Publishing Services
Pages311-316
Number of pages6
ISBN (Electronic)9789810879204
DOIs
Publication statusPublished - 2011 Jan 1
Event6th International Structural Engineering and Construction Conference: Modern Methods and Advances in Structural Engineering and Construction, ISEC 2011 - Zurich, Switzerland
Duration: 2011 Jun 212011 Jun 26

Publication series

NameISEC 2011 - 6th International Structural Engineering and Construction Conference: Modern Methods and Advances in Structural Engineering and Construction

Other

Other6th International Structural Engineering and Construction Conference: Modern Methods and Advances in Structural Engineering and Construction, ISEC 2011
CountrySwitzerland
CityZurich
Period11/6/2111/6/26

All Science Journal Classification (ASJC) codes

  • Building and Construction
  • Civil and Structural Engineering

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  • Cite this

    Jung, W., Han, S. H., Kim, Y. W., & Choi, J. (2011). Is it true that high risk yields high returns in international construction projects? In S. Yazdani, S. O. Cheung, A. Singh, & N. Ghafoori (Eds.), ISEC 2011 - 6th International Structural Engineering and Construction Conference: Modern Methods and Advances in Structural Engineering and Construction (pp. 311-316). (ISEC 2011 - 6th International Structural Engineering and Construction Conference: Modern Methods and Advances in Structural Engineering and Construction). Research Publishing Services. https://doi.org/10.3850/978-981-08-7920-4-S1-CP16-cd