Management DecisionEnterprise risk management implementation in construction firms : An organizationalchange perspectiveXianbo Zhao Bon-Gang Hwang Sui Pheng Low

Article information:To cite this document:Xianbo Zhao Bon-Gang Hwang Sui Pheng Low , (2014),"Enterprise risk management implementation inconstruction firms ", Management Decision, Vol. 52 Iss 5 pp. 814 - 833Permanent link to this document:http://dx.doi.org/10.1108/MD-02-2014-0082

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Enterprise risk managementimplementation inconstruction firms

An organizational change perspectiveXianbo Zhao

School of Engineering and Technology, Central Queensland University,Sydney, Australia, and

Bon-Gang Hwang and Sui Pheng LowDepartment of Building, National University of Singapore,

Singapore, Singapore

Abstract

Purpose – The purposes of this paper are to: first, identify the critical drivers for and hindrances toenterprise risk management (ERM) implementation in Singapore-based Chinese construction firms(CCFs); second, interpret the critical drivers and hindrances in tandem with organizational changetheories; and third, provide possible strategies to strengthen the drivers and overcome the hindrances.Design/methodology/approach – A questionnaire survey was conducted and responses werereceived from 35 experienced managers in CCFs operating in Singapore.Findings – A total of 13 drivers and 25 hindrances with significant influence were identified. Of them,“improved decision-making” was the top driver, while “insufficient resources (e.g. time, money, people,etc.)” was the most influential hindrance.Research limitations/implications – As the survey was performed with the Singapore-based CCFs,there may be geographical limitation on the identification of the critical drivers for and hindrances toERM implementation. The sample size was still small, despite a relatively high response rate.Practical implications – Specific strategies were identified to strengthen the drivers for ERMimplementation and overcome the hindrances to ERM implementation.Originality/value – This study present the theoretical rational behind the critical drivers for andhindrances to ERM implementation. As few studies have attempted to investigate ERM in constructionfirms, this study contributes to the literature through interpreting ERM implementation froman organizational change perspective. The identification of the drivers and hindrances and themanagerial implications provide practitioners and academics with valuable information as well asa clear understanding of how to consolidate ERM programs and overcome the hindrances.

Keywords Risk management, Organizational change, Driver, Construction firm, Hindrance

Paper type Research paper

1. IntroductionAccording to the International Organization for Standardization (ISO), risk is defined as“effect of uncertainty on objectives” (ISO, 2009, p. 1). Project risk management (PRM)has been emphasized in construction firms because these firms typically depend onconstruction projects to earn revenues and profits (Zhao et al., 2014). However,construction firms are also exposed to the risks outside projects (Low et al., 2009), whichare likely to impact both project objectives and corporate objectives. Thus, a global viewto identify systemic risks was recommended for construction firms venturing intooverseas markets to replace project-only risks (Zhi, 1995).

In recent years, a paradigm shift has occurred in the way companies view riskmanagement, and the trend has moved toward a holistic view of risk management

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/0025-1747.htm

Management DecisionVol. 52 No. 5, 2014pp. 814-833r Emerald Group Publishing Limited0025-1747DOI 10.1108/MD-02-2014-0082

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(Gordon et al., 2009). As the fundamental paradigm in this trend, enterprise riskmanagement (ERM) has attracted worldwide attention (Liu et al., 2013). The Committeeof Sponsoring Organizations of the Treadway Commission defines ERM as “a process,effected by an entity’s board of directors, management and other personnel, applied instrategy setting and across the enterprise, designed to identify potential events that mayaffect the entity, and manage risk to be within its risk appetite, to provide reasonableassurance regarding the achievement of entity objectives” (COSO, 2004, p. 2). Afflictedwith various risks, construction firms have been considered as prime candidates for ERMimplementation (Zhao et al., 2013b). Implementing ERM in construction firms can be seenas a gradual organizational change because the management in these firms has beenaccustomed to PRM and needs to adapt to ERM.

This study aims to interpret ERM implementation in Chinese construction firms(CCFs) based in Singapore from an organizational change perspective. The specificobjectives are to: first, identify the critical drivers for and hindrances to ERMimplementation in Singapore-based CCFs; second, interpret the critical drivers andhindrances in tandem with organizational change theories; and third, provide possiblestrategies to strengthen the drivers and overcome the hindrances.

2. ERM2.1 Drivers for ERM implementationERM adoption has been compelled by a series of legal compliance and corporategovernance requirements (Kleffner et al., 2003; Liebenberg and Hoyt, 2003). Some of theserequirements are the mandatory laws or regulations, while others are non-mandatoryreports or standards that create public pressures and benchmarks for sound managementpractices (see Table I). In addition, as ERM can increase firm’s value, the three main ratingagencies, i.e. S&P, Moody’s and Fitch, have recognized a company’s ERM system asa factor in their rating methodology (Gates, 2006; Liebenberg and Hoyt, 2003).

Although compliance and corporate governance requirements have driven firmsto adopt ERM, firms also carried out ERM for potential benefits (Pagach andWarr, 2011). Such benefits should be convincing and can exceed the significantcosts associated with initiating an ERM program (Hallowell et al., 2013). A total of 11potential benefits of ERM (D04-D14) are identified from the literature review,as Table II indicates. These potential benefits may also drive ERM implementation inconstruction firms. In addition, Liebenberg and Hoyt (2003) believed that a broaderscope of risks from globalization, market and greater risk interdependence, as wellas the advances in information technology (IT) could drive companies to adopt ERM.Because of the external factors and benefits, the board and senior managementwould embrace ERM. Gates (2006) indicated that the board request was a primarydriver for ERM implementation.

2.2 Hindrances to ERM implementationIn addition to the driving factors, ERM implementation is faced with hindrances,which increased the difficulty in fully adopting ERM. In a survey, 70 percent of theNorth American respondents considered ERM as their most challenging issue(CFO/Crowe, 2008). As shown in Table III, 36 factors (i.e. H01-H36) hindering ERMimplementation are identified from studies relating to ERM in various industries.Because of these hindrances, the percentage of firms adopting or implementing ERMwas relatively low. Liu et al. (2011) reported that only 14.7 percent of the CCFsoperating overseas had fully implemented ERM.

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2.3 ERM in construction firmsIn construction firms, ERM and PRM are approaches to dealing with risks at differentlevel, with different goals (Liu et al., 2011). ERM deals with risks at the firm leveland focusses on the strategic, operations, reporting, and compliance objectives of a firm(COSO, 2004), while PRM handles risks at the project level and focusses on projectobjectives (Liu et al., 2011). Actually, project objectives are within the corporate objectives,serving as the main elements of operational objectives of a construction firm because theoperation of a construction firm mainly depends on the construction projects that it isengaged in (Zhao et al., 2013a).

PRM is still necessary and should not be considered as a hindrance to implementingERM in a construction firm. PRM has been considered as one of the nine projectmanagement knowledge areas (PMI, 2008), and is critical to the success of projects andthe survival of construction firms. Hence, ERM cannot replace the role of PRM. In fact,PRM is an integral part of ERM because project risks are within the entire risk profileof a construction firm and ERM should be implemented at all levels of a firm, includingthe project level (Zhao et al., 2013a). Effective PRM practices, which properly deal withproject risks, can contribute to ERM effectiveness throughout a firm. In turn, ERM

Initiatives Description

Sarbanes-Oxley Act (SOX) in USA Enacted in 2002 as a reaction to major scandals includingthose affecting Enron and WorldCom, the SOX requiresmanagement and the external auditor to report on theadequacy of the company’s internal control over financialreporting in Section 404

New York Stock Exchange (NYSE)Corporate Governance Rules

In 2004, the NYSE adopted corporate governance rules thatrequire the Audit Committees of its listed companies todiscuss policies concerning risk assessment and riskmanagement, including major financial risk exposures and thesteps that management has taken to monitor and control suchexposures

UK Corporate Governance Code The UK Corporate Governance Code 2010 aims at thecompanies listed in the London Stock Exchange. The ListingRules require public listed companies to disclose how theyhave complied with the code and explain where they have notapplied the code

Basel II Basel II, initially published in 2004, is to create aninternational standard that banking regulators can use whencreating regulations about how much capital banks need toput aside to guard against the types of financial andoperational risks banks face

Dey Report in Canada The Dey Report, commissioned by the Toronto StockExchange, requires companies to report on the adequacy ofinternal controls

CoCo Report in Canada The CoCo Report, namely the “Guidance on Control” producedby the Criteria of Control Board (CoCo) of the CanadianInstitute of Chartered Accountants, specifies reporting on riskassessment and risk management

ISO 31000:2009 ISO 31000:2009 provides generic guidelines intended topromote the adoption of consistent processes so as to ensurethe risk is managed effectively, efficiently and coherentlyacross organizations

Table I.Regulatory complianceand corporate governancerequirements

816

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Ref

eren

ces

Cod

eD

riv

ers

for

ER

Mim

ple

men

tati

on1

23

45

67

89

1011

1213

1415

1617

Su

m

D01

Leg

alan

dre

gu

lato

ryco

mp

lian

cere

qu

irem

ents

||

||

|5

D02

Non

-man

dat

ory

rep

orts

orst

and

ard

s|

||

||

5D

03C

red

itra

tin

gag

enci

es’

req

uir

emen

ts|

|2

D04

Red

uce

dea

rnin

gs

vol

atil

ity

||

||

||

|7

D05

Red

uce

dco

sts

and

loss

es|

||

||

|6

D06

Incr

ease

dp

rofi

tab

ilit

yan

dea

rnin

gs

||

|3

D07

Imp

rov

edd

ecis

ion

-mak

ing

||

||

||

||

8D

08B

ette

rri

skre

por

tin

gan

dco

mm

un

icat

ion

||

|3

D09

Incr

ease

dm

anag

emen

tac

cou

nta

bil

ity

||

||

4D

10G

reat

erm

anag

emen

tco

nse

nsu

s|

||

|4

D11

Com

pet

itiv

ead

van

tag

es|

||

|4

D12

Bet

ter

reso

urc

eal

loca

tion

||

|3

D13

Imp

rov

edow

ner

s’sa

tisf

acti

on|

1D

14Im

pro

ved

con

trol

ofan

ente

rpri

seon

its

pro

ject

s|

1D

15A

bro

ader

scop

eof

risk

s|

1D

16A

dvan

ces

inIT

|1

D17

Req

ues

tan

den

cou

rag

emen

tfr

omth

eb

oard

and

sen

ior

man

agem

ent

||

2

Note

:|

mea

ns

the

incl

ud

ion

ofan

ind

icat

or(d

riv

ers/

hin

dra

nce

s)in

the

corr

esp

ond

ing

refe

ren

ces

Sourc

es:

1,H

oyt

and

Lie

ben

ber

g(2

011)

;2,G

ates

(200

6);3

,Lam

(200

3);4

,Wal

ker

etal.

(200

2);5

,Mic

coli

s(2

003)

;6,L

ieb

enb

erg

and

Hoy

t(2

003)

;7,M

anab

etal.

(201

0);

8,H

arri

ng

ton

etal.

(200

2);

9,M

eulb

roek

(200

2);

10,

Kle

ffn

eret

al.

(200

3);

11,

KP

MG

(201

0);

12,

Tow

ers

Per

rin

(200

6);

13,

Wil

liam

s(2

005)

;14

,M

illa

ge

(200

5);

15,

Mu

rali

dh

ar(2

010)

;16

,N

occo

and

Stu

lz(2

006)

;17

,L

iuet

al.

(201

1)

Table II.Drivers for ERM

implementation

817

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Ref

eren

ces

Cod

eH

ind

ran

ces

toE

RM

imp

lem

enta

tion

12

34

56

78

910

1112

1314

1516

1718

1920

2122

2324

2526

27

H01

Low

dat

aq

ual

ity

||

|H

02L

ack

ofd

ata

||

|H

03In

suff

icie

nt

reso

urc

es(e

.g.

tim

e,m

oney

,p

eop

le,

etc.

)|

||

||

||

||

||

|

H04

Lac

kof

afo

rmal

ized

ER

Mp

roce

ss|

||

H05

Lac

kof

risk

man

agem

ent

tech

niq

ues

and

tool

s|

||

||

||

H06

Lac

kof

inte

rnal

kn

owle

dg

e,sk

ills

and

exp

erti

se|

||

||

|H

07L

ack

ofq

ual

ifie

dp

erso

nn

elto

imp

lem

ent

ER

M|

|H

08L

ack

ofa

risk

man

agem

ent

info

rmat

ion

syst

em(R

MIS

)|

||

H09

Un

sup

po

rtiv

eor

gan

izat

ion

alst

ruct

ure

||

||

||

H10

Un

sup

po

rtiv

eor

gan

izat

ion

alcu

ltu

re|

||

||

||

||

|H

11L

ack

ofa

com

mon

risk

lan

gu

age

||

H12

Lac

kof

risk

awar

enes

sw

ith

inth

eor

gan

izat

ion

||

H13

Con

fid

ence

inth

eex

isti

ng

risk

man

agem

ent

pra

ctic

es|

|

H14

Ex

iste

nce

orre

-em

erg

ence

ofth

esi

lom

enta

lity

|H

15L

ack

ofsh

ared

un

der

stan

din

gan

dap

pro

ach

tori

skm

anag

emen

tac

ross

dep

artm

ents

|

H16

Lac

kof

un

der

stan

din

gre

lati

ng

toef

fect

ive

ER

Mp

roce

ss|

H17

Per

cep

tion

that

ER

Mad

ds

tob

ure

aucr

acy

||

H18

Per

cep

tion

that

ER

Min

crea

ses

cost

san

dad

min

istr

atio

n|

H19

Per

cep

tion

that

ER

Min

terf

eres

wit

hb

usi

nes

sac

tiv

itie

s|

H20

Inad

equ

ate

trai

nin

gon

ER

M|

H21

Lac

kof

anE

RM

bu

sin

ess

case

||

|

(con

tinu

ed)

Table III.Hindrances to ERMimplementation

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Ref

eren

ces

Cod

eH

ind

ran

ces

toE

RM

imp

lem

enta

tion

12

34

56

78

910

1112

1314

1516

1718

1920

2122

2324

2526

27

H22

Lac

kof

per

ceiv

edv

alu

eor

ben

efit

sof

ER

M|

||

||

H23

Lac

kof

com

mit

men

tof

the

boa

rdan

dse

nio

rm

anag

emen

t|

||

||

|

H24

Not

per

ceiv

edas

ap

rior

ity

by

sen

ior

man

agem

ent

||

|

H25

Lac

kof

boa

rdor

sen

ior

man

agem

ent

lead

ersh

ip|

H26

Th

em

ovem

ent

ofth

eE

RM

cham

pio

nfr

omse

nio

rm

anag

emen

tin

toot

her

area

sw

ith

out

asu

cces

sor

|

H27

Lac

kof

con

sen

sus

onb

enef

its

ofE

RM

amon

gb

oard

mem

ber

san

dse

nio

rm

anag

emen

t|

H28

Oth

erm

anag

emen

tp

rior

itie

s|

||

H29

Lac

kof

acl

ear

ER

Mim

ple

men

tati

onp

lan

|H

30In

abil

ity

toco

ord

inat

ew

ith

oth

erd

epar

tmen

ts|

H31

Lac

kof

ase

tof

met

rics

for

mea

suri

ng

per

form

ance

ofE

RM

|

H32

Un

clea

row

ner

ship

and

resp

onsi

bil

ity

for

ER

Mim

ple

men

tati

on|

H33

Org

aniz

atio

nal

turf

||

H34

Em

plo

yees

’rel

uct

ance

tog

ive

up

pow

er|

H35

Em

plo

yees

’rel

uct

ance

tosh

are

risk

info

rmat

ion

|H

36R

eces

sion

and

bu

sin

ess

dow

ntu

rn|

Note

:|

mea

ns

the

incl

ud

ion

ofan

ind

icat

or(d

riv

ers/

hin

dra

nce

s)in

the

corr

esp

ond

ing

refe

ren

ces

Sourc

es:

1,A

ON

(201

0);2

,Bea

sley

etal.

(201

0);3

,Bla

des

(201

0);4

,Bow

lin

gan

dR

ieg

er(2

005)

;5,C

FO

/Cro

we

(200

8);6

,De

laR

osa

(200

6);7

,EIU

(200

1);8

,Gat

es(2

006)

;9,G

up

ta(2

011)

;10,

Kim

bro

ug

han

dC

omp

onat

ion

(200

9);1

1,K

leff

ner

etal.

(200

3);1

2,K

PM

G(2

010)

;13,

Mer

kle

y(2

001)

;14,

Mic

coli

s(2

003)

;15,

Mic

coli

set

al.

(200

0);

16,

Mu

rali

dh

ar(2

010)

;17

,N

iels

onet

al.

(200

5);

18,

Rao

(200

7);

19,

RIM

San

dM

arsh

(200

6);

20,

RM

A(2

006)

;21

,R

oss

(200

5);

22,

Rot

h(2

006)

;23

,S

chlo

ttm

ann

etal.

(200

5);

24,

Seg

al(2

007)

;25

,S

haw

(200

5);

26,

Sh

imp

i(2

010)

;27

,S

imk

ins

(200

8)

Table III.

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implementation involves better communication of project risk information, so it can helpthe management to make better informed decisions and deal with project risks moreeffectively and efficiently (Liu et al., 2013), and improve the performance of constructionfirms (Low et al., 2013).

However, ERM implementation in CCFs was still at the infancy stage. Liu et al. (2011)found that 17.6 percent of international CCFs had established their ERM strategies androutines, without full implementation. Also, Zhao et al. (2013a) identified the commitmentof the senior management, a formalized risk process and objective setting as the mostimportant areas of ERM implementation in CCFs.

Implementing ERM in construction firms, where employees are used to PRM, tendsto be a steady and gradual process. It concerns changes in not only people’s mindset,but also the organizational context. Thus, ERM implementation in construction firmscan be considered as an organizational change.

3. Organizational changeOrganizational change is “an empirical observation of difference in form, quality orlong term state of an organizational entity, coming out of the deliberate introduction ofnew styles of thinking, acting or operating, looking for the adaptation to theenvironment or for a performance improvement” (Pardo-del-Val et al., 2012, p. 1845).Sustainable organizational change is crucial to the development, success and survivalof organizations operating in a changing environment (Michel et al., 2013).

3.1 Theory E and Theory OBeer and Nohria (2000) suggested that organizational change could be achieved throughtwo significantly different approaches called Theory E and Theory O. Theory E is changebased on economic value while Theory O is change based on organizational capability.In Theory E, shareholder value is the only legitimate measure of corporate success.This “hard” change strategy involves the use of economic incentives, drastic layoffs,downsizing and restructuring, and focusses on the strategy, structure, and systems oforganizations. It is driven by the top management with the help from financial incentivesand consultants. In comparison, Theory O is to develop organizational culture andcapability through individual and organizational learning. This “soft” approach is gearedto cultivating a high-commitment organizational culture, has high-level involvement andcollaboration, and has been viewed as an organizational development strategy. However, itis indirect and takes too long, especially when the need for change is urgent (Hayes, 2007).Although these two approaches are distinct, Beer and Nohria (2000) argued that combiningthe two theories enabled an organization to adapt, survive, and prosper in the long run.

3.2 Drivers for organizational changeThe drivers of organizational change come from the external and internal environment(e.g. Holbeche, 2006; Lunenburg, 2010; Senior and Fleming, 2006). The externaland internal driving forces of organizational change are listed in Table IV. As for theexternal drivers, Tichy (1983) proposed a framework for identifying and understandingdrivers for organizational change, including broad categories such as technical, political,and cultural forces. Kaestle (1990) recognized that marketplace dynamics and IT were thetwo basic drivers for organizational change. Jick (1995) identified competitive pressuresand the pursuit of competitive advantages as accelerators of change while Pascale et al.(1996) suggested that the rapid pace of change and competitive pressures were the keyforces for organizational change. In addition, Holbeche (2006) believed that globalization,

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emerging e-economy, and factors underlying in the social context could driveorganizations to reinvent themselves in order to survive and thrive. Brimley andGarfield (2009) indicated that laws and regulations and economic factors (e.g. recessionor inflation) were among the forces driving organizational change. While externalforces can be strong drivers of organizational change, change can also be triggered by theinternal factors. Janjua and Sobia (2010) found that the internal needs for restructuring,growth, and new products provided opportunities for organizations to change. Moreover,Robbins (2003), Senior and Fleming (2006), and Mullins (2007) identified the need forreorganization and higher profitability, conflict between organizational components andthe changing nature and composition of the workforce as the internal drivers.

3.3 Resistance to organizational changeResistance to change is a natural human response to imposed and significant change,based on the assumption that individuals get used to particular ways of behaving thathave worked for them in the past (Holbeche, 2006). Thomas and Hardy (2011) identifiedtwo approaches to conceptualizing resistance to organizational change: demonizing it andcelebrating it. Demonizing resistance to organizational change considers resistance asa problem that hinders the attempts to change organizations, while the celebratingapproach recognizes resistance as part of successful change. This study adopts thedemonizing approach to viewing the resistance to organizational change because itconcerns the hindrances to implementing ERM in construction firms, and thesehindrances have only negative impacts on ERM implementation. A total of 21 sources ofresistance to organizational change were identified from the studies using the demonizingapproach (e.g. George et al., 2008; Hayes, 2007; Larson and Tompkins, 2005; Low, 1998;Mullins, 2007; Pardo-del-Val and Martı́nez-Fuentes, 2003; Recardo, 1995; Robbins, 2003;Szabla, 2007), as shown in Table V.

Previous studies have presented specific approaches to overcoming the resistance toorganizational change. Kotter and Schlesinger (1979) identified six situational approachesfor change agents to deal with the resistance to organizational change: education andcommunication; participation and involvement; facilitation and support; negotiation;manipulation and co-optation; and coercion. Recardo (1995) suggested ways to effectivelyreduce resistance to organizational change: a clear vision of the change; leadershipof senior management; modification of the organization’s architecture; modification ofperformance measures and rewards; and supply of adequate resources. In addition,Kotter (1996) proposed a process for leading organizational change of any magnitude:establishing a sense of urgency; forming a powerful guiding coalition; creating a vision;communicating the vision; empowering others to act on the vision; planning for orcreating short-term wins; consolidating improvements and producing more change; andinstitutionalizing new approaches.

External forces Internal forces

Technical advancements Need for reorganizationGlobalization Need for higher profitabilityCompetition pressures Conflict between organizational componentsSocial and cultural factors The changing nature and composition of the workforceEconomic factorsPolitical and legal pressuresMarket changes

Table IV.Drivers for

organizational change

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4. Method and data presentationTo investigate the influence of the drivers for and hindrances to ERM implementation,a questionnaire survey was performed. In the questionnaire, the respondents wereasked to rate the influence of the 17 drivers and 36 hindrances on ERM implementationusing a five-point scale (1¼ very insignificant; 3¼ neutral; and 5¼ very significant).A directory of CCFs registered with the Building and Construction Authority ofSingapore served as the sampling frame. The questionnaires were sent to themanagement in the CCFs through e-mails or handed to them personally. Finally,35 completed questionnaires were received from 35 CCFs, representing a response rateof 76.1percent. Although the sample size was not large, statistical analysis could stillbe performed because the central limit theorem holds true with a sample size largerthan 30 (Hwang et al., 2013). The profile of the respondents and their firms is presentedin Table VI.

5. Data analysis and discussion5.1 Critical drivers for and hindrances to ERM implementationTo test whether the drivers and hindrances had statistically significant influence onERM implementation, the one-sample t-test was performed. This method has beenwidely applied to examine the significance of factors (e.g. Hwang et al., 2014; Zhao et al.,2013c). The analysis results indicated that 13 drivers and 25 hindrances obtained meanscores above 3.00 and p-values below 0.05 (see Table VII), implying that these 38factors were critical to ERM implementation. Thus, the ERM implementation in CCFsbased in Singapore was positively influenced by the 13 drivers and negativelyinfluenced by the 25 hindrances (see Table VII).

The top rank of “improved decision-making” (D07) was consistent with the findingof Liu et al. (2011) that the enhanced decision-making quality significantly motivated

Code Sources of resistance to organizational change

C01 HabitsC02 Fear of the unknownC03 Parochial self-interestC04 Social factorsC05 Lack of individual capability to changeC06 MisunderstandingC07 Insufficient resourcesC08 Inadequate rewards and punishmentsC09 Poor internal communicationC10 Lack of commitment of the board and senior managementC11 Lack of trust in managementC12 InconsistencyC13 Low level of employee-manager relationC14 Ineffective management stylesC15 Selective information processingC16 Threats to power or influenceC17 Threats to resource allocationsC18 Limited focus of changeC19 Organizational cultureC20 Group inertiaC21 Structural inertia

Table V.Sources of resistance toorganizational change

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Characteristics Categorization n %

CCFsFinancial gradea A1 8 22.9

A2 1 2.9B1 5 14.3C1 10 28.6C3 5 14.3L6 2 5.7L5 2 5.7L1 1 2.9CR01b 1 2.9

RespondentsDesignations Senior mgmt. 6 17.1

Dept. mgmt. 13 37.1Project mgmt. 16 45.7

Work experience 5-10 years 12 34.311-15 years 8 22.916-20 years 11 31.4X21years 4 11.4

Notes: aA1/L6 contractors enjoy no tendering limit. A2, B1, L5, C1, and C3/L1 contractors can bid forprojects worth up to S$85 million, S$40 million, S$13 million, S$4 million and S$0.65 million,respectively. If a CCF has multiple financial grades, this table presents the grade with the highesttendering limit. bCR01 means minor construction related works. Under this category, contractors havea single grade

Table VI.Profile of CCFs and

respondents in the survey

Drivers HindrancesCode Mean p-value Code Mean p-value Code Mean p-value

D01 2.80 0.361 H01 3.34 0.032* H19 2.80 0.242D02 2.26 0.000 H02 3.49 0.002* H20 4.03 0.000*D03 2.63 0.085 H03 4.54 0.000* H21 3.86 0.000*D04 3.89 0.000* H04 3.69 0.000* H22 4.26 0.000*D05 3.97 0.000* H05 3.71 0.000* H23 3.54 0.001*D06 3.83 0.000* H06 3.89 0.000* H24 3.74 0.000*D07 4.17 0.000* H07 3.97 0.000* H25 3.83 0.000*D08 3.31 0.039* H08 3.46 0.004* H26 2.74 0.083D09 3.54 0.000* H09 3.77 0.000* H27 2.94 0.701D10 3.46 0.002* H10 4.06 0.000* H28 3.74 0.000*D11 3.94 0.000* H11 3.40 0.009* H29 3.83 0.000*D12 3.49 0.001* H12 3.77 0.000* H30 2.69 0.070D13 3.51 0.000* H13 3.43 0.017* H31 3.63 0.000*D14 3.86 0.000* H14 2.40 0.007 H32 3.49 0.005*D15 3.80 0.000* H15 2.97 0.869 H33 2.69 0.078D16 3.09 0.619 H16 3.11 0.501 H34 2.86 0.377D17 3.43 0.011* H17 2.49 0.004 H35 3.09 0.571

H18 4.09 0.000* H36 3.49 0.004*

Note: *The one-sample t-test result is significantly higher than the test value (3.00)

Table VII.Drivers for and

hindrances to ERMimplementation

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the CCFs in the global market to implement ERM. Similarly, this result echoed Rao (2007),who found that ERM enabled the management to make better decisions in businesseslocated in Dubai. Additionally, the significant influence of “insufficient resources(e.g. time, money, people, etc.)” (H03) substantiated the findings of Gates (2006) andRao (2007) that ERM implementation was plagued with lack of relevant resources in theUSA and Europe as well as Dubai.

As ERM implementation in construction firms can be considered as an organizationalchange, this study interprets the significant drivers and hindrances from the perspectiveof organizational change.

5.2 Interpretation of critical drivers from the organizational change perspectiveBeer and Nohria (2000) suggested that organizational change can be achieved throughTheory E and Theory O. Some drivers, such as “reduced earnings volatility” (D04),“reduced costs and losses” (D05), and “increased profitability and earnings” (D06), areclosely associated with economic performance and shareholder value, which suggestedthat Theory E could be used to implement ERM in the Singapore-based CCFs. Meanwhile,“improved decision-making” (D07), “better risk reporting and communication” (D08),“increased management accountability” (D09), “greater management consensus” (D10),“better resource allocation” (D12), and “improved control of an enterprise over its projects”(D14) represent the development of organizational capability, indicating that Theory Owas applicable to ERM implementation as well. Therefore, both two theories can be usedto implement ERM in the Singapore-based CCFs, and substantiated the argument of Beerand Nohria (2000) that the combination of both theories was the most successful strategyfor organizational change.

In addition, some of which can be linked to the drivers for ERM implementationwith significant influence. For example, “reduced earnings volatility” (D04), “reducedcosts and losses” (D05), and “increased profitability and earnings” (D06) are internaldrivers that represent the need for higher profitability within a company. Also, thepotential “competitive advantages” (D11) resulting from ERM implementation can beseen as a response to the external competition pressures that drive companies toconduct organizational change to obtain advantages over the competitors. Moreover,external driving forces of organizational change, such as globalization, social andcultural factors, political and legal pressures, market changes, and economic factors,are actually the sources of risks. Thus, these driving forces can be linked to “a broaderscope of risks” (D15) that drive ERM implementation.

5.3 Interpretation of critical hindrances from the organizational change perspectiveThe 25 critical hindrances were interpreted in tandem with some of the 21 sources ofresistance to organizational change (see Table VIII). Specifically, ten significanthindrances (H01-H08, H21, and H31) can represent “insufficient resources” (C07) in thesources of resistance to organizational change. As an organizational change, ERMimplementation needs a variety of resources, including not only the money, time andpeople, but also the high quality historical data, the internal knowledge, skills andexpertise, the techniques, tools and information systems for risk management,the metrics to measure ERM performance, and business cases for training programs.Once an ERM program is initiated, sufficient resources should be allocated and theresource allocation should be considered in the ERM implementation plan approvedby the board and senior management. Some resource investments would be prioritizedto initiate ERM, thus signaling that the ERM program is really supported by the

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executives. Without the necessary resources, the staff tend to feel frustrated whileparticipating in the change and thus resist it (Hayes, 2007). It should be noted that theresource investments need the approval from the senior level, and thus these hindrancesrelating to resources can be associated with “lack of commitment of the board and seniormanagement” (C10) in the sources of resistance. In turn, the significant hindrancesrelating to the top management (H23-H25) can be linked to “insufficient resources” (C07) inthe sources of resistance.

Two hindrances (H28 and H36) could also be indirectly linked to “insufficientresources” (C07). When adopting change, organizations would also need to sustaintheir operation and business processes. Thus, other prioritized issues would occupythe resources for the change program, probably resulting in the resource scarcity of thechange program. In addition, subject to the decisions of the executives, “recession andbusiness downturn” (H36) would incur the reduction in the expenditures for the changeprograms and the use of downsizing or layoff strategies that would led to loss ofknowledge, skills, and expertise because of the departure of qualified and experiencedpersonnel (Fisher and White, 2000). Thus, this hindrance would contribute to the resourceshortage of ERM implementation.

The board and senior management should support the organizational changeprogram in a visible and continuous manner while the lack of the senior-levelcommitment tends to result in the skepticism and cynicism on the change program(Hayes, 2007). ERM implementation also needs the visible leadership and support from

Sources of resistance to organizational changeCode ofhindrances C01 C05 C06 C07 C09 C10 C11 C13 C15 C18 C19 C20 C21

H01 | |H02 | |H03 | |H04 | |H05 | |H06 | | |H07 | | |H08 | |H09 | |H10 | | |H11 | | |H12 | |H13 | | | |H18 | | | | | |H20 | | | | | |H21 | | | |H22 | | | | |H23 | |H24 |H25 | |H28 |H29 | |H31 | |H32 |H36 | |

Note: | means the linkage between hindrances and sources of resistance to change

Table VIII.Linking critical

hindrances to ERMimplementation to

sources of resistance toorganizational change

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the board and senior management (Gates, 2006). Most of the significant hindrances canbe linked to “lack of commitment of the board and senior management” (C10). This isbecause without such commitment, sufficient resources would not be invested; ERMownership and accountability would not be set up; and internal communication andtraining mechanisms would not be initiated. It is worth reiteration that the senior-levelcommitment should be true, visible, and continuous, which means that the board andsenior management should assign a higher priority to ERM implementation, despite othercompeting management priorities.

In addition, to implement an organizational change, the change agent should ensure thatthe relevant staff can adapt to the change and participate in the change program. Threehindrances (H06, H07, and H30) can represent the “lack of individual capability to change”(C05) in the resistance sources. The staff would unconsciously think about whether they arequalified in the ERM implementation in terms of their knowledge, skills, expertise andcapabilities. If they feel that are unlikely to be competent in ERM implementation, theywould not actively participate in ERM implementation, or even undermine it.

Moreover, organizational culture also plays a critical role in organizational changebecause of its pervasive nature (Austin and Ciaassen, 2008). The hindrance“unsupportive organizational culture” (H10) could result from the constraints createdby the group norms, i.e. “group inertia” (C20), as well as the specific cultural componentsof organizations that do not support ERM implementation (C19). One example of suchcomponents is the risk attitude that is not in accordance with the risk appetite andtolerance as well as the real-world circumstances faced by a firm. In addition, people tendto respond to change in their accustomed ways when confronted with change, and harbora biased view of change that fits most comfortably into a person’s own perception ofthe reality (Low, 1998). Such behaviors and mindsets toward change could beinfluenced by the organizational culture or group norms. Thus, the hindrance“confidence in the existing risk management practices” (H13) can be associated with“habits” (C01), “organizational culture” (C19), “group inertia” (C20), and “selectiveinformation processing” (C15) in the sources of resistance. Based on the longestablished habits in dealing with risks, the staff would be still stuck to PRM at theinitiative phase of ERM implementation. According to Hallowell et al. (2013),one challenge of ERM implementation was changing the thinking of all employees ofan enterprise from considering only their function’s objectives to considering howdecisions can affect the entire enterprise. Thus, some actions should be taken tochange the passive mindsets and behaviors toward ERM.

Furthermore, the change agent should allow the staff to understand the vision,the need, and the impacts of the change and try to remove their misunderstandingsof the change program through adequate and effective internal communication (Hayes,2007). Five hindrances (H11, H18, and H20-H22) can be linked to “misunderstanding”(C06) and “poor internal communication” (C09) in the sources of resistance. Trainingprograms on ERM can be a communication channel, through which the staff canunderstand the ERM philosophy, policy, and process, as well as the application of ERMtechniques and tools. Adoption of successful ERM cases in training allows the staff toperceive that value and benefits of ERM can exceed the additional costs andadministration. To enable the staff to better understand the terminologies used inthe training, a glossary of risk terms need to be created and distributed throughout thefirm, which facilitates the employment of a common risk language. Without sucha language, the effectiveness and efficiency of the communication in the trainingprograms and ERM implementation would not be assured because time could be

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wasted in resolving the issues caused by the confusion about the terminologies(Espersen, 2007). In addition, it should be noted that the effectiveness of trainingprograms and communication depends on the relationship between the managementand employees (Furst and Cable, 2008), which is characterized by mutual trust andcredibility (Robbins, 2003). Thus, three out of the above five hindrances (H18, H20,and H22) relating to training and communication can be associated with “lack oftrust in management” (C11) and “low-level employee-manager relation” (C13) in thesources of resistance. This implied that the ERM owner should ensure that theycan obtain the trust from the relevant staff and sustain a good relation with them,to assure the effectiveness of training on ERM. Without effective and adequatetraining on ERM, the staff would hold a biased view of ERM from the angle that fitsmost comfortably into their perception, resulting from the “selective informationprocessing” (C15).

5.4 Managerial implicationsPrevious studies have presented specific approaches to overcoming the resistance toorganizational change (Kotter, 1996; Kotter and Schlesinger, 1979; Recardo, 1995).Based on these approaches, strategies were identified to strengthen the drivers andovercome the hindrances. These strategies include:

(1) The commitment and support of the board and senior management should bevisible and continual, signifying the priority in implementing ERM to theemployees, and should not be interrupted by changes in the ERM champion.

(2) Construction firms may include the ERM responsibility in the C-level executives,such as chief executive officers and the chief financial officers, or createa stand-alone department or a board-level risk management committee. Who theERM owner is should be openly communicated to all the staff.

(3) Sufficient resources, including money, people, time as well as knowledge, skills,and expertise, should be consistently allocated to ERM implementation.

(4) A set of metrics should be set up to measure the ERM performance, thusdemonstrating the visible benefits and value of ERM. Short-term performanceimprovement should be highlighted to convince the management at all levelsthat ERM can add value.

(5) Formalized training programs should be provided to help employees clearlyunderstand the ERM philosophy and policy (including the vision of and theneed for ERM implementation), the ERM process, the ERM plan, as well asthe benefits and value of ERM, thus reducing misunderstanding and anxietyabout ERM.

(6) A risk-aware culture can be created across a construction firm through institutingclear accountability for risks, thus making staff at all levels have risk awareness,and should be incorporated into the corporate culture. To sustain a strongrisk-aware culture, the expected behavior within the organization should beexplicitly expressed.

(7) A risk language that clearly explains terminologies and methods used withina construction firm should be created and consistently used in all thecommunication within a firm, thus contributing to a common understanding ofthe meaning and contents of the relevant terminologies and methods.

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(8) ERM should be fully integrated into the management and business processes ofa firm. In all decision-making processes, especially in strategic decision-making,the risks identified should be consistently considered, and emerging risks shouldalso be anticipated.

6. Conclusions and recommendationsThis study aims to interpret the ERM implementation in Singapore-based CCFs intandem with organizational change theories. Through the comprehensive literaturereview, drivers for and hindrances to ERM implementation were identified.The questionnaire survey was conducted with 36 Singapore-based CCFs to collect thedata relating to the influence of these drivers and hindrances on ERM implementation.The analysis results indicated that 13 drivers and 25 hindrances had significant influenceon ERM implementation in these CCFs. In addition, considering ERM implementation inconstruction firms as an organizational change, this study interpreted the critical driversand hindrances from the organizational change perspective. Specifically, both Theory Eand Theory O can be used to implement ERM, and the drivers for organizational changeprovide theoretical rational for the critical drivers for ERM implementation. In addition,13 sources of resistance to organizational change were linked to the 25 critical hindrancesto ERM implementation. Lastly, strategies were identified to strengthen the drivers forERM implementation and overcome the hindrances to ERM implementation.

Despite the achievement of the objectives, there are limitations to the conclusions.First, as the sample size was relatively small, one should be cautious when the resultsare interpreted and generalized. Additionally, as the survey was performed with theSingapore-based CCFs, there may be geographical limitation on the identificationof the critical drivers for and hindrances to ERM implementation. Nonetheless,the implication of this study is not limited to the Singapore-based CCFs because thetheoretical rational behind the critical drivers and hindrances can be used to interpretthe drivers and hindrances in other construction firms. In addition, as few studieshave attempted to investigate ERM in construction firms, this study contributes to theliterature through interpreting ERM implementation from an organizational changeperspective. Furthermore, the identification of the drivers and hindrances and themanagerial implications provide practitioners and academics with valuable informationas well as a clear understanding of how to consolidate ERM programs and overcomethe hindrances. Thus, it is believed that this study contributes to the global body ofknowledge relating to ERM.

Future studies would investigate the interaction mechanisms among the drivers forand hindrances to ERM implementation, and identify the influence paths comprised bysome of these factors. The theoretical rational behind these mechanisms and pathswould be found in organizational change theories, and a comprehensive set of bestpractices, which help the management to handle the influence of these factors andpursue the benefits of ERM, would be proposed based on the interaction mechanismsand influence paths.

Because the factors driving and hindering ERM implementation interact with eachother, future studies would investigate the interaction mechanisms and influence pathsamong these factors, the theoretical rational behind which can be found in the theoriesof organizational change as well. In addition, based on the underlying mechanisms andinfluence paths, a set of best practices would be proposed, which could help themanagement to handle the problems stemming from the interactions of the driversand hindrances. Furthermore, organizations cannot be engaged in risk management

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without the emphasis on in-house knowledge ( Jafari et al., 2011), motivation,organizational culture, and leadership. Thus, the development of a set of customizedbest practices should consider the culture, learning, motivation, and leadershipissues within the organization.

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About the authors

Xianbo Zhao is a Lecturer (Built Environment) in the School of Engineering and Technology atthe Central Queensland University, and a PhD Candidate in the Department of Building at theNational University of Singapore (NUS). His current research interests are in the areas of riskmanagement, sustainable construction, as well as rework and productivity. Xianbo Zhao is thecorresponding author and can be contacted at: b.zhao@cqu.edu.au

Dr Bon-Gang Hwang is an Assistant Professor in the Department of Building at the NationalUniversity of Singapore (NUS). He has several years of experience in the construction industryin South Korea, USA, and Singapore. Dr Hwang’s current research interests are in the areasof sustainable construction project management, performance assessment and improvement,and risk management.

Dr Sui Pheng Low is currently a Professor in the Department of Building at the NationalUniversity of Singapore (NUS). He obtained his PhD from the University College London and isa Fellow of the Chartered Institute of Building (FCIOB). Dr Low has served as the Vice-Dean in theNUS School of Design and Environment, and for a while, was the Head of the NUS Department ofBuilding. As an author of more than 500 publications, he is also a winner of numerous teachingexcellence awards as well as best paper awards for research.

To purchase reprints of this article please e-mail: reprints@emeraldinsight.comOr visit our web site for further details: www.emeraldinsight.com/reprints

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This article has been cited by:

1. Xianbo Zhao, Bon-Gang Hwang, Sui Pheng Low, Peng Wu. 2015. Reducing Hindrances to EnterpriseRisk Management Implementation in Construction Firms. Journal of Construction Engineering andManagement 141, 04014083. [CrossRef]

2. Bon-Gang Hwang, Xianbo Zhao, Shi Ying Ong. 2013. Value Management in Singaporean BuildingProjects: Implementation Status, Critical Success Factors, and Risk Factors. Journal of Management inEngineering 04014094. [CrossRef]

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