Risk Approaches For Making Go/No-Go Decisions By Thai Consulting Engineering Firms

Thai construction situation was fast moving before the 1997 crisis, but after the crisis, most of the consulting engineering firms are faced with many difficulties to reconstruct their firms. Most clients are afraid of unstable situations and so investments in construction business slowed down. Nowadays, however, there is more supply than demand in the Thai consulting engineering environment (Consulting Engineers Association of Thailand, CEAT, 2005). The numbers of consulting engineering firms in the current situation are more than before the crises because the foreign consulting firms, joint venture consulting firms are expanding their business in Thailand.

Moreover, most Thai consulting engineering firms are finding international projects especially in Southern Asia or developing countries now-a-days. One of the reasons is that there are not many jobs for consulting firm since the Suvarnabhumi international airport construction finished. Moreover, the globalization of international construction markets provides tremendous opportunities for consultants to expand into new foreign markets by allowing local firms to compete internationally (Construction Industry Institute CII, 1993). International projects involve not only the uncertainties that arise in domestic construction projects, but also those from the complex risks that are particular to international transactions (Lee and Walters, 1989: Hill International, 1995). Not only domestic/local projects but also international/oversea projects, risks associated with different projects are paramount. In the context of doing business successfully in local and international construction markets, consulting engineering firms need reliable risk analysis, risks reduction or mitigation strategies and decision making tools to make consistent strategic Go/No-go or take/not-take entry decisions.

Go/No-go decisions by consulting engineering firms are very complex due to the risk and uncertainty about many factors. Not only in local markets but also in international markets, risks have to be considered clearly before making go/no go decisions to the projects. No clear rules can be found in considering go/no-go decisions. In this problem domain, decisions are commonly made based upon intuition and past experience. If consultants make wrong decisions, they have to face a large loss in term of time, cost and other resources. Once appropriate go-decisions are made, consultants would get expected profit, potential projects, relationship etc.

Ms. Nang Kham Kyi Oo made a research which aimed to solve those problems by risk management, such as risk identification, risk analysis and risks reduction or mitigation strategies. The importance of risk factors that are concerned with go/no go decision making will be identified and evaluated, and then the importance of those risk factors on the profitability or consultant fee will be discussed. Then the risks reduction strategies will be identified and their effectiveness to local and international projects will be found.

The objectives of her research are: (1) to identify the major risk factors associated with local/domestic and international/oversea projects when making go/no-go decisions and the major risks factors affecting the profitability of a consulting engineering firm; (2) to rank the importance of the identified factors on go/no go decision making and on profitability; and (3) to identify the risk reduction or mitigation strategies being used in industry and determine the effectiveness of those factors on local/domestic and international/oversea projects.

Conclusion
The conclusion of this research based on the work carried out and the result of analysis are shown in figures in brief.


According to analysis, figure 1, the top five risks considered as important by Thai consulting firms before taking a project within Thailand are as follows. 1) Client’s cash flow, 2) impractical designs, 3) incorrect & insufficient design information, 4) lack of skilled staff and 5) current workload. Consulting firms can prepare to manage risks if they know which factors are most important in real life. Thus, design risk (risk 2 and 3) is very important.

Profit is the live blood for every consulting firm. But there are many factors that can reduce profit. Sometimes consultants do not know which factors must take in first priority. Figure 1 shows the top five risks affecting profitability in domestic projects. They are 1) Client’s cash flow, 2) unreasonable time, 3) payment schedule, 4) enough resources and lack of skilled staff. Knowing those factors which are affecting their profitability, firms can find the way to reduce the impact of the risks and can increase their profit absolutely.

Figure 1 also shows the effectiveness of top five risk mitigation strategies in domestic projects that can reduce the impact of risks considered in decision making and profitability for Thai consulting engineering firms. To diminish the impact of those risks, there are six risk mitigation factors considered as most effective for consulting firms. Not only these five mitigation factors, but also all factors have their own effectiveness. Therefore, consulting firms should assign mitigation factors and should practice as possible as they afford.

International/Overseas Projects

In figure 2, the top five risks considered by Thai consulting firms before handling international projects are shown. The importance indexes of each risk are calculated and rank in terms of the highest indexes. According to the result after analysis, most of risks are to be considered as important. Consulting firms should do risk management carefully before entering international consulting markets.

Similar to the top five risks considered in making go/no-go decision, most of risks are measured as important risks affecting profitability. All factors in domestic projects are included in international projects. The detailed are shown in figure 2. Not only these factors but also other uncountable risks are essential for international projects. Consulting firms must always aware the factors that can make their profit low down and find to increase the intensity of profit.

Figure 2 shows top risk mitigation strategies in international projects that can reduce the impact of risks considered to engineering consulting firms. As there are many risks involved in international practices, most of them are important to be considered. As discussed earlier, the sample size for international projects is quite small. Moreover international projects are more risky than local projects. Therefore, most mitigation factors are given high scores and considered to have the same effectiveness. As per figure 2, five mitigation factors are for design risks, four are for technical risks, four are for project risks, and two factors in cultural risks, one each are for economic risk and client risk. In conclusion, most mitigation strategies are effective for Thai consulting firms doing projects outside Thailand. Consulting firms should be careful in considering risks before accepting projects in order not to make wrong decisions that may affect their profitability adversely.

Her thesis abstract is copied and posted.

ABSTRACT

It is very crucial for Thai consulting engineering firms making take/do not take or go/no-go decisions to on projects not only for domestic/local but also for international/overseas projects. The reason is that there are a lot of risks involved in both local and oversea projects. Due to reduced demand in the Thai consulting environment, most large Thai consulting firms are venturing to overseas markets. However small and medium sized Thai consulting firms are still in local markets. Because of low demand and much competition, they have to accept lower consultant fee and it will affect their profitability. They accept a project with low profit because they need to work; need to retain the staff and for the company itself. Consequently, companies face a lot of risks when deciding whether or not to handle a project. This research aimed to help Thai consulting firms in making decisions before accepting projects by approaching risk identification (knowing which factors is most important) and risk mitigation strategies (how to reduce the impact of risks).

To achieve the objectives of the study, risks were divided into nine main categories with sub-risk factors under each main category for identification of the important factors for making decisions and the important factors affecting profitability. To reduce those factors, risk mitigation strategies are suggested for the nine main risk categories. Statistical hypothesis was done using the T-test to find out the differences in perception among two groups: Thai consulting firms doing only local projects and those doing both local and oversea projects. For this purpose, questionnaire survey was done on managing directors, board of directors, upper level management and engineers. Moreover, interviews were also conducted with three large consulting firms to know the detailed opinion and ideas.

Since the sample of consulting firms involved in oversea projects is quite small, detailed discussions for oversea project was not done. According to the importance indexes, top five risk factors and top five risk mitigation strategies considered to be most important when handling local projects are discussed in detailed. Moreover, the hypothesis was tested and showed that there are four significant factors considered in making decision, six significant factors affecting profitability and five significant factors for effectiveness in mitigation strategies among the two groups.