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Risk pricing practices in finance, insurance and construction

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Laryea, S. (2008) Risk pricing practices in finance, insurance and construction. In: COBRA 2008 The construction and building research conference of the Royal Institution of Chartered Surveyors, 4-5 September 2008, Dublin Institute of Technology.

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Abstract/Summary

A review of current risk pricing practices in the financial, insurance and construction sectors is conducted through a comprehensive literature review. The purpose was to inform a study on risk and price in the tendering processes of contractors: specifically, how contractors take account of risk when they are calculating their bids for construction work. The reference to mainstream literature was in view of construction management research as a field of application rather than a fundamental academic discipline. Analytical models are used for risk pricing in the financial sector. Certain mathematical laws and principles of insurance are used to price risk in the insurance sector. construction contractors and practitioners are described to traditionally price allowances for project risk using mechanisms such as intuition and experience. Project risk analysis models have proliferated in recent years. However, they are rarely used because of problems practitioners face when confronted with them. A discussion of practices across the three sectors shows that the construction industry does not approach risk according to the sophisticated mechanisms of the two other sectors. This is not a poor situation in itself. However, knowledge transfer from finance and insurance can help construction practitioners. But also, formal risk models for contractors should be informed by the commercial exigencies and unique characteristics of the construction sector.

Item Type:Conference or Workshop Item (Paper)
Refereed:Yes
Divisions:Faculty of Science > School of Construction Management and Engineering > Business Innovation in Construction
ID Code:16292

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