ENTERPRISE RISK MANAGEMENT AND FIRM PERFORMANCE OF LOCAL CONTRACTORS IN SINGAPORE

Abstract

Recent times have been characterized by increasing uncertainty due to rapid pace of change, increasing customer demands, market globalization and since 2008, a global economic recession. The situations aforementioned, has led to a series of corporate failure which motivated many organizations to seek improvement to their own risk management activity. This in turn has led to an increase in what is commonly referred to as Enterprise Risk Management (ERM). Beyond the traditional ambit of finance and compliance, ERM is concerned with managing risks holistically and realizing opportunities in relation to achieving an organization’s strategic objectives. ERM has been commonly adopted in the western countries and in various sectors particularly in the banking and finance sector. However, in the construction industry, the view remains vague. Henceforth, this study endeavors to explore the use of ERM in the construction industry, mainly construction firms in Singapore and to investigate if firms that implement ERM would benefit from better firm’s performance. This research will provide an overview of ERM and the various ERM frameworks that are employed globally, particularly The Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework. It then examines the significance of Key Performance Indicators (KPIs) and the common types of KPIs are further looked into. Additionally, different methods of KPI used specifically in the construction industry are presented. The study scrutinizes the features of construction industry and studies the practice of ERM of local contractors in Singapore. Furthermore, the factors affecting the relation between ERM and firm’s performance are further studied. A survey was conducted with 35 local contractors to gain a better insight into the ERM practices which they implement. The findings suggest that despite the relatively high awareness rate of ERM among firms, the adoption rate remains low (40%). It was discovered that time is the hindrance in implementing ERM. Thus, the implication of this finding is that the level of adoption of ERM in Singapore construction companies is still at an early stage of ERM development. Despite that, there are still companies that revealed the benefits obtained upon their implementation of ERM. As such, this has identified and highlighted the importance of promoting ERM to local contractors in order to benefit from its values. This research concludes with the validity of the research hypothesis of this dissertation and discusses on the limitations of the study with a view to stimulating further research.