Academic journal article Journal of Business Economics and Management

Strategies for Minimizing Information Asymmetries in Construction Projects: Project Managers' Perceptions

Academic journal article Journal of Business Economics and Management

Strategies for Minimizing Information Asymmetries in Construction Projects: Project Managers' Perceptions

Article excerpt

Introduction

The research presented here has evolved in three stages, of which the last one is presented in this paper. The results of previous stages were presented elsewhere (Ceric 2010, 2011, 2012). Throughout, the principal-agent theory has formed the foundation of the research project. The relationship between the project owner and contractor was extended to include their respective project managers. The project owner is the overall principal, and all the others are agents. However, the contractor is the principal with respect to the contractor's project manager. These four participants are crucial in every construction project.

What makes this paper different from those published so far is that the focus here will be on communication issues between four parties involved in construction projects: project owner, contractor, and their project managers. In the literature we can find "classical" principal-agent theory applied to construction projects that discusses issues between the project owner and the project manager working on the project owner's behalf, as well as the contractor and the contractor's suppliers, but none have discussed the relationships and communication risks of all four parties mentioned above, who perforce play the most important role in every construction project.

The first stage of the research involved an exploratory survey of project managers with substantial experience in the field. The research considered all project phases, both before and after the contract is signed between the key project parties. It was established that the relationship between the two project managers is central to the construction phase itself, which is characterized by risk minimization. During this phase, the project owner and contractor play subsidiary roles, which offers an interesting challenge to the principal-agent theory because both project managers are agents, and there is no contract between them.

The second stage probed this finding by using the Delphi method. Again, a panel of highly-experienced project managers working for both project owners and contractors were asked several rounds of questions in an attempt to arrive to a consensus concerning the most important relationships between project parties in terms of risk minimization in the construction phase. The results obtained by the Delphi method confirmed the findings of the exploratory survey.

The third and final stage of the project involved another exploratory survey to establish the relative importance of different risk-minimization strategies in the construction phase. Project managers who participated in previous research stages were approached once again. Following the principal-agent theory, Schieg (2008) offered the following risk-minimization strategies in construction projects: bureaucratic control (contracts), information systems, incentives (bonuses), corporate culture, reputation, and trust. It is hoped that the results presented below will be of help in guiding future research in this field.

This paper is presented in eight sections. First, the principal-agent theory as applied to construction is presented. Second, strategies for minimizing information asymmetries in construction projects are discussed. Third, the research methodology is presented. Fourth, the results from the survey questionnaire are examined. Fifth, comments by respondents are presented. Sixth, these results are combined with results of the previous research to arrive at the final ranking of risk-minimization strategies using multiattribute utility theory. Seventh, the limitations of the study are discussed. Finally, conclusions and suggestions for further research are presented.

1. The principal-agent theory applied to construction projects

Communication and exchange of information are of vital importance in all construction projects. According to Turner and Muller (2004), the key relationship is between the project owner as the principal and the contractor as an agent. …

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