Enterprise Risk Management

Management Decision
Enterprise risk management implementation in construction firms : An organizational
change perspective
Xianbo Zhao Bon-Gang Hwang Sui Pheng Low

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MD
52,5

Enterprise risk management
implementation in
construction firms

814

An organizational change perspective
Xianbo Zhao
School of Engineering and Technology, Central Queensland University,
Sydney, Australia, and

Bon-Gang Hwang and Sui Pheng Low

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Department 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 to
enterprise risk management (ERM) implementation in Singapore-based Chinese construction firms
(CCFs); second, interpret the critical drivers and hindrances in tandem with organizational change
theories; and third, provide possible strategies to strengthen the drivers and overcome the hindrances.
Design/methodology/approach – A questionnaire survey was conducted and responses were
received 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 to
ERM implementation. The sample size was still small, despite a relatively high response rate.
Practical implications – Specific strategies were identified to strengthen the drivers for ERM
implementation and overcome the hindrances to ERM implementation.
Originality/value – This study present the theoretical rational behind the critical drivers for and
hindrances to ERM implementation. As few studies have attempted to investigate ERM in construction
firms, this study contributes to the literature through interpreting ERM implementation from
an organizational change perspective. The identification of the drivers and hindrances and the
managerial implications provide practitioners and academics with valuable information as well as
a 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

Management Decision
Vol. 52 No. 5, 2014
pp. 814-833
r Emerald Group Publishing Limited
0025-1747
DOI 10.1108/MD-02-2014-0082

1. Introduction
According 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 on
construction 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), which
are likely to impact both project objectives and corporate objectives. Thus, a global view
to identify systemic risks was recommended for construction firms venturing into
overseas markets to replace project-only risks (Zhi, 1995).
In recent years, a paradigm shift has occurred in the way companies view risk
management, and the trend has moved toward a holistic view of risk management

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(Gordon et al., 2009). As the fundamental paradigm in this trend, enterprise risk
management (ERM) has attracted worldwide attention (Liu et al., 2013). The Committee
of Sponsoring Organizations of the Treadway Commission defines ERM as “a process,
effected by an entity’s board of directors, management and other personnel, applied in
strategy setting and across the enterprise, designed to identify potential events that may
affect the entity, and manage risk to be within its risk appetite, to provide reasonable
assurance regarding the achievement of entity objectives” (COSO, 2004, p. 2). Afflicted
with various risks, construction firms have been considered as prime candidates for ERM
implementation (Zhao et al., 2013b). Implementing ERM in construction firms can be seen
as a gradual organizational change because the management in these firms has been
accustomed 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 specific
objectives are to: first, identify the critical drivers for and hindrances to ERM
implementation in Singapore-based CCFs; second, interpret the critical drivers and
hindrances in tandem with organizational change theories; and third, provide possible
strategies to strengthen the drivers and overcome the hindrances.
2. ERM
2.1 Drivers for ERM implementation
ERM adoption has been compelled by a series of legal compliance and corporate
governance requirements (Kleffner et al., 2003; Liebenberg and Hoyt, 2003). Some of these
requirements are the mandatory laws or regulations, while others are non-mandatory
reports or standards that create public pressures and benchmarks for sound management
practices (see Table I). In addition, as ERM can increase firm’s value, the three main rating
agencies, i.e. S&P, Moody’s and Fitch, have recognized a company’s ERM system as
a factor in their rating methodology (Gates, 2006; Liebenberg and Hoyt, 2003).
Although compliance and corporate governance requirements have driven firms
to adopt ERM, firms also carried out ERM for potential benefits (Pagach and
Warr, 2011). Such benefits should be convincing and can exceed the significant
costs associated with initiating an ERM program (Hallowell et al., 2013). A total of 11
potential benefits of ERM (D04-D14) are identified from the literature review,
as Table II indicates. These potential benefits may also drive ERM implementation in
construction firms. In addition, Liebenberg and Hoyt (2003) believed that a broader
scope of risks from globalization, market and greater risk interdependence, as well
as the advances in information technology (IT) could drive companies to adopt ERM.
Because of the external factors and benefits, the board and senior management
would embrace ERM. Gates (2006) indicated that the board request was a primary
driver for ERM implementation.
2.2 Hindrances to ERM implementation
In 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 the
North American respondents considered ERM as their most challenging issue
(CFO/Crowe, 2008). As shown in Table III, 36 factors (i.e. H01-H36) hindering ERM
implementation are identified from studies relating to ERM in various industries.
Because of these hindrances, the percentage of firms adopting or implementing ERM
was relatively low. Liu et al. (2011) reported that only 14.7 percent of the CCFs
operating overseas had fully implemented ERM.

ERM
implementation

815

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816

Initiatives

Description

Sarbanes-Oxley Act (SOX) in USA

Enacted in 2002 as a reaction to major scandals including
those affecting Enron and WorldCom, the SOX requires
management and the external auditor to report on the
adequacy of the company’s internal control over financial
reporting in Section 404
In 2004, the NYSE adopted corporate governance rules that
require the Audit Committees of its listed companies to
discuss policies concerning risk assessment and risk
management, including major financial risk exposures and the
steps that management has taken to monitor and control such
exposures
The UK Corporate Governance Code 2010 aims at the
companies listed in the London Stock Exchange. The Listing
Rules require public listed companies to disclose how they
have complied with the code and explain where they have not
applied the code
Basel II, initially published in 2004, is to create an
international standard that banking regulators can use when
creating regulations about how much capital banks need to
put aside to guard against the types of financial and
operational risks banks face
The Dey Report, commissioned by the Toronto Stock
Exchange, requires companies to report on the adequacy of
internal controls
The CoCo Report, namely the “Guidance on Control” produced
by the Criteria of Control Board (CoCo) of the Canadian
Institute of Chartered Accountants, specifies reporting on risk
assessment and risk management
ISO 31000:2009 provides generic guidelines intended to
promote the adoption of consistent processes so as to ensure
the risk is managed effectively, efficiently and coherently
across organizations

New York Stock Exchange (NYSE)
Corporate Governance Rules

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UK Corporate Governance Code

Basel II

Dey Report in Canada
CoCo Report in Canada

ISO 31000:2009
Table I.
Regulatory compliance
and corporate governance
requirements

2.3 ERM in construction firms
In construction firms, ERM and PRM are approaches to dealing with risks at different
level, with different goals (Liu et al., 2011). ERM deals with risks at the firm level
and 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 project
objectives (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 the
operation of a construction firm mainly depends on the construction projects that it is
engaged in (Zhao et al., 2013a).
PRM is still necessary and should not be considered as a hindrance to implementing
ERM in a construction firm. PRM has been considered as one of the nine project
management knowledge areas (PMI, 2008), and is critical to the success of projects and
the 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 profile
of a construction firm and ERM should be implemented at all levels of a firm, including
the project level (Zhao et al., 2013a). Effective PRM practices, which properly deal with
project risks, can contribute to ERM effectiveness throughout a firm. In turn, ERM

Legal and regulatory compliance requirements
Non-mandatory reports or standards
Credit rating agencies’ requirements
Reduced earnings volatility
Reduced costs and losses
Increased profitability and earnings
Improved decision-making
Better risk reporting and communication
Increased management accountability
Greater management consensus
Competitive advantages
Better resource allocation
Improved owners’ satisfaction
Improved control of an enterprise on its projects
A broader scope of risks
Advances in IT
Request and encouragement from the board and
senior management

Drivers for ERM implementation

|

1

|

|

|
|

|

|
|
|
|
|
|
|
|
|

3

2

|

|

4

|

|

|
|

5

|
|

|

|
|
|
|

6

|
|
|
|
|

|
|

7

|

|

|

|

|

|

|
|

References
8
9 10

|

|

|

11

|

|

|

12

|
|

|

13

|

|

14

|
|

15

|

16

|
|
|

17

5
5
2
7
6
3
8
3
4
4
4
3
1
1
1
1
2

Sum

Note: | means the includion of an indicator (drivers/hindrances) in the corresponding references
Sources: 1, Hoyt and Liebenberg (2011); 2, Gates (2006); 3, Lam (2003); 4, Walker et al. (2002); 5, Miccolis (2003); 6, Liebenberg and Hoyt (2003); 7, Manab et al.
(2010); 8, Harrington et al. (2002); 9, Meulbroek (2002); 10, Kleffner et al. (2003); 11, KPMG (2010); 12, Towers Perrin (2006); 13, Williams (2005); 14, Millage
(2005); 15, Muralidhar (2010); 16, Nocco and Stulz (2006); 17, Liu et al. (2011)

D01
D02
D03
D04
D05
D06
D07
D08
D09
D10
D11
D12
D13
D14
D15
D16
D17

Code

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ERM
implementation

817

Table II.
Drivers for ERM
implementation

4

5

6

7

8

H20
H21

H19

H17
H18

H16

H14
H15

H09
H10
H11
H12
H13

H04
H05
H06
H07
H08

|

|

|
| | |
|
| |
|

|
|

|
|
|

| |
| | |
| |

|

|
|
| |
|
|
|

|

|

| |

|

|

(continued)

|

| |

References
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Low data quality
Lack of data
Insufficient resources (e.g. time, money, people, | | | | |
|
|
etc.)
Lack of a formalized ERM process
Lack of risk management techniques and tools
|
Lack of internal knowledge, skills and expertise |
|
|
Lack of qualified personnel to implement ERM
|
Lack of a risk management information system
|
(RMIS)
Unsupportive organizational structure
|
|
|
|
Unsupportive organizational culture
|
|
| |
|
Lack of a common risk language
Lack of risk awareness within the organization
|
Confidence in the existing risk management
|
practices
Existence or re-emergence of the silo mentality
|
Lack of shared understanding and approach to
|
risk management across departments
Lack of understanding relating to effective ERM
|
process
Perception that ERM adds to bureaucracy
|
Perception that ERM increases costs and
|
administration
Perception that ERM interferes with business
|
activities
Inadequate training on ERM
|
Lack of an ERM business case
|
|

3

H01
H02
H03

Table III.
Hindrances to ERM
implementation

Hindrances to ERM implementation

2

818

Code

1

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MD
52,5

|

|

|

|

4

5

| | |
|
| |

3

Lack of perceived value or benefits of ERM
Lack of commitment of the board and senior
management
Not perceived as a priority by senior
management
Lack of board or senior management leadership
The movement of the ERM champion from senior
management into other areas without a successor
Lack of consensus on benefits of ERM among
board members and senior management
Other management priorities
Lack of a clear ERM implementation plan
Inability to coordinate with other departments
Lack of a set of metrics for measuring
performance of ERM
Unclear ownership and responsibility for ERM
implementation
Organizational turf
Employees’ reluctance to give up power
Employees’ reluctance to share risk information
Recession and business downturn

2

1

Hindrances to ERM implementation

6

|

7

|

|

8

|

|

|

|
|

| |

| |

|

|

|
| |

|

|

References
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Note: | means the includion of an indicator (drivers/hindrances) in the corresponding references
Sources: 1, AON (2010); 2, Beasley et al. (2010); 3, Blades (2010); 4, Bowling and Rieger (2005); 5, CFO/Crowe (2008); 6, De la Rosa (2006); 7, EIU (2001); 8, Gates
(2006); 9, Gupta (2011); 10, Kimbrough and Componation (2009); 11, Kleffner et al. (2003); 12, KPMG (2010); 13, Merkley (2001); 14, Miccolis (2003); 15, Miccolis
et al. (2000); 16, Muralidhar (2010); 17, Nielson et al. (2005); 18, Rao (2007); 19, RIMS and Marsh (2006); 20, RMA (2006); 21, Ross (2005); 22, Roth (2006);
23, Schlottmann et al. (2005); 24, Segal (2007); 25, Shaw (2005); 26, Shimpi (2010); 27, Simkins (2008)

H33
H34
H35
H36

H32

H28
H29
H30
H31

H27

H25
H26

H24

H22
H23

Code

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ERM
implementation

819

Table III.

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820

implementation involves better communication of project risk information, so it can help
the management to make better informed decisions and deal with project risks more
effectively and efficiently (Liu et al., 2013), and improve the performance of construction
firms (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 and
routines, without full implementation. Also, Zhao et al. (2013a) identified the commitment
of the senior management, a formalized risk process and objective setting as the most
important areas of ERM implementation in CCFs.
Implementing ERM in construction firms, where employees are used to PRM, tends
to 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 firms
can be considered as an organizational change.
3. Organizational change
Organizational change is “an empirical observation of difference in form, quality or
long term state of an organizational entity, coming out of the deliberate introduction of
new styles of thinking, acting or operating, looking for the adaptation to the
environment or for a performance improvement” (Pardo-del-Val et al., 2012, p. 1845).
Sustainable organizational change is crucial to the development, success and survival
of organizations operating in a changing environment (Michel et al., 2013).
3.1 Theory E and Theory O
Beer and Nohria (2000) suggested that organizational change could be achieved through
two significantly different approaches called Theory E and Theory O. Theory E is change
based 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 of
organizations. It is driven by the top management with the help from financial incentives
and consultants. In comparison, Theory O is to develop organizational culture and
capability through individual and organizational learning. This “soft” approach is geared
to cultivating a high-commitment organizational culture, has high-level involvement and
collaboration, and has been viewed as an organizational development strategy. However, it
is 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 combining
the two theories enabled an organization to adapt, survive, and prosper in the long run.
3.2 Drivers for organizational change
The drivers of organizational change come from the external and internal environment
(e.g. Holbeche, 2006; Lunenburg, 2010; Senior and Fleming, 2006). The external
and internal driving forces of organizational change are listed in Table IV. As for the
external drivers, Tichy (1983) proposed a framework for identifying and understanding
drivers for organizational change, including broad categories such as technical, political,
and cultural forces. Kaestle (1990) recognized that marketplace dynamics and IT were the
two basic drivers for organizational change. Jick (1995) identified competitive pressures
and 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 key
forces 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 drive
organizations to reinvent themselves in order to survive and thrive. Brimley and
Garfield (2009) indicated that laws and regulations and economic factors (e.g. recession
or inflation) were among the forces driving organizational change. While external
forces can be strong drivers of organizational change, change can also be triggered by the
internal 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 for
reorganization and higher profitability, conflict between organizational components and
the changing nature and composition of the workforce as the internal drivers.

ERM
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821

3.3 Resistance to organizational change
Resistance 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 that
have worked for them in the past (Holbeche, 2006). Thomas and Hardy (2011) identified
two approaches to conceptualizing resistance to organizational change: demonizing it and
celebrating it. Demonizing resistance to organizational change considers resistance as
a problem that hinders the attempts to change organizations, while the celebrating
approach recognizes resistance as part of successful change. This study adopts the
demonizing approach to viewing the resistance to organizational change because it
concerns the hindrances to implementing ERM in construction firms, and these
hindrances have only negative impacts on ERM implementation. A total of 21 sources of
resistance to organizational change were identified from the studies using the demonizing
approach (e.g. George et al., 2008; Hayes, 2007; Larson and Tompkins, 2005; Low, 1998;
Mullins, 2007; Pardo-del-Val and Martı´nez-Fuentes, 2003; Recardo, 1995; Robbins, 2003;
Szabla, 2007), as shown in Table V.
Previous studies have presented specific approaches to overcoming the resistance to
organizational change. Kotter and Schlesinger (1979) identified six situational approaches
for change agents to deal with the resistance to organizational change: education and
communication; participation and involvement; facilitation and support; negotiation;
manipulation and co-optation; and coercion. Recardo (1995) suggested ways to effectively
reduce resistance to organizational change: a clear vision of the change; leadership
of senior management; modification of the organization’s architecture; modification of
performance 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 or
creating short-term wins; consolidating improvements and producing more change; and
institutionalizing new approaches.
External forces

Internal forces

Technical advancements
Globalization
Competition pressures
Social and cultural factors
Economic factors
Political and legal pressures
Market changes

Need for reorganization
Need for higher profitability
Conflict between organizational components
The changing nature and composition of the workforce
Table IV.
Drivers for
organizational change

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822

Table V.
Sources of resistance to
organizational change

Code

Sources of resistance to organizational change

C01
C02
C03
C04
C05
C06
C07
C08
C09
C10
C11
C12
C13
C14
C15
C16
C17
C18
C19
C20
C21

Habits
Fear of the unknown
Parochial self-interest
Social factors
Lack of individual capability to change
Misunderstanding
Insufficient resources
Inadequate rewards and punishments
Poor internal communication
Lack of commitment of the board and senior management
Lack of trust in management
Inconsistency
Low level of employee-manager relation
Ineffective management styles
Selective information processing
Threats to power or influence
Threats to resource allocations
Limited focus of change
Organizational culture
Group inertia
Structural inertia

4. Method and data presentation
To investigate the influence of the drivers for and hindrances to ERM implementation,
a questionnaire survey was performed. In the questionnaire, the respondents were
asked to rate the influence of the 17 drivers and 36 hindrances on ERM implementation
using a five-point scale (1 ¼ very insignificant; 3 ¼ neutral; and 5 ¼ very significant).
A directory of CCFs registered with the Building and Construction Authority of
Singapore served as the sampling frame. The questionnaires were sent to the
management in the CCFs through e-mails or handed to them personally. Finally,
35 completed questionnaires were received from 35 CCFs, representing a response rate
of 76.1percent. Although the sample size was not large, statistical analysis could still
be performed because the central limit theorem holds true with a sample size larger
than 30 (Hwang et al., 2013). The profile of the respondents and their firms is presented
in Table VI.
5. Data analysis and discussion
5.1 Critical drivers for and hindrances to ERM implementation
To test whether the drivers and hindrances had statistically significant influence on
ERM implementation, the one-sample t-test was performed. This method has been
widely 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 mean
scores above 3.00 and p-values below 0.05 (see Table VII), implying that these 38
factors were critical to ERM implementation. Thus, the ERM implementation in CCFs
based in Singapore was positively influenced by the 13 drivers and negatively
influenced by the 25 hindrances (see Table VII).
The top rank of “improved decision-making” (D07) was consistent with the finding
of Liu et al. (2011) that the enhanced decision-making quality significantly motivated

Characteristics
CCFs
Financial gradea

Respondents
Designations

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Work experience

Categorization

n

%

A1
A2
B1
C1
C3
L6
L5
L1
CR01b

8
1
5
10
5
2
2
1
1

22.9
2.9
14.3
28.6
14.3
5.7
5.7
2.9
2.9

Senior mgmt.
Dept. mgmt.
Project mgmt.
5-10 years
11-15 years
16-20 years
X21years

6
13
16
12
8
11
4

17.1
37.1
45.7
34.3
22.9
31.4
11.4

ERM
implementation

823

Notes: aA1/L6 contractors enjoy no tendering limit. A2, B1, L5, C1, and C3/L1 contractors can bid for
projects 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 highest
Table VI.
tendering limit. bCR01 means minor construction related works. Under this category, contractors have
Profile of CCFs and
a single grade
respondents in the survey

Code
D01
D02
D03
D04
D05
D06
D07
D08
D09
D10
D11
D12
D13
D14
D15
D16
D17

Drivers
Mean
2.80
2.26
2.63
3.89
3.97
3.83
4.17
3.31
3.54
3.46
3.94
3.49
3.51
3.86
3.80
3.09
3.43

p-value

Code

Mean

0.361
0.000
0.085
0.000*
0.000*
0.000*
0.000*
0.039*
0.000*
0.002*
0.000*
0.001*
0.000*
0.000*
0.000*
0.619
0.011*

H01
H02
H03
H04
H05
H06
H07
H08
H09
H10
H11
H12
H13
H14
H15
H16
H17
H18

3.34
3.49
4.54
3.69
3.71
3.89
3.97
3.46
3.77
4.06
3.40
3.77
3.43
2.40
2.97
3.11
2.49
4.09

Hindrances
p-value
Code
0.032*
0.002*
0.000*
0.000*
0.000*
0.000*
0.000*
0.004*
0.000*
0.000*
0.009*
0.000*
0.017*
0.007
0.869
0.501
0.004
0.000*

H19
H20
H21
H22
H23
H24
H25
H26
H27
H28
H29
H30
H31
H32
H33
H34
H35
H36

Mean

p-value

2.80
4.03
3.86
4.26
3.54
3.74
3.83
2.74
2.94
3.74
3.83
2.69
3.63
3.49
2.69
2.86
3.09
3.49

0.242
0.000*
0.000*
0.000*
0.001*
0.000*
0.000*
0.083
0.701
0.000*
0.000*
0.070
0.000*
0.005*
0.078
0.377
0.571
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 ERM
implementation

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824

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 businesses
located in Dubai. Additionally, the significant influence of “insufficient resources
(e.g. time, money, people, etc.)” (H03) substantiated the findings of Gates (2006) and
Rao (2007) that ERM implementation was plagued with lack of relevant resources in the
USA and Europe as well as Dubai.
As ERM implementation in construction firms can be considered as an organizational
change, this study interprets the significant drivers and hindrances from the perspective
of organizational change.
5.2 Interpretation of critical drivers from the organizational change perspective
Beer and Nohria (2000) suggested that organizational change can be achieved through
Theory E and Theory O. Some drivers, such as “reduced earnings volatility” (D04),
“reduced costs and losses” (D05), and “increased profitability and earnings” (D06), are
closely associated with economic performance and shareholder value, which suggested
that 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 O
was applicable to ERM implementation as well. Therefore, both two theories can be used
to implement ERM in the Singapore-based CCFs, and substantiated the argument of Beer
and Nohria (2000) that the combination of both theories was the most successful strategy
for organizational change.
In addition, some of which can be linked to the drivers for ERM implementation
with significant influence. For example, “reduced earnings volatility” (D04), “reduced
costs and losses” (D05), and “increased profitability and earnings” (D06) are internal
drivers that represent the need for higher profitability within a company. Also, the
potential “competitive advantages” (D11) resulting from ERM implementation can be
seen as a response to the external competition pressures that drive companies to
conduct organizational change to obtain advantages over the competitors. Moreover,
external driving forces of organizational change, such as globalization, social and
cultural 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 broader
scope of risks” (D15) that drive ERM implementation.
5.3 Interpretation of critical hindrances from the organizational change perspective
The 25 critical hindrances were interpreted in tandem with some of the 21 sources of
resistance to organizational change (see Table VIII). Specifically, ten significant
hindrances (H01-H08, H21, and H31) can represent “insufficient resources” (C07) in the
sources of resistance to organizational change. As an organizational change, ERM
implementation needs a variety of resources, including not only the money, time and
people, but also the high quality historical data, the internal knowledge, skills and
expertise, 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 the
resource allocation should be considered in the ERM implementation plan approved
by the board and senior management. Some resource investments would be prioritized
to initiate ERM, thus signaling that the ERM program is really supported by the

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Code of
hindrances
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

C01

C05

C06

Sources of resistance to organizational change
C07 C09 C10 C11 C13 C15 C18
|
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|

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|

|

|

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|

|
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C20

C21

825

|

|
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|

C19

ERM
implementation

|
|

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|

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

executives. Without the necessary resources, the staff tend to feel frustrated while
participating in the change and thus resist it (Hayes, 2007). It should be noted that the
resource investments need the approval from the senior level, and thus these hindrances
relating to resources can be associated with “lack of commitment of the board and senior
management” (C10) in the sources of resistance. In turn, the significant hindrances
relating to the top management (H23-H25) can be linked to “insufficient resources” (C07) in
the sources of resistance.
Two hindrances (H28 and H36) could also be indirectly linked to “insufficient
resources” (C07). When adopting change, organizations would also need to sustain
their operation and business processes. Thus, other prioritized issues would occupy
the resources for the change program, probably resulting in the resource scarcity of the
change program. In addition, subject to the decisions of the executives, “recession and
business downturn” (H36) would incur the reduction in the expenditures for the change
programs and the use of downsizing or layoff strategies that would led to loss of
knowledge, skills, and expertise because of the departure of qualified and experienced
personnel (Fisher and White, 2000). Thus, this hindrance would contribute to the resource
shortage of ERM implementation.
The board and senior management should support the organizational change
program in a visible and continuous manner while the lack of the senior-level
commitment tends to result in the skepticism and cynicism on the change program
(Hayes, 2007). ERM implementation also needs the visible leadership and support from

Table VIII.
Linking critical
hindrances to ERM
implementation to
sources of resistance to
organizational change

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the board and senior management (Gates, 2006). Most of the significant hindrances can
be linked to “lack of commitment of the board and senior management” (C10). This is
because without such commitment, sufficient resources would not be invested; ERM
ownership and accountability would not be set up; and internal communication and
training mechanisms would not be initiated. It is worth reiteration that the senior-level
commitment should be true, visible, and continuous, which means that the board and
senior management should assign a higher priority to ERM implementation, despite other
competing management priorities.
In addition, to implement an organizational change, the change agent should ensure that
the relevant staff can adapt to the change and participate in the change program. Three
hindrances (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 are
qualified in the ERM implementation in terms of their knowledge, skills, expertise and
capabilities. If they feel that are unlikely to be competent in ERM implementation, they
would not actively participate in ERM implementation, or even undermine it.
Moreover, organizational culture also plays a critical role in organizational change
because of its pervasive nature (Austin and Ciaassen, 2008). The hindrance
“unsupportive organizational culture” (H10) could result from the constraints created
by the group norms, i.e. “group inertia” (C20), as well as the specific cultural components
of organizations that do not support ERM implementation (C19). One example of such
components is the risk attitude that is not in accordance with the risk appetite and
tolerance as well as the real-world circumstances faced by a firm. In addition, people tend
to respond to change in their accustomed ways when confronted with change, and harbor
a biased view of change that fits most comfortably into a person’s own perception of
the reality (Low, 1998). Such behaviors and mindsets toward change could be
influenced 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 “selective
information processing” (C15) in the sources of resistance. Based on the long
established habits in dealing with risks, the staff would be still stuck to PRM at the
initiative phase of ERM implementation. According to Hallowell et al. (2013),
one challenge of ERM implementation was changing the thinking of all employees of
an enterprise from considering only their function’s objectives to considering how
decisions can affect the entire enterprise. Thus, some actions should be taken to
change 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 misunderstandings
of 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. Training
programs on ERM can be a communication channel, through which the staff can
understand the ERM philosophy, policy, and process, as well as the application of ERM
techniques and tools. Adoption of successful ERM cases in training allows the staff to
perceive that value and benefits of ERM can exceed the additional costs and
administration. To enable the staff to better understand the terminologies used in
the training, a glossary of risk terms need to be created and distributed throughout the
firm, which facilitates the employment of a common risk language. Without such
a language, the effectiveness and efficiency of the communication in the training
programs 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 training
programs and communication depends on the relationship between the management
and employees (Furst and Cable, 2008), which is characterized by mutual trust and
credibility (Robbins, 2003). Thus, three out of the above five hindrances (H18, H20,
and H22) relating to training and communication can be associated with “lack of
trust in management” (C11) and “low-level employee-manager relation” (C13) in the
sources of resistance. This implied that the ERM owner should ensure that they
can 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 adequate
training on ERM, the staff would hold a biased view of ERM from the angle that fits
most comfortably into their perception, resulting from the “selective information
processing” (C15).
5.4 Managerial implications
Previous studies have presented specific approaches to overcoming the resistance to
organizational change (Kotter, 1996; Kotter and Schlesinger, 1979; Recardo, 1995).
Based on these approaches, strategies were identified to strengthen the drivers and
overcome the hindrances. These strategies include:
(1)

The commitment and support of the board and senior management should be
visible and continual, signifying the priority in implementing ERM to the
employees, 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 create
a stand-alone department or a board-level risk management committee. Who the
ERM 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, thus
demonstrating the visible benefits and value of ERM. Short-term performance
improvement should be highlighted to convince the management at all levels
that ERM can add value.

(5)

Formalized training programs should be provided to help employees clearly
understand the ERM philosophy and policy (including the vision of and the
need for ERM implementation), the ERM process, the ERM plan, as well as
the benefits and value of ERM, thus reducing misunderstanding and anxiety
about ERM.

(6)

A risk-aware culture can be created across a construction firm through instituting
clear accountability for risks, thus making staff at all levels have risk awareness,
and should be incorporated into the corporate culture. To sustain a strong
risk-aware culture, the expected behavior within the organization should be
explicitly expressed.

(7)

A risk language that clearly explains terminologies and methods used within
a construction firm should be created and consistently used in all the
communication within a firm, thus contributing to a common understanding of
the 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 of
a firm. In all decision-making processes, especially in strategic decision-making,
the risks identified should be consistently considered, and emerging risks should
also be anticipated.

6. Conclusions and recommendations
This study aims to interpret the ERM implementation in Singapore-based CCFs in
tandem with organizational change theories. Through the comprehensive literature
review, drivers for and hindrances to ERM implementation were identified.
The questionnaire survey was conducted with 36 Singapore-based CCFs to collect the
data relating to the influence of these drivers and hindrances on ERM implementation.
The analysis results indicated that 13 drivers and 25 hindrances had significant influence
on ERM implementation in these CCFs. In addition, considering ERM implementation in
construction firms as an organizational change, this study interpreted the critical drivers
and hindrances from the organizational change perspective. Specifically, both Theory E
and Theory O can be used to implement ERM, and the drivers for organizational change
provide theoretical rational for the critical drivers for ERM implementation. In addition,
13 sources of resistance to organizational change were linked to the 25 critical hindrances
to ERM implementation. Lastly, strategies were identified to strengthen the drivers for
ERM 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 results
are interpreted and generalized. Additionally, 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 to ERM implementation. Nonetheless,
the implication of this study is not limited to the Singapore-based CCFs because the
theoretical rational behind the critical drivers and hindrances can be used to interpret
the drivers and hindrances in other construction firms. In addition, as few studies
have attempted to investigate ERM in construction firms, this study contributes to the
literature through interpreting ERM implementation from an organizational change
perspective. Furthermore, the identification of the drivers and hindrances and the
managerial implications provide practitioners and academics with valuable information
as well as a clear understanding of how to consolidate ERM programs and overcome
the hindrances. Thus, it is believed that this study contributes to the global body of
knowledge relating to ERM.
Future studies would investigate the interaction mechanisms among the drivers for
and hindrances to ERM implementation, and identify the influence paths comprised by
some of these factors. The theoretical rational behind these mechanisms and paths
would be found in organizational change theories, and a comprehensive set of best
practices, which help the management to handle the influence of these factors and
pursue the benefits of ERM, would be proposed based on the interaction mechanisms
and influence paths.
Because the factors driving and hindering ERM implementation interact with each
other, future studies would investigate the interaction mechanisms and influence paths
among these factors, the theoretical rational behind which can be found in the theories
of organizational change as well. In addition, based on the underlying mechanisms and
influence paths, a set of best practices would be proposed, which could help the
management to handle the problems stemming from the interactions of the drivers
and 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 customized
best practices should consider the culture, learning, motivation, and leadership
issues within the organization.
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About the authors
Xianbo Zhao is a Lecturer (Built Environment) in the School of Engineering and Technology at
the Central Queensland University, and a PhD Candidate in the Department of Building at the
National University of Singapore (NUS). His current research interests are in the areas of risk
management, sustainable construction, as well as rework and productivity. Xianbo Zhao is the
corresponding author and can be contacted at: [email protected]
Dr Bon-Gang Hwang is an Assistant Professor in the Department of Building at the National
University of Singapore (NUS). He has several years of experience in the construction industry
in South Korea, USA, and Singapore. Dr Hwang’s current research interests are in the areas
of 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 National
University of Singapore (NUS). He obtained his PhD from the University College London and is
a Fellow of the Chartered Institute of Building (FCIOB). Dr Low has served as the Vice-Dean in the
NUS School of Design and Environment, and for a while, was the Head of the NUS Department of
Building. As an author of more than 500 publications, he is also a winner of numerous teaching
excellence awards as well as best paper awards for research.

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