SWOT Analysis in Construction Projects

Revision as of 20:36, 14 March 2022

Developed by Maria Kylafi

SWOT analysis is a significant tool for strategic planning, especially useful in the stage of identifying strategies, in order to eliminate uncertainty and risks. It shall apply for situational analysis, through which it can adapt its internal structure, activities and processes to the economic environment in the selection and project management process. ^[1] The main factors that are taken into consideration when implementing a SWOT analysis are the internal components (strengths and weaknesses), as well as the external components (opportunities and threats). The matrix that is created can be used within an organization or for the implementation of a project as a way to identify the strategic holes related with it, during the phases of planning, contracting and construction of the project. The example that is going to be used in order to portray the application of SWOT analysis is the case of Azzaro project in Serbia, both by the investor’s and the contractor’s perspective.

The following article aims to present the SWOT analysis method and framework, as part of risk management process and apply the theory into a real construction project, with emphasis in the different stakeholders’ perspective and approach of the project. Furthermore, the author’s reflections regarding the advantages and the limitations of this tool will be presented in order to highlight its crucial value in project management.

Introduction in SWOT Analysis

The Use in Project, Program and Portfolio Management

The method of SWOT Analysis was initially intending to help organizations take into consideration and realize the factors associated with decision making. This method was presented in the 1960s by Albert Humphrey of the Stanford Research Institute, while conducting a study related to the identification of the root cause of consistent failure in corporate planning. Since the time it was introduced, SWOT has become one of the most useful tools for business owners and managers in order to have a clear view of the companies. ^[2]

In general, effective project management requires a development of a mission statement for the project, i.e. what is to be implemented, the goals and the desired outcome. ^[3] It is necessary to clarify in advance as well as during all steps of project implementation all the elements that have an impact on its effectiveness. Moreover, it is important that these elements such as time limitations, prearranged costs, quality standards are identifies, so that the issues arising are being addressed immediately by the project managers or the contractors.

SWOT Analysis examines the business organization and its project from the point of view of the external and internal environment. According to Rainer Züst and Peter Troxler, SWOT Analysis Matrix gives the opportunity to evaluate the results and evaluations that are associated with from both the present and the future-related views. In a SWOT Analysis the strengths and weaknesses as well as the opportunities and threats are listed in a matrix vertically and horizontally, respectively. Strengths and weaknesses and opportunities and threats that have the same cause, could require mostly likely similar or the same actions. (ADD REFERENCE)

As described in ISO 21500:2021, the organizational environment is affected both by internal and external factors influencing organizational activities and decision-making. An organization should consider influences internal influences regarding the governance and management of projects, programs and portfolios. (ADD REFERENCE)The internal environment includes internal stakeholders is affected by the structure, processes and culture of the organization and could consist of sponsors, members of the governing body, managers in functional roles, employees, project managers. The external environment of the organization affects the organization’s ability to realize benefits and could include factors related to opportunities and threats arising from economic, political, social, legal and environmental constraints, as well as expectations and requirements by external stakeholders. In a SWOT Analysis, the strengths and weaknesses are connected with the internal environment, while the opportunities and threats are connected with the external. ^[1]

SWOT Analysis Components

Figure 1: SWOT Matrix, Own Illustration

• Strengths: All qualities, assets and other positive facts that are considered to be useful for the fulfillment of the goal and have a beneficial effect or provide a competitive edge. (4) Strength at organizational level involves properties and abilities by which an organization gains an advantage over other organizations and competitor organizations that are revealed as a result of the analysis of its internal environment. In other words, organizational strength defines the characteristics and situations in which an organization is more effective and efficient compared to their competitors. (5)
• Weaknesses: Facilities, financial resources, management capabilities, marketing skills, and brand image can be sources of weaknesses. (6) Weakness at organizational level refers to the situations in which the current existence and ability capacities of an organization are weaker compared to other organizations and competitor organizations. In other words, organization weakness means the aspects or activities in which an organization is less effective and efficient compared to its competitors. These aspects negatively affect the organizational performance and weakens the organization among its competitors. Consequently, the organization is not able to respond to a possible problem or opportunity, and cannot adapt to changes. (5)

• Opportunities: All current and also future positive changes, which follow or may result from the external environment (the one beyond realization) of the evaluated area. Namely, all the real and potential facts and conditions, which are of advantage for the evaluated area or might be helpful in fulfilling the basic goal. (4) They are the conditions in the external environment that allow an organization to take advantage of organizational strengths, overcome organizational weaknesses or neutralize environmental threats. (7)

• Threats: All environmental factors that can impede organizational efficiency and effectiveness are threats. (5) Threats are the situations that come out as a result of the changes in the distant or the immediate environment that would prevent the organization from maintaining its existence or lose its superiority in competition, and that are not favourable for the organization. (8)

The SWOT Matrix

SWOT Analysis is an interactional analysis technique that makes macro evaluations possible. As an analysis tool, SWOT provides the opportunity to focus on positive and negative aspects of internal and external environment of the organization, in another words the elements in this environment that add plus and minus value, all together in a related perspective. In this regard, it is also possible to describe SWOT Analysis as ‘Two-by-Two Matrix’. (9)

Application of SWOT Analysis in Azzaro Construction Project

During the planning, contracting and implementation of a construction project, it is crucial to identify the parameters and risks that could possibly lead to not desired consequences. In that case, SWOT Analysis is considered to be a useful method to recognize and eliminate uncertainty. For a construction project it would be helpful to understand the risks for the main stakeholders (investors and contractors), which would also clarify the conflicting interests and different goals. Thus, it offers the opportunity for efficient risk prediction and management, starting from the planning phase.

As an example, SWOT Analysis in Azzaro construction project based on the paper Practical Appliction of SWOT Analysis in the Management of a Construction Project (10) will be presented below. The project includes the construction of a 5,802 m2 business area, in order to continue a row of similar architecture buildings, with total investment cost US$5 million. All components were analyzed both by contractor's and investor's perspective.

Investor's Perspective

Figure 2: SWOT Analysis from the investor's perspective, Own Illustration

When conducting a project evaluation, the decisions regarding investment depend on the decision maker’s attitude toward the possibility of risk. It is quite common for most investors to accept a project that appears to have higher possibilities to succeed, because they tend to have a natural aversion toward risk. Nevertheless, there is always an element of risk related to the project's final result, thus the decision maker has to decide in advance what amount of risk he is eager to take. After having set the priorities between the project goals, the investor has to take into consideration carefully all the risks that he could be exposed to during the construction phases, and he also has to make preditions regarding all the outcomes of those risks. In case that the investor is not qualified enough in order to consider the potential risks, he could collaborate with specialized consultants to help with the risk assessment of the project and develop accordingly a suitable plan to minimize any risk.

Strengths:

• Good Selection of Contractor: A contractor who satisfies the crieteria is found. This strength allows future projects with the investor and creates confidence in the contractor’s ability to direct the suppliers. In case of bad contractor selection by the purchaser or vice versa, or in case that both sides accept bad contract terms, big problems can be caused, which might require more resources to solve than what risk analysis itself required.

• Successful Acquisition of Project Documentation and Building Permits: This is a strength the investor has because of good business contacts.

• Market Demand Related to Building in New Belgrade: Although the investor conducted an evaluation before investing, real estate prices increased during the construction.

• Contractor and Subcontractor Willingness to Agree with Frequent Project Changes: In many cases, the contractor and subcontractors have been willing to oblige the investor and carry out changes in the project without any specific compensation.

• Possession of Cash: The investor did not take any kind of credit and did not obtain any kind of loan.

Weaknesses:

• Absence of Determined Buyers: Although buyers of the end product should not have any direct connection with construction, they occupy a special place because of the influence they have on the investor. Because of their changes to space allocation on the premises, the project experiences a series of problems.

• Lack of Protection of the Investor’s Interests by the Supervisory Board: This is a consequence regarding the supervisory board; the engineer attempted to justify some positions by protecting his work and made an objective report to the investor impossible.

• Inability to Use the Desired Materials: During the project, the investor wanted to use some materials with good aesthetics but weaker fire-fighting characteristics, which was against safety regulations.

• Contractor’s Unwillingness to Make Big Changes: The contractor could not oblige the investor all of the time because changes to the plans resulted in a lot of unexpected work. The contractor was not willing to accept the changing work dynamics and was unable to solve some of the problems resulting from plan changes.

Opportunities:

• Opportunity to Win the Contractor over for Future Projects: The investor creates an opportunity to work on another similar project with the contractor.

• Favorable Contract Terms: The terms of the contract determine a safe investment. The first thing the investor has to do is the risk analysis in order to give the same information to all participants in the project. For example, the contractor should not bear risks that cannot be quantified with certainty. Expenses should be related to the things that can be anticipated. If the investor is worried about who will bear the risks, then he should do the necessary analyses and, on the basis of those analyses, ask for a bid from a contractor.

• Good Expense Control: The investor’s consultants should make it possible for the investor to monitor the project and communicate with the builder so that he gets information about the expected time necessary for finishing the project.

• Good Communication with All Participants in the Project: This is another product of cooperation with the builder, which facilitates access to all the things that happen on the construction site.

Threats:

• Schedule Delays: Delays occurred on the Azzaro project because the locksmith’s work dragged on and was directly related to reallocating space in the building. The schedule directly affects the increase of expenses and reduction in profit for the investor

• Reduced Construction Quality: This is a direct threat for the investor who, because of project delays and constant changes, can find himself not being able to sell units in the building to desired buyers. The risk analysis regarding quality needs to look at everything that could affect the quality or safety of materials and processes in each stage of construction.

Contractor's Perspective

Figure 3: SWOT Analysis from the contractor's perspective, Own Illustration

From the contractor's perspective, SWOT is suitable for the planning and contracting phases. Sometimes, an experienced contractor can, before signing the contract, influence its form and content, especially if he has properly investigated the market and has done a large number of favors for the investor during the concept phase of the project. Taking into account that the one who finances the project is the one who decides, the investor still has the greatest influence on the text of the contract, and potential investors need to become familiar with contracts as much as possible.

In Azzaro project case, the risk analysis had to determine whether the contractor could meet the demand, but it also had to give the right balance: whether the contractor’s quote would be accepted and the risk if the money was accepted and the contractor happened to have a loss.

Strengths:

• Advanced Project Management: While working on this project, we used an advanced system of project management with direct communication between the construction site and the head office of the contractor’s firm. On this project, the contractor had the opportunity to hire experienced engineers and foremen and made excellent use of all employees on the project.

• Workforce Stimulation: On this project, workers’ wages were increased and equalized with respect to earlier projects. The wages of the highranking workers (craftsmen and specialized workers) were 370 dinars per hour (US$1=70 Serbian dinars), and the wages of the low-ranking workers were about 300 dinars per hour. During the hard summer months, the contractor offered a bonus to the best craftsmen and all participants in the project who had higher-level responsibilities.

• Knowledge of the Subcontractor: On previous projects, the contractor had done business with many subcontracting firms and had established good relations with them. When the contractor knows what to expect of the subcontractors, it makes project planning go much easier.

• Modern Technology: Modern materials and work automation have contributed to rapid advancements in construction. This is a strength of the contractor and was reflected in the effective and efficient organization on the Azzaro project.

• Use of Modern Machinery: The contractor rented modern machinery for use while managing the construction of the building.

• Use of PERI Trio Prefabricated Formwork: Trio formwork enables rapid progress during construction. Apart from that, the reasons to choose the Trio system were exploitation load, minimal working time on a site, and minimal labor expenses. The principal considerations were the agreed-upon quality of work and the schedule.

• Skillful Work Team: This was an additional contractor strength. It was specified that workers who had already worked on the construction of residential and business projects of similar size and similar heights would participate in the construction of this building.

• Good Relationship with Material Suppliers: This contractor had been cooperating with the same material suppliers and the same concrete factory for a long time, so he was familiar with their working methods, and the risk factors regarding shipment delays and other problems were significantly reduced.

Weaknesses:

• Inexperienced Workers: The workers may need some time to adopt a method for working with the PERI Trio formwork. This, in turn, could influence the scheduled deadlines. The workers need to be trained at the beginning of the project and then supervised and assisted as needed.

• Resistance to New Methods of Working: Some senior and more experienced workers may find it difficult to adopt new techniques and strategies. To help the workforce accept modern technology, offer training and, if possible, monetary bonuses for meeting deadlines. Supervisors should demonstrate patience and respect during the learning period.

• Lack of Coordination: This weakness means that a problem related to coordinating the workers can arise within the organization. The use of a modern formwork system and new materials positively influences coordination among workers.

• Possibility of Injury at Work: Because the workers are not accustomed to working with new construction technology, there is an increased possibility of injury at work.

• Undeveloped Relationship with the Subcontractor: Unlike the concrete manufacturer, the contractor worked with new vendors for both the locksmith and plastic work. Signed contracts should stipulate high penalties for missed deadlines.

Opportunities:

• Favorable Contract Terms: Contract terms should realistically allow the contractor to finish the project within the anticipated time limit. It is very important for the contractor to study the contract and carefully examine his responsibilities, as well as the investor’s rights and responsibilities.Underestimated expenses always result in business losses, while overestimated expenses can be a cause for losing the business

• Reliable Investor: Former cooperative and positive experiences with a specific investor represent another very favorable circumstance and an opportunity to respect any deadlines for the estimate.

• The Possibility of Working on Future Projects: When the contractor wins the investor’s trust, he will be more likely to partner on new projects in the future.

• Favorable Financing Arrangements: The contractor needs to receive sufficient advance funding to do all necessary and planned activities until the next agreedupon payment. Mutually agreed-upon financial arrangements represent an opportunity for a favorable project outcome.

• Possibility of Developing a Well-Coordinated: Project Team and Project Management Strategy for Future Projects: The contractor has an opportunity to put together a functional and coordinated project team for managing the project and to implement a standardized project management system.

Threats:

• High Level of Groundwater: This threat originates from the beginning of construction in the period of concreting the bed plate.

• Small Area for Storage and Manipulation on the Construction Site: The large gross area of the buildings coupled with tenants’ moving into the buildings brings the possibility of problems related to lack of space. The problem can be solved by using a neighboring parcel of land without any reimbursement of expenses.

• Supervisory Board with an Interest in the Project: A supervisory board (a group of individuals chosen by the stockholders of a company to promote their interests through the governance of the company and to hire and supervise the executive directors and CEO) for the construction cannot be objective, because it has a conflict of interest in the project. This often happens among the participants of a project in Serbia.

• Repeated Changes in Allocation of Space: The investor’s repeated changes in the allocation of space inside the building present difficulties for the contractor, who must deal with frequent improvisation and changes to the plan.

Limitations

• Listing strengths/weaknesses on paper is prone to bias

• Dynamic and structural changes at the level of system, sub-system, and supersystem affect the validity of entries in a SWOT Matrix

• Poorly formulated, requires experience and training for a systematic construction and use

• During SWOT Analysis many factors can be identified, but quantity does not mean quality.

(combination with other tools)

Annotated Bibliography

Rainer Zuest and Peter Troxler: No More Muddling Through (2006), Springer, pp. 35-39

ISO 21500:2021

References

1. ↑ ^{1.0 1.1} Galabova, B. (2018), Application of the SWOT-analysis in Project Management in Business Organizations. Science & Research, 2(1), 21–26.
2. ↑ Schooley, S. (2021, December 1). SWOT Analysis: What It Is and When to Use It. Business News Daily. [1]
3. ↑ Sabbaghi, A., & Vaidyanathan, G. (2004). SWOT analysis and theory of constraint in information technology projects. Information Systems Education Journal, 2(23), 3–19. Retrieved from [2]