SWOT Analysis in Construction Projects

Latest revision as of 15:36, 19 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.

Risk is considered to be, according to PMI Standard on Project Management (2021), an unpredicted event or condition that, in case it occurs, affects (positively or negatively) one or more objectives. Positive risks are opportunities, while negative risks are threats. The practice of risk management includes planning the approach, identifying and analyzing risks, response planning and implementation, and ongoing monitoring of risks and is a very important aspect for all organizational activities. ^[2] 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.

[edit] Introduction in SWOT Analysis

[edit] 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. ^[3]

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. ^[4] 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. ^[5]

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. ^[6] 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]

[edit] 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. ^[7] 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. ^[8]
• Weaknesses: Facilities, financial resources, management capabilities, marketing skills, and brand image can be sources of weaknesses. ^[9] 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. ^[8]

• 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. ^[7] 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. ^[10]

• Threats: All environmental factors that can impede organizational efficiency and effectiveness are threats. ^[8] 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. ^[11]

[edit] 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’. ^[12]

[edit] 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 ^[13] 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.

[edit] 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: Identification of a contractor according to the specified criteria. In case of a bad contractor selection or acceptance of bad contract terms many problems might be caused, which might require more resources than the risk analysis itself to be solved.

• Successful Acquisition of Project Documentation and Building Permits: A strength associated with the investor's good business contacts.

• Market Demand Related to Building in New Belgrade: Despite evaluation before investing, real estate prices appeared to rise during the construction.

• Contractor and Subcontractor Willingness to Agree with Frequent Project Changes: Quite often, the contractor and subcontractors have been willing to agrre with the investor and conduct changes in the project without any specific compensation.

• Possession of Cash: No credit and any kind of loan taken by the investor.

Weaknesses:

• Absence of Determined Buyers: Sometimes, final buyers have an influence on the investor, which affects the construction. Many problems were caused by changes regarding space allocation on the premices.

• Lack of Protection of the Investor’s Interests by the Supervisory Board: A weakness regarding the supervisory board is that the engineer attempted to justify some positions by protecting his work, which resulted in making the objective report to the investor impossible.

• Inability to Use the Desired Materials: The investor prefered to use materials with good aesthetics while they had weaker fire-fighting traits, which was against safety regulations.

• Contractor’s Unwillingness to Make Big Changes: The contractor was unable to oblige the investor continuously because changes to the plans resulted in a lot of unpredicted work. The contractor was unwilling to deal with plan changes and unable to solve some problems resulting from them.

Opportunities:

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

• Favorable Contract Terms: The contract terms define a safe investment. Firstly, the investor has to conduct risk analysis in order to give the same information to all stakeholders. For instance, 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. ^[13]

• Good Expense Control: The investor’s consultants should assist the investor to monitor the project and communicate with the builder in order to be informed about the estimated time necessary for completing the project.

• Good Communication with All Participants in the Project: Cooperation with the builder, which simplifies access to whatever happens on the construction site.

Threats:

• Schedule Delays: In Azzaro project, delays occured due to the locksmith’s work issues. The schedule has a direct impact on expense rise and profit reduction for the investor.

• Reduced Construction Quality: Due to project delays and continuous changes, the investor might not be able to sell units in the building to desired buyers. Anything that could affect safety or quality of the materials and processes during all phases of construction should be examined with risk analysis.

[edit] Contractor's Perspective

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

From the contractor's perspective, SWOT is a helpful tool for the planning and contracting steps. It is common that an experienced contractor before signing any contracts, could influence the form and content of it, mostly if knows in depth the market and has done many favors for the investor during the concept phase. Considering that the decisions come from the one who invests, the investor though has the biggest influence on the terms of the contract.

In Azzaro project case, the risk analysis needed to define if the contractor could meet the demand. furthermore, it had to find the balance between the acceptance of the contractor's quote and the risk of the contractor having a loss by the acceptance of it in the end.

Strengths:

• Advanced Project Management: An advanced system of project management which included direct communication between the construction site and the head office of the contractor’s firm was used in Azzaro project. The contractor could hire experienced engineers and foremen, which resulted to great use of all employees involved.

• Workforce Stimulation: In Azzaro 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. ^[13]

• Knowledge of the Subcontractor: In the past, the contractor had collaborated with multiple subcontracting companies and had maintained good relations with them. The project planning becomes easier if the contractor knows the expected outcome by the subcontractors.

• Modern Technology: The use of modern materials and work automation brought rapid evolution in construction.

• Use of Modern Machinery: Renting of modern machinery (by the contractor) during 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. ^[13]

• Skillful Work Team: Workers who had already worked on similar type and size of project would participate in it.

• Good Relationship with Material Suppliers: Previous longterm collaboration with the material suppliers and concrete factory made the contractor familiar with their working methods. Thus, risks were eliminated (e.g. delays in shipment).

Weaknesses:

• Inexperienced Workers: Not all workers were familiar with the PERI Trio formwork. Thus, they needed to be trained in advance and continuously supervised later, in order to follow the predefined deadlines.

• Resistance to New Methods of Working: It might not be easy for senior workers to adjust to new techniques. Training and monetary bonuses for delivering in time could give them motivation for extra effort.

• Lack of Coordination: Lack of coordination among workers could occur, but could be improved by using a modern formwork system.

• Possibility of Injury at Work: Lack of experience with new construction technology could lead to injuries.

• Undeveloped Relationship with the Subcontractor: The contractor collaborated with new vendors for both locksmith and plastic work. In that case, the contracts should assign penalties for delays in 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. ^[13]

• Reliable Investor: Previous positive experiences with the investor "guarantees" respect to the estimated deadlines.

• The Possibility of Working on Future Projects: If the investor's trust is gained, it is possible to choose the contractor again in the future.

• Favorable Financing Arrangements: A favorable outcome might result from mutually agreed-upon financial arrangements throughout the whole project.

• Possibility of Developing a Well-Coordinated Project Team and Project Management Strategy for Future Projects: The contractor can create an efficient and coordinated project team for the project and is able to develop a standardized project management system for future projects.

Threats:

• High Level of Groundwater: During concreting the bed plate, high level of groundwater is evident.

• Small Area for Storage and Manipulation on the Construction Site: Tenants moving into the buildings and the large gross area could lead to lack of space. In this case, a neighboring parcel of land could be used, 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. ^[13]

• Repeated Changes in Allocation of Space: Constant changes by the investor regarding space allocation put could the contractor under a state of constant pressure.

[edit] Limitations

Despite the fact that SWOT Analysis is a tool that allows companies to identify and keep risk of their business decisions under control, redefine their goals and strategies and recognize their strengths over the competitors, it might not enough for specific types of projects. For instance, sometimes the entries in a SWOT Matrix might not be quite valid and accurate, because of the dynamic and structural changes asociated with different levels of a system. Furthermore, even though many factors can be considered, quantity does not always guarantee quality of their content, which could easily be subjective or prone to bias. In that case, it would be more beneficial if it is combined with other tools in order to raise the validity of the information it provides, lead to the most ideal decisions and eliminate uncertainty as much as possible. In an attempt to avoid poor formulation of SWOT Matrix, it would be more advantageous to be structured and used by an experienced person.

Construction projects include a significantly high level of uncertainty compared to others, because of the unique traits that each one consists of. Since private financiers are involved in construction projects, it is very important to keep them under a certain budget. Thus, SWOT Analysis should be conducted by both contractors and investors, so that both sides are informed about the risks of their collaboration in advance. The investor needs to distinguish between good and bad quality and honesty, which can be achieved by demanding transparent risk prices in estimates or by demanding that estimates include plans for handling the risk. This way, the differences between honest and dishonest estimates can be seen. In practice, bidders with experience in handling risk can show goodwill toward bearing the risk and give lower prices than the competition, which increases their strength in the marketplace. ^[13] In general, SWOT Analysis could be a useful part of risk and uncertainty management strategies, but should be structured by experienced people in combination with other tools in order to be efficient, especially in large scale construction projects.

[edit] Annotated Bibliography

Rainer Zuest and Peter Troxler: No More Muddling Through (2006), Springer, pp. 35-39 The book provides knowledge on the ways that a systematic evaluation of strengths, weaknesses, opportunities and threats could be conducted, examples and definition of problems to be solved and how possible solutions could be identified. The book also presents SWOT Analysis in detail and gives valueable information on the application of it in projects and organizations.

Project, programme and portfolio management – Context and concepts: DS/ISO 21500:2021 (2021) ISO 21500:2021 provides guidance on project management and describes the benefits that could be gained by applying the standard itself. Furthermore, it explains how opportunities could be processed in order to achieve the desire outcome and how organizational strength could be raised through project implementation.

The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc. The PMI Standard for Project Management describes why risk management is crucial for any organization and organizational desicions. Moreover, it develops connections between projects, programs and portfolios and associates them with ERM and organizational strategies.

[edit] 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. ↑ The standard for project management. (2021). A Guide To the Project Management Body of Knowledge (pmbok® Guide) – Seventh Edition and the Standard for Project Management (english) (pp. xxvi, 67, 274 Seiten (unknown). Project Management Institute, Inc.
3. ↑ Schooley, S. (2021, December 1). SWOT Analysis: What It Is and When to Use It. Business News Daily. [1]
4. ↑ 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]
5. ↑ Züst, R., & Troxler, P. (2006). No more muddling through: Mastering complex projects in engineering and management. No More Muddling Through: Mastering Complex Projects in Engineering and Management (pp. 1–185). Springer Netherlands. https://doi.org/10.1007/978-1-4020-5018-3
6. ↑ Project, programme and portfolio management – Context and concepts: DS/ISO 21500:2021 (2021).
7. ↑ ^{7.0 7.1} Swot Analysis and Its Application in Solving Research Tasks.(2020) NTinAD 2020 - New Trends in Aviation Development 2020 - 15th International Scientific Conference, Proceedings, art. no. 9379082, pp. 197-201.
8. ↑ ^{8.0 8.1 8.2} Gürel, Emet. (2017). SWOT ANALYSIS: A THEORETICAL REVIEW. Journal of International Social Research. 10. 994-1006. 10.17719/jisr.2017.1832.
9. ↑ PEARCE, J. A. & ROBINSON, R. B. (1991). Strategic Management, (4th Edition), USA: Irwin, Inc.
10. ↑ HARRISON, J. S. & St. JOHN, C. H. (2004). Foundations in Strategic Management, (3.Baskı), USA: South Western
11. ↑ ÜLGEN, H. & MİRZE, S. K. (2010). İşletmelerde Stratejik Yönetim, (5. Baskı), İstanbul: Beta Basım Yayım
12. ↑ Gürel, Emet. (2017). SWOT ANALYSIS: A THEORETICAL REVIEW. Journal of International Social Research. 10. 994-1006. 10.17719/jisr.2017.1832.
13. ↑ ^{13.0 13.1 13.2 13.3 13.4 13.5 13.6} Milosevic, Igor. (2010). Practical Application of SWOT Analysis in the Management of a Construction Project. Leadership and Management in Engineering. 10. 10.1061/(ASCE)LM.1943-5630.0000041.