Risk management matrix to bridge the gap in insurance parties' expectations in building constructions in Sri Lanka

Abstract

The construction industry inherently faces substantial financial, socio-political, and technical risks, making it one of the most hazardous sectors worldwide. Effective risk management strategies are crucial to mitigating the potential negative impacts of these risks. Developing countries, such as Sri Lanka, are particularly vulnerable due to existing shortcomings in established risk management practices. Insurance serves as a key financial mechanism for absorbing the economic consequences of unforeseen events, thereby enhancing the resilience of construction projects. Crucially, a contractor's awareness and understanding of insurance policies are also vital components of effective risk management. This study, therefore, investigates the misalignment between contractors’ expectations and the actual insurance coverage provided within Sri Lanka’s building construction projects. Using a qualitative methodology encompassing three rounds of semi-structured interviews with 14 industry experts from both the construction and insurance sectors, empirical data was analysed using manual content analysis. The research findings reveal 47 critical risk factors across ten domains. The core contribution of the study is the development of a comprehensive Risk Management Matrix that classifies risks into four quadrants—Ideal, Overlooked, Reasonable, and Critical—based on their insurability and perceived coverage. Findings reveal significant discrepancies between contractors’ perceptions and actual insurance coverage, particularly for critical risk factors, exposing contractors to unexpected financial risks or inefficient resource use. By examining 47 risk factors across 10 categories, the study identifies key areas where contractors frequently misunderstood insurance coverage. Finally, a risk management matrix created offers a valuable tool for local contractors, guiding them in optimizing insurance policies for effective risk management. The research contributes to both academic literature and industry practice and offers a replicable model for other developing countries facing similar challenges in construction risk governance. These findings are also relevant for other developing countries with similar construction industry conditions, providing insights to enhance risk management practices in these settings.