A Comprehensive Management Framework for Preventing Operational Bankruptcy of Construction Firms

Construction is considered to be one of the most complex businesses due to the presence of multiple risks, uncertainties, and ever-changing conditions. These properties, among others, lead to the bankruptcy of thousands construction firms each year irrespective of the number of years spent in the market. In fact, the failure rate of construction firms is more substantial compared to other industries. Construction firms that fail to adjust their operations to match with internal and external environmental challenges will eventually collapse. Many previous research studies proposed models to predict the business failure of companies in the construction industry by the incorporation of different causes and factors. However, for the developed models, no previous research study used a comprehensive list of causes that lead to the bankruptcy of construction firms. Indeed, many scholars highlighted the need for and the absence of a holistic framework for the identification of the factors contributing to business failure in construction companies. As such, this paper attempts to bridge this critical knowledge gap through a multi-step methodology. To this end, the authors: (1) conducted a meta-analysis of previous research studies; (2) identified the causes leading to the failure in the business operations of construction firms; and (3) performed an analysis to quantitatively determine the overlooked business failure causes. By following this methodology, the authors were able to determine the causes that contribute to firms’ failures in the construction industry. Moreover, the results showed that there exists a critical need to better examine some understudied critical failure factors, including inadequate company organizational structure and human capital. Ultimately, the comprehensive framework proposed in this paper will provide means to ameliorate the operational decision-making process within construction firms.