RISK MANAGEMENT OF HIGHWAY CONSTRUCTION PROJECTS IN AKWA IBOM STATE
Risk in highway project occurs at various stages of projects development thereby limiting in most cases the overall achievement of projects objectives. These shortfalls necessitate an investigation into risk management techniques used in highway construction project in Akwa Ibom state. The study seeks to provide an insight on selected risk factors and its influence in project performance, to examine the risk management technique used in highway construction, evaluate the effectiveness of risk management techniques and to develop a new risk management framework to improve risk management of highway project in the area. A descriptive design approach was adopted to achieve these objectives. A field survey involving 73 respondents (client, contractor and consultant) was conducted. Data was collected using a structured questionnaire and analyzed using mean score, relative effective index, factor analysis and kruski – Wallis test. The result revealed that project funding challenges and construction cost overrun were the most significant risk factors. The study further shows that in risk identification, brainstorming and consulting expert were most significant. In risk analysis, consulting expert and the use of computer and other model were the most significant while reducing the possibility of occurrence was most significant during risk responds. The result also reveals that: in the level of effectiveness of risk identification technique, consulting expert and brainstorming were significant. In risk analysis, consulting expert was the most effective risk analysis technique while reducing the possibility of occurrence and reducing the consequences of risk were most effective risk responds technique. The study also reveals a significant variation in the perception of respondent as regarding influence of the identified risk factor on project performance and a no significant variation in their perception of risk management techniques and its effectiveness in highway construction project. A framework developed is generic and its adoption will enhance effective and efficient risk management of highway construction project in Akwa Ibom State. The study recommended that highway project should be executed in respect of the available funds and risk factors should be properly managed to reduce cost and time overrun thus improve highway project timely completion and performance.
TABLE OF CONTENTS
CHAPTER TITLE PAGE
Cover Page i
Title Page ii
TABLE OF CONTENTS viii
LIST OF TABLES xiii
LIST OF FIGURES xv
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of Research Problem 3
1.3 Research Question 5
1.4 Aim and Objective of the study 5
1.5 Research Hypothesis 5
1.6 Significance of the Study 6
1.7 Scope of the Study 7
1.8 Assumptions of the Study 7
1.9 Structure of the Study 7
CHAPTER TWO: REVIEW OF RELATED LITERATURE
AND CONCEPTUAL FRAMEWORK
2.1 Preamble 8
2.2 The Concept of Risk 8
2.3 The Project Life Cycle 9
2.3.1 Pre-project Phase 12
2.3.2 Planning and Design Phase 12
2.3.3 Contractor Selection Phase 13
2.3.4 Project Mobilization Phase 14
2.3.5 Project Operation Phase 14
2.3.6 Project Termination Phase 15
2.4 Risks in the Project Life Cycle 16
2.5 Risks in Highway Infrastructural Project 17
2.6 Risk Management 19
2.7 The Risk Management Process 19
2.7.1 Risk Management Planning 21
2.7.2 Risk Identification 21
2.7.3 Risk Assessment and Analysis 24
2.7.4 Qualitative Techniques 27
2.7.5 Risk handling or control 30
2.8 Risk Management in Construction Industry 33
2.9 Benefits of Risk Management 40
2.10 Theories Underpinning the Research 41
2.10.1 System Theory 41
2.10.2 Stakeholder Theory 41
2.10.3 Psychological Risk Approach 42
2.10.4 Contingency Theory 42
2.11 Conceptual framework for Risk Management 43
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Preamble 45
3.2 Research Design 45
3.3 Area of Study 46
3.4 The Population of the Study 47
3.5 Sampling and Sampling Technique 47
3.6 Instrument for Data Collection 48
3.7 Variable of Study 48
3.8 Ethical Issues 49
3.9 Reliability of Instrument 50
3.10 Method of Data Analysis 50
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS, AND INTERPRETATION
4.1 Preamble 51
4.2 Responds Rate 51
4.2.1 Respondent Characteristics 51
4.2.2 Sex of Respondents 52
4.2.3 Educational Qualification 52
4.2.4 Professional Affiliation 52
4.2.5 Respondent Working Experience 53
4.2.6 Respondent stake in highway Infrastructure 53
4.2.7 Respondent Profession 54
4.2.8 Respondent number of Project involved 54
4.2.9 Value of Highway Project Managed 55
4.2.10 Respondent Level of Satisfaction with highway Project 55
4.2.11 Respondent Knowledge of Risk Management of Highway
Construction Infrastructure 56
4.3 Risk Factors Associated with the Construction of Highway
infrastructure project 56
4.4 Variation in the Perception of Risk Factors Associated
with Highway Construction Infrastructure 58
4.5 Risk management techniques Currently used in
highway Construction Infrastructure 59
4.5.1 Risk Identification Techniques Currently Used in
Highway Construction Infrastructure 60
4.5.2 Risk Analysis/Assessments Techniques Currently Used in
Highway Construction Infrastructure 60
4.5.3 Risk Responds Techniques Currently Used in
Highway Construction Infrastructure 61
4.6 Variation in the Perception of important Risk Management
Technique currently used in Highway Construction Infrastructure 62
4.7 Level of Effectiveness of Risk Management Technique
Currently used in Highway Infrastructure 63
4.7.1 Level of Effectiveness of Risk Identification
Technique Currently used in Highway Infrastructure 63
4.7.2 Level of Effectiveness of Risk Analysis/ Assessments
Technique Currently used in Highway Infrastructure 64
4.7.3 Level of Effectiveness of Risk Responds Technique
Currently used in Highway Infrastructure 65
4.8 Variation in the Perception of the Effectiveness
of the Risk Management Techniques Currently used in
Highway Construction Infrastructure 66
4.9 Framework Development and Validation 67
4.10 The Concept of Effective Risk Management
Framework of Highway Infrastructure 67
4.11 Development of Effective Risk management framework 68
4.12 Framework Validation 73
4.12.1 Results of Framework Validation 74
4.13 Discussion of Findings 77
CHAPTER FIVE: SUMMARY, CONCLUSION AND
5.1 Summary 82
5.2 Conclusion 83
5.3 Recommendations 84
5.4 Contribution to Knowledge 84
5.5 Recommendations for Further Study 84
LIST OF TABLES
TABLE TITLE PAGE
2.1 Phase in Project life cycle 10
2.2 Possible Risk factor for Highway Infrastructure project 23
4.1 Responds Rate to the Questionnaires 51
4.2 Sex of the Respondents 52
4.3 Educational Qualification of Respondents 52
4.4 Professional Affiliation of the Respondent 53
4.5 Respondents working Experience in the Construction
4.6 Respondents stake in Highway Infrastructure 54
4.7 Respondents Profession 54
4.8 Respondents number of Highway Projects involved 55
4.9 Value of Highway Projects Managed 55
4.10 Respondents level of satisfaction with Highway Projects 56
4.11 Respondent knowledge of risk management of
Highway construction Projects 56
4.12 Risk factors affecting the performance of Highway
Construction Projects 57
4.13 Perceptions of risk factors associated with Highway
Construction projects 59
4.14 Extent of the use of risk identification techniques currently
used in Highway Construction Projects 60
4.15 The extent of the use of risk analysis techniques
Currently used in highway construction
4.16 The extent of the use of risk responds techniques currently
used in highway construction projects 62
4.17 Perceptions of risk management techniques currently
used in highway construction projects 63
4.18 The effectiveness of risk identification techniques currently
used in highway construction projects 64
4.19 The effectiveness of risk analysis techniques currently
used in highway construction projects 65
4.20 The effectiveness of risk responds techniques currently
used in highway construction projects 66
4.21 Perceptions of the effectiveness of risk management
techniques currently used in highway construction
4.22 Respondents’ Characteristics 75
1.1 Background of the Study
The development of infrastructure is one of the most important activities that can boost the business of various industries, thereby increasing the economy of such state or country. Construction industry is one of such industry and its projects are always unique with risk rising from a number of different sources.
Risk in its simplest form mean uncertainty with a recognise probability distribution (Barkley, 2004). According to Holmes (2002) risk is not the actual being of a problem rather the possibility that a certain problem may arise in the future. Baloi and Price (2003) define risk as the likelihood of an unfavorable incidents occurring to a project. According to Edward and Bowen (1998), risk is the probability that an adverse event occurs during a stated period of time. It is widely accepted across the construction management body of knowledge that a project risk is any even or series of events whether motivated internally or externally, when occurred will negatively affect the project objectives, goals, functionality, performance, time, cost and quality (Devripasadh, 2007).
Ashworth and Hogg (2002), Shou et al. (2004) and Florence and Linda, (2006) stated that “projects have life cycles or a sequence of stages and activities from origin to completion and there is always a degree of risk associated in each stage”. Risks are major component of the overall cost of construction and their distribution has significant effect on the project financial plan.
The major problem associated with most highway projects in Nigeria is always, cost overrun coupled with delay on completion Odeyinka, (2000); Tar and Carr (2000); Odeyinka (2000), Nasir (2003) and Lowa and Kaka (2007) pointed out that too often this risk is not dealt with satisfactorily which has resulted into poor project delivery in Nigeria. They submitted that to solve this problem the is need to integrate risk management practice into estimation of construction project cost and time, as this will help considerably to avoid excess overrun.
Construction project risk management is the process of identifying, analysing and responding to construction project risk (Project Management Institute, PMI, 2003). It involves the maximisation of positive result (opportunities) and the minimisation of negative results and its consequences (treats). It is also defined as a planned form of identifying and evaluating risk, selecting, establishing and applying options for the handling of the risk (Kremljak, 2004). Project risk management involves conducting risk management planning, engaging in risk identification, completing risk analysis, creating risk respond action plan, monitoring and controlling risk on a project while risk management is described as the difficult area within construction management (Winch, 2002; Potts, 2008), its application is promoted in all projects in order to avoid negative consequences Potts (2008).
Risk is associated to any project regardless of the industry and thus risk management should be of interest to any project manager.
Risk differs between projects due to the fact that every project is unique especially in the construction industry (Gould and Joyce, 2002). The construction industry operates in an uncertain environment where conditions can change due to complexity of each projects (Sanvido et al., 1992). However, there are many practitioners that have not realised the importance of including risk management in the process of delivering the project (Smith et al., 2006).
Road construction project due to its nature allows a lot of possibilities for many environment, socio-political and other problems during pre-contract, contract and post-contract stage leading to completion time problem, cost overruns or exceeding budget in project and poor quality finish (Akintoye and Macloed, 1997). In order to avoid or reduce the losses, the management of the risk involved in the construction project is required. It should be underlined that risk management is not a tool which ensures success rather a tool which helps to increase the probability of success. Risk management is a proactive concept rather than a reactive concept.
Nigerian construction industry is characterised by frequent set back, or interruptions, cost overruns, low quantity standard, and abandonment of project (Awodele et al., 2009). These are caused by different risk event involved in construction project. Risk factors are believed to be familiar to Nigerian construction professional, yet the probability of occurrence and its impact at pre-contract and post-contract stages is yet to be fully investigated. However there is little research conducted on risk management within the construction industry in Nigeria. In Nigeria, the construction industry mainly depends on government’s budget and the industry is performing very poor due to avoidable risk factors. The need to understand how to manage project risk becomes a very important issue. This study will outline risk management technique of highway construction infrastructure in Akwa Ibom State.
1.2 Research Problem
Contemporary project management practice is characterised by late delivery, exceeded budgets, reduced functionality and questionable quality Williams (1999) while risk management is a recognised practice that helps clients deliver project on schedule and within budget (Project Management Institute, 2002). One of the challenges facing the construction industry is to manage the risk of cost overruns and
deliver project within budget. At the beginning of the last decade, Brando (1990) stated that in construction, the new orthodoxy is to accept risk and the uncertainty. Latham (1994) put forward that no construction project is not risk free, and risk can only be managed, minimised, shared, transferred or accepted; It cannot be ignored. The risk can cause loses that lead to increase in cost, time, delays and poor quality standard neglecting the achievement of projects objectives Simu (2006);
According to Shehu and Sommervills (2006) highway construction is risk prone with poor track record of copping with risk. Consequently, Projects risk is often not adequately dealt with (Thompson and Perry, 1992) and the complexity of projects is a significant contributor to risk in highway projects. Construction stakeholders are rarely engaged in evaluation of various risk management practices used in highway construction sector thus lack adequate knowledge of everyday situation in the sector. Often, stakeholders limit the application of risk management technique to pre-contract stage only thereby neglecting the inherent danger during the construction stage (Deviprasadh, 2007).
In the construction industry, construction project is unique, risk factor varies, and risk management framework varies. As a result, a framework used in one project can turn out to be completely inapplicable in another and as such key project participants may not know their commitment so as to minimise negative impacts of risk on construction projects. For example, risk framework for building projects is totally different from that of highway engineering projects. For these reason, the study set out to develop a risk management framework that can be used by shareholders towards improving risk management on highway construction infrastructure base on the risk factor identified in the project.
1.3 Research Questions
In order to achieve the purpose, the following research questions have been formulated to support the investigation.
i. What are the risk factors in Highway construction projects in Akwa Ibom?
ii. How is risk management techniques perceived in Highway construction projects?
iii. How effective is the use of risk management techniques in practice?
iv. How can risk management practice of Highway construction be improved?
1.4 Aim and Objectives
The study aims at developing a risk management framework to respond to the management of highway construction infrastructure projects in Nigeria. To fulfill the above aim, the following specific objectives are to:
i. evaluate the risk factors associated with the construction of highway infrastructure;
ii. examine the risk management techniques currently used in highway construction project;
iii. evaluate the effectiveness of risk management techniques currently used in highway construction infrastructure; and
iv. develop a risk management framework for improving the management of highway construction project risk factors.
1.5 Research Hypothesis
The hypotheses of the study state that:
i. There is no significant variation in the perception of important risk factors associated with highway construction projects among the clients, consultants and contractors’.
ii. There is no significant variation in the perception of important risk management techniques currently used in highway construction projects among the clients, consultants and contractors’.
iii. There is no significant variation in the perception of the effectiveness of the management techniques currently used in highway construction projects among the clients, consultants and contractors’.
1.6 Justification of the Study
The purpose of this research is to evaluate risk management practices use in the highway construction infrastructure and how practitioners are managing risk in everyday situation. Risk management technique currently used in highway construction infrastructure was examined. This will prove useful to users with knowledge of selecting appropriate risk management technique of highway construction projects and know how effective these tools are deployed.
The research also attempts to evaluate the effectiveness of various risk management techniques currently used in highway construction infrastructure and further encourage construction stakeholders on the need to strengthen the ineffective techniques and therefore provide solution to check the effect. The fact that risk management applies not only in pre-contract stages in highway construction project was emphasis. The risk management framework developed will further strengthen the existing framework.
It is hoped that the result of this study would be of immense benefit to the clients, contractors or developers, consultants to meet their commitments and minimise negative impact on highway construction project performance in relation to time, cost, environmental sustainability, stakeholder management, and quality objectives.
Lastly this study serves as additional literature to complement existing work on the study and act as a springboard to other studies.
1.7 The Scope of the Study
This research focuses on highway construction infrastructure project and is based on theories of risk management described in the literature. It is complemented by a study of a road construction project in Akwa Ibom State where key project stakeholders are involved. It is necessary to state that this research acknowledges risk management techniques in highway construction project during the planning, design, and construction stages.
1.8 Limitation of the Study
The major limitation to the researcher is the inability to assess the records or the archival data of some companies/organisations that would have helped in gathering more information citing anti-company policy as the main reason.
1.9 Structure of the Study
In this study, it is assumed that the respondents have experience in highway construction risk management and are therefore competent to give opinion which can be relied upon..