RISK MANAGEMENT OF HIGHWAY CONSTRUCTION PROJECTS


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RISK MANAGEMENT OF HIGHWAY CONSTRUCTION PROJECTS IN AKWA IBOM STATE

ABSTRACT

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 CONTENTSCHAPTER            TITLE                         PAGE                Cover Page                        iTitle Page                         iiDECLARATION                    iiiCERTIFICATION                    ivDEDICATION                    vACKNOWLEDGEMENT                viABSTRACT                        viiTABLE OF CONTENTS                viiiLIST OF TABLES                    xiiiLIST OF FIGURES                    xv

    CHAPTER ONE: INTRODUCTION1.1    Background to the Study                            11.2    Statement of Research Problem                         31.3    Research Question                                 51.4    Aim and Objective of the study                         51.5    Research Hypothesis                                51.6    Significance of the Study                            61.7    Scope of the Study                                 71.8    Assumptions of the Study                            71.9    Structure of the Study                                7

CHAPTER TWO:     REVIEW OF RELATED LITERATUREAND CONCEPTUAL FRAMEWORK2.1    Preamble                                    82.2    The Concept of Risk                                82.3    The Project Life Cycle                             92.3.1    Pre-project Phase                                 122.3.2    Planning and Design Phase                             122.3.3    Contractor Selection Phase                            132.3.4    Project Mobilization Phase                            142.3.5    Project Operation Phase                            142.3.6    Project Termination Phase                            152.4    Risks in the Project Life Cycle                         162.5    Risks in Highway Infrastructural Project                    172.6    Risk Management                                 192.7    The Risk Management Process                        192.7.1    Risk Management Planning                            212.7.2       Risk Identification                                212.7.3     Risk Assessment and Analysis                        242.7.4    Qualitative Techniques                              272.7.5    Risk handling or control                             302.8    Risk Management in Construction Industry                    332.9    Benefits of Risk Management                         402.10    Theories Underpinning the Research                         412.10.1    System Theory                                 412.10.2    Stakeholder Theory                                 412.10.3    Psychological Risk Approach                         422.10.4    Contingency Theory                                422.11    Conceptual framework for Risk Management                 43

CHAPTER THREE: RESEARCH METHODOLOGY3.1    Preamble                                    453.2    Research Design                                453.3    Area of Study                                    463.4    The Population of the Study                            473.5    Sampling and Sampling Technique                        473.6    Instrument for Data Collection                        483.7    Variable of Study                                483.8    Ethical Issues                                    493.9    Reliability of Instrument                            503.10    Method of Data Analysis                            50

CHAPTER FOUR:    DATA PRESENTATION, ANALYSIS, AND INTERPRETATION4.1    Preamble                                    514.2    Responds Rate                                    514.2.1    Respondent Characteristics                            514.2.2    Sex of Respondents                                524.2.3    Educational Qualification                             524.2.4    Professional Affiliation                             524.2.5    Respondent Working Experience                         534.2.6    Respondent stake in highway Infrastructure                    534.2.7    Respondent Profession                            544.2.8    Respondent number of Project involved                    544.2.9    Value of Highway Project Managed                        554.2.10    Respondent Level of Satisfaction with highway Project            554.2.11    Respondent Knowledge of Risk Management of Highway Construction Infrastructure                            564.3    Risk Factors Associated with the Construction of Highway infrastructure project                                564.4    Variation in the Perception of Risk Factors Associated with Highway Construction Infrastructure                    584.5      Risk management techniques Currently used in highway Construction Infrastructure                        594.5.1    Risk Identification Techniques Currently Used in Highway Construction Infrastructure                        604.5.2    Risk Analysis/Assessments Techniques Currently Used inHighway Construction Infrastructure                        604.5.3    Risk Responds Techniques Currently Used in Highway Construction Infrastructure                        614.6    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                    634.7.1    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            644.7.3    Level of Effectiveness of Risk Responds Technique Currently used in Highway Infrastructure                    654.8    Variation in the Perception of the Effectiveness of the Risk Management Techniques Currently used in Highway Construction Infrastructure                     664.9    Framework Development and Validation                     674.10    The Concept of Effective Risk Management Framework of Highway Infrastructure                    674.11    Development of Effective Risk management framework             684.12     Framework Validation                            734.12.1    Results of Framework Validation                        744.13    Discussion of Findings                            77

CHAPTER FIVE:     SUMMARY, CONCLUSION AND RECOMMENDATIONS5.1    Summary                                    825.2    Conclusion                                    835.3    Recommendations                                845.4    Contribution to Knowledge                             845.5    Recommendations for Further Study                         84REFERENCES                                 86APPENDIX                                    91    

LIST OF TABLES

TABLE            TITLE                                                                     PAGE2.1        Phase in Project life cycle                                                 102.2        Possible Risk factor for Highway Infrastructure project        234.1        Responds Rate to the Questionnaires                                 514.2        Sex of the Respondents                                                    524.3        Educational Qualification of Respondents                            524.4        Professional Affiliation of the Respondent                           534.5        Respondents working Experience in the Construction Industry                                                                                      534.6        Respondents stake in Highway Infrastructure                     544.7        Respondents Profession                                                   544.8        Respondents number of Highway Projects involved            554.9        Value of Highway Projects Managed                                  554.10        Respondents level of satisfaction with Highway Projects    564.11    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 currentlyused in Highway Construction Projects                                           604.15    The extent of the use of risk analysis techniques Currently used in highway construction projects                                                                                       614.16    The extent of the use of risk responds techniques currentlyused in highway construction projects                                             624.17    Perceptions of risk management techniques currently used in highway construction projects                                             634.18    The effectiveness of risk identification techniques currently used in highway construction projects                                             644.19    The effectiveness of risk analysis techniques currently used in highway construction projects                                             654.20    The effectiveness of risk responds techniques currently used in highway construction projects                                             664.21    Perceptions of the effectiveness of risk management techniques currently used in highway construction projects                                                                                       674.22        Respondents’ Characteristics                                           75

CHAPTER ONEINTRODUCTION1.1    Background of the StudyThe 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 QuestionsIn 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; andiv.    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 StudyThe 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 StudyThis 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 StudyThe 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 StudyIn 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.

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RISK MANAGEMENT OF HIGHWAY CONSTRUCTION PROJECTS


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