EVALUATION OF RISK MANAGEMENT PRACTICES OF INDIGENOUS CONSTRUCTION FIRM

EVALUATION OF RISK MANAGEMENT PRACTICES OF INDIGENOUS CONSTRUCTION FIRM

(A Case Study of Federal Capital Territory Abuja )

ABSTRACT

Construction projects are complex and dynamic in nature which contributes significant amount of risks. Risk assessment is a structured approach for identifying, evaluating and controlling hazards in the workplace with a view to achieving better organizational performance of no harm/damage to people, assets, environment and reputation. The aim of this study is to evaluate and determine the causes and effect of risk management practices on indigenous construction firms. The research also talked about the types of risk, their sources, involved in the construction industry. Methods of risk analysis, preventive method and remedial method where discussed. Forty (40) numbers of questionnaires were distributed to various construction firms within Abuja. Questionnaire was use as the primary source of data for the research. Also relevant literatures and the internet were source of secondary data collection. Microsoft excel, percentage (%) score method, and SPSS were used for the analysis and presentation of data. Emphases have not been placed on risks during construction in Nigeria and such risks when not properly managed have contributed to unsuccessful project. The result of the study revealed that there are no differences in risk management approaches employed by contractors firms in Nigeria. The paper also identified lack of knowledge on risk management as the major problem in risk management practice. Providing training and seminar on risk management will increase the awareness level of risk management in Nigeria.

CHAPTER ONE
INTRODUCTION

1.1 BACKGROUND OF THE STUDY
In recent years, intensive research and development has been done in the area of risk management practices in Nigeria. Most research finds out that there are defect or deficiency and failure to meet certain standard which is also a shortcoming for example, Oyegoke et al., (2012) discusses the problems of managing risk and uncertainty in construction project due to the owner dissatisfaction in project outcome and dynamism within agile construction environment. The authors identified some areas in supply chain processes which are prone to greater risks and uncertainty and propose an agile management principle based on the concept of integration and fragmentation in product development and execution processes respectively also, existing studies show paucity of definitions of what constitutes an indigenous construction company.

The Nigerian Oil and Gas Industry Content Development Act 2010 however define Nigerian Company as one that is registered under the Companies and Allied Matters Act and having not less than 51% Nigerian shareholding (Ogunbanjo, 2010). The Nation (2010) explains an indigenous company or contractor as one, which is wholly owned by Nigerians, has recognizable establishment and its resources in Nigeria appropriate to the type and level of work which it claims to be able to perform. From these definitions, in Nigeria, the indigenousness of a construction company (ICC) is perceived mainly from the perspective of utilization of indigenous capacity in management formation and the extent of ownership by Nigerians. ICCs are mostly small and medium scale enterprises (SMEs) whose ownership and management are constituted by Nigerians.

However improvement ways in this field has been identified. Some of the setbacks encountered are related to the ever increasing complexity of projects. Subcontracting is expanding since many companies are focusing solely on their core businesses, which results in more complex project networks and greater numbers of project participants.

Construction projects are characterized as very complex projects, where uncertainty comes from various sources. Construction projects gather together hundreds of stakeholders, which makes it difficult to study a network as a whole. But at the same time, these projects offer an ideal environment for network and risk management research. Additionally, construction projects are frequently used in management research, and several different tools and techniques have already been developed and especially for this type of project. However, there is a gap between risk management techniques and their practical application by construction contractors. This study tries to find reasons for this gap and works to decrease it. Special applications for construction projects are discussed in the literature review.

The construction industry is overwhelmed with risks (Deviprasad, 2007). Ehsan et al. (2010) iterated that it is highly risk prone, with complex and dynamic project environments creating an atmosphere of high uncertainty and risk. The industry is vulnerable to various technical, sociopolitical and business risks. Deviprasad, (2007) further stated that too often this risk is not been dealt with satisfactorily and the industry has suffered poor performance as a result. The global poor safety record of the construction industry in terms of accident/incident rate makes organisational compliance with risk assessment imperative especially in Nigeria where weak construction safety regulations and absence of a central safety council currently prevails. No construction project is risk free. Risk can be managed, minimized, shared, transferred or accepted but cannot be ignored (Latham, 1994). Specifically, construction is widely recognized as one of the most hazardous occupations for those who work in the industry and a significant source of accidents for members of the general public who are affected by its operations (Churched and Albania Starr, 1996). Accidents and ill health can ruin lives and affect the organisation through loss of output, damage of equipment/machinery, increased staff turnover, and reduced workers morale, damage of organisational reputation, increased insurance costs and payment of medical bills/compensation/fines.

The Nigerian construction market is among the largest construction markets in Africa, which has recorded an impressive growth over the years. Although, government spending was a major contributor to the industry, especially the infrastructure sub-segment, other factors also contributed positively on the industry’s growth, with a growing economy like Nigeria.

The procedure of taking a project from inception to completion, and then into use is a complex one that entails time-consuming design and production processes (Ahmed and Azhar, 2004 in Opolot et al. undated) The main role in project management activities is to drive the operations in order to reach or to overcome the expectations of those who decided on the investment, the stakeholders (Monetti, et al., 2006). Risk management is fundamental to accomplish those objectives, not only trying to keep away from bad results caused by some special events or uncertain conditions, but also acting as a guide in order to maximize the positive results.
Risk management is the process of identifying, analyzing, and responding to risk factor throughout the life of a project and in it best interests of it objectives. (Artto, Kähkönen, 2005)

Risk source: things that can cause variation from what is planned or expected (S., Chapman, C., 2003)

Proper risk management implies control of possible feature events and is proactive rather than reactive. Although risk is widely studied, it still lacks a clear and shared concept definition: risk is often only perceived as an unwanted, unfavorable consequence. Such a definition embodies two misleading concepts: first, among professionals there is an established consensus that risk needs to be viewed as having both negative and positive consequences. Secondly, risk is not only related to events, i.e. single points of action, but risk also relates to future project conditions. Conditions may turn out to be favorable or unfavorable. The point is that future project conditions are hard to predict in the early stages of the project life-cycle.

Construction companies in Nigeria are legally required to assess and control the risks associated with their activities. In construction sites, some hazards are readily identifiable (chemical and physical hazards), while others (ergonomical, biological and psychosocial hazards) may require specialized techniques (risk assessment), Job hazard analysis, what if analysis, fault tree techniques, hazard and operability study and accident investigation) to identify. The effects of each of these techniques on organisational performance cannot be overemphasized. It is against this background that it becomes pertinent to embark on a research that unravels risk management practices of indigenous construction firm in Nigeria.

This research seeks to examine the approaches to risk management practices among contractors in Nigeria. The contractors were grouped according to their years of operation in Nigeria. This was meant to determine if their years of operation will create differences in risk management practice and subsequently serve as a basis for measuring their performance in terms of cost, time and quality.
The findings will assist project participant to know the approaches of risk management among contractors in Nigeria, it will also expose them to the current level of risk management practice and finally suggest ways of improving the current practices in order to improve contractor’s performance.

1.2 STATEMENT OF PROBLEM

Significant approaches have not been placed on risks during construction in Nigeria and such risks when not properly managed have contributed to unsuccessful project. Odeyinka, (2006) observed that estimating risk in construction as a variable in the construction process whose variation results in uncertainty as to the final cost, duration, and quality of the project. Therefore, it becomes highly imperative to evaluate the impact of risk on construction firm with a view to ensuring efficient delivery of projects.

1.3 JUSTIFICATION OF STUDY

A review of the study would enable contractors and construction firm have an approach to identify the factors leading to risk in construction and how to minimize or reduce such risk in construction.

1.4 SCOPE AND LIMITATION
The study is limited to projects in Abuja because there is easy access of information in the Abuja metropolis and my target respondents for this study would be the principal actors in the construction industry namely: the Client, the Consultant and the Contractor.

1.5 AIMS AND OBJECTIVES
The aim of the study is to evaluate risk management practice of indigenous construction firm in Nigeria and proffer solutions to how risk can be minimized.
The objectives of the study are as follows:
1.To identify the risk factors affecting indigenous contractor in Nigeria.
2.To assess the effects of risk on indigenous construction firm in Nigeria.
3.To proffer solutions on how to minimize or prevent those risks factor.

1.6 METHODOLOGY
The study begins with a literature review. The purpose of the literature part is to answer the research questions and to support the other ones. The literature review will give an overview of both the basics of the network theory and project risk management, as well as their applications in the specific construction projects under discussion. To conclude the literature review a synthesis of present understanding and the management of the risks caused by network structure is provided.

Questionnaire survey will be use to elicit information on risk management approaches adopted by contractors in Nigeria.
A detailed, structured, self-administered questionnaire will be designed for the study. The questionnaires would be validated for reliability through pilot study. It would be administered to those involved in construction works like the engineers, architects, quantity surveyors who are involved in construction of both building and civil works.

The questionnaires would be a pretested question by conducting oral interview to reveal unanticipated problems with question wordings so as to refocus the nature of the questionnaires in order to receive optimum results.
The returned questionnaires would be scrutinized for completeness and consistency.

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