RELATIONSHIP BETWEEN RISK MANAGEMENT PRACTICES AND PROJECT PERFORMANCE IN NIGERIA CONSTRUCTION INDUSTRY
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The construction industry, perhaps more than most, 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 dealt with satisfactorily and the industry has suffered poor performance as a result. According to Pritchard (2001), most of the decisions, including the simplest ones, involve risks. 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, 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 refers to the culture, processes, and structures that are directed toward effective management of risks –including potential opportunities and threats to project objectives. Although risk is widely studied, it still lacks a clear and shared concept definition: risk is often only perceived as an unwanted, unfavorable consequence.
Risk management may be described as a systematic way of looking at areas of risk and consciously determining how each should be treated. It is a management tool that aims at identifying sources of risk and uncertainty, determining their impact, and developing appropriate management response (Uher, 2003). A systematic process of risk management has been divided into risk identification, risk assessment, risk mitigation and risk monitoring. An effective risk management method can help to understand not only what kinds of risks are faced, but also how to manage these risks in different phases of a project. Owing to its increasing importance, risk management has been recognized as a necessity in most industries today, and a set of techniques have been developed to control the influences brought by potential risks (Schuyler, 2001; Baker, 2005).
Compared with many other industries, the construction industry is subject to more risks due to the unique features of construction activities, such as long period, complicated processes, abominable environment, financial intensity and dynamic organization structures (Flanagan, 1993; Akintoye,1997; Smith, 2003). Hence, taking effective risk management techniques to manage risks associated with variable construction activities has never been more important for the successful delivery of a project. Previous research has mainly focused on examining the impacts of risks on one aspect of project strategies with respect to cost (Chen et al., 2000), time (Shen, 1997) and safety (Tam et al., 2004). Some researchers investigated risk management for construction projects in the context of a particular project phase, such as conceptual/feasibility phase (Uher, 1999), design phase (Chapman, 2001), construction phase (Abdou, 1996), rather than from the perspective of evaluation of the management of the risk.
Risk management is one of those ideas, that sense that a logical, consistent and disciplined approach to the future’s uncertainties will allow us to live with them prudently and productively, avoiding unnecessary waste of resources. It goes beyond faith and luck, the twin pillars of managing the future before we began learning how to measure probability (Risk management reports, 1999).
Risk management is one of the most critical project management practices to ensure a project is successfully completed. Royer (2000) stated that experience has shown that risk management must be of critical concern to project managers, as unmanaged or unmitigated risks are one of the primary causes of project failure. Risk management is thus in direct relation to the successful project completion. Project management literature describes a detailed and widely accepted risk management process, which is constructed basically from four iterative phases: risk identification, risk estimation, risk response planning and execution, often managing the risk management process is included (Klemetti, 2006).
1.2 THE NEED FOR THE STUDY
Risk management practice increases the likelihood of project performance in the Nigeria construction industry. It provides a holistic view of risks, challenges and potential problems and builds processes to help construction companies in monitor and manage them. This not only reduces the cost of housing project, but gives organization valuable strategies to reduce risk associated with project investments and tactical project activities. The construction company management will increase confidence in knowing that project will meet targeted goals and achieve expected outcome.
The professionals in construction industry will have information on factors that affect effective risk management in public housing construction projects. This will enable them to conscientiously incorporate risk management in their professional work and that would result in better project performance. The government in the developing policies regarding project risk management and other regulatory requirements of house scheme project in Nigeria. The policy maker will gain insight how well to incorporate the sector effectively to ensure effective mitigation of project risks for the building construction projects to achieve high project success. The study will contribute to the general body of knowledge and form a basis for further research.
1.3 STATEMENT OF THE RESEARCH PROBLEM
Although technical issues are a primary concern both early on and throughout all project phases, risk management must consider both internal and external sources for cost, schedule, and technical risk. Early and aggressive detection of risk is important because it is typically easier, less costly, and less disruptive to make changes and correct work efforts rather than the later, phases of the project. Many companies and organizations in the construction industry have an idea of risk management but do not implement it because they are not ready for possible challenges. Such as; increase in cost, time wasting, altered quality and also unhealthy scenario for workers (Deviprasadh, 2007).
In countries such as United States of America, United Kingdom and Canada, risk management has become a universal management process involving quality of thought, quality of process and quality of action (Sesel, 2003). In Nigeria however, the adoption of the risk management concept has been largely a part of the banking and financial sectors of the economy arising from responses to crisis that evolved within the financial sector of the economy in early 1990’s. With the emergence of the Project management profession in the late 1990s and the growing need to move organizations upward by adopting project management methodologies, risk management has become an integral part of the project architecture, being adopted by firms in Nigeria (Klemetti, 2006). The uncertainties in the Nigerian situation vis-a-vis the economical, political, environmental, social, cultural and financial environment in which the project is operated increases the uncertain outcomes which the risk management concept essentially attempts to predict and avert. This on the other hand may have a relationship with the performance of these projects. Global competition and technological innovations have increased the pressure in most Nigerian companies to deliver projects on time, within budget and with an acceptable quality of the deliverables of the project (Ehsan, (2006).
One of the major reasons for ineffective projects delivery in the Nigerian construction industry is the improper assessment of risk factors (Joshua, 2007). Many companies are not even aware of the kind or form of risks that they face in the process of construction. As a result the industry continues to suffer poor performances with many projects failing to meet time and cost targets (Joshua, 2007). This study is going to examine the relationship between risk management practice and project performance in Nigerian construction industries.
1.4 AIM AND OBJECTIVE
1.4.1 AIM
This research is to analyze the relationship between risk management practices and project performance in Nigeria construction industry with a view to enhance the overall performance of Nigeria construction Industry.
1.4.2 OBJECTIVES
In order to achieve the above aim, the following specific objectives shall be pursued:
- To find out if there is any significant relationship between risk management practice and project performance of Nigerian construction industry.
- To articulate the existing risk management practices in construction industry in Nigeria.
- To find out the risk factors perceived to be critical in Nigerian construction industry
1.5 METHODOLOGY
Field survey research method will be adopted in carrying out the research, together with information from construction professionals and contractors regards to risk management and project performance in Nigeria construction industry. Questionnaire will be used to gather information (data) from the respondents, review of past similar works, journals, conference / seminar papers and online resources will also play a vital in data collection.
1.5.1 DATA COLLECTION
The data shall be collected after the design, distribution and collection of questionnaires to some professionals in the Nigeria construction industry. The questionnaire will contain various questions for response on the analysis of conventional procurement strategies and their application in Nigeria construction industry.
1.6 SCOPE OF THE STUDY
The scope of the study will only cover the relationship between risk management and project performance in Nigerian construction industry. It shall be limited to some selected construction firms and projects that are located in Abuja, the Federal Capital Territory. Essentially attention will be given to the experienced professionals within the construction industry that span minor and major players in the construction industry.
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