RISK MANAGEMENT OF HIGHWAY CONSTRUCTION PROJECTS


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 CONTENTS

CHAPTER            TITLE                         PAGE

                Cover Page                        i

Title Page                         ii

DECLARATION                    iii

CERTIFICATION                    iv

DEDICATION                    v

ACKNOWLEDGEMENT                vi

ABSTRACT                        vii

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

RECOMMENDATIONS

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

REFERENCES                                 86

APPENDIX                                    91

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

Industry                                                                                      53

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

projects                                                                                       61

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

projects                                                                                       67

4.22        Respondents’ Characteristics                                           75

CHAPTER ONE

INTRODUCTION

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.

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RISK MANAGEMENT OF HIGHWAY CONSTRUCTION PROJECTS



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