RISK MANAGEMENT FOR SUSTAINABLE PROJECT DELIVERY IN NIGERIA CONSTRUCTION INDUSTRY

Abstract

This study was on risk management for sustainable project delivery in Nigeria construction industry. Three objectives were raised which included: Identify risk factors that hinders sustainability and successful project delivery in Nigeria, evaluate the awareness of risk management amongst construction stakeholders in Nigeria, Investigate impact of capitalization on sustainable risk management and Formulate a decision roadmap for sustainable project delivery in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from Federal Road Maintenance Agency (FERMA) and Niger Delta Development Commission (NDDC). Hypothesis was tested using Chi-Square statistical tool (SPSS).

Chapter one

Introduction

1.1Background of the study

Dealing with risks and uncertainties is usually a problem for contractors and owners. This problem might end up with substantial financial losses for both parties. The sources of risks and uncertainties in a project are several. And not only is the size of a project the main factor that causes risk, but there are also other factors such as cash flow, underestimation of direct costs, and quality problems (Khalafallah, A 2002). Risk and uncertainty often involve many participants in a project. And each participant uses his own methods of analyzing and managing his scope relevant risk items. For whatever method used, it should objectify and quantify the risk in a project and provide the measurable means of diversifying or sharing the risk among the project participants. The willingness of a participant to accept risks often reflects the professional competence of that participant as well as his tendency to risk. And, since usually each participant tries to minimize his own risk, conflict rises between the participants and sometimes this conflict can be detrimental to the project.

In Nigeria, the construction industry was the dominant contributor to the nation’s GDP in the 1980s, accounting for about 70% of the GDP (Planning Committee on the National Construction Policy, 1989). This made the industry very strategic to Nigeria’s developmental efforts. Unfortunately, however, the industry has been bedevilled by a combination of low demand and consistent low productivity and poor performance over the years (Adeyemi et al., 2005 cited by Ugwu 2013). This has reduced its contribution to the national economy to a mere 8.91% of the GDP in 2013 (World Bank, 2014). Over the world, construction activity is regarded as the principle sign of growing economic activity. Risk and uncertainty are inherent in all construction works, no matter the size of the project. Poor risk management has contributed to reduction in economic add-up of the sector to GDP. Although, size of project is one of the major causes of risk, other factors that carry risk within them include speed of construction, location of project, technology being used and familiarity with the work. A construction project is also vulnerable to political, economic, social and environmental conditions. 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 & Azhar, 2004). Hence, since each project has a specified mission or purpose to be achieved; each project mission is unique in itself, and no two projects are ever alike.  Projects’ successful delivery differ from each other in one or more influencing factors such as client and contractors’ input, quality specifications, resources employed, responsibilities delegated and the project environments  (Chitkara, 2006). Project objectives tend to change, as well, there are changes in design, work methods, responsibilities of parties, etc. which result in an increased vagueness of conditions. The participants in the industry have been agonizing outcomes of failure in the form of unusual delays in the project completion with cost overruns and many times, something failing to meet quality standards and operational requirements. An effective analysis and management of construction associated risks, remain a big challenge to industry practitioners (Syed and Azhar, 2004).Thus, construction industry demands systematic risk management approach. All too often, risks are either ignored, or dealt with in a completely arbitrary way. In a business, as complex as construction, such an approach is often inadequate (Hayes, et al., 1986 cited by Walke, 2012). Failure to perform effective risk management can cause projects to exceed budget, fall behind schedule, miss critical performance targets, or exhibit any combination of these troubles (Roberts and Fussell, 1999). The construction industry, perhaps more than most, is overwhelmed with risks.  Ehsan et al. (2006) 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, socio-political 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.

Risk management is an important part of the decision-making process in construction and now widely accepted as a vital tool in the management of projects (Kangari 1995 cited by Wenzhe Tang et al 2007). Risk management is a complicated process that interrelates with many other processes in the construction industry and on construction projects (Alexander, 1998; Chapman, 1997; Grey, 1995 cited by Holland, 2006). Investigating project risks includes studying potential events that may affect the scope, cost, time, or performance of the project’s objectives. Investigating potential risks requires the collaboration of all disciplines contributing to the project. Technical, managerial, financial, and administrative departments of the participating firms need to cooperate to identify and respond to expected risk events. This integrative process needs practical experience to adapt the required environment (Smith, 1999 cited by Nnadi & Ugwu, 2014).

1.2 Problem formulation

The key issues in project delivery are completion time, value or quality of delivery, final cost and project sustainability. The fact that working drawings and bill of quantities state how the work should perform at stated period and cost, explains these key issues. But, the question is “how well was the work carried out?”; “when precisely was the project delivered”, “what the final construction cost of the project was” and “how sustainable is the delivered project”. At least, three basic perspectives must be considered in this respect:

1. Client, and how their requirements or desires are met in terms of the quality/outcome of project; the time the work was delivered and the final amount paid;
2. The consultant, and their performance in terms of project monitoring, assessment and recognition of certificate and authority over the project; and

• Contractor and his ability to add value; if gotten necessary support from the duo above.
• The people and how the project affects their social, economic and environmental activities.

According to Aibinu and Odeyinka (2006), ‘risk is inherent in any construction project right from inception through its completion’.  In that wise, the practitioners must partner in managing the risk involve, ensuring the success of the project.

Edwards and Bowen (2005) define risk as the probability that an adverse event will occur during a stated period of time. There are many risks that are associated with poor project delivery in Nigerian construction industry. Some of these problems include:- constant design changes, cost overrun, poor estimates, variations,  delays in honouring certificates or payment for completed works, misunderstanding of contract documents, accident, unavailability of competent staff (experience and quality) and non sequencing of work to scheduling etc. 

In summary, the main problem addressed in this research may be stated as follows:

• Most construction stakeholders do not take adequate risk management measures. Contractors are awarded contract without proper evaluation in terms of their financial, equipment and expertise capacity. These have resulted into constant conflict on site, poor project execution, time and cost overrun, abandonment and untimely ‘death’ of projects.
• Level of risk management awareness among construction stakeholders in Nigeria is low and impacts significantly on project delivery;
• Risk has huge and visible effect of final project cost, delivery time and quality of job done;
• Project success in Nigeria is peculiar and has many factors responding to the downward output;
• The industry is financial incapacitated to fund or start off project without mobilization which is below best practice standards;
• The above hypotheses were postulated in line with the research problems and related to measurable risk management for sustainable project delivery identified and discussed in the literature.

Since risk has become inevitable in construction works; to ensure successful project delivery, managing risk is therefore an integral part of good management, and fundamental to achieving successful project outcomes and the effective procurement of goods and services. Hence, risk management provides a structured way of assessing and dealing with future uncertainty. Having ascertained the damage risks could do to construction projects; its proper management is essential in order to prevent the colossal failure of the projects which subsequently affect the national economy adversely.

1.3 The statement of problem

Most stakeholders in Nigeria Construction industry; the clients/developers, contractors and the consultants (the architects, engineers, and quantity surveyors), etc. rarely implement risk management during the work or project schedule. Despite the fact that most of them are aware of the threat risk poses on construction projects; its identification and management before the award of contracts, has not been regarded as an area of legitimate interest, which has resulted several times into project cost overrun, collapse of structures, project delay, poor or malfunctioning of the delivered project or even premature death of many projects.

Several researchers have proposed a number of methods and models for dealing with risks and uncertainties. Generally, these models were characterized by their complexity and high mathematical treatment and thus difficult for application. As a result, usually most of the contractors neglect these methods, and based on their intuition they set a percentage for cost contingencies. The main factor they might take into consideration might be the project size and complexity. This approach of setting the contingency percentage intuitively, could either lead to losing the bid or leaving money on the table. Therefore, there is need for a simple model to ensure sustainable project delivery in the Nigeria construction industry.

1.5 Research hypotheses

In order to know whether their exist disagreement or agreement by the construction stakeholders on the ranking of the factors that affect the delivery and sustainability of the construction projects, a null hypothesis test was used. The test is as follows:

H₀:  There is disagreement in rankings of risk factors affecting construction project delivery among the stakeholders.

H₀:        The level of awareness of risk management is low and impacts significantly on project delivery in Nigerian construction industry.

H₀:       There is no significant impact of capitalization of construction firms in achieving project delivery in Nigerian construction industry.

The industries that are not adaptable and flexible, do not respond to the demands of changing needs in the system. The problem statements and hypothesis are not mutually exclusive, but inextricably related in the development and validation of the research.

1.6       Research Objectives

The aim of this research was to evaluate the challenging issues of sustainable risk management for successful project delivery in Nigeria. In this regard, the following represent the specific objectives of the study:

• Identify risk factors that hinders sustainability and successful project delivery in Nigeria;
• Evaluate the awareness of risk management amongst construction stakeholders in Nigeria;
• Investigate impact of capitalization on sustainable risk management and;
• Formulate a decision roadmap for sustainable project delivery in Nigeria.

1.7 Justification for the Study

Risk management is still a developing field of knowledge and expertise. There is a great need, therefore, for research that provides an objective assessment of risk management as it affect successful project execution and delivery in Nigeria. In recent times, Nigeria’s construction sector accounts for 1.4% of its GDP (National statistics, 2013). This contribution to total GDP has remained at abysmally low levels. Years back; precisely in 1981, the construction sector accounted for 5.8% of Nigeria’s GDP, and in the last three decades, Nigeria’s total GDP has been raised to approximately 495 times its size. On the contrary, construction sector GDP, has only grown backward of its size in 1981. Notably, the drivers of Nigeria’s GDP over the last three decades have remained the same–Agriculture (crop production), Crude oil production and Wholesale & Retail trade. This shows that the GDP growth of the industry is declining .i.e. from 8% in 2010 to 7.1% in 2012, (Nnadi, 2014).  It also indicates that its growth is in the ratio 1.25: 4.95 if compared to other contributors to the economy. It is evident therefore, that Nigeria is way below realizing its potential in the construction industry.

The major factor responsible for this inability of the sector to live up to expectation is a quantum of unidentified and/or unmanaged risks in the industry. This calls for proactive risk management strategies in the industry in order to achieve her optimal level and performance. Poor estimates, claims, greed, corruption, constant change in design, poor financing of project not only affect the realization of the clients’ dream, but the overall performance of the industry to economic growth. In Nigeria, stakeholders have continuously expressed concern over failure of projects to meet expected standard; over failure of projects to be delivered at appropriately stipulated period and at reasonable cost which invariably characterized the system. Meanwhile, public perception of evaluation is very low and building performance is widely seen as unpredictable in terms of user expectation and quality standards (Nwosu, 2007).

Although there is an understanding among designers and other stakeholders in the industry that there are risks militating against construction works, there is little or no specific research on how, and to what extent risk management influence the successful delivery of construction projects in Nigeria and at what stage of work must risk management be utilized. In other words, there have been relatively few or no detailed studies on this issue. These concerns provide the basis or rationale for the study and the findings will, therefore increase risk awareness, identification and implementation in Nigerian construction industry.  It also identifies and ranks the risk that most contribute to project failure in Nigeria. It also assesses the work stage that is more prone to risk effect. Again, since knowledge in this area is not yet adequate, the findings if successful will provide the industry and the university with the instrument needed to navigate to future project success and contribute to knowledge in this area of study. The Nigerian construction industry will become better off.  It will facilitate taking effective decisions on proper risk management in Nigeria construction industry so as to enhance sustainable project delivery. Having done this, cost overrun will reduce and subsequently improve the contribution of the sector to economic growth.

1.9       Limitation of Study

A number of factors militated against this research work.  The first was the attitude of respondents who were reluctant to provide answers to the questions asked in the questionnaire.

Secondly, a study of this magnitude requires a much longer time compared with the normal academic workload. Scanty information is made available by most construction companies in terms of their operations, staffing and profit. Corporate Affair Commission of Nigeria bestowed with the responsibility of registering firms in the country has poor documentation of this firms in terms of the classes they belong; thereby making it difficult to ascertain the construction firms operating in Nigeria.

1.10     Scope of the Research:

The scope of this research is to design a model to make it easier for ensuring sustainable risk management in Nigeria using capitalization as the tool. The client or developer under study include government Ministry of Works both Federal and State, parastatals like Federal Road Maintenance Agency (FERMA), Niger Delta Development Commission (NDDC), while the total 198 large firms in Nigeria including the 15companies that had participated in the process of merger and acquisition were targeted and educated observers of the industry in the six geopolitical zones of Nigeria. The first section begins by bringing into focus the problems, aim and objectives of the research and proceeds to the explanation of methodology and methods. Subsequently, discussions of literature on the various philosophical assumptions and paradigms of research are presented. This leads to the philosophical position of the research and justifications. Discussions on the research design/ strategies and methods adopted are also presented in the light of the particular context of this research

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