COMPARATIVE ASSESSMENT OF PERCEPTION OF CONTRACTORS AND CONSULTANTS ON RISK MANAGEMENT PRACTICE IN NIGERIA

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COMPARATIVE ASSESSMENT OF PERCEPTION OF CONTRACTORS AND CONSULTANTS ON RISK MANAGEMENT PRACTICE IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

None of the construction projects in the globe is risk free. Every construction project either it is small, medium or large involves risks, varying in impact. Risk management is a systematic process of identifying, analyzing and responding to project risks (Kangari, 2015). Risk management involves maximizing the probability and consequences of positive events and minimizing the probability and consequences of adverse events to the project objectives (Al-Bahar, 2016). Construction is a highly risk-prone industry with a relatively poor track record of coping with the risks (PMI, 2015).

The risk management in construction is normally carried out through the processes of identifications, analysis and control (Makarand and Shaked, 2017). Client (Financer of the project), consultant (designer of the project) and contractor (constructor of the project) are the three key stakeholders involve in any construction project. As the job natures of each stakeholder vary therefore the type and nature of risks taken by them also vary.

The Construction Industry and its clients are widely associated with a high degree of risk due to the nature of construction business activities, processes, environment and organizations (Ibironke et al, 2011). Construction projects are complex and time-consuming undertakings because e of the large number of firms and relative ease of entry (Mousa, 2015). Many projects have naturally inherent or in-built risk elements, no matter the depth of planning and the rigidity with which the contract programmes are adhered to, there will always be factors that tend to prevent the project objectives from being realized (Ibironke et al, 2011).

Contractor is one of the lead stakeholders in construction project. Contractor has to implement the scope and to utilize maximum budget of the project. Moreover, the schedule of the construction project is also dictated by the contractor. So among the stakeholders the contractor is the organization which has been subjected to face maximum number of risks during lifecycle of a construction project.

A risk is defined as the potential for complications and problems with respect to the completion of a project and the achievement of a project goal (Mark et al., 2014) and as an uncertain future event or condition with the occurrence rate of greater than 0% but less than 100% that has an effect on at least one project objectives of scope, schedule, cost or quality (Rezakhani, 2012). Construction projects are becoming increasingly complex and dynamic in their nature, and the introduction of new procurement methods, many organisations are having to rethink their approaches to the way in which risks are treated within their projects and companies (Tah and Carr, 2015 and Oyewobi et al, 2012). It is well accepted that risk can be effectively managed to mitigate its‟ adverse impacts on project objectives, even if it is inevitable in all project undertakings (Rezakhani, 2012).

Risk management is an important role a project manager must undertake. However, project manager duty is predominantly difficult and wasteful if good risk management has not been put to practice from the beginning of the project. Efficient and effective risk management approach entails proper systematic methodology and, importantly from the aspect of experience and knowledge. Previous research results in Nigeria have shown that, owners, contractors and consultant do not systematically apply risk management practices in Nigeria construction industries which on a long-run result to negative penalties of the projects’ performance. Most of the previous literature shows that risk management in construction projects is full of limitations that affect its usefulness as a project management function and at the end affect projects’ performance. Risk management in construction projects has been approached using a reductionist approach for so many years which produces poor results and reduce the quality of project management. For an instance, risk is handled through the application of contingencies (in terms of money or time) that are not determined based on a complete analysis of the risks that can terminate a particular project, and many cases are obviously enough to cover the consequences of risks that do occur during the project realization. Then, in most of cases projects result to costs overrun and schedule overrun (Baloi and Price, 2013).

To make an efficient and effective risk management it is essential to have a proper and systematic methodology and, more importantly, knowledge and experience of various types of project that has been handled before. For example, it requires knowledge of the unforeseen circumstances that may occur during the project execution, on the actions that work well or not when one of these events occurs, on methods to evaluate a risk or estimate the probability that it will occur as soon as possible. Lack of an effective project risk management function has a lot of bad consequences for participants in a project due to lack of plan against the risks and uncertainty that any project may leads to. For an instance, lack of prevention against the risk of defining the scope of a project, or environmental hazards or communication risks, poor site management, slow decision making between others, leads to delays, significant increases in costs and contractual disputes and litigation among others (Ojo, 2016).

The main rationale behind construction risk management is not the total elimination of the risks that occur but having proper control over the whole risks (Dallas, 2016). Risk management in the Nigerian construction industry is still in the infancy phase which is unlike the developed countries (Odusamiet al., 2017). Harmonising the thoughts of Odeyinkaet al., 2017), the Nigerian construction industry is known for cost overruns, subsequent delays and project abandonment. Consequently, this study seeks to appraise the present level of risk management practice in Nigeria. The findings of Odusamiet al., (2017) & Fadun and Saka (2018) also suggest that it is expedient to assess the factors responsible for the present state of risk management practice in the Nigerian construction industry.

Many projects in Nigeria are being abandoned and they required the attention of risk management to help reduce the time and cost overruns (Augustine et al., 2013). Nigerian construction industry does not use formal risk analysis and management techniques which are capable of minimizing the time and cost overruns and enhancing the profitability due to lack of knowledge (Ojo, 2010 and Augustine et al, 2013). Lack of risk management knowledge was identified as the most sever factor that militate against the practices of risk management in Nigeria (Belel and Mahmood, 2012).

Whilst some project delay risks can be reduced through various preventive actions at early stages, the delay of progress still occurs in many projects during the construction process (Hatami and Behsan, 2012). A recent industry study has indicated that over 80% of projects exceed their scheduled time even with the employment of software techniques for project development (Hatami and Behsan, 2012; and Weiler, 2014). When delay happens, either contractors and or consultants can adopt various mitigative actions to minimize the effects of the delay. Thompson (2012) concluded that risk management is most valuable at an early stage in a project (proposal stage), where there is still some flexibility available in design and planning to consider how the serious risk might be avoided.

This  research project  will provide  an overview of the perception of contractors and consultants on risk management practice. In addition, it will  propose  a  conceptual  framework  on the practice adopted on risk management in the Nigeria construction industry. Hence, the importance of this in-depth study, where the most significant risk factors and their assessment in the Nigeria construction Industry will be investigated in conjunction with their severity and allocation from both the contractors and the consultants’ perspective.

1.2       Statement of the Problem

A number of previous studies have examined the causes of risks among construction companies including the issue of risk management of construction projects in their local context. However, there exists no comprehensive study explaining the causes of risks among construction companies, moreover, most of the studies covering this subject matter have tended to identify the symptoms rather than causes (Enshassi and Mosa, 2018). Currently the knowledge of the construction stakeholders over risk management practices in Nigeria has not been adequately articulated in literature as identified by Belel and Mahmood (2012).

However, a similar study was conducted by Enshassi and Mosa (2018) covering the perception of the owners‟ and contractors in Gaza strip of Palestine. Hence, a proper and comprehensive study of the perceptions of the practitioners‟ risk assessment, allocations and management is crucial towards the effective delivery of the building projects in Nigeria, particularly the North Central zone of country. This study intends to build on that existing knowledge but this time investigating the perception of the contractors and consultants over the practices of risk management in Nigeria. Ammar et al (2019) supported this argument that construction risks differ from country to another where the economic, political, social and cultural conditions are different, and that Risk management is greatly influenced by the uniqueness of the construction industry in a specific country (Birrell, 2016). To this end, the research questions are:

1. What are the risk factors that affect the Nigerian building projects?
2. What are the severity and allocation of each of the identified risk?
3. What are the most effective risk management remedial actions adopted in practice on the Nigerian building projects?

1.3       Aim and Objectives of the Study

1.3.1    Aim

The aim of this research is to assess the perceptions of contractors and consultants on the risk management practices in Nigerian building projects.

1.3.2    Objectives

The objectives of this study are:

1. To identify key risk factors that affect the delivery of construction projects in Nigeria.
2. To assess the risks faced by various stakeholders in construction projects.
3. To analyze the approach of Nigerian’s contractors and consultant organizations towards risk management practice.

1.4       Research Question

The objectives of this study are:

1. What are the key risk factors that affect the delivery of construction projects in Nigeria?
2. What are the risks faced by various stakeholders in construction projects?
3. What is the approach of Nigerian’s contractors and consultant organizations towards risk management practice?

1.5       Significance of the study

The significant of the study cannot be underestimated. It is significant because data generated from the study is sufficient to expand further fields of knowledge of this topic from many other dimensions. The study also present sufficient challenges to academics to increase their interest in the field.

This research will help academic continuity and strengthen the existing knowledge and also contributing to contractors and consultants perception on risk management practice in Nigeria construction industry.

1.6       Scope of the Study

The scope of the research was kept limited only to contractors and consultants as among all the stakeholders of a construction project, the role of contractors and consultants is more vital than others in terms of allocation, analysis, and management of construction associated risks. An attempt has been made in this research to introduce risk management in perspective of contractors in Nigeria. Therefore, for the purpose of this research and limited schedule of time, this research will be centered on some selected construction companies operating in Federal Capital Territory (FCT), Abuja.

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