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Evaluation of Construction Risk Management Techniques in Developing Economies

FEATURED PAPER

The Case of Nigeria

Michael G. Oladokun1, Adegbenjo D. Adelakun2 and David O. Ashimolowo3

1Department of Building, Faculty of Environmental Studies, University of Uyo, Uyo, Nigeria

2Department of Building Technology, The Oke Ogun Polytechnic, Saki, Nigeria

3Formerly Postgraduate Student, School of the Built Environment, Napier University, Edinburgh, United Kingdom


Abstract

Construction projects have been described to be highly complex and executed under conditions of varying degrees of risks. The purpose of this paper is to propose suitable risk management techniques for use by construction firms in a developing economy country. Specifically, the study assessed the frequency of use of the risk management techniques by construction companies, and evaluated the effectiveness in the use of the risk management techniques by construction companies in the study area. Literature search was undertaken to review issues relating to risk management along the line of the objectives. A research questionnaire was designed to collect data in Nigeria. In all questionnaires were purposefully sent out to 200 respondents via e-mail out of which 57 of the questionnaires were returned. Responses from these retrieved questionnaires were subjected to analysis. The results of the study revealed that ‘checklist’, ‘brainstorming’, ‘break-even analysis’, and ‘reduction’ are the most frequently used techniques for risk identification, analysis, assessment and evaluation, and risk mitigation measures respectively. However, in terms of the effectiveness of those techniques, the results showed that ‘brainstorming’, ‘Monte-Carlo simulation’, ‘expected monetary value’, and ‘retention’ are the most effective risk management techniques for risk identification, analysis, assessment and evaluation, and mitigation measures respectively. In conclusion, the study has provided a pragmatic approach to exploring the construction professionals’ perspective on the issue of different techniques that could be employed in the management of construction risk and their effectiveness in Nigeria, which may be used as a representation of what is obtainable in other developing countries. The study therefore recommends that construction practitioners involved in execution of construction works in the country need to take a proactive effort in the identification and analysing of risk from inception of the project by the use of the techniques this study identified and assessed.

Keywords: Construction; developing economies; Nigeria; risk management

  1. Introduction

The fact that risk is inherent in construction projects is generally accepted. It has been argued that risk has long been recognised in the construction industry that those within the industry are continually faced with a variety of situations involving unknown, unexpected, frequently undesirable and often unpredictable factors (Odeyinka et al., 2006). The construction industry is subjected to more risks and uncertainties than many other industries (Ahmed et al., 2007). This conforms to the opinion of Tah and Carl (2000) who advocated that the construction industry, more than most, is plagued by risks. The construction industry and its clients are widely associated with high degree of risks, due to the nature of construction business activities, process, environment and organisation (Kartam & Kartam, 2001). This, of course, exposes the reason why construction risks vary from one location to another.

It has also been stated that risks are inherent and anticipated in construction projects due to its complex and challenging process (Pich, Loch & Meyer, 2002). This is then the more reason risk should be identified and managed appropriately at the early stage of construction projects since this has a significant impact on the success of construction projects in terms of cost, time, quality and other performance indicators. The effects of serious risks on construction projects, however, can be very damaging which can lead to time and cost overrun thereby turning a potentially viable project to a loss-making venture (Tang et.al, 2007).

Construction in developing countries tends to attract high risks due to various uncertainties and unrest which affects the industry negatively. In a bid to curtail the havoc caused by various uncertainties and unrest which affects the industry negatively, proper risk management is essential. In order to properly manage the risk, it should be noted that among other things construction activities require conformity with myriad laws, codes and regulations as well as coordinating with multiple parties – clients, contractors, subcontractors, different consultants, planning authorities and in some cases, the end users of the project or where necessary, the general public among others. The stakeholders often have different conflicting goals and conflicting risk attitude towards the project. This suggests that construction activities are indeed risk prone activities and as a result require the attention of all parties and stakeholders in the construction industry.

Risk, generally, has been a subject of problem to any construction company. The need to have a risk management framework that can be deployed to mitigate risks in the construction companies of a developing economy like Nigeria has become an issue of urgent importance. This is because several studies like Odeyinka and Yusuf (1997), Aibinu and Jagboro (2002), Oladokun et al., (2010), Okenwa (2011), Fabi and Awolesi (2013). etc. have reported major risks experienced by Nigerian construction companies. These studies opined that the effects of the risks have resulted into loss of corporate reputation of construction companies due to poorly delivered projects which led to cost overrun, delays, poor quality as previously mentioned. Project delay in construction has become endemic in Nigeria (Aibinu & Jagboro, 2002) and over seven out of ten construction projects experience delays (Odeyinka & Yusuf, 1997). Other epidemic issues that are widespread in the Nigerian construction industry even from the design stage are incessant design errors, constructability issues, incomplete plans and insufficient design.

From the literature, risk management has been viewed as an important tool to deal with risks in construction projects by assessing and ascertaining project viability; analysing and controlling the risks in order to minimise loss; alleviating risks by proper planning; and avoiding dissatisfactory projects and thus enhancing profit margins (Mills, 2001; Perminova, Gustafsson & Wikstrom, 2008). Risk management encompasses the techniques of managing risk which are risk identification, analysis, evaluation and eventual mitigation techniques. At each of these phases, there are some techniques that have proven useful in developed economies like the United Kingdom. The study of application of these techniques to the developing economies like Nigeria has been given little attention. The existing literature remains the experience from the United Kingdom (UK), United States of America (USA) and other developed countries. This research is therefore an attempt to carry out a study on the construction risk management techniques in the context of a developing economy. It is believed that the research will extend the frontiers of knowledge on the subject beyond the European and North American experiences.

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About the Authors

pmwj49-Aug2016-construction-OLADOKUN
Dr. Michael G. Oladokun

Nigeria

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Dr. Oladokun graduated in 2001 with an honours degree in Building from Obafemi Awolowo University, Nigeria. He also obtained a master degree in construction management from University of Lagos in 2008. He obtained a PhD in Construction at Heriot-Watt University, United Kingdom in 2014. He is licensed to practice as Registered Builder by the Council of Registered Builders of Nigeria. He is currently a Senior Lecturer in the Department of Building, University of Uyo, Nigeria. Before joining academia in 2008, Dr. Oladokun had a stint in some construction companies under varied roles. During those years, he was deeply involved in the management of many high profile construction projects. His areas of research interest are: sustainability issues in the built environment, modelling complex systems in the built environment, system dynamics applications to construction and construction project management in general. Dr. Oladokun’s research outputs are published in high impact academic/professional journals and refereed conference proceedings. His work on energy consumption in buildings received 2016 Emerald Literati Award for the most outstanding paper in the International Journal of Energy Sector Management. He is a reviewer for a number of local and international journals such as Sustainable Cities and Society; Engineering, Construction and Architectural Management; Facilities; and Ecological Indicators. He has also been a member of scientific review committee of many local and international conferences. He has acted as external moderator for a Polytechnic in Nigeria. Dr. Oladokun can be contacted at [email protected].

 

pmwj49-Aug2016-construction-ADELAKUN
Adegbenjo D. Adelakun

Nigeria

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Mr. Adegbenjo D. Adelakun attended Ajegunle Baptist Primary School, Saki, Oyo State, Nigeria between 1982-1988 for his primary education and Baptist High School, Saki, Nigeria between 1988-1993 for his secondary education. In 2001, Mr. Adelakun graduated with a bachelor’s degree in Building from Obafemi Awolowo University, Ile-Ife, Osun State, Nigeria. Thereafter, he obtained his master’s degree in Construction Management from University of Lagos, Nigeria. Mr. Adelakun worked briefly in a construction company before securing a lecturing job with the Polytechnic, Ibadan, Saki Campus (now The Oke-Ogun Polytechnic, Saki, Oyo State, Nigeria) as Lecturer III in 2006. Throughout the years he has risen to the post of senior lecturer. Mr. Adelakun specialises in construction management, building services and building materials. He is a registered Builder. He is married and blessed with three children. Mr. Adelakun can be contacted at [email protected].

 

pmwj49-Aug2016-construction-ASHIMOLOWO
David O. Ashimolowo

Nigeria

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David O. Ashimolowo
graduated with a bachelor of technology degree in Architecture from Ladoke Akintola University of Technology, Ogbomosho, Nigeria. He obtained a master’s degree in Built Environment specializing in Building Management from Edinburgh Napier University, United Kingdom. He is currently practicing as a project manager.