An Appraisal Of Performance Measurement Practice Of Construction Firms In Nigeria

Project and Seminar Material for Quantity Surveying QS

Abstract

Performance measurement is crucial to the construction industry in order to improve the performance of the industry and most importantly achieve continuous improvement. The traditional approach to performance measurement has been criticised severally resulting to an evolution that brought about contemporary performance measurement frameworks. These frameworks have been adopted by several construction industry especially in the UK, US, Chile and Brazil. However, most organisations within the Nigerian Construction industry mostly present their financial reports (which are mainly financial measures) to portray their performance and there are no available research that presents elaborate information on the industry‟s performance measurement practice.

The Nigerian Construction Industry is faced with several problems bordering on poor performance.The study appraised the performance measurement practice of construction firms in Nigeria. A survey questionnaire was conducted on a randomly selected 50 small and medium sized construction firms in Abuja, Nigeria. Data were analysed using the descriptive statistics method including tabulation, percentages and charts. The results of the study revealed that most construction firms are interested in how they perform and do measure their performance.

The study also shows that most of the construction firms still rely on financial measures (which has been highly criticised).Findings from the study also indicate a low awareness/implementation of performance measurement and performance measurement concepts. Findings also revealed that the most adopted performance measurement framework is the Balanced Scorecard.

Chapter One

Introduction

1.1 Background to the Study

The construction industry is a fundamental economic sector that permeates most of the other sectors as it transforms various resources into physical, economic and social infrastructure necessary for socio-economic development (Ministry of Works, 2003). In Nigeria, the industry occupies an important position in the economy and has great potentials of becoming one of the biggest construction markets on the planet yet, it contributes less than other industries (Aibinu and Jagboro, 2002; Construction Overview, 2011). The Nigerian Construction Industry (NCI) is growing fast and has outgrown most sectors of the economy yet, its contribution of only 3.2% to the Gross Domestic Product (GDP) is very low (Dantata, 2008; Construction Overview, 2011).

The performance of the construction industry has considerable impact on the economy (Bon-Gang and Fan, 2010). The industry, globally, has been under tremendous pressure to improve its performance and several calls have been made in this regard (Kulatunga et al., 2005).In Nigeria, the NCI is faced with problems such as construction delays, time and cost overruns, abandonment of projects at various stages of completion, lack of skilled local labour, power shortage, unavailability of materials, corruption, unethical practices and lack of capacity to deliver (Aibinu and Jagboro, 2002; Dantata, 2008; Kolo and Ibrahim, 2010; Ayodele et al., 2011; Oyewobi et al., 2011). The industry suffers the problems of inefficient policies and practices, weak institutions and adverse business environment, alongside complex social and cultural practices (Aniekwu and Audu, 2010). The performance of the industry has been a concern to its stakeholders who have called for improvement in its performance (Okuwoga, 1998; Aibinu and Jagboro, 2002; Kolo and Ibrahim, 2010).

One of the key areas identified for the improvement of the construction industry‟s performance is the area of performance measurement (PM) (Latham, 1994; Egan, 1998; Bassioni et al., 2004). According to Mbugua et al (1999), Baldwin et al (2001),Wegelius-Lehtonen (2001) and Martinez (2005), Performance measurement (PM) is vital for continuous and progressive improvement in most businesses and organisations. PM isdefined as „the quantification of efficiency and effectiveness of past actions by means of data acquiring, collection, sorting, analysing, interpreting and disseminating (Neely et al., 1998).

The call for improvement in the construction industry and interest in PM led to itsadoption by several countries. The UK construction industry adopted PM in its agenda leading to the implementation of PM by several construction firms (Lattifi et al., 2001; Bassioni et al., 2004). In Nigeria, the Public Procurement Act of 2007 was formulated to improve the performance of the NCI. Performance measurement has evolved through the years (Wilcox and Bourne, 2003). PMin its early phase involved the use of financial measures such as profit, return on investment and productivity (also known as traditional measures) and was heavily criticised for been misleading, difficult, confusing and also hindering continuous improvement (Ghalayini and Noble, 1996). Over the last few decades, there was a paradigm shift since it was apparent that the use of financial measures alone was not enough to manage modern organisations (Wilcox and Bourne 2003; Khan and Shan, 2011). Several frameworks containing non-traditional measures were developed to counter the limitations of the traditional measures. They include European Foundation for Quality Management (EFQM), Balance Scorecard and Performance Prism.

Construction firms within the construction industry benefit a lot from PM practice when they evaluate their current performance and then identify strategies to maintain good performance in the future. PM also helps organisations achieve their goals and objectives, be more competitive and successful (Backinsell, 2001; Bassioni et al., 2004).
Although construction firms derive several benefits from measuringtheir performance, PM has not been widely implemented and information on the performance of the construction industry is scarce (Costa et al., 2004). Another setback forPM practice is that most construction firms still depend on traditional measures that focuses on profitability, efficiency and return on capital which has been criticised severally (Kagioglou, 2001; Bassioni et al., 2004).

1.2 Statement of the Problem

The construction industry has embraced PM due to its contribution in the area of improvement/sustainability of business and continuous improvement (WegeliusLehtonen, 2001; Lattifi et al., 2009). A significant number of construction firms especially in the UK are implementing PM and are using the existing PM frameworks (Bassioni et al., 2004). The interests in these frameworks are based on the limitations of traditional approach (financial measures) to performance measurement. However, Costa et al (2004), Yu et al (2007) and Bon-Gang and Fan (2010) reported that performance measurement is not widely practiced in the construction industry and most construction firms still rely on financial measures.

What exists in the NCI is the traditional approach to PM which relies on financial indices typically shown in financial reports of construction companies (See some of these reports in Appendix A). This approach has been condemned severally (Kaplan and Norton, 1992; Ghalayini and Noble, 1996; Amaratunga et al., 2001; Denton, 2005; Kulatunga et al., 2006, Khan and Shan, 2011) for been misleading, cannot lead to continuous improvement, inflexible, too vague, do not fit new business environment and current competitive realities, they do not show true performance and they use financial measures as the sole criteria for PM. Contemporary approaches to PM requires that non-traditional measures such as customer loyalty, employee satisfaction, stakeholder satisfaction and contribution, strategy, processes and other performance areas that are not financial also affect productivity (Ittner and Larker, 2003) and should be the major consideration in PM. The consideration of these measures was initiated by the improvement paradigm championed in the construction industry (in Nigeria, the Public Procurement Act of 2007).

1.3 Justification of the Study

The practice of PM using the contemporary frameworks leads to continuous improvement and helps organisations survive and achieve their goals and objectives (Baldwin et al., 2001 cited in Kulatunga et al., 2005). The great potentials that the NCI has can be realised if the performance of the industry is improved through the practice of PM since the industry has been criticised for poor performance. When organisations measure their performance, they are able to evaluate their performance, manage human resources and formulate strategy.

Although most construction firms use financial measures (financial reports) to portray their performance (which has been highly criticised), this study will be of benefit in the areaof finding out the PM practice (in terms of implementation of existing frameworks, common measures used, acceptability and implementation of PM) of construction firms in Nigeria. This will indicate that construction firms in the NCI will experience continuous improvement and they are at par with their counterparts globally in terms of meeting up with global trends and standards in PM. The study will also give an insight into current PM practice among construction firms in Nigeria (since literature is silent on this).

1.4 Aim and Objectives

1.4.1 Aim

The aim of this research is to appraise the performance measurement practice of construction firms in Nigeria.

1.4.2 Objectives

The research has the following objectives;

To explore the understanding of PM concepts in construction firms
To study the implementation and usage of PM in construction firms.
To assess challenges associated with PM implementation.

1.5 Scope and Limitations

1.5.1 Scope

This study focuses on PM practice of only construction firms within the NCI. The construction firms are small-size and medium-size (Odediran et al., 2012) based in Abuja, the Federal Capital Territory of Nigeria. The results of this study may differ in other states of Nigeria hence; research should be carried out in those states to generalise the research result.

PM practice is wide and this study focuses on some aspects such as implementation of PM in construction firms, usage of existing PM frameworks, adopted PM measures peculiar to the NCI and challenges associated with PM practice.

1.5.2 Limitations

One of the limitations of this study is the limited research and limited literature available on the study area in Nigeria. Another limitation is the availability and willingness of respondents to provide information for the study. These constraints were minimised by the type of data collection tool used. The survey approach (using questionnaire as the data collection tool) was used to collect data from substantial number of respondents.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary

In summary, the study appraised the performance measurement practice of construction firms in Nigeria and the following as major findings:

Majority of the construction companies are interested in how they perform and actually measure their performance.
Only a few of the construction firms have understanding on PM concepts.
The most used performance measures are the traditional measures (which has been highly criticised) with few adopting the non-traditional measures.
The most popular and most used framework is the Balanced Scorecard.
Most construction firms are faced with certain challenges when implementing performance measurement. Some of these challenges are; lack of proper documentation, lack of reliable structure in place and lack of technical know how among personnel.

5.2 Conclusion

This study therefore concluded that:

There is a high interest in how construction firms perform. ii. Most construction firms do measure their performance.
Awareness of PM concepts among construction firms is low.
There is no structure on ground to guide in performance measurement within the
Nigerian Construction Industry.
There is a lack of proper documentation of PM practice among construction
firms.
Construction firms still rely on financial measures viii. The most adopted PM framework is the Balance Scorecard.

5.3 Recommendations

The Nigerian Construction industry needs to take performance measurement seriously and the Government needs to formulate policies on PM practice and set up departments that will be in charge of bringing in global trends and making sure the industry adopts them.
There should be a general awareness and orientation on the importance of implementing PM within the NCI.
The culture of formal keeping of data and easy access of same should be encouraged within the NCI. iv. The NCI needs to adopt global trends such as PM like other countries‟
construction industry.
Nigerian researchers should carry out more researches in PM peculiar to the
NCI.

Project Material Download