Risk Identification And Assessment In Housing Development Projects Using Analytical Hierarchical Process

Project and Seminar Material for Quantity Surveying QS

Risk Identification And Assessment In Housing Development Projects Using Analytical Hierarchical Process


The construction industry and housing subsector is fraught with risks that have the potential of negatively impacting on the achievement of project objectives. The success or otherwise of most construction and housing projects depends to large extent on how well these risks have been managed. The aim of the study is to identify and assess risk associated with housing development projects with a view to prioritising the identified risk factors to provide stakeholders with basis for sound decision. The study used a three-step identification framework (a literature review of documented past experience, experts‟ consultation and questionnaire based survey)to identify the potential key risk factors. The use of Analytical Hierarchical Process assessment methodology was employed to carry out relative prioritization assessment of the risk factors. The results show that 50 risk factors have relevant impact on housing development project objectives and 19 of these risk factors are of significant level. Similarly, based on the Analytic Hierarchical Process (AHP) relative-assessment ranking, at macro level, Economic risk and Land acquisition risk are found to have the highest level of impact while changes in demand for houses and interest rate fluctuation sub-factors have the highest ranking at micro level. The study concluded that a suitable identification framework and an efficient and flexible risk assessment methodology are keys to the identification and assessment of risks, and achievement of robust risk management system in housing development project. To this end, the study recommends the adoption and use of the combination of the multi-technique identification framework and AHP assessment methodology as a suitable model for management of risks in housing development project. In addition, the study drew attention to the need for focus on highly prioritised risk factors to reduce their chances of occurrence and impact on the achievement of project objectives.

Chapter One

1.0 Introduction

1.1 Background to the Study

The Construction industry in Nigeria, although generally accepted as very active, is relatively small contributing only about 1.8% to 3% to the Nigeria‟s Gross Domestic Product (NBS, 2013). The industry provides employment opportunity to teeming millions of the country‟s workforce and produce wide variety of products ranging from housing; public facilities such as hospitals, schools, offices and other institutional buildings etc. in addition to other infrastructural, industrial and engineering fabrications.

Massive demand for buildings and housing, in particular, across all sectors of the economy and the refocusing by the government on infrastructural development are some of the factors attributed to the growth in the construction and property sector. In recent years, there has been an increasing emphasis on the housing subsector by different tiers of government to ensuring adequate provision of decent houses to the teeming population, yet the adequate provision of this basic need is becoming more challenging to the construction industry.

It is estimated that Nigeria‟s housing deficit falls around 18-20million Housing Units (HU) with the Federal Capital Territory, Abuja, alone having close to 3 million HU deficits (FMLHUD, 2006). The reaction of the construction industry to this finding is of mix feeling. The industry view it as an opportunity for a brighter feature for, at least, the housing subsector and also as a challenge for the industry to brace up, by equipping itself, for the handling of not only this present demand but also feature demands for more houses in the country.

The housing subsector accounts for virtually 30-40% of the construction industry‟s performance at the moment. However, studies on the performance of the industry have continued to point to the negative in terms of general performance of the industry(Odusamiet al., 2010; Dantata,

2008).Dantata (2008) argued that the major challenge of the industry lies, among others, on lack of adequate skilled labour force to implement planned work and achieve objectives. On the other hand, Odusamiet al. (2010) was pointed out the inadequacy of the industry in managing it objectives at both corporate and project levels to meet the challenges of its clientele. Although corporate management is important and improvement can be achieve with time, the project level management transformation is within the doorstep of the stakeholders in the industry. This can be conceived within the project management framework.

The Project Management Institute (PMI, 2008) in its guidance and standard manual – the Project Management Body of Knowledge (PMBok) has outlined key knowledge areas that are sacrosanct to the achievement of success in the management of project endeavours. These are cost, schedule, scope, human resource, and risk management. The first four components are all well familiar to most parties in the construction sector; it is the latter that stands out as a major obstacle to the realization of most projects. Recent study by Rezakhani (2012a) has shown that there is strong correlation between the industry‟s performance and its capability in managing project risks. The industry is characterized with high risk which has not always been dealt with adequately. The housing development (popularly known as housing estates) subsector is alsobedevilled with high uncertainty and risk due to the complex nature of the procurement arrangements and the influence of external forces on the housing development projects generally. This has often resulted in poor performance with increasing cost and time delays (Bashir, 2012).

To cope with this challenge and other recent industry challenges such as internal competitions; rapid technological changes; need for more prudency by clients (Egan, 1998; Latham, 1994) and overriding need for improved performance in the industry (Tah and Carr, 2001), the promoters of housing projects (developers) have developed series of rules of thumb that relies on intuition to analyse and assess risk (Bashir, 2012; Mustafa and Al-Bahar, 1991). However, with increasing complexity and uncertainty, these rules of thumb have failed to effectively respond to the challenge and hence the need to deploy more robust, logical and systematic approach to risk management.

1.2 Statement of the Problem

Housing development projects, particularly of large scale sizes, like many other conventional construction projects are never free of risk. The nature of housing development projects, which involves multiple parties and processes all aimed at creating a valued products usually result in huge complexities and uncertainties to the developers. It therefore implies that management of risks forms an important and integral aspect of project management required for the realization of project objectives. The approach to risk management within the industry has been in two ways: the use of intuition and past experience as the only way (informal approach) and the deployment of robust systematic procedure in managing the risk complexities (the formal approach).

Recent studies (Bashir, 2012; Laryea and Hughes, 2009 and El-Sayegh, 2008) have found low usage of formal (systematic) risk management (RM) techniques and greater reliance on informal approach among stakeholders in the construction industry.

The use of informal risk management approach, which entails subjective judgment and reliance on their experience and intuition, has been found not only to be ineffective in managing the complexities of construction and housing related projects risks but also costly in competitive business environment, where it makes products price models unrealistic (Tah and Carr, 2001).The informal approach has been criticized for lacking rational, straightforward approach that can combine all the facets of risk systematically into a prioritized manageable scheme.

On the other hand, the systematic risk management has set of procedures that must be followed and entails careful planning, risk identification, risk assessment and risk response. In the systematic risk management field, a number of system approaches and models have been developed by both academia and practitioners (Mehdezadeh, 2012; PMI, 2004; Wang,et al., 2004; APM, 2004, Shen et al., 2001 and Tah and Carr, 2001)to guide project promoters to the achievement of project risk management objective.

In Nigeria, despite the growing challenges of risk and uncertainty in the housing development projects and the adverse effects to the attainment of project objectives caused by the use of informal approach vis-à-vis the potential benefits associated with successful deployment of risk management system in project environment, no effort have been made to identify or assess the key risk factors be devilling the subsector.

Two of the fundamental processes in systematic risk management are identification and assessment of risks. This study focus on the identification and assessment of the risks associated with housing development projects using system approach to risk management.

1.3 Significance of the Research

The presence of risks in a project has the potential of derailing the achievement of its objectives. Therefore, it is of paramount importance that all risks associated with project endeavours are systematically identified, assessed and responded to carefully in order to achieve any set of objectives (Salako, 2010). The study addresses some part of the challenges in the planning and implementation of systematic risk management in the housing development projects, particularly, risk identification framework formulation and risk assessment through the use of Analytical Hierarchy Process analysis and prioritization. Based on the identification framework used in the study, key risks associated with housing development projects are identified and the utilization of the AHP assessment ensures that the risks are prioritized. It is expected that the risk management process(RMP) framework proposed by the study would provide a better, simple and more practical means of risk identification and assessment which shall serve as

subsector benchmark for identification and assessment of risks in project endeavours and serves as one of the basic risk decision support tools for developers in the implementation of systematic project risk management for housing development projects. This will in turn go a long way in improving the project management deficit facing the nation.

1.4 Aim and Objectives


The aim of this research is to identify and assess risks associated with housing development projects using Analytical Hierarchical Process (AHP) methodology.

  1. To identify risks associated with project environment generally
  2. To establish risks associated with housing development projects in particular.
  3. To measure the identified risks parameters such as risk probability and impact for assessment purpose.
  4. To determine the most critical risks and structure the risks in a consistent manner.
  5. To carry out a prioritization assessment of the identified risks using AHP methodology.

1.5 Scope and limitations

Although, the lifecycle of housing project development covers all phases from inception to disposal and operation, the study is delimited to only the disposal phase and does not extend to operational phase of the project lifecycle. Similarly, the study work is restricted to mass housing development projects to provide a unique window into the risks associated with housing development projects and as such does not capture individual residential housing projects within the study location. Due to the large number of housing development project developers within the Federal Capital Territory, Abuja operating under same project environment, the study area is confined within the Federal Capital Territory, Abuja the results of the study can be applicable nationwide. Additionally, risk generally is multi-perspective in nature; the study presents risks associated with the housing development projects based on developers‟ perspective.

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary of Findings

A brief summary of the findings from the study are as follows:

  1. In order to adequately capture all the significant risks associated with housing development project, the study proposed an identification framework that consists of three integrated techniques that involves review of documented past experiences on similar projects as contained in literature, experts‟ consultation and questionnaire based survey. The framework has proved successful in identifying key risks associated with housing development projects.
  2. Additionally, the study extends the scope of the traditional identification process to include initial assessment and structuring sub-processes that enables significant risk elements to be filtered among the identified risk factors which has helped in focusing the final assessment on the most significant risk elements.
  3. The study also proposed a prioritization risk assessment methodology (the Analytic Hierarchical Process technique) that incorporates fuzzy-based methodology so as to capture the subjective risk information using natural linguistic terms that ensures easy and greater participation among thee surveyed respondents. This has yielded the required results.
  4. Based on the risk identification framework proposed, 50 potential risk factors were identified to have some influence on house development project objectives. These factors were classified under ten (10) macro-level groups.
  5. The study, as part of the preliminary assessment and structuring of the risk factors, measured and evaluated the risk severity variables (the likelihood of occurrence and estimation of impact) to determine the significance of each risk factors. The results of the findings shows that 19 risk factors out of the 50 identified risk factors are significant and therefore qualified for in-depth prioritization assessment.
  6. The results of the assessment findings show that the risk exposure of housing development project with respect to macro-level economic risk (RID#L102) and land acquisition risk (RID#L105) are very high while political (RID#101) and Force Majeure (RID#L104) risks are low. Similarly, at the micro-level risk factors such as Changes to demand for houses risk (RID#A11), interest rate fluctuation risk (RID#A08) and Cost overrun risk (RID#B25) are very high risks to developers while Lack of policy continuity (RID#A02), Bankruptcy of suppliers (RID#B24) and Defective design (RID#B05) are low risk factors.

5.2 Conclusions

The need for the deployment of robust and systematic risk management system in housing development projects is becoming increasingly imperative not only because of the need to improve the working system in developers‟ organizations but also to adverse the consequences of risk on the success of project undertaken.

The findings of the study have revealed and underscored the importance of the two strategic processes of identification and assessment towards achieving a robust systematic risk management system. A sound identification framework and an efficient and flexible risk assessment methodology are keys to the achievement of robust risk management system. The study was able to properly identify and adequately assessed the risks associated with housing development project using computer-based AHP prioritization assessment technique.

5.3 Recommendations

The following recommendations are proffered on the account of the research findings:

  1. The planning and selection of methods, techniques and tools appropriate for risk management system to be deployed in any project undertaken should be given high emphasis as this usually have serious influence on the outcome of the risk management efforts put in place.
  2. Risk identification strategy should, as a matter of priority, includes an initial assessment which has the potentials of enabling project management team to focus only on high priority risks at the final assessment stage thereby minimising the cost and efforts required in the final assessment and mitigatory processes.
  3. Risks prioritization should be at the heart of every risk assessment process because of its potentials to reduce efforts, cost and actions required in the plan risk responses which in turn may result in project performance improvement.
  4. Efforts should be intensified to discourage or at least minimise the use of informal techniques such as the use of lump sum to cover effects of risk factors (as a rule-of-thumb) through appropriate enlightenment and education of project stakeholders. Avenues such as symposium, conferences, exhibition, etc. should be considered for this purpose.
  5. Although the study was able to establish high and low priority risks, it is by no means an end in itself. Risk management should be approached in a dynamic way, because risks have the potentials of mutating at a given time.

5.4 Major Contribution to Knowledge

The study has shown that Economic risk and land Acquisition risk at macro-level were found to have the highest risk priority while Changes in demand for houses risk and Interest rate fluctuation risk were found to have similar highest risk ranking at micro-level in housing development projects in Nigeria.

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