Risk Management In Building Construction

Project and Seminar Material for Building Technology BT

Risk Management In Building Construction


Abstract


This study investigated the risk management in building construction projects in Nigeria. Managing risks in building construction sites in Nigeria has been recognized as a very important management process in order to achieve the project objectives in terms of time, cost, quality, safety and environmental sustainability. The study was limited to companies in Abuja. The study focused on ongoing building constructions in Bwari, Abuja. The research design adopted in this study is descriptive, designed to obtain views from contractors. Sampling technique used was random sampling. Data collection techniques used were literature review and questionnaire, while method used for data analysis were Likert scaling using mean index formula and risk matrix analysis. Findings indicate that the types of risks found are classified into several categories which are financial risks, physical risk, construction risks, design risks, political risks, legal – contractual risks and environmental risks. The risks exist in both building and civil project. Vulnerable risks are financial risks, construction risks and physical risks. The level of risks is catastrophic in most of the financial risks while others are moderate. In construction and physical categories, the level in most risks is high while others are moderate. Finally, measures for managing risks in building construction sites in Nigeria were pointed out which are; Ensuring the adequacy of project funding, obtaining more geotechnical information, conducting constructability reviews, Set realistic contract performance times, work and rework cost information, introducing phased pricing, pre-plan for permits, Utilities and zoning, pre-define rates, use experienced project personnel.


Table of Contents


Preliminary Page(s)

  • Title Page
  • Declaration
  • Approval
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Content

Chapter One

1.0 Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Research Objective
  • 1.4 Research Questions
  • 1.5 Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope And Limitations of the Research
  • 1.8 Definition of Terms
  • 1.9 Organization of Study

Chapter Two

2.0 Literature Review

  • 2.1 Current situation of construction industry
  • 2.2 Risks in building construction sites in Nigeria
  • 2.3 Risk Identification methods
  • 2.4 Risk Management
  • 2.5 Risk Management Process
  • 2.6 Types of risks in building construction sites in Nigeria
  • 2.7 Levels of risks
  • 2.8 Development of Contingency Plans
  • 2.9 Chapter summary

Chapter Three

3.0 Research Methodology

  • 3.1 Introduction
  • 3.2 Research Strategy
  • 3.2.1 Population and sample size
  • 3.2.2 Sample size
  • 3.2.3 Sampling Techniques
  • 3.2.4 Techniques for drawing samples
  • 3.3 Data Collection Methods
  • 3.4 Data analysis
  • 3.3.1 Likert scaling using mean index formula
  • 3.3.2 Risk analysis matrix
  • 3.5 Reporting, discussion and elaboration
  • 3.6 Problems Encountered during the Execution of the Research

Chapter Four

4.0 Data Analysis and Findings

  • 4.1 Introduction
  • 4.2 Data Collection
  • 4.3 Data analysis
  • 4.4 Measures to be taken so as to manage risks in Construction Project
  • 4.5 Chapter summary

Chapter Five

5.0 Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References
  • Appendix

Chapter One


1.0 Introduction

1.1 Background of the Study

Risk management is according to Project Management Institute (PMI) one of the nine knowledge areas and the integration of an effective risk management is considered a crucial element and essential for project success. Construction projects can be described as tremendously complex projects in which uncertainty might arise from various sources. Risk management is therefore increasingly becoming an extensive component of the project management of construction projects in a pursuit to efficiently deal with unexpected events and ambivalence. It is important due to the damaging consequences imposed by risk and uncertainty (Banaitene and A. Banaitis, 2012). However, for years the industry has had a poor reputation for managing the adverse effects of change resulting in delays and a failure to meet quality and cost targets (Smith et al., 2006).

The construction industry in Nigeria has been expanding its participation in the market, mainly because of the increasing demand of infrastructure and building construction industries. According to Kerzner (2016), with this increase of demand, it is necessary to include risk management in project planning and management so as to identify, assess, manage and control the risks that would have an adverse effect on the goals of the project.
The construction industry is a vehicle through which a nation’s physical developments are activated by initiating projects from the blue print stage to the implementation. The implementation and materialization of such projects inevitably can bring about benefits to the people and to the nation at large, thus satisfying the aspiration of national progress, growth and in uplifting the status of the national economy (Ministry of works, 2013).

Risks are considered as the probability of an unfavorable outcome arising from a decision (Wood and Ernest, 2017). In the construction management domain, Perry and Hayes (2015) define risk as an exposure to economic loss or gain arising from involvement in the construction process. A project is said to be successful when the objectives of that project are met within allocated time period, budgeted cost, and within required specifications. One of the most single important things someone can do to ensure a successful project is managing risks. A risk is anything that could adversely affect project schedule, cost, quality or scope. That is a risk may impact project performance, cost, time and scope targets (Lewis, 2011).

Risks are unavoidable in almost every construction project whether if it is building projects, civil works, or any other type of construction projects. Risk is inherent in all human endeavors, including construction activities, and the risk factors involved are diverse and varied. Managing construction project risks is considered as compulsory for any project to be successful. Thus, this paper is aiming at providing comprehensive discussion on concepts of managing risks in building construction sites in Nigeria.


1.2 Statement of the Problem

In building construction sites in Nigeria, project stakeholders face the risk of cost overruns, schedule delays, and even waste, fraud, or abuse. Environmental, quality, and safety factors are also representing sources of risks. And further in some projects, managers run the risk of generating political controversy at the federal, state, or local level. An absence of concern on risk assessment and management could lead to several serious problem, resulting in unachievable goals and unmet expectations.

It is common in our country and even in other places for problems such as delays to occur in project completion, it is necessary for managers and project teams to ensure such common problem can be eliminated in future by applying the theoretical concepts of project management such as managing risks into practice despite of numerous limitation and pressures. Delays, incompletion, cost overrun, unsafe site condition and poor quality in building construction sites in Nigeria resulting from lack of awareness on risk aspects are intolerable excuses.

Thus, managing risks effectively requires implementing a structured, well thought- out risk management plan. Although managers cannot eliminate risk entirely, they can minimize it by monitoring project’s risks, developing strategies to mitigate them, and establishing fallback positions and contingencies. Managing risks also can lead to more creative and efficient management techniques, such as innovative financing, new methods of accountability and control, and increased options for contractual arrangements.


1.3 Research Objective

The main objective of the study to investigate the risk management in building construction projects. The following are the specific objectives of the study

  1. To determine types of risks commonly found in building construction sites in Nigeria
  2. To evaluate the level of risks in building construction sites in Nigeria
  3. To suggest measures for managing risks in building construction sites in Nigeria

1.4 Research Questions

  1. What are the risks associated in building construction sites in Nigeria?
  2. To what extent are risks in building construction sites in Nigeria?
  3. What measures to be taken in order to manage risks in construction project?

1.5 Hypothesis

HO1: There is no significant relationship between risk management and building construction project performance


1.6 Significance of the Study

The Development of infrastructure is one of the most important activities that can boost up the business of the various Industries, thereby increasing the Gross Domestic Product (GDP). Due to this fact countries stress on infrastructure development and provide finances for the same in their yearly budget. The various such projects are in themselves vast and big and involve a lot of money. This vastness of each Project leaves lot of scope for various problems from clearances to land acquisition, wastage, unforeseen delays, natural calamities etc., leading to time and cost overrun in the project. The cost overrun can be of huge magnitude in a project involving large amount of money.

The importance of risk management is to protect the continuity of risky operations by contractors. Also, this research will help contractors to know and understand about the vulnerable risks in building construction sites in Nigeria. Generally, this research of will help contractors to identify and quantify all risks to which the business or project is exposed so that a conscious decision can be taken on how to manage the risks. It must be practical, realistic and must be cost effective.

Apart from being beneficial to contractors, this research will also be a good reference in the subject matter.
The loss of services given by the project during the time by which the project overruns can be enormous if put into monetary terms. Hence, to reduce the losses efficient management of a construction project is required. Application of various project management techniques have to be made from the conception to the completion stages which includes managing the various risks associated with the project in its every stage.


1.7 Scope and Limitations of the Research

This research focuses on how building and civil contractors managing risks in construction project risks and that this research is limited to only Abuja in which the respondents are being selected from this boundary. The study focused on ongoing building constructions in Bwari, Abuja.

Furthermore, for the purpose of this study, the respondents consist of only contractors in Abuja that are registered with Community Right to Build Engineering in class 1 and 2. This is because the classifications of class of the contractor represent the size of the firm and the approximate size of the project they carry out. Contractors that are registered in class 1 and class 2 are considered as quite large organization with bigger size of project. The risks they face vary with the size of project and the size of their organization. Thus, to ensure the reliability of the data gathered, it is essential to limit the lists of respondents according to the size of the organization and the size of the project.


1.8 Definition Of Terms

Risk Management:

Is the process of identifying, assessing and controlling threats to an organization’s capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters.

Risk:

Is the exposure a company or organization has to factor(s) that will lower its profits or lead it to fail. Anything that threatens a company’s ability to achieve its financial goals is considered a business risk.

Building Construction:

Is the process of adding structures to areas of land, also known as real property sites.


1.9 Organization of Study

The study comprises of 5 chapters. In chapter one, the concepts are introduced and the problem of the study is established with the research objectives and questions. Chapter two presents the literature review while chapter three presents the research methodology. The fourth chapter presents the results and discussion, and the last chapter presents the conclusion and recommendation.


Chapter Five


5.0 Summary, Conclusion and Recommendation

5.1 Summary

In this final chapter of the research project paper, the overall conclusion and summary of the study were made. The results and findings gathered throughout the study are summarized in this chapter by referring to the objectives of the study as the goal of this study is to accomplish the objectives of the study. Along with that, any recommendation for this study as well as recommendation for further study will also be described in this chapter. From the findings, three categories of risks have been identified some of which have extreme and high-risk level. The categories of risks having extreme and high level of risks are financial risks construction risks, and physical risks. In case of measures for managing risks in building construction sites in Nigeria; there are several findings gathered especially by conducting literature reviews as well as information gathered from questionnaire. These are the ways identified as the best practice in order to reduce and mitigate risks in the construction projects. From the results and findings, it is noticed that the research objectives are accomplished. Therefore, it is hoped that this study can be used especially by the contractors in order to manage construction project risks for the successful delivery of their project.


5.2 Conclusion

Upon completing this study, the level of risks for each type of construction project risks has been identified. On the same tables that represent the outcome of first objective which is table 4.2 to table 4.8 in previous chapter, the level of risk for each type of risk is indicated. For the level of risk, by referring to risk matrix analysis table, the risks are categorized into four level of risk which are low level, moderate level, high level and extreme level.

There are several types of risks considered as having extreme level of risk which is under financial risk consists of availability of funds risk, cash flow problem due to slow payment and dispute, and business disruption risk.

Therefore, it is obvious that financial risk have highest ranking of risk factors. This is followed by construction risks and physical risks.

By comparing to other similar study, the results of this study are reliable as in one of the study observed, the result are same which in that study too, the financial risk are considered as having highest ranking of risk factors. Other than those extreme risks, there are also other types of risks in this study ranked as having high level of risk.

For the extreme risk, it requires detailed action or plan. While for high risk, senior management’s attention is needed. In moderate level of risk, it is the responsibility of specific management to overcome the risk and for the low level of risk; it can be managed by routine procedures. By gaining this result, the second objective of the study has been achieved.


5.3 Recommendation

Ensuring the adequacy of project funding: It is important that, the enough funds are set aside for project. This will lead to availability of materials on time; the workers are paid on time etc. Furthermore, contractors need to understand, in advance, that changes and cost increases are virtually inevitable. Accordingly, a reasonable contingency should be incorporated into the budget to deal with inevitable changes and unexpected omissions.

Obtaining more geotechnical information: This is important due the fact that, design of the buildings or any civil works need enough soil information: selection of construction materials, types of construction etc. Accordingly, if the actual underground conditions are worse than the geotechnical information provided, the owner should pay because, if the contractor had been advised of the more severe conditions, it certainly would have increased its bid.

Conducting constructability reviews: Contractors sometimes complain that the designs they are required to follow are not constructible or practical. If this is the case, there may be delays and additional costs incurred in coming up with alternatives. Even if the design is constructible, the owner may have to pay more to get the same results. By having the plans and specifications reviewed for ‘constructability’ before contractors bid on them, owners have been able to modify the designs and thereby make construction easier.

Introducing phased pricing: Phase pricing will lead to realistic coasting of the project. This is true when the project is huge that will take several years. When the project takes some years to be completed, the price of materials may change to the level that cannot be tolerated.

Use experienced project personnel :No matter how enlightened the management and allocation of risk, the project personnel (i.e., people) will still have to design, build and administer the project. Experience counts, particularly for big projects. With a construction boom underway, design and building construction sites are often maxed out in terms of experienced project managers and superintendents. Notwithstanding this reality, no design firm or contractor wants to lose a good job. Consequently, many projects are being led and managed by inadequately trained and inexperienced personnel, which inevitably leads to problems, claims, disputes and terminations.


Risk Management In Building Construction


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