Effectiveness of Risk Monitoring. The project life cycle of a construction project in Port Harcourt, Nigeria

Table of contents

1 Introduction

2 Literature Review

3 Research Methodology

4 Results

5 Summary

6 Conclusion

7 Recommendations

8 References

Abstract

The paper evaluated the effectiveness of risk monitoring through project life cycle of construction project of shopping centre in Port Harcourt. In line with this need, this paper established a system to improve the time, cost and quality performance of building construction projects in developing countries, through a comprehensive risk management model that ensures the expectations of clients are met. To achieve the aim of this paper, a mixed methodological approach was adopted. Through the review of literature, a conceptual risk management framework suitable to elaborate risk assessment of building construction projects especially for developing countries was developed. The result showed the interrelation between the risk factors and how they contributed to cost and time overruns as well as quality problems. The critical risks directly affecting the cost of building construction project were: fluctuation of material prices; health and safety issues; bribery and corruption; material wastage; poor site management and supervision; and time overruns. The critical factors identified to directly affect quality were: supply of defective materials; working under harsh conditions; improper construction methods; lack of protective equipment; ineffective time allocation; poor communication between involved stakeholders; and unsuitable leadership style. Time overruns on building construction projects was directly caused by: quality problems; low productivity; improper construction methods; poor communication between involved parties; delayed payments in contracts; and poor site management and supervision. Suitable risk responses, also in the form of recommendations have been identified. The strategies include actions to be taken to respond to risks based on their perceived significance or acceptability as well as some positive risk responses, such as exploiting, sharing, enhancing and accepting, and other negative risk responses, such as avoidance, mitigation transfer and acceptance.

Keywords: Project, risk, risk factors, risk management, project management, project success

Project Life Cycle

1 Introduction

Building construction projects which are associated with housing, offices, hospitals, factories, churches etc. are unique and built only once. Consequently, the construction industry plays a key role in the economy of any nation, more so in a developing country like Nigeria. It is a vital contributor to the gross domestic product (GDP) growth and produces the built environment that supports other sectors of the economy in most part of the world (Oladapo, 2015; NELF, 2013). According to the Frontier Market Intelligence report (2012), the Nigerian construction industry experienced a growth rate of 20% between 2006 and 2007 and 13.1% between 2008 and 2012. The report however, highlighted that building construction in Nigeria accounted for 1.33% GDP in 2012 which is below the world average benchmark for 9% of GDP. This result leaves a huge room for growth in the construction of buildings across all sectors of the economy in Nigeria.

However, the passage from one stage to another is not all “smooth-sailing”, but is fragmented, complicated, risky and uncertain (Arayici, Egbu and Coates, 2012; John et al, 2005). The cost of risk is a concept many construction companies have never thought about despite the fact that it is one of the largest expense items (Cavignac, 2009). Risk management helps the key project participants - client, contractor or developer, consultant, and supplier - to meet their commitments and minimize negative impacts on construction project performance in relation to cost, time and quality objectives (Banaitiene, Banaitis and Norkus, 2011). The presence of an effective and efficient construction risk management function will enhance the successful completion of building construction projects and thereby make the project more profitable. On the contrary, the absence of an effective risk management process has several negative consequences for participants in a building project due to lack of preventive action against the risks and uncertainty that any project presents (Serpella, Ferrada, Howard and Rubio, 2014). In the light of the above background, the paper seeks to evaluate the effectiveness of risk monitoring through project life cycle of construction of a shopping centre in Port Harcourt Rivers State.

Case Study Background

The Case study involved the construction of a shopping centre by a private developer who specialised in constructing commercial facilities in southern Nigeria. The total duration allocated this project was 60 weeks with a total project sum of 105 Million Naira which includes the construction of the main structures of the shopping centre without fittings for the 15 different departmental shops. Due to the nature of the project, an architectural firm was in charge of the design of the project whereas a civil engineering firm did the structural works. As at the time of data collection, the project duration was 10 weeks behind schedule and was projected to be completed with a 10% increase in the initial project cost. This project had the contractor’s quantity surveyor acting as risk manager to ensure risks inherent in the project were well managed during the execution of the project.

2 Literature Review

Construction Risk Management

Risk management is one of the ten project management areas (i.e., integration, scope, time, cost, quality, human resource, communications, risk, procurement and stakeholders) propagated by the Project Management Institute (PMBoK, 2013). Risk management is the culture, processes and structures that are directed towards realising potential opportunities whilst managing adverse effects (AS/NZS 4360, 2004), Zou et al (2007) define risk management in the construction project management context as a systematic way of identifying, analysing and dealing with risk as associated with a project with an aim to achieve the project objectives. According to the British standard 31100 (2011) risk management is the process whereby decisions are made to accept a known or assessed risk and/or the implementation of actions to reduce the consequences or probability of occurrence.

According to Smith et al (2006), clients, project owner (companies, organisation, etc.) have an overall risk management strategy and policy included in the strategic documents and quality management system. The project owners risk strategy is risk ownership (which party owns the risk; risk exposure and transfer) and risk financing (how to include and use budget risk allowance or contingency), client risk management policy includes the risk procedure or guidelines and reporting, clients and contractor are concerned with the magnitude and pattern of the investment and the associated risk (Smith et al, 2006). Risk management for construction projects according to Smith et al (2006) is illustrated in Figure 2.2.

According to Smith et al (2006), clients, project owner (companies, organisation, etc.) have an overall risk management strategy and policy included in the strategic documents and quality management system. The project owners risk strategy is risk ownership (which party owns the risk; risk exposure and transfer) and risk financing (how to include and use budget risk allowance or contingency), client risk management policy includes the risk procedure or guidelines and reporting, clients and contractor are concerned with the magnitude and pattern of the investment and the associated risk (Smith et al, 2006). Risk management for construction projects according to Smith et al (2006) is illustrated in Figure 1.

Risk Probability in Construction Projects

Probability is an important concept in dealing with risk, and its measurement has a long history. Definitions range from the classical deterministic notion that probability is the ratio of occurrence to the total number of equally likely causes to a much subjective or judgmental view (Abujnah & Eaton, 2010). For instance, in the tossing of a fair coin, the possible outcomes are generally predetermined, while in others, such as estimating construction cost will be more fuzzily determined (Abujnah & Eaton, 2010). In these latter cases, intuitive estimates may be as reliable as formal estimates; even intuitively our minds use probability to formulate our judgement (Flanagan & Norman, 2000).

Benefits of Construction Risk Management

A properly implemented risk management process will enhance the successful completion of building construction projects and thereby make the project more profitable. Key advantages of risk management process as described by Toader el al. (2010) and Poh (2005) are:

- It is efficient: project managers are aware about the risks which influence the activity of the project and manage them so that they do not occur
- The application of risk analysis in the tendering stage enables a realistic project pricing.
- Efficient risk management increases the chances of success of the project, despite the uncertainties, which exist in the project environment.
- In the presence of risk information, more comprehensive and accurate decisions about risks can be made
- The availability of risk knowledge will prove to be valuable information for planning and risk information in the future. The mistakes made in the past projects could be avoided
- The good track record and proven risk management systems of construction firms will enhance their chances to secure future projects from the same project owner
- The risk management process can improve communication among project participant.

Risk Management Process for Construction Projects

Risk management is a cyclical process, which is made up of critical steps. A number of risk management processes have been proposed. Risk management is the effort to optimize decisions in order to reduce uncertainty about future events when the information is incomplete, unclear or under discussion (Oladapo, 2015). Early studies on risk management had outlined different approaches to risk management. For example, Chapman & Ward (1997) outlined a generic project risk management process consisting of nine phases:

- Define the key aspects of the project
- Focus on a strategic approach to risk management
- Identify where risks might arise
- Structure the information about risk assumptions and relationships

Akintola & Macleod (1997) also suggested a process that consists of; identification, analysis, assessment and control. However, the construction industry recognizes that a systematic risk management is essential to manage the risks affecting construction projects. Jafari et al (2011) states there are four well-known approaches to risk management which have been propagated by the following institutes. These are; PMBOK (2004), Project Risk Analysis and Management (PRAM) (APM, 2004), Management of Risk (MOR) (Office of Government Commerce, 2007) and the standard AS/NZS4360:2004 (Standard Australia/standards New Zealand, 2007), however, there is no significant difference between them. The key steps of planning, identification, qualitative and quantitative analysis, reaction to risk, and controlling are present in all these approaches. According to Jia et al (2013), Figure 3 illustrates six processes and their relationships. Among these processes, risk management planning is the starting point of the entire risk management procedure; it is generally useful to regulate and promote four successive processes in the core risk management cycle to roll forward with management system oriented self-improvement in the whole project development flow from project inception through design and construction to project completion. Risk management reporting is the finishing point of the entire risk management procedure. It is generally useful to summarize the risk management with regular outputs with regard to predefined risk control points, and helps organizations to understand current situations and corresponding measures in their risk management practice.

Accordingly, this cyclical risk management process also agrees with the definitions of construction –related professional institutions such as, the Association of Project Management (APM, 2004), Institution of Civil Engineers (ICE, 2015) and the Construction Industry Research and Information Association (CIRIA, 2015). These construction institutions recognize that a structured and systematic risk management is essential to manage the risk affecting construction projects.

Definition of Risk Management Objective

The first stage of the risk management process clearly defines the objectives of the risk identification and assessment process. This stage is important because it shows the scope and margin for the extensive risk identification and assessment procedures (Issac, 1995).

Risk Identification

- According to Tchankova (2002), the process of risk management begins with risk identification which develops the basis for the next steps of analysis, assessment and control. If this is done correctly it ensures risk management effectiveness. Consequently, it illustrates that risk identification must be seen in a broader way and not just be seen as what can be insured or mitigated (Tchankova, 2002). It should start with the basic question of; How can the project resources be threatened?
- What adverse effect can prevent the project from achieving its goals?
- What favourable possibility can be revealed?

The identification process at start enables a good basis for the implementation of the project and does not put up any barrier about the type of risk that would be identified or the resources that can be influenced (Tchankova, 2002). Risk identification reveals and determines the possible project risk as well as conditions (Williams et al, 1998). Risk identification enables the project managers to study activities and places where resources are exposed to risk. According Tchankova (2002), risk identification can be described based on these elements;

- Sources of risk: these are the elements of the project environment that can bring some positive or negative outcome.
- Hazard: it is a condition or a circumstance that increases the chances of losses or gains and their severity.
- Peril: this is a circumstance that is close to risk and has negative, non-profitable results. Peril can happen at any time and cause unknown, predictable losses. Peril is the cause of losses.
- Exposure to risk: this is an object facing possible loss or gain. They will be affected if the risk occurs.

Risk Management Frameworks in the Construction Industry

- The following construction professional institutions, the Institution of Civil Engineers (ICE), the Association of Project Management (APM), and the Construction Industry Research and Information Association (CIRIA) in recent years have separately taken initiatives to develop frameworks for the systematic project risk management. Their goals are to provide the construction industry with a structured, practical and easy to follow approach to the handling of risk and most importantly to promote the general use of a systematic approach to manage risk more effectively.
- The risk management framework developed by CIRIA (1996) in figure 2.7, shows the implementation of a risk management process and the available methods for each step is described in detail, though there is relatively less coverage of the quantitative aspect in the process. The importance of the risk register in risk identification and assessment is stressed.

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Figure 4: Flowchart of CIRIA risk management process

Source: CIRIA (1996 cited in Abujnah, 2010)

Apart from concentrating on the phases of the Risk Management Process, the Project Risk Analysis and Management Guide (PRAM) proposed by APM (2004) in Figure 2.8 has a more balanced coverage of both the qualitative and quantitative risk analysis process. However, the quantitative techniques provided are largely based on statistical and probabilistic approaches.

Risk Analysis and Management for Project (RAMP) shown in Figure 5 is a framework developed by ICE et al (2005). It defines projects in a wider context covering both project construction and operation phases. It concentrates on the strategic aspect of risk appraisal and management, and it recommends users to refer to PRAM for the quantitative techniques.

Figures 4 and 5 provide the flowcharts of the risk management processes that are proposed by these three models (CIRIA, PRAM and RAMP). Risk management process is not a once and for all process; it must be undertaken continually and consistently throughout the project lifecycle (ICE et al, 2005). These risk management processes contain the same critical steps although they are described differently in terms of names and details. These risk management processes identified here provides a guide in the development of a conceptual risk management framework for building construction projects in developing countries.

3 Research Methodology

For the purposes of this case study, data was collected through two main sources: interviews with the site team; two site visits to observe activities on site; and documentary analysis. A summary of the sources of data is presented in the Table 1.

Table 1: Profile of Interviewees on the Project: Construction of a Shopping Centre in Port Harcourt

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Source Survey Data, 2017

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