ABSTRACT
All construction projects involve certain degree of risk regardless of its sizes. This is as a result of unique feature of the industry. This study therefore identified risk factors that are associated with building project. It also evaluates the level of involvement of project stakeholders in management of risk and evaluates the various strategies available for mitigating risk. Data were collected with the aid of questionnaire administered on clients, contractors and consultants within the construction industry. And each was selected by simple random selection. In total, 45 respondents completed questionnaires were used for data analysis. Frequency percentage and mean score were employed to analyze collected data and chi-square (x2) was used to test the hypotheses. From the analyses of the data, it was discovered that risk occurred in all project and at different stages or phases. The identified risks have impact on project objectives in the order of severity are design error, construction error, inflation and change order. The effective tools for mitigating risk on construction industry are contingency sum, insurance cover, and bond. In order to realize the objective of project, it is therefore recommend that project stakeholders should be involved in project especially at the inception stage.
CHAPTER 1
INTRODUCTION
1.1 SCOPE
OF STUDY
Building projects are traditionally
divided into series of activities or operations undertaken by different
individuals or groups who may have different levels of interest and or
involvement in the project (Egan, 1998). Building projects are generally unique
in nature based on their fragmentation, processes and interaction with numerous
parties; and just like any other venture, are constrained by time and resources
(both human and material) which are needed for the projects to be delivered
(Ibrahim and Nissen, 2003; Bourne, 2005; Olander, 2006). Therefore, the lengthy
process of design and execution of building projects constitutes a complex
system which involves collaboration and negotiations among many stakeholders
which may include but not limited to the clients, designers, contractors, local
authorities and the general project environment (Cheeks, 2003; Winch, 2010).
The different parties involved both directly and indirectly on the project are
referred to as the project stakeholders whose management is vital to achieving
project success (Cleland, 2002). Stakeholder management therefore, has been
recognised as an important strategy for achieving project success in building
projects.
Knowing the stakeholders and their characteristics relative
to the project is an important step in stakeholder management (Cleland, 2002)
but this can only be achieved through an adequate definition of stakeholders.
However, despite the recognition of stakeholder management as an important
strategy for achieving project success, the definition of stakeholders is not
clearly certain as project stakeholders have been defined in different ways
(see section 2.2 for more details). While some definitions of project
stakeholders are criticised for being too narrow (Smith, et al., 2001; Smith and
Love (2004); Olander, 2007; Walker et al., 2008), others suffer criticisms for
being too broad (Freeman, 1984; Juliano, 1995; Awakul and Ogunlana, 2002; PMI,
2004; Takim, 2009; Winch, 2010). Relying on the too narrow definition will
expose the project management team to the risk of leaving out some important
stakeholders. Similarly, relying on the too broad definition will expose the
project management team to the risk of involving too many stakeholders
including those who are not important to the project (Leung and Olomolaiye,
2010). Therefore, the following definition has been coined out of the different
definitions for the purpose of this study:
“Building project stakeholders are individuals or
groups/organisations who have some aspects of right or ownership in the project
and can contribute to it; or will incur or justifiably perceive they will incur
a direct benefit or loss as a result of either the works during the project or
the outcome of the project.”
This definition will be used for this study and the term
“stakeholder” will be used to refer to stakeholders both as individuals and as
group(s) of individuals.
Different classifications have also been adopted for
stakeholders by scholars (Mitchell et al., 1997; Newcombe, 2003; Bourne and
Walker, 2005; Olander, 2007; Aaltonen et al., 2008; Chinyio and Akintoye, 2008;
Winch 2010) depending on their possession of certain attributes and disposition
towards the project. Winch (2010) for instance, classify building project
stakeholders into two categories according to their relationship with the
client: (1) internal stakeholders which are those who are in legal contract
with the client and (2) external stakeholders which also have direct interest
in the project though not necessarily having direct contracts with the client.
He further broke them down as follows: internal stakeholders into those
(stakeholders) clustered around the client on the demand side and those on the
supply side, while external stakeholders are broken down into private and
public actors. The stakeholder classification by Winch (2010) is used as a
guide throughout the study.
The focus of building project management over the years has
been on the processes leading to the effective planning and management of the
complex series of activities involved in delivering successful projects (Morris
1994). According to Takim (2009), the complex interaction and
interrelationships that take place among the parties involved in a building
project determine the overall successful completion of the project.
Furthermore, project success has been linked to the effective continuous
engagement/management of all the project’s stakeholders (Cleland, 1999; Bourne
and Walker, 2005; Olander, 2007; Aaltonen et al., 2008; Ward and Chapman, 2008;
Chinyio and Akintoye, 2008). The traditional perception of project success
being judged based on cost quality and time has changed over time to include;
micro and macro viewpoints, reduced conflicts and disputes, environmental
friendliness and stakeholder satisfaction (Lim and Mohamed, 1999;
Cookie-Davies, 2002; Bryde and Brown 2005; Low and Chuan 2006; Toor and
Ogunlana 2010). Previous researches have attributed project failures to either
lack of or in adequate stakeholder management during the project (Black, 1995;
Akintoye et al. 2003; Bourne, 2005; Olander and Landin, 2008). Therefore, in
order to achieve project success and in line with the current perception of building
project success, it is important to engage/manage stakeholders effectively in
the course of carrying out the project. The question however, still remains of
how effective stakeholder management can be carried out in building projects.
The following have been identified to be among the causes of
project failure: poor scope and work definition; in adequate resources assigned
to the project; unforeseen regulatory changes; and negative community reaction
to the project (Black, 1995). Most of these could be associated with either
uninformed or ineffective stakeholder management on the project; for instance,
the early involvement and considerations of the interests of stakeholders is
vital to being able to clearly define and set out the project scope and goals
which could also help to avert negative community reaction to the project. Mere
involvement of these key stakeholders is however, not a guarantee for achieving
a successful project; it also needs to be properly done.
Furthermore, the success or failure of a project is
influenced very strongly by the expectations and perceptions of the
stakeholders involved on the project and failure to balance and or address the
concerns of the stakeholders has resulted in many projects failing (Bourne,
2005; Chinyio, 2010). Similarly, differing or conflicting objectives among the
project stakeholders are among the factors that impede the achievement of best
value in building projects (Akintoye et al. 2003). Therefore, involving the
stakeholders at the front-end planning and further integrating them into the
project team can help to avoid/overcome problems associated with stakeholder
issues. Such problems could be in the form of conflicts and controversies which
can obstruct the project implementation process and consequently lead to
delays, cost overruns, dissatisfaction and claims (Faniran et al., 1999;
Jergeas et al., 2000; Karlsen, 2002; Olander and Landin, 2005; Yu et al., 2007;
Yang et al., 2011). For instance, Jeargeas et al., (2000) found that problems
caused by stakeholders due to their lack of involvement in the project could
negatively affect projects in terms of budget, schedules and relationship with
the stakeholders. Therefore, managing stakeholders becomes a vital skill for building
project management team since the successful completion of projects depends on
among other things, meeting the expectations of the stakeholders and ensuring a
smooth running of the project (Cleland, 1995; Vinten, 2000; Newcombe, 2003;
Bourne 2005; Aaltonen et al., 2008).
Stakeholders’ interests and influences are not constant and
can vary from one stage to another and even from time to time in a particular
stage of the project lifecycle (Cleland, 1995; Jergeas et al., 2000; Olander,
2007; Aaltonen et al., 2008; Ward and Chapman, 2008;). This is an indication of
the dynamic relationships that exist among the stakeholders themselves as well as
between the stakeholders and the project which also shows that events and
actions are interdependent on each other (Pajunen, 2006; Olander, 2007; Nash et
al., 2010). The stakeholders involved may have their respective expectations
from the project and satisfying the expectations of project stakeholders
throughout the life cycle of the project is instrumental to the successful
completion of building projects (Atkin and Skitmore, 2008). In pursuing their
interests and expectations on projects, stakeholders can behave in different
ways including cooperative potential, competitive threats, opposite position
and neutral attitude (Yang et al., 2014). Therefore, stakeholder involvement
and management should not stop at the front-end project planning stage or at any
stage at all but continue throughout the entire lifecycle of the project
(Takim, 2009). Olander and Landin (2008) argued that “if there is no clear
strategy for how to manage and involve stakeholders in the project
implementation process, the project manager will end up in a rearguard action,
fending off claims from stakeholders”. However, the suggestion that the project
manager is responsible for stakeholder management is arguable; as this will
depend substantially on the procurement route being used, the stage at which
the project is and other project characteristics.
1.2 STATEMENT OF
PROBLEM
The building industry is a fundamental economic activity; it
has a major role achieving social and economic development of any country. The
industry plays an important role in the national economy (Alagidedey and
Mensah, 2016). Most of the growth in the world economy has occurred; some of
this growth is linked to the effect of investment and expansion in building
(IMF, 2013). Likewise data from the United Nation Conference on Trade and
Development (UNCTAD, 2011), show that the building sector has grown by about 5%
in sub-Saharan Africa. According to Ministry of Finance and Economic
Cooperation (MoFEC, 2016), the Ethiopia building industry is booming and
continuing to have the average GDP growth of 7.5 percent over the past 8 years
has been achieved. In this economic improvement the building industry is
serving as the pillar and played a great role. The building industry
development obliges government commitment, sustained effort and the right
operating environment (Sharma, 2010). The fast growth of the building industry increased
in the number of professionals, companies, firms and individuals working as
consultants, main contractors and sub-contractors, material and component
producers, plant and equipment suppliers, builders, merchants and any other
stakeholders joining the industry. The government is involved in the building
industry as purchaser (client), financier, regulator and operator. Local firms
and professionals fully involved in the process (Olomolaiye, 2010). The
cooperation of stakeholders in the building industry creating an enabling
environment for the development of a vibrant, efficient and sustainable local building
industry that meets the demand for its services to support sustainable economic
and social development (ECIDP, 2014). Developing countries have lower economic,
technological, education, inadequate infrastructure development, high
population growth and low per capita income (World Bank, 2012). Based on the
general situation, the building industry everywhere faces problems and
challenges, among those resource shortages, institutional weaknesses and
inability to deal with the key issues. In many developing countries, the building
industry is neither organized nor controlled (Oyedele, 2013). According to
Ofori (2000), the industry is fragmented with several small and medium
enterprise supply chain firms. According to Techale and Mahelet (2012), the
Ethiopian building industry is a sector that opens the door for the growth of
many additional industries. It is a sector that entertains large number of micro-enterprises
the majority of them operates in informal way. The formal building sector
comprises indigenous and foreign building companies. The Ethiopian building
industry was not considered as an independent sector of creation wealth in the
national economy. This, in turn, has led to the undesirable features of the
current building sector. Based on the ECIDP (2014), weaknesses, problems and
constraints hampering the performance and development of the building industry
include low capacity and capability of the local contractors and consultants,
weak resource base and inadequate experience, inefficient and non-transparent
procurement systems, corruption and financial mismanagement, inefficient credit
facilities, inefficient hire and professional development, poor working
environment, low standards of safety and occupational hazards on building
sites, weak and non-facilitative policies and regulatory framework, low
productivity, low quality and low technological base.
1.3 RESEARCH
OBJECTIVES
This research work is to clear the confusion and
misinterpretation surrounding the actual roles of the building project
stakeholders in managing risk of building project delivery in Nigeria. The
study was necessary because of the need to minimize wastage of resources and to
ensure that projects are delivered according to specifications, quality, on
time and within budget requirements.
In pursuing this aim, the following objectives which are
related are:
a)
Investigate the interrelationships and interaction among
project stakeholders in building projects
b)
Investigate the interests and concerns of each stakeholder in
the project definition elements
c)
To identify the degree and extent of each stakeholder’s
contribution to enhancing the completeness of each project definition element
d)
Based on the findings, develop and validate a tool for
evaluating the level of risk management in a building project
e)
Identify key stakeholders in the building industry.
f)
Identify the benefits that the building industry gains
through the participation of key stakeholders.
1.4 RESEARCH
QUESTIONS
1.
Who
are the stakeholders in building projects and what are their roles?
2.
What
is the building industry gains from the involvement of key stakeholders?
3.
What
are the challenges that affect key stakeholder’s involvement in the industry?
4.
What
are the ways appropriate for key stakeholder’s active involvement in the risk
management of building industry?
1.5 SCOPE OF STUDY
Compared to other sectors in the country, the building
industry is a sector which joins wide and variety of stakeholders. Hence,
analyzing the role of stakeholders in the industry is found to be suitable for
this study. Though stakeholders’ issue in the building industry is a broad
concept that covers a wide array of sectors, individuals and institutions, this
study is delimited to key stakeholders that include building professionals,
contractors and consultants, building associations, financial institutions, and
raw materials and building equipment suppliers. Therefore, this thesis focused
on analyzing the current practice of key stakeholders’ role in the Nigerian building
industry only and the conclusions are not applicable to other stakeholders
involve in the building industry in general.
1.6 SIGNIFICANCE OF
STUDY
The
study increases understanding of how key stakeholders’ involvement look like in
the building industry. It serves to deepen the understanding of who the key
stakeholders are and their involvement in the industry for policy makers,
regulatory body, contractors, consultants, financial intuitions, raw material
suppliers, building equipment suppliers and other stakeholders. The findings
also help to plug gaps in the key stakeholder’s involvement in the building
industry. This study also helps in identifying the gaps in the current
practices and forward recommendations for improving stakeholder’s involvement
to make the industry sustainable.
The
study also examines the existing participation of key stakeholder’s in the building
industry in light of recommendations that would improve the current pattern of
relationships and engagements. Government at large and policy makers in
particulars obtain basics of existing stakeholders’ engagement in the industry
so that new platforms for bolster the role of stakeholders can be initiated.
Among others, it contributes a lot to establish effective platform that can
bring all stakeholders together so that solutions can be attained for common
challenges.
1.7 LIMITATION
OF STUDY
The
study was conducted by using key informant interviews and document review.
Meeting key informants for interview was on top of the challenges during the
data collection which took long time. The researcher was also employed full
time while working with this research and shortage of time had created a
burden. Furthermore, the informant selection and the perceptual agreement
problem negatively treated this study.
1.8 DEFINITION
OF KEY TERMS
Building
Industry: is an
economic activity directed to the creation, renovation, repair or extension of
fixed assets in the form of buildings, land improvements of an engineering
nature, and other such engineering buildings as roads, bridges, dams, etc. The
industry consists of a group of establishments engaged in one or more of the
following activities of: (1) Residential buildings in urban and rural areas,
(2) Nonresidential buildings, i.e. factory buildings, ware houses, office
buildings, garages, hotels, schools, hospitals, clinics, etc., (3) Other building
works, like roads, dams, dikes, athletic fields, electricity transmission
lines, telephone & telegraph lines, etc.
Practicing
professionals:
are technical professionals with educational level of Degree or above, in
engineering related technical courses. Practicing professions are the highest
occupation that requires a prolonged period of education and training. They are
often overseen by professional bodies.
Stakeholders
Engagement: is the
process used by an organization to engage relevant stakeholders for a purpose
to achieve accepted outcomes.
Stakeholders
Role: stakeholders whose needs,
requirements and expectations must be considered as a necessary part of any
organization’s planning and management. The role of stakeholders is affected by
an interest, rights (legal or moral), ownership and contribution in the form of
knowledge or support.
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.