ASSESSMENT OF RISK ON ROAD PROJECTS IN NIGERIA CONSTRUCTION INDUSTRY

CHAPTER ONE

1.0    INTRODUCTION

 I.I    BACKGROUND OF THE STUDY

Consequences of uncertainty and its exposure in a project, is risk. In a project context, risk is the chance of something happening that will have an impact upon objectives. It includes the possibility of loss or gain, or variation from a desired or planned outcome, as a consequence of the uncertainty associated with following a particular course of action. (Deviprasadh, 2007). Risk thus has two elements: the likelihood or probability of something happening, and the consequences or impacts if it does. Managing risk is an integral part of good management; it is fundamental to achieving good business and project outcomes and the effective procurement of goods and services Risk management provides a structured way of assessing and dealing with future uncertainly. Project risk management includes the processes concerned with identifying, analyzing, and responding to project risk. It includes maximizing the results of positive events and minimizing the consequences of adverse events." (Deviprasadh, 2007).

Project Management Institute (2004) defines project risk as an uncertain event or condition that, if it occurs, has a positive or a negative effect on at least one project objective, such as time, cost, scope, or quality. A risk may have one or more causes and, if it occurs, one or more impacts Construction projects vary in type and nature and a large number of people with professional skills. The variations are endless, but what all projects have in common is their exposure to risk (Flanagan and Norman, 1999).

Civil engineering is the branch of engineering that deals with the creation, improvement, and protection of the communal environment, providing facilities for living, industry and transportation, including large buildings, roads, bridges, canals, and other engineered constructions (Stark, 2008). It is characterized by its high magnitude, uncertainties and the level of risk involved (Seeley and Murray, 2001). Civil engineering is a professional engineering discipline that deals with the design, construction, and maintenance of the physical and naturally built environment, it is traditionally broken into several sub-disciplines including environmental engineering, geotechnical engineering, structural engineering, transportation engineering, municipal or urban engineering, water resources engineering, materials engineering. Coastal engineering, surveying, and construction engineering. (Oakes  2001).

Civil engineering takes place on all levels: in the public sector and in the private sector from individual homeowners through to international companies (ICE, 2007), Civil engineering was first introduced as a profession in 1828 and the Royal charter of the Institute of Civil Engineers (2007) defined civil engineering as the art of directing the great sources of power in nature for the use and convenience of man, as applied in the construction of roads, bridges, aqueducts, canals, river navigation and docks, and in the construction of ports, harbours, moles, breakwaters and lighthouses, and in the art of navigation by artificial power for the purposes of commerce, and in the construction and application of machinery, and in the drainage of cities and towns (ICE, 2007). Construction engineering is a civil engineering sub discipline that involves planning and execution of the designs from transportation (Wikipedia, 2011). The modes of transportation as identified by Lam (1999) are roadways, railways, waterways, and airways. A road is a route on land between two places which typically has been paved or other wise improved to allow travel by some conveyance (Wikipedia, 2011).

Cost overruns and delays are not unusual in civil engineering works. This pattern of risk is' largely influenced by the financial structure of the projects (Lam, 1999).

 During limes of foreign exchange and interest role fluctuations, most conventional projects funded by direct capital injection from the governments may be affected by cost increases in their imported elements. The use of project finance in privatized projects also means that lenders rely solely on the prospective income stream for repayment of their loans. Late completion will erode the financial plan and extra interest costs on the part of the sponsors. There are also uncertainties as to the level and stability of income which depends on the market condition of the product in question. In road project, land acquisition can be a slow and expensive process especially when a long road has to go through different municipalities or different provinces having non-standardized land resumption procedures. Right of way disputes sometimes creep in, as is the likelihood of treading on archeological mines and former industrial site with contaminated grounds (Lam, 1999).

There are many examples of non-achievement of time, cost and quality of projects due to the absence of risk management techniques in project management. Therefore, the success parameters of a construction project, namely, the timely completion, staying within the specified budget, and achieving requisite performance would depend upon the capability of each party in risk management. (Perera, 2009).

1.2       STATEMENT OF THE PROBLEM

As construction and engineering projects increases in complexity, the magnitude of risk involved for all the parties involved increases, from the clients, to contractors, architects, quantity surveyors, engineers, investors, and financial institutions (Seeley & Murray, 2001). Risk has been studied by different researchers (Farinloye 2009: Onukbwe 2009; Dada and Jagboro, 2007; Baker 1999; Perera et al, 2009) in the light of the influence it has made in decision making in the construction industry and the techniques that could be used by the design and construction team in the management of risk on construction projects

Farinloye et al., (2009) assessed the construction professional's perception of risk impact on cost of building projects and concluded that completion delay is the risk variable that has the highest probability of occurrence and this risk has the second highest impact on construction cost. Onukwube et al., (2009) also assessed risk in the light of the impact it has on contractors' pricing in building projects and concluded that inadequate cash flow had a significant impact on contractors pricing of building projects. These studies were limited to building projects in Nigeria and no attempt was made to cover road projects.

Dada and Jagboro (2007) carried out an evaluation of the impact of risk on project cost overrun; they identified the risk factors inherent in different building procurement methods and assessed their impact on project cost. However, this study was limited to risk factors in relation to building procurement methods and the impact on cost. Baker et al., (1999) examined the risk response techniques employed for major projects and they concluded that the construction industry concentrates almost exclusively on reduction of financial risk. Perera et al., (2009) also assessed risk in civil engineering construction, they identified the risk responsibilities of contractual parties’ in order to improve their risk handling strategies but the study was limited to road construction in Sri Lanka.

Therefore, this study becomes vital to fill the gaps identified above as the research works identified did not cover the impact of risk on road projects in Nigerian Construction industry. In the light of this, the following research questions are raised.

1.3     RESEARCH QUESTIONS

i.                   What are the risk factors inherent in road project?

ii.                 What are the effects of risk on the duration of road?

iii.              How do these factors affect the total construction cost of road  project?

1.4    AIM AND OBJECTIVES

The aim of this research is to examine the impact of risk on road projects in Nigerian construction industry. The specific objectives are to;

i.                   Identify and assess the various risk factors associated with road project in Nigerian construction industry.

ii.                 Determine the effect of risk factors on cost of road project in the study area.

iii.              Determine the effect of risk factors on completion time of road project in the study area.

1.5   JUSTIFICATION OF THE STUDY

Civil engineering works encompass a wide range of different projects which are of great magnitude. Vast cuttings and embankments, mass and reinforced concrete structures, large structural steel construction, reservoirs, sewage schemes, piling for heavy foundations, harbor works, dry docks, roads, canal and railways, all form subject matter of civil engineering contracts.

These works require considerable skill and technical knowledge in both their design and construction. Continual changes in nature and methods of construction in these projects, and the increasing size and complexity of these works increases the risk involved (Seeley & Murray, 2001). Road projects however often confront many uncertainties, due to factors such as resource availability, the physical, economic and political environments, statutory regulations, etc.(Perera et al., 2009). According to Wang and Chou (2003), such risks have a significant effect on the outcome of a road construction process.

Assessing risk offsets negative impact it may have and pursue positive impact (PM1, 2004). The study therefore becomes necessary to identify the impact of risk on road projects with a view to providing information to construction professionals in reducing to the barest minimum the risk associated with road projects in Nigeria.

1.6   SCOPE AND LIMITATIONS OF THE STUDY

This study focused on the assessment of the impact of risk on road projects in Nigeria. The study was restricted to federal and state roads in Lagos state.

1.7     RESEARCH METHODOLOGY

The approaches that were adopted to achieve the stated objectives include the following: primary and secondary data source.

The primary source of data was generated through questionnaire survey administered to construction professionals in civil engineering construction and consulting companies, and professionals that coordinate road project in the federal and state ministries in the study area. The survey was carried out in order to assess the risk-factors inherent in road projects in terms of their degree of severity and assess their impact on total cost and duration of the project.

The secondary source of data included reports such as published textbooks, refereed conference proceedings; dissertation or theses and government publications which focus on the theme of the research.