Problems Of Construction Industry In Developing Countries
Risks have a considerable impact on a construction project’s performance in terms of cost, time and quality. As the size and complexity of the projects have increased, an ability to manage risks throughout the construction process has become a central element preventing unwanted consequences. Below are the reviews from certain papers that tell us about the risk management in construction projects.
SOURCE: Building Research & Information ISSN 0961-3218 print/ISSN 1466-4321 online# 2001 Taylor & Francis Ltd. http://www.tandf.co.uk/journals.
This paper critically discusses the formulation of a set of indicators for measuring and monitoring progress in the effort to improve the construction industry in a developing country.
The problems of construction industry in developing countries are well researched. And the developing countries have also implemented those researches, but the results have been disappointing and the problems have persisted. The possible reason for the lack of progress is the absence of measurable targets in construction industry development programmes.
SOURCE: A Review of the causes of recent problems in the construction industry of Trinidad and Tobago, Construction Management and Economics, 1984, 2, 37-48.
In the early 1970s, various development programmes were launched in Trinidad and Tobago, West Indies. Much of the development programmes that were launched involved construction work. The industry was soon overwhelmed with work, and for various reasons its performance deteriorated rapidly.
One of the reasons was: Throughout the 1960s employment in construction accounted for some 25000 jobs or about 8% of the total employment. By 1979, these figures have reached 76,000 and 19.2%. This recruitment into construction was mainly of unskilled employees. Even, at the top and middle management level, there was a similar shortage of qualified personnel in all disciplines related to construction.
This lack of skill and experience at both superior and worker level would certainly have caused several problems alone, but it was only a part of the trouble. In the construction industry the main structural materials are steel, reinforced concrete, concrete block and hollow clay blocks. In the years subsequent to 1975, after the start of the construction boom there were progressively more ordinary shortages of each of these inputs. Brick and block production was down by 20% in 1975 when compared to 1972 (the pre boom period). Even worse, cement production in 1977 was nearly 25% less than it had been in 1972. These failures of the industry supplying construction materials caused crippling problems to the construction industry itself. Not only did it mean that material prices escalated dramatically, but also that deliveries of materials to any site were likely to be inconsistent and almost unavoidably delayed.
The effect of these various problems was that they tended to exacerbate one another so that extensive project delays, and too much cost over-runs on contract estimates, were soon the norm.
The competence of the Central Tenders Board (CTB), an agency established to let the contracts for work on government projects, was also brought into question by its willingness to award contracts to the lowest bidder, irrespective of the experience or resources of the bidding firm. Companies with no contracting experience, or construction-related assets, were awarded multimillion dollar contracts, which almost inevitably ran into severe problems.
In this paper, the delays of projects were cursed on four major problems listed below:
In this context, a major bribery scandal has had a deleterious effect on most of the projects. One such effect is the slowness and caution which government employees demonstrate towards making payments to contractors. Such delays in payment inevitably cause cash flow problems, which must in turn delay progress.
Contractors were failed to assess the realistic construction situation in the country. Amongst the most critical factors identified was the inadequacy of the sub contractors with which the firm had to work. Most importantly, they demonstrated an almost total lack of managerial expertise.
The required engineering inputs; into the installation of distribution or collection lines, for example, electricity, telephone, water and sewage lines; are often overlooked in Trinidad and Tobago. As a result the lines are generally badly sited and invariable badly supported and maintained. Electricity and telephone lines are often out of commission due to problems over their support posts. Water and sewage lines are frequently being breached, requiring trenched repair work, which not only disrupts traffic but also destroys the integrity of the road pavement.
By its very nature, construction work tends to be relatively labour intensive and is consequently strongly affected by the status of labour relations and labour productivity. The main reasons for the low productivity of labour were ‘poor work ethic’ and ‘poor management practices.’ The term ‘work ethic’ was used to mean willingness to give a fair day’s work for a fair day’s pay. Another reason for the low productivity of labour is Trinidad’s tropical climate, which is both hot and humid for much of the year. This climate is unbearable to those engaged in physical work.
SOURCE: Journal of Construction Engineering & Management © ASCE / July 2006 / 767
When it comes to geographical dispersion, the construction industry is characterized by various challenges in terms of working practices including:
Non-co-location (not existing in the same space) of individuals and teams collaborating on projects.
Lack of dominant actor to enforce information and communication technologies (ICT).
Unregulated information exchange and lack of legal admissibility of ICT based contractual practices.
Project oriented nature of the industry with a tendency for actors to be involved in several projects at the same time.
Temporary and often short-term nature of business relationships.
This paper also tells about a consequence of the industry having many small individual businesses is insufficient critical mass and motivation leading to a lack of investment in training and research and development.
Construction is in need of innovation and process to improvements if it is to remain competitive in today’s digital economy.
This paper says that, there are three key targets of a project: time, cost and quality, which are to be in focus when undertaking the project. Flanagan and Norman (1993) emphasize two aspects of any construction project:
The Process i.e., project phases
The Organization i.e., project actors
It says that, risk management is an efficient course of identifying, assessing and responding to project risk. The objective of the risk management process is to make best use of the opportunities and minimize the consequences of a risk occurrence.
A variety of risk management models with different numbers of stages can be found in the literature. The international standard “Project risk management – Application guidelines” (IEC 2001) offers a model with four steps: risk identification, risk assessment, risk treatment, and risk review and monitoring. PMBOK’s model (PMI 2000) is similar but divides risk assessment into two processes of qualitative risk analysis and quantitative risk analysis. Baloi and Price (2003) include an additional step of risk communication. Chapman and Ward (2003) present the SHAMPU (Shape, Harness, and Manage Project Uncertainty) framework which involves nine stages: define the project, focus the project, identify the issues, structure the issues, clarify ownership, estimate variability, evaluate implication, harness the plans, and manage implementation. Del Cano and de la Cruz (2002) propose an integrated methodology for project risk management in large and complex construction projects. The model is divided into four process phases: initiation, balancing, maintenance and learning.
Despite the variety of models, risk identification, assessment and response form the core of project risk management. Therefore, a model consisting of these three stages is mostly used in construction projects.
RISK IDENTIFICATION: It is the first step in the Risk Management process. Different tools and techniques for indentifying the project risks are: brainstorming, expert opinion, structured interviews, questionnaires, checklists, historical data, previous experience, testing and modeling, evaluation of other projects. Experiential studies of risk management show that checklists and brainstorming are the most common techniques used in risk identification. Also, there are several approaches to classifying project risks and risk sources. In general, the sources of risk in construction projects may be divided into three groups:
Internal or Controllable Risks: design, construction, management and relationships.
External or Uncontrollable Risks: financial, economic, political, legal and environmental.
Force Majeure Risks: country related risks.
RISK ASSESSMENT: Risks identified in the previous stage are evaluated and ranked in this stage. The main aim of risk assessment is to prioritize risks for management.
RISK RESPONSE: It is a process, directed towards a way of dealing with the identified and assessed project risks. The four main risks response strategies are:
Risk Avoidance: It deals with the risks by changing the project plan or finding methods to eliminate to eliminate the risks.
Risk Reduction: It aims at reducing the probability of occurrence of a risk event.
Risk Transfer: In this strategy, all those risks that remain in the project after risk avoidance and reduction may be transferred to another party either inside or outside the project.
Risk Retention: Risk retention or acceptance indicates that the risks remain present in the project. Two options are available when retaining the risks: either to develop a contingency plan in case a risk occurs, or to make no actions until the risk is triggered.
TYPICAL CONSTRUCTION PROJECT RISKS AND UNCERTAINITIES:
Construction projects are characterized as very complex, always unique projects, where risks raise from a number of different sources. And most of these risks are not under the control of project participants. Identifying construction risks sources is very important as construction projects have a bad reputation of failing to meet the deadlines and cost targets. In the Far-East, Odeh and Battaineh found seven significant causes of such delays: owner interference, inadequate contractor experience, financing and payments, labour productivity, slow decision making, improper planning and sub-contractors.
Construction project risks can be categorized in two different perspectives: a broad risk list and an impact risk list.
A BROAD RISK LIST:
AN IMPACT RISK LIST:
Dynamic Vs. Static
Corporate Vs. Individual
Internal Vs. External
Positive Vs. Negative
Acceptable Vs. Unacceptable
Insurable Vs. Non-insurable
Three of the most important risks in construction projects include weather, productivity of labour, and plant & quality of material. These areas are not easily controllable by a contractor before the project execution.
It is impossible to eliminate all potential risks in a construction project. Therefore, an appropriate allocation of risks among project actors is very important. It is also very important to consider the following issues when making risk allocation decision:
Who has the best ability to control risk events?
Who has the best conditions to manage risks?
Who should carry the risks that cannot be controlled?
How much does it cost to transfer the risks?
This paper says that, according to Smith et al. (2006) all project risks can be divided into three main categories: known risks, known unknowns and unknown unknowns. The difference between the categories is the decreasing ability to predict or foresee the risks. Taking into account the probability of the occurrence and the consequence for project objectives, those events that have high probability and high impact are subject to risk management.
PROBABILITY OF OCCURRENCE
I LOW HIGH
FIGURE: Classification of Risk Events (Smith et al. 2006)
Risks in construction projects may be classified in a number of ways. One form of risks classification is as follows:
Public safety regulation
Exchange rate fluctuation
Attitudes of participants
Construction occupational safety
The uncertainty for construction has increased due to the environmental protection movement. It is very hard to know what will be required and how long it will take to obtain approval from the regulatory agencies. It results in added costs. Public safety regulations have similar effects. These all add a significant new dimension of uncertainty which can make it virtually impossible to schedule and complete work at budgeted cost. Economic conditions of the past decade have further reinforced the climate of uncertainty with high inflation and interest rates. The deregulation of financial institutions has also generated unanticipated problems related to the financing of construction. During the period of economic expansion, major capital expenditures are made by industries and this leads up the cost of construction.
Each of the problems cited above can cause uncertainty and the combination of such problems is often regarded by all parties as being out of control and inherently risky.
Need help with your literature review?
Our qualified researchers are here to help. Click on the button below to find out more:
In addition to the example literature review above we also have a range of free study materials to help you with your own dissertation: