The Concept Of Risk And Risk Management Construction Essay

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Construction is a process that involves a series of stages for its successful completion. Building construction itself doesn't start until a set of preceding activities are carried out to determine what should be constructed and how it should be constructed. It can then be said that projections are made towards what will be involved in the process of such constructions and how they will be accomplished. Projections are based on plans for futuristic events which in themselves are made up of uncertainties. Uncertain circumstances generally have been established to be surrounded by risks as they consist of several unknown events. It can then be said that building construction projects are normally executed under an environment characterised by varying degree of risks and uncertainties, which can result from known, known-unknown, and unknown-unknown conditions as stated by Smith (1999). A construction project that doesn't adequately consider and deal with these uncertain conditions generally tend to cause cost and/or time over run or in some cases project failures (Thompson and Perry, 1992). This write up attempts to give a view of risks in the housing construction sector in Nigeria, its consequences and effective management for project success.

CONCEPT OF RISK AND RISK MANAGEMENT

Hayes et al (1998) established that all forms of construction works (whether big or small) have some form of risk and uncertainty. Risk has been defined severally by different writers, but the HM Treasury defines risk as uncertainty of outcome, whether positive opportunity or negative impact. It can be said from this definition that not all risks end up with negative impacts on the projects; rather some provide opportunities for improvements as the project progresses. Many writers and observers though tend to focus more on the negative impacts of risks on construction projects as they (risks) have the tendency of causing project failure when they are not well tended to. It has been established that the construction industry is the 2nd most risky industry, just behind mining industry. Hence efforts should be put as much as possible to mitigate it so as to reduce its end effect which could include constrain in the achievement of the key project objectives of time, cost and quality. Ashworth and Hogg (2002) explained that all projects have life cycles or a sequence of stages and activities from origin to completion and there is always a degree of risk associated with each stage.

Risk starts right from the decision to invest in a construction project (as there could be alternative investment that could bring in better yield to the investor) and runs through the process of construction till the end of the project. Risk in construction can come in different forms e.g. physical risks, environmental risks, design risks, logistics risks, financial risks, legal risks, political risks, construction risks, technical risks, procurement risks, operational risks etc. These risks according to Mbachu and Vinasithamby (2005) can be classified broadly into; Internal (controllable) risks and external (uncontrollable) risks. Internal risks are those that generally fall within the control of clients, consultants and contractors while external risks on the other hand include risk elements which are not within the control of key stakeholders. Central to the discipline of construction project management is minimising risk. Risks are primarily concerned with threatening conditions and events, their probabilities and consequences (Busby and Zhang, 2008). The project manager should strive to manage risk to prevent it from disrupting the project. The manager's goal is the total management of risk - proactively and reactively as argued by Pavlak (2004), hence the need for a proper and effective risk management system.

Flanagan and Norman (1999) described risk management as a method of good project management and planning, because the business of building is inherently risky. Concisely, Kerzner (2009) defines risk management as the act or practice of dealing with risk. He further went to say that this process includes planning for risk, identifying risks, analyzing risks, developing responses to them and monitoring & controlling them to determine how they have changed. Winch (2010) points that construction projects are uncertain adventures, there will always be surprises as the unexpected happens. The primary concern for managing risks in projects is to think through the project before it starts. The objective of risk management is to develop an organized framework to assist decision makers to manage the risks, especially the critical ones (Perry and Haynes, 1985). This framework includes; risk identification, risk analysis, risk response and risk monitoring & control.

Risk identification is the first stage of the framework and entails determining what risks are involved in the project. At this stage a study is organised to get all possible risks that might be associated with the project, distinguishing between their origin and their impact on the project. Oladokun et al (2010) state that it is desirable to understand and identify the risks as early as possible, so as to put in place best response possible for reduction of negative impact they can have on the project. Methods used at this stage include, historical data, checklists, brainstorming etc and it is advised that as many people as possible be involved in this study to bring out as much risks as can be identified. The risk analysis stage assesses the identified risks with an aim to know their probability of occurrence and the impact on the project if/when they occur. This process is carried out using either the qualitative or quantitative approach focusing more on the potential impact of high probability risks. The next stage is the risk response stage which occurs when a risk's possible causes and effects have been determined. Responses could include Reduction (of probability and impact), Elimination, Avoidance, and Transfer. The risk monitoring & control stage involves a general overview of the whole process. It involves keeping of information gotten from the process in a risk register and constant re-evaluation of the process from time to time as more risks rise as the project progresses.

RISK FACTOR IN THE HOUSING SECTOR OF CONSTRUCTION IN NIGERIA

Over the last decade, construction sector in Nigeria has received a boom with a high rate of projects (especially in the building industry) compared to previous decades, and analysis has shown that the trend will grow tremendously in the next few years (http://allafrica.com/stories/200911130010.html). The Housing sector is not left out in this tremendous growth. However, the sector has faced a lot of losses due to several factors which inherently is due to risks in construction generally. Risks in the Housing construction sector in Nigeria as researched by Oladokun et al (2010) include; procurement route, poor relationship between parties, quality of work, inadequate planning, material quality, safety, shortage of skills/techniques, delay in supply of drawings, poor coordination, poor definition of scope, deficiencies in specifications and drawings, act of God, delayed payment on contract etc. He further identified that most of the risks connected to the housing sector were more of internal factors that could have been avoided by the client, consultants or contractors. Odeyinka, Oladapo and Akindele (2009) ascertained through their research that most design decisions are left till construction stage, a factor which invariably leads to a high level of variation and completion delays. Indecisive nature of clients also affects the sector as they tend to change scope of design from time to time during the course of construction. A survey carried out by Oladokun et al (2010) shows that the risks with highest probability and consequent high impact on projects in housing sector in Lagos, Nigeria are; changes in work, deficiencies in specifications & drawings and defective design. These are all risks that can be controlled if there was a proper risk management process. Being a developing country, the concept of established risk management practice is not in effect in Nigeria, as such the issues in the industry. Subconsciously though, some sort of risk management is being carried out in the sector because every form of project planning and management is in some way risk management as these processes aim for project success which is the aim of risk management on the long run. The effect of absence of effective risk management in the housing sector in Nigeria has resulted in projects overrunning initial costs and time scheduled, but most especially poor quality of structures in some cases. This has led to collapse of several buildings over the last few years. Introduction of Effective risk management in the housing construction industry in Nigeria will foster the relationship between the internal stakeholders involved in several projects and reduce identified risks as most of them are client related that can be controlled. This will help prescribe a befitting response to each one and reduce risks and its effect in the sector.

As we have seen, risks are inherent in the construction industry regardless the magnitude of the project. It should be ensured that these risks are identified very early in the project with an attempt to define their probability and impact on the project. Adequate responses that best suit each identified high impact risks should be applied and monitored throughout the project lifecycle. The project manager should continually go through this process to identify developing risks as the project progresses. We also saw that the concept of risk management is not yet well grounded in the Housing construction sector in Nigeria, hence the numerous identified risks and attributed the high impact risks to changes in work, deficiencies in specifications & drawings and defective design which are mostly caused by the internal stakeholders. The consequences are overrun in cost & time and low quality construction. Successful introduction and implementation of the project risk management will go a long way in improving the housing sector in Nigeria and reducing the after effect of losses in different capacities.

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