THE NATURE AND MANAGEMENT OF RISK IN A CONSTRUCTION COMPANY
1.1 BACKGROUND OF STUDY
In recent years, intensive research and development has been done in the area of project risk management. It is widely recognised as one of the most critical procedures and capability areas in the field of project management. Voetsch, Cioffi, and Anbari found a statistically significant relationship between management support for risk management processes and a reported project success. However, shortcomings and improvement opportunities in this field have been identified. Some of the shortcomings are related to the ever increasing complexity of projects. Subcontracting is expanding since many companies are focusing solely on their core businesses, which results in more complex project networks and greater numbers of project participants. The scarcely studied viewpoint in the project risk management field is related to this complexity. Although the interaction between project actors occurs at many different levels, research done to study how networks act in preventing or mitigating risks is moderate.
Construction projects are characterized as very complex projects, where uncertainty comes from various sources. Construction projects gather together hundreds of stakeholders, which makes it difficult to study a network as a whole. But at the same time, these projects offer an ideal environment for network and risk management research. Additionally, construction projects are frequently used in management research, and several different tools and techniques have already been developed and especially for this type of project. However, there is a gap between risk management techniques and their practical application by constructioncontractors6. This study tries to find reasons for this gap and works to decrease it. Special applications for construction projects are discussed in the literature review.
This study is based on the assumption that by understanding better both the relationships in a project network and risks related to the network structure, project risk management can be more effective. It has already been recognized that a clear understanding of the risks born by each participant leads to better risk allocation.
STATEMENT OF PROBLEM
The contribution with which the products emanated from Julius berger consruction company Nigeria Plc made toward the progress and the development of Nigerian economy cannot be overemphasized. This is the reason, it is highly imperative to delve into the process and procedure by which the company manage the risks that is peculiar to their company and to suggest, if any, other way of improvement in a cost effective manner.
However, the mistake that is often made in most of the organization which often culminated into various problems is that:
- Can the risk be managed effectively in an organization?
- Is the construction company companies, the only panacea to all the problem of risk that occurred in an organization?
- Can the organization effectiveness be enhanced with effectively management of risk only?
- Is the management of risk the responsibility of a single individual in an organization?
Can the management in general runs needless risks which could be economically handled by insurance often without the impact increase in total premium cost?
OBJECTIVES OF STUDY
The objective of the study is
1.To find means of risk management that can be utilized by the network
2.To make new suggestions on the use of these risk management methods.
3.To find the means to manage those risks that are the most effectively managed with the co-operation of several project actors.
4.To identify the risks that are caused by structuring the work in increasingly complex project networks. The purpose is to identify the risks in project networks
5.To find existing methods for project risk management in construction project networks by interviewing central actors working on two different construction projects.
6.To study and explain some risk management means in project networks by the network governance theory.
The research will give answers to the following research questions
- What is project risk management?
2.What is project network governance?
3.What are project risks in networks?
- How are risks managed in a project network?
- What co-operative ways exist to manage risks?
SCOPE OF STUDY
The scope of the study is restricted to the informal project risk management means; informal referring to all risk management means other than legally binding contracts. Earlier studies concerning risk management in construction projects have found that risk management in Julius Berger construction industry relies heavily on contracts, and contract clauses are estimated to raise project costs by 8-20%8. Contractual structures are also thought to be the main source of inflexibility and have a significant negative impact on the actor relationships. This gives clear financial justification for the study of informal means as a one possible way to decrease contractual extra costs and increase flexibility. Contracts in this study are treated only as a one risk management mean, but not analysed any further. In the focus of the study are those risks that relate to the successful project execution, known as operational risks. Therefore also interviews are limited to those network partners that take part in project execution phases. Interviewees are representatives of subcontractors, the main contractor and a client. Empirical material is collected from two construction projects, both new building sites located in the Nigeria. The study focuses on the construction industry with particular reference to Julius berger construction company.
DEFINITION OF TERMS
Risk (in this study’s context): an uncertain event or condition that results from the network form of work, having an impact that contradicts expectations. An event is at least partially related to other actors in a network.
Risk source: things that can cause variation from what is planned or expected
Project risk management: includes maximizing the results of positive events and minimising the consequences of adverse events.
Project network: a set of relations, where no single actor is a legitimate authority for the network as a whole, the network is open in the sense that there are no definite criteria by which the boundary of the network may be identified and controlled and where the network is temporarily limited, dynamically changing and (partially) reconstructed from one project to the next.
Actor: a network member, a party or an individual who has one or more ties to other network members.
Network in this study: those actors that have a role in the project execution phase. Here namely a main contractor, a client and subcontractors.
Network Governance: network governance involves a selected, persistent and structured set of autonomous firms (as well as non-profit agencies) engaged in creating products or services based on implicit and open-ended contracts to adapt to environmental contingencies and to coordinate and safeguard exchanges. These contracts are socially – not legally – binding.
Informal means: Those means to manage project risks that are not legally binding, i.e. all other means than contracts.
ORGANISATION OF STUDY
The study is divided into four main chapters; first, concepts of risk and risk management are discussed, based on literature sources and with the special characteristics of a construction viewpoint. Network governance is then analysed by using network theories. Network governance is also analysed by its usability and applications to construction projects. The literature part is concluded by highlighting the most relevant findings in this study’s contexts, risks born by the network and means to manage them as presented in the literature. The fifth chapter consists of interviews of individuals associated with the two construction projects, the goal is to identify project risks that are caused by the network structure. Interviewees were asked to describe their means of risk management in the construction projects. Here, the emphasis is on co-operative means and how actors work together. The sixth chapter’s objective is to combine results of both the empirical study and the literature review in order to identify the main findings and their relevance and implications to current risk management practices. Finally, last chapter points out the main research contributions.
THE NATURE AND MANAGEMENT OF RISK IN A CONSTRUCTION COMPANY = #3,000