The Effect of Management of Risks on Project Performance: The case of Construction Companies in the south west region of Cameroon

ABSTRACT

The purpose of this study was to analyse The Effect of Management of Risks on Project Performance: The case of Construction Companies in the South West Region of Cameroon. The specific objectives were based on Mikaela, 2011 factor which is risk acceptance, risk avoidance, and risk transfer. The specific objectives were to evaluate the effect of risk acceptance, risk avoidance, and risk transfer on the project performance of construction companies in the Southwest region of Cameroon. The study used the descriptive survey research design and collected 50 useful questionnaires with likert scale structure including some close-ended questions. Through questionnaires, resource documents, unstructured interviews, and through personal observations. Data analysis was by narrative, and simple statistical methods. The study found that management of risk is an essential determinant of project performance in the south west region of Cameroon. The study concluded that due to the risk managements methods used, more that 70% of customers are satisfied, datelines are respected and budget specificities are respected. The researcher recommends that construction companies should improve their effort towards the customer’s satisfaction via the project performance which means improving Time, Quality Customer satisfaction and Cost. Again, since customer satisfaction could provide opportunity for enhanced financial performance in the long term through increase projects volume.

Keywords: Risk Management, Risk Avoidance, Risk Transfer, Risk Acceptance, Project Performance

CHAPTER ONE

INTRODUCTION

1.1 Introduction

This body of work will be divided into five main chapters; Chapter one of this research is made up of six parts, the background of the study, statement of the problem, research questions, research objectives, research hypothesis and significance of the study.

The literature review which is divided into conceptual, theoretical and empirical section make up Chapter two. Chapter three captioned methodology; we will explain the rational for the use of the model and justify the use of explanatory variables in the research.

Also included in this chapter will be the techniques of evaluating the results that will be obtained. Chapter four will be presentation of findings. Chapter five will be the discussions, conclusion and recommendations, and proposals for further studies.

1.2 Background of the study

Successful economic performance and value creation are considered the major drivers for the establishment of an organization in modern business environment (Liebenberg & Hoyt, 2003:2008).

The modern business environment according to Yilmaz (2009) is embroiled with market dynamics, which makes it difficult for companies to plot the right course for their continued existence and success. Wawera and Kisaki (2012) assert that in business, there is
no way of avoiding risk without giving up the opportunity to gain profits. This is known as a business risk. These business risks according to Bell, Solomon & Thomas, (1997) represent threats to the ability of an enterprise to execute business processes effectively and to create customer value in accordance with strategic objectives.

Business risks are multifaceted and can be categorized into: pure risks or insurance risks, market risk, operational risks, strategic risks, reputational risks, systemic risk and compliance risk (CAS: 2003, COSO: 2004).

The complexity associated with risks often involves dealing with considerable ambiguity on physical, monetary, cultural and social dimensions.

Additionally, the risks events have varying consequences that extend well beyond the direct physical harm to financial or physical assets, people or ecosystems that influences the way a society operates and people think (Loosemore, Raftery, Reilly, & Higgon, 2006).

Risk management has long been associated with the engineering and finance industry, which is now a focus in almost every field which leads to a career in business. Those involved in the construction industry are not immune to the trend.

In a high-hazard industry like construction, corporate crises and project disasters have become accepted as in inherent part of our high-tension workplaces which leaves effects
throughout the remaining course of a project.

Each crisis in turn leads to subsequent crises which lead to extreme pressures on environmental degradation, fatal injuries, financial loss, public pressure and government regulation from federal, state, county, and local governments in the construction industry.

There is a one crucial lesson to be learnt from this where in the majority of cases, the stakeholders involved in these incidents did not have an effective risk management system in place or did not implement it effectively (Loosemore, et al., 2006). Most studies concerning failed projects demonstrated failure to implement a good risk management plan.

Currently, managing risk only at the functional level is not appropriate; the current market environment requires a more integrated approach to risk management. All organizations around the world are taking a global approach to all the risks they face.

Integrated risk management is an ongoing process in which potential risks are assessed at all levels of the organization and all results are collected at the business level to improve decision-making (Berg, 2010).

Integrated risk management must be part of the organization’s strategy and have a significant impact on risk management within the organization. This approach helps organizations maximize their benefits at the next level.
The integrated approach focuses only on identifying and assessing risks and mitigating impacts to minimize acceptable risks. Take risks at an acceptable level and help organizations drive innovation within hermitages (McNamara & Rejda, 2014).

 Given that risk management and project performance are important, many research studies have discussed the positive relationship between risk management and organizational performance, (Allayannis & Weston, 2001; Andersen, 2008; Liebenberg & Hoyt, 2003; Teoh, 2009).

However, there are also contradictory and inconclusive results from the previous studies on the same relationship (Kasim, 2011; Manab, 2009; Pagach & Warr, 2007).

In a most recent study by Siti (2014), the author has discovered that ERM implementation has positive significance on the companies‟ financial and non-financial performance in Malaysian housing developers setting.

The construction industry is the pillar of success in modern countries. Since rapid economic development has increased the demand for the construction of infrastructure and facilities around the globe.

The construction industry also provides the basic living conditions for the sustainability and development of human life on the earth.

To cope with an ever-increasing population, pressure on land, and growing economic activity, construction projects are in increasing demand and activities are booming in many countries.

Projects could face many types of risks in all stages of project implementation thus these risks should be identified, evaluated and carefully handled based on the knowledge available at this stage (Hessellund, 2017).

This goal can be achieved by starting the risk management process at the very beginning of a project’s life cycle to take into account the process of participation of all stakeholders in this process (Kotlarsky et al., 2020). At the initial stage of the project, the associated risks are based on uncertainties that limit decision-making on previous projects.

This uncertainty can be defined as a state for which there is no information (Desai & Kashiyani, 2015). As a result, there is an unprecedented number of large-scale projects are currently under construction or in the planning and contract award stage.

Additionally, it has been witnessed that Oman has not only opened its doors to foreign investments since the year 2007, especially in the gas and tourism sectors but also has joined both Risk management is directly associated with the performance of construction projects.

Aarthipriya et al., (2020) showed that there is the existence of impact between risk identification and risk assessment on the project success, planned budget, schedule time, and compliance with technical specifications.

Another study by Lawrence (2015) indicated a strong connection between risk management and project performance in the construction industry. He found that risk management practices at the planning stage had an effect on project performance. The research project indicated that most projects had some input from a qualified engineer and architect.

However, most respondents had not studied risk management. Adeleke et al., (2018) have investigated the impact of risk management on project performance. The objective of their study is to measure the degree of diffusion of risk management practice in Brazilian companies.

The results demonstrate that adopting risk management practices has a significant positive impact on project performance. They also show a positive impact from the presence of a risk manager on project success.

The review of previous studies revealed a strong association between risk management and the performance of construction projects. A statement that “a higher risk may lead to a higher gain” (AlAjmi & Makinde, 2018).

Minimizing the risks in projects will improve the output of projects. Risks have a significant impact on a construction project’s performance in terms of cost, time and quality (Chang et al., 2018). As the size and complexity of the projects have increased, the ability to manage risks throughout the construction process has become a central element in preventing unwanted consequences.

Moreover, risk management is recognized as an important exercise in order to achieve better performance of construction projects. Success in construction projects is indicated by its performance in the achievement of project time, cost, quality, safety and environmental sustainability objectives.

The research of Lawrence (2015) indicated that risk management practices at the planning stage had an effect on the project performance of regional and global free trade organizations.

Construction in Cameroon is relatively a very active domain, with housing, roads, bridges and all sorts of construction projects going on.

The construction industry in Cameroon grew exponentially from 2.1% in 2001 to 7.4% in 2011 according to a report published by a consulting cabinet Acaexpertise and is expected to attain close to about 8.4% in 2020; with Cameroon’s construction industry expected to have annual growths averaging 7.4% until 2028 (SIKA Group, 2019).

This implies that the country’s construction market is the market with the highest dynamics in West Africa as reported by the business in Cameroon newspaper (SIKA group,2019). The country‘s building industry is developing dynamically under the stimulus of investments in infrastructure and housing construction.

Most of the construction projects in Cameroon are done by international organisations (Abanda et al…, 2014) leaving the local population lacking in the knowledge and practices of effective risk management and risk management strategies which can enable her economy grow even more substantially.

Construction in the southwest region has increased massively because of the AFCON that took place some months back. We had the building of a new stadium in Limbe, renovation of the Molyko stadium in Buea and many other infrastructures such as roads and hotels. Also private individuals are not left out with the increase in the number of housing facilities, business etc.

This just goes to show how much contribution is being done to the nation’s economy from construction. The construction industry is a heterogeneous one, extremely complex to handle.

On that note we find the government enacting legislation such as The June (2000) Regulation of public contracts to make construction projects more transparent.

Fisken, (2013) later observed that key reforms proposed in Cameroon’s Vision 2035 are in need of effective risk management for construction projects including the creation of necessary recognised frameworks aimed at improving policy implementation and enforcing the industry’s code and standards amongst others. The industry also warrants practical and complete risk management strategies geared towards attaining performance objectives.

1.3 Statement of the Problem

Construction companies are in the core business of managing risk. The companies manage the risks of both their clients and their own risks.

This requires an integration of risk management into the companies’ systems, processes and culture.

Various stakeholders pressure their organizations to effectively manage their risks and to transparently report their performance across such risk management initiatives.

Banks (2004) argues that some risks can and should be retained as part of the core business operations and actively managed to create value for stakeholders, while others should be transferred elsewhere, as long as it is cost effective to do so.

According to Stulz (1996), some risks present opportunities through which the firm can acquire comparative advantage, and hence enable it to improve on financial performance.

Generally, a review of the literature on risk management seems to suggest that better risk management practices result in the improved financial performance of the firm.

By linking risk management and performance, insurance firms can more effectively and efficiently understand the value of implementing a risk management framework.

Despite all the efforts and knowledge used by construction companies, there is still project failure in Cameroon in general, and in the southwest region in particular.

Project management in Cameroon is plagued with multiple challenges which result in poor project execution, failure, and even abandonment. Many construction & rehabilitation projects in Cameroon are at a snail-pace, surpassing deadlines, uncompleted or abandoned (Mbonteh, 2018).

Performance of projects fails due to poor implementation of risk management practices in place. There are a number of well-established techniques and tools used for managing project risks in large organizations (White and Fortune, 2002);

there have been few research publications on the tools and techniques used in managing project risks in small projects and performance (Bryde, 2003).

It has been observed and decried by the public and other users of Government funded projects that they always lag behind in time, which conversely have a bearing on cost, due to various factors.

Among such, as observed by Waihenya (2011), Seboru (2006), Kivaa (2000), Talukhaba (2009), Mbatha (2006) and Baradyana (2006) are variations in the cost of building materials, changes in the design of building, changes in finishes by the client, contractor running out of money to run projects for some time, hiring extra tools during construction not anticipated, under-estimation of cost of construction by the project Quantity Surveyor, application of wrong time estimation model and increment weather patterns, among many others.

Most of the existing studies based on risk management practices and the performance of public projects point at the contractor as the sole contributor to delays and project failure and ignore the complexity of risks in the entire phase of project implementation such as Waihenya (2011), Seboru (2006), Kimani (2004), Kivaa (2000), Talukhaba (2009), Mbatha (2006) and Baradyana (2006).

The existing literature on this topic is limited to developed countries and a few African countries. This study sought therefore to fill this research gap by assessing the effects of the management risks on project performance: the case of construction companies in the South-West Region of Cameroon.

This study is out to answer the following questions.

1.4. Research questions

In order to achieve the objectives, the following research questions have been formulated to
support the investigation:

1.4.1 Main research questions

What are the Effects of the management of risks on the project performance of construction companies in the Southwest region of Cameroon?

1.4.2 Specific research questions

1. What are the effects of risk avoidance or prevention on the project performance of construction companies in the Southwest region of Cameroon?

2. How does risk acceptance influence the project performance of construction companies in the Southwest region of Cameroon?

3. What are there the effects of risk transfer on the project performance of construction companies in the Southwest region of Cameroon?

1.5. Objectives of the study

1.5.1. General objectives

The aim of this Research project is to assess “The Effects of management of risks on project performance: the case of construction companies in the Southwest region of Cameroon”

1.5.2. Specific objectives

1. To examine the effects of risk avoidance or prevention on the project performance of construction companies in the Southwest region of Cameroon
2. To determine the effects of risk acceptance on the project performance of construction companies in the Southwest region of Cameroon.
3. To analyse the influence of risk transfer on the project performance of construction companies in the Southwest region of Cameroon.

PROJECT MANAGEMENT PROJECT TOPICS WITH MATERIALS