Stakeholders and Project Risk Management

CHAPTER TWO

2.0 Literature Review

The need for project to be completed on time, cost and quality cannot be over emphasised as it brings satisfaction to all the stakeholders particular to the project. On the other hand, the failure of project; not completed on schedule will be will result in a dissatisfaction among the entire stakeholders. However, the non-completion of projects on schedule can be attributed to the deficiency and sometimes non-concrete involvement of the project stakeholders as well as poor adoption to project risk management processes throughout the project lifecycle. This is mostly the problem in Nigeria and with contribution of other factors; the country is described by Adenikinju, (2005) as having the characteristics of developing countries when compared to developed international countries like the UK and the USA. This is due to the slow development process in the different project sectors and particularly the construction project sector and the association of un-resolved risk through out the construction project life cycle. PMI (2004) argues that the consistent and proactive risk management process being carried out throughout the project lifecycle by the organisation handling the construction project will result in the successful completion of the project on schedule. And also with a strong visionary statement of Nigeria as documented in chapter one can be better achieved when the risks hindering the desired achievement is identified proactively and removed or managed. Therefore, the literature review will in a sequential order highlight topics from already written literatures as it related to the project topic. The topic areas will be supported with criticisms and discussions to support the project objective.

2.1 Scope of this section

The scope of this report section will be focussed on reviewing topic areas concerning the project topic so as to extract the main causes of construction project risk imposed by the project stakeholders of a project.

2.2 Scope exclusion of this section

This section will not vividly explain the overall topics to be highlighted but, will strategically discuss each topic towards answering the demands of this report topic and this can be done by extract the relevant contributions that will support the project objective.

2.3 Stakeholders

The topic ‘stakeholders’ will be treated first in this literature review reasons being that this report focuses on project stakeholders as the main contributory factor to project risk. According to Gray and Larson (2006) stakeholders are individuals or organization that are actually involved on projects and their interest can be negatively or positively been affected due to the project execution/completion. However, in the context of this report, stakeholders will not be treated as being affected by the project but, their contributions to the project which results in project risk.

Stakeholders in project are subdivided into two: Primary and Secondary stakeholders. Primary stakeholders in a project are those people or groups that are concerned with the internal aspect of a project; having direct strategies and operational roles in the project. While secondary stakeholders are the people or group who are external to the project; having no strong and formal interest on what is going on in the project (Cleland and Ireland, 2007). In the context of this report, the stakeholders to be treated will be primary stakeholders due to the fact that they are more involved in the operational and executing aspect of a project. In a project lifecycle, Gray and Larson (2006) stated that the executing phase of a project requires more work to be carried out (see figure below). Therefore, according to this report it therefore means that project risks exerted by project stakeholders are more in the executing phase of the project life cycle

Project context consists of internal and external environment that affects project positively or negatively (DeCarlo,2004) which implies that project risk is subdivided into internal and external risks as explained diagrammatically in the risk break down structure by El-Sayegy(2007) below

Fig. 2: Risk Breakdown structure (Adapted from El-Sayegh, S.M.2007.: Risk assessment and allocation to the UAE construction industry. P. 433).

However, this report will be focused on the internal risks being exhibited by mainly the five stakeholders shown in the diagram above.

2.4 Concept of project risk

Risk in the dictionary sense of meaning is a hindrance to the successful completion of any activity on schedule. The concept of risk is viewed by different authors but the meaning depends on the context it is being viewed from or applied in. However, from literature review, it is noticed that risk is viewed mostly from two major views: risks from the project or working activity and risk from as a result of the people handling the project activity. This was explained by different authors such Haddow and Bullock (2008) defining risk from the internal or project activity point of view as the probability and frequency of an hazard occurring and Pinto (2007) defining risk as any possible event which can negatively affect the viability of a project. But, it the context of this report, risk will be viewed from the ‘people influenced’ point of view but not risks resulting from hazardous project environmental conditions. APMBOK (2006) argued that project risks are uncertain events which when occurs will either have positive or a negative consequence on the project objective.

However, the perception of risk has always been viewed from the negative point of view as explained by Pinto(2007) above but, this report will further point that risk is not always negative in the sense that: the presence of risk in a project can in some case signify that there is ‘great treasure to be mined’ from the project when completed but when not effectively managed , will lead to the non-completion of project on schedule or project deliverable not meeting or exceeding client’s requirement. Therefore , though risk will in some ways hinder the completion of the project on schedule it should also be viewed as a bridge which when crossed will lead a given project expectation to its desired goal. But particularly to the Nigeria construction project sector, the effect of risk is mostly negative and this can be traced to cause by the stakeholders carrying out the project activities or is connected to the project.

Organisations usually carry out project activities and the parties of such organisation (or project) has varied and complex relationship which is as a result of a hierarchy of contractual arrangement which can result in complications; having a profound influence on project risk and uncertainty (Chapman and Wards, 2003.P.81). However, in a state of acrimony and non-coordination along the project life cycle which is resulted from among the individuals handling the project will surely have a negative consequence on the project outcome. On the other hand, a project completed on time does not mean the expected delivery required by the project client or end user has been achieved. The non-accomplishment of project needs and the fulfilment of the project stakeholders are caused has been attributed to be caused by the stakeholders themselves hence, the reason why this happens is what this report seeks to explore.

2.5 Risk management

The need for risk to be effectively managed in a project can not be over emphasised as it allows project to be delivered on specification bringing optimum satisfaction to the project owner, end users and the entire project stakeholders. According to APMBOK (2006) risk management involves a structured process such as risk initiation, identification, assessment, planning responses and implementing responses (see figure:2 below with more details to be discussed later in this chapter). As illustrated in the diagram, the direction of arrows signifies the risk management flow processes to be applied throughout a project life cycle and when followed will allows individual and entire risk events to be understood proactively and managed; resulting in a successful project completion.

However, the explanation from the figure above fails to point out the competency of the personnel handling the risk management process coupled with the fact that the process is too generic; not practical. In a situation where the risk management personnel are not highly competent enough to handle a given or entire project risk, there will be a resultant escalation of the already present risk. This will result in the project risk accumulation which will at a later end have adverse effect on the project deliverable. Termini (1999) argued that all project contains risk and the responsibility of project risk management is the duty of project managers and the failures of project risk management is primarily caused by the ill preparedness of project managers in projects. However, this report will not allocate the responsibility of risk management solely to project managers alone but, also it is the duty of the project team members, and other stakeholders associated with the project activities to conform to the specified risk management process and indirectly, contributing to an effective risk management process and this will lead to any anticipated risk expected from the project to be eliminated or reduced.

2.6 Risk management in Nigeria

The need to practicing risk management in Nigeria is beginning to gain ground in different sector of Nigeria projects but, this is going in a very slow rate resulting in delays and project failures being experienced by construction companies in the in the country. Aibunu and Jagboro (2002) suggested that the main criticism the construction projects in Nigeria faces are the growing rate of projects not being delivered on time and this can be attributed to the ill cooperation of project contractors and project owners.

However, the above literature gives positive contributed to the topic of this project but it does not stress much on the negative contribution of the project stakeholders on the projects which is the major source of project risk. The poor practice of risk management might also be due to the late introduction of risk management practices into the Nigeria construction sector. According to Windapo and Martins(2010), risk management was introduced into Nigeria during the late 1990s until then , it was only being practiced by the banking and financial sectors. But the urge for risk management processes to be practiced in construction sector started after the late 1990s due to uncertainties experienced by the economic, political, environmental, social, cultural, and financial aspects of firms and organisation. This shows that risk management as a discipline is still growing in Nigeria but, the growth rate can be better catalysed when there are more researches on the topic area as it relates to the Nigeria construction sector; helping to expose and manage the major risks hindering the sector.

2.7 Construction related risks

Construction projects are usually faced with different kinds of risk which mostly pose treat on project success. According to Miller and Lessard (2001), construction projects are very complex due to uncertainties arising from different sources.

The sources of construction project risk arises from factors attached to the product such as difficulty in physical design of the product, structural technique or from factors such as on the bases of money to carry out the project, or the risk may come from the project environment(Walker and Greenwood,2002). The above author does not at all attribute risk to construction project to be caused by the project stakeholders. However, in the context of this report, the complexity of the construction project risk can be said to be contributed by the project stakeholders involved in the project. This will conform to report by Klemetti(2006) stating that the difficulties in construction network study is due to hundreds of stakeholders in the construction project. However, according to Abbasi, Abdel-Jaber and Abu-Khadejeh(2005), the effect of associated risk in construction projects can be expressed based on the monetary loss, personal injuries of which all this can also be aggravated due to the emergence of other smaller risks during the execution.

Therefore, to eradicate the risks and its effect in the Nigeria construction project sector, it is imperative to identify the Key risks to which the project stakeholders are a major contribution to.

2.8 Risks relating to cost, time and quality of project delivery

In the context of this report, the risk project stakeholders pose to construction project will seen to have a greater negative/resultant effect on project delivery on cost, time and quality. According to project management principle, project is said to be successful when it is completed on time, within budget (cost) and quality specification as required by the project client and/or users. Wideman (2000) explained that project success or failure is dependent on it’s elicit satisfaction and conformance to required deliverable on standard, on time and within budget.

Therefore, completion of project not fulfilling the above points will mean that the project is not successful; indirectly linking project success to risk. This report will suggest that a project not completed on time, cost and quality specifications are termed failure and this is another major source of risk in projects. This was diagrammatically explained by Harpum (2010) linking project completion on cost, quality and time all to risk. See diagram below

Lock (2007) also connected the three variables; substituting quality with specification to be all dependent on people.

These two diagrammatic illustrations therefore points to the fact that project completion on time, within budget and quality specification is a function of the stakeholders (people) involved in the project who are the major source of project risk

On the other hand, Vaughan (2009) argued that managing projects is more that a focus on delivery of the required deliverable on time, within budget and quality specified but, there should be a more focus on creative thinking called competency. However, this report will stress the above point to be that poor competency in the pact of the stakeholders in a project will pose risk on the project and therefore reduces the chance of the project completed to meet required specification.

Reed (2006,P.1) defined specification as a “list of requirements or particulars in a specified form”. However, in project and project management context and perspective, the list of requirement and particulars defined in the definition above, means project being completed on time, cost and quality specification required by the end user. Thus, fulfilling of this task will require a prompt and competent management of the cost, time and quality variables. Therefore, this report will further amalgamate the above two diagram as shown below; pointing that an effective management of the project cost, completing the project within time and quality requirement to fulfil the expected specification is highly dependent on the eradication of the risk associated with the people (stakeholders) handling the project

2.8.1 Risk relating to project cost

According to the committee for oversight and assessment of U.S. department of energy project management (2005), cost risk in a project arises as a result of project running more that budge which will lead to risk in the project performance hence, resulting in the project struggling to stay within baseline scope or quality which can also lead to schedule risk due to not enough fund to complete the project on time. This explanation shows the negative complexities resulting from project risk posed by project cost not effectively managed.

Azhar, Farooqui and Ahmen (2008) stated that the trend and effect of cost overrun is more severe and prone to developing countries and the overruns experienced usually exceeds 100% of anticipated cost required to complete the project.

The causes of cost overruns from research carried out includes “fluctuation of the prices of raw materials, unstable cost of materials being manufactured, poor procedures of bidding in procurement, poor management of project site, ineffective cost control, machinery cost being too expensive , lag between the phases of designing and procurement , poor methods of cost estimation, poor planning, and the unsupportive changes in government policies” (Azhar, Farooqui and Ahmen,2008,p.502). However, from the research result this report has highlighted six of the ten key causes of cost overruns to be directly caused by the people (stakeholders) running the project and this affects almost all construction projects; Nigeria construction projects not an exception. Therefore, to avoid such situation happening to the Nigeria construction projects, it is therefore vital to further identify the key risk which is the root cause of such failures.

2.8.2 Risk relating to schedule

Project schedule is an estimate that required completing a project. It is a variable control tool that gives a sequential process of completing a project and has been used by project managers in construction projects to complete required project (Trauner,2009).

This poses the responsibility of the project manager who is among the project stakeholder to successfully deliver a project within allocated timeline. This therefore means that if the project manager fails to effectively handle the project on allocated schedule, there stands to be risk of the project not being completed successfully. Chan and Kumaraswamy(1996) quoting Bennett(1974) stated that only one-eight of the Australian building contracts are completed within scheduled date; making the overruns to exceed 40%. This shows a brief historical background of the risky effects of project not completed on schedule. Aibinu and Jagboro(2002) argued that the most significant causes of construction delays in the Nigeria construction projects are cost and time overruns(projects not-being completed within scheduled date). However, this report will not restrain from the ideas pointed out by the above reports but, will further point that the cost and time overruns are as a result of the stakeholders handling the project.

Risk relating to quality

Haven discussed risk relating to cost and schedule above, projects completed without fulfilling the quality requirement of the end user, will be termed unsatisfactory. Quality is defined by Carruthers (1999,p.3) as “the ability to meet the requirements set for the deliverables that have been identified and mutually agreed upon” by the customer and the contractor.

In Nigeria, building failures such as cracks, column buckling , wall spalling, foundation settlement are a contributory cause of the Project stakeholders such as the project client, Architect , design engineers, local authorities (town planners) and contractors therefore of which this can be minimised by proper assurance of competent professionals and strict enforcement of ethical standard by the Nigeria institute of building/ Architects and Nigeria institute of engineers(Ayininuola and Olalusi 2004). However, this report will attribute the building failures to be caused by poor focus on sustainable quality delivery of the projects by the project stakeholders possibly by errors during the project execution phase. To further broaden the literature above, this report will further carry out its research in a more widely geographical zone not just in Lagos and Ibadan as discussed above. This will be discussed in the methodological approach to be undertaken later in chapter three.

2.9 Meeting project specification

In is the context of this report such as meeting the developmental vision and specification of Nigeria in 2020, it is seen that to meet the required specification of the entire country by that year, it is therefore important to identify the key risk which will stand as a barrier to realising such vision sustainably. But, if a project cannot be achieved in an equilibrium between its cost, schedule (time) and quality goal, the variables should be re-examined (Verzuh, 2008).Therefore it is important to proactively identify the main(key) sources of risk from the project stakeholders so as to achieve the country’s vision sustainably. This is due to the fact that a lag in project delivery between such variables will result in errors and risk to project and the aspired developmental status of the country in general.

2.10 Stakeholder’s related risks

The direction of the discussions below will be limited to the negative aspects of the key project internal stakeholders which contribute to project risk. These will be explained in the tables below:

The classic model attributed to a client-contractor relationship is the master and slave; clients takes the attitude of the master and other people in the project as the slave but some organisations are now beginning to move into the ‘Master-Master’ kind of relationship (Kumar,2007). Note that the word master here might not necessarily be a project champion but, means ‘power and superiority’ as regards the project in question.

Kashiwagi and Sullivan (2008) pointed that risk that cannot be handled by contractors should be handled and minimised by the project clients. And report by El-Sayegh(2007) on UAE construction industry revealed that some negative activities associated to project owner(client) are delayed payment to contractors, Unreasonable imposed tight schedule, improper intervention, change of design, lack of scope definition, delays in obtaining access, breach of contract, sudden bankruptcy.

However, these reports above boils down to two characteristics behaviour of the project client:

One: being as a ‘project master’ whom might not be too familiar or champion of what the project is all about. Just like the master –slave kind of project attitude discussed above, if the project clients are not highly competent and diverse in what the project is all about, handling the project escalated risk will result in the risk being compounded and the resultant effect to the project is failure or scope creep

Two: Poor perspective to handling risk proactively in a project; resulting in project risk.

This situation can also affect the Nigeria construction projects and can be checked if the project risk imposed to projects by client(who is among the project stakeholders) is identified and dealt with proactively.

Project designers such as Architects, Town planners do contribute to project risk.

Weaknesses in project design has been seen as the major factor contributing to poor satisfaction in projects which is mainly as a result of poor monitoring and evaluation and realism(in the complexity of the project scope and objective on time frame) of the project; contributing to about 70% of unsatisfactory projects( Battaile,2002). However, the write-up above does not clearly attribute failures to project to any stakeholder but, this report will attribute the failures to be caused by project designers. This is due to the fact that they limit their duties as designers to the initiation and planning phase of the project and not very active in the project execution phase where the paper designed project is to be built and their monitoring to some extent is required.

According to Zayed, Amer and Pan(2007,p.411),some risk areas in a micro level of projects are caused by risks posed by project design such as Work change order, delay in design and regulatory approval, difficulties in meeting construction schedule, defective designs, errors , rework and unforeseen adverse ground condition. This above report shows the poor competency and nonchalant attitude of project designers which greatly has effect on the project.

The aspired developmental status of Nigeria can be achieved by the Federal government employing contractors to carry out different construction projects.

According to Prieto(2008), contractors who has the objective of creating , completing and prospering in a project are usually being affected by negative influences from the public sector such as transfer of responsibilities, risk, change regulations and changes in legislative framework.

This shows the effect of project responsibility interferences on the part of the contractors by external stakeholders; of which the resultant effect of these changes will be reflected on the completed project.

A lesson’s learnt report from Argentina reveals that many problems in project are caused by the main contractor’s management approach to the project. The contractors has enough resources to carry out a project operation but, fails to work with a good structured team; supervisors are being recruited just in time when the project execution is to take place without pre-training couples with the sub-contractors who do not have motivation for efficient project delivery (Rodriguez,2007)

This above report does not explain the applicable contractual terms and conditions but do expose some risk introduced to projects by contractor and sub-contractor due to their incompetency in handling projects successfully. Therefore, to avoid such situation in Nigeria, it is very vital to include the identification of the contractors and sub-contractor’s contributory risk in the Nigeria construction project.

One problem in managing construction projects is an issue of supplies who do have critical information important to the client’s decision making processes does not share these information to the client and also on the other end, buyers are do not usually monitored the goods they receive and as such the supplied goods are sometimes of low quality standard (Winch, 2010).This report above is of two end: the buyers down stream and the client upstream. This point to the suggestion that the issue being addressed above is a supply chain management problem.

According to Chopra and Meindl(2010), Supply chain consists of all the parties that are directly or indirectly involved in the fulfilment of a customers request and these parties include the manufacturer, suppliers/vendors, transporters, warehouse, distributors, retailers, and customers/final consumers. This gives an idea that stakeholders related to supply chain are very numerous and will be associated with several supply chain problems ranging from communication, coordination and risks which are numerous and cannot be discussed in this section. Hence, these risk as regards Nigeria construction projects needs to be identified and resolved for better project deliveries.

According to Tuner and Muller (2005), most literatures on project success has greatly failed to identify the leadership role and competency of project managers towards project success which is a direct contrast to general management literature which explains that manager’s leadership style has a huge impact on the business or organisation’s performance. The above report recognises the fact that project managers inclusively have negative behavioural characteristics which will negatively affect project outcome.

While Green(2005) explained that project managers should possess the characteristics of a star leader so as to function effectively and examples of the star leader’s characteristics include long experience of managing projects, desires to get things done not by self aggrandisement but with desires to accomplish something, ability to see through eyes of others and being empathetic ,courageous, break through organisational boundaries, being optimistic etc. However many qualities has been given to being a star project leader but the qualities on a not-star leader which this report will term project manager’s contributory risk has not been identified or explored. Therefore, to attain being a ‘star leader’, the risk posed to project by project managers should be vividly identified of which this report is trying to point out.

One large risk in any project is the nature of experience and reputation of the project team in a construction practice (Mubasak, 2010). The author above recognises the fact that project team plays a very contributory role to project risk .In other words, the presence or absence of risk in a project is a function of the project team involved in the project.

According to Klien and Anderson (2003), risk can be attributed to project team especially during the team building phase where the team is expected to grow/develop through the forming, storming, norming and performing stage. During the forming stage, the major risk arising is a problem of poor clarity and direction of the expectations of the project and without such clarity, the likelihood of proceeding beyond the forming phase is decreases and increases the chances that the next phase will be unpleasant.(Klien and Anderson,2003).

Assuming that a team is not well formed throughout its building phase, the probability of the project embarked upon succeeding will be very low. With the discussion above and addition to other team related risk, it is very vital to identify the risk to construction projects in Nigeria imposed by the project team.

From another point of view, Zanfardino(2005) argues that project team is divided into two: the internal and external project team and the responsibility of risk identification and assessment is the responsibility of the internal project team.

This report will not fully conform to the discussion above in that; the project teams who are participating and running the project activities might not be competent enough or will not be chanced or exactly fit for an immediate assessment of all the project risks. Even if they do, there will be errors and partiality hence; this report will look into identifying the project risk contributed by the project team. This is also due to the fact the project teams who are working in the work package level of a work break down structure is a potential source of high project risk.

2.11 Report findings

Report findings has revealed the there are numerous risk affection construction projects but, particularly to the Nigeria construction projects which is primarily as a result of:

• No drive for sustainable construction practice
• Poor understanding why projects are undertaken
• Poor competency of the stakeholders to risk management,

Primary focus of delivering the project to handover stage without concern on the benefit realisation stage where by the overall country will gain the completed project for increased sustainable development.

Each key Stakeholders in a project makes an individual contribution to the overall project risk; compounding into project failures. This is mainly as a result of the perception of risk and risk management which has had a more focus on the project’s activities point of view and poor concentration on the stakeholders carrying out the project. This has led to many project failures such as projects not being completed within budgeted cost, within scheduled time frame and poor quality delivery of the project outcome. However, some researches has been carried out and written on identification of stakeholders contributed risk to project but, the research reports are either very few or carried out on few areas and used as conclusion to entire geographic zone. An example is Ayininuala and Olalusi(2004) who wrote on similar topic and made conclusion on the entire country of 36 states based on the researcher’s research sampling on just two states (Ibadan in Oyo state and Lagos state alone). However, this report will not conform to the above conclusion which is due to the fact that the research was carried out on less than an average of the country’s states (population) and projects.

Other findings revealed that the ne