Risk Identification and Assessment in Housing Development Projects Using Analytical Hierarchical Process
Chapter One
Aim and Objectives
Aim
This research aims to identify and assess risks associated with housing development projects using Analytical Hierarchical Process (AHP)methodology.
Objectives:
- To identify risks associated with project environment generally
- To establish risks associated with housing development projects in
- To measure the identified risks parameters such as risk probability and impact for assessment
- To determine the most critical risks and structure the risks in a consistent manner.
- To carry out a prioritization assessment of the identified risks using AHP methodology.
CHAPTER TWO
LITERATURE REVIEW
The Concept of Risk
It is generally acknowledged that every project, particularly construction, have inherent risk associated with it. What in essence does“risk” mean? It is only when the concept is understood that it would relate more meaning in the examination of the construction industry‟s approach to the issue of risk management, which have now turn to be wholly specialized subject. Efficient achievements of project objectives are some of the underlying benefits of risk management. Baker et al. (1999) asserts that with adequate assistance of risk management, two essential advantages will be captured, more confidence can be given to the estimated project cost and profits will be maximized.
Definition of Risk
There are undoubtedly, various perspectives on the meaning of the word “risk” just like the concept itself. There are many scholars, professionals‟ bodies, and standard institutes with various prospective towards the concept and definition of the term “risk”. This has made it difficult to come out with a single united definition of the term “risk”. However, despite the divergent perceptions, there is some essential elements in similarities with most of the definitions. Standard dictionaries have always connotes the term with negative and involves uncertainty. Bu-Qummaz (2007) submitted that the absence of consensus towards the definition of the term “risk” within the professional bodies and standard institutions is reflected in the presence of different phrases used to define risk in literature. Risk in relation to construction has been defined as an “exposure to economic loss or gain from involvement in the construction process” and “a consideration in the process of the construction project whose variation results in an uncertainty in the final cost, duration and quality of the project” (Kartamand Kartam, 2001). Similarly, within the business circle, risk has been defined both as “lack of predictability about structure, outcomes, or consequences in a planning and decision situation” and “the probability of occurrence of some uncertain, unpredictable and even undesirable event(s) that would chance the prospects for the profitability on a given investment” (Nasir et al., 2003).
What is apparent in all these and similar definitions available is that the component of the term “risk” by definition can compose of three perspectives: either the term is (1) all negative (threat) (2) neutral (could be threat or opportunity) or (3) includes both negative and positive outcomes (threat and opportunities).
It is on these different perspectives of the term that various professional bodies and standard institutions proposed their definition of the term that reflect their members and corporate objectives. The Institution of Risk Management (IRM) surprisingly adopted the negative notion of the term, although, the IRM has no official definition of the term. Its document shows and refers to risk in phrases such on “change of bad consequences, or exposure to mischance”. It adopted the traditional view that risk is wholly negative.
On the other hand, the United Kingdom (UK) Association of Project Management (APM) has neutral view of the term “risk”. In its Project Risk Analysis and Management Guide (PRAM Guide) risk is defined as “an uncertain event or set of circumstances which, should it occur, will have an effect on achievement of objectives”. In other words, the effect could include both positive and negative effects. The British Standard Institute (BSI, 2000) follows this same view of the word in its BS6079-3:2000, by submitting that, “risk is uncertainty…..that can affect the prospect of achieving……goals”.
The recent trends in institutional definition took the third perspective that includes both negative and positive outcomes (threats and opportunities).The Project Management Institute (PMI, 2004) defines risk as in its guide to the Project Management Body of Knowledge (PMBoK) as “an uncertain event or condition that if it occurs, has a positive or negative effect on a project objective”. In a similar fashion, the Risk Analysis and Management for Project, guide (RAMP Guide) produced jointly by the Institute of Civil Engineering (ICE), the Faculty of Actuaries, and Institute of Actuaries defines risk as “ a threat (or opportunity) which could affect adversely (or favourably) achievement of objectives”. Table 2.1 presents some of the definitions based on some of the professional institutes.
Hillson and Murray-Websters (2007) submitted regarding the standard publications and professional bodies view on risk that until the late nineties, the vast majority of official published risk management standards exclusively used a negative definition. From the late nineties onward, two different views have emerged: either a neutral definition is presented or a wider definition that includes both threat and opportunities was adopted. From the present millennium the standard have regarded risk in explicit definition to include both threats and opportunities.
For the purpose of this study, the traditional definition of risk in terms of negative (threats) is adopted and would be used except where the circumstance call for explicit expression of different point of view.
Other Definitions
There are several other definitions of the term “risk” some of which includes “The exposure of possibility of economic or financial loss or gain, physical damage or injury, or delay, as a consequence of the uncertainty associated with pursuing a particular course of action” (Perry and Hayes, 1985; Chapman and Ward, 1997).Jaafari (2001) andKartam and Kartam (2001) also define it as “the probability of losses in a project”.Baloi and Price (2003) consider risk as “the likelihood of a detrimental event occurring to the project” while Herzt and Thomas (1984) from business perspective look at risk as “a barrier to success”.
CHAPTER THREE
RESEARCH METHODS
Research Design
The study focuses on two processes of risk management: identification and assessment of risks associated with the conception and implementation of housing development projects. The study explored three broad approaches: first approach involves a systematic review of literature within the field of risk management in project environment and narrowed down specifically to identification and assessment processes in housing development projects. Secondly, the study also involves eliciting data from field using designed questionnaires. Lastly, the study assesses the data obtained in order to both establish the risks factors associated with housing development project and prioritize the identified risks to provide a basis for project decision.
The Study Population and Sample
The first step in obtaining a sample is to define the population. It is essential to identify characteristics which members of the universe have in common and which will identify each unit as being a member of a particular group (Osuola, 2005). Sampling entails taking any portion of a population or universe as representative of that population or universe. It‟s on the basis of the sample that generalizations can be made to the population it is drawn from. The population for this study consist of the entire housing/real estate developers operating in Nigeria.
Sampling Design Method
A sample is a limited number of observations from a population. Usually the sample is drawn because it is impossible to coverall observations in the population on ground of time, scope, greater accuracy or other resources. According to Patton (2002), sampling of research participants can be done through a purposive approach which means there is far less emphasis on generalizing from sample to population but greater attention to a sample “purposely” selected for its potentials to yield insight from its illuminative and rich information sources.
Although the targeted population for this study is the entire population of housing/real estate developers operating within the construction sector of the Nigerian economy, the study was conducted within Federal Capital Territory, Abuja because of the relative number of operators (compare to the entire population of developers nationwide) in housing development projects. Therefore purposive sampling representing a group of non-probability sampling technique was employed as sampling method.
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND DISCUSSION
Data Presentation and Analysis
This section presents the results of the two field surveys conducted to identify and assess the relevant risk factors associated with housing development projects, which includes initial impact assessment of the risk factors before the detailed assessment. The identification survey results are followed by computer based AHP –pair wise assessment of the significant risk factors in order to establish the relative weights (priorities) of each of the significant risk factors.
In the risk identification general survey, a total of 120 questionnaires were distributed to selected housing development organizations that are involved in some housing development projects within the Mass Housing precinct of the Federal Capital Territory, Abuja. Forty- two(42) questionnaires out of the 120 distributed were returned duly completed and all were used in the analysis of the relevancy of the risk factors and significant risks determination. Whereas, for the AHP-based assessment survey a five (5) man Assessment Team were selected out of the respondents pool established from the identification survey. The analysis and discussion of the results are outline based on the survey type and subdivided under several headings based on the objectives of the study.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary of Findings
A brief summary of the findings from the study are as follows:
a.) In order to adequately capture all the significant risks associated with housing development project, the study proposed an identification framework that consists of three integrated techniques that involves review of documented past experiences on similar projects as contained in literature, experts‟ consultation and questionnaire based survey. The framework has proved successful in identifying key risks associated with housing development projects.
b.) Additionally, the study extends the scope of the traditionalidentification process to include initial assessment and structuring sub-processes that enables significant risk elements to be filtered among the identified risk factors which has helped in focusing the final assessment on the most significant risk elements.
c.) The study also proposed a prioritization risk assessment methodology (the Analytic Hierarchical Process technique) that incorporates fuzzy-based methodology so as to capture the subjective risk information using natural linguistic terms that ensures easy and greater participation among thee surveyed respondents. This has yielded the required results.
d.) Based on the risk identification framework proposed, 50 potential risk factors were identified to have some influence on house development project objectives. These factors were classified under ten (10) macro-level groups.
e.) The study, as part of the preliminary assessment and structuring of the risk factors, measured and evaluated the risk severity variables (the likelihood of occurrence and estimation of impact) to determine the significance of each risk factors. The results of the findings shows that 19 risk factors out of the 50 identified risk factors are significant and therefore qualified for in-depth prioritization assessment.
f.) The results of the assessment findings show that the risk exposure of housing development project with respect to macro-level economic risk (RID#L102) and land acquisition risk (RID#L105) are very high while political (RID#101) and Force Majeure (RID#L104) risks are low. Similarly, at the micro-level risk factors such as Changes to demand for houses risk (RID#A11), interest rate fluctuation risk (RID#A08) and Cost overrun risk (RID#B25) are very high risks to developers while Lack of policy continuity (RID#A02), Bankruptcy of suppliers (RID#B24) and Defective design (RID#B05) are low risk factors.
Conclusions
The need for the deployment of robust and systematic risk management system in housing development projects is becoming increasingly imperative not only because of the need to improve the working system in developers‟ organizations but also to adverse the consequences of risk on the success of project undertaken.
The findings of the study have revealed and underscored the importance of the two strategic processes of identification and assessment towards achieving a robust systematic risk management system. A sound identification framework and an efficient and flexible risk assessment methodology are keys to the achievement of robust risk management system. The study was able to properly identify and adequately assessed the risks associated with housing development project using computer-based AHP prioritization assessment technique.
Recommendations
The following recommendations are proffered on the account of the research findings:
- The planning and selection of methods, techniques and tools appropriate for risk management system to be deployed in any project undertaken should be given high emphasis as this usually have serious influence on the outcome of the risk management efforts put in
- Risk identification strategy should, as a matter of priority, includes an initial assessment which has the potentials of enabling project management team to focus only on high priority risks at the final assessment stage thereby minimising the cost and efforts required in the final assessment and mitigatory processes.
- Risks prioritization should be at the heart of every risk assessment process because of its potentials to reduce efforts, cost and actions required in the plan risk responses which in turn may result in project performance
- Efforts should be intensified to discourage or atleast minimise the use of informal techniques such as the use of lump sum to cover effects of risk factors (as a rule-of-thumb) through appropriate enlightenment and education of project stakeholders. Avenues such as symposium, conferences, exhibition, etc. should be considered for this purpose.
- Although the study was able to establish high and low priority risks, it is by no means an end in itself. Risk management should be approached in a dynamic way, because risks have the potentials of mutating at a given
Major Contribution to Knowledge
- The study has shown that Economic risk and land Acquisition risk at macro-level were found to have the highest risk priority whileChanges in demand for houses risk and Interest rate fluctuation risk were found to have similar highest risk ranking at micro-level in housing development projects in Nigeria.
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