Hamdouraby SY ESKEMA PhD PROGRAM RISK IMPACT EVALUATION IN INTERNATIONAL CONSTRUCTION PROJECTS: THE CASE OF WEST AFRICA
PRESENTATION OUTLINE RESEARCH BACKGROUND PROBLEM STATEMENT RESEARCH PHILOSOPHY RESEARCH PROCESS QUALITATIVE RESEARCH Research Process Initial Findings RESEARCH OBJECTIVES RESEARCH QUESTIONS RESEARCH HYPOTHESIS QUANTITATIVE RESEARCH Research Process Initial Findings
PROBLEM BACKGROUND Investment projects in politically unstable countries present considerable risk management challenges to project sponsors, as well as their financiers and insurers. Demonstrations and blockades by local communities, sabotage of project installations or facilities, kidnapping or assault to staff, terrorism, outbreak of violent clashes between armed groups; demanding of payments by armed groups to project sponsors. All of these expressions of violence can impose direct costs to an investment, including reputational and even legal challenges arising from proximity to these factors.
PROBLEM BACKGROUND Compared to several other industries, the international construction project in West African Countries is subject to more risks because of the unique features of construction activities, such as very complicated processes which take time, non comfortable environment, financial intensity and dynamic organization structures (Smith, 2003). Then, developing good and positive risk management techniques to effectively manage the impact of these risks linked to variable construction activities has never been more important for the successful delivery of a project. Some previous researches have mainly focused on the examination of the impacts of risks on one aspect of project strategies with respect to cost (Chen et al., 2000), time (Shen, 1997) and safety (Tam et al., 2004).
Problem Background The construction project in developing countries particularly in the area of West African Countries (WAC ) is associated with a high degree of risk due to some common risks such as physical, environmental, logistics, financial, legal and political risk etc., to complex nature of the construction process. Following the Pr. Ralf s suggestions, it is important and determinant to identify the Knowledge Gap before any action. And this shows that there is a need to further explore and evaluate these risks impacting international construction project in (WAC ). The research reported in this PhD thesis will constitute an important part of a comprehensive research study to assess the impact of these risks drivers in construction projects in the West African Countries (WAC ) in terms of degree of severity.
RESEARCH PHILOSOPHY Epistemology Positivist
RESEARCH OBJECTIVE The general objective of this research is to identify the major risks that have significant impact on construction project in West Africa. This study focuses only on the 10 major risks due to the severity of their impacts on projects. The impact of each risk factor will be evaluate using data from the sample and advanced statistical methods (mean, standard deviation). The impacts will be ranked par order of importance using their observed frequency rate of occurrence in the sample to identify the most critical risk factors and use them as a reference for future projects
The Specific objectives: 1.To identify the main impacts of risks which affect international construction projects performed by construction companies in West African Countries. 2. To assess the identified impacts by taking into account all the prospective influences between the risks factors in order to rank their severity. 3. To cross-compare the relative importance of these risks impact as perceived by clients, consultants and contractors. 4. To come with a greater understanding and a more complete picture of projects construction risk impact in the developing countries especially in West Africa zone. 5. To provide a reliable risk impact rating system for a given international construction that will help stakeholders involved including clients, consultants and contractors as decision support tool for the decision maker that can be utilized within the bidding decisions. 6. To develop recommendations, which contribute to more effective risk impact management in international construction projects in West Africa.
RESEARCH QUESTIONS What are the major risks impacts leading project in West Africa? What impacts do these main risks have on different phase of the construction project? What is the extent correlation between the different impacts in construction projects and its consequential effects? What are the main factors that contribute to more effective risk impact management in the construction project in West Africa construction projects?
Research Hypothesis ee hypotheses were developed. Each hypothesis tests the null hypothesis (Ho) that there is dependency correlation and the alternative hypothesis (H1: Project risk has no impact on international construction project in West African Countries. Using the project score (data and characteristics) as a dependent variable, project risk as the predictor, a repeated measure analysis of variance will be carried. H1: Market risk has no impact on international construction project in West African Countries. Using the project score (data and characteristics) as a dependent variable, market risk as the predictor, a repeated measure analysis of variance will be carried. H1: Country risk has no impact on international construction project in West African Countries. Using the project score (data and characteristics) as a dependent variable, Country risk as the predictor, a repeated measure analysis of variance will be carried.
Hypothesis testing The X 2 hypothesis tests will be developed to analyze the differences in the judgments of the respondents on the risks. The tests will focus on three majors corposants: Job position Working experience And company type. The null hypotheses are: H01. There is no relationship in the judgment about risks among respondents having different job positions. H02. There is no relationship in the judgment about risks among respondents having different working experience. H03. There is no relationship in the judgment about risks among respondents working for different company types.
UNIT OF ANALYSIS The Project of Analysis in this research will: Project PROJECT RISK FINANCIAL ECONOMICAL CONSTRUCTION TECHNICAL OPERATIONAL PROJECT SCOPE Project Success MARKET RISK EQUIPEMENT AND MATERIAL DELAY PAYMENT ON CONTRACT COUNTRY RISK Political Force majeur
RISK IDENTIFICATION A total of 22 major risks indicators were identified at the three levels that have a potential to influence the project through the macro, market, or project levels. The risk indicators were primarily identified through an extensive literature review, panels, workshops, conferences and discussion with experts. The identified risk indicators do not comprise an exhaustive list but a generic representative sample that will change with the requirements of the decision problem and the country, market, and project under consideration (Shaked 1997). The identified risk factors were grouped according to specific criteria and sub criteria to establish the interrelationship and hierarchy between the various risk factors at the country, market, and project levels.
RISK IDENTIFICATION It was important to achieve this level of arrangement of risk factors impact to facilitate data collection, analysis, measurement, and quantification of intangible risk impact. It further enabled the analysis of this individual and overall impact on the project, as well as on the overall effectiveness of operations in a specific country and its construction market. Hierarchical assessment allows systematic evaluation of all the risk indicators to establish their level of significance for a particular situation. All the indicators directly impacted by an upper level (the project, the country or market level) are uniquely influenced by that level that is, two indicators might not have the same degree of impact from an upper-level risk environment.
RESEARCH PROCESS Three critical categories of risks are identified in the developing countries 'projects construction including Market, Countries and Project. These three categories of common risks faced by contractors include: Country Project Market POLITICAL FINANCIAL DELAY IN APPROVAL SOCIAL AND ECONOMICAL LOGISTIC CULTURESDIFFERENCES CORRUPTION RISKS CONSTRUCTION DELAY PAYMENT ON CONTRACT CONFLITS AND DISPUTES RISKS TECHNICAL EQUIPEMENT AND MATERIAL ENFORCEABILITY OF CONTRACTS OPERATIONAL CONSTRUCTION MATERIAL CHANGE IN LAW A WORK SCHEDULING AND CONTROLLING NATURE/ FORCE MAJEURE PROJECT SCOPE RELATIONSHIP RISK LEGAL SHAREHOLDERS
This study will use a Mixed Method and will address the risk managers and project managers a web-based questionnaire, to assess these risks in terms of degree off severity. Qualitative Interview Littérature Triangulation Quantitative Questionnaire 265 potentiel Respondents 42 Projects 14 Countries
ESKEMA_PhD: 42 Projects 45% 40% 35% 30% 25% 20% 43% 15% 10% 5% 0% 14% 10% 7% 7% 5% 10% 5%
SKEMA_PhD_Project_Per Country 7 7 7 6 5 4 4 4 3 3 3 3 3 2 2 2 2 2 1 0
SKEMA_PhD_Respondents_ Per_Function 18% 17% 16% 14% 12% 10% 8% 6% 4% 2% 8% 10% 13% 6% 4% 8% 12% 4% 3% 2% 5% 3% 3% 0%
ESKEMA_PhD_Respondents_Experience 13% 11% 15% 23% 17% 21% Category 7 years 8 13 years 14 19 years 20-25 years 26-31 years Above 32 years
SKEMA_PhD_Respondents Per Age 160 140 145 139 120 100 105 102 80 60 58 49 40 32 20 0 Group 27-32 Group 33-38 Group 39-44 Group 45-50 Group 51-56 Group 57-62 Over 62
SECTION I : PROJECT / RISK FACTORS IMPACT EVALUATION Having identified these major risks that resulted in problems occurred in the project, how do you evaluate their degree of impact on the project by giving 1 to the low level and 3 means high level impact? I. GLOBAL FINANCIAL RISKS FACTORS I.1 Exchange rate changes I.2 cost of capital estimation I.3 Interest rate fluctuation I.4 Increase of tax rate I.5 Increase of material cost I.6 Increase of equipment and resettlement cost I.7 Unavailability of sufficient cash flow I.8 Increase of labor cost I.9 Estimation uncertainty I.11 High finance cost I.12 Lack of creditworthiness I.13 High bidding costs I.14 Delay of payment of annuity I.15 Ambiguity in project cash injection I.16 Tax and nontax incentives in construction industry I.17 Medium and long term financing for construction projects I.18 Availability and fluctuation in foreign exchange I.19 Parallel foreign exchange rate market indicators I.20 Loan default or unfavorable loan restructuring I.21 Tax and non-tax incentives in construction industry I.22 Medium and long term financing for construction projects I.23 Price inflation of construction materials I.24 Incomplete or inaccurate cost estimate I.25 Currency exchange rate and balance I.26 Bidding volume index I.27 Special construction industry index I.28 Foreign exchange reserves I.29 Foreign debt assessment I.30 Loan default or unfavorable loan restructuring Low Medium High
QUALITATIVE RESEARCH Initial Findings The Lack of legal judgment reinforcement and Bureaucratic difficulties risk occupy the first place The next four risks are: Design Delay in design and regulatory approvals Lack of Knowledge of local legal system Inadequate original contract duration Late internal approval process. The next seven risks are: Availability of raw materials Lack of appropriate policy and regulations New governmental acts or legislations Lack of Knowledge of local legal system Design change Legal and regulatory regimes of local country Delay or refusal of project approval
QUALITATIVE RESEARCH Initial Findings The other nine risks in the top-ten risks group are internal. Among them are five risks related to management of the owner, and they are at quite highly placed in the risk ranking: third (incompetence of project team), fifth (late internal approval), sixth (inadequate project organization structure), seventh (improper project feasibility study) and ninth (improper project planning and budgeting). The initial top-ten major risks identified in qualitative research twere: (1) Legal judgment (2) Bureaucracy System (3) Delay or refusal of project approval (4) Design Delay in design and regulatory approvals (5) Lack of Knowledge of local legal system (6) Inadequate original contract duration (7) Late internal approval process. (8) Lack of appropriate policy and regulations (9) New governmental acts or legislations (10) Lack of Knowledge of local legal system
THE MODEL Two attributes of each risk: The frequency of occurrence, denoted (Fr). The degree of impact, denoted (Im). According Shen et al., 2001), the risk, denoted R, is the function of these two attributes and can be written as R= (Fr, Im). This function can be quantified by a model, which Raftery (1994) and many researchers agreed on. In this model, it is argued that the risk is equal to the multiplication of frequency of occurrence and degree of impact: Then R = (Fr x Im ) where R, Fr, Im are all measured numerically. The respondents judged the frequency of occurrence using the three-level judgment scale of low, medium and high.
THE MODEL A risk assessed by a respondent is called risk score and is calculated from the general model R i j= Fr i j x Im i j where, Fr i j = frequency of occurrence assessed by respondent j for risk I; Im i j degree of impact if risk i assessed by respondent j. By averaging scores from all responses, it is easy to have an average score for each risk, and this average score is called risk-index score and used to rank risks. The calculation of risk-index score can be written as: RI i = [ j total respondents =1R ji ] total respondents
CASES STUDIES: Initial Finding This table shows the list of ranked risks including 15 risks sorted in ascending order according to their overall impact on the projects selected as cases studies Financial Risk: Top group of fifteen risks Risk Factors Risk code Std deviation 1. Price inflation of construction materials R. F1 0.2213 0.4947 1 2. Special construction industry index R.F2 0.207 0.4852 2 3. Incomplete or inaccurate cost estimate R.F3 0.196 0.4617 3 4. Ambiguity in project cash injection R.F4 0.2117 0.4432 4 5. Interest rate fluctuation R.F5 0.2229 0.4365 5 6. cost of capital estimation R.F6 0.1824 0.4362 6 7. Interest rate fluctuation R.F7 0.2235 0.4278 7 8. Lack of creditworthiness R.F8 0.1923 0.4256 8 9. Exchange rate changes R.F9 0.1891 0.3848 9 RI Rank 10. Delay of payment of annuity R.F10 0.1756 0.372 10 11. Increase of material cost R.F11 0.1642 0.3582 11 12. Unfavorable loan restructuring R.F12 0.1635 0.3543 12 13. Currency exchange rate and balance R.F13 0.1629 0.3456 13 14. Delay of payment of annuity R.F14 0.161 0.3431 14 15. Estimation uncertainty