2.0 LITERATURE REVIEW
“No construction project is risk free. Risk can be managed, minimized,
shared, transferred or accepted. It cannot be ignored” (Latham 1994).
Moreover, the construction industry is exposed to more risk and
uncertainty than perhaps any other industry sector (Flanagan and Norman
1993). It involves numerous stakeholders, long production durations and
an open production system, entailing significant interaction between
internal and external environments. Such organizational and
technological complexity generates enormous risks (Zou et al. 2007).
Chapman and Cooper (1983) outlined one of the earliest attempts to
consider the need for structuring project risks and systematic approach,
which integrates different tools and techniques, including PERT,
decision trees and probability distributions. In a subsequent paper,
Cooper et al. (1985), they present a method for analyzing project cost
risk: risks being structured as ‘risk breakdown structures’ (RBS) where
the top of the hierarchy represents project cost risk. Risk is modelled
as a variation distribution of base estimate of cost. Kangari and Riggs
(1989) illustrate the use of Fuzzy Sets Theory (FST) as a risk
assessment tool; the earliest attempt to use FST to handle subjectivity
issues in construction risk assessment.
Pioneering its application in construction, Mustafa and Al-Bahar (1991)
adopt the Analytic Hierarchy Process (AHP) to assess construction
project risk. Becoming one of the most cited papers in the literature;
it applied the concept of value and weight to assess risk probability
and impact. The paper also evaluates the suitability of using AHP to
assess construction project risk, delineating its limitations for such
applications. Likewise, Dey et al. (1994) present a risk assessment
methodology, based on AHP, which combined objective and subjective
assessments; risk was also modelled as Probability-Impact (P-I). Riggs
et al. (1994) propose an approach for quantifying and integrating
technical, cost, and schedule risks as utility functions. AHP was used
to assign probabilities to a decision tree: the option with the maximum
utility was to be chosen. The proposed model, however, could not be used
to assess risk; it could only be used to assess the utilities of
different ‘risk scenarios’. AHP was also used by Zhi (1995) to assess
the risk levels of overseas construction projects; the P-I model was
adopted and AHP deployed with minor modification. The impact assessments
fell within 0-1 instead of the AHP’s formal 1-9 ordinal scale.
A stochastic model, which combines the randomness of the cost and the
duration of a project activity, was developed by Tavares et al. (1998).
Project risk was modelled as the probability of not meeting project
objectives, i.e. duration and cost; however, no other objectives were
considered. Mulholland and Christian (1999) use the PERT technique to
develop a distribution of project duration. The variance of the duration
distribution of a project is used to measure schedule risk: the larger
the variance, the greater the risk associated with project duration.
Akintoye and Macleod (1997) and Raftery (1994) identified the current
usage or risk management techniques in the construction industry. These
include: risk premium, risk adjusted discount rate, subjective
probability, decision analysis, sensitivity analysis, Monte Carlo
simulation, stochastic dominance, Casper and Intuition. However, in a
study conducted by Odeyinka (1987), it was found that one of the major
methods of managing construction risk in the Nigerian Construction
industry is through transfer to insurance companies.
In Odeyinka (2000) study which examined the sources of insurable
construction risks perceived to be encountered in the Nigerian
Construction Industry and the types of insurance policy employed in
managing them. The study shows that, out of a myriad of insurable risks,
great importance is placed on site security, construction risks, and
health and welfare requirements. The Nigerian construction industry has
various types of insurance policy available.
According to Sage (2009), sustainable development refers to the
fulfilment of human needs through simultaneous socio-economic and
technological progress and conservation of the earth’s natural systems.
Sustainable world progress is dependent upon continued economic, social,
cultural, and technological progress. To achieve this, careful attention
must also be paid to preservation of the earth’s natural resources.
Sustainable development is a term generally associated with the
achievement of increased techno-economic growth coupled with
preservation of the natural capital that is comprised of environmental
and natural resources. It requires the development of enlightened
institutions and infrastructure and appropriate management of risks,
uncertainties, and information and knowledge imperfections to assure
intergenerational equity, intra-generational equity, and conservation of
the ability of earth’s natural systems to serve humankind (Sage, 2009).