A Review of Application of Risk Management Techniques in Costing and Evaluating Construction Work Projects in Nigeria: A Mathematical Analysis Approach

Volume 5 - Issue 4

Sebastian O Uremadu¹*, Florence O Ariwa² and Charity E Duru Uremadu³

Received: November 19, 2018;   Published:November 30, 2018

DOI: 10.32474/CIACR.2018.05.000216

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Summary

There exist some inherent risk elements like physical risk, environmental risk, logistic risk, financial risk, legal risk, political risk, etc. in the construction work environment in Nigeria. Before now those costing these projects use only contingency sum approach and insurance cover without properly taking into consideration all these other critical factors of risk. The result is that most contract projects that border on, construction works were either over-valued or under-valued with their consequent rising cost implications, before execution contract agreement is signed. The present paper used secondary data compiled by a Consultant Quantity Surveyor to carry out some evaluation tests and analysis through the use of an established model that combined material cost (M), labour cost (L) and Plant cost (P) to arrive at a total “best” construction cost estimates (TCCE). That is, TCCE = M+ L + P. Major objectives the paper tried to achieve, are: [1] possibility of using risk management techniques, namely; risk identification, risk analysis and risk response, to ascertain cost variables that could combine to give an optimum cost estimate in order to avoid cost over-runs in construction work project, [2] To ascertain their applicability in Nigerian, in addition to, use of cost effectiveness, cost-benefit analysis and sensitivity analysis (simulation) methods in evaluating and determining the viability of government Projects/Programs in Nigeria. Results from the study confirmed our convictions that it was possible to find total “best” construction cost estimates through an established model that incorporated most key risk factors (variables) inherent in projects as well as use qualitative evaluation techniques to access government project and programs. It is therefore recommended that investors and all stakeholders to construction work project contracts always use a model that captures or incorporates key indicators of risk to arrive at total best construction cost estimates so as to avoid cost over-runs in project execution and outright abandonment.

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