An evaluation of the impact of risk on project cost overrun in the Nigerian construction industry

Abstract

One of the major reasons for ineffective project delivery in the Nigerian construction industry is the improper assessment of risk factors. As a result, the industry continues to suffer poor performance with many projects failing to meet time and cost targets. This paper identifies the risk factors inherent in different building procurement methods and assesses their perceived relative importance with a view to evaluating their impact on project cost. The paper reports on a study carried out through a questionnaire survey of professionals within the construction industry in order to asses the relative importance placed on risk factors. Responses from the survey were analysed using relative importance index for the purpose of evaluating the impact of risk on projects cost. Data were collected on selected completed projects and analysed using frequencies, mean values and relative important index. The main risk factors identified are finance and political influence. A model was developed by relating the variation between the initial contract estimate and the actual project cost to the risk variables. From the analysis, the percentages of projects cost overrun due to the impact of risk were established for each procurement method investigated. The paper recommends that contingency additions should be based on the procurement method used.

Citation

Dada, J.O. and Jagboro, G.O. (2007), "An evaluation of the impact of risk on project cost overrun in the Nigerian construction industry", Journal of Financial Management of Property and Construction, Vol. 12 No. 1, pp. 37-44. https://doi.org/10.1108/13664380780001092