Risk management strategies and performance of construction firms in selected counties in Kenya
Ondara, Alfayos Elijah
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The construction industry entails high levels of risk, but often this risk is not dealt with adequately, resulting in poor performance, which is reflected in frequent cost and time overruns, as well as poor quality of work. This may cause disputes which may lead to costly litigation and further time and cost overruns. Additionally, insurers traditionally avoid firms with high risk portfolios and subsequently will not offer insurance covers or may charge very high premiums to compensate for the increased risk. Previous studies have found an inconclusive relationship between adoption of risk management strategies and enhanced construction firm performance.As such, the general objective of this study was to determine how risk management strategies influenced performance of construction firms in selected counties in Kenya. The specific objectives were to determine the influence of resource risk management strategies, personnel risk management strategies, project control risk management strategies, litigation risk management strategies and insurance risk management strategies on the performance of construction firms in selected counties in Kenya. The study also sought to assess the moderating role of government policy and regulation of the construction sector on the relationship between these risk management strategies and performance of the construction firms. Performance was measured as a function of cost variance, time variance and quality control. The theoretical framework revolved around five theories that offered a foundation for interrogating the relationship between the variables under study. These were the theory of constraints in project planning and management, fuzzy set theory of risk management, institutional theory of the regulatory environment, financial economics theory of corporate risk management and shareholder value maximization theory. This study used an explanatory research design and the research philosophy was based on positivism. The population of the study was all construction firms carrying out construction and public works in selected counties in Kenya, registered by the Republic of Kenya as of July 2011 to June 2012, a total of 2,414 construction firms. The sample size was 97 respondents, and simple random sampling was used for identifying respondent firms in Nairobi County, Nakuru County and Machakos County.Data collection was done using a self-administered semi-structured questionnaire. Data analysis was done using both descriptive statistics and inferential statistics.The findings led to the conclusion that resource risk, personnel risk and project control risk management strategies had a significant influence on firm performance, implying that any effect on firm performance was not solely due to chance. Litigation risk management and insurance risk management strategies did not have a statistically significant effect, implying that any effect on firm performance was solely due to chance. Government policy and regulation of the construction sector had a statistically significant moderating effect on the relationship between risk management strategies and firm performance. The study recommended that, from a policy perspective, in order to further entrench risk management practices in the construction sector, construction firms in selected counties in Kenya need to increasingly engage in capacity building activities in risk management and construction project management in general. The government should also encourage activities that encourage proper risk management and risk sharing cross the entire construction value chain. The beneficiaries of the findings of the research will include Government policy makers, construction firm management and business and academic research.