Risk management strategies and performance of construction firms in selected counties in Kenya
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Date
2017
Authors
Ondara, Alfayos Elijah
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
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.
Description
Thesis submitted to the school of business, for the award of the degree of doctor of philosophy in business (management science option) of Kenyatta University December, 2017