Direct Risk Factors and Cost Performance of Road Projects in Developing Countries: Contractors’ Perspective

Abstract

Purpose – Globally, road projects are notorious for riskiness, which often results in cost overruns. In developing countries, these risks are amplified by economic instabilities and institutional failures. Majority of road projects in these countries are awarded to notedly inept indigenous contractors. Currently, research on the relationship between risks and cost performance of road projects has predominantly focussed on the client’s perspective. Effects of risks on contractors’ cost performance (profit) are inadequately investigated in literature. The purpose of this paper is to determine the relationship between direct risks and cost performance of road projects by indigenous contractors of developing countries from the contractors’ perspective. Design/methodology/approach – The multivariate structural equation modelling technique was used to analyse purposively obtained data from indigenous contractors that recently completed road projects in Nigeria. Findings – It was observed that a significant positive relationship exists between the aggregate project risk, i.e. project risk index of cost (PRIC) and cost performance of the projects. Significant positive relationships were also found to exist between identified cost risk centres and PRIC and between risk factors and cost risk centres. The risk centre site environment and location contributes the most to PRIC. Research limitations/implications – Indigenous contractors of developing countries are to analyse the identified risk factors and centres prior to bidding for road projects and carefully manage them during project execution. Originality/value – Future studies of risks in road project should aim to obtain project risk indices of costs for the projects.