THE IMPACT OF INSURANCE TO BUILDING PROJECT CONTRACT

THE IMPACT OF INSURANCE TO BUILDING PROJECT CONTRACT

CHAPTER ONE

INTRODUCTION

1.1 Background of Study

A clear understanding of risk management process and practice within the construction industry is an important model for exploring the application and barriers of risk management in Nigeria. It will also help in identifying the ever present risk factors and their probability of occurrence in Nigerian projects. This chapter summarizes the whole work carried out for this study.

Risk concept varies based on people’s understanding, experience and attitude (Belel and Mahmood, 2012). Many people recognize events in a dissimilar way due to different attitude, emotions, judgments and beliefs. This means that the definition of risk will differ to different people. Risk in its simplest form means uncertainty with recognized probability distribution (Barkley, 2004). According to Holmes (2002), risk is not the actual being of a problem rather it is a possibility that a certain problem may arise in the future. Baloi and Price (2003) define risk as the likelihood of an unfavorable incident occurring to a project. It is widely accepted across the construction management society that a project risk is any event or series of events, whether motivated internally or externally, that when occurred will negatively affect the project objectives of functionality, performance, time and cost(Devripasadh, 2007). Risk within the construction industry is understood to be a mixture of activities that can affect the project goals. Risks are major component of the overall cost of projects and their distribution has significant effect on project financial plan.

Project management is the scientific application of skills, tools and technique to fulfill project activities in order to meet the expectation and requirement of clients or stakeholders (Deviprasadh, 2007). A project is always trying to bring in some type of modifications or changes, a new invention, work or structure. This change involves uncertainty, which cause projects to have a possibility of being blown off by a possible future event. Risks and uncertainties are present in all activities of a construction project (Odeyinka, 2000). It is very important to know the distinction between risk and uncertainty (Carpenter and Frederickson, 2001). According to Hillson (2004) risk is measurable uncertainty while uncertainty is immeasurable risk.

Risk management is a comprehensive and systematic way of identifying, analyzing and responding to risks to achieve the project objectives (Banaitiene and Banaitis, 2012). It is also defined as a planned form of identifying and evaluating risk and selecting, establishing and applying options for the handling of the risk (Kremljak, 2004).

THE IMPACT OF INSURANCE TO BUILDING PROJECT CONTRACT