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EFFECTS OF PROJECT RISK MANAGEMENT PRACTICES ON PROJECT

PERFORMANCE: IN CASE OF SELECTED PROJECTS IN ETHIOPIA

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 ISSN:2277-7881; IMPACT FACTOR :8.017(2023); IC VALUE:5.16; ISI VALUE:2.286
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DOI: http://ijmer.in.doi./2023/12.02.06 Publisher: Sucharitha Publication, India
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EFFECTS OF PROJECT RISK MANAGEMENT PRACTICES ON PROJECT PERFORMANCE: IN CASE OF

SELECTED PROJECTS IN ETHIOPIA
1
Gemechis Fikadu and 2Dr. Shashi Kant
1
Lecturer, Masters in Project Management and 2Assistant Professor
1&2
Department of Management, Bule Hora University
Ethiopia

ABSTRACT
The main objective of this study is to examine the effects of project risk management practices on project performance in west
Guji zone selected projects in Ethiopia. The researcher has employed both quantitative and qualitative research approach and descriptive
and explanatory research design are used. After making the populations stratified based on the sectors/clients/, the researcher used
simple random sampling to get sample from the strata. From non- probability sampling purposive sampling, convenience sampling and
quota sampling has been used by the researcher for this research purpose. Purposive sampling had engaged to get relevant data from
most appropriate individuals who have more experience and relation to the projects. Purposive sampling technique was used. The
collected data were analyzed using descriptive and inferential analysis by using IBM SPSSv20 and STATA14/SE software’s. The
analysis of data accordingly shows project risk management practices have positive effect on project performance of the selected projects
in the west guji zone. Qualitative risk analysis and quantitative risk analysis have no significant effect and only rarely practiced. Project
risk monitoring has high level of positive effect while qualitative risk analysis has low effect followed by quantitative risk response.
Depending up on the analysis and findings the researcher suggested some recommendation to the stakeholders and concerned bodies.
The researcher recommends increasing project risk monitoring and to use scientific ways of planning and identification is will increase
the performance of selected projects in the area. Moreover, another research can be applied by other scholars for the areas that are not
included by this researcher.

Keywords: Project Risk Management, Project Risk Monitoring, Project Risk Management Plan, Project Risk Identification, Project
Risk Response Plan.

1. INTRODUCTION
Project risk management is the process of identifying, analyzing and responding to any risk that arises over the life cycle of a project
to help the project remain on track and meet its goal. Risk management isn’t reactive only; it should be part of the planning process to
figure out risk that might happen in the project and how to control that risk if it in fact occurs, (PMI, 2017). The process includes
conducting risk management planning, risk identification, risk analysis, risk response planning, risk response implementation, and
monitoring risk on a project. The objectives of project risk management are to increase the probability and/or impact of positive risks
and to decrease the probability and/or impact of negative risks, in order to optimize the chances of project success (PMI 2017). Elements
in PRM are Risk strategy which describes the general approach to managing risk on project. Roles and responsibilities indicates the
lead, support, and risk management team members for each type of activity described in the risk management plan, and clarifies their
responsibilities. Funding identifies the funds needed to perform activities related to Project Risk Management. Timing defines when and
how often the Project Risk Management processes will be performed throughout the project life cycle, and establishes risk management
activities for inclusion into the project schedule. Risk categories provide a means for grouping individual project risks. A common way
to structure risk categories is with a risk breakdown structure (RBS), which is a hierarchical representation of potential sources of risk.
(ibid).

2. Statement of the Problem

A statement by Mohammed depicted that Project risk management process shows a wide gap between theory and practice. The
theory focuses on learning the techniques, planning methods, and formalities of project management while unintentionally overlook the
nontraditional soft approach of management (Muhammed, 2020). This indicates that there is problem in application of project risk
managements. The government of Ethiopia (GOE) has been working to enhance the capacity of Ethiopian domestic contractors (EDCs)
over the past three decades. The most significant risk events namely, shortage of cash, inadequate planning, lack of access to foreign
currency, delay in possession of site, frequent breakdown of equipment, delay in delivery of material and equipment, financial failure,
inflation, delay in payments and poor commitment and coordination within the contractors’ team.(Worku, et,al. 2021).

As evidence from Gudeta, (2018) in the projects taken as a sample, project risk management is not practiced to the level needed
and gap is seen between what should be theoretically applied and what is being practiced in the projects. Research by Eshetu (2017)

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Cover Page Article Received: 2nd February 2023
Publication Date:10th March 2023
DOI: http://ijmer.in.doi./2023/12.02.06 Publisher: Sucharitha Publication, India
www.ijmer.in Digital Certificate of Publication: www.ijmer.in/pdf/e-CertificateofPublication-IJMER.pdf

found that the lack of joint risk management practices by stakeholders and shortage of knowledge on road construction risk management
practices were the most common barriers, and in the life cycle of road projects, critical risks at the planning and design stages are mostly
allocated to the client or consultant while at the construction stage a high percentage of critical risk is allocated to contractors. As of
Firehiwot (2019) founded that Lack of suitable project management methodology and lack of project management practices are the
major challenges that the organization faced off during the assessment. Contextual gap: many of the research were done on the effect of
risk management practices on project performance, but still no research is done on west guji zone context projects while from the
characteristics of project each project is different from the other in time, requirement, quality, scope and place.

West Guji Zone, despite of its enormous business activities center, and high economic area, only a few projects are being
implemented. Project management of these projects has to be undertaken in an effective manner so that the stakeholders and society as
a whole were benefitted from the project. Different risks are arising from different factors and it also results in society grievance due to
delays. This paper identifies project risk management practices and the effects of project risk management practices on project
performance in West Guji Zone selected projects.

3. Objectives of the Study

i. To identify the project risk management practice implemented in West Guji Zone selected projects.
ii. To examine the relationship between project risk management practices and project performance in West Guji zone selected
projects.
iii. To analyze effect of project risk management practices on performance of project in West Guji Zone selected projects.

4. Empirical Literature
According to Andualem (2019) the critical risks were mainly unforeseen site conditions, improper design, incomplete contract
documents, inflation, lack of timely and poor contract administration. Junior1 and Carvalho (2015) suggested that adopting risk
management practices has a significant positive impact on project success. Alsaadi and Norhayatizakuan (2021) suggest practicing
risk management improve the performance of construction project significantly. Tahir and et.al (2019) concluded and the theory
have been reinforced that an effective risk management system must comprise of a method of risk identification, a strategy for risk
assessment and a mechanism for prioritizing risk response. Gitau (2019) concluded that risk prevention significantly affected project
performance. (Voetsch et al., 2014) found that adequate resource allocation and staff training for project risk management are less
pronounced than risk visibility in organizational policymaking. Teferi (2020) concluded that a complete understanding and
identifying of risk factors could enable the practitioners to execute early responses to possible risks.

Yejimawork (2020) showed that in building constructions risk of cash flow shortage is most certain to likely happen with high
negative impact on the projects, and risk of price inflation was almost certain and with moderate negative impact. Yisakor(2020)
identified that Unplanned expenses, project delays, project failure, loss of profits, cost overgrowth are the major risk impacts
identified while improper use of labor, materials scarcity, inadequate project accountability can be classified as the minor construction
risk impacts identified in this work.

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 ISSN:2277-7881; IMPACT FACTOR :8.017(2023); IC VALUE:5.16; ISI VALUE:2.286
Peer Reviewed and Refereed Journal : VOLUME:12, ISSUE:2(1), February: 2023
Online Copy of Article Publication Available (2023 Issues)
Scopus Review ID: A2B96D3ACF3FEA2A
Cover Page Article Received: 2nd February 2023
Publication Date:10th March 2023
DOI: http://ijmer.in.doi./2023/12.02.06 Publisher: Sucharitha Publication, India
www.ijmer.in Digital Certificate of Publication: www.ijmer.in/pdf/e-CertificateofPublication-IJMER.pdf

5. Conceptual Framework

6. Research Gap
Author Study topic Study findings Study gaps
Owis Tahir (2019) Effects of Risk Management practicing risk management improve It has contextual gap since it
Practices on Project Success the performance of construction has been done in Pakistan
in the Construction Industry project significantly
of Pakistan
Daranee&Veera (2017) Effects of risk management Risk identification practice has the The research was conducted
practices highest influence on product on IT projects. Out of
on it project success performance and IT project success. Ethiopia
Peter Gitaw (2019) Risk management practices The study concluded that risk The research was conducted
and performance of projects prevention significantly affected out of Ethiopian context
in Nairobi city county, project performance.
Kenya
EshetuAdugna (2017) A comparative study on risk the lack of joint risk management Comparative,
management practices practices by stakeholders and shortage methodological gap
between international and of knowledge on road construction risk
local contractors in the management practices were the most
Ethiopian roads common barriers.
construction industry
AlemTeferi (2020) Risk management in A complete understanding and Focused on risk
building construction identifying of risk factors could enable identification only
projects the practitioners to execute early Contextual gap and
in Addis Ababa responses to possible risks conceptual gap
Gudeta Kuma (2018) The Role of Project Risk project risk management (proper risk All the mentioned
Management Practices for identification) should be practiced researches were done on
Project Success: The Case throughout project life cycle and projects with project
of Projects in the should involve project team members. managers, but this paper, on
Commercial Bank of projects without managers.
Ethiopia

28
 ISSN:2277-7881; IMPACT FACTOR :8.017(2023); IC VALUE:5.16; ISI VALUE:2.286
Peer Reviewed and Refereed Journal : VOLUME:12, ISSUE:2(1), February: 2023
Online Copy of Article Publication Available (2023 Issues)
Scopus Review ID: A2B96D3ACF3FEA2A
Cover Page Article Received: 2nd February 2023
Publication Date:10th March 2023
DOI: http://ijmer.in.doi./2023/12.02.06 Publisher: Sucharitha Publication, India
www.ijmer.in Digital Certificate of Publication: www.ijmer.in/pdf/e-CertificateofPublication-IJMER.pdf

7. RESEARCH METHODOLY
7.1 Research Design, approach and sample size
Both descriptive and explanatory research design was used in this paper. Research approach that the researcher used for this
paper was both qualitative and quantitative approach. Workers under each contractor will also be targeted in the data collection. Total
target population for this research are 561 from different sectors, contractors, project team, woreda administrators, west Guji construction
office staff members and workers on the site.

The sampling techniques apply to this study was both probability and non - probability sampling techniques. From probability
sampling, the researcher used stratified sampling and simple random sampling techniques for this study purpose. Since the projects in
the study are heterogeneous, stratified method of sampling is best for the process of grouping the heterogeneous elements to
homogenous.

7.2 Sample Size Determination

In order to get adequate representation from the total population, the sampling size was determined by applying Yamane's (1967)
statistical formula.

𝐍 𝟓𝟔𝟏
n= 𝟐 = 𝟐 = 233
𝟏 𝐍(𝐞) 𝟏 𝟓𝟔𝟏(𝟎.𝟎𝟓)

7.3 Reliability
Table 1: Cronbach alpha value of variables
Variables Cronbach's Cronbach's Alpha Based on Result
Alpha Standardized Items
PRMP 0.716 0.693 Reliable
PRI 0.704 0.701 Reliable
QLRA 0.722 0.724 Reliable
QTRA 0.754 0.763 Reliable
PRR 0.736 0.703 Reliable
IRR 0.718 0.699 Reliable
MPR 0.757 0.749 Reliable
PP 0.726 0.696 Reliable
Overall 0.823 0.830 Reliable
Source: author’s own survey, 2022. Based on SPSS v 20. Result.

8. Spearman Correlation Analysis

Table 2: Spearman’s correlation result of PRM practices
Spearman’s Correlations
Spearman's rho PRMP PRI QLRA QTRA PRR IRR MPR PP
** ** ** ** ** **
Correlation Coefficient .636 .638 .297 .040 .614 .621 .696 1.000
PP
Sig. (2-tailed) .000 .000 .000 .549 .000 .000 .000 .
**. Correlation is significant at the 0.01 level (2-tailed).
Source: Computed by SPSS, Source: Author’s Computation from own survey data, 2022

From the above correlation table it can be seen that there is moderate correlation between project risk management plan and
project performance which have correlation coefficient of 0.636 and P value of 0 .000. Project risk identification practices also have
positive correlation with project performance.

29
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www.ijmer.in Digital Certificate of Publication: www.ijmer.in/pdf/e-CertificateofPublication-IJMER.pdf

9. Regression Diagnostics
Table3: Correlation coefficient result of the variables
Coefficientsa
Model Unstandardized StandardiC T Sig. 95.0% Confidence Collinearity
Coefficients oefficien Interval for B Statistics
B Std. Beta Lower Upper Tolerance VIF
Error Bound Bound

(Constant -2.503 1.415 -1.769 .078 -5.292 .286

PRMP .194 .049 .204 3.959 .000 .097 .291 .922 1.085
PRI .213 .059 .190 3.632 .000 .097 .328 .956 1.047
1 QLRA .009 .036 .010 .237 .813 -.062 .080 .969 1.032
QTRA .052 .038 .053 1.359 .176 -.023 .127 .935 1.070
PRR .063 .051 .081 1.240 .216 -.037 .164 .939 1.065
IRR .244 .055 .223 4.429 .000 .135 .352 .966 1.035
MPR .409 .056 .383 7.354 .000 .299 .518 .947 1.055
Dependent Variable: PP
Source: coefficient statics from SPSS, v 20, 2022,

Based on our assumption there is no multicollinerity problem in variables. Also based up on Pearson’s correlation coefficients,
there is no existence of multicollinerity. The result from pearson’s correlation shows that correlation is significant at the 0.01 level (2
tailed).

10. Test for model specification

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity
Table 4: Ramsey Reset test for omitted variables
Ho: Constant variance
Variables: PP MPR PRI QLRA QTRA PRR IRR

chi2(7) = 27.84
Prob> chi2 = 0.0002
Source: own survey 2022, Computed by Stata 14,

The model specification refers to the description of the process by which the dependent variables is generated independent
variable. Thus, it encompasses the choice of independent and independent variables, as well as the functional form connecting the
independent variable to the dependent.

11. Econometrics Analysis

Table 5: Regression results of PRM practices effect on PP calculated by STATA 14.
Source | SS df MS Number of obs = 223
Model | 2008.711 7 286.958715 F(7, 215) = 71.47
Residual | 863.226217 215 4.01500566 Prob> F = 0.0000
Total 2871.93722 222 12.9366541 R-squared = 0.701
Adj R-squared = 0.6896
Root MSE = 2.0037

PP Coef. Std. Err. t P>|t| [95% Conf. Interval]

PRMP .1584267 .0510589 3.10 0.002 0577867 .2590668
PRI .223096 .058172 3.84 0.000 1084355 .3377565

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QLRA .0039456 .0357375 0.11 0.912 -.0664951 .0743864

QTRA .0628412 .0380362 1.65 0.100 -.0121305 .1378129
PRR .1237385 .0546597 2.26 0.025 .0160009 .231476
IRR .2027428 .0574769 3.53 0.001 .0894525 .3160331
MPR .3673526 .0580141 6.33 0.000 .2530034 .4817019
_cons -2.961138 1.416357 -2.09 0.038 -5.752862 -.1694139
Source: Author’s Computation from own survey data, 2022; STATA version 14

Accordingly, the result of the Multiple Linear Regression model revealed that the overall significance and fitness of the model
can be checked with the value of Prop>F=0.0000 shows that the model result is statistically significant at less than the percent
significance level. This suggests that the model has strong explanatory power. The result of R-squared is equal to 0.701 which implies
that 69.9% of changes in performance of the selected projects are explained by the explanatory variables included in the model. Among
the 8 explanatory variables hypothesized in the Multiple Linear Regression model, seven (7) explanatory variables namely: monitoring
project risk response is found to be significantly affecting the projects preformed in the study area at appropriate significance level.

From this regression analysis of the variable the estimated linear function for this study was presented as:
Performance of construction building (pp) Yi = 2.96+0.158PRMP + 0.223RI+ 0.003QLRA+0.062QTRA+0.
123PRR+0.202IRR+0.367MPR

12. Hypothesis Testing

Table 6: hypothesis decision resulted from P value
Hypothesis P value Decision
There is statistically significant relationship between 0.002 Accept Ha
planning project risk management and project performance
1
2 . There is statistically significant relationship between 0.000 Accept Ha
project risk identification and performance.
3 There is no statistically significant relationship between 0.912 Accept H0
quantitative project risk analysis and project performance.
4 There is no statistically significant relationship between 0.100 Accept H0
qualitative project risk analysis and project performance.
5 There is statistically significant relationship between risk 0.025 Accept Ha
response planning and project performance.
6 There is statistically significant relationship between 0.001 Accept Ha
implementing risk response and project performance.
7 There is statistically significant relationship between 0.000 Accept Ha
monitoring risk and project performance.
8 There is statistically significant relationship between project 0.038 Accept Ha
risk management practices and project performance.
Source: Authors own computation by SPSS v 20.

13. Conclusion
This section concludes the finding of the study. The conclusion arrived inthis section is based on the research questions set in
Chapter One of the study and answered by the analysis made in Chapter Four. The summary given above in this chapter also concentrates
the description made in the chapter to facilitate conclusion of the findings given below. Projects play an important role in development
of country. This is true only when the performance of projects is performed at a given time at appropriate quality and at balanced cost.
To perform efficiently and effectively the project risk management isomer important determinant. Appropriate project risk management
practices generate proper performance of projects. And when project risk management practices are not accurate there exist risks
unsolved and results in project delay, cost overrun and stakeholders are unsatisfied. The problem of the society also could not be
answered. Accurate performance of project performance is the result of project risk management activities. Project risk response
monitoring has significant relationship with the performance of selected projects. This indicate that with more project risk monitoring,
planning and risk response implementing results in decrease in project risk and increase in project performance. Project risk qualitative

31
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and quantitative analysis have only low effect on project performance of the selected projects in the study area and for this matter they
are the least seldom practiced in the selected projects.

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