A study on the impact of Risk management strategies on the sustainability of projects A case study of rural based water proje

A study on the impact of Risk management strategies on the sustainability of projects A case study of rural based water projects in Machakos county

By

GLADYS NDINDA MWANZA

August, 2015.

BACKGROUND OF THE STUDY

Sustaining of projects is a major challenge in developing countries. Several projects that have been implemented with large sums of money tend to experience serious challenges of sustainability. The issue has become a major concern for most donors such as the African Development Bank, the World Bank, and USAID, the Asian Development Bank, the African Union and the Economic Community of West African states. organizations that proactively identify and manage risks tend to be in a better position to seize opportunities,Kerzner,(2009). This applies to managing sustainable development opportunities and risks, which include environmental, social, and economic issues. Integrating sustainable development opportunities and risks into an existing framework and strategy should allow for a better understanding of their relationship to an organization’s business goals and other activities. A good measure of whether sustainable development is embedded into organizational operations and general good management is the extent to which an organization among other factors such as being accustomed to social and environmental sensitivities and recognizing opportunities for improving its financial performance inteligently manages risks. As a strategy towards poverty reduction in many developing countries, efforts such as allocation of Social Development Funds, Constituency Development Funds and donor funds to facilitate initiation of income generating projects for the target communities have been evidently adopted. Interested stakeholders such as Non-governmental organizations, Churches, government and individual of good will have come up with seemingly healthy ideas.

It however seems that the problem of poverty still continues to exist as majority of these projects cease to exist immediately the source of funds are pulled out,(Bigio, 2009).One of the major challenges of rural based water projects is that of limited sustainability Thioune, (2003) (where the present context for strategy development is one of isolated groups and individuals) or completely lack of sustainability (where stakeholder isolation within strategy development process is likely to be the norm for the foreseeable future).The features of sustainability in projects as noted by Danilov,( 2009) are categorized into ;Social indicators referring to the quality of amenities and facilities in place for human rehabitation, level of education, health and safety standards for example longevity prospects,child birth and child mortality up to age of five years .Ecological indicators which include protection of the atmosphere as indicated by greenhouse emissions, measures of preventing desertification, and deforestation, rational land use, maintenance of biodiversity, ecologically safe managements of radioactive waste and sewage. Economic indicators refer to financial resources and mechanisms, per capital GDP index, consumption patterns including energy use and cooperation transfer of environmental sound technologies .Institutional indicators: Intended to reflect on one hand state of policies on sustainable development and on other hand involvement of key population strata in the development process. It includes such issues as presence of national programs for transition, implementation of global accords on sustainable development and numbers of internet users per a thousand people.

Sustainability challenges as indicated by Bigio, (2009) include lack of sustainability maintenance culture , poor community participation, management problems, poor project goals , more

preference to provision of local quick jobs at the expense of employee competence and environmental issues.

In the context of project management, risk management entails, planning how risk was managed in the particular project, assigning a risk officer, maintaining live project risk database, creating anonymous risk reporting channel, preparing mitigation plans for risks that are chosen to be mitigated and summarizing planned and faced risks. The importance of risk management ranges from attaining sustainable project that consequently reduces poverty levels through increased income to the community. The strategies for risk management as indicted by Marks, (2007) include, Risk avoidance; failing to carry out an activity that could carry risk, Risk reduction or “optimization” involves reducing the severity of the loss or the likelihood of the loss from occurring, Risk sharing with another party the burden of loss or the benefit of gain, from a risk.’ and the measures to reduce a risk and risk retention is accepting the loss, or benefit of gain, from a risk when it occurs. Though hardly emphasized, the relationship between risk management strategies and sustainability of rural based water projects cannot be overlooked thus creating the need to undertake this study.

While studies on strategies for project sustainability have mentioned various causes of project sustainability, the relationship between risk management strategies and sustainability of projects is hardly emphasized by majority of authors. According to Douglas, (2009) Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of

uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Risks can arise from uncertainty in financial markets, project failures (at any phase in development, production, or sustainment life-cycles), legal liabilities, credit, accidents, natural causes and disasters as well as

deliberate attack from an adversary or events of uncertain root-cause, Douglas (2009).

STATEMENT OF THE PROBLEM

Project sustainability is a major challenge in many developing countries. Large number of projects implemented at huge costs often tend to experience difficulties with sustainability. More than a third of Rural based water projects fail within 3 years of development. Construction of this water projects doesn’t help if they fail shortly after being implemented. All major donors, such as the World Bank, USAID, UNDP, Asian Development bank and the bilateral aid agencies have been expressing concerns on this matter. This means that while huge expenditures are being incurred by these countries in implementing projects, poor sustainability is depriving them from the returns expected of these investments. With this the debts from development expenditure are increasing and gains from these expenditure have either not been forthcoming fully or been accrued at a lower rate. Failure of the project leads to wastage of both human and financial capital invested in the project. With this rationale people living in rural areas continue to languish in poverty due to high failure and unsustainable of water projects..The problem of unsustainability has been highly discussed cited several reasons as the cause of the unsustainability but the subject of risk management strategies hasn’t been mainly discussed. A study by Bigio, (2009) show that many business related projects in rural areas are faced with sustainability challenges due to inability to intergrate risk management strategies in their project cycles. Graft ( 2003 ) further adds that it is unclear what long term commitments on the side of project initiators and community have on management of risks associated with rural based business projects. This has led to losses that could easily be avoided and consequent failure to exploit new business opportunities that may arise from risk management strategies. Risk mapping seem not to be a prerequisite in project planning and therefore not instilled as part of project design in many rural based projects Kerzner,( 2009).Studies by Derek, (2005); Bigio, (2009); Kerzner, (2009); show factors such as lack of community participation, poor project management , poor project goals ,and lack of quality training as major prerequisites for poor project sustainability in rural areas. In a study done by Wanjohi (2010) , on sustainability of community based projects in developing countries, local team leadership and financial issues were discussed as the major issues of concern affecting project sustainability. In a similar study done by Jeucken, (2004), the need to enhance projects sustainability by financial institutions was identified. Jeucken, (2004) identified environmental concerns as reasons for poor project sustainability in developing countries. He however did not discuss environmental risks that projects are exposed to and their relationship with sustainability.Optimization of the current risk management strategies is crucial for the sustainability of water projects. This therefore creates the need to carry out this study on the relationship between risk management strategies and sustainability of water resource projects in Kenya with reference to Machakos County

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OBJECTIVES OF THE STUDY

MAIN OBJECTIVES

The main objective of this study is to at examine the risk management strategies and their impact on the sustainability of rural based water projects.

SPECIFIC OBJECTIVES

The following specific objectives will guide the study;

To examine the impact of risk reduction on the sustainability of rural based water projects

To analyze the impact of risk retention on the sustainability of rural based water projects

To establish the effects of risk transfer on the sustainability of rural based water projects.

To evaluate the impact of risk avoidance on the sustainability of rural based water projects.

To determine to what extend the risk management strategies determine sustainability.

RESEARCH QUESTIONS

What is the effect of risk reduction on the sustainability of rural based water projects?

What is the impact of risk retention on the sustainability of rural based water projects?

What is the effects does risk transfer have on the sustainability of rural based water projects?

To what extend does risk avoidance impact sustainability of rural based water projects?

How can the strategies be ranked to their influence in the sustainability of rural based water resource projects?

SIGNIFICANCE OF THE STUDY

Despite the growing innovation and investment of organization resources in project development, there have been challenges in the sustaining of these projects thus resulting to wastage of the project inputs. The lessons from this study as well as the recommendation for the future will help the management of the rural based water projects to understand the strategic and tactical ways of dealing with risk management in order to be able to sustain the projects.

Project risk managers can use this study to evaluate the effectiveness of risk management strategies in increasing the sustainability of projects.

The study will also provide the background information to research organizations and scholars who will want to carry out further research in this area. The study will also facilitate individual researchers to identify gaps in the current research in this area. It will also enable them in taking up consultancy assignments on project risk management and sustainability for client organizations.

SCOPE OF THE STUDY

The study on the impact of risk management strategies on the sustainability of rural based water projects will be conducted in Kenya with reference to rural based water projects carried in Machakos county.