Financial Risk Management Practices and Performance of Construction Projects in Kenya: A Case of Construction Projects at Cowitch Investments Limited

Abstract

The construction sector in Kenya has experienced growth over the years due to government investment in infrastructure, affordable housing, and urbanization. However, projects are faced with the challenge of safety, budget, scope, schedule, quality, and stakeholder satisfaction. Furthermore, the number of stalled construction projects and collapsing buildings in Kenya has been increasing due to the high risks associated with projects not being well managed. The purpose of this research was to investigate the effect of financial risk management practices on the performance of construction projects with a particular focus on construction projects at Cowitch Investments Limited. The study objective was to identify the financial risk management practices adopted in the construction projects at Cowitch Investments Limited, to examine the factors that influence the performance of construction projects undertaken by the company, and to establish the effects of financial risk management practices on the construction projects at Cowitch Investments Limited. This study was guided by three theories specifically; Modern Portfolio Theory (MPT), Theory of Constraints (TOC), and Contingency Theory. The study population of 100 employees with a target population of 50 respondents, which included 9 project engineers, 2 finance managers, 6 supervisors, and 33 technicians of Cowitch Investments Limited. The census method was used where all the 50 respondents participated in the study. Correlation analysis was carried out to examine the relationship between variables, and results were presented in tables. Results from inferential statistics indicated a strong positive relationship between financial risk management practices and organizational performance. The R-squared value was 0.973 which meant that 97.3% of performance variance was explained by the model. The ANOVA results confirmed the model's statistical significance with a p-value of .00 which was less than 0.05. Operational risk management had the most substantial impact on performance, with a highly significant positive relationship (p=0.000). In contrast, credit risk management showed a positive but statistically insignificant relationship (p=0.052), while both liquidity (p=0.368) and currency risk management (p=0.217) exhibited negative and statistically insignificant relationships with performance. This underscored the critical role of operational risk management in driving organizational success. The study recommended prioritization of improving operational risk management practices to enhance performance outcomes of construction projects. The study also recommends policymakers introduce regulations on operational risk management practices to have standard to guide projects.