Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan

Vol. 20(SI) No.II(S)-2015

Identification and Evaluation of Risk Factors

Affecting the Supply Chain Environment of
Construction Industry of Khyber Pukhtunkhwa
(KPK)
S.B. Khattak1*, M. Abas2, S. Maqsood1, M.Omair1, R. Nawaz1, I. Ul Haq3
1

Industrial Engineering Department, University of Engineering and Technology, Peshawar, Pakistan

Mechanical Engineering Department, Ghulam Ishaq Khan Institute of Engineering Sciences and Technology, Topi, Pakistan
3
Institute of Mechatronics Engineering, University of Engineering and Technology, Peshawar, Pakistan
*
Corresponding Author: sikandarbilal@uetpeshawar.edu.pk

Abstract-In todays world supply chain management is

very important not only for manufacturing sector but
also construction. Implementing supply chain
management in the construction sector is very
difficult and complicated compared to manufacturing
due to the involvement of too many participants such
as contractors, subcontractors, designer, suppliers
and clients. Abundant literature is available, but
developing countries like Pakistan faces numerous
issues in construction projects. There are some basic
guidelines proposed by supply chain management,
which can be used as benchmark to scrutinize, to
coordinate, to reengineer and to improve continually
the whole construction supply chain. This research
work addresses and highlights external factors
affecting different performance indicators (Cost,
Quality and Time). The Analytical Hierarchy Process
is used to rank these external factors. At the end of
the study some recommendations are made which will
help to resolve the issues related to supply chain
issues.

consultants increases number of key stakeholders which

add complexity to construction supply chain [ii].
The construction industry in general is highly
fragmented with substantial negative impacts professing
low productivity, cost and time overruns, conflicts and
disputes, resulting claims and time consuming litigation.
The legacy of this high level of fragmentation because
project delivery process is highly inefficient in
comparison with other sectors [iii].
It is a fact that implementing the SCM concept in the
construction industry is complex because it needs new
innovations and the knowledge to achieve difficult goals.
Vigorous network of participants that operate to assemble
a number of opposing business objectives adds more
complexity.
The application of SCM in Pakistan construction
industry is still in the embryonic stage. Most of the
practitioners and researchers focus on the business
process projects and little research have been done in
Pakistan construction industry. Developed countries like
China, United States of America, and many European
countries are using SCM application in the construction
industry. But still these approaches are still to be
explored in developing countries. Use of traditional
methods to manage and initiate construction projects is
still in practice.

Keywords-Supply Chain Management, Key performance

indicators, External Factors, Analytical Hierarchy
Process, Construction project.
I.

INTRODUCTION
II. LITERATURE REVIEW

The manufacturing industry is one of the pioneer

industries, which presents the concept of Supply Chain
Management (SCM) as a novel and a vital tool to satisfy
a demand. It performs the business process in an
organized and well defined way. It saves time, boost
quality and realize a profit [i]. The concept of the SCM is
still in adopting phase by many construction firms
worldwide. Which means it is not still fully matured due
to its complication. Involving contractors, clients,
subcontractors, multiple supplier, designers and

SCM is managed by effective participation of all

stakeholders.Its aim is to satisfy end user. concerned in
meeting the end user specification. The most vital goal of
the SCM concept is the full protection and fulfilling of
consumer requirements, optimizing the profit for the
company and reducing the extent of waste in terms of
three basic principles: time, cost and the quality.
Every domain has its own requirements and
management structure. SCM should be defined

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Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan

differently in different domains. The SCM particularly in
the building and construction industry deals with
management of materials and also has the relation
between contractors, suppliers, manufacturers and
distributors [iv]. Generally there are three types of
Construction Supply Chain (CSC) : the first one is the
primary supply chain which delivers material, second one
is the support supply chain which provides equipment,
and the third one is a human resource supply chain which
is concerned with the supply of labor [v]. CSC can be
divided into two main groups: materials chain and the
construction chain. This division helps to isolate the
procurement and management operations. These two
chains are interconnected through SCM database and
help to guarantee the smooth flow of information within
the different chain and results in increased cooperation
within the supply chain partners [vi]. Wangu [vii] have
developed a framework for integrated CSC and grouped
it into five domains and a supporting system as
performance measurement, risk management, selections,
conflict
management,
innovations,
information
technology and communication system.
Numerous researches have been carried out to
identify the factors that affect the supply chain
environment [viii-xi]. Some factors could be controlled
by project team known as internal factors whereas the
external factors are defined as the factors that are not in
direct control of a project team. Prime consideration is
required to control these external factors, as it affects the
performance measures such as cost, quality and time of
the construction projects. The Significance of these
factors varies depending on the type of construction
project. Some associated with Pakistan construction
sector are: fluctuations in prices, inflation, delayed
payments, and incorrect method of cost estimation are
risk association [xii]. Sometimes the low bid is not the
most economical solution because it affects the
construction project in terms of over budgeting and
excessive delays. Now a days Pakistani construction
sector is facing the problem of financial capability of
contractor and supplier, due to which many construction
projects face delays and cost overrun [xiii]. The three
most important external factors that affect construction
projects include: bad weather condition, low labor
productivity and low quality of material [xiv]. For on
time material supplies the financial stability and
capability of supplier is very important. The supplier
needs to deliver material when promised. Beside financial
stability, bad weather and natural disasters may disrupt
supplies. They significantly affect the time and cost
performance of construction projects [xv]. The most
common external factors of delay are natural disaster in
Pakistan like flood and earthquake. The study also
acknowledged others which are: financial and payment
problems, poor management, shortage of materials and
equipment [xvi]. Cash flow is the most important power
of running construction companies. Lack of cash brings

Vol. 20(SI) No.II(S)-2015

extra expenses to construction companies and decreases

the profitability. Late payment is one of the risky factors
that have an adversarial and disastrous effect on the
construction projects. Not only budget is affected, but
also adds delays and quality problems [xvii]. Shortage of
material, communication gap between the various parties
of construction projects, problem with subcontractors,
and lack of funding and poor site management causes
cash flow and quality problems [xviii] .
The Government changes policies rapidly which
affects the projects. The government enforces their own
selling prices and rates [xix]. Lack of effective project
management in Pakistani construction industry have
damaged its image in international market [xii]. The
Pakistan construction sector is facing the problem of
shortage of material because of low production. This
results in higher material prices. For successful SCM the
buyer and supplier relation is very important because of a
supplier is totally dependent on buyer revenue while buyer
focuses on low cost and good quality and on time delivery
[xx]. The issues which need to be addressed in supply chain
are communication, information flow, long term
relationship and quality [xxi]. SCM is a way of managing
the information flow or better communication. It is
important for problem solution and exchange of knowledge.
For this purpose computer integrated contraction has been
developed to improve communication and coordination
through the entire supply chain [xxii].
Literature review concludes that factors significance
varies from project to project and region to region. The
construction practitioners should be aware of these
significant factors and its impact on performance
parameters. This research is intended to highlight the risk
factors affecting the supply chain environment of
construction projects which are directly responsible for
cost overrun, time delays, and bad quality. Literature
review indicated that a construction project is futile if
time delays, cost escalation and quality deficiencies
occur. The project performance parameters selected in
consultation with experts (Academic and Field) are the
cost of the project, time taken by project and quality of
the project.
III. METHODOLOGY
Both internal and external factors were identified
primarily through a comprehensive literature review,
which were then shared with academic experts in a group,
discussed and were finalized after consulting the
construction practitioners. External Factors selected for
this research are shown in Table I.
A questionnaire was designed based on the internal
and external factors in relation to the project performance
parameters. The aim of the questionnaire is to take
feedback from construction practitioners about the
problem caused by these factors within and outside the
scope of a construction project and their impact on the
project performance parameters.

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Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan

TABLE I
EXTERNAL FACTORS

S/
No

External Factors

PC-1

Initial cost preparation

Funding

Providing resources for

the project

Procurement Unit
of Contractors

Inventory
capability

Financial capability
of Contractor

Contractor's ability
finance a contract

Management team
of Contractor

Members which
integral units

Communication
Infrastructure

Physical
and
organizational structures
needed for operation, use
of mail, telephone and cell
phone.

Escalation
of
Material Prices

Increase in price of the

material

Technical Person
Availability

Person in the team with

technical Knowledge

Cash Flow

Inflow and outflow of

cash for the project

10

Shortage
Material/
Equipment

11

Low Bid

of

Vol. 20(SI) No.II(S)-2015

18

ISO Certification

Certified as a standard
organization

19

Law and
Situation

Strict control of crime and

repression of violence

Description
Order

The questionnaire is divided into four portions. First

portion is related to respondent qualifications (e.g. Work
experience, position in the company) where as company
information (e.g. Type of construction work performed,
number of years in business, number of projects
completed annually, total number of employees) is
included in the second portion. The third portion consists
of a series of questions related to internal and external
factors with individual weights on a scale of 1-9. While
the last portion of the questionnaire relates the internal
and external factors related to the project performance
parameters.
Then the questionnaires were shared with the
construction practitioners, consultants, government
officials and project managers. To make the research
more reliable and useful a few group discussions were
also carried out by contractors and site engineers.

placing

to

make

A. Response Profile
In Pakistan the top four categories of contractors as
classified by Pakistan Engineering Council (PEC) are
Class A (CA), Class B (CB), Class1 (C1) and Class (C2).
The questionnaire was shared with One hundred and fifty
(50) CA, CB, C1, and C2 category contractors.
Government officials, private organization and academic
experts opinion was also included. The survey is
conducted through emails, mails and personal interview.
However, oe hundred and ten (110) questionnaire was
received out of which nine (9) were rejected due to
insufficient information. Table II shows the respondents
demography which highlights that most of the
respondents have more than 10 years experience.

Non
Availability
of
material and equipment
from market
Maximum limits on cost

TABLE II
RESPONDENTS PROFILE

12

Weather Condition

Instability in weather

13

Bureaucracy and
Political Influence

Structure and regulations

in place to control activity

14

Terrorism

Violent acts which are

intended to create fear

15

Regulatory
Authorities

16

17

S.NO

Position

Executive
and General
Director

Peshawar
Development
Authority
(PDA)

20-23 years

Consulting firms to assure

the work

General
Director

Contractor
of
Class A and B

18-20 years

Government
Policies

Laws and Procedures

from government

Civil
Engineers

13-17 years

Inflation

Decrease in the value of

money

Irrigation
Department
Peshawar

187

Organization

Experience

Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan

4

Quantity
Surveyors

PDA
and
Contractors of
Class A and B

16 years

Professors
(Academic
Experts)

UET Peshawar

10-15 years

TABLE V
SPEARMAN'S TEST RESULTS

S.No
1
2
3
4
5

B. Validation of collected data

Required data were extracted from the

questionnaires. Its reliability was checked with the help
of Statistical Package for Social Sciences (SPSS)
software using Cronbachs alpha test. Table III shows the
summarized results of validity of collecting data, which is
100% valid.

CA-CB
C1-C2
CA-C2
CB-C1
CBGovernment
officials
Government
officialsPrivate organization
CA- Academic Expert

Correlation
Coefficient
0.451
0.249
0.262
0.679
0.152
0.374
0.271

Analytical Hierarchy Process (AHP) is used for

analysis. For analysis the mean of the individual external
factors was calculated, which was used as input value for
pairwise comparison matrix for the analytical hierarchy
process (AHP). Then the data was analyzed with the help
of analytical hierarchy process developed by Saaty [23].
The general AHP tree research is shown in Fig. 1.

TABLE III

a.

Categories

IV. DATA ANALYSIS

CASE PROCESSING SUMMARY

Cases

Vol. 20(SI) No.II(S)-2015

N
%
Valid
101
100.0
Excludeda
00
000.0
Total
101
100.0
List wise deletion based on all variables in the
procedure

The Table IV shows the cronbachs alpha value. The

data are reliable when alpha value is greater than 0.70,
while less reliable when greater than 0.50 and less than
0.70. While not reliable when alpha is less than 0.50. The
data was highly reliable with a value of 0.850.
TABLE IV
RELIABILITY STATISTICS

Cronbachs
Cronbachs Alpha Based
Alpha
on Standardized items
.850
.855
C. Correlation test

N of
items
19

The questionnaires received were from different

organization and from different respondents. So it is
important to check the level of agreement among
different parties and accuracy in data. For this reason
Spearmans rank correlation coefficient is used. It is non
parametric and distribution free test. Randomly, two
questionnaires were selected for each category for
performing correlation test. The table V shows the
results.
The value of correlation coefficient varies between
+1 and -1. Positive value near to 1 shows positive
agreement, while negative shows disagreement. As all the
values of correlation coefficient are positive and near to
+1. So we conclude that all the parties agree on rating of
factors and collected data is quite accurate.

Fig. 1 AHP Tree for External Factors

Microsoft EXCEL (Ms Excel), one of the most

commonly used software for data analyses and data
crunching is used. The responses from the questionnaire
were imported to MS Excel. AHP template was
developed in EXCEL. The general steps for AHP are
discussed below:
1.

188

Construct a set of pairwise comparison matrix of

criteria.Pairwise matrix refers to weightage matrix of
individual factor. The pairwise weightage is similar
to From-To chart and is calculated by dividing the

Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan

Vol. 20(SI) No.II(S)-2015

Table IX

weights of respective factors. Put the values in

matrix like from-to chart as shown in Table VI.

Difference of two Iterations

First Iteration
Priority Vector

TABLE VI

Second Iteration
Priority Vector

Difference

COMPARISON MATRIX

Cost

Quality

Time

Cost

1.00

\0.56

0.83

Quality

1.80

1.00

1.50

Time

1.20

0.67

1.00

0.25
0.25
0
0.45
0.45
0
0.30
0.30
0
Similarly following step 1-4 , the alternatives
(external factors) are compared with respect to each
criterion (cost, quality and time). So the resultant matrix
obtained as a result of pairwise comparison is of the order
(12 X 3) as shown in Table X.
TABLE X

2.

PERFORMANCE MEASUREMENT MATRIX

Perform the first iteration to normalize the matrix by

squaring the matrix, take row sum and divide each
row sum by its total sum, to get a first priority vector.
As shown in Table VII.

External Factors

TABLE VII
FIRST ITERATION

FromTo
Chart
Cost

Cost

Quality

Time

Row
Sum

Priority
Vector

1.67

2.50

7.17

0.25

Quality

5.4

4.50

12.90

0.45

Time

3.60

8.60

0.30

28.67

Sum

3.

Again square the previous matrix to perform a

second iteration, take it row sum and divide each row
sum by the total row sum to obtain second priority
vector as shown in Table VIII.
TABL VIII

FromTo
Chart
Cost
Quality
Time
Sum

4.

Cost

27
48.60
32.40

Quality

15
27
18

Time

22.50
40.50
27

Row
Sum

Priority
Vector

64.50
116.10
77.40
258

0.25
0.45
0.30

Then take the difference of first priority and second

priority vector, shown in Table IX if the difference is
negative, zero or near to zero, we said that the matrix
is normalized and consistent, the priority vector in
second iteration is a result of AHP.

189

Quality

Time

PC-1 Preparation
Funding

0.0516
0.0534

0.0466
0.0581

0.0438
0.0600

Procurement Unit
of Contractor
Financial
Capability of
Contractor
Management Team
of Contractor
Communication
Infrastructure
Escalation of
Material prices
Technical Person
Availability
Cash Flow

0.0519

0.0553

0.0517

0.0594

0.0575

0.0531

0.0540

0.0559

0.0560

0.0478

0.0503

0.0555

0.0629

0.0625

0.0555

0.0545

0.0611

0.0539

0.0591

0.0597

0.0574

0.0572

0.0597

Shortage of
Material/Equipment

SECOND ITERATION

Cost

0.0555

Low Bid

0.0563

0.0555

0.0535

Bad Weather

0.0524

0.0505

0.0563

Bureaucracy and
Political Influence

0.0498

0.0493

0.0534

Terrorism

0.0601

0.0563

0.0586

Regulatory
Authority
Govt Policies

0.0421

0.0475

0.0453

0.0488

0.0477

0.0530

ISO certification

0.0285

0.0348

0.0253

Inflation

0.0617

0.0510

0.0542

Law and Order

Situation

0.0501

0.0431

0.0536

Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan

Multiply the Table X with priority vector in Table
VIII, to get AHP results. Th table XII shows the AHP
results in descending order. The highest impact factor
with AHP value of 0.0605 is escalation of prices while
the lowest rating factor is ISO certification with AHP
value of 0.0304.

The inflation results an increase in the prices of fuels,

equipments, and labor costs. On other hand taxation have
the same impact in 2013-2014, and 2014-2015 budgets.
Government has increased taxes on both manufacturing
and service industries including both cement and
construction firms. As a result cement industry have to
increase their prices from 3 to 4%. Contractors not only
pay taxes on their business only but also on the material.
To avoid such problems the contractor needs to buy
material as early as possible. Buy it in bulk quantity to
take advantage of discounts. The contractor needs to
make escalation clause in the contract applicable and
include those materials that are critical to escalation.
Developing trust with key supplier to get early
information on material prices increasing may also
benefit the team members.
Second significant factor with an AHP value of
0.0589 is cash flow. According to most of the
respondents the cash flow problem occurs because of
ineffective utilization of funds, lack of proper process
implementation, inflation and bureaucracy. In order to
avoid such problems one need to discuss problems with
clients to address the problems in a timely manner.
Financial stability of the client should be assessed prior to
signing agreement. Communicate openly and make a
penalty clause in the contract if the client fails to fund the
project on time.

TABLE XI
EXTERNAL FACTORS RANKING

Ranking
1

External Factors

AHP
Values
0.0605

Escalation of Material
prices
Cash Flow

Terrorism

0.0580

Shortage of
Material/Equipment
Funding

0.0575

0.0573

Technical Person
Availability
Financial Capability of
Contractor
Management Team of
Contractor
Low Bid

10

Inflation

0.0546

11

Procurement Unit of
Contractor
Bad Weather

0.0534

0.0512

15

Communication
Infrastructure
Bureaucracy and Political
Influence
Government Policies

16

Law and Order Situation

0.0480

17

PC-1 Preparation

0.0470

18

Regulatory Authority

0.0455

19

ISO certification

0.0304

5
6
7
8

12
13
14

Vol. 20(SI) No.II(S)-2015

0.0589

0.0575

0.0566
0.0554
0.0551

0.061
0.061
0.060
0.060
0.059
0.059
0.058
0.058
0.057
0.057
0.056
0.056

0.0527

0.0507
0.0496

V. RESULTS AND DISCUSSION

Five most significant external factors are shown in
Figure 2. The most significant factor identified through
AHP analysis is escalation of material prices. The AHP
value of escalation of material prices is 0.0605.
Escalation of material prices simply means an increase in
prices of material that affect the performance of the
project. Most of the respondents have mentioned that the
common cause of escalation in Pakistan is economic
instability or inflation and too much taxes. Inflation rate
ranges from 3% to 27% in Pakistan, with an average of
8.8%. According to analysts this average rate is very
much high and hampers the growth and development.

Fig. 2. Significant Factors

Terrorism with AHP value of 0.0580 is third

significant factor. Terrorism in Pakistan has hampered the
business environment especially in KPK. According to
the respondents, terrorism has greatly affected cost and
time of construction projects due to supplier dropout.

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Technical Journal, University of Engineering and Technology (UET) Taxila, Pakistan

Tight security forces alternative routes to be choked for
traffic. Opened routes have several check posts. The
trucks containing materials has to wait for days at a check
post for security clearance. To avoid such problem the
contractor need to order material as early as possible to
avoid shortages. The government needs to concentrate
and relax transportation policy.
Fourth significant factor based on AHP is shortage of
material/equipment. Most of the respondents reported
that they are facing problem of shortage of
material/equipment because of supplier dropout. On time
funding, escalation of material prices, unnecessary use of
materials, under estimation of materials quantity and
pilferage on construction sites leads to supplier dropout.
The effect of the shortage of material/equipment can be
minimized by purchasing the critical material in bulk
quantity. Daily supervision of the material, and correct
estimation of the material can help in resolving this issue.
Preventive maintenance should be preferred rather than
corrective maintenance for equipment and vehicles.
Funding with an AHP value of 0.0575 is fifth
significant factor. Late funding by clients is also the
major problem faced by most of the respondents Funding
not only affect project performance but also create
financial problems. As the construction projects are
temporary in nature, but its outcomes are permanent. So
the funds should be allocated in short terms and must
release on time. If the funds are not provided on time, it
leads to time overrun, over cost, and quality defective.

[iii]

VI. CONCLUSION
In this research the effect of external factors on key
performance indicator (Cost, Quality and Time) of the
construction projects is assessed. A questionnaire was
designed and then distributed among major group of
participants such as consultants, contractors and clients.
The identified factors were ranked based on AHP. The
factor with highest AHP value is escalation of material
prices which is 0.0605. Followed by Cash flow with
0.0589, Terrorism with 0.0580, Shortages of material and
equipments with 0.0575 and Funding with 0.0575.
A project manager must need to consider these
factors and try to diminish their effect at the start of
project by better supervision and maximum utilization of
available resources. Better planning from the beginning
and effective scheduling leads to a satisfactory project.

[xv]

[iv]

[v]

[vi]

[vii]

[viii]

[ix]

[x]

[xi]

[xii]

[xiii]
[xiv]

[xvi]

[xvii]

[xviii]

[xix]

[xx]

[xxi]
[xxii]

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