A. Samer Ezeldin and Wallied Orabi
Department of Construction Engineering
The American University in Cairo, Cairo, Egypt
E-mail: aezeldin@aucegypt. edu
Risk management, as it relates to construction, is vital to the successful undertaking and completion of any construction project. One way to effectively manage project’s risks is to develop more reliable means of identifying the most critical risks and the associated effective response methods. Research studies have extensively addressed this aspect of risk management. However, a small fraction of this research focused on identification of the critical risks encountering contractors working in the construction industry of developing countries, and few tackled identifying the risk mitigation measures employed in such an industry by domestic, international, and multinational contractors.
This paper presents a comprehensive methodology that addresses the risk identification and response methods for developing countries represented by Egypt. The paper is based mainly on the approaches used by large contractors either domestic or international.
The investigation, via a comprehensive questionnaire survey, tries to identify the most critical and significant risks that face the contractors working in the Egyptian construction industry and their associated effectively employed risk mitigation/elimination measures. Twenty-nine (29) construction project risks are classified into six (6) main categories according to their type and hundred and forty (140 risk) mitigation/elimination measures are introduced to overcome the impact of risks under each of these risk categories.
According to the collected data and the results of the statistical analysis procedures employed, the
most critical risk encountered by the contractors working in the Egyptian construction industry
are: 1)the financial inability of the client; 2)the improper management of construction projects;
3) inflation and interest rates; 4)in-house cash shortage; and 5)Foreign exchange and convertibility. 101 risk response methods were found to be effective from the 140 methods introduced. The most commonly used risk response method was the risk reduction technique.
Risk is inherent in all human endeavors and the risk elements involved are diverse and varied (Odeyinka, 2000). Many researchers believe that the construction industry is one of the riskiest economy sectors because risks can affect productivity, performance, quality, and budget of a construction project (Ahmed et al., 2002; Kangari, 1995; Tah and Carr, 2000).
The common view of risk is that it is a negative event that results in loss, hazard, harm, and adverse consequences on the project (Mason, 1973; Moavenzadeh and Rossow, 1976). However, an increasing number of researchers are currently developing their definition of risk as an exposure to loss or gain from involvement in the construction process (Odeyinka, 2000; McKim, 1992; Healey, 1982; Perry and Hayes, 1985).
M. Pandey et al. (eds), Advances in Engineering Structures, Mechanics & Construction, 781-792. © 2006 Springer. Printed in the Netherlands.
Each party in a contractual relationship will perceive risks from their unique perspective. Owners, who are the ultimate beneficiaries of the contract, may only be considering the project from a construction industry share or production requirement perspective. Their greatest overall risk could reside in the ultimate product and not with the finished facility. Consultants’ risks are not as extensive as the owner’s or the contractor’s and are, to a great extent, limited to design risks. A contractor’s overall business risk can be thought of as a portfolio of risks made up of individual project risks. This portfolio changes frequently as some projects are completed and new projects are added. Unlike the designer, construction contractors work at higher risks created by the complexity of design and estimating total project costs (Smith and Bohn, 1999).
Risk management is becoming a crucial process to the success of construction projects because of such an industry that embraces many uncertainties. Furthermore, in developing countries the construction environment is much riskier due to the continuing evolution of laws and regulations, the high cost value of infrastructure projects that represent the majority of projects in such countries, and the economic and political instability.
Contractors working in these countries are in need of a simple but effective tool to help them properly identify the risks that they may encounter and the associated response methods to these risks. This study is focusing on Egypt, a developing country in the Middle East with an emerging reformed economical policy, a population of about 70 millions, and an increasing need of infrastructure and industrial projects.
The study has four main objectives:
1. Identify the most critical risks related to the Egyptian construction industry and their perceived criticality from the point of view of large scale contractors;
2. Identify the risk response methods employed by contractors working in the Egyptian construction industry and their effectiveness.
3. Compare the nature of construction risks encountered in the Egyptian construction to other international markets.
4. Develop a spreadsheet file that summarizes the findings of this research, which could help contractors in their preparation of effective risk management process for new projects.