HBRC Journal (2015) 11, 129135

Housing and Building National Research Center

HBRC Journal

http://ees.elsevier.com/hbrcj

Identifying the latest risk probabilities aecting

construction projects in Egypt according
to political and economic variables.
From January 2011 to January 2013
Laila Mohamed Khodeir, Ahmed Hamdy Mohamed Mohamed *

Faculty of Engineering, Ain Shams University, Egypt

Received 2 May 2013; revised 9 March 2014; accepted 26 March 2014

KEYWORDS Abstract The aim of this paper is to identify the latest top major risk probabilities in construction
Risk management; projects in Egypt according to political and economic variables between the time period Jan 2011
Construction projects; and Jan 2013. Risks were prioritized according to their signicance of inuences and their sources,
Egypt whether internal or external. The paper describes, on the basis of a questionnaire survey of project
management practices, the construction risks, which are generally perceived as events that inuence
project objectives of cost, time and quality. A statistical analysis was carried out in order to identify
the top major construction project risks. It is concluded that however risk factors vary considerably
across industry and countries, the study of risk management for construction projects will provide a
reference for other projects that might be executed in similar circumstances. The paper ends up with
suggesting the risk response strategies appropriate for each type of identied risk. The research nd-
ings will contribute to both practice and research in risk management for the Egyptian construction
industry and will also provide valuable information for international companies which intend to
provide construction projects in Egypt.
2014 Production and hosting by Elsevier B.V. on behalf of Housing and Building National Research
Center.

Introduction

Great efforts are needed to identify and manage the top major
* Corresponding author. Tel.: +20 1001505644. risks resulting from the emerging political and economic
E-mail address: hamdy9@hotmail.com (A.H.M. Mohamed). variables from January 2011 to January 2013 in the Egyptian
Peer review under responsibility of Housing and Building National construction industry. In this critical period, the construction
Research Center. activities in Egypt were exposed to many risks which were
partly neglected and needed proper management.
This paper rstly presents a literature review on risks, risk
Production and hosting by Elsevier management and the types of risks that normally accompany

1687-4048 2014 Production and hosting by Elsevier B.V. on behalf of Housing and Building National Research Center.
http://dx.doi.org/10.1016/j.hbrcj.2014.03.007
130 L.M. Khodeir, A.H.M. Mohamed

construction projects. The paper then discusses the current dening the objective of the project (what is to be achieved)
practice of risk management in Egypt. The nature of Risks and making sure about the procedures needed to achieve
in this period drastically changed due to the emergence of some success [7]. The process of management of risks also includes
political and economic variables. The ndings of this paper risk response strategies that are dened as risk retention, risk
will contribute to both the practice and research aspects of risk transfer, risk reduction and risk avoidance [8].
management for the Egyptian construction industry and will
provide valuable information for international companies Classication of risk
which intend to provide construction projects in Egypt.
Risk classication is an integrative part of risk identication;
Dening risk its main objective is to structure the diverse risks affecting a
construction project [7]. Risk passed through many serious
Risk management is essential to construction activities in tries to classify its sources as a step to help project managers
minimizing losses and enhancing protability. In general, the to predict risks. Although many ways can be used to classify
construction industry is widely associated with a high degree the risks associated with construction projects, the reasoning
of risk due to the nature of construction business activities, for choosing a method must serve the purpose of the research.
processes, environment and organization. Construction In this paper, risks are grouped with reference to the project
projects entail long period, complicated processes, nancial management institute (PMI), which classied risks into exter-
intensity and dynamic organization structures [1]. This type nal and internal, in order to study risks according to the polit-
of risk has gained vast attention from construction project ical and economic variables.
managers because of both time and cost overruns that are Though internal risks may be under control of the project
almost part of any construction project [2]. manager, they cause uncertainty that may affect the project.
There were many different attempts to dene risk, among They includes technical risks (government regulations, natural
which was that risk is the potential for unwanted or negative hazards, labor stoppage, cash ow problems, safety issues and
consequences of an event or activity [3]. natural catastrophes), nontechnical risks (changes in technol-
Risk can also be generally recognized among those within ogy, changes in state of the art, design issues and operations/
the construction industry as the phenomenon of continually maintenance issues) and legal risks (licenses, patent rights, law-
facing a variety of situations involving many unknown, unex- suit, subcontractors performance and contractual failure).
pected, frequently undesirable and often unpredictable factors External risks are out of the project managers control, but
[4]. But the latter denition of risk tends to ignore its double- may affect the direction of the project; these risks include costs,
edged nature, which was recognized in dening risk as the borrowing rates and raw material availability [12].
chance of something happening that will have an impact on
objectives; may have a positive or negative impact [5]. Current practice of risk management techniques in Egypt
This paper aims at identifying the top major risks regardless
of their nature of impact, whether positive or negative, The construction industry in Egypt is one of the main supports
through considering the probability of their occurrence and of Egyptian economy. The rapid growth of the Egyptian Con-
their impact or magnitude of consequence. struction Projects together with the unrest of the Egyptian
society due to political and economic variables in the period
Sources of risk in construction projects that followed the 25th January Revolution calls for massive
development in risk management techniques. These variables
Sources of risk inuence projects performance in terms of bring opportunities to researchers in the eld of project man-
time, cost and quality in negative or positive ways. These agement to develop effective risk management techniques to
sources are classied according to their nature into physical, cope with risks associated with construction activities and to
environmental, design, logistics, nancial, legal, political, con- implement the projects in accordance with project objectives
struction and operation risks [2]. They are also classied into including time, cost, quality and safety.
internal and external risks. Internal risks include nancial, Another factor that adds additional risks to construction
design, contractual, construction, personal and operational projects in Egypt is the participation of foreign partners with
risks, whereas external risks include economic, social, political, the local stakeholders. This imposes risks such as differences
legal, public, logistical and environmental risks [6]. in practices between domestic and foreign partners, policy
and nancial risks and legal and political risks. In addition
Management of risk to those risks, the ination rate in Egypt is quite high:
10.2% (2011 EST.) [9], while the national currency is relatively
Risk management in the context of construction projects is a weak, as in Feb. 2013 the USD reached 6.73 Egyptian pounds
systematic way of identifying, analyzing and dealing with risks [10]. The above mentioned factors emphasize the vitality of
associated with a project with the aim of achieving the project monitoring and controlling the efciency of risk management
objectives [7]. Although risks cannot be excluded, they can be practices in construction projects in Egypt.
effectively managed. The PMBOK described management of The political and economic variables in the discussed period
risk as the processes concerned with conducting risk in Egypt have been accompanied by a group of key risks, like
management planning, identication, analysis, responses and the workers strikes, lack of fuel, unsecured roads between
monitoring and control on a project [12]. cities, changes that took place on the level of governmental
Risk management starts with an early and effective identi- ofcials, in addition to re risks and major changes in currency
cation and assessment of risks [1]. The process focuses on prices. These risks that have lately become obvious and
Identifying the latest risk probabilities affecting construction projects 131

devastating were identied as major risks that entail efcient Work experience variable group
risk management strategies in the form of suitable mitigation Two categories of respondents based on work experience are
actions. represented: the rst refers to more than or equal 10 years of
working experience, while the other group is less than 10 years
Study objective of working experience. The questionnaires were completed by
top management in the organizations (mainly directors and
The objective of this paper is to identify the latest top major partners) and almost all of them (more than 90%) had over
risk probabilities that affected construction projects in Egypt. 10 years of construction experience. The respondents thus have
This was fullled through obtaining feedback from different the required professional and academic qualications.
practitioners on the different aspects of risk management that
aimed at: Job position variable group
A wide range of job position groups are included in this study;
 Examining risk perception by the construction industry. these groups are Management, top managers, Project
 Identifying the latest probabilities of risk that were not Managers, Managers and vice-managers of functional
weighed before in the risk management practices in departments, employees and project team members.
Egyptian projects.
 Classifying different types of risks regarding their source Company type variable group
(external or internal risks).
This study included a variety of company types: government-
 Suggesting a strategy to manage risk in the form of a
owned companies, joint venture companies and private
mitigation action for each type of identied risk.
companies.

Verication of Samples
Methodology

The Chi-Squared (v2) test was chosen for testing hypotheses

Although the need to manage risks in construction is relevant about variances in the respondents answers. This is repre-
to all professionals and groups (client groups, design team, sented in the Eq. (1), where (O) is the Observed Frequency
project management team, contractors, etc.) in the construc- in each category and (E) is the Expected Frequency in the
tion industry, this paper concentrated on the project manage- corresponding category, the null hypothesis in this study is
ment practices. The selected research methodology comprised that the variables in the same group do not differ among
a literature review, an open interview and a questionnaire. themselves. The statistical signicance level of 10 percent was
Primary data were collected by questionnaires and in-depth used for the statistical tests. Since the study dealt with peoples
interviews, while secondary data were gathered by site visits opinion, 10 percent signicance level is acceptable [11].
and personal observations. Secondary data were collected with
the aim of providing multiple sources of data for comparison. v2 O  E2=E 1
The questionnaire consisted of two kinds of questions; open-
and closed-ended questions. It comprised two main sections, Data analysis
the rst included general information about the respondents
and the second carried a total of 65 risks associated with con-
A total of 32 questionnaires were distributed on the above
struction projects and asked respondents to review and indi-
company-type groups. A response rate was about 65%1 and
cate the likelihood of occurrence of these risks. The results
a variety of years of experience groups between 25 and 55 years
of the respondents were compared to the likelihood of the
old were included in this investigation. Ages from 45 to 55
occurrence of these risks before the specied time period of
were project managers; they represented about 60% of the
the study, where the variance was identied.
research sample. All respondents had at least bachelor degree,
2 of them were PHD holders and 5 were master degree holders.
Target groups
Table 1 represents the distribution of respondents age,
working experience and highest education. It also shows the
The Egyptian construction industry comprises 14 registered age groups and education group sample. Thus on the basis
houses of experience for consulting only, in addition to an of position, work experience and educational and professional
undened number of contracting companies and management background, it can be inferred that the respondents have ade-
rms [13]. The target groups of this study included representa- quate knowledge of the activities related to construction and
tives from 32 major construction project companies. The associated risk.
chosen companies have budgets that exceed 40 million USD.
All the project management organizations deal with large-scale Determination of expected risks
buildings, providing a wide range of project management
services.
In order to determine the major risks in construction projects,
Three groups of variables were categorized to test differ-
a checklist of risks was sourced from a wide range of literature
ences in the opinions of respondents. These were: the working
including journal papers and books worldwide; this includes
experience of the respondent, the respondents job position
Perry and Hayes [15], Flanagan and Norman [14], Chapman
and the sector to which the respondents company belongs,
whether public sector (owned by the government) or private 1
The response rate is typical of a construction industry question-
sector (owned by individuals). naire survey and cannot be regarded as biased according to Moser [18].
132 L.M. Khodeir, A.H.M. Mohamed

Identifying and analyzing top major risks

Table 1 Distribution of respondents age, working experience
and highest education.
From the above (Table 2), it is noticed that the top risks due to
Percent%
economic and political variables are identied and could be
Age analyzed into the following items:
Group 2545 40
Group 4555 60
Currency uctuation
Total 100
Political unrest is always associated with economic unrest and
Experience
decrease in investments, which severely affect currency prices
<10 years 15
P10 years 85
that, in turn, has major effects on imported materials or for-
Total 100 eign consultants fees. The following Fig. 1 represents the
exchange rate variation starting from Aug. 2012 to Feb. 2013.
Highest education
Bachelor 66.7
Change in taxation/new tax rates
Master 23.8
Doctor 9.5 Due to the economic situation in Egypt after the 25th of Jan-
Total 100 uary Revolution, the government changed rules of taxes that
became unstable, thus affecting prices of materials (local or
imported), equipment and even salaries of workers in the
projects.

Change energy cost/lack of fuel

[16] and Shen et al. [17]. A consultation was conducted with
industry experts in Egypt to verify the risk list. By the end of 2011 and until the time of writing this research,
The list was then applied through the open interviews, lack of fuel greatly affected the projects, especially when the
where each respondent was asked rst to identify the major project is based on mechanical machines. Also Car gas, natural
key risks inuencing their projects. The managers were then gas and electric power are severely affecting the progress of
asked to prioritize these key risks. Finally, they were requested projects. This problem had never appeared before 2011 or
to judge two attributes of each risk: the probability of occur- was ranked as low probability risk.
rence, denoted by (P), and the degree of impact, denoted by
(I). The risk factor or index, denoted by (R), is the function Safety/unsecured roads
of these two attributes, Eq. (2): Insecurity in general became a new risk in the Egyptian
RPI 2 society, as Egypt was always known for security, especially
between cities. This led some companies to use airplanes to
The three variables (R), (P) and (I) are all measured numer- transfer engineers between projects or make insurance on
ically. The respondents judged the Probability of occurrence transferred materials or machines that crucially affect the
using the ve-level judgment scale of: very high, high, medium, projects budget.
low and very low. The same scale was also applied to the
degree of impact of the risk. Ofcial changes
To apply the model, the opinion judgment scale was con- Due to political unrest, government ofcial changes led to
verted into numerical scales. The very high took a value problems concerning special cases of projects phases, regard-
of 0.9, and the high, medium, low and very low took ing the built area or construction duration due to exceptional
values of 0.7, 0.5, 0.3 and 0.1 respectively [12]. rules for these projects agreed upon with previous ofcials.
This case is typically seen in large scale projects.
Risk identication process
Workers strikes
New probabilities of risk that were never used or weighed This behavior was not commonly seen by workers before polit-
before in risk management for Egyptian projects were identi- ical changes happened in Egypt. After the 25th of January
ed from Table 2. It represents the risk factors that are identi- 2011 Revolution, workers strikes became one of the most
ed as previously mentioned by Eq. (2) and calculates the common risks that could affect the time schedule of a project
deviation between expected and observed values as mentioned as well as its budget, depending on the reason of the strike,
by Chi-Squared test in Eq. (1). Moreover, a classication is which is mostly nancial.
submitted to Table 2 for each risk to be classied into internal
or external risk. Fire risk
Since the 25th of Jan. Revolution Egypt suffered from the
Findings
occurrence of demonstrations all over the Egyptian cities,
which led to increasing the events of violence, especially when
The ndings of this paper are concerned with the process of the project happened to be beside a political party headquar-
identifying, analyzing, classifying and mitigating the top major ters or demonstration squares (Tahrir square in Cairo,
risks in construction projects in Egypt. Al-Qaid Ibrahim in Alex., Al-Arbiin in Suez, etc.), which
Identifying the latest risk probabilities affecting construction projects 133

Table 2 Identication of risks.

Rank Risk factor Risk classication R (Eq. (2)) Deviation/variance (Eq. (1))
1 Currency uctuation External 0.4857 0.2213
2 Change in taxation/new tax rates External 0.4767 0.212
3 Change energy cost/lack of fuel External 0.4419 0.1989
4 Safety/unsecured roads External 0.4324 0.2017
5 Ocial changes External 0.4276 0.2029
6 Workers strikes Internal 0.4252 0.1974
7 Fire risk External/Internal 0.4195 0.2135
8 Bad communications between stakeholders Internal 0.3938 0.1791
9 Poor documentations Internal 0.3938 0.1756
10 Poor project planning & control Internal 0.389 0.1724
11 Owner hesitation about design Internal 0.3795 0.1735
12 Lack of decision making Internal 0.361 0.1729
13 Poor material management & planning Internal 0.3457 0.161
14 Poor equipment management & planning Internal 0.3367 0.1648
15 Poor labor planning Internal 0.3348 0.1767
16 Replacement of consultant Internal 0.3343 0.1776
17 Increased material waste Internal 0.3324 0.1588
18 Force majeure External 0.331 0.1694
19 Geo-technical risks External 0.3252 0.1884
20 New governmental acts or legislations External 0.3224 0.1677
21 Change in regulations External 0.3181 0.1887
22 Permits and licenses External/Internal 0.3171 0.1885
23 Diculties to erect temporary facilities External/Internal 0.3157 0.1208
24 Restrictive site conditions External/Internal 0.311 0.1659
25 Undened authority Internal 0.2986 0.1505
26 Safety regulations Internal 0.2986 0.1489
27 Shortage of project facilitates Internal 0.2857 0.1443
28 Delay of mobilization Internal 0.2814 0.1444
29 Delay in material delivery External/Internal 0.279 0.1776
30 Accept delay Internal 0.2733 0.1828
31 Fridays Demonstrations External 0.2657 0.1643
32 Governmental Delay Laws External 0.2643 0.1864
33 Improving environment quality cost External/Internal 0.2548 0.1546
34 Import/export restrictions External 0.2543 0.1904
35 Cash Shortage Internal 0.251 0.1156
36 Delay of owner payments Internal 0.2443 0.1963
37 Currency uctuation External 0.2276 0.1176
38 Interest rate changes External 0.2238 0.1625
39 Funding risk External 0.2221 0.1726
40 Improper budgeting & contingencies Internal 0.2205 0.1399
41 Replacing imported materials with local External/Internal 0.22 0.1235
42 Change of material prices External 0.2167 0.1681
43 Lack of experience Internal 0.2014 0.1461
44 Third party for supervision Internal 0.1881 0.1203
45 Quality assurance Internal 0.1852 0.1433
46 Incomplete design Internal 0.1795 0.1685
47 Defective design Internal 0.1662 0.1059
48 Complexity of design Internal 0.1629 0.1162
49 Ambiguities, inconsistency of specications Internal 0.149 0.1224
50 Surveying mistakes Internal 0.14 0.1102
51 Defective work Internal 0.1033 0.1011
52 Shortage of approved construction drawings Internal 0.2386 0.167
53 Construction document conicts Internal 0.2276 0.1176
54 Contractor understanding to project nature Internal 0.2238 0.1625
55 Construction technology available External/Internal 0.2221 0.1726
56 Improper construction methods Internal 0.2205 0.1399
57 Quality control & testing methods Internal 0.22 0.1235
58 Defective material Internal 0.2167 0.1681
59 Material storage Internal 0.3171 0.2085
60 Material transportation External/Internal 0.3157 0.1208
61 Conict between actual quantities and contract quantities Internal 0.311 0.1959
62 Equipment storage Internal 0.2986 0.1505
63 Equipment transportation Internal 0.2986 0.1489
134 L.M. Khodeir, A.H.M. Mohamed

negative risk responses, such as avoidance, mitigation, transfer

and acceptance, Table 4.

Conclusions

Egyptian projects suffered newly identied risk probabilities

that resulted from political and economic variables that took
place between the time period January 2011 and January
2013, leading to the change of the risk management map of
Egyptian projects.
This paper presents the research results obtained through
Fig. 1 Currency Price changes. Dollar VS EGP [10]. questionnaire surveys conducted in Egypt. A total of 7 key
risks were detected, based on a comprehensive assessment of
their riskindex/score (R) comprising both the likelihood of
occurrence (probability) and magnitude of consequence
were at risk of getting on re by demonstrators; thus the prob-
(impact), as well as the variance or deviation of this risk.
ability that the project might catch re increased.
The top major risks identied to be put into consideration in
the risk process include: Currency price changes, New tax
Classication of top major risks
rates, Lack of fuel, Unsecured roads, Ofcial changes, Work-
ers strikes and Fire risk.
By analyzing the top risks from Table 2, it is obvious that dur- In addition to identifying the top major key risks, the paper
ing political and economic unrest the deviation of risk factor is also suggests a group of risk response strategies that suit each of
extremely affected by external sources from the project. The the identied key risks. These risks and their equivalent
top risks previously identied could be expressed in terms of response strategies have been identied to be added, if they
external and internal risks, as shown in Table 3. do not already exist, or to have high probability in the risk pro-
cess, in order to support project stakeholders to pick up their
Suggested risk response strategies risk-response strategies at early stages of setting their risk plan.

In this part, the paper suggests suitable risk response strategies Recommendations
for the seven major identied key risks. The strategies include
the implementation of some positive risk responses, such as This paper provides a number of recommendations for deci-
exploiting, sharing, enhancing and accepting, and other sion makers in construction projects in Egypt. These are:

Table 3 Identifying, analyzing and classifying the top major risks due to economic and political variables.
Rank Id of top major risk Aecting variable Source of risk Risk factor/index R Deviation/variance
(Eq. (2)) (Eq. (1))
Economic Political Internal External
p p p
1 Currency uctuation 0.49 0.2
p p p
2 Change in taxation/new tax rates 0.48 0.2
p p p
3 Change energy cost/lack of fuel 0.44 0.2
p p
4 Safety/unsecured roads 0.43 0.2
p p
5 Ocial changes 0.4276 0.2029
p p p
6 Workers Strikes 0.43 0.2
p p p
7 Fire risk 0.42 0.2

Table 4 Risk response strategies.

Rank Id of top major risk Mitigation strategy (risk response) Action taken
1 Currency uctuation Exploit share enhance accept To be negotiated in contracts or
meetings of stakeholders
2 Change in taxation/new tax rates Avoidance mitigation transfer acceptance Provide budget margin
3 Change energy cost/lack of fuel Mitigate transfer accept Provide schedule/budget margin
4 Safety/unsecured roads Assigned to a professional party
5 Ocial changes Avoidance mitigation transfer acceptance Dene authority between
stakeholders with a exibility of
change- Selection of qualied/
experienced consultant
6 Workers strikes Avoidance mitigation transfer acceptance Provide specied contracts with labor
7 Fire risk Avoidance mitigation transfer acceptance Provide assurance
Identifying the latest risk probabilities affecting construction projects 135

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