*2.1.2 Portfolio of previous projects*

 To effectively manage risks, it is crucial to first identify and discover them [ 43 ]. One way to accomplish this is by considering risks from previous projects. The impact of risks that have been identified but not addressed in previous projects normally have a lasting impact on project managers and influence their decisions in future projects [ 43 ]. However, this information may not be readily available to project managers, and their lack of knowledge may contribute to the issue of unmanaged risks. That is why having a portfolio of previous projects can be helpful. This is essentially a collection of past projects/programs designed to manage important information across project implementations, providing guidance and oversight for future projects [ 44 ]. Project portfolios are essential in achieving goals and implementing strategies. They provide

guidance in making informed decisions regarding resource allocation, forecasting project performance, and identifying risks, ultimately leading to project alignment, progress, and increased productivity. Risk management greatly benefits from project portfolios as they ensure strategic alignment, reduce inefficiency, evaluate projects, and promote diversification.

When analysing data from past projects, it can be valuable to utilise corporate knowledge. However, this technique may not be feasible if the organisation has not previously undertaken a similar project or if data from a past project were not recorded. In these instances, database systems that track and report project progress can be helpful in identifying potential risks. Other useful tools include record of lessons learned from past projects and evaluations of previous projects. However, it is important to note that these method/systems may be limited by the quality and relevance of the available data.

### *2.1.3 Deficiency in construction project performance (DCPP)*

Deficiency in construction project performance (DCPP) can either be minor or major and may cause damage to property or people. Regardless of the severity, it is often not discovered until after the project is completed, making it an expensive risk and hard to fix. Poor design, materials, workmanship, structural failure, and financial risks all contribute to DCPP. This can lead to serious structural defects that fall short of the owner's expectations, but the severity of these defects can vary greatly. According to [45] these defects can be either Patent, meaning they are readily known, or Latent, meaning they are not easily observable. Latent risks are more problematic as they are not easily detected even with constant supervision. Patents, on the other hand, are visible and can be easily fixed. They are referred to as surface-level risks, while latent risks are known as below-surface risks due to their less visible/less obvious nature.

When a design professional fails to produce accurate and well-organised construction documents or creates out-of-scope designs, *poor design* may result. This can also happen due to errors or omissions. When errors occur, the professional must redesign and replace the erroneous design. Omissions, on the other hand, can be remedied by adding a "*change order*" to the contractor's scope of work. A change of order is a document used to modify an already completed construction project [46]. It includes details about the changes in scope of work, cost, and schedule that were not initially included or corrected in the initial project. Completing a change of order correctly reduces risk, increases the chances of approval, and helps contractors fulfil their financial obligations faster [47]. However, if a change of order is not completed properly, it can affect the contractor's liability and put their financial obligation at risk.

When construction *materials* are inadequate or damaged, it can lead to deficiencies in the final product. Often, the issue is not discovered until the material has already been incorporated into the project. This can result in costly risks, including damage to the structure and additional expenses for labour and materials. *Workmanship*, which refers to the quality of the human labour involved in the construction process, is another important factor. Workmanship issues can range from minor surface flaws to major structural problems, and it can be difficult to determine who/what failed to meet the property development standards [48].

If the project participants fail to meet their contractual obligations according to the required standards for developing a structure, it may lead to a *failure in the structure's overall structure (structural failure)*. This happens when the approved

### *Perspective Chapter: Recent Advancements in the Management of Construction Risks DOI: http://dx.doi.org/10.5772/intechopen.112849*

design and contract documents are not followed. For instance, not familiarising oneself with the site's local conditions as per the contract or regular visitation, not coordinating onsite activities by reviewing the contract documents constantly, and not ensuring that the work performed follows the acceptable standards of workmanship [49]. These are considered the general conditions that every contractor should adhere to while developing any structure. They form the backbone of the entire contract and govern the project's rights, responsibilities, duties, privileges, and rules.

One unique aspect of construction projects is that *financial risks* are the first contributor to the delays, changes, and quality problems. With so many businesses involved and a lack of visibility into who is responsible for each task, financial issues can become more complicated. Construction projects carry significant financial risk, including budget and cash flow concerns, which can contribute to DCPP. Additionally, the construction industry is credit-heavy, with all materials and labour furnished before payment is received. This means that participating teams often face challenges in getting paid, waiting longer than in other industries to complete time- and information-intensive payment applications. While waiting for payment, they must find ways to keep cash flowing and cover upfront expenses. Sometimes, even when payment is received, it may not cover all expenses, leading to inefficiencies in project performance, budget, cost overrun, and other associated financial risks. Contributing factors to these payment challenges include complicated payment structures, high failure rates, hidden parties, confusion or complex contractual issues, and other factors that can result in financial damages/risks [50].

### *2.1.4 Identifying risks with PESTLE analysis*

PESTLE analysis is a useful tool for examining and identifying risks in projects. By looking at risks from six different perspectives—Political, Economic, Sociocultural, Technological, Legal, and Environmental—it provides a comprehensive understanding of potential threats and opportunities. This analytical tool is commonly used in Strategic and Operations Management (SOM) to aid in the process of risk management in businesses. When used in conjunction with SWOT analysis, PESTLE helps to identify both internal and external risks [51]. Internal risks are easier to identify as past data from similar projects or portfolios of previous projects are available, while external risks are not easily known and are beyond the control of the company. Thus, employee lacking and leaving the construction projects vulnerable to major failure [51].

### *2.1.4.1 Political risks*

The construction industry, like any other organisation, operates within a political environment that presents certain risks. Political risks refer to situations that are dependent on political and regulatory factors, as well as the overall stability of the country where construction is taking place [52]. It is important not to ignore political risks in construction because they can lead to uncertainty in the political landscape of construction projects [53]. These risks can include breaches of contracts, terrorist attacks, and wars that may impact projects [54]. Political risks can manifest in a variety of ways, such as changes in government laws, regulations, and policies that affect the project, political instability within the government, delays or refusals of project approval and permits by government departments, and the outbreak of hostilities

such as wars, revolutions, riots, and terrorism [53]. Unlike other types of risks, political risks are more complex, unpredictable, and devastating because they fall outside the scope of normal project activities [55].

Political risks are a crucial part of risk management in construction projects. However, it is essential to recognise that project-level political risks can also impact overall business objectives like development and strategic decision-making [56]. While managing political risks, it is important to avoid overemphasising short-term project goals and neglecting corporate strategic objectives. Inappropriate resource allocation among projects, constraints of project resources, and a lack of risk management experience are some of the drawbacks that need to be addressed [53]. Therefore, it is crucial to consider political risks and link risk management strategies to the project's objectives based on sufficient resources and information. This is an important component of the decision-making process for the continuous improvement of the project.

#### *2.1.4.2 Economic risks*

Economic risks related to projects were discussed by various researchers including [57, 58]. These risks include inflation, fluctuating exchange rates, sudden changes in prices, tax rates and economic policies, as well as difficulties in financing the project. Liu et al. [59] also identified other economic risks such as unclear tax payment responsibilities, lack of partial payment provisions, and improper withholding of guarantees on advance payment. According to [51], inflation and sudden price changes are the most common economic risks in construction projects. El-Sayegh [60] emphasised the importance of accurately predicting inflation to determine future project costs. However, it is difficult to accurately forecast interest rates since they depend on the global economic climate, which may not always align with assumptions [61]. Therefore, it is recommended to consider adjusting project plans based on variable interest rates, even though they may not be accurate [60].

#### *2.1.4.3 Socio-cultural risks*

There are various social-cultural risks associated with construction projects, such as cultural and religious differences, lack of security on project sites, and social and cultural impacts on the community [51, 60]. Public objections to projects are also a concern. These risks are related to different aspects of people's lifestyles, demographics, educational levels, values, and ways of thinking [62]. They can affect any industry, but they play a crucial role in construction projects due to the diverse nationalities involved. For instance, Europeans tend to be confrontational and less respectful of hierarchy, while Asians tend to avoid conflict and prioritise seniority and hierarchy [63].

The way a project team cooperates, collaborates, and coordinates can be affected by socio-cultural factors. This, in turn, can impact the management style, speed, and processes of the project itself. This can help keep the project on budget and schedule, as noted by [64, 65]. Through these qualities' interaction with the project team's cooperation, collaboration and coordination, the socio-culture affects the management style, speed, and processes of the undertaken projects [65]. These qualities and differences thus need to be managed effectively especially where the project leaders/managers are foreigners to finish the projects within budget and time [64].

*Perspective Chapter: Recent Advancements in the Management of Construction Risks DOI: http://dx.doi.org/10.5772/intechopen.112849*

#### *2.1.4.4 Technological risks*

Project technical risks are associated with the technical aspects of a project, including design errors or changes, poor engineering, insufficient details in design specifications, and technology issues [51]. Additionally, research and development approaches, the impact of internet usage on project work, untested engineering techniques, delays due to lengthy design processes, complex design, poor buildability and constructability, and technology changes were identified by [1, 50] as forms of technological risks encountered in construction projects. Due to the dynamic nature of construction sites, technological risks can change frequently, leading to inadequate identification of risks, application, and mitigation measures on site.
