Effective mitigation strategies for project success during economic uncertainty

Egypt, like the rest of Middle East is experiencing rising construction costs resulting from geopolitical unrest from Europe, supply chain disruptions, over-reliance on imported building materials and skilled labour shortages.

The weakening Egyptian pound against the US dollar have been the county's most significant contributors to construction cost increases.

As the built environment continues to feel the impact of Egypt's volatile macroeconomic conditions, organisations must adopt mitigation strategies in their real estate projects to shield themselves from the current situation.

Responding to the challenge

The difficulties of managing costs and maintaining an adequate level of profitability have resulted in some contractors declining new tenders and project opportunities. Although practical in the short term, it is not a viable strategy in the long run.

As the level of risk and uncertainties has undoubtedly increased in the Cairo real estate market in recent years, JLL has worked with developers and contractors to devise various approaches and successfully applied them to guard against these uncertainties.

Key to the success of any project can be attributed budget setting - ensuring budgets are sufficient and adjusted to the current economic climate. This can also include the consideration for contingencies established through the risk management process.

Cost management techniques such as value management studies, and a robust change management procedure can be implemented as a strategy for reducing risk and appropriately managing the project from a cost or budget perspective. Undertaking life cycle cost analysis can improve the operational expenditure on a project which focuses on the long-term expenses and will be of interest to end-users particularly in an era of rising operating costs. The results formed from this process can be used to drive the design and support sustainability objectives.

Rising costs require contractors to substitute imported material by sourcing locally manufactured products. Another mitigation strategy is directly purchasing costly and long-lead items through clients’ procurement teams as early as possible, even before the contract is awarded.

Payment terms are another critical factor in ensuring project success. Savvy developers are considering alternative payment mechanisms and conditions, including realistic advance payments, allowing contractors to purchase expensive items at the earliest. Securing project funds in foreign currency may also help protect against future foreign exchange (FX) fluctuations.

In addition, as technology profoundly impacts all aspects of the construction sector, cost management plans are no exception. The increased use of Building Information Modelling (BIM) technologies should minimise potential conflicts between tender documents, thereby reducing the risks of cost and time claims during construction.

Defining future success

During economic uncertainties, organisations have to manage costs diligently. In such difficult times, the urge to increase project management adoption is what top management needs as an indispensable tool.

To address this challenge, clients must involve project management consultants with proven experience in managing projects and costs as delivery partners. Equally important is their flexible approach to developing innovative delivery strategies and effectively applying project management tools and methodologies.

A top-down strategy must be adopted alongside a step-by-step approach. Project managers must report directly to a company's top management to succeed. This will enable organisations to make informed decisions throughout a project's lifecycle, from planning to completion, while effectively addressing factors affecting growth.