risk
How to Write a Risk Statement
"If <RISK EVENT> happens, then <CONSEQUENCE>, which will <IMPACT> the <PROJECT OBJECTIVE>."
these are estimated and made part of the project budget, not the baseline.
Allowances
What are five risk identification tools and techniques that construction managers use?
Brainstorming, nominal, assumption, Crawford, checklists, root cause, influence.
Inaccurate contract time estimates Unclear contract documents
Construction Risks
used for planning of individual risks instead of planning for the whole project
Decision Tree
Cost escalations
Economic Risk
Changing the plan to eliminate a risk by preventing the cause/source of risk
Prevention
Risk management is
continuous
How to Write a Risk Statement Longer version
"If <RISK EVENT> happens, then <CONSEQUENCE>, which will affect/impact <WHOM>, causing a/an <IMPACT> to <PROJECT OBJECTIVE>."
A hospital project in San Diego, CA will be installing an intricate glass curtain wall as the signature aesthetics for a building. There is a 30% chance that the curtain wall construction (which are all critical path activities) will experience difficulties in assembling the curtain wall. This may result in additional labor and time to complete the work. If it is possible that the additional work will cost $70,000 more and will take an additional 10 working days, what contingency could be added to the budget and schedule to account for this uncertainty?
$21,000 / 3 days
Formal/structured risk management helps to:
- Better understand possible project outcomes - Control project outcomes
Uncertainty involves
- Frequency of occurrence - Severity of the occurrence - Outcomes that can occur within a range
Tools for managing risks
- Risk management - Insurance - Bonding - Transfer (contract) - Safety program/culture -Quality management - Contingency
Work performance information
-Deliverable status - Schedule progress - Costs incurred
how to adequately describe each risk issue:
-Nature of the issue/event - Possible causes and thus likelihood - Possible impacts - Any relationships with other issues
Inputs to Monitor & Control Risk
1 Performance reports 2 Risk management plan 3 Risk register 4 Approved change requests 5 Work performance information
Risk Management Guidelines
1. Explain the overall organizational context, importance of risk management, and risk framework to project participants 2. Follow a consistent and proactive process for managing risk 3. Utilize standard risk terminology, tools, and methods 4. Implement appropriate risk identification techniques 5. Apply tools and techniques to assess and analyze risks and impacts 6. Implement appropriate methods of documentation 7. Describe possible "risk responses" and illustrate how to respond effectively to realized risks 8. Describe risk allocation options 9. Develop risk monitoring and control plans
Risk Identification Guidelines
1. Identify as many risk events as possible, given the time you have 2. Determine what major risk events the program or project faces 3. Make each risk event specific and fully defined 4. Use scope statements, work breakdown structures (WBS), past projects, constraints, assumptions, and expectations as inputs 5. Use your project team 6. Do not analyze risk events yet • That is done in the risk assessment step
Decrease up to __ of project problems, provides ____ of project cost savings
90%, 5%
-Develop a contingency plan to execute if the risk occurs - Contingency plan = be ready with Plan B - Fall back plan = plan C if B fails
Active acceptance
Unrealistically low bid - Missing costly items in a bid
Bidding risk
Chance for profit or loss
Business Risk
General Risks
Business Risk Insurable (Pure) Risk Internal Risk External Risk Technical Legal
Risks are expected to happen during a particular phase of the project. When that phase has passed and the risk is no longer probable, the risk should be removed from the risk list and any reserve associated should be freed up.
Closing of risks
Risk management is not:
Completing a list - Running a "Monte Carlo simulation" - Ponderous and expensive -Only appropriate to large projects - A process that drives a project to "bankruptcy"
Supplier does not deliver material on time - Performing work that a company is not qualified to do - Improper means and methods - Site conditions
Construction‐related risk
covers the cost for 'known unknowns' discovered during risk management; covers the residual risks.
Contingency
plans of action in case the risk does occur
Contingency Plans
Contract allocates risk to party that cannot control it
Contract and legal risk
"Should we bid a project that has high levels of uncertainty in the site conditions?"
Decision analysis
Deciding upon a course of action in the face of risk
Decision analysis
Pressure to accelerate schedule Constructability of design issues
Design Risks
- Constructability issues - Errors and omissions - Inadequate engineering
Design risk
Risk Identification Tools
Documentation review - Brainstorming -Nominal group technique - Assumption analysis - Crawford slip - Checklist analysis - Root cause analysis - Influence diagrams
Non-defined hazardous waste Environmental regulation changes
Environmental Risks
Risk Checklist
Environmental Risks External Risks Third-Party Risks Geotechnical and Site Risks Right-of-Way/Real Estate Risks Design Risks Organizational Risks
Accidents, damage, maintenance
Equipment risk
Probability of event times the Impact of the event
Expected Value
Risk that may affect the project but is outside the control of the project manager
External Risk
Stakeholders request late changes Intergovernmental agreement changes
External Risks
a secondary contingency plan, in case the contingency plan does not work or is not effective
Fallback Plans
The project will not perform or function as it was intended
Functionality
Unexpected geotechnical issues Surveys late and/or in error
Geotechnical and Site Risks
Chance for loss only (e.g., fire, theft, personal injury)
Insurable (Pure) Risk
Risk that may affect the project and is in control of the project manager
Internal Risk
Risk Management Facts
Is a very proactive task - Allows the project manager to be in control -Has been shown by studies to
Availability - Productivity - Strikes / Labor disputes
Labor risk
Licenses, patent rights, lawsuits, contractual failure, default
Legal
Seeks to reduce the impact or probability of the risk event to an acceptable threshold
Mitigation
A technique that uses simulation to show the probability of completing your project on time and within budget.
Monte Carlo Analysis
- Assignment of inexperienced staff - Loss of critical staff
Organizational Risks
-Deal with the risks as they occur = Workarounds -Usually for low ranked risks
Passive acceptance
- Disapproval of the project - Political push to build the project
Political and public risk
is actively managing risks on your project
Project risk management
has the contingency and allowances kept up with changes to the risk list? Does the contingency and allowances still cover the costs of these risks should they occur?
Reserve analysis
risks that are left over after Plan Risk Response
Residual Risks
Railroad objections Excessive relocation or demolition
Right-of-Way/Real Estate Risks
Events that might occur, which could change project cost, schedule, quality, or functionality
Risk Identification
Identify, categorize, and document all risks (and opportunities) that could affect project
Risk Identification
Risk management is iterative, you should review the risks on your project throughout the project to update their qualitative and quantitative values.
Risk Reassessment
All identified risks are to be entered into the project
Risk Register
comprehensive and non‐ overlapping list of risks
Risk Register
the person on the team responsible for monitoring the risk, risk triggers, developing a response strategy, and implementing the strategy should the risk occur
Risk Response Owners
Consist of a defined event and its impact
Risk Statements
early warning signs that there is a high probability the risk will occur
Risk Triggers
"How much with this project actually cost?"
Risk analysis
Predicting the effects of risky events on an outcome of interest
Risk analysis
a team of experienced project team members reviews the risk management process and response strategies to see if you've effectively identified the major risks on the project and developed effective strategies for dealing with them.
Risk audit
Reorganizing any identified risks by their root cause
Root Cause Analysis
new risks that result from the implementation of the contingency plans for the primary risks
Secondary Risks
- Impact (or outcome) is typically referred to as
Severity
should be used to identify new risks or changes to existing risks. This is a great opportunity to discuss with your team and stakeholders existing risks and new risks.
Status meetings
risk management process steps
Step 1 - Risk Identification Analyze the project to identify sources of risk Step 2 - Risk Assessment Assess risk in terms of: • Chance of occurring • Severity • Controllability Step 3 - Risk Response Development • Develop a strategy to reduce the possible impact • Develop contingency plans Step 4 - Risk Response Control • Implement risk strategy • Monitor and adjust plan for new risks • Change management
- Unreliable/underperformance - Lack capacity to do work - Lack availability to do work - Financially unstable
Subcontractor‐related risk
Changes in technology, design issues, O&M issues
Technical
In a work in progress report, what does Billed to Date mean?
The actual billings that reflect company accounting records
Locate unexpected utilities Utility cost sharing problems
Third-Party Risks
Shift responsibility of risk consequence to another party
Transfer
- Rain, wind, cold, heat, snow - Major weather events
Weather
a response to a risk that has occurred when no contingency plan exists.
Workaround
A negative effect is a
a threat
A positive effect is
an opportunity
The project will cost more than budgeted or the final product is worth less than what it cost to construct
cost
Construction Performance Risk Categories
cost quality safety time Functionality
t/f Brainstorming is a tool used to identify and assess project risks
false
t/f Risk management is a process of reactively dealing with problems once they arise
false
unit risk equals
frequency x severity
Monitor and Control Risk is The process of
implementing risk response plans - tracking identified risks -monitoring residual risks - identifying new risks evaluating risk process effectiveness throughout the project
For risk statements, Enhance the next step of analyzing
likelihood and impact
Represent ..... risk event
one
• A risk is ............... that results in an .................. that is different from what is planned.
potential event ; outcome
Risk is a measure of
probability and magnitude of achieving or not achieving a defined project goal
The project will have poor‐quality materials or workmanship or the work will be incomplete
quality
The project does not have or does not enforce the project safety plan, or the project potentially puts workers and the public in danger
safety
Risks are best assumed by the party with
the greatest ability to control the risk
The project will not be completed during the scheduled time period
time
t/f Brainstorming is a tool used to identify potential project risks as well as generating value engineering ideas
true
t/f CPA's and sureties state that underbilling is never a good thing for a construction company.
true
A risk is an ................... that could have a ................ on your project
uncertain event ; positive or negative effect
is simply the set of all potential outcomes, both favorable and unfavorable, within each known risk
uncertainty