Project Management Skills and Techniques

Risk Management Seminar for Built Environment Procedures and Organisation

Dr Andrew KimmancePhD, BSc (Hons), MSc-Eng, MCIOB, MAPM, CEng

Learning Outcome Explain the concepts and definitions of Risk Introduction to Risk (Session 1) What is Risk? Risk in Construction Types of Risk in Construction Risk Management Explain the types of risk in construction Risk Response Methods Risk Assessment (Session 2)

Definition of Risks Any definition of risk is likely to carry an element of

subjectivity, depending upon the nature of the risk and to what it is applied.

In the context of assessment, risk is defined as the likelihood that harm from a particular hazard will be realised; that is, the probability of an event and its consequences. Where as,

Risk management is the practice of using processes, risk methods and tools for managing these risks.

Risk Process : Stages or Steps Risk Analysis: Techniques Method Approach Risk Assessment: Product - Process Output

All real projects carry risk through uncertainty, and are faced with various levels (H,M,L) of risk exposure.

Each activity/task which make up the process of completing a project faces risks that could present threats to its success.

Risk management focuses on identifying what could go wrong in a project (and its activities), evaluating which risks should be dealt with and implementing strategies to deal with those risks.

Construction managers that have identified the risks within a project will be better prepared and have a more cost-effective way of dealing with them.

Definition of Risk....Cont

Introduction to Risk

Time

Quality

Cost

ProjectScope

ConstraintsRequirements

Success

Session 1

Introduction…Cont

Costoverrun

ProjectConstraintsRisks

DelaysPoorQuality

What is a Risk?

Risk

Unknown

Unexpected

Undesirable

Unpredictable

endeavor

action

Key Forms of Risk

Strategic

External and

InternalFinancial

Operational

Hazards

Risks in Construction

Contractor Supplier

ProjectManager

Engineer

Architect

Client

QuantitySurvey

Inspector`

Soci

al F

acto

rs

Political Factors

Economic Factors

Envi

ronm

enta

l Fac

tors

Types of Risks in Construction

Physical

Risks

Financial

Economic&

Actsof

God

Political

Environ.&

Design

Const.Related

Risks in Construction..ContPhysical

Risks

Financial

Economic&

Actsof

God

Political

Environ.&

Design

Const.Related

Acts of God Flood (heavy rains) Earthquake Landslide Fire (volcano) Wind damage Extreme heat

Types of Risks in ConstructionPhysical

Risks

Financial

Economic&

Actsof

God

Political

Environ.&

Design

Const.Related

Physical Damage to

structure Damage to

equipment Labor injuries Fire Theft

Types of Risks in Construction….Physical

Risks

Financial

Economic&

Actsof

God

Political

Environ.&

Design

Const.Related

Financial & Economic Inflation Availability of

funds Exchange rate

fluctuations Financial default Delay in Payment

Types of Risks in Construction…..

Physical

Risks

Financial

Economic&

Actsof

God

Political

Environ.&

Design

Const.Related

Political & Environmental Changes in laws

and regulations Requirement for

permits Law & order Pollution and

safety rules

Types of Risks in Construction

Physical

Risks

Financial

Economic&

Actsof

God

Political

Environ.&

Design

Const.Related

Design

Incomplete design scope

Defective design Errors &

omissions Inadequate (site)

specifications or investigations

Types of Risks…ContPhysical

Risks

Financial

Economic&

Actsof

God

Political

Environ.&

Design

Const.Related

Construction Related Labour disputes Labour productivity Different site

conditions (weather) Design changes Equipment failure

Risk ManagementA systematic approach to control the level

of risk to mitigate its effects.

Risk IdentificationRisk Identification

Risk EstimationRisk Estimation

Risk EvaluationRisk EvaluationRisk ResponseRisk Response

Risk MonitoringRisk Monitoring

ControlledRisk

Environment

Risk IdentificationRisk Identification

Risk EstimationRisk Estimation

Risk EvaluationRisk EvaluationRisk ResponseRisk Response

Risk MonitoringRisk Monitoring

RiskAnalysis

Risk Management Life Cycle

Control It

Share orTransfer It

Diversify orAvoid It

RiskManagement

ProcessLevel

ActivityLevel

Entity Level

RiskMonitoring

Identification

Measurement

Prioritization

RiskAssessment

Risk Analysis

Risk AnalysisEstimating the potential impacts of risk to decide what risks to retain and what risks to transfer to other parties

Ranking options

Comparing options

Descriptive analysis

Qualitative

Risk Analysis Techniques

Probability analysis

Sensitivity analysis

Simulation techniques

Quantitative

Evaluation

Risk Response Process

Risk Response Methods

Elimination Transfer ReductionRetention

RiskProcess

Evaluation

Acceptance

Identifying

Risk Evaluation Undertaken at regular intervals after risk

analysis is finished, and Need to compare against a risk criteria:

Associated costs and benefits Legal requirements Social, economic and environmental factors Management, shareholders concerns

Used to enhance the decisions taken to either accept specific risks or ways of controlling or treating risks

Risk Acceptance The systematic process using specific criteria

by which relevant stakeholders agree that risk may be accepted

Usually the final stage in risk management to ensure that every risk has been reviewed at the appropriate level

Have everything been done that is Reasonably Practicable to reduce the level of Safety Risk posed by the identified Accidents, individually and in total?

And: Are they now Broadly Acceptable or Tolerable and

As Low As Reasonably Practicable?

Risk Acceptance Cont... Undertaken to ensure all risks has been reviewed at

appropriate management levels prior to approval of the Risk (Safety) Assessment Plan and Report

Various techniques can be used, such as: 3x3 or 5x5 matrix , (1, 2, 3,..10), (high, median, low) SWOT Analysis (e.g., threats and opportunities) Questionnaires (surveys) Brainstorming and/or problem solving (sessions) Incident (accident) Investigation Auditing and Inspecting Criteria Risk assessments (health and safety analysis)

Identifying Risks Strategic Level: (capital, reputation, changes, legal,

agreements, political, environmental) Operational (day to day issues from strategic concerns,

contract disputes, performance and workmanship,) Financial (credit, exchange rates, interest rates,

markets, earnt value performance (EVM)) Compliance (CDM, health & safety, regulations, EU,

environmental constraints, trade acts, Knowledge Management ( communication systems,

Information technology, suppliers, materials)

Risk TreatmentRisk Response Methods

Elimination Transfer ReductionRetention

Risk Elimination Practices Tendering a very high bid Placing conditions on the bid Pre-contract negotiations as to which party takes

certain risks Not biding on the high risk portion of the contract

Risk Treatment Cont….Risk Response Methods

Elimination Transfer ReductionRetention

Risk Transfer Two basic forms. (a) The activity responsible for the risk may be

transferred, i.e. hire a subcontractor to work on a hazardous process

(b) The activity may be retained, but the financial risk transferred, i.e. methods such as insurance.

Risk Treatment….ContRisk Response Methods

Elimination Transfer ReductionRetention

Risk Retention Handling risks by the company who is undertaking

the project. Two retention methods, active and passive. Active retention is a deliberate management strategy

after a conscious evaluation of the possible losses and costs of alternative ways of handling risks.

Passive retention occurs through negligence, ignorance or absence of decision.

Risk Treatment Cont….Risk Response Methods

Elimination Transfer ReductionRetention

Risk Reduction Continuous effort. Related with improvements of a company’s

physical, procedural, educational, and training devices.

Improving housekeeping, maintenance, first aid procedures and security.

Education and training within every department .

Factors Involved in Writing a

Risk Assessment?

Session 2

Risk Assessments (facts) The construction industry is subject to more

risk and uncertainty from injuries, recession, bankruptcies, than perhaps any other industry.

Risk assessments form the cornerstone of health and safety legislation in the UK, EU, and

The requirement for construction organisations to prepare risk assessments are clearly outlined in a number of health and safety acts and regulations.

Risk Assessment Cont... A Risk Assessment is used in construction

safety to identify, document and eliminate or reduce hazards in a particular work activity or process.

A risk assessment evaluates a company's work activities, and considers areas where there may be losses for employers, customers and employees.

A risk assessment should be carried out for anything that has the potential (all activities) to cause harm or injury to an employee (anyone).

Risk Assessments Cont.... Ultimately a risk assessment is a process which

helps Construction Managers (employers) identify such factors as:

when a hazard may occur, the severity of that hazard, frequency of exposure, and possibility of minimising or avoiding harm.

The process involves a review of workplace safety, inspections, identification of task/hazard pairs, and prioritising for elimination or control.

Risk Assessment Process• Risk assessment also fits into a four-part

process for risk control, through the setting of health and safety standards, as follows:1. Hazard identification. 2. Risk assessment and evaluation. 3. Risk control - the selection of suitable

measures to eliminate or control risks. 4. Implementing and maintaining

(monitoring) control measures.

Risk Assessment Cont...In deciding upon preventive and protective control measures, the following key principles should be applied:

1. It is always best, if possible, to avoid the risk altogether.

2. Combat risks at source.3. Wherever possible, adapt the work to the

individual.4. Take advantage of technological and

technical progress.5. They should form part of a coherent policy

and approach.

Risk Assessments Cont....6. Give priority to these measures which

protect the whole workplace.7. Workers need to be involved, and

understand what they need to do.8. A positive 'safety culture' should be

developed within the organisation.9. PPE should only ever be relied upon as the

last line of defence against a known hazard.

Risk Process Example

Exercise OnePrepare a Risk Assessment for a small construction project of your choosing: The risk assessment will need to identify

and evaluate the risks that are presented by the activities that are undertaken each day on your construction project,

You will need to develop control measures to either eliminate or control the effects of the hazards.