Risk Management in Construction ProjectsShort Guide to Risk Management

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Speaker Bio.

Eng. Taher M. Mansour

Projects management advisor and Contracts specialist with more than 15 years professional experience in construction projects in Egypt

and Saudi Arabia.

Mechanical Manager at SALCO Contracting Company.

BSc. of Mechanical Engineering, Alexandria University – Egypt.

Project management professional (PMP®) certified from (PMI®), USA.

Risk management professional (PMI-RMP®) certified from (PMI®), USA.

Member in Project management institute (PMI®).

Member in National Fire Protection Association (NFPA®).

Member in American Society of Heating, Refrigerating and Air-Conditioning (ASHRAE).

Member in Saudi Council of Engineers (SCE).

Member in Egyptian Engineers Syndicate (EES).

AGENDA

1. Risk Definition and categories

2. Risk Management & Frame work

3. Risk Identification (Risk Register)

4. Stakeholders Definitions &SH Risk attitude

5. Why projects fail ?

6. CSF and Conclusion

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Risk Definitions

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Risk Definitions

The probability of an unforeseen incident and its penalty

An uncertain event or condition that, if it occurs, has a positive or

negative effect on one or more project objectives. (PMI)

Positive risks are called Opportunities

Negative risks are called Threats

Risk Meta-language:

“As a result of cause, risk may occur, which would lead to effect”

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Project objectives

The outcomes and deliverables that define the success of your project

These project objectives may include:

• Meeting the agreed-upon financial measures documented in the

business case. (NPV), (ROI), (IRR),

• Fulfilling contract terms and conditions;

• Meeting organizational strategy, goals, and objectives;

• Achieving stakeholder satisfaction;

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Difference between Risk and Issue

Risk :

Not happened yet (with uncertainty of occurring)

May be positive or negative

Affects your plan

Preventive actions should be planned (Contingency plan)

Issue :

Has been already happened or sure to happen

Always have negative impacts

Supposed to be solved ( Maintain an Issue log , Monitor )

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Difference between risk and hazard

Hazard : Something that can potentially cause harm

Risk : Hazard + exposures PLACE IMAGE HERE

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Importance of risk management

Risk Management:

The processes of conducting risk management planning, identification,

analysis, response planning, response implementation, and monitoring

risk on a project.

The objectives of project risk management are to increase the

probability and/or impact of positive risks and to decrease the probability

and/or impact of negative risks, in order to optimize the chances of

project success.

Benefits:

• Helps you to avoid any big disaster

• Enhances your revenues by saving your expenses

• Ensures the successful completion of project

• Helps you to explore new opportunities

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Risk Management Framework

The structured process used to identify the strategy of

implementing a risk management process in an organization or

in the project and effectively monitor and evaluate this strategy

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Risk Management Plan

The risk management plan is a component of the project management plan and

describes how risk management activities will be structured and performed.

The Risk Management Plan is created early in the planning phase of the project

and updated throughout the life of the project. PLACE IMAGE HERE

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Risk Management Plan

Depending upon the size and complexity of the project, some or all of

the following elements will be present in a risk management plan.

• Introduction;

• Project description;

• Risk management methodology;

• Roles, responsibilities, and authority;

• Stakeholder risk tolerance;

• Criteria for success;

• Risk management tools and guidelines for use;

• Thresholds and corresponding definitions;

• Templates;

• Communication plan; and

• Risk breakdown structure.

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Identify Risks

(Risk Register)

Three Perspectives of Risk Identification

A few tools can be used :

1- Check lists or prompt list (Historical Review )

2- Interviewing (Current Assessment )

3- Brainstorming (Creativity Techniques )

4- Root Cause Identification

5- SWOT Analysis

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Critical Success Factors for the identify risk process

1 Early Identification

Risk identification should be performed as early as possible in the project lifecycle

2 Iterative Identification

Since not all risks can be identified at any given point in the project, it is essential that risk

identification is repeated throughout the project life cycle.

3 Comprehensive Identification

A broad range of sources of risk should be considered to ensure that as many

uncertainties as possible that might affect objectives have been identified.

4 Explicit Identification of Opportunities

The Identify Risks process should ensure opportunities are properly considered.

5 Risks Linked to Project Objectives

Each identified project risk should relate to at least one project objective (time, cost,

quality, scope, etc.),

6 Complete Risk Statement

Single words or phrases such as “resources” or “logistics” are inadequate and do not

properly communicate the nature of the risk.

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Examples of Threats

• Multiple change requests are needed due to unexpected site conditions.

• Subcontractor delay, cash flow issues.

• Work or design takes longer than expected.

• Unknown site conditions ( Unidentified utilities for example gas pipes are found on site).

• Working at heights

• Incomplete drawings and poorly defined scope

• Poorly written contracts

• Unexpected increases in material costs

• Labor shortages

• Natural disasters

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Examples of Opportunities

• You can enhance your plan by making a lower-priced

purchase more likely (reduce fixed cost)

• Reduce time of the project

• Availability of new technology

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RISK Breakdown Structure ( RBS)

The RBS is a hierarchical representation of risks according to their risk

categories

Risk breakdown structure helps the project team to look at many

sources from which project risk may arise in a risk identification

exercise

The lowest level of the RBS can also be used as a risk checklist

• Technical

• Schedule

• Client

• Contractual

• Weather

• Financial

• Political

• Environmental

• Internal and external

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Risk Probability and Impact

Use expert Judgment to asses the probability and impact

as (Low , Medium , High )

Risk probability assessment investigates the likelihood that each

specific risk will occur.

Risk impact assessment investigates the potential effect on

a project objective such as schedule, cost, or quality including both

negative effects for threats and positive effects for opportunities.

As We know, there may be several risks in any project. Depending on

the size and complexity of the project in hand, the risks may vary

somewhere from double digits to triple digits. But, do we have the time

and money to look into all these risks.

So, it is necessary to find a way to identify those critical risks which need

the most attention from the project team.

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Probability and Impact Matrix

A tool for the project team to help in prioritizing risks.

Probability and Impact Matrix use the combination of probability and

impact scores of individual risks and prioritizes them for easy

handling of the risks

For example, a risk with a high probability/ likelihood of occurring and

which will have a high impact on the project objectives will likely need

a response plan

Numeric values can be used depending on organizational preference.

The dark gray area (with the largest numbers) represents high risk:

the medium gray area (with the smallest numbers) represents low

risk, and the light gray area (with in-between numbers) represents

moderate risk.

Usually, these risk-rating rules are specified by the organization in

advance of the project.

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StakeholdersDefinitions

Project stakeholder refers to, "an individual, group, or organization, who may affect, be affected by a decision, activity,

or outcome of a project"

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Stakeholder Analysis

A stakeholder analysis can help a project to identify the interests of all

stakeholders, who may affect or be affected by the project.

Example:

Client (Owner), Funding agencies : Manage Closely

Business Development Manager : Keep informed

Government Authorities : Keep Satisfied

Public : Monitor

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Risk Attitude

A chosen mental disposition towards uncertainty, also refer to

an Organization's approach to risk management

Common risk attitudes include:

Risk Averse

Risk Tolerant

Risk Seeker (Taker)

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Risk Averse

• They don’t like to take risk (Apprehension)

• They follow culture of routine & Control

• They avoid risks as much as possible (Fear of failure)

• They prefer a more certain outcome ( Short term concern)

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Risk Neutral

Deal objectively with risks, analyze the risk by using (Decision

tree analysis and EMV Or by using Monte Carlo simulation )

then take decisions

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Expected Monetary Value

Expected Monetary Value (EMV) = Probability * Impact

This technique is an integral part of risk management and is usually

used in medium, large, and complex projects.

Expected monetary value is used in the Perform Quantitative Risk

Analysis process,

Assists the project manager to calculate the contingency reserve

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Risk Seeker (Taker)

• They like to take risks

• Long term concern and Vision of opportunity

• Culture of creativity & innovation

• Prefers the more uncertain outcome

• They seek learning and growth

• May be willing to pay a penalty to take a risk

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Why Project fails ?

Construction Project Success criteria – subjective and different from

project to another.

• It’s delivered on time.

• Its cost doesn’t exceed its budget.

• It works as designed.

• It's delivered with Quality .

• The people who funded the project are happy with it.

• Safety ( people can use it )

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7 Common Reasons lead to project fails

1. Poorly defined Scope ( Scope Creep)

2. Insufficient or over -allocated resources

3. Poor or weak Communication

4. Bad Stakeholders Management ( Engagement )

5. Inefficient Cost management ( Overrun)

6. Bad Procurement

7. No Risk Management

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1 Poorly Defined Scope (Scope Creep)

Scope is everything that you are going to do and conversely, not going to do.

So once you’ve figured out exactly what the project work is, usually via a Work Breakdown Structure, you need to control

changes via a change control board (CCB) , then the PM can issue a new schedule, risk and budget plan as needed.

Otherwise, you will surely miss your target and make both the management and customer unhappy.

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2 Insufficient or Over- allocated Resources

• Shortage of skilled labor

• Managers don’t seem to have a grip on what their resources are doing all the time.

• Team members are left to figure out for themselves what projects they should be working on and when.

• There are too few resources working on too many projects at the same time.

• Better is for managers to meet weekly to discuss resource usage perhaps using a spreadsheet to track.

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3 Poor or Week Communication

ACTIVE communication methods being those used to

communicate in the here and now, for example the use of:

Face to Face meetings

Video conference meeting

One on one, or group Telephone conference

Stand up presentations in person

PASSIVE communication methods would be those which

recipients can adopt in their own time, for example:

Email

Website

Table top presentation

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4 Bad stakeholders management (engagement)

It is the project manager’s job not only to identify all

stakeholders, but know how to manage and communicate

with them in a timely manner

A communication management plan helps here.

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5 Cost management and unreliable estimates

(Cost overrun)

The additional percentage or amount by which the actual costs

exceed estimates

How to minimize cost overrun issues in construction projects ?

• Clearly define the scope of the project

• Determine the estimation methods and approach

• Conduct an Early Cost Estimating Kick-off Meeting

• Develop an Estimating Plan

• Have a Clear Communication Plan

• Interact with the Procurement Team

• Organize a Site Visit

• Maintain a Complete Cost Estimate File

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6 BAD PROCURMENT

• Allowing Poor Quality for Lower Costs

• Inadequate or insufficient contract clauses

• Poor relations with vendors

• Lack of Transparency and trust

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7 No Risk Management

• Every project is unique and hence, has uncertainty. When

we try to qualify and quantify that uncertainty, we call it risk.

• It is mandatory upon the project manager to proactively

anticipate things that might go wrong. PLACE IMAGE HERE

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RISK RESPONSE STRATEGIES:

Threats and Opportunities

ESCALATE

When you identify a risk and find that you can not manage it on your own due to lack of authorities or resources , Contact your

PMO or top management to take necessary action.

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Critical Success Factors for Project Risk Managements

Conclusion:

Risk management is extremely important in achieving overall

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Thank You for attending this presentation

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