Risk Management – A Primer

The term “project risk” can encompass an enormous range of issues:

Defined as anything that threatens or limits a project’s goals, objectives or deliverables, project risk includes:

Risk Identification

  • safety,
  • quality,
  • cost overruns,
  • excessive changes,
  • schedule overruns,
  • procurement problems,
  • contract issues,
  • labour issues,
  • communication issues (information is not available to the people who need it)
  • as well as all external sources of risk including
  • the weather
  • government regulations
  • client issues
  • consultants

The broad range of categories that entail risk, along with the sheer amount of work being performed on the average jobsite every day and the numbers of variables that come into play, mean that exposure to construction risk is a daily occurrence.

The good news is that many areas of risk can be anticipated and addressed, first by quantifying them, and then by proactively managing them. Quantifying risk involves systematically thinking about all possible consequences before they happen and then defining measures to accept, avoid or decrease the impact of the risk. Performed during the preconstruction phase, the analysis should be a detailed process that involves identifying margins of error and calculating probabilities of certain outcomes. After the project is under way, it is a project manager’s job to constantly track and report the status of all identified risks.

New job-site tools––especially project management software, which has a low barrier of entry for a large number of team members––are vital to the success of today’s risk management efforts.

 

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The Risk Management Plan

The Risk Management Plan

Objectives:  To understand the risk management planning and identification processes and to employ various tools and techniques for risk identification.

ESI provides us with a practical 9 step risk management risk management process and this will provide a foundation for risk identification.

Planning: Key elements of the risk management process

Risk management is an ongoing process and is revisited throughout the project.

  1. Examination of the Project Plan is the first step in risk management. The plan provides essential information regarding sources of risk.
  2. Identify risks in the plan as separate from ‘Tasks’ or elements of the WBS in the project plan in a risk document.
  3. Analyze risks in terms of impact and probability.
  4. Prioritize based on the analysis
  5. Create a Plan to address the risks.
  6. Execute the Risk Management Plan in step 5 above.
  7. Evaluate the results of step 6.
  8. Document these results for future use.
  9. Revisit the risk management plan and the project plan.

Identification of Risk

RISK PLANNING

SUCCESSFULLY MANAGING RISK IS EASIER THAN YOU THINK!

What if I told you that you could plan for risk, better your chances of knowing what types of risk to expect, mitigate risk and even circumvent risk with one piece of software? Sound impossible? I knew you’d think that! But I’m here to tell you that it’s not…

Let me introduce to you RiskMP – a ground-breaking software that can and will make risk management on your next project as easy as 1, 2, 3.                  RISKMP

Every project plan carries with it some uncertainty and risk.  Addressing and managing that uncertainty or risk is made easy with RiskMP.  Built specifically for the construction industry, RiskMP software leads you through the steps of creating a risk management plan.  RiskMP makes executing and managing that plan easy throughout the execution of the entire project.

Risk management is about being proactive – not firefighting.  By anticipating, planning and addressing risk you can reduce the magnitude of its impact and keep the project on track. Managing risk is essential to delivering projects on time and on budget.

Project management best practises include a solid risk management plan.

Since project management requires constant communication, RiskMP makes your project plan accessible to you any time and anywhere that you have Internet or cell phone access.

Effective risk management requires dialogue; with the project management team, with remote sites, owners and consultants. RiskMP allows you to share project plans and risk management plans with any number of users, at your discretion.

RiskMP integrates seamlessly with Microsoft Project to facilitate a continuous risk management process.  Reports on top priority risks, most imminent risks and severe risks are available at the press of a button along with mitigation plans and costing information. Graphs convey the important details of the risk profile through the course of the project. And because the status of a project can change from day to day, RiskMP makes it easy to synchronize and update with the project plan. RiskMP, a user-friendly software, is a complete risk management system and innovative communication tool. For more information – www.riskmp.com

3 TOOLS FOR RISK IDENTIFICATION IN CONSTRUCTION PROJECTS

Why do project delays and related issues crop up over and over again?  The company has project managers with experience and knowledge, but it also has project team members whose knowledge isn’t so extensive.  And most of all, once the project is underway, no one seems to have time to plan, look ahead and strategize.  As a consequence, the project manager ends up putting out fires yet again.                                    Risk Identification                                            ‘

Risk management is essential before the project is in full swing – early on – in the planning stages.

And where are the sources of crucial information concerning risk? That’s easy – just take a look at previous projects and talk to experienced project managers!

And how exactly do you garner the information?

The first method is the formalized “Grampa Simpson” method, or the Expert Interview.  Create a series of questions like those below.  Ask PMs, site supers and foremen with experience in these projects, to talk about it – and record that info.   Then review and synthesize.  With the “Grampa Simpson” method – tongue in cheek – you end up with the biggest, noisiest problems, but not necessarily the most costly. And yes, sometimes you’ll have to sit through the whole story – including how Gerry, that knucklehead engineer or consultant, said this or that and so on.

To get this to work, create a standard set of open questions, keep good records and synthesize the information. Simply examining the project plan in isolation is often insufficient.  Risk deals with uncertainty and unknowns.  Mitigation of risk encompasses every bit of information that is available.  In identifying risk, the following tools or techniques can been used:

  1. Expert interviews: Your company employs people with experience.  The company that contracted you for this project has experience.  Typical interview questions are:
  • Did anything go off schedule or not as planned in the last project?
  • What were the biggest issues faced in terms of meeting the deadlines? Costs?  Scope?
  • Were there any significant shortcomings?
  • Were there any significant areas of uncertainty?
  • What drove the project off course?

The interview questions will not give you a risk analysis.  They will point you in a direction of inquiry.

  1. Brainstorming: Everyone has been to meetings where the open ended question has been asked. The markers, white boards and flip charts are out and a lot of random thoughts are expressed.  Sometimes good ideas come out of brainstorming, but this technique has a few flaws:
    • It is very hard to keep a meeting on-topic.
    • The strongest personalities usually dominate, and definitely, the management hierarchy will influence whether a good idea is voiced or not. Everyone censors when the boss is in the room.

So to make brainstorming work, we suggest conducting surveys outside of meetings.  Ask the questions, but ask them electronically.  Gather the results and synthesize.  This methodology has been formalized and is typically referred to as the ‘Delphi Technique’.  The anonymity of the responses ensures that respondents will not be worried about what the boss will say, or what their co-workers will think.  People can get more creative at no risk.  There is expertise in the field and in the office that can be tapped into.

Questions similar to those asked in the expert interviews can be asked, but the questions should be framed in a future tense:

  • Is XYZ likely to happen?
  • What is the impact?
  • How do we mitigate this impact?
  • How do we prevent XYZ from occurring?
  1. Delphi Technique : The essence of the Delphi Technique is:
    • Coordinator formulates problem and distributes it to experts (site people, consultants, PMs, trades, anyone with an interest)
    • Experts send written response.
    • Coordinator sends out position papers and experts have a chance to reconsider and resubmit.
    • Resubmissions are reviewed and a finalized list of risks is placed on the risk listing form.

Because this is a more structured methodology, and because the questions are revisited and re-examined,   reliable results can be achieved.

“The Delphi method is a structured communication technique, originally developed as a systematic, interactive forecasting method which relies on a panel of experts.  The experts answer questionnaires in two or more rounds. After each round, a facilitator provides an anonymous summary of the experts’ forecasts from the previous round as well as the reasons they provided for their judgements. Thus, experts are encouraged to revise their earlier answers in light of the replies of other members of their panel. It is believed that during this process the range of the answers will decrease and the group will converge towards the “correct” answer. Finally, the process is stopped after a pre-defined stop criterion (e.g. number of rounds, achievement of consensus, and stability of results) and the mean or median scores of the final rounds determine the results. Delphi is based on the principle that forecasts (or decisions) from a structured group of individuals are more accurate than those from unstructured groups.  Delphi has been widely used for business.”  [1]

Key characteristics of this methodology include

  • Anonymity of the participants. The identity of participants is not revealed even after final completion.  This eliminates bias (a key feature of groupthink) as well as the bandwagon effect.
  • Information is structured by the facilitator to eliminate irrelevant comments.
  • Participants can provide as much feedback as they wish and modify their own answers.
  • The facilitator sends out questionnaires, collects and analyzes responses, identifies common and conflicting views and provides these views for re-evaluation by the participants. This round continues until consensus is reached.

[1] http://en.wikipedia.org/wiki/Delphi_method   Wikipedia

A project’s risk management strategy is subject to two main constraints:  time and documentation effort.

As every PM knows, time is the scarcest resource they have in their project.    To be effective, the Risk Management process must be efficient and require only a minimal attention.

riskmp project manager running out of time

Risk Management for Construction – Project Management time and documentation

An additional constraint is the effort expended in documentation. Any process in project management that requires significant resources for documentation will normally remain on the shelf.

A successful project’s risk management process is governed by the parameters of ‘limited time’ and ‘minimal documentation’

The goal of any risk management system is to

  1. Get PM’s thinking about Risks and ways to mitigate them in advance
  2. Get PM’s to understand their Plan B, C and D intuitively
  3. Encourage PM’s to investigate opportunities and options
  4. Facilitate follow up on PLAN B and C and D as things change.

There are two distinct steps to implementing Risk Management in your company practise.  The first is get the PM’s thinking about risk and uncertainty in the project; essentially to ensure that everyone understands the conceptual framework.  The second is to provide simple tools for developing the risk management plan during the planning and scheduling stage of the project, and communicating, recording, following up on Plan B, C, and D during the project execution stage.    Another important component of the system is the ability to communicate actuals from the site and assess their impact.  Again, this communication must be simple and efficient.

So here are the recommendations:

  1. Training and refreshers — Every PM should have a solid understanding of Risk Management and how it applies to project management and the benefits of Risk Management to the project and the company.
  2. Tools – In this age of computers, software that allows the project manager to
    • Formulate a project plan easily
    • Communicate that plan to the team
    • Incorporate changes, especially as the project progresses
    • Incorporate communication from remote sites and team members.

Our solution to the tools question is  RiskMP 

  1. Management leadership. With management support for the time and attention spent on risk management, the process can succeed and open the company up to the benefits of Risk Management including decreased costs and improved processes.