RISK MANAGEMENT

PRESENTATION

BY:

Engr. MAWIA ABDEL RAHMAN

Contents Slide No. 1. Introduction 3

2. Project Risk – Planning Phase (Initiation) 4

A. Risk Management Plan 4

B. Risk Identification 5

C. Risk Categories 5

I. Internal Risk 5

II. External Risk 6

III. Opportunities 6

D. Risk Assessment & Prioritization 7

E. Risk Register (Strategic Stage) 10

F. Risk Control Strategy 14

G. Risk Response 15

H. Risk Mitigation 16

I. Contingency for Risk 16

3. Tactical Project Risk - Implementation Phase 17

A. Value Engineering 17

B. Major construction activities 17

C. Risk Register 18

D. Party’s Involvement 21

E. Contingency Reassessing 25

4. Conclusion 26

5. References 28

Risk management plays an essential role on project’s success, generally

projects construction is found more risky due the nature of complexity in

managing several activities. The aim of this presentation is how to manage

the risk during strategic and implementation phases of the community

project, by defining the major type of risks that surround and influence the

project’s successes, these risks should be identified, categorized, and

assessed, Knowing who is the main risk owners, creating a risk management

plan to minimize the negative impact of risk which will lead to a successful

end results.

1. INTRODUCTION

The risk management plan is the process of defining and guiding on how the risk

management will be structured and implemented (PMI, 2008), it should include,

Identifying the risks, Define the risk owner, Prioritize the risk, Analyze of the implication

whether individual and/or collective, Monitoring & control of risk during the project life

cycle, Minimize the risk through plan the risk response and Propose appropriate

contingency.

If the risk is managed in a realistic way it will lead to improve the project planning,

provide a confidence in the estimate and help to propose proper contingency to manage

the project effectively

Asses Risk at All Phases

Project

Identify Risk

Analyze Risk

Risk Response

Risk Register

Com

munic

ate

&

Consult

Monit

or

& R

evie

w

Risk Management

Plan

Taken as a combination from (Smith et al., 2006) and (Ahmed et al., 2007)

2. Project Risk – Planning Phase (Initiation)

A. Risk Management Plan

B. Risk Identification Risk identification method is dealing with the resources of risk but not with its effects.

There are three different procedures proposed, brainstorming meetings, lessons

learnt from similar projects and use of business checklists (Smith et al., 2006).

The risks Identified factors for the any project fall under internal and external risks

expressed in a category wise as per the following table:

C. Risk Categories

I. Internal Risk:

Financial Schedule Technical Legal

In accurate cost estimate Delaying consultant’s and

contractor’s nomination

Poor management of

project

Severe noise pollution

created during

construction

High Quality work Tight project schedule Non availability of sufficient

skilled labors Worker’s strike

Variations and scope

creeping

Delay in material

procurement and delivery Poor communication Occur of disputes

Lack of funding Language barrier Selection of poor contractor

Delay on payment progress Shortage in fuel / energy Absence of historical data

of similar projects

Corruption Insufficient utilities Lack of safety

Delay in approval by Gov.

authorities Design complexity

Shortage of resources Insufficient site information

Delay in mobilization Over specified items

II. External Risk:

Unpredictable Predictable (but uncertain)

Economic recession (Financial) Bad weather (Schedule)

Lack of sufficient user involvement (Financial)

Inflation in costs of labors and material (Financial)

III. Opportunities:

Financial Schedule Technical

Stakeholder participate in the

investment Flexibility in project duration Sustainability implementation

Material cost less than expected Good weather Purchasing software application for

efficiency of team members

free facilities (offices, transport ,

housing, utility services) Highly spirt team working

(ESI International, 2009)

D. Risk Assessment & Prioritization

The priority of risks was grounded on their likelihood of happening, their impact when

happening and the objectives affected when they are happening.

(ESI International, 2009)

The level of each risk is calculated as: (Cervone, 2006).

R = P*I Where R indicating the risk rating per each risk, P the probability and I is impact degree.

The scale of risk based on their impact, likelihood and discrimination

Impact:

5 marks for critical risk lead to failure of the program, 4 marks for serious risk affect significantly on the cost or time, 3 marks for medium risk cause moderate increase on cost and time, 2 marks for minor risk cause low additional cost or time one mark for negligible risk on time or cost.

Likelihood:

5 marks for high Likelihood occurrence more than 50%, 3 marks for medium Likelihood occurrence between 10 to 49% and one mark for a low likelihood below 10%.

Discrimination:

Discrimination highlights the impact of the overall risk in the project rather than evaluating each risk independently.

Three levels of discrimination the first one having one mark of high impact will keep

objectives of the project at high risk lead to variation, second one having 3 marks of

moderate impact will not affect attaining the project objectives and require re-planning and

last one having 5 marks of very low impact any risk can be handle without affecting the

project planning, therefore with each risk appraised a mark value can be given to each risk by

using the formula:

The Overall Risk Factor = (P*I)/D where D is the discrimination.

The project Risk factors are then ranked by the risk severities which show the overall impact

on the project.

E. Risk Register – Planning Stage

T=Technical S=Schedule F=Financial L=Legal

High Risk: > 12 – Red

Medium Risk. >5, < 12 – Yellow

Low Risk: < 5 - Green

REFER TO THE TABLE ON THE NEXT SLIDE

ID Description of Risk Category Likelihood

Rating

Impact

Rating

Priority

Rating Mitigation Plan

Action

Resources

(Risk Owner)

1 Inflation in costs of labors and

material F 4 5 20

Provide contingency% on

estimated cost Sponsor

2 Shortage of resources S 4 5 20 MOU with Recruiters & Prepare

procurement plan Contractor

3 Tight project schedule S 4 5 20 Apply fast tracking or

crashing

Sponsor/

Consultant

4 High Quality work F 4 4 16 Prepare QA/QC plan Consultant/Contrac

tor

5 Severe noise pollution created

during construction L 4 4 16

Reduce by use of low noise

equipment Contractor

6 Delaying consultant’s &

contractor’s nomination S 3 5 15

Early procurement

arrangement Sponsor

7 Delay in approval by Gov.

authorities S 3 5 15

Assign dedicated consultant

staff

Sponsor/

Consultant

8 Variations and scope creeping F 3 5 15 Comprehensive scope study Sponsor/

Consultant

9 Non availability of sufficient

skilled labors T 3 5 15

Identify skills required and

communicate with recruiters Contractor

10 Poor communication T 3 5 15 Establish communication plan Consultant

11 Lack of funding F 3 5 15 Seek additional investors Sponsor

12 Delay in material procurement

and delivery S 3 5 15

Early procurement plan &

agree with suppliers Contractor

13 Selection of poor contractor T 3 5 15 Prepare Prequalification plan Sponsor /

Consultant

14 Economic recession F 3 5 15 Look for stable and strong

financial investors Sponsor

15 Poor management of project T 3 5 15 Assign competent project

manager

Consultant/Contrac

tor

16 Lack of safety T 3 4 12 Provide HSE plan Consultant/Contrac

tor

17 Delay in payment Progress F 3 4 12 Establish controlled time wise

payment process cycle

Sponsor/

Consultant

ID Description of Risk Category Likelihood

Rating

Impact

Rating

Priority

Rating Mitigation Plan

Action

Resources

(Risk Owner)

18 Design complexity T 3 4 12 Ensure design buildability Consultant/Contrac

tor

19 Delay in mobilization S 3 4 12 Prepare for timely

mobilization Contractor

20 In accurate cost estimate F 2 5 10 Assign experience QS Consultant

21 Worker’s strike L 2 5 10 Leadership to control conflicts

and ensure timely payment Contractor

22 Occur of disputes L 3 3 9 Disputes resolution plan All Parties

23 Corruption F 2 4 8 Cost control procedure All Parties

24 Bad weather S 2 4 8 Get weather forcast Sponsor

25 Lack of sufficient user

involvement F 2 4 8 Interface agreement Sponsor

26 Insufficient site information T 2 4 8 Site investigation Sponsor/

Consultant

27 Over specified items T 2 4 8 Review the specification Consultant

28 Absence of historical data of

similar projects T 1 4 4 Hold brain storming sessions Consultant

29 Language barrier S 1 4 4 Communication awareness

sessions Contractor

30 Insufficient utilities S 1 4 4 Determine requirement and

seek alternatives Sponsor

31 Shortage in fuel/energy S 1 3 3 Ditto Sponsor

ID Description of Risk Category Likelihood

Rating

Impact

Rating Priority Rating Benefits

Action Resources

(Risk Owner)

1 Stakeholders participate

in the investment F 4 5 20 Ensure availability of funding Stakeholders

2 Highly spirit team

working S 4 4 16 High productivity rate All Parties

3 Sustainability

implementation F 4 4 16

Reduce cost and increase

asset life time Consultant

4

Purchasing software

application for efficiency

of team members

T 5 3 15

Saving time and

sophisticated planning and

control

Consultant /Contractor

5 Material cost less than

expected F 3 5 15 Saving in project cost Suppliers

6 Good weather S 3 4 12 Increase working hours Sponsor

7

free facilities (offices,

transport , housing,

utility services)

F 1 4 4 Staff stability Sponsor

Opportunities: Positive Impact

(ESI International, 2009)

F. Risk Control Strategy:

It is very important to know that getting a plan for dealing with all risks covering all

tasks step by step in the project is very difficult, therefore in many projects the project

team exerted their effort to resolve risk on looking to the top 20% of the risk

identified using rule of thumb but still risk resolution require a widespread and

extensive elaboration.

The most efficient way to avoid risk is to ensure proper planning for communication

within all teams working in the project to keep all team members aware of the project

through a good tracking system for the work program with major milestones that

have passed, cost and cash flow diagram with any implication arises, documents of

previous lesson learnt of similar projects, documentation system, monitoring and

controlling of project’s tasks and continuous risk assessment, this will assist the team

in identifying the high risk at each moment and therefore increasing the opportunities

for the project to succeed.

G. Risk Response:

Looking to the stages of risks management mentioned above, it is clearly shown that

these stages are not really removing the risk from the community project rather than

structuring an organized route to recognize the risk surrounding the project. The last

stage of risk management is the risk response which seem to be the most important

stage, The risk response can be achieve through three ways, first way by the contract,

second way by insurance ( these two ways are approaches used when transferring the

risks to the outer bodies) , the third way of responding to the risk is through

management of retention which lead to reduce or eliminate the risk internally,

allocation of risk by contract is normally a common practice in construction industry

however some risks may owed to owner/consultant/suppliers or sub-contractors

(Smith et al., 2006).

H. Risk Mitigation: Risk mitigation plan is describe the proactive methodology or action to be taken due

to possibility of risk events occurrence, this can be found in origination of contingency

plan e.g. the insurance which was provided to eliminate, reduce and/ or transfer the

risk, administration of the standby reserve must composed of provision for specified

and unspecified risk (PMI, 2008).

I. Contingency for Risk: Contingency allowance is an amount of cost reserve from the budget to cover the

project’s risks where on the other hand potential savings of cost can be occur due

opportunities which result in reducing the amount of budget, we therefore need to

carry proper planning for contingency and have a road map to mitigate the risks in the

project but we will never be able to plan contingency for all risks that may expected to

arises. To determine the contingency allowance for the project four common methods

to be illustrated such as, the parametric modeling, simulation analysis, predetermines

guideline and expert judgment. The widely used techniques is to use an arbitrary

percentage of the estimated project cost this estimation depend on the experience

and awareness (expert judgment) e.g. a project with low to medium risk may got 5%

and of high risk 10%, in fact evaluated these efforts as an “educated guess at best”.

Based on the high risk shown at planning stage I propose 10% of the budget

equivalent to AED…., we should take into account similar previous projects success.

(Thal et al., 2010).

This stage is a purely VE that lies at the heart part of risk and value management, VE dealing with reducing the cost, its techniques is to measure, analyze, quantify, compare, investigate and select best value from different options.

3. Tactical Project Risk – Execution Stage

A. Value Engineering:

B. Major Construction Activities: In order to identify all the risk surrounding this stage we need to define the construction activities during the execution stage listed as:

1. Kick‐off meeting

2. Site hand over

3. Nomination of consultant’s and contractor’s teams

4. Mobilization

5. Submission of work program

6. Authorities approval for services-routes-NOC’s

8. Shop Drawings Submittals and Approval

9. Quality & HSE Plans

10. Supply and Delivery of materials

11. Excavation-execution-installation, Supervision monitoring & controlling

12. Inspections-testing- commissioning and hand over

13. Final As-Built drawings

14. PAC (Provisional Acceptance Certificate)

15. Submittal of O & M manuals & training

16. PAC snag clearance

17. Reconciliation

18. Documentation and lesson learnt submittal

19. Close-Out report

20. Warranty Period

21. Issuance of FAC(Final Acceptance Certificate)

7. Material Submittal and Approval

C. Risk Register – Execution Stage

T=Technical S=Schedule F=Financial L=Legal

High Risk: > 12 – Red

Medium Risk. >5, < 12 – Yellow

Low Risk: < 5 - Green

REFER TO THE TABLE ON THE NEXT SLIDE

ID Description of Risk Category Likelihood

Rating

Impact

Rating

Priority

Rating

Mitigation Plan

(Contingency Action)

Action

Resources (Risk

Owner)

1 Inflation in costs of labors and

material F 4 5 20

Provide contingency% on

estimated cost Sponsor

2 Variations and scope creeping F 3 5 15 Change management Sponsor/

Consultant

3 Tight project schedule S 3 5 15 Monitor & control progress Sponsor/

Consultant

4 Lack of funding F 3 5 15 Ensure availability of funding Sponsor

5 Economic recession F 3 5 15 Maintain agreement and

good relation with investors Sponsor

6 Injury at Site L 3 5 15 To implement HSE Plan

Properly Contractor

7 Severe noise pollution created during

construction L 3 4 12

Monitor equipment

performance Contractor

8 High Quality work T 3 4 12 Implement QA/QC plan Sponsor/

Consultant

9 Shortage of resources F 2 5 10 Follow with Recruiters &

Implement procurement Contractor

10 Non availability of sufficient skilled

labors T 2 5 10 Staff motivation Contractor

11 Delay in material procurement and

delivery S 2 5 10 Implement procurement Contractor

12 Lack of safety T 2 5 10 Implement HSE Plan Consultant/Contra

ctor

13 Delay in NOCs approval L 2 5 10 Obtain NOC’s Consultant /

Contractor

14 Poor communication T 2 5 10 Implement communication

plan Consultant

15 Delay in payment Progress F 2 4 8 Timely processing of

payment

Sponsor/

Consultant

C. Risk Register – Execution Stage

ID Description of Risk Category Likelihood

Rating

Impact

Rating

Priority

Rating

Mitigation Plan

(Contingency Action)

Action

Resources (Risk

Owner)

16 Occur of disputes L 2 4 8

Assess disputes procedure &

manage disputes. Assess &

manage effectiveness of

dispute process.

All Parties

17 Corruption F 2 4 8 Monitor & Control All Parties

18 Bad weather S 2 4 8 Update weather forecast Sponsor

19 Lack of sufficient user involvement F 2 4 8 Implement interface

agreement Sponsor

20 Poor management of project T 1 5 5 Motivate Project Manager Consultant/Contra

ctor

21 Inaccurate cost estimate F 1 5 5 Cost control Consultant

22 Worker’s strike L 1 5 5

Leadership to control

conflicts and ensure timely

payment

Contractor

23 Delay in mobilization T 1 4 4 Ensure timely mobilization Contractor

24 Language barrier S 1 4 4 Communication awareness

sessions Contractor

25 Insufficient utilities S 1 4 4 Determine requirement and

seek alternatives Sponsor

26 Shortage in fuel/energy S 1 3 3 Ditto Sponsor

C. Risk Register – Execution Stage

D. Party’s Involvement:

With reference to RIBA POW stage 5 the following parties are the key project teams

involve in the community project:

1. Client Project team leader:

His role is vital during the implementation stage, including secure finance/funds

through the whole duration of the construction, approval to the consultant and

contractor key personnel, approve nominated subcontractors, review and

approved project schedule, review and endorse consultant’s and contractor’s

payments, oversee project submittals, review and approve variation for changes,

report to board of directors, attend progress meeting, approve PAC & FAC

certificates, participate in project hand over, evaluate consultant and contractor

performances, oversee project closeout and endorse final payment and

retentions.

2. Consultant Team composed of:

Resident Engineer his role to ensure that the contractor comply with the design

requirement, review the quality of work as per contract specification, review risk

management plan, ensure that all NOCs are in place in a timely manner, ensure

the smooth progress of site activities, supervise, monitor and control work

progress, review schedule, review contractor’s daily, weekly and monthly reports,

review safety and quality plans, prepare and submit monthly progress report to

the client, run progress meetings and prepare the minutes, review, endorse &

submit contractor’s payments to client, review/approve project schedule.

Assistant Resident Engineer, review shop drawings, method statement of work,

inspection of material, QA/QC work, undertake all HSE measure to avoid incident

occurrence, attend site meetings, attend all tests performed.

Quantity Surveyor: Review contractor payment, measurements sheet & material

reconciliation.

Inspectors: check the daily work, safety checklists, and drawings, endorse

contractor’s inspection request, report to ARE.

2. Contractor key Team composed of:

Project Manager

The P.M. of the contractor must have technical, managerial and financial skills,

since his role and responsibility is to deliver the project as per contract

requirement, liaising/communicating with consultant, client & Gov. authorities,

attending project progress meeting, obtaining NOCs, securing manpower-

equipment and subcontractors, undertaking all safety and quality measures in

coordination with his team, secure material procurement and delivery (local or

overseas), assure that the approved project schedule is being implemented,

submit the progress payments to consultant, testing, commissioning and hand

over the project.

Construction Manager

C.M. role is to assist the P.M. in his duties, supervising and managing all

construction daily activities, enforcing safety policy, ensure the approved quality

plan is being implemented, inspect the material upon arrival and managing &

supervising subcontractors work.

2. Contractor key Team composed of:

HSE Manager: prepare, submit and implement HSE plan.

QS: Review B.O.Q. prepares progress payment and material reconciliation in

coordination with P.M.

Planning Engineer: Prepare and monitor work program in coordination with all

contractor’s team members.

QA/QC Engineer: Prepare and implement quality control plan.

Site Engineers: implement projects activities as per contract specification.

Facility Manager: his role covers the participation in the handover of the project

including testing, commissioning and training.

External Auditor: is not part of the organizational chart but his involvement is vital

to evaluate the whole implementation process of the project; however this should

be applied to all the phases of the project.

E. Contingency Reassessing:

Contingency reassessing philosophy is based on avoid, reduce or transfer of risk, with

adjustment of opportunities which have positive impact to reduce the risks and

increase the contingency reserve, during the early strategic phases there is no enough

details helping to implement proper risk management plan, however from past

experience and expert judgment the risk was identified, prioritized, assessed and risk

register implemented i.e. risk management plan was in place. This will result in

reducing probability of risk occurrence in implementation phase as seen in risk

register (4.3), where most of high risks in the initiation phase were reduced to

medium and low risks or eliminated after been properly plan, thus the contingency

reserve may cover only the accepted residual risk and unknown risk arises.

In managing contingency we need to calculate the amount reserve during critical path

of project implementation phase this apply to but not limited to the following: KPIs

like SV, SPI, BAC, CV, CPI,ETC, EAC and EVM., which will be used to review the

calculation of contingency for the rest of risks(PMI, 2008).

4. Conclusion Risk management techniques, when applied properly on projects management it will lead to

achieving an outstanding result, if we look to construction industry today in UAE we will

find different projects managers and professionals using same techniques of risk

management but they are not aware about it.

The presentation highlights the risks influence to the success of the project at strategic

which was reduced during implementation stage due action plan undertaken for maximizing

the opportunities and minimizing the impact of threat through project life cycle,

methodology used in identifying, categorizing, prioritizing and assessing them, using a

mitigation plan to accept, mitigate, transfer or avoid them by assignment of an appropriate

flat percentage of allocated budget as contingency in strategic phase, and reassess it at

implementation stage in a way to cover the higher residual or unknown risks and thus

prevent the trade-off that may increase the time, decrease scope or result in project cost

overrun. Risk management techniques when applied during strategic phase will lead to

increase the cost of contingency due to lack in details available rather than implementation

stage where most of the risk are known and managed with less contingency. (Gajewska and

Ropel, 2011).

5. References: Cervone H., (2006) ‘Managing Digital Libraries: The View from 30000 Feet’, Project Risk Management, Available at [www.emeraldinsight.com/1065-075X.htm] Accessed on [December, 2014]

Eldosouky I., Ibrahim A., Mohamed H., (2014) ‘Managing of Construction Cost Contingency covering Upside and Downside Risks’ , Alexandra Engineering Journal, Available at [http://www.sciencedirect.com/science/article/pii/S1110016814000982] Accessed on [December, 2014]

ESI International (2009) ‘Risk Management’, Project Management’ Available at [www.esi-intl.com] Accessed on [December, 2014]

Kelly J., Male S., Graham D., (2008) ‘Value Management of Construction Projects’, Blackwell.UK, 9- 48.

Male S., Kelly J., Fernie S., Gronqvist M., Bowles G. (1998). Value Management. london: Thomas Telford. 20- 50.

PMI, (2008) ‘Project Management Body of Knowledge PMBOK GUIDE’, Pennsylvania. USA, 41- 46.

RIBA (2013) ‘Plan of Work Overview’ Available at [http://www.architecture.com/Files/RIBAProfessionalServices/Practice/RIBAPlanofWork2013Template.pdf] Accessed on [December, 2014]

Smith N., Merna T., Jobling P., (2006) ‘Managing Risk in Construction Projects’ ,Blackwell Publishing, (2) p 16- p 22.

Thal A., Cook J., White E., (2010) ‘Estimation of Cost Contingency for Air Force Construction Projects’, Journal of Construction Engineering and Management, Available at [http://ascelibrary.org/doi/abs/10.1061/(ASCE)CO.1943-7862.0000227] Accessed on [December, 2014]

D.Hagir Al Hakim notes on “risk management course” and assignments in MSC for CPM, Heriot watt University