Management of Risk in Construction

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• Management of Risk in Construction
• By Professor Simon Burtonshaw-Gunn licensed
  under the Creative Commons Attribution
  Non-Commercial Share Alike License
• http//creativecommons.org/licenses/by-nc-sa/2.5/
  

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School of the Built Environment MSc Construction
Management Risk Management in the Built
Environment Presentation 2 Culture and Risk
Management Planning Professor Simon
Burtonshaw-Gunn
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Culture and Risk Management
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Who is responsible for Risk Management
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As shown in the Introduction presentation there
are many definitions of risk management and even
the ones most commonly used are often interpreted
by Construction companies to align to their
culture, own client base and strategic
aspirations.
Opportunities
Inherited Risk
Value Drivers (e.g. turnover, profit, cost of
capital)
Risk Tolerance
Strategic Options
Strategic Choices
Relationship of Risk on Strategic Management
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Successful project risk management requires three
key attributes to be in place and embedded within
companies these are

• a systemic risk process in practise
• staff involved in construction projects have an
  appropriate knowledge and experience of risk
  management
• and finally
• that there is a supporting culture to risk
  management.

It is stressed that building the necessary
culture is rarely a simple or straightforward
process. It should be noted that culture covers
a mixture of positive and negative traits and as
such some need to be encouraged and others
managed to reduce their impact.
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Cultural Rule Observed Behaviour
Dont ask me for information
Be risk adverse
Be reactive
Dont bring forward risks without solutions
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Cultural Rule Observed Behaviour
Reward heroes
Make commitments without determining the probability of success
Ignore the soft stuff
Make decisions based on emotion, rather than logic
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Cultural Rule Observed Behaviour
Dont ask me for information Shoot the messenger No news is good news Theres no evidence to the contrary (with no effort to find it Allow people to learn what information to report by trial and error Filter bad news out, show only good news Argue away information that conflicts with teams assumptions, decisions or success (group think) Assume the competition is weak or incompetent Dont share information its power Dont raise issues that may reflect poorly on upper management
Be risk adverse Dont make decisions until outcome is guaranteed Allow options to be eliminated by passage of time Run risky decisions up to management chain for approval Use unreasonable criteria for decision making Dont reverse past decisions
Be reactive Deal with symptoms rather than root causes Deal with immediate and specific rather than the systemic Dont deal with anything until you have to Believe the team cant fail
Dont bring forward risks without solutions Expect problems and risks to be brought forward already solved Think of risks as something that can be solved Dont delegate upwards Micromanage or burden the messenger with tasks
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Cultural Rule Observed Behaviour
Reward heroes Believe the team cant fail Pretend projects can be made to succeed by sheer force of will Assign the best people to crises Reward lone rangers Assume engineering can pull off miracles on a regular basis Dont forget peoples failures
Make commitments without determining the probability of success Accept constraints without considering whether a feasible solution set exists Assess probability intuitively and subjectively Deal with estimates as point values Dont believe estimates Expect the last best performance Always plan for the best case scenario
Ignore the soft stuff Shield engineering from the business and marketing aspects of the project View management tasks as administrative , not real work Deal only with the technical issues and solutions Ignore the people issues
Make decisions based on emotion, rather than logic Dont reach closure on difficult issues Talk about the difficult issues, but dont document them Discuss them regularly, covering the same ground as before Accept silence as a sign of consensus or agreement Dont document or follow up on decisions made
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Risk Identification Planning
Risk Identification Planning
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Risk Identification Planning
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Risk Identification Planning

• Risk Management cannot be owned by one individual
  in a project.
• All team members must be risk aware and
  participate in activities to improve a projects
  position, through Action Plans, which are part of
  the main project plan.

Procurement Plan
Risk Plan
Project Plan
Construction Plan
Commissioning Plan
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Risk Identification Planning

• The two objectives for the deployment of risk
  management are
• Plan and take management action to achieve the
  aims of removing or reducing the likelihood and
  effects of risks before they occur and dealing
  with actual problems when they do and,
• Continuously monitoring potential impacts of
  risks, review the associated action plans, and
  provide and managed adequate financial and
  schedule contingencies for risks should they
  occur.

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Risk Identification Planning

• Project Managers need to recognise that risks
  exist and actively manage them. This should be
  viewed as an indication of good project
  management, not an admission of failure.
• By looking ahead at the potential events that may
  impact the project and putting actions in place
  to address them (where appropriate), project
  teams can pro-actively manage risks and increase
  the chances of successfully delivering the
  project within . . . . .
• Risk Management is therefore a key Project
  Management discipline.

Time
Quality
Cost
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Risk Identification Planning

• Project Managers responsibility is not to make
  risks disappear but to manage and communicate
  these through the implementation of a systematic
  risk management process.
• Often it is not possible for the project team to
  identify all risks as unexpected things may still
  occur, however these instances should now be very
  rare and project staff will be familiar with
  dealing with other examples of risk occurrence
  and mitigation.
• All project staff have some level of
  responsibility for internal control as part of
  their accountability for achieving objectives.

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Risk Identification Planning

• Individuals and organizations need to have an
  all-round approach to risk management the most
  progressive risk management organizations achieve
  this by a uniform balance of tools, process,
  attitude and personnel.
• Risk Management has evolved into a formal
  systematic process of identifying potential risk
  or uncertainties and developing, selecting and
  managing options for addressing the risks through
  the life of the project.
• Risk evaluation is a key element for managing
  business risks with its main focus on identifying
  risks, evaluating their severity and managing the
  process.

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Risk Identification Planning
Common steps in a Risk Management Process
Are people, environment or assets exposed to
potential harm? What could go wrong?
Identify
What are the causes and consequences? How likely
is it? How bad will it be? What is the risk and
is it ALARP?
Assess
Can the causes be eliminated? Is there a better
way? How can it be prevented? How effective are
the controls?
Control
Can the potential consequences be limited? What
recovery measures are needed? Are recovery
capabilities suitable and sufficient?
Recover
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Risk Identification Planning
In other words!!!
Identify

• What have you got?
• What can go wrong?
• What are you going to do about it?

Assess
Control
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Risk Identification Planning
Within Construction one common approach is a
staged approval
to capture all of the potential risks which could
arise within the project
Risk Identification
where risks are grouped into internal and
external risks
Risk Classification
to quantify and evaluate the risk on the project
Risk Analysis
which addresses how the risk will be managed,
including risk reduction, avoidance, transfer and
risk retention.
Risk Response
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Risk Identification Planning
Within Construction one common approach is a
staged approval
Risk Identification
Is this familiar to you and used in your company?
Risk Classification
Risk Analysis
Do you use anything different - and how does
this work ?
Risk Response
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Risk Identification Planning

• Clearly all risks cannot be controlled but to
  ignore risks and risk mitigation tools covered in
  this course will undoubtedly lead adverse
  consequences on projects.
• Such consequences of failing to deal effectively
  with risk can include significant cost overruns,
  schedule delays and inability to achieve desired
  project technical objective(s).
• Other important consequences include

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Risk Identification Planning

• Clearly all risks cannot be controlled but to
  ignore risks and risk mitigation tools covered in
  this course will undoubtedly lead adverse
  consequences on projects.
• Such consequences of failing to deal effectively
  with risk can include significant cost overruns,
  schedule delays and inability to achieve desired
  project technical objective(s).
• Other important consequences include

• project de-scoping,
• loss of credibility,
• ultimately project cancellation and unhappy
  clients,
• and
• personal or organizational liability and fines.

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School of the Built Environment MSc Construction
Management Risk Management in the Built
Environment Presentation 2 Culture and Risk
Management Planning Professor Simon
Burtonshaw-Gunn