Risk Management

By Paul Missa
 risk management process for a construction project
Key Issues
• Identification
Often a brainstorming session involving as many members of the team
as possible (and the client if possible)
• Classification
Risks are classified and recorded into a risk register
• Analysis
The risks are considered for probability and impact
• Response
Decisions are made as to how to proceed in addressing each of the
risks following assessment and analysis.
• Management
The risk register is kept up to date added to or amended as the scheme
evolves
 CLASS ACTIVITY 1

THANKS IN ADVANCE FOR PARTICIPATION IN THE EXERCISE!

Low Risk Zone Brainstorming
❑ In groups
❑ Choose a site in the UK and think of a project you deem
appropriate for this site.
❑ Attempt a brainstorming exercise for the selected project
and try to identify the risks for this site and rank these in order
of probability and impact/magnitude.
❑ Draft a justification for your responses
Risk and Uncertainty
Risk and uncertainty are distinguished by both
Bussey (1978) and Merett and Sykes (1983) as:
A decision is said to be subject to risk when there is a range of
possible outcomes and when known probabilities can be
attached to the outcome
Uncertainty exists when there is more than one possible
outcome to a course of action but the probability of each
outcome is not known
Categories of Project Risk
Elemental risks are those risks which may be controlled within
the project elements of a project
Global risk are those risks outside the project elements which
may not be controllable within the project elements of a
project - of which some current example include? Any
economic consequences outlined? E.g., Liquidity and
implications
Risks Management
Thompson in Smith (1995) states that risk management is an essential part of
the project planning cycle which:

❑ Requires acceptance that uncertainty exists;

❑ Generates a structured response to risk in terms of alternative plans,
solutions and contingencies;
❑ Is a thinking process requiring imagination and ingenuity; and,
❑ Generates a realistic attitude in project staff by preparing them for risk
events rather than being taken by surprise when they arrive.
Risk Management Elements
Again, according to Thompson in Smith (1995), the process of
risk management involves:
❑Identification of risks / uncertainties;
❑Analysis of implications;
❑Response to minimize risk; and,
❑Allocation of appropriate contingencies.
RM Process
Risk Identification
Risk Analysis
Risk Response/Allocation
RM Process
RISK RISK
IDENTIFICATION ANALYSIS

RISK
MANAGEMENT

RISK
RESPONSE
Tasks and Benefits of Risk Management
The risks associated with a project are defined clearly and in advance of the
project start
Management decisions are supported by thorough analysis of the data available.
Estimates can be made with greater confidence.
Improvement of project planning by answering “what if” questions with
imaginative scenarios
The definition and structure of the project are continually and objectively
monitored
Provision of alternative plans and appropriate contingencies and consideration
concerning their management as part of risk response
The generation of imaginative responses to risks
Statistical profile of historical risk is being built up which allows improved
modeling for future projects (PPRs help)
*The risk-return trade-off states that the potential return rises with
an increase in risk (risk – return trade-off “no risk, no reward”)
Risk Identification
Inputs to risk identification are given as:
Product description,
Other planning outputs - e.g. Work Breakdown Structure, cost
and time estimates, and Historical information.
Outputs are:
Sources of risk,
Potential risk events,
Risk symptoms, and
Inputs to other processes.
After Risk Identification
Risks should be “validated” - i.e. the information on which they
are based and the accuracy of the description of their
characteristics should be checked,
Risk response options should be considered.
Purpose of Risk Identification
The purpose of risk identification is:
To identify the most significant participants in risk management
and to provide the basis for subsequent management;
To stabilize the groundwork by providing all the necessary
information to conduct risk analysis;
To identify the project components (i.e. activity, strategy,
intervention, process, product, practice, or policy included in
the project); and,
To identify the inherent risks in these components and hence,
the project.
Risk Identification Techniques
Techniques Can Be Classified In Three Categories
• Intuitive Methods - e.g. Brainstorming; Assumption
Analysis; Delphi; Interviews
• Inductive - what if? techniques - e.g. hazard and
operability studies, and failure modes and effects
criticality analysis; and,
• Deductive - so how? techniques - e.g. accident
investigation and fault trees, based on hindsight e.g.
Check Lists, Prompt Lists, Risk Registers & Matrices.
 CLASS ACTIVITY 2

AGAIN, THANKS IN ADVANCE FOR YOUR PARTICIPATION IN THE

EXERCISE!
High Risk Zone Brainstorming
❑ In groups
❑Choose a site in Japan/Turkey and think of a project you deem
appropriate for this site (reconstruction).
❑ Attempt a brainstorming exercise for the selected project
and try to identify the risks for this site and rank these in order
of probability and impact/magnitude.
❑ Draft a justification for your responses
 What is a risk register?
A risk is an undesirable future event. The Risk
Register helps to analyse risks to drive action by
• Reducing the likelihood of the risk occurring.
• Increasing visibility of the risk
• Enhancing mitigation strategies
• Reducing the impact of the risk
Preparation of a risk register
Analysis of the process / processes
Accumulation of risk headings
Risk profiling
Probability of the risk (happening)
The impact if it happens
Contingency plans
Elements of a Project Risk Register
 Risk Identification phase
Risk Category – categorize risks into relevant categories e.g. scope,
time, cost, resources, environmental etc.
Risk Description – attempt to describe potential risk e.g. Limited
resources with ensuring completion
Risk ID – assign a unique identification number to identify and track
the risk.
 Risk Analysis phase
Project Impact – describe the potential impact of the risk e.g. the
triple constraints - schedule, budget, scope impacting on quality.
Likelihood – estimate likelihood/probability of risk occurring e.g.
resources over-committed in the past so likelihood of reoccurrence
needs assessing carefully …
Consequence – The potential impact of the risk if it surfaces e.g.
time as a fixed constraint and delay in a schedule
 Risk Evaluation phase
Risk Rating – the magnitude of the risk from its likelihood and
consequence
Risk Trigger – indication of the need to implement contingency
plans - prior to start if a problem shows signs e.g. bedrock in
excavation works
 Risk Treatment phase

Prevention Plan –action plan to prevent the risk from occurring e.g.
floodgates, sea defence systems etc.
Contingency Plan – action plan to address the risk if it does occur -
e.g. train/upskill core team to take action
Risk Owner(Team) – person/s responsible for managing the risk and
implementing the prevention or contingency plans
Residual Risk – risk remaining after treatment usually assessed as
low.
Uses
Weather risk management and claims
situations (specific benefits to site staff)
Site diaries maintained by site staff to record weather data
• Work stoppages
• Repair or re-work
• CVI’s & RFI’s
• Obtaining correct extension of time and time related costs is all
to do with the strength of a case
• If the extension of time is successful, then the date of
completion is adjusted.
 Risk Assessment
Risk Hazard Outcome of Likelihood of Impact on Risk Responsibility
Ref Category Hazard hazard business rating

12 Heavy 1. Disruption Individual / s

snow of supplies Limited <-> Team name
2. Employee 1-5 catastrophic
absence
3. Loss of
customers

14 Heatwave 1. Loss of Limited <-> Individual / s

productivity 1-5 catastrophic
Team name
2. Sickness of
employees
Project Risk Register
Risk Hazard Outcome of Likelihood of Impact on Risk Responsibility
Ref Category Hazard hazard business rating

4 Underground 1. Impact on Individual / s

obstructions excavation Limited <-> Team name
1-5 catastrophic

14 Planning 1. Delay in Limited <-> Individual / s

commence 1-5 catastrophic
consent Team name
ment

Further columns can be extended to include project

management functions and dates
Two important elements in risk
assessment
Identify the impact of the risk e.g.
Warren Buffet’s wrong call
Earthquake – can your building withstand?
Construction Site manager – Will the project come to a halt
with a vital supplier going bankrupt?
What is the likelihood of this risk / hazard?
Look at past records
Probability
What contingency plans / mitigation measures?
(current economic climate)
 Planning for risks – over design
https://www.youtube.com/watch?v=2loLW6ucgsQ
Fukushima Earthquake 2016 - 3mn

https://www.youtube.com/watch?v=kuFDH6UJtvQ
Onagawa, Tsunami 2011 - 3mn

https://www.youtube.com/watch?v=gFGN8Qikwjk
UK 2008 – 1.5mn
 Discussion Session (Activity)
Having watched the videos on earthquakes/tremors in Japan and the UK, attempt a
draft of a risk management strategy for a construction project of your choice in any
location in either of the two countries. You are to work in groups and you may also
use any tools available to you. Collaboration and active involvement (inter/intra
groups) is encouraged.
Risk matrix (driven by register)
Catastrophic (5)
Tidal Fluvial
flooding flooding
Significant (4)
Technical failure
Impact

of electricity
Network Pandemic flu
Moderate (3) Storms & Gales, low
temperature & heavy Heatwave, Surface
snow water flooding
Minor (2) Avian flu
Limited (1)
Low(1) Medium Low (2) Medium (3) Medium High (4) High (5)

Relative Likelihood

Very high
High How you define this criteria is
Medium
Low
important

Risk matrix of extreme weather hazards for London. Adapted from London Fire Brigade (2010)
Risk Rating – based on traffic light
system Relative likelihood
L H

Very High Risk L

Impact
High Risk

Medium Risk

Low Risk H
Different Visual forms of risk registers…
 Risk Register format Red - existing controls not working/adequate (to
escalate)
Amber - existing controls in danger of failing
Green - controls are working

Project name of project

PI ANO1 Date this revision 03/07/2009
Project Manager ANO9 Date next revision 03/08/2009
Prob-
ID RAG Owner Description & Impact ability Impact Trend Controls/Actions Action By Action Due
Identification 1. maintain holiday plans
there is a risk that insufficient resources will be available 2. ensure working instructions documented for all regular services 1. all team members 1. ongoing
due to sickness, unplanned absences, etc. to deliver 3. create deputy cover plan and conduct training 2. all team members 2. Oct 2009
committed Project activity which will impact the delivery 4. conduct regular reviews of Project commitments and secure 3. all team members 3. Aug 2009
001 Green PI of Project outputs M H No change increased funding when required 4. PI 4. ongoing
there is a risk that the space and office facilities
necessary to support Project team members is 1. PM
inadequate which will impact the delivery of Project 1. assign responsibility for Estates interface to a single team member 2. PM and individual 1. July 2009
002 Amber PM outputs and staff morale M H Increasing 2. gather feedback in individual reviews team members 2. ongoing
there is a risk that xxxxxxxxxxxxxx are not supportive of
Evaluation achieving xxxxxxxxxxx which will impact the ability to
003 Red PM xxxxxxxxxxxxxxxxx H M Increasing involve xxxxxxx in delivery of xxxxxxxxxxxxxxx PM 1. Jul 2009
there is a risk that timescales are not achievable due to
delays with pre-requisite activities which will impact the 1. create Project plan of all outputs 1. PI 1. Aug 2009
004 Green PI timely delivery of plans and other outputs M M No change 2. establish and communicate all leadtimes for Project deliverables 2. all team members 2. Oct 2009

1. liaise with xxxxxxxxxxx to ensure that data is made readily available

Mitigation
2. timetable of available data published for xxxxxxxxxxxxxxx 1. ano3 1. ongoing
there is a risk that timely, relevant, up-to-date data isn't 3. create timescales for all deliverables to allow time to gather 2. PI 2. Quarterly
005 Green ANO3 available to create Project deliverables L M No change relevant information 3. all team members 3. Every 6 months
there is a risk that priorities from higher management will
change during the Project, which will impact the Project 1. create a change process by which new priorities are assessed for
006 Green PI workload and achievement of outputs H M Decreasing impact, have agreement and implementation plans 1. PM 1. Aug 2009
1. formalise a clear communications channel between xxxxxxxxxx on
there is a risk that relationships with external partners existing relationships with external partners
could be jeopardised strategically due to issues relating 2. Assign a liaison(s) for each external partner and use them to help 1. PM 1. Aug 2009
007 Amber PI to xxxxxxxxxxxxxxx M M Increasing address project issues 2. all team members 2. Aug 2009
Source: Staffs. County council
National Risk Register

courtesy: http://SpyBlog.org.uk
Risk Register / Matrix
Countries where this is the norm – what
strategies are adopted?
Heated scaffolds
Specific gear for employees
Specific H&S schemes
Infrastructure support
Specific risk transfer (Labour only subcontractors)

How to establish baseline?

• Want to be resilient to the effects of weather
• Avoid disputes
• Preserving the competitiveness
What happened in December
2011???
Investment decisions and risk
registers
- In December 2010
Risk Control
Dickson (Dickson, 1995) classifies risk
control into three types of risk mitigation
Risk Reduction …
Risk Transfer …
Risk Retention …
Risk Reduction
Generally risks can be reduced by:
▪ Obtaining additional information
▪ The performance of additional tests / simulations
▪ The allocation of additional resources
▪ Improving communication and managing organizational
interfaces
Risk Transfer
• Completion Risks
• Performance and operating Risks
• Cash flow Risks
• Inflation and foreign exchange Risks
• Insurable Risks
• Uninsurable Risks
• Political Risks
• Commercial Risks
Addressing Risk Responses
Which party can best control the events which may lead to a
risk occurring?
Which party can best control a risk if it occurs?
Should the Principal retain certain risks?
Which party should carry a risk if it cannot be controlled?
What effect will the transfer of risk have on the project overall?
Can a risk be sustained by one particular party?
What effect will the transfer of risk to one party have on other
parties?
Risk Response – Other Factors
What is the likely extent of a risk occurring?
What is the appropriate allocation of risk between the parties?
Risks allocated by the promoter may maximize his/her own
commercial objectives at the expense of other parties?
If a risk occurs, can it be effectively managed by the party
allocated that risk?
Risk Retention
Risks – kind of a self insurance:
• Withholding Amount
• Contingency Allowance
QUESTIONS?
THANKS FOR YOUR ATTENTION !
 Further Reading

Risk Matrix - https://www.youtube.com/watch?v=S_0GWsLyQaM

Risk Assessment for Construction Projects - https://www.youtube.com/watch?v=cjaSUBfv1NU