In the previous post, I already
described the certification of Risk Management Professional (PMI-RMP) and certification
requirement. On this edition, I will share brief knowledge of risk management.
Basic Concept of Risk Management Process
Basically, risk management process is
aiming to help control projects by reducing uncertainty events. There are two
key areas that cause risks, assumptions and estimates. I highly recommend to
trying identifying as many risks as possible. In risk management, there are two
types of risks – known risks and unknown
risks. As project manager, you can manage risks you are aware of. However,
unknown risks are not easily identified and often occur at the most inopportune
times. So, find all the risk – or they will find you!
Risk management identifies and
analyzes individual risks and overall project risk. And risk management should
be conducted in accordance with existing corporate policies and procedures. The
objectives or risk management are to increase the probability and impact of
positive events and decrease the probability and impact of negative events. The
aim is to identify and prioritize risks before they occur, and provide action
oriented information concerning risk to all key stakeholders.
You have to remember that Project
Risk Management is NOT an optional activity, but MUST be applied to every
project!
Risk management is not a
one-time-event. It is iterative. It
must be repeated throughout the life of a project. You will identify new risks
as the project progresses. Emergent risks are defined as risks not identified
initially. There are risks discovered after the project begins. In addition,
risks initially identified may become candidates for closure and deletion from
the Risk Register.
Key to Success
The following are key success factors
that impact the success of risk management program:
§
Value of Risk Management: It is
imperative to ensure all stakeholders understand the value of an effective
Project Risk Management program and the return on investment from a stakeholder’s
level of effort. If this objective is not met, resistance from stakeholders can
be expected. The Project Manager is responsible to ensure stakeholder buy-in.
§
Stakeholder and Organizational Commitment: All stakeholders must be committed to perform their roles and
responsibilities supporting effective risk management. The organization must be
committed to risk management as a whole.
§
Communication: Open and honest
communication is key to success. Include all key stakeholders in the Project
Communication Plan to ensure maximum risk management effectiveness,
§
Integration: Risk management must be
integrated with all project management activities to be successful. Risk
management cannot be an isolated event.
Project Manager’s Role in Risk Management
As a project manager, s/he has to
ensure project risk management is accomplished at an appropriate level to
ensure project success. Project Managers are responsible to manage risk on a
daily basis in whole process groups, to ensure a risk management plan is developed
and approved, to communicate effectively all risk status to all key
stakeholders, to encourage senior management to support the Risk Management
Process, to understand stakeholder attitudes, tolerances, and thresholds, and
to approve risk responses then to ensure those responses are approved and
incorporated into the Project Management Plan.
Some Potential Project Risks in Construction
Since my background is civil
engineering, I would like to highlight some potential project risks in
construction. There are typical risks on construction project include:
§
Failure to complete within the
stipulated design and construction time;
§
Failure to obtain the expected
outline planning, detailed planning or building code/regulation approvals
within the time allowed in the design programme;
§
Unforeseen adverse ground
conditions delaying the project;
§
Exceptionally inclement
weather delaying the project;
§
Strike by the labour force;
§
Unexpected price rises for
labour and materials;
§
Failure to let to a tenant
upon completion;
§
An accident to an operative on
site causing physical injury;
§
Latent defects occurring in
the structure through poor workmanship
§
Force majeure (flood,
earthquake, etc);
§
A claim from the contractor
for loss and expense caused by the late production of design details by the
design team;
§
Failure to complete the
project within the client’s budget allowance
It is important to distinguish the
sources of risks from their effects. Ultimately, all risk encountered on a
project is related to one or more of the following:
§
Failure to keep within the
cost budget/forecast/estimate/tender;
§
Failure to keep within the
time stipulated for the approvals, design, construction and occupancy;
§
Failure to meet the required
technical standards for quality, function, fitness for purpose, safety and
environment preservation.
In the construction industry the
euphoria, optimism and excitement of a new project often leads to the All Goes
According to Plan attitude. We tend to give budgets, estimates, and completion
dates based upon all going according to plan. Construction has many unknowns
and things rarely go according to plan. We need to be more aware of What
Happens If analysis. People should be encouraged to have ‘brainstorms of
destructive thinking’ where wild ideas can be thrown up about things which
might go wrong, even though there is no precedent. The ideas need to be
collected into a risk management process where analysis and response can be
undertaken.
