Risk Management Series (2)

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.