Project

Risk
Management

Prepared by
Ajay Kumar Singhal

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Construction projects, from inception to closure, encounter unlimited risks. The risks
vary from project to project. Project risk management aims at planning and controlling of
risks, which might affect the performance of the project. It involves identifying,
analyzing, planning and controlling risks at project site.

Project Constraints :
 Time
 Quantity
 Cost

What Is A Risk
The chance of an event occurring which would cause actual project circumstances to
differ from those assumed when forecasting project benefit and costs.

Unknown

Unexpected
Risk endeavor
action
Undesirable

Unpredictable

Risk Management
Risk is the degree of probability of an external event threatening the success of the
Project.

Risk Management is the process of identifying, analyzing and drawing up plans to

minimize their effect on a Project.

 Project risks affect schedule or resources.

 Product risks affect the quality or performance.
 Business risks affect the organization.
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 A systematic approach to control the level of risk to mitigate its effects

Risk Identification
Risk Monitoring
Controlled
Risk
Risk Analysis Risk
Analysis
Environment
Risk Response
Risk Planning

Risk Identification

1) Acts of God :
 Flood,
 Earthquake,
 Landslide,
 Wind damage,
 Epidemic etc.

2) Financial & Economic :

 Investment risk,
 Inflation,
 Availability of funds,
 Fluctuations in currency exchange rates,
 Change in tax structures,
 Change in royalty structure of stone and sand,
 Effect of time & cost overruns.

3) Political and Legal :

 Site area is politically motivated,
 Presence and participation of union labour,
 Local personnel are to be engaged,
 Shifts in political leadership,
 Change in laws and regulations,
 Import-export restrictions and procedures,
 Requirement for licenses and permits,
 Pollution & safety rules.

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4) Project Scope:
 Ill-defined project scope,
 Frequent change in work scope,
 No extra work control.

5) Design :
 Design responsibility,
 No proper soil investigation,
 Frequent changes in design during construction,
 Unrealistic specifications / constructability of design,
 Poor design and shop drawings.

6) Physical :
 Inadequate or low quality procurement of resources,
 Constraints on the availability of labour,
 Non-availability of the material – quality as well as quantity,
 Long hauling distance material problem,
 Non-availability of special equipments, spares parts etc,
 Non-availability of construction water, power, accommodations for labour and
staff,
 Weather conditions; like high temperature / heavy rainfall,
 Low load carrying capacity of existing culverts / bridges on the route,
 Unsafe working conditions,
 Fire, wastage and theft.

7) Contractual :
 Insufficient time to prepare bid tenders,
 Unrealistic time schedule,
 Project schedules anticipate weather that may occur during the execution period,
 Conflicting conditions of contract,
 Delay in possession of site,
 Differing site conditions,
 Payment problems,
 Extra works / variations,
 Claims and disputes,
 Inability to take timely corrective action.

8) Leadership :
 No project vision, no team building,
 Poor motivation,
 Lack of senior management support,
 Limited authority / control for Project In-charge,
 Lack of co-ordination,
 Insufficient liaison with public services,
 Barriers in communication / poor communications.
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9) Organizational :
 Lack of competent / experience persons in the project team,
 Wrong selection of project team,
 No project manual / documented procedures / processes,
 Project being too complex for the available resources,
 Inadequate communications infrastructure,
 Poor quality control,
 Unsatisfactory conduct of status review meetings,
 Inability to take timely corrective action.

Risk Analysis
 List-out all possible significant risks likely to be encountered in a Project.
 Asses the probability and seriousness of each risk.
 Asses the impact if it happens.

Risk Planning
 Consider each risk and develop a strategy to manage that risk.
 Avoidance strategies
o The probability that the risk will arise is reduced.
 Minimization strategies
o The impact of the risk on the project or product will be reduced.
 Contingency plans
o If the risk arises, contingency plans are planned to deal with that risk.

Risk Monitoring
 Assess each identified risks regularly to decide whether or not it is becoming less
or more probable.
 Also asses whether the effects of the risk have changed.
 Each key risk should be discussed at management progress review meetings.

Risk Response Method

 Elimination
o Tendering a very high bid.
o Placing conditions on the bid.
o Pre-contract negotiations as to which party takes certain risks.
o Not biding on the high risk portion of the contract.
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  Transfer
o The activity responsible for the risk may be transferred
- To a contractor or designer by the Client.
- To a Sub-contractor by the Contractor.
o The activity may be retained, but the financial risk transferred, i.e. methods
such as insurance.

 Deferred
o Activities can be moved to a later date in the Project when the adverse effects
of events may be minimized or reduced.

 Retention
o Handling risks by the company who is undertaking the project.
o Two retention methods, active and passive.
- Active retention is a deliberate management strategy after a conscious
evaluation of the possible losses and costs of alternative ways of handling
risks.
- Passive retention occurs through negligence, ignorance or absence of
decision.

 Reduction
o Continuous effort.
o Well-defined specifications.
o Detailed site survey.
o Detailed design.
o Completing design before execution.
o Early involvement of trained / expert project group.
o Related with improvements of a company’s physical, procedural, educational,
and training devices.
o Improving housekeeping, maintenance, first aid procedures and security.
o Education and training within every department.

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 Risk Assessment Matrix

A matrix is a two-dimensional array; an array made of rows and columns. In risk

management the risk matrix is a mean to visualize these two dimensions in order to
display the ranking of a risk. It is made of the impact / consequence / severity of a
risk when occurring and the likelihood / probability of a risk to occur.

To build the risk matrix, you will divide likelihood and consequences into steps.

 Find it : Identify – What you need to do ?

- Consider what can go wrong.
- Determine how likely it is to happen – Likelihood / Probability.
- Determine how bad the outcome would be – Consequences / Severity.
- Calculate the risk level.

 Asses it : Likelihood / Probability – How likely is it to happen ?

- Usually underestimated,
- Consider existing controls,
- Work conditions and procedures.
Likelihood Meaning Value
Rare A remote likelihood. 1
Unlikely Very unlikely to occur. 2
Possible Unlikely, but possible to occur at some time. 3
Likely Will probably occur in most circumstances. 4
Almost Certain Likely to occur in most circumstances. 5

 Asses it : Impact / Consequences / Severity – How severely could it hurt

someone / cause damage ?
- Be realistic.
Impact Meaning Value
Negligible No injuries, low financial impact. 1
Minor First-aid treatment required, some financial impact. 2
Moderate Medical treatment required, high cost. 3
Major Serious injury, major cost. 4
Catastrophic Death or large number of serious injuries, huge cost. 5

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  Asses it : Risk Matrix = Impact x Likelihood

Risk Impact
Risk
Negligible Minor Moderate Major Catastrophic
Likelihood
1 2 3 4 5
1 2 3 4 5
Rare 1
Low Low Low Low Medium
2 4 6 8 10
Unlikely 2
Low Low Medium Medium Significant
3 6 9 12 15
Possible 3
Low Medium Significant Significant Major
4 8 12 16 20
Likely 4
Low Medium Significant Major Major
Almost 5 10 15 20 25
5
Certain Medium Significant Major Major Major

 Risk Based Control Plan

Risk Level Action and Time Scale

Acceptable with continued data collection and trending for
1-4 continuous improvement. Monitoring required ensuring controls
Low are maintained. Manage through routine procedures. Go for
economic improvements where possible.
Acceptable after review of the operation. Requires continued
5-8 tracking and recorded action plans. Undertake a risk assessment
Medium of the situation / task and implement the appropriate actions.
Actions should have a timescale and should be monitored.
Where the risk involves work in progress, undertake a risk
assessment as soon as possible to ensure the safety of the
9 – 12
situation or task. Work should not start until the risk is
Significant
reduced to an acceptable level. Considerable resources may
have to be allocated. Requires Management decision.
Unacceptable under existing circumstances requires immediate
action. Do not commence the activity until a risk assessment
15 – 25 has been completed to ensure the safety of the situation or task.
Major If it is not possible to reduce or eliminate the risk even with
unlimited resources, work must remain prohibited. Requires
Senior Management decision.

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 Use Risk Matrix Data for Risk Management Strategy

To contact, e-mail at : [email protected]

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