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Managing Risks

Risk Management Process
• Risk
–Uncertain or chance events that planning can not
overcome or control
...

• What can go wrong (risk event)
...

• What can be done before an event occurs (anticipation)
...


The Risk Event Graph

Risk Management’s Benefits
• A proactive rather than reactive approach
...

• Prepares the project manager to take advantage
of appropriate risks
...

• Improves chances of reaching project performance
objectives within budget and on time
...

• Macro risks first, then specific events

• Step 2: Risk Assessment
–Scenario analysis for event probability and impact
–Risk assessment matrix
–Failure Mode and Effects Analysis (FMEA)
–Probability analysis
• Decision trees, NPV, and PERT

–Semiquantitative scenario analysis

The Risk Breakdown Structure (RBS)

Partial Risk Profile for Product Development Project

Defined Conditions for Impact Scales of a Risk on Major
Project Objectives (Examples for negative impacts only)

Risk Assessment Form

Failure Mode and Effects Analysis (FMEA)
Impact × Probability × Detection = Risk Value

Risk Severity Matrix
Failure Mode and Effects Analysis (FMEA)
Impact × Probability × Detection = Risk Value

Managing Risk (cont’d)
• Step 3: Risk Response Development
–Mitigating Risk
• Reducing the likelihood an adverse event will occur
...


–Avoiding Risk
• Changing the project plan to eliminate the risk or condition
...

• Requiring Build-Own-Operate-Transfer (BOOT) provisions
...


Contingency Planning
• Contingency Plan
–An alternative plan that will be used if a possible
foreseen risk event actually occurs
...


• Risks of Not Having a Contingency Plan
–Having no plan may slow managerial response
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Risk and Contingency Planning
• Technical Risks
–Backup strategies if chosen technology fails
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• Schedule Risks
–Use of slack increases the risk of a late project finish
...


Risk Response Matrix

Risk and Contingency Planning – Corporate Finance

• Costs Risks
–Time/cost dependency links: costs increase when
problems take longer to solve than expected
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–Price protection risks (a rise in input costs) increase if
the duration of a project is increased
...


Opportunity Management Tactics – Corporate Strategy
• Exploit
– Seeking to eliminate the uncertainty associated with an
opportunity to ensure that it definitely happens
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• Enhance
– Taking action to increase the probability and/or the positive
impact of an opportunity
...


Contingency Funding and Time Buffers
• Contingency Funds
–Funds to cover project risks—identified and unknown
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–Management reserves
• Are large funds to be used to cover major unforeseen risks
(e
...
, change in project scope) of the total project
...

• Severe risk - merge noncritical and scarce resource activities

Contingency Fund Estimate ($000s)

Managing Risk (cont’d)
• Step 4: Risk Response Control
–Risk control
• Execution of the risk response strategy
• Monitoring of triggering events
• Initiating contingency plans
• Watching for new risks

–Establishing a Change Management System
• Monitoring, tracking, and reporting risk
• Fostering an open organization environment
• Repeating risk identification/assessment exercises
• Assigning and documenting responsibility for managing risk

An Example of Risk Associated with Labour

Risk – Labor Crew
• Seven different categories of factors that negatively impact
labor productivity
...

• Lost productivity due to worker learning
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• Lost productivity due to the number of crews
...

• Lost labor productivity due to changes in project logistics
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7-3

Categories of Factors That Negatively
Impact Productivity (negative impact factors)
•
•
•
•
•
•

Worker ability to do work
...

Environmental factors - QWL
Disruption of the work process - Interference
Added support activities – Not my Job
Human element – Pack Up Syndrome, Rehashed Crew

7-4

Loss of Labor Productivity (Impact) Due to
Changes and External Events
Examples of construction changes include the
following:
• Schedule changed and work shifted into colder temperatures
...

• Contractor required to add workers to project to accelerate
schedule
...

• Contractor required to store materials farther from project than
planned, due to unavailability of lay-down areas
...

7-5

Loss of Labor Productivity
Construction labor productivity is a complex process
and the productivity or units of output produced per
person-hour of effort or input is very sensitive to many
input factors:
• The amount and quality of labor, equipment, materials,
weather, and expected working conditions
...

• The expected actions of the project owner
...

7-6

Unexpected Events That Negatively Impact
Site Labor Productivity
(outside of the Construction Supervisor’s control)

• Added work due to change orders
...

• Incomplete drawings or specifications
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7-7

Unexpected Events That Result in Work
Performed Under Adverse Conditions
•
•
•
•
•
•

Overtime
Learning curve
Temperature, wind, humidity
Start-stop-start-stop
Double handling of material
Morale problems

7-8

Impact of Overtime on Productivity
• Overtime needed to accelerate the work
process
...
When required to work overtime, the
onsite craft worker is likely to become fatigued
and do less than the normal hourly output
...

• The construction firm and supervisor should collect data
from past performances of work tasks to estimate
productivity lost when crew size is changed
...

• Studies have indicated a 15% to 20% possible decrease
in worker productivity if needed supervision is absent
...

7-11

Impact of Work Space on Productivity
• Stacking – Available Work Space
• To make up time, crew sizes may be increased
...

• Extra workers or crews in a space reduces
productivity
...


Studies have modeled a worker’s ability to produce
as a function of how many times he or she has done
a work process
...

• Humidity
...

• Precipitation
...

• Poor lighting
...

7-16

Any Questions ?



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