Risk management

Reported by:
Darroca, John Rolde Augustine G.
Deraper, Rachelle Mae
Felismino, Mary R.
Patoc, NiNo
RISK MANAGEMENT
Risk Management - is the process of
identifying, analyzing and responding to risk
factors throughout the life of a project and in
the best interests of its objectives. Proper
risk management implies control of possible
future events and is proactive rather than
reactive.
Importance of risk management
Projects often get started in the right direction but
then get off track. For example, project managers will
spend time with their teams to develop a clear scope and
detailed plan. Then something happens; something
unexpected—a major disaster strikes. The project
manager and team move quickly into their reactive mode
– they manage this risk based on their experiences and
best judgment but they have no opportunity to test it out
and they hope that it’ll be okay, but they do not know for
sure. This is not risk management – it is management by
crisis. Here are some rules to help you manage project
risk effectively:
 II. Managing project risks and opportunities
It is apparent that the traditional project risk management practice can provide a useful
platform for portraying and communicating potential negative events in projects. But at the
same time the project risk management omits largely the positive outcomes, that is
opportunities. The modern business and finance management is suggesting that the linkages
between risks and opportunities need to acknowledged and taken into account in
management practice. This should be taken as a starting point for the development of the
new project risk and opportunity management practice that needs to cover both negative
risks and positive opportunities, their analysis and balancing.
Experienced project managers, directors and company executives are intuitively
balancing project risks and opportunities. In practice this means that when facing unusually
high risks then there need to be clear opportunities for an improved benefits, for example
high project margin. It is considered to be very important that the practical models and
methods for risk management comply with this natural way reasoning and decision-making.
Thus, the management of negative risks and positive opportunities should be integrated and
the models and methods, which are available, need to be according to this principle.
What is needed is an approach, which can integrate smoothly together the management
of project risks and opportunities. Perhaps we need to start to talk about risk and
opportunity management as a general concept that in a natural way can include the views
over negative and positive outcomes without clumsy concepts (“positive risk” or “upside
risk”) or methods partly or completely omitting the assessment of positive opportunities
10 Rules for Managing Project Risks and Opportunities
The Risk Management Process is intended to reduce
management by crisis. While there may always be some things
that will occur that are unanticipated, most of these, through
sound risk management, can be managed, rather than reacted
to. Essentially, the Managing Project Risks is a quality problem-
solving process. Quality and assessment tools are used to
determine and prioritize risks for assessment.

1. Identify the risks early on in your project

• Review the lists of possible risk sources as well as the project team’s
experiences and knowledge.
• Brainstorm all potential risks.
• Brainstorm all missed opportunities if project is not completed.
• Make clear who is responsible for what risk.
2. Communicate about risks
• Pay attention to risk communication and solicit input at team
meetings to ensure that risk management is perceived as important
for the project.
• Focus your communication efforts with the project sponsor or
principal on the big risks and make sure you don’t surprise the boss
or the customer.
• Also, make sure that the sponsor makes decisions on the top
risks, because some of them usually exceed the mandate of the
project manager.

3. Consider opportunities as well as threats

• While risks often have a negative connotation of being harmful to
projects, there are also “opportunities” or positive risks that may be highly
beneficial to your project and organization. Make sure you create time to
deal with the opportunities in your project. Chances are your team will
identify a couple of opportunities with a high pay-off that may not require a
big investment in time or resources. These will make your project faster,
better and more profitable.
4. Prioritize the risks
• Some risks have a higher impact and probability than others. Therefore, spend
time on the risks that cause the biggest losses and gains. To do so, create or use
an evaluation instrument to categorize and prioritize risks.
• The number of risks identified usually exceeds the time capacity of the project
team to analyze and develop contingencies. The process of prioritization helps
the project team to manage those risks that have both a high impact and a high
probability of occurrence.
5. Assess the risks
Traditional problem solving often moves from problem identification to
problem solution. However, before trying to determine how best to manage risks,
the project team must identify the root causes of the identified risks.
Risk occurs at different levels. If you want to understand a risk at an individual
level, think about the effect that it has and the causes that can make it happen. The
project team will want to ask questions including:
• What would cause each risk?
• How will each risk impact the project? (i.e., costs? lead time? product
quality? total project?)
The information you gather in a risk analysis will provide valuable insights in
your project and the necessary input to find effective responses to optimize the
risks.
6. Develop responses to the risks
Completing a risk response plan adds value to your project because
you prevent a threat occurring or minimize the negative effects. To
complete an assessment of each risk you will need to identify:
• What can be done to reduce the likelihood of each risk?
• What can be done to manage each risk, should it occur?
• What can be done to ensure opportunities are not missed?
7. Develop the preventative measure tasks for each risk
It’s time to think about how to prevent a risk from occurring or
reducing the likelihood for it to occur. To do this, convert into tasks,
those ideas that were identified to reduce or eliminate risk likelihood.
8. Develop the contingency plan for each risk
Should a risk occur, it’s important to have a contingency plan ready.
Therefore, should the risk occur, these plans can be quickly put into
action, thereby reducing the need to manage the risk by crisis.
9. Register project risks
Maintaining a risk log enables you to view progress and
make sure that you won’t forget a risk or two. It’s also a
communication tool to inform both your team members, as
well as stakeholders, what is going on.
If you record project risks and the effective responses you
have implemented, you create a track record that no one can
deny, even if a risk happens that derails the project.
10. Track risks and associated tasks
Tracking tasks is a day-to-day job for each project manager.
Integrating risk tasks into that daily routine is the easiest
solution. Risk tasks may be carried out to identify or analyze
risks or to generate, select and implement responses. The daily
effort of integrating risk tasks keeps your project focused on the
current situation of risks and helps you stay on top of their
relative importance.
B. PROJECT DISPUTES

In 2013, an NBS survey, the National Construction Contracts

 and Law Survey, found that 30% of firms had been involved in at
least one dispute in the previous 12 months. As a consequence,
there is enormous interest in construction disputes but it tends
to focus ondispute resolution techniques rather than how to
avoid them.
PHASES OF THE PROCESS
1. Risk management planning:
This phase is used to decide on how to approach, plan and
execute the risk management activities for a project.

2. Risk identification:
This phase is needed to determine the
risks, which might affect the project and document their
characteristics.
 3. Qualitative risk analysis:
risks are prioritized for
subsequent further analysis or action by assessing and
combining their probability of occurrence and impact.

4. Quantitative risk analysis:

the phase is needed to
numerically analyze the effect on overall project
objectives of identified risks.
5. Risk response planning:
the phase includes developing
options and actions to enhance opportunities, and to
reduce threats to project objectives.

6. Risk monitoring and control:

in this phase managers
track identified risks, monitor residual risks, execute risk
response plans and evaluate their effectiveness during the
project life cycle.
Why do construction disputes occur?

A combination of environmental and behavioural factors can lead

to construction disputes.Projects are usually long-term transactions
with high uncertainty and complexity, and it is impossible to resolve
every detail and foresee every contingency at the outset. The basic
factors that drive the development of construction disputes are
uncertainty, contractual problems, and behaviour.
Uncertainty
Uncertainty is the difference between the amount of
information required to do the task and the amount of
information available (Galbraith, 1973).

 The amount of information required depends on the task

complexity and the performance requirements, usually
measured in time or to a budget. The amount of information
available depends on the effectiveness of planning and requires
the collection and interpretation of that information for the task.
Contractual Problems
Standard forms of contract clearly prescribe the risks and
obligations each party has agreed to take. Such rigid agreements
may not be appropriate for long-term transactions carried out
under conditions of uncertainty.
As a consequence, differences may arise in the parties'
perception of the risk allocation under the contract. Where the
parties have agreed to amended or bespoke terms, those
conditions take effect in addition to the applicable law of the
contract, which is continually evolving and being refined to
address new issues.
Behaviour

Since contracts cannot cater for every eventuality, wherever

problems arise either party may have an interest in gaining as
much as they can from the other. Equally, the parties may have a
different perception of the facts. At least one of the parties may
have unrealistic expectations, affecting their ability to reach
agreement. Alternatively, one party may simply deny
responsibility in an attempt to avoid liability.
Common Causes of Construction Disputes
A. Acceleration

It is not uncommon for commercial property owners to

insist upon acceleration of a construction project. Such examples
might include the completion of a major retail scheme, and the
need to meet key opening dates or tenant occupation in an
office development. The construction costs associated with
acceleration are likely to be less than the commercial risk the
developer may face if key dates are missed.
B. Co-ordination

In complex projects involving many specialist trades, particularly mechanical

and electrical installations, co-ordination is key, yet conflict often arises
because work is not properly co-ordinated. This inevitably leads to conflict
during installation which is often costly and time-consuming to resolve, with
each party blaming the other for the problems that have arisen.

C. Culture

The personnel required to visualise, initiate, plan, design, supply materials

and plant, construct, administer, manage, supervise, commission and
correct defects throughout the span of a large construction contract is
substantial. Such personnel may come from different social classes or ethnic
backgrounds.
D. Differing goals

Personnel engaged on a large construction contract are likely to be

employed by one of many subcontracted firms, including those engaged
as suppliers and manufacturers. Each of these firms may have their own
commitments and goals, which may not be compatible with each other
and could result in disputes.

E. Delays

Disputes frequently arise in respect of delays and who should bear the
responsibility for them. Most construction contracts make provision for
extending the time for completion. The sole reason for this is that the
owner can keep alive any rights to delay damages recoverable from the
contractor
F. Design

Errors in design can lead to delays and additional costs that

become the subject of disputes. Often no planning or
sequencing is given to the release of design information, which
then impacts on construction. Equally, the design team
sometimes abrogate their responsibilities for the design, leaving
the contractor to be drawn into solving any design deficiencies
by carrying out that part of the work itself to try to avoid delays,
and, in doing so, innocently assuming the risk for any
subsequent design failures
G. Engineer and Employer's Representative

The personality of the Engineer or the Employer's

Representative and their approach to the proper and fair
administration of the contract on behalf of the Employer is
crucial to avoiding disputes, yet a substantial proportion of
disputes have been driven by the Engineer or the Employer's
Representative exercising an uneven hand in deciding
differences in favour of the Employer
H. Project complexity

There are numerous examples of projects taking much longer than

planned and contracted for because there was insufficient appreciation of
the risks associated with the project's complexity. Inevitably the delay and
additional costs the contractor incurs, and the owner's right to claim
damages for delay, often develop into bitter disputes.

I. Quality and workmanship

In traditional construction contracts, disputes often arise as to whether or

not the completed work is in accordance with the specifications. The
specification may be vague on the subject of the dispute in question, and
each party to the contract may have a different view on whether the
quality and workmanship is acceptable.
J. Site conditions

If the contract inadequately describes which party is to take the risk for
the site conditions, disputes are inevitable when adverse site or
ground conditions impede the progress of work or require more
expensive engineering solutions.

K. Tender

The time allowed to scrutinise the tender documents, prepare an

outline programme and methodology, carry out a risk assessment,
calculate the price, and conclude the whole process with a commercial
review is often impossibly short. Mistakes in this process may have an
adverse effect on the successful commercial outcome of the project.
L. Variations

Variations are a prime cause of construction disputes, particularly

where there are a substantial number, or the variations impact on
partially completed work or are issued as work is nearing completion.
The nature and number of variations can transform a relatively
straightforward project into one of unmanageable complexity

M. Value engineering

This term often lacks definition in construction contracts and can lead
to disputes, particularly where the saving is to be shared between the
contractor and the owner. Savings in respect of the supply and
installation of the material or product in question might be relatively
easy to determine and agree, but these are not the only benchmarks,
and a proper value engineering approach needs to take full account
of the life cycle costs of any proposed change.
Firm insurance
A design professional encounters many
risks that can result in financial losses to
numerous people. Insurance transfers those
risks to an insurance company in return for
a premium payment. There are a number of
important types of architecture firm
insurance that an owner should understand
to determine if coverage is warranted.
• Professional Liability Insurance to defend and pay on behalf of
the architect for claims alleging an error or negligence in the
performance of professional duties; without this coverage,
one puts the firm and its architects in jeopardy. With
professional liability coverage, a firm continues to retain some
risk such as their deductible, costs exceeding policy limits, or
costs for claims that are excluded from the scope of coverage.

• Business Owners Insurance is commercial general liability

coverage, also known as P & C (or property and casualty). It
covers specific business exposures, such as computer
equipment, laptops and cell phones, valuable papers and
media, accounts receivable, and even business property.
Sometimes riders may be added for workers compensation
and employee practices liability insurance. There is now
separate insurance coverage available for cyber liability.
• Cyber Liability Insurance is designed to address potential
cyber-attacks including digital crimes such as cyber extortion
and deceptive transfer, and liability for privacy or website
media issues.

• Key Person Insurance is important to help cover business

expenses in the event of the loss of an important person to
the firm such as a co-owner. In this case, when the key person
would pass away, the firm’s beneficiary would be able to cover
lost income that the key person would have generated to help
pay bills and wages while allowing the surviving owner(s) the
time to figure out next steps.
• Business Overhead Expense Insurance provides financial support for
major office expenses if you become disabled. These expenses may
include employee salaries, rent, business loans, utilities, insurance
premiums and other expenses your business needs to cover in order to
keep running until you are able to return to work.

• Health Insurance as an employee benefit is arguably the top way to

attract and retain the best employees in your workforce and most highly
valued by newer workers. An employer can offer a Health
Reimbursement Arrangement (HRA) as an employee benefit, which is an
employer-funded, tax-advantaged benefit that can be used by employees
tax-free to reimburse all or part of the health insurance premiums after
the employees purchase their own health insurance.

• Employee Term Life Insurance and Employee Disability Insurance may

also be offered as part of your employee benefits package and can help
to attract, retain, and motivate your employees. Employee benefits
acknowledge employee value and send a message of concern about your
employees’ well-being.
Conclusion

The benefit of risk management in projects is

huge because the outcome of project failure is
wasted dollars that steal investor profits and have
a negative impact on the organization’s bottom-
line. Risk assessments allow you to deal with
uncertain project events in a proactive manner.
This allows you to deliver your project on time, on
budget and with quality results.
END