This task is divided into three sections. The first section concerns project risk management. It involves a construction company mandated to build a 6,000 square feet office and an attached building with 20 hotel like room to house its beneficiaries. The budget allocated to the project is tight and the non-profit organization requires to utilize this office as soon as possible. The project is in the planning stage and the project has acquired funds and other requirement documents. This section will detail risk management processes that will be applied to safeguard the project from failure. The second section details the operational risk management and disasters that are prevalent in construction projects. The causes of the occurrences will be related to the disasters. The third section will comprise of a description of the main sources of scope, schedule and resource risks sin a project.
Section 1
How risk management is used in the project
Risk management is one of the pillars of project management according to the Project Management Institute. With respect to the construction industry, risk management involve elimination of the adverse effects to facilitate completion of project in a time and cost effective way. Looking back at the period before the economic recession of 2008-09, the construction industry was in a stable and profitable state. Recession impacted the industry in a big way and the effect included close up of company operations, high rates of unemployment, and postponement or cancellation of construction projects. Risks management is majorly applied to eliminate the adverse effects that affect project and steer them to completion in the appropriate time. Risk management involve comprehensive and systematic way of finding, analyzing and approaching risks that are likely in a project. Risk management is used to identify the risks that are likely to impact the execution of this project. In this construction project, the standard risks management techniques will be employed. Risk profiling will be done by identifying the risks that are likely to occur and analyzing their magnitude. The project will commence with risk planning. A plan is laid down and the resources, tools and personnel engaged in risk management assembled. The project is likely to face such risks as time and cost overruns, employee turnover, material delays and supplier issues, and quality issues. Each risks is documented and profiled with their impact explained. A comprehensive definition will give a leeway for drafting mitigation techniques. This is after determining the risk profile of the organization. Some risks can be accommodated while others can be transferred or controlled. The final steps to risk management is response planning and mitigation. The later accompany the project until the very end.
Reasons for risk management
Risk management is important because it facilitates the identification, analysis and responding of project risks. A frequently overlooked aspect in project management is risk management. Risk management can result in significant improvement in the ultimate success of the whole project. It has the potential of impacting the construction process in a positive way by developing scope, developing realistic schedules and cost estimates. To the owner, it helps understand the nature of the project and eliminate unrealistic expectations that might lead to disagreements. It informs the development of strengths and weaknesses and helps integrate project management knowledge areas.
Good project risks management usually goes unnoticed, unlike crisis management which attract the attention of the entire project team. Because resolving a crisis has a much greater visibility and rewards from management, risk management is usually overlooked. However, excellent risks management leads to less problems, and for the few problems that are encountered, it lead to expeditious resolution. In the construction industry, the likelihood of projects failing to live up to expectation and ultimately grinding to a standstill is high. Even when the project is almost at the completion stage, once it has hit standstill, it takes a great deal of effort and investment to get it on track. Usually, it is difficult for outside observers to tell if the project success is due to risk management or luck, but project teams knows that their project worked well because of sound risk management processes.
The most important considerations
Risk management processes are complex initiatives that if performed poorly, may impact the outcome of the project. There are prime considerations that need to be factored in risk management. They include communication, contingency plans, and contingency reserves.
Communication is the lead determinant of the success of risk management processes. Communication among project owners, contractors, project team, suppliers, and insurance providers is essential to eliminating conflicts that may hinder or prolong the lifecycle of the project. Communication is critical to accomplishing contractual obligations. A communication plan document is developed that determines how communication between various parties in the project are handled. Even when the project is facing a downward ascension, constant communication is beneficial.
Contingency reserves are resources provided by a company to deal with unexpected requirements. Contingency reserves are applied to reduce cost or schedule overruns to an acceptable limit. While contingency reserves are known for known risks, management reserves are applied for unknown risks. For instance, if the project will be rendered off course because of inexperienced staff with a technology or an equipment, as a manager, I am mandated with providing the reserved resources to hire an external consultant that will train the project team and bring the project to course. Thus, contingency reserves and contingency plans should be considered in any construction project to gather for unknown or known risks that require immediate attention. Additionally, a fall back plan might be applied where the impacts of a risk are high and the contingency plans seem not to work.
Risk management model and the steps of the process
The risk management modelled applied in the project is one adopted in the Information Technology Project management text by Kathy Schwalbe. The model is appropriate to the construction industry as it relates to and draws reference from the projects in the sector. The risks that will be identified, analyzed and controlled using this model include quality risks, personnel risks, costs risks and schedule risks. Quality risks comprises of defects in interim results, lack of application of project methods, and too few controls or assets. Personnel risks may involve lack of sufficient skills and disagreement in the team. Cost risks are associated with planning changes, complicated project terms, and client failure to provide sufficient funds. Finally, schedule risks involve extension of the project delay time and lack of handover in appropriate time. The model comprises of the following stages:
Project risk planning
This is the inception stage of risk management. It involves ways of approaching and planning risks management activities in the construction project. It involves review of project management plan, project charter, stakeholder register, company environmental factors, organizational process assets, and project teams to establish the main subject areas of risk consideration. The output of this process is a risk management plan.
Risk identification
After drafting the plan, every risk that is likely to affect the construction process is identified. Each risk is defined and its characteristic documented. The main output of this step is the risk register.
Qualitative risk analysis
This process involves prioritizing risks based on their probability of occurrence and impact. When every risk has been identified, the project teams can utilize various tools and techniques to profile risks according to their magnitude and update information on the risk register. The output of this process is the project document update.
Quantitative risk analysis
It involves numerical estimation of the effects of the risks on the project objectives. The main output of the process document updates.
Planning risk response
This is the step taken to enhance opportunities and minimize the threats to getting to the project objectives. The outputs of the process is the previous risk management processes that will enable the project teams to design strategic responses that will be used to update the project management plan and other documents.
Control risk response
After the risk management response strategy has been establish, the control and monitoring parameters are put in place. Control procedures involves the overall processes of identifying risks, carrying out risk response plans and evaluating the effectiveness of the risk strategies put in place. The main outputs of this phase is work performance, change requests and updates of the project management procedure. The model discussed is presented as follows and it summarizes the inputs and the outputs of every phase.
Figure 1. Construction project risk management summary
Risk Breakdown Structure
In this project, the risk breakdown structure is classified as below. It comprises of the business risks, technical risks, organizational risks and project management risks.
Risk identification tool
The risk identification tools that will be involved in this project is project meeting and analysis. All the stakeholders in the project will engage in meetings to identify, find mitigation strategies and evaluate the effectiveness of mitigation techniques. A risk workshop or conference may be conducted to determine the overall risk level and risk appetite of the company and various ways of dealing with the risks. Project team members and outsiders will get involved in the process of risk identification through brainstorming in meetings and workshops. In this meetings, questions are asked, clarifications are made and solutions are proposed. After the risks have been identified, the team will utilize various information gathering techniques such as the Delphi technique, interviews and root cause analysis to profile them.
Section 2
Causes of disasters and operational management failures
Disasters and operational failures occurs all the time in the construction industry. Disasters are categorized differently because their causes are natural and man-made. The natural causes of disasters are environmental phenomenon such as earthquakes, floods, and tsunamis. Unnatural causes are associated with acts of man such as terrorist attacks or explosions. Though some of the causes can be prevented or their magnitude reduced through technical processes such as design processes, others are beyond the control of man.
Operational risks are classified as those events that result from organizational activities. Their impact range from less to severe. Examples of operational failures include machine breakdown, personnel falls, and building collapses. The causes of these events include human error, systems failure, or business processes of the parent company or others. The consequences of these risks are diverse and may include environmental degradation, physical damage, and legal actions among others. To the extreme, operational risks causes full-blown disasters. A case in point is the Chernobyl nuclear disaster in Ukraine. The operational error occurred at the nuclear plant and resulted in a fire and explosion that released enormous quantities of radioactive material into the atmosphere. The nuclear contamination spread to most parts of western USSR and Europe. Though the accident was caused by a small operational error in the nuclear plant, the consequences were enormous and affected a great portion of the continent.
Section 3
Main causes of project scope, schedule and resource risks
Scope risks
The triple project management constraints of scope, resources and schedule have with it associated risks which are worth considering in every construction project. Scope is the most outstanding among all with the highest proportion of risks among all. Scope risks are caused by poor definition of the requirements in the inception stage. There are two type of risk factors in the construction industry: internal risks and external risks. Internal risks fall within the playground of clients, consultants and contractors. External risks are not in the control of either of the three major players. The top three causes of external risks are natural forces, inflation of interest rates and fiscal policy. The internal risks are associated with change requests and scope creep, gaps and scope dependencies. Scope creep is a constant cause of risks in construction projects as it is related to cost and time overruns which have serious consequences on the success of the project.
Resource risks
Resource risks are as a result of the depletion of the resources before the objectives of the project are attained. The risks are second to resource risks and represent less than a third of all the sample risks in construction projects. They are classified as people, money and outsourcing risks. Human resource risks are caused by poor human resource management processes which result in unqualified or unmotivated personnel in the project. Employees that are unqualified for the job or unmotivated are less likely to deliver quality work and pose a problem to the overall legitimacy of the construction. Money risks are complicated as they relate to everything in the project lifecycle from human personnel to materials to processes. Resource risks leads to delayed work or supplies and affect the overall progress of the project. Outsourcing risks involve personnel and services expected from outsiders. These risk are inflated by money factors or other logistical parameters such as shipping, weather, or inefficiencies of the suppliers.
Schedule risks
Schedule risks are the last of the risks in construction industry and account for a small proportion. They are caused by delays in dissemination of information, arrival of materials or exchange of defective parts. Some causes of schedule risks are related with outsourcing risks. Schedule risks are caused by three major issues: delivery and availability of resources, dependency and estimation issues. Availability and delivery are associated with logistics, international shipping calendar, weather, and paperwork issues. In cases where suppliers supply defective material, it possess a risks of experiencing delays in returning and ordering quality materials. The decision making processes involved in such activities are also lengthy and inflates the risks.
Dependency is associated with the interdependence that projects have. Small projects within the project link with each other and are executed in a sequence. This is especially important in construction tasks as they impact on quality. The scheduling of these small tasks presents a complex scenario which sometimes delays works up to a couple of weeks because of the information and deliverables. Estimation is another issue. Estimation comes in the planning stage. Technical works in construction projects are difficult to estimate and this challenge is well articulated in the industry. However, professional still go on to provide tight schedules that are termed by professionals as unrealistic. Risks emerge when the estimates by project managers are in contrast with the opinion of technical personnel.
Conclusion
In conclusion, risk management in the construction industry is a pivotal effort towards guaranteeing the success of the project. Project risks management facilitates the identification, analysis and responding of risks that are detriment to the project’s success. The benefits of risk management processes include analysis and documentation of risks and improvement of the construction project. It also facilitate effective use of resources. Construction projects are extremely complex and fraught with uncertainty. Risk has a potential of damaging the viability of a project. By applying risks management techniques to the construction of 6,000 square feet structure, the success of the project can be partially guaranteed.
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