assessing & controlling project risks june 28

8/12/2019 Assessing & Controlling Project Risks June 28

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THE RISK PROFESSOR SERIES

ByOkechukwu Onwuka

Assessing and Controlling Project RisksStarting a project can be a daunting task. Successful completion of any project requires theeffective and efficient application of a broad set of project management tools. The concept, scope,cost and schedule are usually considered key aspects of major projects. Any situation, condition orset of events that can negatively impact on any of the listed items particularly cost and schedule tosignificant degrees are considered unacceptable risks by project sponsors or owners. Thechallenge for project managers is to find ways of identifying and managing associated risks in acost effective way. Keeping costs and schedule under control is of prime importance. This is ofeven greater significance for projects where the funding is provided by lenders who charge intereston capital provided.

PROJECT STAGESThere are basic stages for typical projects which well highlight below!Concept SelectionThis is usually the stage where a number of options are identified and evaluated by the projectowner, sponsor or team members. At this stage, well before spending begins, you have theopportunity to consider a number of options that can be used to implement the overall projectobjective. "ost estimates developed at this stage are at best rough estimates. #t is too early at thisstage to conclude that available funds are adequate or inadequate. $sually, risk assessments arecarried out for each of the options under consideration to help in developing a unified benchmarkfor comparing the options.Preliminary Design

#t may be necessary to perform some preliminary design on a narrowed list of options %say one ortwo& to develop the concept further. This early design should define further project details tofacilitate better cost estimates and planning. 'a(ard identification and risk assessments are alsoperformed on the preliminary design to uncover risks which could result in significant negativeproject impacts if not eliminated or mitigated. Some risks e)posures may result in altering theimplementation plan or aborting the project. #f such risks are not identified before huge funds havebeen spent, project costs might escalate well beyond the initial budget or capital allocation.

Detailed DesignThe detailed design usually follows the conclusion and adoption of the preliminary design. Thedetailed design will produce detailed specifications for all materials, equipment, construction,commissioning and operations. The design team may include Architects, *ngineers %"ivil,+echanical, rocess, -acilities, *lectrical, #nstrumentation, Systems etc&, uantity Surveyors/"ost*stimators, A/" specialists, 'S* facilitators, #nterior designers, etc. 0etailed ha(ardidentification and risk assessments are carried out prior to completion of the design to allow thedesign team to address the risk assessment findings and recommendations. rocurementdatasheets are also developed. +ajor changes are usually difficult to implement at this stage of theproject without significant cost impact on the project owner or sponsor. Some project owners shyaway from conducting risk assessments at this stage for fear of finding difficult high risk issues thatmay not be cost effective to manage.

Procurementrocurement will follow the development of a comprehensive procurement plan. A robust

procurement plan will depend on the quality of the design. A wrong procurement strategy canresult in bloated project costs, e)tensive delays and possibly inferior quality materials.

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2009 The Risk Professor


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Construction$sing a wrong construction strategy could have severe impacts on schedule, completion qualityand costs. Timely evaluation and assessment of construction risks is of prime importance. Anumber of e)amples e)ist where beautifully designed projects were derailed by poor understandingof associated construction risks. "onstruction risk assessments are advised to be carried out inthree stages. The first is during the concept selection stage. The others are at the preliminary

design and detailed design stages, well before commencement of construction. This allows costeffective modifications to be made on the design before it is finali(ed. 3hen materials have beenbought, contractors selected and concepts fro(en, it is usually too late to make any meaningfuladjustments to the construction process.

Commissioning & OperationsThe operating philosophy should consider not only the capital cost of building the project but alsothe operating cost of the project on completion. 3hile the capital cost may be fi)ed, operating costusually affects the operating profits. A high "apital cost and a low operating cost may be preferredto a low capital cost and high operating cost scenario. 4perating risk assessments result in valueadded risk insights for effectively managing potential deviations to smooth and reliable operations.

*very project owner or sponsor should be able to provide firm answers to the following questions1. #s there an adequate and dynamic process in place to identify e)isting and new risks to

project implementation52. #s there an established risk acceptance criteria that is used to define standards for

acceptable and unacceptable risk levels56. #s there a framework for selecting appropriate methods, tools and personnel for conducting

risk assessments57. 0o risk assessments support the project owners decision making process58. #s there an ownership and stewardship process for risk management5

4n 3ednesday, 9uly 1, 2::;, #ll be facilitating a seminar at the "onference "entre of Aanguard together with your emailconfirmation to the venue at Km 22, @ekki *)pressway, @agos.

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assessing & controlling project risks june 28

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