risk and financial management in construction management of risk in construction by professor simon...

Risk and Financial Management in Construction

Management of Risk in Construction

By Professor Simon Burtonshaw-Gunn – licensed under the Creative Commons Attribution – Non-Commercial – Share Alike License

http://creativecommons.org/licenses/by-nc-sa/2.5/


School of the Built Environment

MSc Construction Management

Risk Management in the Built Environment

Presentation 2:

Culture and Risk Management Planning

Professor Simon Burtonshaw-Gunn


Culture and Risk Management


Who is responsible for Risk Management


As shown in the Introduction presentation there are many definitions of risk management and even the ones most commonly used are often interpreted by Construction companies to align to their culture, own client base and strategic aspirations.

Strategic Options

Risk Tolerance

Opportunities

Strategic Choices

Value Drivers (e.g. turnover, profit, cost of capital)

Inherited Risk

Relationship of Risk on Strategic Management


Successful project risk management requires three key attributes to be in place and embedded within companies; these are:• a systemic risk process in practise;

• staff involved in construction projects have an appropriate knowledge and experience of risk management

and finally

• that there is a supporting culture to risk management.

It is stressed that building the necessary culture is rarely a simple or straightforward process.

It should be noted that culture covers a mixture of positive and negative traits and as such some need to be encouraged and others managed to reduce their impact.

Risk and Financial Management in ConstructionCultural Rule Observed Behaviour

“Don’t ask me for information”

Be risk adverse

Be reactive

Don’t bring forward risks without solutions


Cultural Rule Observed Behaviour

Reward heroes

Make commitments without determining the probability of success

Ignore the soft stuff

Make decisions based on emotion, rather than logic

Risk and Financial Management in ConstructionCultural Rule Observed Behaviour

“Don’t ask me for information”

Shoot the messenger “No news is good news” “There’s no evidence to the contrary” (with no effort to

find it Allow people to learn what information to report by trial

and error Filter bad news out, show only good news Argue away information that conflicts with teams

assumptions, decisions or success (group think) Assume the competition is weak or incompetent Don’t share information – it’s power Don’t raise issues that may reflect poorly on upper

management

Be risk adverse Don’t make decisions until outcome is guaranteed Allow options to be eliminated by passage of time Run risky decisions up to management chain for approval Use unreasonable criteria for decision making Don’t reverse past decisions

Be reactive Deal with symptoms rather than root causes Deal with immediate and specific rather than the systemic Don’t deal with anything until you have to Believe the team can’t fail

Don’t bring forward risks without solutions

Expect problems and risks to be brought forward “already solved”

Think of risks as something that can be solved Don’t delegate upwards Micromanage or burden the messenger with tasks


Cultural Rule Observed Behaviour

Reward heroes Believe the team can’t fail Pretend projects can be made to succeed by sheer

force of will Assign the best people to crises Reward “lone rangers” Assume engineering can pull off miracles on a regular

basis Don’t forget people’s failures

Make commitments without determining the probability of success

Accept constraints without considering whether a feasible solution set exists

Assess probability intuitively and subjectively Deal with estimates as point values Don’t believe estimates Expect the last best performance Always plan for the best case scenario

Ignore the soft stuff

Shield engineering from the business and marketing aspects of the project

View management tasks as administrative , not “real work”

Deal only with the technical issues and solutions Ignore the people issues

Make decisions based on emotion, rather than logic

Don’t reach closure on difficult issues Talk about the difficult issues, but don’t document

them Discuss them regularly, covering the same ground as

before Accept silence as a sign of consensus or agreement Don’t document or follow up on decisions made


Risk Identification Planning


Risk and Financial Management in ConstructionRisk Identification Planning

Risk Management

Planning

Risk Management

Plan

Planning Meeting

• Organization’s risk management policies

• Defined roles and responsibilities

• Stakeholder risk tolerances

• Template for the organization’s risk management plan

• Work breakdown structure

Risk Management

Planning

Risk Management

Plan

Planning Meeting

• Organization’s risk management policies

• Defined roles and responsibilities

• Stakeholder risk tolerances

• Template for the organization’s risk management plan

• Work breakdown structure


• Risk Management cannot be owned by one individual in a project.

• All team members must be “risk aware” and participate in activities to improve a project’s position, through Action Plans, which are part of the main project plan.

Project Plan

Construction Plan

Commissioning Plan

Risk PlanProcurement

Plan



• The two objectives for the deployment of risk management are:

• Plan and take management action to achieve the aims of removing or reducing the likelihood and effects of risks before they occur and dealing with actual problems when they do; and,

• Continuously monitoring potential impacts of risks, review the associated action plans, and provide and managed adequate financial and schedule contingencies for risks should they occur.



• Project Managers need to recognise that risks exist and actively manage them. This should be viewed as an indication of good project management, not an admission of failure.

• By looking ahead at the potential events that may impact the project and putting actions in place to address them (where appropriate), project teams can pro-actively manage risks and increase the chances of successfully delivering the project within . . . . .

• Risk Management is therefore a key Project Management discipline.

Time

Cost Quality



• Project Manager’s responsibility is not to make risks ‘disappear’ but to manage and communicate these through the implementation of a systematic risk management process.

• Often it is not possible for the project team to identify all risks as unexpected things may still occur, however these instances should now be very rare and project staff will be familiar with dealing with other examples of risk occurrence and mitigation.

• All project staff have some level of responsibility for internal control as part of their accountability for achieving objectives.



• Individuals and organizations need to have an all-round approach to risk management; the most progressive risk management organizations achieve this by a uniform balance of tools, process, attitude and personnel.

• Risk Management has evolved into a formal systematic process of identifying potential risk or uncertainties and developing, selecting and managing options for addressing the risks through the life of the project.

• Risk evaluation is a key element for managing business risks with its main focus on identifying risks, evaluating their severity and managing the process.



Can the potential consequences be limited?What recovery measures are needed?Are recovery capabilities suitable and sufficient?

Can the causes be eliminated? Is there a better way?How can it be prevented?How effective are the controls?

What are the causes and consequences?How likely is it? How bad will it be?What is the risk and is it ALARP?

Are people, environment or assets exposed to potential harm? What could go wrong?

Common steps in a Risk Management Process

Identify

Assess

Control

Recover



In other words!!!

Identify

Assess

Control

• What have you got?

• What can go wrong?

• What are you going to do about it?



to capture all of the potential risks which could arise within the project

where risks are grouped into internal and external risks

to quantify and evaluate the risk on the project

which addresses how the risk will be managed, including risk reduction, avoidance, transfer and risk retention.

Within Construction one common approach is a staged approval:


Risk Classification

Risk Analysis

Risk Response

Risk Identification


Within Construction one common approach is a staged approval:

Is this familiar to you and used in your

company?

Do you use anything different - and how

does this work ?

Risk Classification

Risk Analysis

Risk Response

Risk Identification



• Clearly all risks cannot be controlled but to ignore risks and risk mitigation tools covered in this course will undoubtedly lead adverse consequences on projects.

• Such consequences of failing to deal effectively with risk can include significant cost overruns, schedule delays and inability to achieve desired project technical objective(s).

• Other important consequences include:



• project de-scoping,

• loss of credibility,

• ultimately project cancellation and unhappy clients,

and

• personal or organizational liability and fines.

• Clearly all risks cannot be controlled but to ignore risks and risk mitigation tools covered in this course will undoubtedly lead adverse consequences on projects.

• Such consequences of failing to deal effectively with risk can include significant cost overruns, schedule delays and inability to achieve desired project technical objective(s).

• Other important consequences include:



School of the Built Environment

MSc Construction Management

Risk Management in the Built Environment

Presentation 2:

Culture and Risk Management Planning

Professor Simon Burtonshaw-Gunn

risk and financial management in construction management of risk in construction by professor simon...

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