Chapter 14 Schedule Risk Management

1. Chapter 14Schedule Risk Management Dr. AyhamJaaron Second Semester 2010/2011

2. Introduction • Schedule risks are both threats and opportunities to the success of a project. • Threats tend to reduce the success of meeting the project goals and opportunities tend to increase the success.

3. Risk Management Definition • Risk management: “it is the process of identifying, analyzing, qualifying and quantifying the risks, and developing a plan to deal with them.” • This is routinely done during baseline schedule development as well as during schedule updates.

4. Contingency cost to cover Risk expenses • Most estimators will automatically add a contingency to a cost estimate to cover the risk of performance based on the type of project and circumstances pertaining to the undertaking of the project. • Estimators estimate this contingency using their own rules of thumb developed over years of estimating.

5. Uncertainty in duration estimation • Risk management recognizes the uncertainty in duration estimating and provides a system to brainstorm other risks that may occur during the project. • Probability distributions are the best way to model planned activity durations, as noted by Hulett: ‘‘The best way to understand the activity durations that are included in the schedule is as probabilistic statements of possible durations rather than a deterministic statement about how long the future activity will take.

6. Causes of risks in construction projects Risks can be a function of: • the type of soils encountered, • the local municipality, and its culture and history of keeping good records of obsolete utilities. • If the city in which the project is to be built has a history of requiring contractors to remove all abandoned underground lines, there is a much lower risk of underground conflicts. • The selection of the project team • Capability of contractors. • Weak subcontractor on a project • local weather conditions, which, when adverse, can significantly impede progress. • Local political situations, especially in volatile political climates, may hamper all efforts to construct a project efficiently. • Safety violations and accidents can shut down a job completely • A large volume of change orders.

7. Schedule Risk Types Schedule risks fall into several broad areas: 1. General duration uncertainty 2. Specific risk events 3. Network logic risks that exist or are increased as a result of the activity relationships

8. General duration uncertainty • General duration uncertainty is the risk resulting from these conditions: • The deterministic durations estimated by the stakeholders are inaccurate or overly simplistic or are based on assumptions not necessarily correct or accurate • The critical path identified in the deterministic approach may not be the same as the probabilistic critical path when risks are incorporated into the schedule • The combinations of durations, where pessimistic durations may stack along a path—because of logic relationships—will significantly extend the predicted completion date

9. Specific risk events • Specific risk events are potential impacts on the schedule that may or may not occur such as accidents and other events that are hard to predict. • Specific event risks include several types of risks that are analyzed by several methods, but the initial step is a brainstorming session in which project team members identify as many potential risk events as possible and create a risk register or checklist of those events. The process of identifying potential risks to a project is a valuable effort that helps the project management team to start thinking about risk issues and produces a more realistic schedule.

10. Network logic risks • Network logic risks are those that generally occur as a result of project management decisions made about the sequencing of activities determined by the activity relationships. • If a number of paths originate or terminate in one activity, there is a significantly increased risk of delay to path activities causing delay to the project. • Network logic risks include any risks that predominately relate to the schedule network such as activities that occur at a ‘‘hub’’ or convergence point. A single activity that controls multiple activities of subsequent work will cause serious delays and disruption should it not be completed on time.

11. IMPORTANCE OF GOOD PLANNING FOR RISK MANAGEMENT • developing a good and encompassing master risk register is a brainstorming workshop with experienced attendees, and following that process with analysis and risk allocation. • This is combined with a process of continuing risk monitoring during updates as well as continuous cycles of risk management. • With a thorough and organized risk workshop, based on a good master risk register, and participation by the major stakeholders as well as the project management team, the output of the risk analysis will be very useful. The most likely risks will be identified and analyzed, and with the rest of the risk management steps, the schedule will evolve into a risk-adjusted schedule, capable of reasonable analysis and realistic completion predictions.

12. Risk Shifting in Contracts • One example of this risk shifting is the use of clauses stating that geotechnical reports and information are provided to bidders for information only, and the owner is not responsible for any usage or wrong interpretation of the geotechnical information. • This is an attempt to limit the owner’s exposure to delays because of differing site conditions.

13. Schedule Risks Management process • identifying risks, defined as ‘‘the process of determining which risks may affect the project and documenting their characteristics’’; • performing qualitative risk analysis, defined as ‘‘the process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact’’; • performing quantitative risk analysis, defined as ‘‘the process of numerically analyzing the effect of identified risks on overall project objectives’’; • planning risk responses, defined as ‘‘the process of developing options and actions to enhance opportunities and to reduce threats to project objectives’’; and • monitoring and controlling risk, defined as ‘‘the process of implementing risk response plans, tracking identified risks, monitoring residual risks, identifying

14. schedule risk management process • Risk management planning: This should include determining how the risk management will be carried out as well as developing a master risk register that would serve to facilitate risk identification. 2. Identifying schedule risks: Facilitating a risk workshop is a good way to start the next step of this process. With a good master risk register in hand, and an experienced and knowledgeable facilitator, a short meeting with the specific project management team and other important stakeholders can be efficient and revealing.

15. Risk management process...continued. 3. Performing qualitative analysis: Once specific risk events are identified and recorded in the risk register, the next step in risk management is to analyze the risks qualitatively. This process involves making judgments about the likelihood of occurrence for each risk as well as prioritizing the risks, based on a combination of likelihood and severity of consequences.

16. Risk management process...continued 4. Performing quantitative analysis: The next step after completing the qualitative assessment is the quantitative analysis of the risks. Qualitative descriptions, used to identify the likelihood and consequences of risk, are then aligned with quantitative probabilities in a process often called probability mapping. The qualitative descriptions are used to make it easier to evaluate risks, and once those are completed, this probability mapping converts those descriptions into values that can be used in the software risk calculations.

17. Risk management process...continued 5. Responding to and resolving risks: Risks are listed and analyzed, the next step is resolving risks by various means. These means include avoiding, shifting, or preventing all possible risks, and accepting remaining unresolved risks and incorporating those risks into the schedule, as well as documenting the decisions.

18. Risk management process...continued 6. Monitoring and updating the risk management plan: This step also includes evaluating existing unresolved risks with each update, as well as starting the identification cycle for new risks again. This new cycle comprises the same steps that were performed for the baseline schedule. New risks should be identified, qualitatively and then quantitatively analyzed, prioritized, and responded to or resolved.