Project Risk Management: Concepts and Techniques

1. Project Management Project Risk Management Jiwei Ma

2. Content • Concepts • Risk Identification • Risk Assessment • Risk Control

3. Concept • Risk • The possibility of loss, damage, or any other undesirable event • Project Risk • Any loss, damage, or undesirable event that may impact the project to be accomplished on time, under budget, and to required quality standard • Project Risk Management • Effort in project management to reduce the occurrence possibility, minimize the impact of project risks, and assure the success of the project

4. Risk Identification • To locate and identify the potential risks existing within the system or in the environment • Methods • Previous statistical data • Previous experience • Survey • Brainstorm • …

5. Project Risk Identification • Methods • Survey or brainstorm • Applicable for small project • Systematic approach • Component analysis • Process analysis • Participant analysis • Project objective analysis • Project environment

6. Risk Assessment • Concept • A scientifically based process of evaluating risks and the likelihood of exposure to those risks, and then estimating the resulting impact • Methodologies • Qualitative • To distinguish risks as high, medium and low level • Semi-quantitative • To prioritize risks in relation to one another • Quantitative • To measure, calculate and analyze the value of risks and the impact

7. Risk Assessment • Basic procedure • To clarify the risks which have significant or measurable impacts on project • To analyze the consequences of the risk’s occurrence • To evaluate the severity of the impact caused by the risk • To prioritize risks by calculating risk impact, and then formulate possible improvements or preventive measures

8. Risk Assessment Techniques • Fault tree analysis • Used to identify the causal relationships leading to the undesirable event • Based on deductive logic • Can be qualitative or quantitative

9. Risk Assessment Techniques • Event tree analysis • Used to illustrate the sequence of the outcome after the occurrence of a selected initial event • Based on inductive logic • Mainly used in consequence analysis

10. Risk Assessment Techniques • Cause-consequence analysis • A blend of fault tree and event tree analysis • Based on both deductive and inductive logic • The risk level of the system can be established by calculating probabilities of various consequences with the probabilities of various events

11. Frequency High Medium Low Low Medium High Severity Risk Assessment Techniques • Frequency/severity diagram • Used to evaluate the impact of risks and prioritize the preventive measures • Based on consequence evaluation and probability calculation • Can be semi-quantitative or quantitative • Risk value = Severity x Frequency

12. Risk Control • To identify, select, and implement measures that can be applied to reduce the risk identified and evaluated during the previous phases • Measures • To avoid risk • To remove/reallocate risk • To share risk • To reduce risk • To mitigate damage caused by risk

13. Construction Project Risks • List of risks • Planning and selection risks • Contract formation risks • Entity formation risks • Entity management risks • Site risks • Resource risks • Environmental risks • Technology risks • Communication risks • Expectation risks

14. Construction Project Risks • List of risks • Financial risks • Completion risks (cost) • Completion risks (time) • Completion risks (quality) • Payment risks • Project administration risks • Force majeure risks • Political risks • Currency risks

15. Construction Project Risk Control • Major measures • Improved procurement method to minimize implementation risks • Safety programs to reduce on-site accidents • Strict construction measurements to confine environmental hazards • Various insurance to reallocate risks • Bond company involved to share risks with owner and contractor

16. Construction Project Risk Control • Improved procurement method • Performance based procurement • Construction management / management contracting • Contractor prequalification in competitive bid • Contract negotiation after bid opening • Partnering or building long-term relationship

17. Construction Project Risk Control • Safety programs • On-site safety management program including owner, contractor, sub contractor, etc. • Regulatory safety control by government bodies • Safety control and education by professional organizations, i.e. OSHA, BG, HSC, etc.

18. Construction Project Risk Control • Insurance • Contractor’s liability insurance • Workers’ compensation • Employers’ liability • Commercial general liability • Automobile liability • Owner’s liability insurance • Usually general liability insurance • Management protective liability insurance • Professional liability insurance • Property insurance • Project owner’s obligation

19. Construction Project Risk Control • Bond • Types of bond • Bid bond • Performance bond • Payment bond • … • Impact of bond • Contractor classification and prequalification • Review of contractor’s financial sustainability • Assurance of contractor’s performance and behavior

20. Thank You Jiwei Ma jiweima@hotmail.com