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Risk management concepts and learning
1. CONCEPTS AND LEARNINGS
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RISK MANAGEMENT
-
Dr. Vanita Ahuja
Associate Professor, Program Director, School of Construction,
RICS School of Built Environment, Amity University
2. 2
What is Risk?
Risk is the potential variance from expected
returns
Risk is experienced due to
• uniqueness of a project
• Project working environment
• Experience of the project team
Risk = f (likelihood, impact)
3. Project Variables/Uncertainties
• Events ‘known’
Risk events which occur frequently and are an
inevitable feature of similar projects
• Events ‘known – unknown’
Risk events whose occurrence is foreseeable, and
their probability of happening is unknown
• Events ‘unknown – unknown’
Risk events whose probabilities of occurrence and
effect are not foreseeable, including force-majeure
events
3
5. Risks During the Project
• Risk and the associated cost to address the risk,
varies over the project life cycle
For initial phase there is high chance of risk events,
but low cost impact
For final phase there is low chance of risk events, but
cost impact is high
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Figure from
“Project
Management” by
Gray and Larson
7. 7
Risk Management Planning
•Risk management team
•Risk identification techniques
•Methods of allocating time and funds from Risk
reserve
Expecting the Unexpected is often better preparation for
coping with risk than preparing extensive plans and
believing that the unexpected has been eliminated
8. 8
Risk Identification – Risk Source
Any factor with an uncertain probability of
occurring that can influence the outcome of the
project.
Risk of Failure
Risk of Opportunity
9. 9
Risk Identification – Types of Risk
• Internal
Market risk (Design/Specifications Risk)
Risk of not fulfilling either market needs or the requirements of
particular customers.
Technical Risk
Risk of not meeting time, cost or performance requirements due
to technical problems with the project activities
Organizational Risks
HR Risks
• External
Project managers and stakeholders have no control over these
risks
10. Some Types of External Risks
• Material Risk
• Consequential Risk
• Loss of production
• Loss of profit
• Loss of market
• Loss of Good will.
• Social Risk
• Legal Risk
• Product liability
• Public liability.
• Political/Govt. Risks
• Subsidies,Sanctions etc.
13. 13
Risk Identification Techniques
• Documentation of previous similar projects
Leads to preparation of a ‘Risk Checklist’
• WBS
Each work package is studied separately
• Flowcharts
Illustrates steps, procedures and flows between
tasks and activities
14. 14
Risk Identification Techniques
• Cause-and-effect-diagram
By brainstorming
EFFECT
Delay
CAUSE 1
Staff
CAUSE 2
Funds
CAUSE 3
Technology
Source 1
Sponsors have internal problems
CAUSE 4
Govt. Regulations
Source 2
Source 1
Insufficient Technical Skills
Source 2
Source 2 Source 2
Source 1 Source 1
15. 15
Risk Assessment – Risk Likelihood
• Risk Likelihood
Probability that a hazard/risk factor would
materialise
Qualitative Rating Quantitative value
Low 0 – 0.20
Medium 0.21 – 0.5
High 0.51 – 1.00
16. 16
Risk Assessment – Risk Impact
• Normally specified in terms of time, cost and
performance measures
Qualitative: Low, medium, high
Quantitative: 0 – 1.0
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• As an expected value
For example :
Likelihood of a Risk = 0.4
If it occurs: Project delay = 4 months
Cost escalation = Rs. 10,00,000
Risk = f (likelihood, impact)
Risk Consequence (time) = 0.4 X 4 = 1.6 months
Risk Consequence (cost)
= 0.4 X 10,00,000 = Rs. 400,000
18. 18
Risk Assessment – Project Time and Cost
WBS BC
(Rs.)
BT
(Months)
Corrective Likelihood EC ET
Cost Time
A 2,00,000 4 1,000 0.2 0.2 2,00,200 4.04
B 4,00,000 6 4,000 0.25 0.4 4,01,600 6.01
C 3,00,000 7 4,000 0.5 0.3 3,01,200 7.15
D 2,00,000 6 3,000 0.25 0.4 2,01,200 6.01
E 1,00,000 2 1,000 0.2 0.4 1,00,400 2.08
TOTAL 12,00,000 25 12,04,600 25.29
19. 19
Risk Assessment – Risk Priority
• It is decided on Risk consequence value
Likelihood
Impact
(Likelihood + Impact)/2
Likelihood of various risks occurring together
Impact if various risks occur together
Likelihood of one risk leading to other
21. Risk Register
• Risk Item
description
• Probability
1 – 100 (100 representing greatest probability)
• Impact
1 – 100 (100 representing greatest impact)
• Priority
Higher priority risks need to be addressed
immediately
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22. Risk Register
• Risk Severity
• Preventive Action
What can be done now?
• Owner
Who is responsible for the Preventive action?
• Contingent/Response Action
If the event is realised, what is the plan?
• Owner
Who is responsible for the Contingent/Response
action?
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24. 24
Qualitative Assessment –
Top Ten Risk Item Tracking
• Top Ten Risk Item Tracking is a qualitative risk
analysis tool that helps to identify risks and
maintain an awareness of risks throughout the
life of a project.
• Establish a periodic review of the top ten project
risk items.
• List the current ranking, previous ranking,
number of times the risk appears on the list over
a period of time, and a summary of progress
made in resolving the risk item.
25. 25
Monthly Ranking
Risk Item This
Month
Last
Month
Number
of Months
Risk Resolution
Progress
Inadequate
planning
1 2 4 Working on revising the
entire project plan
Poor definition
of scope
2 3 3 Holding meetings with
project customer and
sponsor to clarify scope
Absence of
leadership
3 1 2 Just assigned a new
project manager to lead
the project after old one
quit
Poor cost
estimates
4 4 3 Revising cost estimates
Poor time
estimates
5 5 3 Revising schedule
estimates
26. Qualitative Assessment – Expert Judgement
• Relying on the intuitive feelings and past
experience of experts to help identify potential
project risks.
• Experts can categorize risks as high, medium, or
low with or without more sophisticated
techniques.
• Can also help create and monitor a watch list, a
list of risks that are low priority, but are still
identified as potential risks.
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27. Quantitative Assessment
• Often follows qualitative risk analysis, but both
can be done together.
• Large, complex projects involving leading edge
technologies often require extensive quantitative
risk analysis.
• Main techniques include:
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Decision tree analysis
Simulation
Sensitivity analysis
28. Risk – Human Factor - Stakeholders
• Risk and Human behavior looks into
psychology of risk.
How others look at the risk?
How they behave in the face of risk?
How they behave in groups?
• Perception of Risk.
31. Residual and Secondary Risks
• It’s also important to identify residual and secondary
risks.
• Residual risks are risks that remain after all of the
response strategies have been implemented.
• Secondary risks are a direct result of implementing a
risk response.
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32. 32
Risk Monitoring and Control
• Identification of new risks
• Monitoring of previously identified risks
• Risk management plan updation
• Maintaining communication between the project
team and Risk management team
• Comprehensive project documentation
33. Good Project Risk Management
• Unlike crisis management, good project risk
management often goes unnoticed.
• Well-run projects appear to be almost effortless,
but a lot of work goes into running a project well.
• Project managers should strive to make their jobs
look easy to reflect the results of well-run projects.
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34. Risk Management Issues Learnt from Natural
Disasters
• Risk Management should be a Portfolio Level job
Labour issues
• Diversify the project team
Local work force for critical roles even if at a higher
cost
Diversify the talent pool
Do not depend on one specific town or region for the
entire team
35. • Contingency Planning
• Create a culture of safety
Commonwealth Games
Worst monsoon rains in 20 years
Collpase of a pedestrian bridge
36. • Quality Control saves lives
• Don’t deliver an inferior Product/Project in a hurry
• Choose the leaders wisely and train them how to
react to disasters
38. Timeline - 1912
• 10 April 12:00
departure Titanic from Southampton on maiden
voyage to New York (via Cherbourg and
Queenstown)
• 12 April
reports of ice fields on course coming in
• 14 April
increasing ice field reports, course altered to south,
speed maintained at 22 knots
• 14 April, night
moonless, calm seas, temperatures just below
freezing
39. Timeline - 2012
• 14 April, 23:00
Californian radioed more ice and mentioned Titanic
stopped for the night because of pack ice, answer from
Marconi radio operator ”shut up, shut up, I’m busy”
Californian’s radio operator turned off radio and went to
bed
• 14 April, 23:40
“iceberg directly ahead” alarm from crows nest to bridge
First Officer Murdoch ordered helm hard to starboard
and engines stopped
to prevent stern hitting iceberg, he then ordered helm
hard to port, this manoeuvre came too early and ship’s
bow hit undersea shelf of ice, causing damage to riveted
seams
40. Timeline - 2012
• 14 April, 23:52
decision to restart engines by Ismay, increasing leak,
with rivets popped open below water line over length
of 90 m, allowing increasing amounts of water to
enter damaged compartments, causing bow to sink,
and water eventually to rise above watertight
bulkheads terminating at E deck
41. Timeline
• 15 April, 00:10
distress calls started (SOS)
• 15 April, 00:19
engines stopped for last time
• 15 April, 00:27
first lifeboat lowered (with capacity for 65 people,
carrying 27)
• 15 April, 00:35
distress rockets launched
Californian crew saw distress rockets but
misunderstood and concluded ship had stopped
for night and was having a party..
42. Timeline
• 15 April, 02:20
Titanic sinks
• 15 April, 04:10
Carpathia arrived on scene
46. Staff selection and learning from previous
incidents
Regarded as very experienced
but…..
27th Jan 1889 - Ran The
Republic aground in New York
1st Dec 1890 - Ran The Coptic
aground in Rio de Janerio
4th Nov 1909 - Ran The Adriatic
aground outside New York
History of running ships too
fast through narrow
passages.. and of not
adequately training his officers
Captain Smith was commissioned to command the Titanic
48. Quality Control and Material Identification
• Asset integrity (rivets of best rather than best-best
quality with high concentration of slags)
• Shortage of skilled riveters
• Rivets popping contributed to speed of sinking
49. Management of Change and Safety Culture
• Lowering watertight bulkheads to allow ease of
movement of people
As the bow sank, water came above deck, accelerating
the sinking as there were no bulkheads to limit the
ingress.
Hazard evaluation (requirement to be unsinkable relies
on integrity of watertight compartments)
53. Management of Change and Safety Culture
• Was the decision to change the rivets a conscious
one?
• Lifeboats had been reduced for 64 to 22 in favour
of more expansive promenade decks of Olympic
design
Insufficient to take the passengers and crew
54. Communication Management
• Disaster assessment took 20 minutes, and 65 minutes
before captain ordered lifeboats filled.
• Poor communication impeded passengers & crew from
reacting, possibly deliberate to avoid panic.
• Hierarchical organizational structure and physical
segregation controlled information flow.
• Many passengers got up and went back to bed.
• First life-boat left half full.
• Crew skeptical that anything was serious. Any recovery
plan would have been poorly executed.
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55. Emergency Planning
• Major accident potential (worst case scenario
sinking) was discounted.
• Emergency response arrangements
Original design had just about enough lifeboats
• The officers on board The Titanic had not trained
with the lifeboats and were unsure of their holding
capacity.
• Smith often claimed to have never faced a “near
disaster”
Reportedly his performance deteriorated in the last
two hours.
56. • It wasn’t until 45 minutes after the collision that
officers commenced preparing the lifeboats
• Twenty lifeboats were launched
• Officers feared that the ship’s davits & winches
would not hold the weight of the recommended 65
people
• All but the last few lifeboats floated were half-filled
• It is a fact that had the Officers filled the lifeboats as
per their specification an additional 600+ people
could have been saved.
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57. Emergency Planning
• Many people could not read the English signs
• There was not a standing safety-response plan..
the ‘Women and Children first’ response was a
(commendable) reaction more than a previously-agreed
plan.
• Lives Saved: 705
• Lives Lost: 1500
• Total passengers 2,205
• Max Lifeboat Capacity 1,600
59. Does learning have a shelf life?
• The lessons from Titanic are still relevant today
• There are good lessons which cross between
industries
• “Can we learn from the past”….the Risk
Engineering team would say yes!
60. QUESTIONS
AND
DISCUSSION
Reference:
• Could Disaster have been prevented? Case Study –Second set of lessons from
Titanic, Multimedia publications
• EFU Risk Management Presentation
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