Introduction

• General
  • What is risk?
  • 6 questions to define the project
  • The key areas of concern
  • What should risk analysis provide?
  • 3 Ways to view risk management
  • General comments on risk assessment
  • Accountability
  • General comments on planning
  • What are the core process steps to assess a risk?
  • Simple process outline
  • What are the basic overall process steps?
  • Stakeholders
  • Success measures
  • Why carry out Risk Assessment?
• Project Life Cycle
  • Project Life Cycle
  • Project Life Cycle - concept
  • Project Life Cycle - plan
  • Project Life Cycle - execute
  • Project Life Cycle - termination
  • Project Life Cycle - general points

• Terminology
  • Clarification of terms
  • Basic statistical terms

The Risk Management process

• General
• Define
  • Define the project
  • Define the project management process
• Identify the risks and responses
• Organise - prioritise risks and responses
• Ownership - risks, responsibilities and contractors
• Estimation
  • Size the risks
  • Simple estimating of risk
  • Cumulative probability graph
  • Simple estimating of risk - more detail
  • Simple estimation problems
  • Obtaining the estimates
  • Breakdown of variables
• Evaluation
  • Estimates
  • Independent correlation
  • Cumulative probability graph
  • Positive correlation
  • Cumulative probability graph
  • Negative correlation
  • Conditional correlation
  • Cumulative probability graph
  • Cumulative probability graph 2
• Planning
  • Ways to modify plans
  • Plans and strategies
  • Types of plans
  • Dependencies - 4 basic types
  • Dependencies - 4 basic types
    part 2
  • Manage - plans and strategies

Risk issues

• General
  • Identify risk issues
  • Other issues
  • The contractor
  • Other aspects
  • Risk combination
• Assessment of risk
  • Common methods of assessing risk
  • Common methods of assessing risk 2
  • Issue based
  • Checklists
  • Qualitative method
  • Quantitative method
  • Quantitative method part 2
  • Quantitative method part 3
  • Quantitative method part 4

Modelling

• Cost models
  • Simple cost model
  • Cost model
  • Cost model part 2
• Monte Carlo model
  • Monte Carlo simulation
  • Monte Carlo simulation 2
  • Monte Carlo simulation - output
  • Monte Carlo distribution
  • Monte Carlo risk distribution
  • How do we carry out the simulations?
  • Probability density function - PDF
  • PDF - Simplified version

Events

• Uncertain
  • Uncertain events
  • Uncertain events part 2
  • Uncertain events part 3
  • Uncertain events part 4
• Corellated
  • Risk of exceeding the target cost
  • Correlated events
  • Correlated events part 2
  • Correlated events part 3
• 3 point model
  • 2 pathways
  • Simple probability estimation
  • Collecting task information
  • Documentation
  • Task probability
  • Monte Carlo risk distribution
  • Multiple variables

Networks and branching

• Network
  • Simple network
  • Simple network - no lag
  • Simple network - with lag
• Branching
  • Simple branching
  • Complex branching
  • Complex branching part 2
  • Multiple branching
  • Multiple branching part 2
  • Multiple probability branching
  • Multiple probability branching
    part 2
  • Nodes and branching networks
  • Branching networks
• Production example
  • Production example
  • Production example part 2
  • Risk of exceeding target duration

Other

• Business forecast
  • Business forecast
  • Business schedule risk
  • Business revenue and profit risk
  • Business revenue and profit risk 2
  • Business profit simulation
• Other areas to consider when reviewing risk
• Markov chain
• General points to consider
• Task information
  • Risk assessment of a task
  • Risk assessment of a task part 2
• Human relations
  • Negatives
  • Benefits

The Risk Management process

OWNERSHIP (risks, responsibilities and contractors)

This is the area where the client can practice ‘risk evasion’. The aim of this phase is to clarify ownership of the risks either within the organisation or with other parties.
Remember that parting with risk in this manner does not mean that the risk has been avoided. It very much depends on whether the third party can manage risk adequately.

Any risks managed internally must have named individuals responsible for them.
External contractors may be identified to manage some of the risks.

• In general, this allocation should be legally enforceable within contractual terms and conditions.
• There should be a policy which looks at the reasons for allocating risk, to what particular third parties and what risks are allocated.
• Third parties may include insurance companies bearing some of the cost of the risk. The insurance company may require certain assurances that you will mitigate the risk impact by suitable plans.
• The policy should consider how these intentions are transferred into contracts.

Try to bear in mind that management of the risk is different to having accountability for the risk. Although you may pass on the risk to a contractor they may not be in the best position to suffer the consequences of failure financially. Contractors will be less inclined to manage a risk which may put them out of business. This aspect needs careful management if you are not to alienate contractors.

For example:

If a particular risk would cost £10M if it materialised but has a likelihood of happening of 25% then you may wish to add a ‘cost’ of £2.5M to the project manager’s budget.
However, the board may not be keen to add this amount to the budget. If they do and the risk does not materialise the budget has an excess of £2.5M which may be spent on other less efficient areas.
In this case, the board may wish to take direct responsibility for the risk relieving the project manager.

The project manager or contractor would still need to manage the risk in trying to avoid it occurring with proactive activities in the ‘base’ or ‘reference’ plan or formulate contingency plans in case the risk does materialise.

These considerations are reflected in ‘expected costs, contingency, target costs, provisions and commitments (see below), which are:

The ‘expected cost’ is precisely that. It is the cost of the project if all goes to plan. This will include all identified risks which you expect to occur and thus have been allowed for within the management of the plan. Let us say that this is £180,000. The likelihood of meeting the expected cost may be 50 to 60%.

For those risks that could have a significant impact on the project that you hope do not, but may occur, you need to have contingency funds.
With the additional funds for contingency the chance for success is increased to around 80 to 90%.

The overall potential cost of a project may be £200,000 of which £180,000 is the expected cost and the other £20,000 is contingency.
However, the project manager may set a ‘target’ of less than £180,000 and retain say £25,000 as a ‘provision’.

This is the amount of funds ‘held back’ by the board as the difference between the ‘expected cost’ and the ‘target cost’.

The sum of the ‘expected cost’ and the ‘contingency’ is a measure of the ‘commitment’ of senior managers to the project.

Remember, risk allocation to third parties has to be managed well as motivation and self interest are involved.
Often legal advisors may well try to promote as much risk allocation to third parties as possible which may not be an ideal situation.

The number of contractors and subcontractors involved in a project will vary with construction projects having a significant number.
Communication between all of the parties can add risk to the project.

Each project will need to allow sufficient time for contractors to put together bids, the selection period and then negotiation of the contracts.
Policies for handling selection and contracts need to be in place early whilst the actual process of selection and contract negotiation will come later.