RISK MANAGEMENT IN CONSTRUCTION PROJECTS 1 c Mikhail

RISK MANAGEMENT IN CONSTRUCTION PROJECTS 1 (c) Mikhail Slobodian 2015

THE MAIN FEATURES OF CONSTRUCTION INDUSTRY 1. There are no identical objects. 2. Producer goods moves from one building site to another (in contrast to many other industries). 3. Building and construction projects transform to maintenance processes. 4. Long lifetime of buildings and constructions (high quality and safety are needed). 5. A lot of preliminary work (engineering survey, designing, engineering communications, matching with multiple authorities, …). 6. Simultaneous participation of several construction organizations (complex coordination). 7. Long construction period (complex prediction), very high cost and low liquidity of real estate property. 2 8. VERY HIGH (c) Mikhail Slobodian 2015 RISKS.

PERCENTAGE OF FIRMS WITH FORMAL RISK ASSESSMENT AND MITIGATION PROCEDURES (ESTIMATED BY RESPONDENTS) 3 (c) Mikhail Slobodian 2015 Mitigation of Risk in Construction: Strategies for Reducing Risk and Maximizing Profitability // Construction: http: //www. pepperlaw. com/uploads/files/mitigation_of_risk_in_construction_smr_2011. pdf http: //www. pepperlaw. com/ uploads/ files/mitigation_of_risk_in_construction_smr_2011. pdf

TIME OVERRUNS ON INFRASTRUCTURE PROJECTS 4 (c) Mikhail Slobodian 2015 Mitigation of Risk in Construction: Strategies for Reducing Risk and Maximizing Profitability // Construction: http: //www. pepperlaw. com/uploads/files/mitigation_of_risk_in_construction_smr_2011. pdf http: //www. pepperlaw. com/ uploads/ files/mitigation_of_risk_in_construction_smr_2011. pdf

BUDGET OVERRUNS ON INFRASTRUCTURE PROJECTS 5 (c) Mikhail Slobodian 2015 Mitigation of Risk in Construction: Strategies for Reducing Risk and Maximizing Profitability // Construction: http: //www. pepperlaw. com/uploads/files/mitigation_of_risk_in_construction_smr_2011. pdf http: //www. pepperlaw. com/ uploads/ files/mitigation_of_risk_in_construction_smr_2011. pdf

AVERAGE PERCENTAGE OF CHANGE ORDERS ON PROJECTS 6 (c) Mikhail Slobodian 2015 Mitigation of Risk in Construction: Strategies for Reducing Risk and Maximizing Profitability // Construction: http: //www. pepperlaw. com/uploads/files/mitigation_of_risk_in_construction_smr_2011. pdf http: //www. pepperlaw. com/ uploads/ files/mitigation_of_risk_in_construction_smr_2011. pdf

DISPUTES OCCURRING WITH INFRASTRUCTURE PROJECTS 7 (c) Mikhail Slobodian 2015 Mitigation of Risk in Construction: Strategies for Reducing Risk and Maximizing Profitability // Construction: http: //www. pepperlaw. com/uploads/files/mitigation_of_risk_in_construction_smr_2011. pdf http: //www. pepperlaw. com/ uploads/ files/mitigation_of_risk_in_construction_smr_2011. pdf

BIGGEST CONSTRUCTION RISKS 8 (c) Mikhail Slobodian 2015 Mitigation of Risk in Construction: Strategies for Reducing Risk and Maximizing Profitability // Construction: http: //www. pepperlaw. com/uploads/files/mitigation_of_risk_in_construction_smr_2011. pdf http: //www. pepperlaw. com/ uploads/ files/mitigation_of_risk_in_construction_smr_2011. pdf

BIGGEST CONSTRUCTION RISKS 9 (c) Mikhail Slobodian 2015 Mitigation of Risk in Construction: Strategies for Reducing Risk and Maximizing Profitability // Construction: http: //www. pepperlaw. com/uploads/files/mitigation_of_risk_in_construction_smr_2011. pdf http: //www. pepperlaw. com/ uploads/ files/mitigation_of_risk_in_construction_smr_2011. pdf

OVERVIEW OF PROJECT MANAGEMENT CONCEPTS AND THEIR RELATIONSHIPS (ISO 21500) 10 (c) Mikhail Slobodian 2015

PROJECT STAKEHOLDERS (ISO 21500) 11 (c) Mikhail Slobodian 2015

PROJECT MANAGEMENT CONCEPTS (ISO 21500) The organizational strategy identifies opportunities. The opportunities are evaluated and should be documented. Selected opportunities are further developed in a business case or other similar document, and can result in one or more projects that provide deliverables. Those deliverables can be used to realize benefits. The benefits can be an input to realizing and further developing the organizational strategy. 12 (c) Mikhail Slobodian 2015

PROJECT MANAGEMENT CONCEPTS (ISO 21500) Project management is the application of methods, tools, techniques and competencies to a project. Project management includes the integration of the various phases of the project life cycle. Project management is performed through processes. The processes selected for performing a project should be aligned in a systemic view. Each phase of the project life cycle should have specific deliverables. These deliverables should be regularly reviewed during the project to meet the requirements of the sponsor, customers and other stakeholders. 13 (c) Mikhail Slobodian 2015

PROCESS GROUP INTERACTIONS SHOWING REPRESENTATIVE INPUTS AND OUTPUTS (ISO 21500) 14 (c) Mikhail Slobodian 2015

PROCESS GROUP PROCESSES MAPPED TO SUBJECT GROUPS (ISO 21500) 15 (c) Mikhail Slobodian 2015

PROCESS GROUP PROCESSES MAPPED TO SUBJECT GROUPS (ISO 21500) WBS – work breakdown structure 16 (c) Mikhail Slobodian 2015

PROCESS GROUP PROCESSES MAPPED TO SUBJECT GROUPS (ISO 21500) 17 (c) Mikhail Slobodian 2015

PROCESS GROUP PROCESSES MAPPED TO SUBJECT GROUPS (ISO 21500) 18 (c) Mikhail Slobodian 2015

PROCESS GROUP PROCESSES MAPPED TO SUBJECT GROUPS (ISO 21500) 19 (c) Mikhail Slobodian 2015

PROJECT RISK MANAGEMENT VALUES Identifying, communicating, and managing project risks requires a risk management culture. This culture is defined by the values in which staff are operated. The following attributes depict project risk management values required for the development of a successful risk management culture: ü Risk decision-making based on balancing project values such as cost, schedule, and quality ü Stewardship ü Efficiency ü Teamwork ü Joint ownership of risks and responsibilities 20 ü Accountability Project Risk Management Handbook: A Scalable Approach // (c) Mikhail Slobodian 2015 http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

RISK MANAGEMENT REQUIREMENTS BY SCALABILITY LEVEL Scalability Level 1 Estimated Cost (Capital and Support) Minor A, Minor B, and other projects less than $1 million Less than $5 million 2 $5 million to $100 million 3 Greater than $100 million Risk Management Requirements Risk register encouraged Risk register with qualitative analysis Risk register with quantitative analysis 21 (c) Mikhail Slobodian 2015 Project Risk Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

LEVELS OF PROJECT RISK MANAGEMENT SCALABILITY Risk Management Process Risk Identification Qualitative Analysis Quantitative Analysis Risk Response Risk Monitoring Communication Level 1 Cost to $5 M Yes Level 2 Cost $5. . 100 M Yes Level 3 Cost over $100 M Yes Risk Rating Probability / Impact Matrix n/a n/a Yes Yes Yes 22 (c) Mikhail Slobodian 2015 Project Risk Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

PROJECT MANAGEMENT – INTEGRATES PROJECT RISK MANAGEMENT 23 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

PROJECT RISK MANAGEMENT ROLES AND RESPONSIBILITIES Role ü ü Project ü Managers ü ü Responsibilities With input from the Project Development Team (PDT), determine the project's risk register requirements based on project estimate and complexity, and the need for a written project Risk Management Plan. Promote and direct risk management for the project. Request project-specific changes to minimum risk management requirements. Populate and maintain the project risk register with risks developed by functional units. Ensure proactive response to all risks and opportunities that will impact the successful delivery 24 of the project. (c) Mikhail Slobodian 2015 Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf Project Risk http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

PROJECT RISK MANAGEMENT ROLES AND RESPONSIBILITIES Role ü ü ü Project Managers ü ü ü Responsibilities Produce risk management reports for sponsors. Inform Department management about risk management results, major issues, and concerns. Schedule and conduct project risk meetings. Monitor and update risks. Ensure quality of the risk data in the risk register. Track and monitor the effectiveness of risk response actions. Elevate issues to district management for resolution as necessary. Take lead role in obtaining signoffs at accountability check points. 25 (c) Mikhail Slobodian 2015 Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf Project Risk http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

PROJECT RISK MANAGEMENT ROLES AND RESPONSIBILITIES Role ü District Risk Management Coordinator Project Delivery Team Member ü ü ü ü Responsibilities Assist project managers with the implementation of PRM requirements. Provide expertise, direction, and assistance. Obtain expert services as needed. Liaise with Headquarters risk management. Identify and assess risks. Develop responses to risks. Document risk response actions and report to project manager for inclusion in risk management updates. Communicate with project manager about newly -identified risks, risk assessments, and 26 retirement of risks. (c) Mikhail Slobodian 2015 Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf Project Risk http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

PROJECT RISK MANAGEMENT ROLES AND RESPONSIBILITIES Role ü ü Project Risk Manager (Generally the ü project ü manager for Level 1 and 2 ü projects) ü Responsibilities Promote and direct risk management for the project. Schedule and conduct project risk meetings. Perform risk monitoring and updating. Ensure quality of the risk data in the Risk Register. Document risk response actions. Track and monitor the effectiveness of risk response actions. Report to the project manager on all matters related to risk management. Compile the lessons learned in the area of risk 27 management. (c) Mikhail Slobodian 2015 Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf Project Risk http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

PROJECT RISK MANAGEMENT ROLES AND RESPONSIBILITIES Role Project Risk Manager Responsibilities ü Produce risk management reports for the project manager. ü Populate the project risk register with risks developed by functional areas. ü Identify and assess risks and determine the risk owners. Project ü Develop responses to risks. Delivery Team ü Document risk response actions and report to Members and project managers for inclusion in risk Task management updates. Managers ü Communicate new risks to project managers. ü Retire risks. 28 (c) Mikhail Slobodian 2015 Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf Project Risk http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

RISK-BASED COST ESTIMATION Cost Estimate – A prediction of quantities, cost, and/or price of resources required by the scope of an asset investment option, activity, or project. As a prediction, an estimate must address risks and uncertainties. Estimates are used primarily as inputs for budgeting, cost or value analysis, decision making in business, asset and project planning, or for project cost and schedule control processes. Cost estimates are determined using experience and calculating and forecasting the future cost of resources, methods, and management within a scheduled time frame. 29 (c) Mikhail Slobodian 2015 Risk Management And Risk-based Cost Estimation Guidelines // http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

RISK-BASED COST ESTIMATION Base Cost Estimate represents the project cost that can reasonably be expected if the project materializes as planned and there is no occurrence of risk. The base cost estimate is unbiased and neutral – it is neither optimistic nor conservative. The base cost includes the known and quantified items and the known but not yet quantified (miscellaneous item allowance). The base cost estimate does not include any risks, unknown/unknowns or contingencies. Cost-Based Estimation – A method to estimate the bid cost for items of work based on estimating the cost of each component (labor, materials, equipment, including contractor and sub contractor markups) to complete the work and then adding a reasonable amount for addressing a contractor’s overhead and 30 profit. Sometimes referred to as Productivity-Based Estimation. // Risk Management And Risk-based Cost Estimation Guidelines (c) Mikhail Slobodian 2015 http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

RISK-BASED COST ESTIMATION Historical Bid-Based Estimation – This type of estimation tends to be a straightforward count or measure of units of items multiplied by unit costs. Parametric Estimation – A method to estimate the cost of a project or a part of a project based on one or more project parameters. Historical bid data is used to define the cost of a typical transportation facility segment, such as cost per lane mile, cost per interchange or cost per square foot. Historical percentages can be used to estimate project segments based on major project parameters. These methods are often used in early estimating, such as planning and scoping estimates. 31 (c) Mikhail Slobodian 2015 Risk Management And Risk-based Cost Estimation Guidelines // http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

RISK-BASED COST ESTIMATION Preliminary Engineering (PE) – The total effort (budget & cost) of taking a project through the Planning, Environmental and Final Design phases along with any design effort needed for construction support. The terms “Design” or “Design Phase” are sometimes used interchangeably with PE. Preliminary Estimate – The Preliminary Estimate is typically the final estimate prior to letting. The project should have an accurate, complete Preliminary Estimate prior to going to advertisement. This is the best and final base cost estimate and includes all accepted risk up to this point in the development of the project. Revising a Preliminary Estimate during the letting period would be the exception, not the rule. However, bid period addenda changing the scope or cost of the work may require a revised Preliminary 32 Estimate or reconciliation of the changed value to serve as part of Risk Management And Risk-based Cost Estimation Guidelines // (c) Mikhail Slobodian 2015 for award. http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf the justification

RISK-BASED COST ESTIMATION Risk-Based Cost Estimation – Involves simple or complex modeling based on inferred and probabilistic relationships among cost, schedule, and events related to the project. Risk elements (opportunities or threats) are defined and applied to the base cost estimate with its uncertainties through modeling to provide a probable range for both project cost and schedule. Project Cost Range – If a quantitative risk analysis has been performed the range is reported as 10 th percentile for the low estimate and 90 th percentile the high estimate. For qualitative risk assessments the range is reported as the base cost for the low estimate and the (base cost + (base cost * risk allowance)) for the high estimate. 33 (c) Mikhail Slobodian 2015 Risk Management And Risk-based Cost Estimation Guidelines // http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

COMPARISON OF TRADITIONAL VERSUS RISK-BASED ESTIMATING TECHNIQUES 34 (c) Mikhail Slobodian 2015 Risk-Based Engineers Estimate // http: //www. lrrb. org/media/reports/201510. pdf

PROJECT INFLUENCE CURVE 35 (c) Mikhail Slobodian 2015 Risk-Based Engineers Estimate // http: //www. lrrb. org/media/reports/201510. pdf

EXAMPLE OF RISK-BASED PROBABILISTIC COST RESULTS 36 (c) Mikhail Slobodian 2015 Risk Management And Risk-based Cost Estimation Guidelines // http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

ASSESSMENT OF PROJECT COST 37 (c) Mikhail Slobodian 2015 Risk Management And Risk-based Cost Estimation Guidelines // http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

PROJECT RISK MANAGEMENT PLANNING 38 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

BALANCED RISK MANAGEMENT (RISK TOLERANCE) 39 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK MANAGEMENT STEPS № Step Description Risk management planning is the systematic process of deciding how to approach, plan, and execute risk management activities throughout Risk 1. Management the life of a project. It is intended to maximize Planning the beneficial outcome of the opportunities and minimize or eliminate the consequences of adverse risk events. Risk identification involves determining which Identify Risk risks might affect the project and documenting 2. Events their characteristics. It may be a simple risk assessment organized by the project team. 40 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK MANAGEMENT STEPS № Step Description Qualitative risk analysis assesses the impact and likelihood of the identified risks, and develops prioritized lists of these risks for further analysis or direct mitigation. Project Qualitative 3. teams assess each identified risk for its Risk Analysis probability of occurrence and its impact on project objectives. Teams may elicit assistance from subject matter experts or functional units to assess the risks in their respective fields. 41 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK MANAGEMENT STEPS № Step Description Quantitative risk analysis is a way of numerically estimating the probability that a Quantitative project will meet its cost and time objectives. 4. Risk Analysis Quantitative analysis is based on a simultaneous evaluation of the impacts of all identified and quantified risks. 42 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK MANAGEMENT STEPS № Step Risk 5. Response Description Risk response is the process of developing options and determining actions to enhance opportunities and reduce threats to the project's objectives. It identifies and assigns parties to take responsibility for each risk response. This process ensures each risk requiring a response has an “owner”. The Project Manager and the project team identify which strategy is best for each risk, and then select specific actions to implement that strategy. 43 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK MANAGEMENT STEPS № Step Risk 6. Monitoring & Control Description Risk monitoring and control tracks identified risks, monitors residual risks, and identifies new risks – ensuring the execution of risk plans and evaluating their effectiveness in reducing risk. Risk monitoring and control is an ongoing process for the life of the project. 44 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RELATIONSHIP BETWEEN RISK AND OBJECTIVES Type of Risk Management Generic Project Risk Management Description Risk: Any uncertainty that, if it occurs, would affect one or more objectives. Project Risk: Any uncertainty that, if it occurs, would affect one or more project objectives. Sample Objectives Time, cost, performance, quality, scope, client satisfaction. 45 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RELATIONSHIP BETWEEN RISK AND OBJECTIVES Type of Risk Management Description Sample Objectives Profitability, market share, Business Risk: Any uncertainty that, if it competitiveness, Business Risk occurs, would affect one Internal Rate of Return Management or more business (IRR), reputation, objectives. repeat work, share price. Safety Risk: Low accident rate, Any uncertainty that, if it minimal lost days, Safety Risk occurs, would affect one reduced insurance Management or more safety premiums, regulatory 46 objectives. compliance. Risk Management Guide // Project (c) Mikhail Slobodian 2015 http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RELATIONSHIP BETWEEN RISK AND OBJECTIVES Type of Risk Management Description Technical Risk: Any uncertainty that, if it Technical Risk occurs, would affect one Management or more technical objectives. Security Risk: Any uncertainty that, if it Security Risk occurs, would affect one Management or more security objectives. Sample Objectives Performance, functionality, reliability, maintainability. Information security, physical security, asset security, personnel security. 47 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

EVOLUTION OF PROJECT KNOWLEDGE THROUGH PROJECT DEVELOPMENT 48 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION 49 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION THROUGHOUT PROJECT DEVELOPMENT Risk identification occurs throughout each phase of project development: ü Planning ü Scoping ü Design/Plans, Specifications, and Estimate ü Construction As projects evolve through project development, the risk profile evolves and understanding grows. Therefore, previously identified risks may change and new risks may be identified throughout the life of the project. 50 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION INPUTS The first and most important input is a defined project. In order to fully understand assess the risks that our projects are exposed to, we must first ensure there is a mutual understanding of the project under evaluation. This means that in order to focus on the risks and uncertainties our project will face, we must first define the project in terms of context, scope, schedule, and estimate, commensurate with the level of project development at the time of risk analysis. 51 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION INPUTS Progressive elaboration should not be confused with scope creep. Projects tend to develop in small steps. This incremental process of project development is sometimes termed "progressive elaboration“. Progressive elaboration means developing in steps, and continuing by increments. For example, the project scope will be broadly described early in the project and made more explicit and detailed as the project team develops a better and more complete understanding of the objectives and deliverables. 52 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION TOOLS AND TECHNIQUES The project team, sometimes in collaboration with cost risk experts and subject matter experts, identify as many risks as possible that may affect project objectives. State the assumptions for risk identification and analysis, and delineate thresholds for risks. For example, a project team may want to describe risks with impacts below $100, 000 or less than two weeks as minor. By doing so, we do not spend excessive amounts of time on risks that do not significantly impact our ability to meet project objectives. Focus must be directed toward risks that can significantly impact the project. Assumptions and thresholds for risk assessment are project-specific and are influenced by the size and complexity of the project and project environment, and the owners' tolerance for 53 risk. Project Risk Management Guide // (c) Mikhail Slobodian 2015 http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION TOOLS AND TECHNIQUES There a wide variety of techniques used for risk identification. Documentation Reviews Peer-level reviews of project documentation, studies, reports, preliminary plans, estimates, and schedules are a common and early method to help identify risks that may affect project objectives. 54 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION TOOLS AND TECHNIQUES Information Gathering Brainstorming – Formal and informal brainstorming sessions with project team members, specialty groups, stakeholders, and regulatory agency representatives is a technique for risk identification. This technique can be scaled for use on the simplest to the most complex projects. This technique can also be tailored to specific areas of interest for the project risk; for example, if a Project Manager is most concerned about geotech conditions, a brainstorming session on geotech can be convened. Lessons Learned Database – Searching for lessons learned using key words in the specialize software or database that are relevant to project can provide an abundance of information on projects that may have faced similar risks. 55 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION TOOLS AND TECHNIQUES Other techniques include: questionnaires and surveys; interviews, checklists, and examination of the work breakdown structure for the project with appropriate specialty groups; and asking "what if" questions (for example, "what if we miss the fish window? "). 56 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION OUTPUTS An expected deliverable from risk identification includes a preliminary "risk register“, which documents the following information: Identification # for each risk identified – Assign a unique number to each risk for tracking purposes. Date and phase of project development when risk was identified – Document the date the risk was identified and in which project development phase (planning, scoping, design, construction). 57 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION OUTPUTS Name of risk (does the risk pose a threat or present an opportunity? ) – Ensure each identified risk has an appropriate name; for example, "Delay" or "Reduction in Condemnation. " Also, document the nature of the risk with respect to project objectives. Detailed description of risk event – The detailed description of the identified risk must provide information that is Specific, Measurable, Attributable (a cause is indicated), Relevant, and Time-bound. Ensure the description is clear enough and thorough enough so that others reading about the description of the risk will understand what it means. 58 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION OUTPUTS Risk trigger – Each identified risk must include the risk trigger(s). Risks rarely just suddenly occur; usually there is some warning of imminent threat or opportunity. Clearly describe and document these warning signs and information about the risk. For example, "Approval Date" may be considered a risk trigger on a project that has a risk of a legal challenge. Risk type – Does the identified risk affect project schedule, cost, or both? Potential responses to identified risk – Document, if known, possible response actions to the identified risk – can the identified threat be avoided, transferred, or mitigated, or is it to be accepted? Can the identified opportunity be exploited, shared, or enhanced? 59 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK IDENTIFICATION OUTPUTS Comments about risk identification – Risk management is an iterative process, so regularly review project risks. As you identify new risks, document and assess them. Consider the resulting risk register preliminary only until the completion of additional and appropriate activities. These may include any or all of the techniques listed above and/or more robust processes. 60 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

IDENTIFYING RISK EVENTS ü Determine risk thresholds for the project – establish a minimum dollar amount and time duration considered significant for the project under evaluation. ü Focus on identifying large significant risks that affect project objectives. ü Carefully document and describe risks in a risk register. ü Characterize risks in terms of impact and probability. Note: High-impact risks with low probabilities should be of particular interest to the Project Risk Manager. High-Impact, low-probability risks, referred to as "black swan" events by some, can devastate a project and, unfortunately, are not always given the attention they deserve. This is due to the fact that the "expected value" of this type of risk does not 61 always rank it highly on risk register. Project Risk Management Guide // (c) Mikhail Slobodian 2015 http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUALITATIVE RISK ANALYSIS 62 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUALITATIVE RISK ANALYSIS Qualitative Risk Analysis assesses the impact and likelihood of the identified risks and develops prioritized lists of these risks for further analysis or direct mitigation. The project team assesses each identified risk for its probability of occurrence and its impact on project objectives. Project teams may elicit assistance from subject matter experts or functional units to assess the risks in their respective fields. Qualitative risk analysis can be used by project teams: As an initial screening or review of project risks. When a quick assessment is desired. As the preferred approach for some simpler and smaller projects where robust and/or lengthy quantitative analysis is not necessary. 63 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUALITATIVE RISK ANALYSIS Qualitative: Observations that do not involve measurements and numbers; for example, the risk of a heavy rainstorm affecting our erosion control is "Very High. " Qualitative assessment: An assessment of risk relating to the qualities and subjective elements of the risk – those that cannot be quantified accurately. Qualitative techniques include the definition of risk, the recording of risk details and relationships, and the categorization and prioritization of risks relative to each other. 64 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUALITATIVE RISK ANALYSIS Risk identification results in the generation of a risk register. The risk register can be sizeable; it is necessary to evaluate and prioritize the risk events identified in the risk register. Evaluation and prioritization is typically accomplished by the project team and is an iterative process and can take place at various points in project development. In some cases, the project team may enlist help from cost risk experts and subject matter experts to evaluate and prioritize the risks. A thoroughly developed register of risks that may affect project objectives is helpful. 65 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUALITATIVE RISK ANALYSIS We sometimes find ourselves in situations where moving forward is difficult because of indecision. Identifying, describing, and assessing project risks allow to prioritize them. Prioritization can free us from indecision by providing specific, documented risk events that we can act on to shift the odds in favor of project success. Prioritizing risks that present the highest potential for significantly affecting project objectives gives Project Managers the information necessary to focus project resources. Prioritization helps us make decisions in an uncertain environment and address project risk in a direct and deliberate manner. 66 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUALITATIVE RISK ANALYSIS Risk a b c d Threat or Risk Title Impact Probability Opportunity threat managed access challenge high medium threat permits and permit appeals very high unidentified utilities – threat low very low conflicts substructure assumptions threat low very high change 67 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUALITATIVE RISK ANALYSIS 68 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUALITATIVE RISK ANALYSIS Risk Priority Ranking a 2 b 1 c 4 d 3 Risk Title Impact Probability managed access high medium challenge permits and permit very high appeals unidentified utilities – low very low conflicts substructure assumptions low very high change 69 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUALITATIVE TERMS AND TRANSLATION TO A NUMERIC JUDGMENT Probability Synonyms (likelihood) very high almost certain very sure high likely pretty sure medium possible maybe low unlikely seldom very low rare improbable Impact Synonyms (consequence) very high very critical very strong high critical strong medium moderate average low very low (c) Mikhail Slobodian 2015 mild very mild minor very little Approximate % >90% 80% 50% 20% <10% Approximate % >10% 8% 4% 2% <1% 70 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUANTITATIVE RISK ANALYSIS 71 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUANTITATIVE RISK ANALYSIS Quantitative Risk Analysis numerically estimates the probability that a project will meet its cost and time objectives. Quantitative analysis is based on a simultaneous evaluation of the impacts of all identified and quantified risks. Quantitative techniques, such as Monte Carlo simulation, can be a powerful tool for analysis of project risk and uncertainty. This technique provides project forecasts with an overall outcome variance for estimated project cost and schedule. Probability theory allows us to look into the future and predict possible outcomes. Use of quantitative analysis, while very powerful, also can be misleading if not used properly. 72 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

QUANTITATIVE RISK ANALYSIS Once risks are identified and have been screened via qualitative analysis, they can be analyzed quantitatively. Recall that identification includes a thorough description of the risk and risk triggers. With quantitative analysis the probability of occurrence and consequence if the risk event occurs must also be documented. The aim of the process is to examine how risks can be mitigated and how cost vulnerabilities can be managed from the onset of a major project. A thorough and dedicated effort is concentrated on identifying, analyzing, and managing risk. It is important to repeat that contingency and risk reserve values must not be added to baseline estimates prior to traditional risk analysis or a facilitated probabilistic analysis. If contingency values are added prior to 73 analysis, the final risk reserve amounts will be significantly flawed. Risk Management And Risk-based Cost Estimation Guidelines // (c) Mikhail Slobodian 2015 Risk Management And Risk-based Cost Estimation Guidelines // http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

QUANTITATIVE RISK ANALYSIS The following key inputs must be integrated into the risk-based model: ü Flowchart schedule ü Base cost estimate with uncertainty, mapped to flowchart activities ü Risk register with risks assigned to flowchart activities ü Escalation factors by activity or activity group Within the model, all costs and event risks must be assigned to a specific flowchart activity or set of activities. Escalation rates also should be assigned to each activity to account for the cost of delay. Additionally, for activities where schedule overruns will lead to additional overhead costs, monthly overhead delay costs should be assigned. 74 (c) Mikhail Slobodian 2015 Risk Management And Risk-based Cost Estimation Guidelines // http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

RISK-BASED MODELING APPROACH 75 (c) Mikhail Slobodian 2015 Risk Management And Risk-based Cost Estimation Guidelines // http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

SAMPLE RISK QUANTIFICATION 76 (c) Mikhail Slobodian 2015 Risk Management And Risk-based Cost Estimation Guidelines // http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

RISK RESPONSE 77 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK RESPONSE Following identification and analysis of project risks, Project Managers and project teams must act. Accountability demands a response to identified project risks. Focus should be directed toward risks of most significance. Effective project risk management can shift the odds in favor of project success. Early in project development, activities and information can seem chaotic, coming from multiple directions and multiple sources. Risk management provides a structured and disciplined way to document, evaluate, and analyze the information, so we emerge with a well-organized and prioritized list of project risks. This prioritization rescues us from indecision, with information can be used to direct project risk management resources. 78 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK RESPONSE STRATEGIES For Threats Avoid. Risk can be avoided by removing the cause of the risk or executing the project in a different way while still aiming to achieve project objectives. Not all risks can be avoided or eliminated, and for others, this approach may be too expensive or time-consuming. However, this should be the first strategy considered. For Opportunities Exploit. The aim is to ensure that the opportunity is realized. This strategy seeks to eliminate the uncertainty associated with a particular upside risk by making the opportunity definitely happen. Exploit is an aggressive response strategy, best reserved for those “golden opportunities” having high probability and impacts. 79 (c) Mikhail Slobodian 2015 Project Risk Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

RISK RESPONSE STRATEGIES For Threats For Opportunities Transferring risk involves finding another party who is willing to take responsibility for its management, and who will bear the liability of the risk should it occur. The aim is to ensure that the risk is owned and managed by the party best able to deal with it effectively. Risk transfer usually involves payment of a premium, and the costeffectiveness of this must be considered when deciding whether to adopt a transfer strategy. Share. Allocate risk ownership of an opportunity to another party who is best able to maximize its probability of occurrence and increase the potential benefits if it does occur. Transferring threats and sharing opportunities are similar in that a third party is used. Those to whom threats are transferred take on the liability and those to whom opportunities are allocated should be allowed to share in the potential benefits. 80 (c) Mikhail Slobodian 2015 Project Risk Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

RISK RESPONSE STRATEGIES For Threats Mitigate. Risk mitigation reduces the probability and/or impact of an adverse risk event to an acceptable threshold. Taking early action to reduce the probability and/or impact of a risk is often more effective than trying to repair the damage after the risk has occurred. Risk mitigation may require resources or time and thus presents a tradeoff between doing nothing versus the cost of mitigating the risk. For Opportunities Enhance. This response aims to modify the “size” of the positive risk. The opportunity is enhanced by increasing its probability and/or impact, thereby maximizing benefits realized for the project. If the probability can be increased to 100 percent, this is effectively an exploit response. 81 (c) Mikhail Slobodian 2015 Project Risk Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

RISK RESPONSE STRATEGIES For Threats For Opportunities Acceptance. This strategy is adopted when it is not possible or practical to respond to the risk by the other strategies, or a response is not warranted by the importance of the risk. When the project manager and the project team decide to accept a risk, they are agreeing to address the risk if and when it occurs. A contingency plan, workaround plan and/or contingency reserve may be developed for that eventuality. 82 (c) Mikhail Slobodian 2015 Project Risk Management Handbook: A Scalable Approach // http: //www. dot. ca. gov/hq/projmgmt/documents/prmhb/PRM_Handbook. pdf http: //www. dot. ca. gov/ hq/ projmgmt/ documents/ prmhb/

RISK RESPONSE PLANNING CHART 83 (c) Mikhail Slobodian 2015 Risk Management And Risk-based Cost Estimation Guidelines // http: //nevadadot. com/uploaded. Files/NDOT/Documents/RBE_Guidelines_Final_2012_August. pdf

RISK MONITORING AND CONTROL 84 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK MONITORING AND CONTROL Control is an illusion. After response actions have implemented, their effectiveness and any changes to the project risk profile must be tracked and recorded. The Project Manager must document the response action by describing the action, the work activities it will affect, and the cost of the response action. Identify the person(s) responsible for successful implementation of the response action. Also, consider the time impacts of the response action and how the risk response may affect the overall project and/or other risks. 85 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK MONITORING AND CONTROL The Project Manager determines appropriate metrics for the project, ensuring they are not burdensome and do not affect behavior. Too often, metrics change behavior to provide better metrics, not better performance. Set the amounts and conditions for use of the project risk reserves. Establish the final objectives of the project with stakeholders to improve the chances of project success. Confirm endorsement of team members and stakeholders as the project plan evolves. 86 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/

RISK MONITORING AND CONTROL The Project Manager and project team apply their Project Management Plan through project development and completion of their deliverables. Monitor the project status, looking for trends that can indicate variations (good and bad) in the project execution. Results of the analysis need to be communicated and adjustments made through a change management and/or issue resolution process. The ability to describe the history of the project and how it evolved is essential to developing lessons learned for the future. 87 (c) Mikhail Slobodian 2015 Project Risk Management Guide // http: //www. wsdot. wa. gov/publications/fulltext/cevp/Project. Risk. Management. pdf http: //www. wsdot. wa. gov/ publications/ fulltext/ cevp/