Risk Management for Construction Project - Coursework Example

Risk Management for Construction Project The risk management system has five levels that demonstrate the increase in maturity and capability. Level 1 is called initial, level 2: repeatable, level 3: defined, level 4: managed and level 5: optimizing. Emphasis will be among the first four levels from the optimizing level is just the maintenance of level 4 (Francisco, Jan and Jan, 2011: 144). The characteristics of the first four levels can be summarized as: 1. Ad hoc At this stage the company is not aware of the necessity of management of risk and therefore has no structure to deal with the risks. This makes the organization to be prone to crisis when it comes to project implementation. There is no learning from the past mistakes as there is no attempt of risk identification. Risks are dealt with in reactive and not proactive manner, thus not prevented, but treated ( Kenruther, 2006: 212). 2. Initial According to Cooper (2008) at this level the company is experimenting risk management application with some few members in the sector. The risk management process is not formal, neither is it structured. The organization tends to understand the importance of risk management, but the implementation is not effective. There is the learning from the past mistake, even though the lessons learned implementation is not fully done. The idea is within the organization, all is needed is the formalization of the idea. 3. Repeatable Here, the company integrated the risk management implementation and it is used in most of the projects. Experience is used in the planning and management of the project as there is a team selected to handle the risks in specific. The role of risk management may be assigned to a specific team or shared among the teams (Bartlett 2004: 47). 4. Managed At this level, there is a high level of risk management awareness and therefore the activities are proactive in nature. There is standardization in the risk management activities as groups are assigned responsibilities. There is both formal and informal communication with the structure of management being formal. The construction company can approach the out- siders during the communication process (Bier et al 1999: 87). Short Term Goals Moving from Ad hoc to Initial Level This is a short term goal process and needs the introduction of the risk management system (Hopkin 2012: 26) This process of moving the project from ad hoc to the initial level will entail the following: Defining the objectives that are related to risk management. Look advice from external experts. Identify specific individuals as the implementers Capacity build the team that deals with risks Create awareness in relation to risk management briefings. Look for cooperate backing by ensuring that the senior most individuals support the process of implementation. Develop the culture of celebrating the successes. Make long term plans for risk management to ensure it s a practice in the company. Promote the production of risk procedures in draft form so as to ensure there are key inputs and out puts. Promote the use of tools of risk management that are appropriate for example the information database of risks. Moving from Initial to Repeatable level According to Gigerenzer and Adrian (2003) the movement from the initial level to repeatable level is done through the readjustment of the organizational activities. These activities may include and not limited to: Strengthening the team that is involved with the risk management implementation. This is supposed to be done through the reinforcement of the team. Promote formal risk training to develop the experts in place. Use the external human resources to support the work of the locals. The consultants can help in handling difficult or complicated situations or the situations that have happened for the first time. Adequate resources should be allocated for the process that deals with risk management. Stuff should always be enough in the program and there should also be enough funds to support capacity building. Training that relates to the tools of risk management and other necessary activities should also be supported financially. Best practice should be performed in the key projects, then used as a case study demonstration of the importance of risk management. The achievements should be continuously celebrated and publicized so as to show the benefits. The staff should be allowed to go to capacity building activities that happen in other places. These activities include workshops, seminars, conferences and risk management training courses. The process in the risk management of the company should be formalized and the scope clearly defined. Objectives should be clearly stated and the procedures agreed upon by all staff and the tools properly selected. The risk management policies should be integrated in the whole development policy of the company. The staff and managers should use the policy as a day to day plan of action or guide. The metrics should be assembled that will see to it that the risks are managed. The metrics should entail the methods, through which risks will be reduced, the effective response among others. The product of risk identification and the assessment of the same can be helped through the introduction of a checklist based on experience. Long Term Goal At level three this point the risk management is an important part of the company practices and is applied in most if not all of the company projects. At level 4 the organization has the capability to act proactively in curbing the negative impacts that are associated with the risks (Matins, Garrido, Cassia, Fereira, & Luiz, 2011: 82). To move the organization from level three to four, the following activities must be done: There should be additional investment in the risk management sector with technology taken into consideration. The flaws should be minimized or removed completely through additional investment in capacity building, tools, etc. There should be an effective and continuous assessment of risks and documentation done for reference. The process should be continually reviewed to ensure it is effective. There should be innovation and invention of new models for risk management applications. The models that exist need to be modified while the abnormal novel situation should have new models invented. Risk should be made to be the organization’s culture as all the staffs are encouraged to take into consideration the risk factors. There should be an element of risk thinking among all the company’s personnel. Risks should be part of the entire decision making bodies in all the sectors that exist in a company or organization. There should be a constant and relevant training in relation to risk management. The training should take consideration of the changes in time and the complications that are brought by the changes. So as to ensure that the staff don’t get fatigued or bored by the processes, there should be activities that may improve the moods. These activities may be in the form of promotions like launching and re- launching of risk related success stories. Other activities may be successes celebrations ad issuance of wards to the best performing teams or personnel. Project Application The fact that the organization is at the ‘ad hoc’ level of risk management system means that the company has not even identified the risks. There are no previous attempts on risk management and therefore there is no data or information to refer to. The organization has no idea of how to manage the risks or have never developed the interest when it comes to risk management. To enable this organization to get to level four will have to entail the risk management basics. These basics are risk identification, risk analysis and risk response (Stephen and Hexter 2005: 13). The company therefore needs to train the staff, put in place policies and make risk management into their culture. Risk Identification According to Suckling, Ferris and Price (2002) risk management system should start with the identification of the risk itself. Being the first part of the process makes risk, identification of much importance. Risk identification is critical since when the risk is not identified correctly, the project will automatically fail. Failure to identify the risk will make risk analysis and response irrelevant and uncalled for. These techniques may involve but not limited to: research, interview that are structured, prompt lists, database, brain storming, workshop facilitation, nominal or Delphi peer group technique and graphical techniques (Ana, 2012: 68). As per the project, the identified risks will be and not limited to: 1. Exceeding the stipulated budget of the project due to inflation or other related issues. 2. Failure to meet the government’s target in relation to CO2 emissions due to use non affordability of the technologies. 3. Failure to meet the expected aesthetic criterion. 4. Failure of the building allowing easy adaptability and flexibility on the part of the tenants. Other risk factors that may come forth are: 1. Tenant fit out: What will be the cost of the tenant fit out? Is it reliable? What if it is not? What would that cost the owner in case the houses are not done properly? 2. Basement for parking 200 cars: Is it safe to have such a huge basement for a big storey building? What if the building collapses? What will it cost the tenants and the landlord? What are some of the effects related to such a big basement? 3. Railway line restriction: What is the cost of the railway line restriction? How will it affect the business? Is there other related impacts that will come with it? What about the earthquake caused by the rail? Can this tamper with the building structure? How does this affect the tenants? 4. Closeness to Airport: What are the costs related to noise and air pollution? How does the airport affect the scenery? What will it cost the owner of the building? Risk Analysis (Qualitative) According to Barton, Shenkir and Walker (2001), risk analysis is the process through which the uncertainty that may befall a project is considered carefully to enable the quantification. The quantification is done in terms of the risk occurrence probability and the level negative impacts that it will cause to the project. The risks are first identified the quantitatively ranked in terms of its impacts and probability of occurrence. Risk analysis function is to determine the risk factors that potentially would have a bigger impact on the project thus need to be managed. The risk analysis methods can be quantitative, qualitative or quasi- qualitative. The potential tenants should be identified and reached in relation to the identified risk in the risk identification stage. Using questionnaire, interview and brainstorming methods, the risks that are identified are analyzed. The probability of this risk occurring are estimated and the level of the impact in case of their occurrence is also shown at this point (Walker, Shenkir, & Barton, 2002: 17). The probability of the tenant fit out being not to the expectation is so high. The case of basement collapsing is also high since there are other factors that play a part. These include the vibration caused by the airplanes at the airport and the rail. With such frequency the risk of the building of such base space is high. These two risk factors have a high probability of occurrence and the level of impact is also high. Railway line and the airport pollution due to the exhaustion and sound produced are also high and the impact cost is high since tenants will not reside in the building due to this (Drucker 1988: 48). Risk Response According to Robert and Andre (2011) the final part of the risk management is the risk response that helps in the development of the solution. It is an answer to the question: how are we going to handle it? This is also an important part of the risk management process since at this level the risk impacts and possibilities of occurrence are limited. It is done after the risk has been identified and assessed thus serving as an implementation part of the risk management system. Risk response can be divided into: avoid, transfer, accept and mitigate risks. Involving the tenants in fit out can be avoided as a risk through bringing in of a more qualified staff to ensure quality and uniformity. The basement for parking 200 cars can be reduced and the same time transferred. The space left at the base can be reduced and another parking lot be made beside or on top of the building. The less risk that will be remaining can be transferred to one of the insurance companies. The sound and air pollution caused by both the railway and the airline should be accepted since there is no other option. It can’t be because the premiums will be high as per the number of tenants in the building. The high premiums can also be linked to the fact that they are health related impacts. Since the pollution is a minimal risk, it is therefore accepted (Drucker, 1988: 48). References Ana M. D. (2012) ‘Modern methods of risk identification in risk management,’ International Journal of Academic Research in Economics and Management Sciences, vol. 1, no. 6, pp.67- 71 Barton, T. L., Shenkir, W. G., & Walker, P. L. (2001) Managing Risk: An Enterprise wide Approach, NY: Financial Executive. Stepehen, G., & Hexter, E. (2005) From Risk Management to Risk Strategy, New York: The Conference Board. Suckling R., Ferris M. and Price C. (2002) ‘Risk identification, assessment and management in public health practice: a practical approach in one public health department,’ Journal of Public Health, vol. 25, no. 2, pp. 138- 143. Matins, C., Garrido, M., Cassia, A. R., Fereira, M., & Luiz, R. (2011). Risk Identification Techniques Knowledge and Application, Sau Paulo: Brazilian Construction. Walker, P. L., Shenkir, W. G., & Barton, T. L. (2002). Enterprise Risk Management: Pulling it all together, New York: The Institute of Internal Auditors Research Foundation. Robert E. H and Andre P. L (2011) ‘The value of enterprise risk management’, Journal of risk and insurance, vol. 78, no. 4, pp. 795- 822 Francisco F. L, Jan J. and Jan V. (2011) ‘Risk management in the internationalization process of the firm: A note on the Uppsala model’, Journal of World Business, vol. 46, no. 2, pp. 143-153 Hopkin, P. (2012). Fundamentals of risk management: understanding evaluating and implementing effective risk management, London: Kogan Page. Kenruther H. (2006) ‘Disaster Mitigation and Insurance: Learning from Katrina’, The ANNALS of the American Academy of Political and Social Science, Vol. 604, pp. 208-227. Gigerenzer G. and Adrian A. (2003) ‘Simple tools for understanding risks: From Innumeracy to Insight’, British Medical Journal, pp. 741- 744. Drucker B. F. (1988) ‘The coming of the new organization’, Harvard Business Review, Vol. 66, No. 1, pp. 45- 53 Cooper R. G. (2008) ‘The stage- gate idea- to- launch process – update, What’s new and next gen system’, Journal of Productive Innovation Management, Vol. 25, No. 3, pp. 213- 232. Bier V. M., Yacov Y. H., James H. L., Nicholas C. M. & Rae Z. (1999) ‘A survey of approaches for assessing and managing the risk of extremes’, Risk Analysis, Vol. 19, No. 1,pp. 83- 94. Bartlett, J. (2004). Project risk analysis and management guide, High Wycombe: Association for Project Management. Read More