Project and Risk Management Process - Report Example

Project risk management Name Subject Instructor Institution Date Abstract Companies are facing many challenges that emanate due to the pitfalls that occur in the daily activities of their projects. Firstly, there are massive losses experienced in managing various projects due to risk occurrences. It has become apparent that, the projects would invariably comprise of strong innovative, engineering and strong process that presumes an intuitive perspective. When schedule, cost, functionality and quality risk associated with risk are taken into account, it is found that the aggregate risk within the whole company cause a bandwidth of the total corporate risk. Risk bearing capacity of a company must be in line with the company potential risk burden. This paper elucidates the expected consequences arising from the occurrence of risks, an outline of risk management process as it would be applied in civil infrastructure project and how risk can be identified, assessed, evaluated and treated. The paper has also covered the strategic and operational aspects of managing project risk, and how it would be applied to the selected risk, how the adverse of these risks can be minimized, the role of management systems in managing project risk areas and strategies to maximize benefit and minimize costs. This would be achieved through effective and efficient risk management practices. The paper has also covered the constructional project legal framework that governs properties. The framework includes obligations in the process of construction and government regulations on the property and on its use. This project investigated the engineering and technological issues involved in a case involving design and development of a medium density sub-divisional estate in a semi rural area, the legal principles involved in the case, negligence, and the potential legal position of each of the respondents to the class action in the case. Table of Contents Table of Contents 3 1 Introduction 4 1.1Project and risk management process, the main risks that can arise and the likely source of those risks 4 1.3 Development of risk management plans 9 1.4 Support of the management 10 1.5Development of risk management policy 10 1.6Establish accountability and authority 10 1.8The role of risk management system 12 1.9Strategies to minimize benefit and maximize cost through efficient and effective risk management practices 12 2. Risk management decision (Question 3) 13 2.1Legal issue 14 Project risk management 1 Introduction Risk management entails proper planning processes to achieve an appropriate balance in realizing opportunities that are useful to the organization, while aiming to minimize losses as noted (Barkley, 2003). Moreover, it involves an integral part in proper management practices in any organization and, an essential part in good governance of a corporate. It enables continuous improvement in the company performance and, facilitates enhanced decision making process. It discerns systematic methods in the context of establishment, analyzing, evaluating, identifying, monitoring, treating and communicating any risk associated with any function. Chapman and Stephen (2008) note that, this process and activities enable an organization to minimize losses and maximize profit. For effectiveness, risk management has to be part of an organization and should be embedded in the philosophy of an organization and, also in all company projects. This case considers a project in civil construction to stipulate how risk management was involved. 1.1Project and risk management process, the main risks that can arise and the likely source of those risks Risk management establishes the risk context, identify, analyze, evaluate and treat various risks in a well integrated process. The task of risk management is supported by consultation and communication, reviewing and monitoring processes. Management of risk is a fundamental part in the management of civil projects. Examples of risks that were seen in the road construction civil project designed were risk in completion time, the quality of the work delivered, the cost of the project and the scope creep (Free and Anderson, 2006). Other risk arose from the environment, legal matters, the workers safety and many other risks. In this project, the asset development and management had assets risk due to absence of maintenance and poor quality work. Risk in this project were found to result from, Construction Risks such as; Weather and seasonal effects, uncertainty in the productivity of the resources, and different Industrial relations problems. Political risks such as; constraints in the expatriate availability, customs and import procedures, difficulties in disposing of different equipments and plant, and restrictions, and the insentience on using local agencies and firms. Financial risks such as; Inflation, high local taxes, fluctuation in foreign exchange, repatriation of funds and delay in payment. Forces of the exhibited in market demand and supply. Source of the construction material. Socio economic factors for example; Environmental protection, Exchange rate fluctuation and public safety regulation. Organizational relationships for instance; communication and contractual relations. Technological problems that may occur such as; construction procedure, design assumptions, construction procedures, site conditions. Logistic Risks such as, availability of resources and specifically of construction equipments, fuel, spare parts, labour, and the availability of transportation facilities. The risk indicated have many consequences that may include; Accident and injury Financial loss and uncertainty in production. damage to property difficulty in possessing and in disposing different equipments and plant Health impacts i.e. structures that are hazardous to the life of the employees Environmental damage Damage to the company image. Quality and quantity of the job done. Fig1. Elements of risk management (Barkley, 2003) Elements of different risk management process are as shown in the figure above i. Communicate and consult-Communication and consultation with the external and internal stakeholders was important at the planning stage in risk management process and in the whole process as one. ii. Establish the context- it is necessary to know what a risk is by establishing the internal, external and the risk management context in the planning process. To ensure that all the risk in the planning process were captured, the objectives of the of the civil construction firm where risks were to be managed were established as noted by (Kesiraju, 2004). For the effectiveness of the established context of risk; the criteria adopted was; concise, covered all the aspects of success, defined how measurement were to be made and separated the impact of risk from the possibility of occurrence. iii. Identify risks- the identification of risk is usually addressed in two ways i.e. creative and prescriptive. The two ways are very essential but they have to be managed carefully to make the planning process cost effective. In this project, efforts to simplify identification of risk and to minimize various demands associated with the people who perform these functions led to the utilization of checklist of different standard in a particular context. The preferred approach that was used in identifying risk in the planning process was brainstorming. Though demanding, the process was seen to be significantly more effective. Knowledge and experience were seen to be of a paramount importance in the risk identification process. The nature in which a process is managed must make sure that the historical information is not blocking the creative assessment, where different matters that have not been encountered before might arise. In the identification process; where, when, how and why different events could degrade, delay, enhance or prevent the objective of the planning process were addressed. iv. Analyze risks- this stage is essential in the identification and evaluation of the existing controls. Where the risk was simple, the process was accomplished with the likelihood scales, qualitative impact and by a matrix that defined the importance of various combination of these. Where risk was complex, modelling process was used. In this project the consequences and likelihood were determined. The analysis considered a range of potential consequences and how they occurred. The basic parameters within which risk could be managed were defined and the scope for the risk management process was set. v. Risk evaluation- in the planning process where few risk were seen, the evaluation process was relatively light weight but in complex situations comparison of the estimated risk against the pre-established criteria was essential; the balance between the adverse results and the potential benefits had to be considered. This was important as it enabled decisions to be made on the extent of treatment required for priorities. Minor risk that were identified were removed from the planning process after due considerations. vi. Risk treatment- treatment of risk comprises ways of determining what can be done in the response to the risk identified. The process involved development and implementation of specific actions and cost effective strategies to increase potential benefits and reduce potential cost. Plans which existed before the risk management process were augmented with measures that helped in dealing with risk before arising and, the contingency plans in which they would recover if there is an occurrence of risk. Responsibilities were allocated to those who are best placed in addressing risk and agreeing on the targeted date for action to be taken. 1.2Strategic and operational aspects of managing project risk. In any company there is adoption of risk management processes for different categories of risk. According to (Vickery, 2011), before a company begins to develop a risk management plan for any stage of the construction process, the company needs to critically assess and review various elements of risk management process that already exists (Herbert, 2000). In this project strategic and operational aspects included review of the risk and the management need of the construction company in the context of a planning process. Evaluation of the existing practices and needs helps in i. Ensuring maturity and effectiveness of existing strategies and operations in risk management. ii. Enhancing the degree of consistency and integration of risk management in the company and across different kinds of risks. iii. Proper knowledge of the systems and processes that need modification and extension. 1.3 Development of risk management plans Risk management plans define the nature in which risk management is to be conducted throughout the various processes as asserted by (Boyce, 2003). In this project, risk treatment plans were included in risk management plan. The main objective of this was to embed risk management in every practices and process in the planning stage of a civil constructional project to ensure relevance effectiveness, efficiency and sustenance. Risk management was embedded in policy development strategic planning and in the change of the management processes. It was also embedded in plans and processes i.e. in the asset management, environment management, investment and project management and in fraud control. Risk management plan was inclusive of the specific section in areas, activities, projects and processes. According to (Royer, 2002), all these need to be consistent with organization policy for risk management. 1.4 Support of the management Management should be aware and also committed in the risk management. In this project support to the management was achieved through appointing a senior manager to lead and to oversee the planning process. In addition, extra manpower was obtained from active support from company’s directors and senior executives for implementation and development of the risk management plans and policies. There is also need of obtaining support and commitment of all managers in the execution of the plan and in risk management process. 1.5Development of risk management policy Policy for managing risk should be well defined. These policies may include; i. The aim and rationale for risk management. ii. Balancing the threats and opportunities. iii. Processes of risk management. iv. Accountabilities for risk management. v. Periodic review in the accountability of risk management system. 1.6Establish accountability and authority Every personnel in a company are responsible for risk management in their control areas. This has to be facilitated by specifying a group of competent staffs for the management of specific risks, for implementation, treatment and maintenance of risk controls (Stoelsnes, 2007). Moreover, there would be the establishment of reporting process and performance measurement to ensure appropriate levels of reward, recognition, approval and sanction. The selected process were applied in i. Identifying the work to be performed and the goals and objectives that defined the project. ii. Provision of documented estimates in regards to the schedule, cost resources for tracking, controlling and planning the project. iii. Obtaining the organization commitments which are documented, planned and agreed upon. iv. Documentation and development of project alternatives constraints and assumptions v. Establishing a baseline for the plan for the management of the project. 1.7Minimizing the adverse effects of the risks or maximizing opportunities arising from their effective management. To maximize opportunities arising from effective management and minimize the adverse effects of risk; effective management requires to have proper identification of opportunities that would enhance improved performance and, reduce the chance of anything going wrong. According to (Greenwood and Svetlana, 1999), a manager is required to develop a systematic process to be used in making decisions that is essential in the improvement and enhancing efficiency and effectiveness of performance. There is need for the developing a forward thinking and an active approach to risk management in the planning process. This may be brought about by effective communication between all the staffs involved in the planning process. Each person is liable to be accountability to any decision that is made that regards the planning process. These actions would ensure that, there is a balance between cost of risk management and the benefits anticipated. 1.8The role of risk management system The management systems plays an important role in ensuring that, occurrence of risks are minimized. This may entail using models such as the Critical Path method (CPM) that employs the use of networks to ascertain the probabilistic analysis. This system may also be used in analyzing the cost systems. The management systems also aid in analyzing the probability distribution by use of memory method and the controlled interval. This gives an alternative option in the Monte Carlo simulation in analyzing more complex networks as stipulated by Palomo, et al. (2007, p.270). The management may also use the decision tress that enables the manager arrive at a decision to envisage future possible outcomes. They also enable to determine the target level of exposure and enable the management plan involving actions, controls, and fall-backs. 1.9Strategies to minimize benefit and maximize cost through efficient and effective risk management practices In order to achieve high efficiency through minimal risks occurrence, the management need to establish the context by defining the parameters within which various risks associated with planning stage must be managed and setting the scope for risk management process as noted by (Sekhar, 2005). The project would entail communicating and consulting with other external and internal stakeholders in the planning process in order to identify risks involved. The strategy would also entail comparing the estimated risk levels against pre-established criteria to help in decision making on the extent and nature of the risk. This would be covered through documentation and review process. It is a requirement that each stage in risk management must be documented for ease in monitoring the effectiveness of risk management process so as to help in continuous improvement. In conclusion, the overall practice of risk management is vital as it enables a firm to aver unnecessary cost or expenses due to unpredictable circumstances. This practice has seen the revolution of several companies due to the realization of the techniques and methods that are involved in risk management. There is need for firms to employ the analysts who can trains risk analysis and management for its clients. 2. Risk management decision (Question 3) Management in construction of modern projects is required to be knowledgeable about the design and the process that are involved during construction process. Construction process must have set of constraints and objectives for their completion. Apparently, relevant technology, company arrangement and processes may differ, management of such projects have so much in common with other management of similar projects in other specialty. Contractors have to follow a rational series of procedure and undertake analysis at various scheduled interval during the life cycle of a project as noted by Zavadskas, et al. (2010, pp.34-36). Risk assessments for construction company approaches, require event to be exhaustive, mutually exclusive, and conditionally independent as noted by (Well-Stam, 2004). Construction process has so many variables and sometimes, it becomes difficult to determine causality, correlation and dependence. While risk in most cases is unavoidable, complex construction project need to be built focusing on risk management plan. These plans range from sophisticated to simple project risk. Risk mitigation measures are essential but, they do not guarantee that the project in question will be without problem. The best way to avoid risk is to intervene as early as possible and, each party in a contract to be responsible before the problem turns into a law suit. The case in question involved design and development of a medium density sub-divisional estate in a semi rural area. The development is on a watercourse, which was only known to flood once (in 1967) since records were first kept in 1880, and the flooding was quite minor. It was reported that, there was little or no property damage. In this case, the council was aware of a risk occurrence, but failed to advise the residents that they needed to keep the watercourse free from excessive growth and other obstructions. The council expected excessive growth of water but had not so advised the property owners, who from the council's point of view were expected to abide by council requirements. On the other hand, the construction companies failed on role in advising the resident and rather, went on clearing on the developments and constructions projects that would increase the frequency, volume and speed of runoff from the estate. 2.1Legal issue A constructional project must be within a legal framework that governs properties. The framework includes; obligations in the process of construction and government regulations on the property and on its use. The project needs to adhere to the building and zoning code requirements. Legal requirements are formulated so as, to avert disputable occurrence of events such as collapse of buildings. These are mostly the things that are a matter of expectation or customs. A construction project is usually a complex net of contract and all legal obligations must be carefully considered with the required admissibility. In law, a contract is usually a set of obligations made between two or more parties. Each side in a contract must ensure that the obligations set are followed. The obligations must also be set in a way that they can be followed. Poor drafting of a contractual project will lead to conflict and legal liability. A legal advisor opinion need to be taken into consideration at the beginning of a construction project so as to identify ambiguity and potential sources of problems in contract structure. The design and the legal aspects usually interrelate. The design must be legally viable to use and, the legal structure must incorporate design into the surrounding legal framework and also enforce the consequences of construction process. Considering this framework, the contractor decided to continue with the project despite the requirement from local council that the section in question should be kept of the watercourse clear of trees and other obstructions. The resident allowed the watercourse to overgrow because they enjoyed the natural bush land. Though watercourse was only known to flood once (1967) and no pretty damage was recorded, this would have warned the constructor that the area was not suitable for construction. On the other hand, contract law is known to be tricky and the construction company knows that they need to protect themselves against litigation. If the owner entered the contract knowing the content of the contract, then the owner may fail to be compensated on the ground that he was in full knowledge that the area was prone to the problem that was encountered. Many project managers may make promise verbally that are unreachable thus, the client need an attorney to ensure that any word communicated by the contractor is binding. An example of a contract provision is the one that state that, except where there is sole negligence of the owner, a company shall be held liable against any damage to property of the third party, direct or consequential (Hillson, 2009). The company is thus responsible for every occurrence and damage suffered by the owner except where damage is due to the negligence of the owner. It is apparent that, negligence on a construction project provides many difficulties in its attainment. The contractors may opt to obtain a complete and broad liability insurance cover as noted by (Murdoch and Will, 2007). In this case, negligence was involved. The council failure to inform the residents that they needed to keep the watercourse free from excessive growth and, out of obstructions amount to negligence. Their expected excessive growth of water but had not so advised the property owners, who from the council's point of view were expected to abide by council requirements. After the clearing of the development and construction of a number of roads and storm water drained, the council again did not advise the residents. Consequently, the failure by the construction company to advise the resident that clearing developments and constructions would increase the frequency, volume and speed of runoff from the estate amount to negligence. The constructor and the designer being agents of the company should have advised the residents on flood mitigation works to minimize runoff to protect against severe floods and substantial damage to the properties along the watercourse and houses close to the watercourse and their contents. Considering the legal position of each respondent, the owners of the properties are entitled to recover compensation due to the council failure to inform them that, they needed to keep the watercourse free from excessive growth and out of obstructions. They are also deemed to receive compensation from the company for failure of the construction company to advise them that, clearing developments and constructions would increase the frequency, volume and speed of runoff. The council failure to inform the residents that they needed to keep the watercourse free from excessive growth and other obstructions amount to negligence thus, should be held liable. The council expected excessive growth of water but, had not advised the property owners, who from the council's point of view were expected to abide by council requirements. Moreover, the failure of the construction company to advise the resident that, clearing developments and constructions would increase the frequency, volume and speed of runoff from the estate amount to negligence. This places the company liable any misfortune that occurred. The company has the responsibility of advising the client on various matters that may affect the project. The owner trusted the company and the company had an obligation to advise the owners accordingly. The head designer and the project manager should not be held liable as, they were acting in the name of the company. The company is a separate legal entity, separate from the employees and any contract it enters, it do so as a separate legal entity. In conclusion, a company being an artificial person with power to enter into contract must be held liable for any contract that it enters in its name. The law views a company as democracies and consequently when the thing problem being complained of is substantial the company has to compensate the client. In the above case the company and the council had a responsibility to the owners of properties which they failed to carry out. The owner acted knowing the decision by the council and the construction company was correct; this is the reason why the council and the construction company should be held liable. The council and construction company act amount to negligence in law and the owners of the properties should be compensated accordingly. Construction companies will more likely be able to successfully plan their ventures when they understand comprehensively the commercial, contractual, legal and operational uncertainties and risk associated with their projects. References Barkley, B., 2003. Project risk management. New York: McGraw-Hill. Boyce, T., 2003. Project risk management: The commercial dimension. London: Thorogood. Chapman, C. and Stephen, W., 2008. Project risk management: Processes, techniques and insights. Chichester: J. Wiley. Free, M., and Anderson, S., 2006. "Geohazard risk management for infrastructure projects." Civil Engineering 159(6), Pp. 28-34. Greenwood, M. and Svetlana, C., 1999. "RAMP: Risk analysis and management for projects." Risk management 1(4), pp.63-64. Herbert, B., 2000. "Engineering project risk management." Engineering management journal 10(1), p.43. Hillson, D., 2009. Managing risk in projects. Farnham: Gower, 2009. Kesiraju, K., 2004. Project risk management. 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