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Dr. Vanita AhujaAssociate Professor, Program Director, School of Construction,

RICS School of Built Environment, Amity University

RISK MANAGEMENT

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CONCEPTS AND LEARNINGS

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What is Risk?

Risk is the potential variance from expected returns

Risk is experienced due to • uniqueness of a project • Project working environment• Experience of the project team

Risk = f (likelihood, impact)

Project Variables/Uncertainties

• Events ‘known’ Risk events which occur frequently and are an

inevitable feature of similar projects• Events ‘known – unknown’ Risk events whose occurrence is foreseeable, and

their probability of happening is unknown• Events ‘unknown – unknown’ Risk events whose probabilities of occurrence and

effect are not foreseeable, including force-majeure events

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EXECUTION RISK

OWNER’S RISK

INHERENT RISK

Risks During the Project• Risk and the associated cost to address the risk,

varies over the project life cycle For initial phase there is high chance of risk events,

but low cost impact For final phase there is low chance of risk events, but

cost impact is high

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Figure from “Project

Management” by Gray and Larson

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Risk Management

• Risk management planning• Risk identification• Risk Assessment Qualitative risk analysis Quantitative risk analysis

• Risk response planning• Risk monitoring and control

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Risk Management Planning

•Risk management team•Risk identification techniques •Methods of allocating time and funds from Risk reserve

Expecting the Unexpected is often better preparation for coping with risk than preparing extensive plans and believing that the unexpected has been eliminated

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Risk Identification – Risk Source

Any factor with an uncertain probability of occurring that can influence the outcome of the

project.

Risk of FailureRisk of Opportunity

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Risk Identification – Types of Risk• Internal

Market risk (Design/Specifications Risk)Risk of not fulfilling either market needs or the requirements of particular customers.Technical RiskRisk of not meeting time, cost or performance requirements due to technical problems with the project activities Organizational Risks HR Risks

• ExternalProject managers and stakeholders have no control over these risks

Some Types of External Risks

• Material Risk• Consequential Risk

• Loss of production• Loss of profit• Loss of market• Loss of Good will.

• Social Risk• Legal Risk

• Product liability• Public liability.

• Political/Govt. Risks• Subsidies,Sanctions etc.

Risk Breakdown Structure

• Technical Requirements Technology Complexity Quality

• External Suppliers Regulations Market Customers

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• Organisational Resources Funding Prioritisation

• Project Management (List and validate all assumptions) Estimating Planning Communicating

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Risk Identification Techniques

• Documentation of previous similar projects Leads to preparation of a ‘Risk Checklist’

• WBS Each work package is studied separately

• Flowcharts Illustrates steps, procedures and flows between

tasks and activities

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Risk Identification Techniques

• Cause-and-effect-diagram By brainstorming

EFFECTDelay

CAUSE 1Staff

CAUSE 2Funds

CAUSE 3Technology

CAUSE 4Govt. Regulations

Source 1Sponsors have internal problems

Source 2

Source 1Insufficient Technical Skills

Source 2

Source 2 Source 2

Source 1 Source 1

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Risk Assessment – Risk Likelihood

• Risk Likelihood Probability that a hazard/risk factor would

materialise

Qualitative Rating Quantitative value

Low 0 – 0.20Medium 0.21 – 0.5High 0.51 – 1.00

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Risk Assessment – Risk Impact

• Normally specified in terms of time, cost and performance measures Qualitative: Low, medium, high Quantitative: 0 – 1.0

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• As an expected value

For example :Likelihood of a Risk = 0.4If it occurs: Project delay = 4 months

Cost escalation = Rs. 10,00,000Risk = f (likelihood, impact)

Risk Consequence (time) = 0.4 X 4 = 1.6 monthsRisk Consequence (cost)

= 0.4 X 10,00,000 = Rs. 400,000

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Risk Assessment – Project Time and Cost

WBS BC(Rs.)

BT(Months)

Corrective Likelihood EC ET

Cost TimeA 2,00,000 4 1,000 0.2 0.2 2,00,200 4.04

B 4,00,000 6 4,000 0.25 0.4 4,01,600 6.01

C 3,00,000 7 4,000 0.5 0.3 3,01,200 7.15

D 2,00,000 6 3,000 0.25 0.4 2,01,200 6.01

E 1,00,000 2 1,000 0.2 0.4 1,00,400 2.08

TOTAL 12,00,000 25 12,04,600 25.29

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Risk Assessment – Risk Priority

• It is decided on Risk consequence value Likelihood Impact (Likelihood + Impact)/2 Likelihood of various risks occurring together Impact if various risks occur together Likelihood of one risk leading to other

Risk Assessment – Risk Severity

• Likelihood * Impact

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Risk Register

• Risk Item description

• Probability 1 – 100 (100 representing greatest probability)

• Impact 1 – 100 (100 representing greatest impact)

• Priority Higher priority risks need to be addressed

immediately

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Risk Register

• Risk Severity• Preventive Action What can be done now?

• Owner Who is responsible for the Preventive action?

• Contingent/Response Action If the event is realised, what is the plan?

• Owner Who is responsible for the Contingent/Response

action?

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E: Extreme risk - detailed action/plan required H: High risk - needs senior management attention M: Moderate risk - specify management responsibility L: Low risk - manage by routine procedures

Impact

Qualitative Assessment – Probability/Impact Matrix -Sample

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Qualitative Assessment –Top Ten Risk Item Tracking

• Top Ten Risk Item Tracking is a qualitative risk analysis tool that helps to identify risks and maintain an awareness of risks throughout the life of a project.

• Establish a periodic review of the top ten project risk items.

• List the current ranking, previous ranking, number of times the risk appears on the list over a period of time, and a summary of progress made in resolving the risk item.

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Monthly Ranking

Risk Item This

Month

Last

Month

Numberof Months

Risk ResolutionProgress

Inadequateplanning

1 2 4 Working on revising theentire project plan

Poor definitionof scope

2 3 3 Holding meetings withproject customer andsponsor to clarify scope

Absence ofleadership

3 1 2 Just assigned a newproject manager to leadthe project after old onequit

Poor costestimates

4 4 3 Revising cost estimates

Poor timeestimates

5 5 3 Revising scheduleestimates

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Qualitative Assessment – Expert Judgement

• Relying on the intuitive feelings and pastexperience of experts to help identify potentialproject risks.

• Experts can categorize risks as high, medium, orlow with or without more sophisticatedtechniques.

• Can also help create and monitor a watch list, alist of risks that are low priority, but are stillidentified as potential risks.

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Quantitative Assessment

• Often follows qualitative risk analysis, but both can be done together.

• Large, complex projects involving leading edge technologies often require extensive quantitative risk analysis.

• Main techniques include: Decision tree analysis Simulation Sensitivity analysis

Risk – Human Factor - Stakeholders

• Risk and Human behavior looks into psychology of risk.

How others look at the risk? How they behave in the face of risk? How they behave in groups?• Perception of Risk.

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Risk Response Planning

• Risk transfer Sub-contractors Insurance companies

• Risk avoidance• Risk reduction• Risk Retention

• Losses charged against normal operation cost.• Contingency fund.

• Risk acceptance

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Response Strategies for Positive Risks

• Risk exploitation• Risk sharing• Risk enhancement• Risk acceptance

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Residual and Secondary Risks

• It’s also important to identify residual and secondary risks.

• Residual risks are risks that remain after all of the response strategies have been implemented.

• Secondary risks are a direct result of implementing a risk response.

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Risk Monitoring and Control

• Identification of new risks• Monitoring of previously identified risks• Risk management plan updation• Maintaining communication between the project

team and Risk management team• Comprehensive project documentation

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Good Project Risk Management

• Unlike crisis management, good project risk management often goes unnoticed.

• Well-run projects appear to be almost effortless, but a lot of work goes into running a project well.

• Project managers should strive to make their jobs look easy to reflect the results of well-run projects.

Risk Management Issues Learnt from Natural Disasters

• Risk Management should be a Portfolio Level job Labour issues

• Diversify the project team Local work force for critical roles even if at a higher

cost Diversify the talent pool Do not depend on one specific town or region for the

entire team

• Contingency Planning

• Create a culture of safety Commonwealth Games

Worst monsoon rains in 20 years Collpase of a pedestrian bridge

• Quality Control saves lives

• Don’t deliver an inferior Product/Project in a hurry

• Choose the leaders wisely and train them how to react to disasters

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TITANICRISK MANAGEMENT STUDY

Timeline - 1912

• 10 April 12:00 departure Titanic from Southampton on maiden

voyage to New York (via Cherbourg and Queenstown)

• 12 April reports of ice fields on course coming in

• 14 April increasing ice field reports, course altered to south,

speed maintained at 22 knots• 14 April, night moonless, calm seas, temperatures just below

freezing

Timeline - 2012• 14 April, 23:00 Californian radioed more ice and mentioned Titanic

stopped for the night because of pack ice, answer from Marconi radio operator ”shut up, shut up, I’m busy”

Californian’s radio operator turned off radio and went to bed

• 14 April, 23:40 “iceberg directly ahead” alarm from crows nest to bridge First Officer Murdoch ordered helm hard to starboard

and engines stopped to prevent stern hitting iceberg, he then ordered helm

hard to port, this manoeuvre came too early and ship’s bow hit undersea shelf of ice, causing damage to riveted seams

Timeline - 2012

• 14 April, 23:52 decision to restart engines by Ismay, increasing leak,

with rivets popped open below water line over length of 90 m, allowing increasing amounts of water to enter damaged compartments, causing bow to sink, and water eventually to rise above watertight bulkheads terminating at E deck

Timeline• 15 April, 00:10 distress calls started (SOS)

• 15 April, 00:19 engines stopped for last time

• 15 April, 00:27 first lifeboat lowered (with capacity for 65 people,

carrying 27)• 15 April, 00:35 distress rockets launched Californian crew saw distress rockets but

misunderstood and concluded ship had stopped for night and was having a party..

Timeline

• 15 April, 02:20 Titanic sinks

• 15 April, 04:10 Carpathia arrived on scene

Project Management - Session 743

Project Management - Session 744

RISK MANAGEMENT ANALYSIS

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Staff selection and learning from previous incidents

Regarded as very experienced but….. 27th Jan 1889 - Ran The

Republic aground in New York

1st Dec 1890 - Ran The Coptic aground in Rio de Janerio

4th Nov 1909 - Ran The Adriatic aground outside New York

History of running ships toofast through narrowpassages.. and of notadequately training his officers

Captain Smith was commissioned to command the Titanic

Leadership

• Ismay overshadowed Captain Smith’s leadership

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Quality Control and Material Identification

• Asset integrity (rivets of best rather than best-best quality with high concentration of slags)

• Shortage of skilled riveters• Rivets popping contributed to speed of sinking

Management of Change and Safety Culture

• Lowering watertight bulkheads to allow ease of movement of people As the bow sank, water came above deck, accelerating

the sinking as there were no bulkheads to limit the ingress.

Hazard evaluation (requirement to be unsinkable relies on integrity of watertight compartments)

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Management of Change and Safety Culture

• Was the decision to change the rivets a conscious one?

• Lifeboats had been reduced for 64 to 22 in favour of more expansive promenade decks of Olympic design Insufficient to take the passengers and crew

Communication Management

• Disaster assessment took 20 minutes, and 65 minutes before captain ordered lifeboats filled.

• Poor communication impeded passengers & crew from reacting, possibly deliberate to avoid panic.

• Hierarchical organizational structure and physical segregation controlled information flow.

• Many passengers got up and went back to bed.• First life-boat left half full.• Crew skeptical that anything was serious. Any recovery

plan would have been poorly executed.

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Emergency Planning

• Major accident potential (worst case scenario sinking) was discounted.

• Emergency response arrangements Original design had just about enough lifeboats

• The officers on board The Titanic had not trained with the lifeboats and were unsure of their holding capacity.

• Smith often claimed to have never faced a “near disaster” Reportedly his performance deteriorated in the last

two hours.

• It wasn’t until 45 minutes after the collision that officers commenced preparing the lifeboats

• Twenty lifeboats were launched

• Officers feared that the ship’s davits & winches would not hold the weight of the recommended 65 people

• All but the last few lifeboats floated were half-filled

• It is a fact that had the Officers filled the lifeboats as per their specification an additional 600+ people could have been saved.

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Emergency Planning

• Many people could not read the English signs• There was not a standing safety-response plan..

the ‘Women and Children first’ response was a (commendable) reaction more than a previously-agreed plan.

• Lives Saved: 705• Lives Lost: 1500

• Total passengers 2,205• Max Lifeboat Capacity 1,600

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Does learning have a shelf life?

• The lessons from Titanic are still relevant today

• There are good lessons which cross between industries

• “Can we learn from the past”….the Risk Engineering team would say yes!

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QUESTIONSAND

DISCUSSION

Reference:• Could Disaster have been prevented? Case Study –Second set of lessons from

Titanic, Multimedia publications• EFU Risk Management Presentation