Risk Management in Projects by Prof. Mahajanrisk management,NICMAR,PUNE

7/29/2019 Risk Management in Projects by Prof. Mahajanrisk management,NICMAR,PUNE

1/56

1

Risk Management

By Vilas Mahajan


2/56

The Risk

Exposure to the possibility of loss, injury ,or

other adverse or unwelcome circumstance ; a

chance or situation involving such a possibility

Oxford Dictionary

Effect of uncertainty on objectives

~ Uncertainties include events (which may or not

happen) and uncertainties caused by a lack ofinformation or ambiguity ..ISO Guide -73


3/56

The Risk

Future problems that can be avoided or mitigated,rather than current ones that must be immediatelyaddressed.

Risk can be seen as relating to the Probabilityofuncertain future events.

The probable frequency and probable magnitude offuture loss.

Risk is ..the product of ( probability of a hazardresulting in an adverse event) * ( severity ofevent) -OHSAS


4/56

The Risk

Risk versus Uncertainty :

~ Uncertainty is immeasurable ,not possible to

calculate ,while risk is measurable.

~ One may have uncertainty without risk but not risk

without uncertainty.

~ Uncertainty is the absence of information about

future events


5/56

Risk Management

What is Risk Management ?

~ Process steps that enable improvement in decision

making

~ A logical and systematic approach

~ Identifying opportunities

~ Avoiding or minimising losses


6/56

Risk Management

What is Risk Management ?

~ Risk Management is the name given to a logical and

systematic method of identifying, analyzing, treating

and monitoring the risks involved in any activity or

process.

~ Risk Management in Project is aboutproactively

working with project stakeholders to minimise the riskand maximise the opportunities associated with project

decisions.


7/56

Risk Management

The aim is not to avoidrisk but to make moreinformed decisions to ensure that project objectivesare achieved and , ideally, exceeded.

The Challenge is not to avoid risk , but to take

calculated risks, by recognising and managingeffectively

Risk Management is a proactive process of lookingforward and is fundamentally different from CrisisManagement.

~ Crisis Management is reactive and backwardlooking.


8/56

Risk Management

What is Risk Management ?~ Risk Management is a methodology that

help managers make best use of their

available resources.


9/56

Risk Management

Who uses Risk Management ? Risk Management practices are widely used in public and the

private sectors, covering a wide range of activities oroperations.

These include:

~ Finance and Investment

~ Insurance

~ Health Care

~ Public Institutions

~ Governments


10/56

Risk Management

How is Risk Management used?~ The Risk Management process steps are a

generic guide for any organization, regardless

of the type of business, activity or function.


11/56

Risk Management

The basic process steps are:~ Establish the context

~ Identify the risks

~ Analyze the risks

~ Evaluate the risks

~ Treat the risks


12/56

Risk Management

Risk is dynamic and subject to constant change, so the

process includes continuing:

~ Monitoring and review

~ Communication & consultation


13/56

Risk Management

The Risk Management process:

~ Establish the context:

- The strategic and organizational context in

which risk management will take place

- For example, the nature of business, the

risks inherent in the business and the businesspriorities.


14/56

Risk Management


~ Identify the risks :

-Defining types of risk, for instance, Strategic risks to

the goals and objectives of the organization.- Identifying the stakeholders, (i.e., who is involved or

affected).

- Past events, future developments.

~ Monitor and review

~ Communicate & consult


15/56

Risk Management


~ Analyze the risks

- How likely is the risk event to happen? (Probability and

frequency?)

- What would be the impact, cost or consequences of

that event occurring? (Economic, political, social?)

~ Monitor and review



16/56

Risk Management


~ Evaluate the risks

- Rank the risks according to managementpriorities, by risk category and rated by

likelihood and possible cost or

consequence.

- Determine inherent levels of risk.


17/56

Risk Management


~ Treat the risks :

- Develop and implement a plan with

specific counter-measures to addressthe identified risks.

~ Consider:

- Priorities (Strategic and operational)

- Resources (human, financial and technical)

- Risk acceptance, (i.e., low risks)


18/56

Risk Management


~ Treat the risks :

- Document your risk management plan

and describe the reasons behind selecting

the risk and for the treatment chosen.

- Record allocated responsibilities,monitoring or evaluation processes, and

assumptions on residual risk.


19/56

Risk Management


~ Monitor and review :

- In identifying, prioritizing and treating risks,

organizations make assumptions and decisions

based on situations that are subject to change,

(e.g., the business environment, trading patterns, or

government policies).

- Risk Management policies and decisions must be

regularly reviewed.


20/56

Risk Management

The Risk Management process:~ Monitor and review :

-Risk Managers must monitor activities and

processes to determine the accuracy ofplanning assumptions and the effectiveness of the

measures taken to treat the risk.

- Methods can include data evaluation, audit,compliance measurement.



21/56

Risk Management

Evaluate the risks

- After identifying and analyzingthe risks, you can evaluate .

What is the likelihood of the risk event occurring?

- Almost certain- Likely

- Moderate

- Unlikely- Rare


22/56

Risk Management

What is the consequence if the risk event

occurs?

- Extreme

- Very high

- Moderate

- Low

- Negligible


23/56

Risk Management

Evaluate the risks :

- Describe or quantify exactly what is theLikelihood and Consequence terms meanto you.

- This helps in ensuring a consistent approach infuture risk assessment and review andmonitoring.

- It promotes a common understanding withinthe Administration.


24/56

Risk Management

Evaluate the risks :

After establishing Likelihood and

Consequence, tabulate the workouts..


25/56

Risk Management Evaluate the risks :

Extreme Very high Moderate Low Negligible

Almostcertain

Severe Severe High Major Moderate

Likely Severe High Major Significant Moderate

Moderate High Major Significant Moderate Low

Unlikely Major Significant Moderate Low Very low

Rare Significant Moderate Low Very low Very Low

k


26/56

Risk Management

Treating the risks- Low and very low level risks can normally be

accepted, subject to on-going monitoring.

- All other risks are included in the managementplan.

- The plan catalogues the risks, the level of risk,and describes a treatment.

- The treatment is the action proposed, (andperhaps the resources allocated).

i k


27/56

Risk Management

Treating the risks:~ Development of Risk Profiles

~ Industry audits

~ Random examinations

~ Targeted selections

~ Physical examination

~ Compliance improvement


28/56

28

Risk Management

Contract Risk Management Risks are the Chances or Probabilities of Damage

or Loss.

Risks are to be ..

Identified

Understood

Evaluated and..

Mitigated

Risk Management is a subject of guesstimate of future.


29/56

29

Risk Management

Contract Risk Management

Element Causing Risks..

Silence on Certain Aspects

Inadequate Specifications

Openness on Certain Aspects

Unlimited Liabilities

Limitation on Liabilities


30/56

30

Limitation on Liabilities

Sellers liabilities are specified under various

clauses for identified circumstances. Theseare :

Termination of Contract - risk purchase

Warranty / Guarantee - risk purchase Defects Liability

Consequential & or indirect damages

Indemnities

Liquidated damages against delayed delivery& shortfall in performance

Limitations on Liabilities


31/56

31

Limitations on Liabilities

Sellers liabilities vary as per thestipulations of individual clauses.

Put Cap on Overall Liabilities of the

Seller arising out of All Clauses in theContract.


32/56

Limitation of Liability

Clause 17.6 :- FIDIC~ Neither Party shall be liable to the other Party

for loss of use of any Works ,loss of profit, loss ofany contract or for any indirect or consequential

loss or damage which may be suffered by the otherParty in connection with the Contract,

other than ..

(a) Under Sub-Clause16.4 (Payment on Termination)

and(b) Sub-Clause 17.1( Indemnities )

Limitation of Liabilit


33/56


~ The total liability of the Contractor to the Employer , under

or in connection with the Contract ,other than

(a) under Sub Clause 4.19 (Electricity, Water, and Gas),

(b) SubClause 4.20 ( Employers Equipment and Free-Issue Material),

(c) Sub Clause 17.1( Indemnities) and

(d) Sub-Clause 17.5 (Intellectual and Industrial Property

Rights),

shall not exceed the sum stated in the Particular

Conditions or ( if a sum is not so stated ) the Contract Price

stated in the Contract Agreement


34/56


~ This Sub Clause shall not limit liability in

any case of .

fraud ,deliberate default

or

reckless misconduct by the defaulting Party.


35/56

35

Risk Management


Force Majeure

Unforseeable Circumstances

Beyond Partys Normal Business Acumen.

Caused By An Irresistible Force.

Unavoidable Inspite Of The Reasonable Care

Beyond Partys Control.

Ri k M t


36/56

36

Risk Management


Force Majeure Events

Nature

Government Wars

Public Actions

Industrial Circumstances

Shortage Of Inputs

Risk Management


37/56

Force Majeure

~ Clause 19.1 :- FIDICDefinition of Force Majeure

In this Clause, "Force Majeure means an exceptionalevent or circumstance :

(a) which is beyond a Partys control,

(b) which such Party could not reasonably have providedagainst before entering into the Contract.

Risk Management


38/56

Risk Management

Force Majeure

(c) which ,having arisen, such Party could not

reasonably have avoided or overcome and,

(d) which is not substantially attributable to the

other Party.

Risk Management


39/56

Risk Management

Force Majeure

~ Force Majeure may include ,but is not limited to,exceptional events or circumstances of the kind listed below

,so long as conditions (a) to (d) above are satisfied :

(i) war ,hostilities (whether war be declared or not ),

invasion act of foreign enemies,

(ii) rebellion ,terrorism, revolution ,insurrection ,military or

usurped power, or civil war,

(iii) riot ,commotion, disorder, strike or lockout by personother than the Contractors Personnel and other

employees of the Contractor and Sub-contractors,

Risk Management


40/56

Risk Management

Force Majeure

(iv) munitions of war, explosive materials, ionising

radiation or contamination by radio-activity,

except as may be attributable to theContractors use of such munitions ,explosives,

radiation or radio- activity, and

(v) natural catastrophes ,such as earthquake,hurricane ,typhoon or volcanic activity.

Risk Management


41/56

Risk Management

Force Majeure

~ Clause 19.2 :- Notice of Force Majeure

If a Party is or will be prevented from performing any

of its obligations under the Contract by Force Majeure

,then it shall give notice to the other Party of the eventor circumstances constituting the Force Majeure and

shall specify the obligations, the performance of which

is or will be prevented. The notice shall be given within

14 days after the Party became aware , or should have

became aware, of the relevant event or circumstance

constituting Force Majeure.

Risk Management


42/56

Risk Management

Force Majeure

The Party shall having given notice, be excusedperformance of such obligations for so long as such

Force Majeure prevents it from performing them.

Notwithstanding any other provision of this Clause,

Force Majeure shall not apply to obligations of either

Party to make payments to the Party under theContract.

Risk Management


43/56

Risk Management

Force Majeure

~ Clause 19.3 :- Duty to Minimise Delay

Each Party shall at all times use all reasonable

endeavors to minimise any delay in the performance

of the Contract as a result of Force Majeure.

A Party shall give notice to the other Party when it

ceases to be affected by the Force Majeure.

Risk Management


44/56

g

Force Majeure

~ Clause 19.4 :- Consequences of force MajeureIf the Contractor is prevented from performing any of

his obligations under the Contract by Force Majeureof

which notice has been given under Sub-Clause 19.2 [Notice of force Majeure], and suffers delay and/or

incurs Cost by reason of such Force Majeure the

Contractor shall be entitled subject to Sub-Clause

20.1*Contractors Claims+to:

Risk Management


45/56

g

Force Majeure

(a) an extension of time for any such delay, ifCompletion is or will be delayed under Sub-Clause8.4 [Extension of Time for Completion], And

(b) if the event or circumstance is of the kind descried

in subparagraphs(i) to (iv) of SubClause19.1[Definition of Force Majeure] and in the case

of subparagraphs (ii) to (iv) ,occurs in the Country,payment of any such Cost.

After receiving this notice,theEmpolyer shall proceedin accordance with Sub-Clause 3.5 [Determinations] toagree or determine these matters

Risk Management


46/56

g

Force Majeure

~ Clause 19.5 :- Force Majeure AffectingSubcontractor

IF any Subcontractor is entitled under any contract or

agreement relating to the Works to relief from forcemajeure on terms additional to or broader than those

specified in this Clause ,such additional or broader

force Majeure events or circumstances shall not

excuse the Contractors non performance or entitled

him to relief under this Clause.

Risk Management


47/56

g

Force Majeure

~ Clause 19.6 :- FIIDC Optional Termination,

Payment and Release

If the execution of substantially all the Works in

progress is prevented for a continuous period of 84days by reason of Force Majeure of which notice has

been given under Sub-Clause 19.2 [Notice of Force

Majeure],or for multiple periods which total morethan 140 days due to the same notified Force Majeure

,then either Party may give to the other Party a notice

of termination of the Contract.

Risk Management


48/56

g

Force Majeure

In this event, the termination shall take effect 7 daysafter the notice is given, and the Contractor shall

proceed in accordance with Sub-Clause 16.3[Cessation

of Work and Removal of Contractors Equipment+Upon such termination, the Employer shall pay to the

Contractor:

(a) the amounts payable for any work carried outfor which a price is stated in the Contract;

Risk Management


49/56

Force Majeure

(b) the Cost of Plant and Materials ordered for theWorks which have been delivered to the Contractor,

or of which the Contractor is liable to accept

delivery ;this Plant and Materials shall become the

property of(and be at the risk of) the Employer

when paid for by the Employer, and the Contractor

shall place the same at the Employers disposal;

(c ) any other Cost or liability which in the circumstancewas reasonably incurred by the Contract in the

expectation of completing the Works;

Risk Management


50/56

Force Majeure

(d) the Cost of removal of Temporary Works andContractors Equipment from the Site and the

return of these items to the Contractors work in

his country (or to any other destination at nogreater cost );and

(e) the Cost of repatriation of the Contractors staff

and labour employed wholly in connection with

the Works at the date of termination.

Risk Management


51/56

Force Majeure

~ Clause 19.7 :- Release from Performance under theLaw

Notwithstanding any other provision of this Clause ,if any

event or circumstance outside the control of the Parties (

including ,but not limited to ,Force Majeure) arises which

makes it impossible or unlawful for either or both Parties

to fulfil its or their contractual obligations or which ,under

the law governing the Contract, entitles the Parties to bereleased from further performance of the Contract, then

upon notice by either Party to the other Party of such

event or circumstance :

Risk Management


52/56

Force Majeure

(a) the Parties shall be discharged from furtherperformance, without prejudice to the rights

Of either Party in respect of any previous

breach of the Contract, and(b) the sum payable by the Employer to the

Contractor shall be the same as would have been

payable under Sub Clause 19.6 [Optional

Termination ,Payment and Release ]

if the Contract had been terminated under Sub-

Clause 19.6.

Generic Formula for Variation


53/56

Adjustment

= adjustment multiplier to be applied for the

contract value.a = fixed coefficient, non adjustable part of the

contract value.

b, c, d.. = coefficients of percentage of each costelement.

Ln, En, Mn.. = current cost indices/ referenceprices for the period n

L0, E0, M0.. = Base cost indices/ reference prices onthe Base Date

53

.....

OOO

n

M

Mnd

E

Enc

L

LbaPn

Pn

VARIATIONS PERTAINING TO MATERIAL COST


54/56

54

i20.060.020.0 XSP

ECH

ECH

BPA

BPAXSPSP

O

N

O

N

ON

Price Var iation Algori thm:

SP= Sales Pr ice;N= New;O= Current; i=I nitial

BPA= Index Price per M T of Bisphenol A (BPA)

ECH=I ndex Price per MT of Epichlorohydr in (ECH)

Where,

VARIATIONS PERTAINING TO

LABOUR COST


55/56

55

LABOUR COST

Necessary when the supplies are labour intensive

Variation in basic wages of specif ied labour category

Variation in dearness allowance

WvWb

Wb Pv=Price var iation payable;Pq=Quoted Price

I v=Average consumer Price I ndex for

I nd. Workers for Pune for later 2/3 rd period

I b= I ndex for March (current year)

Wv=Average M inimum basic Wages of ski l led

worker in sellers works for the month of

completion of fabr ication

Wb=Wages for March (current year)

+ 0.30PqxPv= 0.60 xPqxI vI b

I b


56/56

56

II II

Date post:	14-Apr-2018
Category:	Documents
Upload:	dhairyasheel-jagtap
View:	219 times
Download:	0 times

Risk Management in Projects by Prof. Mahajanrisk management,NICMAR,PUNE

Documents