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Definition:

According to PMI, The Project Management Institute defines project risk in its Project Management Body of Knowledge (PMBOK) as ‘‘an uncertain event or condition that, if it occurs, has a positive or negative effect on at least one project objective, such as time, cost, scope, or quality. A risk may have one or more causes and, if it occurs, one or more impacts.’’

Risks in Construction Projects:

Everything that has ever gone wrong on a construction project is a potential risk on the next project. Many project managers instinctively develop a lessons-learned list of historical risks and take steps to minimize their exposure to those risks in the future.

Risks vary by industry and even by construction project type as well as by personnel involved with the project. A roadway or bridge project has a different group of risks than a facility or building, and the selected contractors may have different degrees of influence on the level of risks to performance.

If an owner attempts to save money in preconstruction services by limiting the extent of field investigation or development of as-built data, there will be a higher risk of discovery of unknown problems. The experience and competence of the architects and engineers handling the design of the project, as well as their quality control in development of working drawings, directly affect the construction effort and, consequently, the risk associated with the plans and specifications.

Even if the owner has been proactive in preconstruction investigation, there is always a risk of unforeseen conditions. This can be a function of the type of soils encountered, the local municipality, and its culture and history of keeping good records of obsolete utilities. If the city in which the project is to be built has a history of requiring contractors to remove all abandoned underground lines, there is a much lower risk of underground conflicts.

The selection of the project team can impact positively or negatively the probability of successful project completion. Design-bid-build projects that use procurement philosophies allowing all financially capable contractors to participate will likely experience a much higher level of risk to on-time performance than a procurement philosophy that requires qualification of proposed contractors to ensure that they have the appropriate experience and resources to construct the project. A single weak subcontractor on a project will increase risk of performance and require more management than may be anticipated. If this is not considered, everyone will be surprised when that subcontractor fails and has to have their work augmented or corrected. Problems related to the management and possible termination of a failing subcontractor usually has serious negative impacts on the project.

The reputation of the construction manager (CM) as well as the corporate culture will affect project performance. If the CM defines success with minimum time extensions as the only benchmark, there will likely be more conflict and a higher need for dispute resolution efforts. In addition, the management abilities of the CM directly affect many project tasks, such as review of shop drawings and response to requests for information in order to resolve questions about the construction.

Work by outside or third parties can carry significant risks of influence on the project’s success. For example, a light rail station to be built on top of a parking garage under construction by a different contractor will run an increased risk of completion on time. The project has no control over—and little ability to influence—the completion of the parking garage, which quickly becomes vital to completion of the light rail project.

Most projects are affected by local weather conditions, which, when adverse, can significantly impede progress. Most specifications require the contractor to take into account the normal local weather conditions in his schedule planning, which includes normal adverse weather but also allow for time extensions when unusually adverse weather occurs. Best practices would require the contractor to research the local historical weather records in order to plan for three to five-year average weather conditions. Different parts of the country and the world have a wide variance in weather conditions, so planning or failure to plan for the risk of local weather can significantly affect project success.

Local political situations, especially in volatile political climates, may hamper all efforts to construct a project efficiently. Countries with unstable political or economic systems will have higher risks in successful project completion than those with more stable systems. Countries or regions subject to wars, terrorism, turmoil, or other types of violence also run greater risks to successful project completion than others. If the locality has a policy of requiring deep investigation into environmental issues or stringent or complicated bureaucracy, projects built in that locality will have a higher risk of late permits and conflict during construction.

Another large risk on any project is the experience and reputation of the project team for safe construction practices. Safety violations and accidents can shut down a job completely. Even minor safety failures can distract the project team and impede timely performance. If a contractor has a poor safety record, the risk of delays because of safety violations is increased and should be taken into account during schedule development.

A large volume of change orders on a project will affect employee morale; there is nothing worse than asking a craftsman to rip out recently installed high-quality woodwork for a requested change. If the CM has a good change management program in place, including and most importantly good planning, the risks of negative pressure from changes are lowered. Without the program, the risks may be significant enough to derail project completion.

Most conversations about risk are related to negative risks that impair successful performance, but often there are opportunities that would be overlooked without a good risk assessment. A renovation project that calls for a three-story masonry wall to be demolished to the foundation in order to install a beam and column system might be redesigned with a pin beam temporary support structure, allowing the upper two stories to remain in place, saving time and money, as well as removing some risk. The brainstorming about risks needs to include looking for opportunities that could positively impact the project time for completion.

It seems obvious that failure to plan for the myriad of risks that often affect project performance will render the planning less accurate. Without risk management, every item that might appear on a risk register (a checklist of potential risks) is a surprise to the project team should it happen, diverting attention and emphasis from the project management and consuming valuable resources. Most disputes arise from risks that likely were not considered at the inception of the project and might have been eliminated or mitigated with good risk planning.

Once a company develops a regular risk management culture, the risk register generates many of the same risks on project after project. However, a company’s ‘‘risk register’’ should not be a fixed template, used as-is on all its projects. The list must be updated and customized for each project taking into consideration its own risks. These lessons learned, when incorporated into the project schedule through the risk management program, are invaluable in helping to minimize threats that carry negative impacts and take advantage of opportunities that bring positive impacts to project completion.

Risk analysis:

This stage of the process is generally split into two ‘sub-stages’: a qualitative analysis ‘substage’ that focuses on identification and subjective assessment of risks, and a quantitative analysis ‘sub-stage’ that focuses on an objective assessment of the risks.

Qualitative analysis:

 Qualitative analysis allows the main risk sources or factors to be identified. This can be done, for example, with the aid of checklists, interviews or brainstorming sessions. This is usually associated with some form of assessment that could be the description of each risk and its impacts or a subjective labeling of each risk (for example, high/low) in terms of both its impact and its probability of occurrence. A sound aim is to identify the key risks, perhaps between five and 10, for each project (or part-project on large projects), which are then analyzed and managed in more detail.

Quantitative analysis:

A quantitative analysis often involves more sophisticated techniques, usually requiring computer software. To some people, this is the most formal aspect of the whole process requiring:

  • measurement of uncertainty in cost and time estimates;
  • probabilistic combination of individual uncertainties.

Such techniques can be applied with varying levels of effort ranging from modest to extensively thorough. It is recommended that new practitioners start slowly, perhaps even ignoring this ‘sub-stage’, until a climate of acceptability has been developed for project risk analysis and management in the organization. An initial qualitative analysis is essential. It brings considerable benefit in terms of understanding the project and its problems irrespective of whether or not a quantitative analysis is carried out. It may also serve to highlight possibilities for risk ‘closure’, ie the development of a specific plan to deal with a specific risk issue. Experience has shown that qualitative analysis – identifying and assessing risks – usually leads to an initial, if simple, level of quantitative analysis. If for any reason – such as time or resource pressure or cost constraints – both a qualitative and quantitative analysis is impossible, it is the qualitative analysis that should remain. It should be noted that procedures for decision-making would need to be modified if risk analysis is adopted. An example that illustrates this point is the sanction decision for clients, where estimates of cost and time will be produced in the form of ranges and associated probabilities rather than single value figures.

Project risk analysis and management:

Project risk analysis and management can be used on all projects, whatever the industry or environment, and whatever the timescale or budget.

Few processes and appropriate outputs involved with risk management are listed below,

Project risk analysis and management




Probability impact matrix


Once identified, the risks are then subjected to an initial assessment that categorizes the risks into ratings (for example, high/low) of probability of occurrence, and ratings (for example, major/minor) of impact on the project’s objectives should the risk materialize. The relative significance of the identified and assessed risks may be displayed on a probability impact matrix. An example matrix is shown in Figure above. Scaling of the probability and impact should follow the project’s risk management approach. Showing the risks in this way helps to focus on the risks that require urgent attention. The matrix can be used to display the effect of planned responses.


Probabilistic analysis specifies a probability distribution for each risk and then considers the effect of risks in combination. This is perhaps the most common method of performing a quantitative risk analysis and is the one most people consider, incorrectly, to be synonymous with the whole PRAM process. In fact, as this guide illustrates, it is but one facet of that process.

Time probability histogram and s-curve for a new oilfield development

This diagram shows the distribution of finish dates from an example project for the achievement of first oil. It is based on 1,000 iterations using Monte Carlo sampling. The actual finish date of this particular project was achieved within two days of the mean.

Cost probability s-curve for a new office building

This diagram shows the distribution around a cost estimate for the final out-turn cost for a new building. It is based on 1,000 iterations using Monte Carlo sampling. The highlighted figures represent the unadjusted cost, i.e the sum of all the cost elements without any risk treatment, the expected cost derived from the statistical mean and a suggested accuracy range. The difference between the unadjusted cost and the expected cost is considered to be an unallocated provision.

Oracle Primavera Risk Analysis (PRA):

Risk = Probability * Impact

Also,

Performing Primavera risk analysis for P6 projects:

Despite of construction projects, these risk analyses could be performed on all types of engineering projects as the concepts involved are typical.

Primary contents:

So, lets surf through it step by step,

Schedule Perquisites,

PRA Risk Duration Concepts,

TAR – Turn around project date

Risk Assessment Reports,

Other Risk Analysis components to be considered are,

So before to begin the risk analysis in P6, I will share the quick snapshot of cost loaded baseline program of Infrastructure project valued 572 000 000 QAR.

Baseline has

BL Start date : 05-Jan-2014

BL Finish date : 01-Feb-2018

Budgeted Total Cost: 572,137,939.99 QAR

Activity Count: 19,778

 Now let’s begin the process of Risk Analysis,

The process involved are,

Typical for all the projects associated with risks.

Let’s go through it step by step,

1.

Import an Appropriate Project into it,

Once the import finishes save the risk file as *.plan file in your workspace.

Jump into the plan menu – plan actions,

To set the appropriate date and time according to your planned baseline.

Make sure to set it right.

2.

Run a quick risk,

You will notice the min, most likely and max duration customized for the entire project,

Also we can set quick risk parameter’s for selected activities only by,

3.

You might get risk error’s and warning, also might not.

PRA performing the defined iterations,

4. Review Results

Displaying the distribution graph as results,

Task view

Cost view

Resource view

Distribution Analyzer view

Now the tornado view,

Hope you had an idea to perform risk analysis and review results with the help of oracle primavera risk analysis. kindly comment in the blog for further queries.

Reference:

PMI Risk Management Professional Handbook PMI RMP.

 Construction Project Scheduling and Control 2nd Edition- Saleh A Mubarak.

Project risk analysis and management – Association for Project Management.

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By Hassan

An Astute Engineering Professional more passionate about civil engineering domain and project management along with forensic delay analysis. Also, Competent project planner and forensic delay analyst. Founder of Civil Invents Blog page to learn and share about the wealth of international experience including project management, planning, International Arbitration's and Claims preparation skills. Also, to groom individuals who wish to be an aspiring professional in Oracle Primavera Software, Delay analysis and High-profile projects. Feel free to visit the Blog and drop feedback to my email: [email protected]

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