Authors: Dr. David Ackah, PhD.
President, Institute of Project Management Professionals
Email: drackah@ipmp.edu.gh
Abstract
The management of construction projects requires knowledge of modern management as well as understanding of the design and the construction process. Construction projects have a specific set of objectives and constraints such as a required time frame for completion. Also they are a costly undertaking so many people, in an effort to reduce the cost, become penny wise and pound-foolish. Change is inherent in construction work. The majority of the projects fail to meet deadlines, cost and quality targets. This is not too surprising considering that there are not known perfect engineers, any more than there are perfect designs or that the forces of nature behave in a perfectly predictable way. Change cannot be eliminated, but by applying the principles of risk management, engineers are able to improve the effective management of this change. In construction projects, each of the three primary targets of Cost, Time and Performance are likely to be subject to risk and uncertainty. Many people, in order to make change in the project with minimum cost, get the project into trouble. The lack of risk management, even an insufficient risk analysis, can put construction projects in jeopardy.
The purpose of this article is to reveal why the construction projects, and generally all projects, fail due to scarce risk management and what are the best practices for the recovery. In addition, the author’s goal is to define pre-signals for the failure of a project, because of insufficient risk management and the lack of recovery planning. Projects, by their nature, are unique and many of the more interesting ones are complex. They frequently take place over an extended period of time and demand the engagement of a wide range of resources, including people, finance, facilities, materials and intellectual property. In most circumstances, projects have defined objectives or an end-state that provides those involved in them with a clear vision and specification of their goals.
Projects, by their nature, are unique and many of the more interesting ones are complex. They frequently take place over an extended period of time and demand the engagement of a wide range of resources, including people, finance, facilities, materials and intellectual property. In most circumstances, projects have defined objectives or an end-state that provides those involved in the project with a clear vision and specification of their goal. Risk management assists Project Managers in setting priorities, allocating resources and implementing actions and processes that reduce the risk of the project not achieving its objectives. Risk management facilitates better business and project outcomes by providing insight, knowledge and confidence for better decision-making. In particular, it supports better decisions about planning and design processes to prevent or avoid risks and to capture and exploit opportunities. It provides better contingency planning for dealing with risks and their impacts, it encourages better allocation of resources to risks and alignment of project budgets to risks, and it facilitates decisions about the best allocation of risk amongst the parties involved in a project activity. Together, these lead to increased certainty and a reduction in overall risk exposure. What happens if risk management is ignored? Therefore, efficient risk analysis is vital to the successful undertaking and completion of any construction project.
Project Risk Management is one of the most critical factors in project management practices to verify a project is successfully completed. But, what does “risk” mean? In the last publication of Project Management Book (PMI,2004, p. 238) is given the following definition for the risk: “Project risk is an uncertain event or condition that, if it occurs, has a positive or a negative effect on at least one project objective, such as time, cost, quality”. Kaplan (1997, p.410) expressed risk “as a mathematical combination of an accident’s event probability of occurrence and the consequence of that event, should it occur”. Having defined the meaning of risk, the next step is to determine the meaning of Risk Management process. Risk Management process is a formal process, via which we can achieve identification, analysis and response to risks, throughout the lifecycle of a project, in order to obtain the optimum degree of risk elimination, mitigation and control (Wang and Dulaimi, 2004). Thus, risk management is in direct relation to the success completion of a project. There is a detailed and widely expressed literature about accepted risk management process. A simple, common and systematic approach to risk management, suggested by Turnbaugh (Turnbaugh, 2005), has three basic stages: i. Risk Identification – determining the types of risks, identify, and assess the potential risks in the project. ii. Risk Quantification – the probabilistic characteristics and the degree of the impacts for their impacts. iii. Risk Response and Development Control – defining opportunities for managing changes in risk during the project life cycle. The following figure depicts a Project Risk Management Overview according to PMI organization (PMBOK, 2004).
When dealing with risks, the improvement of a project should also be taken into account; for example to perform the project with fewer resources or to have an advantage from an unexpected window of opportunity. Risks are at the very core of the business: risks and opportunities are linked; there are no opportunities without risks related to them. Thus risks actually raise the value of a project; usually higher risks bring higher opportunities. Since opportunities and threats are seldom independent, they can also be dealt with, at the same time. (Chapman, Ward, 2002). The purpose of the Risk Management process in a wider sense should not solely be to ensure a successful project completion but also to increase the expectations of project goals and objectives (Mills, 2001). It means that project Risk Management should be turned into project uncertainty management (Chapman, Ward 2003).
Risk management is not limited to a few processes, but includes much more in order to have a complete view of the suggested Risk Management process. One of the most crucial decisions in a project relates to the allocation of risks: who carries which risks. Before the decisions of risk allocations are ready to be made, the attitude that Project Managers have towards the risk has to be determined. Before a project starts, every project manager’s strategy, as well as the ability to bear and manage risks, has to be known before risks are assigned to them. Besides the above conventional project risk management, which is a procedure of identifying the risks in a project, categorizing them, and planning how to address the most serious ones, there is a new category of risks – called unknown unknown risks- usually known as unk unks. Unknown unknown risks are pertinent to decisions but not included in analysis. You are aware of their existence but you cannot predict them. The more informed one is, the fewer (or more incomprehensible) the unknown-unknowns are.
However, unk unks are critical to innovative projects. The fundamental logic of traditional project risk management does not address the novice project, because in novice projects the project plan is an illusion, a simple draft. Unk unks cannot, by definition, be identified, but the areas where they lie – where knowledge about the project is lacking – can be constrained. Thus, turning them down is a gradual, iterative process of discovering the parts of the project in which knowledge is weakest. Once they are constrained, two methods can be employed for prevailing over them. These are learning and selectionism, respectively. According to Loch (Loch, Meyer, Pich, p.103) “Learning in projects is the flexible adjustment of the project approach to the changing environment as it occurs”. It is a repeated practice of asking, “What do we know, what do we need to know, and what might we not know that we do not know” (Loch, Meyer, Pich, p.120). The authors define selectionism as running various error trials in parallel. It is most appropriately used when the environment is so uncertain, that a single trial is unlikely to home in on an improper solution. The blend of these two above approaches which depend on project complexity and cost structure, may help us to strive with the unk unks risks into a project. But because unk unks are new categories of risks, and the above method is still in development, we will avoid covering these risks.
Keyword: Projects Management, Constructions Management, Risk Management, Project Risk
