Abstract Modern construction projects are larger and cost more to construct than ever before. They are complex to build, are made up of many stages, components, and cost up to billions of dollars to...

Risk Management
    Risk Management
    September 30
2018
    
    
Contents
Abstract    2
Glossary    4
1.    Risk    4
2.    Risk Management    4
3.    Risk Management Framework    4
4.    Risk Attitude    5
5.    Risk Management Plan    5
6.    Risk Source    5
7.    Event    5
8.    Consequence    5
9.    Likelihood    6
10.    Risk Management Process    6
11.    Establishing the Context    6
12.    External Context    6
13.    Internal Context    7
14.    Stakeholder    7
15.    Risk Assessment    7
16.    Risk Identification    7
17.    Risk Analysis    7
18.    Risk Criteria    8
19.    Level of Risk    8
20.    Risk Evaluation    8
21.    Risk Treatment    8
22.    Control    9
23.    Residual Risk    9
24.    Monitoring    9
25.    Review    9
26.    Consultation and Communication    9
Types of Risk    10
27.    Global Risks    10
28.    Elemental Risks    11
What is Risk Management    12
Background & History of Risk Management    15
AS/NZS ISO 31000:2009    16
Risk management within the context of a construction project    18
The Risk Assessment Process    21
29.    Stakeholders    21
Internal    22
External    23
30.    Establishing the Context    23
31.    Identification of context    25
Environment    26
Financial risk    27
Technological Risk    27
Resources    27
Legal    28
Economic    28
Political    28
Social/Cultural    29
32.    Risk Identification    29
33.    Risk Analysis    31
34.    Risk Evaluation    33
35.    Risk Treatment /Mitigation    35
36.    Review &Monitoring    37
37.    Communication, Consultation, and Recording the Risk Management Process    38
Risk & Opportunity Processes    39
38.    Risk Identification Processes    39
HAZOP    39
Brainstorming    39
Checklists    40
Scenario Building    40
39.    Risk Analysis    40
Qualitative Analysis    41
Fault Tree Analysis    42
Quantitative Analysis    42
Likelihood and Consequence tables    43
Consequences    43
Likelihood    45
Level of risk    46
EMV    47
Monte-Carlo Simulations    48
40.    Risk Evaluation    49
ALARP Principle    49
41.    Risk Mitigation & Responses    51
Avoidance    55
Reduction    55
Retention    56
Transfer    56
Contingency    56
Insurance    57
Opportunity    57
Case Study: North head Sewage Treatment Plant    58
42.    Introduction    59
43.    Project Brief    59
44.    John Holland Risk Management Strategies:    60
Risk Identification    61
Risk Registers    62
Conclusion    68
Appendix A: Types of Risk    76
Abstract
Cu
ent construction projects are bigger than ever and construction costs are higher. They are difficult to build, consisting of many phases, components, and billions of dollars construction cost.
To difficult matters, budget is limited, in addition, time constraints signify that they are not only difficult to build, but must be built in a fastest possible time to reduce costs and make sure thatfinal product is operative and is therefore profitable.
Each project of construction, even in alike projects, has a different background, different shareholders and too much impact of external environment, political, technical, financial and social.
This makes modern construction projects highly variable and uncertain., ambiguity leads to risks and If these risks not understood, whether purposelyor not it leads to failures of project as well as losses instead ofeffectiveness.
Because of nature of modern construction business and projects inside such a business, there is need to handle risks economically and efficiently, which leads to the risk management in construction projects.
From 1970s, risk management has evolved from a fully insurance centered to a fully developed strategy designed to control the uncertainties and variables inherent in project, to supportsupervision. There are several standard models for risk management, but because of the large number of variables inherent in each different project, no one claims the finest solution for managing these risks in a construction project. Though, these models have fundamental techniques and principles that must be formed to suit every project. Then the question is which method is best for a specific project.
The basic principle is outlined in AS/NZS 31000:2009, that was advanced as the guide to implementing the risk management technique as well as its principles. It will be utilized as theallusion point for following reports.
This paper provides an overview of risk management in the framework of construction projects, detailing the concise history of the risk management and the techniques, processes and tools that formulate part of tactical risk management technique for the construction project.
Main areas of the risk management approach will comprise establishing risk backgrounds, analysis, risk identification, project stakeholders, assessment, processing, control and monitoring, as well as communication. The case study at the North Head sewage treatment plant in the Manly, NSW will provide a basic overview in practice, showing how these principles can be used in a pre-contract stage.
Glossary
This paper as well as its contents refer to the AS / NZS 31000:2009, so this wordlist is the direct adaptation of AS / NZS 31000:2009, related to the terminology of the report.
Risk
The impact of an uncertainty on the objectives
NOTE 1: An impact is deviation from expected, negative, o
and positive.
NOTE 2: Targets can have diversefactors (such as safety and health, financial, and environmental objectives) that can be used at diverse levels (for example, strategy, processes, products, projects, and organization).
NOTE 3: The risk is generally characterized by the reference to possibleconsequences and events, or mixture of these.
NOTE 4: The risk is generally expressed in the terms of combination of outcomes of the event as well as the associated possibility of an occu
ence.
NOTE 5: The uncertainty is asituation, even part, of lack of information associated to, knowledge or understanding of the event, its outcomes, or probability.
Risk Management
Actions to control and direct an organisation regarding risk
Risk Management Framework
Factors which offer the foundations as well asadministrative a
angements for the designing, executing, monitoring, evaluating and continually bettering risk management all over the organisation.
NOTE 1: Foundations comprise the objectives, policy, mandate and promise to handle risk.
NOTE 2: Organizational a
angements compriseaccountabilities, relationships, plans, activities, processes and resources.
NOTE 3: Risk management structure is united within the overall operational and strategic policies as well as practices of an organisation.
Risk Attitude
The organisation's policy to evaluate and ultimately pursue, hold, take and turn aside from the risk
Risk Management Plan
A program within risk management structure that defines methods, management resources and components to be used for risk management
Note 1: The management components usually comprise procedures, assignment of duties, practices, sequence of activities and scheduling.
Note 2: Risk management plans can be used for specific products, processes and projects, as well as part otherwise whole of an organization.
Risk Source
Componentthat alone and in a combination has intrinsic capability to trigger risk
NOTE 1: The risk source may be intangible or tangible.
Event
The change or occu
ence of the particular situation
Note 1: Events can occur one and more times,in addition, can have multiple reasons.
Note 2: The event may contain things that have not happened.
Note 3: Events can occasionally be called “accidents” or “incidents”.
Note 4: Events without effects can likewise be called “near miss”, “event”, “near hit” and “close call”.
Consequence
Consequence of the event influencingpurposes
Note 1: Events may lead to a series of the consequences.
Note 2: The results may be uncertain or deterministic and may have a negative or positive impact on the target.
Note 3: The consequences may be expressed quantitatively or qualitatively.
Note 4: Early consequences may escalate due to knock-on impacts.
Likelihood
Chance of happening something
Note 1: In aterminology of risk management, the word “likelihood” is utilized to denote to the probability of an event occu
ing, whether subjectively or objectively, quantitatively or qualitatively measured or determined, and defined using general terminology or mathematics (e.g.frequency or probability within the given stretch of time).
Note 2:English term “likelihood” doesn’t have straight equivalent in few languages; instead,equivalent of a term “probability” is frequently used. Though, in English the, "probability" is generally interpreted na
owly like a mathematical word. Consequently, in the risk management terms, the intent of utilising "likelihood" is that this should have similar
oad explanation as aword "probability" has in several languages except English.
Risk Management Process
Organized application of the management practices, procedures and policies to communication, consulting, setting up contexts, identifying, evaluating, analysing,processing, reviewing and monitoring risks, etc.
Establishing the Context
Define internal and external parameters to consider when handling risk, and set a scope as well as risk measures for risk management strategies
External Context
The external environment wherein the organization strives to attain its goals
Note 1: The external environment may include: financial, regulatory, legal, political, social, cultural, technical, competitive, natural and economic environments, whether national, international, local or regional key trends and drivers have an impact on organizational objectives; external stakeholder relationships, ideas and values.
Internal Context
The internal environment wherein the organization strives to attain its goals
Note 1: The internal environment can comprise:
organizational structure, governance, responsibilities and roles;
policies, goals and strategies to achieve these goals;
the ability, understoodin the terms of knowledge and resources (e.g.technology, processes, people, time, systems and capital);
information flow, information systems as well as decision-making procedures (informal and formal);
elationshipsalong with, values and perceptionsof internal shareholders;
the culture of the organization;
models, guidelines and standards adopted by an organization; and
scope and form of the contractual relationships.
Stakeholde
Organization or Person that can influence, be influenced by, or feel themselves to be influenced by anactivity or decision
NOTE 1: The decision maker may be a shareholder.
Risk Assessment
Complete process of the risk detection, risk evaluation and risk analysis
Risk Identification
Procedure of discovering, recognizing and explaining risks
Note 1: The risk identification includes identifying the source of the risk, the event, its cause and its possible consequences.
Note 2: The risk identification may includetheoretical analysis, historical data, informed and specialist opinions, and stakeholder requirements.
Risk Analysis
Procedure to understand a nature of the risk and ascertain the risk level
Note 1: The risk analysis offers the base for the risk assessment and decisions regarding risk treatment.
Note 2: The risk analysis comprises risk valuation.
Risk Criteria
The conditions of reference contrary to which importance of risk is assessed
Note 1: The criteria of risk are based upon organizational goals, internal and external environments
Note 2: The criteria of risk can be obtained from policies, laws, standards and furtherneeds.
Level of Risk
The size of the risk or risk combination, expressed as a combination of outcomes and possibilities
Risk Evaluation
A procedure of comparing risk analysis results with criteria of risk to ascertain whether risks and/or their magnitude are tolerable or acceptable
Note 1: The risk assessment helps to take decision regardingtreatment of risk.
Risk Treatment
Method to change risk
NOTE 1: The risk treatment may involve:
Avoid risks by determiningnot to begin or go on with the activities that cause risks;
Take on or increase risk to seek opportunities;
Eliminate sources of risk;
change the possibility;
change the consequences;
share risks (including contracts as well as risk financing) with one or more parties; and
Retain risk through wise decisions.
Note 2: The risk treatmentswhich dealing with the negative consequences is occasionallysignified to as “risk elimination”, “risk mitigation”, “risk reduction” and “risk prevention”.
Note 3: The risk management may generate novel risks or change prevailing risks.
Control
A measure whichchangesthe risk
Note 1: Control includes any process, strategy, practice, equipment or other operation that modifies the risk.
Note 2: Control might not always perform the expected or assumed modification impact.
Residual Risk
A risk stays behind after thetreatment of risk
NOTE 1: A residual risks may include unidentified risks.
NOTE 2: A residual risk may be called as “retention risk”also.
Monitoring
Continuously review, monitor, critically observe or determine status to identify changes from desired or expected performance levels
Note 1: The monitoring may be implemented to risk management frameworks, risk management processes, risks or controls.
Review
The activities undertaken to ascertain the effectiveness, adequacy and suitability of asubjecttoattain the well-knowngoals
Note 1: Audit may be applied to the risk management process, risk management framework, risk and control.
Consultation and Communication
Organize ongoing and iterative procedures to share, provide or access information and involvein dialog with stakeholders on risk management
Note 1: Information may relate to form, nature, existence, likelihood importance, assessment, acceptability as well astreatment ofrisk management.
Note 2: A consultation is two-way procedure of informed communiquéamong an organization as well as its shareholders on the problem before taking a decision and determining direction of a problem. A consultation is:
The process that influence decision making through influence instead of power; and
Input of decisions, not joint decisions.
Types of Risk
The risk is “an impact of ambiguity on the target”, and ambiguity is described as “state, even part, of lack of information associated to knowledge or understanding of the event, its outcomes and possibilities” as represented AS / NZS31000:2009.
In a project, there are uncertainties in approximately every path and every discipline of project where information is inadequate. In maximum cases, it will be at the initial stage of a project life cycle, wherein not all directions and results are defined.
Authors believes that each type of uncertainty involves range of probable outcomes that may have a negative or positive impact on the outcome of the project.
Therefore, it is likely to outline the risks of almost infinite diversity and type, as it exists in aspects involving uncertainty. Therefore, risk classification helps to understand the risks intrinsic in the particular building project and helps to identify risk identification as well as risk strategies, depending upon where greatest type of a risk lie. It is communal to divide risk into global risks and basic risks.
Global Risks
Described as a risk that can be classified as a general risk that affects the outcome of the project but may exceed a control of relevant primary party.
According to author, these global risks may be further split into 4 subcategories.
Political risks:
Public investigations
Competition regulation
Development approvals
Legal Risks
Regulations
Changes in the cu
ent law
OH&S issues
Commercial Risks
Supply and demand issues
Foreign exchange rates
Recession
Environmental Risks
EPA requirements
Protected species inside the vicinity of a project
Protected / Delicate environment
Elemental Risks
The risks related with important project elements are generally within the greater scope control by the parties of project than those risk described as the universal risk. In general, elemental risks are often project-specific, in addition, these kinds of risks often require more inclusive attention.
Instances of the elemental risks should be discovered in the Appendix A of the report.
What is Risk Management
As per author, there are risks and uncertainties in entire construction projects. Intricate decisions should be taken in today's large construction projects. The attributes that contribute to complex decisions are expressed as follows:
A large amount of variables
Numerous goals
Multiple choices
Achieving goals
Uncertainty in the construction projects complicates these decisions by increasing the trouble of a dealing with these a
itrary variables and introducing risks as by-product.
In order to deal along with this risk and above-mentioned problems affecting the process of decision-making related to these risks, a tactical approach,for example, risk management has been presented.
As perauthor, the risk management is formal procedure designed to recognize, evaluate as well as respond to the risks of project. There are severaldiverse models in field of a risk management, including different stages and phases.
The Project Management Body of Knowledge (2004) finds4 steps in risk management procedure, identification, evaluation, risk response as well as risk response management.
Author utilise seven-step paradigm; author point out that 9-step paradigm is used, whereasauthor describe 11-step paradigm, entire of which may be utilized to the architectural projects.
While dissimilar models use unlike numbers of stages as well as steps, all models cover the similar basic principles designed to increase opportunities and minimize and control risk events in modern building projects.
For the objectives of the report, universalmodel of risk management presented and evaluated will be seven-step paradigm:
Identification of Risk
Analysis of Risk
Evaluation of Risk
Risk Response / Mitigation
Review and Monitoring
Consultation &Communication
Documentation Risk
However, it doesn't matter which model you choose for your project. Risk management being as a way to deal with risk is not one-size-fits-all method. Because of the high degree of particularity of today's projects, its size and complexity must be tailored to the project as well as its supporting organization, not merely in terms of procedures and design, but also in terms of the complexity of technology and architecture and the perception of individuals within sphere of obligation delivering them.
Figure 1 Illustrates the basic risk management model as outlined in AS/NZS 31000:2009.
Figure 1: AS/NZS 3100:2009 Risk Management Model
Background & History of Risk Management
Traditionally, the risks of construction projects have been dealt along with utilising experience, heuristic and regulations of thumb.
Concept of arisk management is not novel, but concept of a risk management model is comparativelynovel. It has evolved from a simply insurance-based risk management approach to a modern form before the Second World War.
In post-war period, large-scale reconstruction directed to a rise in the construction projects as well as a sharp rise in competition. As a result, the insurance business has experienced a growth as insurance sales have increased.
Due to rise in insurance usage and co
esponding costs increase, research is beginning to into an alternative to treatment of risk because treatment options are the costliest, as discussed later in the report.
Risk management of Insurance-based means that contractors recognize different risk management methods because methodical approaches were advanced throughout early 1970s. It is also identified that the risk management can be implemented to non-insurable and insurance risks,for example, environmental problems.
With advent of organized approaches, it was realized that the risk management can also be utilized to take advantage of opportunities,instead of, simply avoiding negative outcomes. The authors record this view, saying that a large number of shareholders agree that the risk is “negative event”.
According to the authors, the lack of a formal risk management procedure using traditional methods means that risks are often ignored and handled in an instinctive manner rather than recent risk management.
Past risk management methods have led to various risk estimates being too high and too low; this has also led to ambiguity in whereanalysis and treatment must be prioritized.
Increase in project complexity and size has created a need for the risk management,in addition, has led to its growth into today's formal strategy, as past technologies are not sufficient to appropriately address the uncertainties of various variables and stakeholders in modern projects.
AS/NZS ISO 31000:2009
AS / NZS ISO 31000:2009 is a global standard that provides general guidelines and basic principles for the risk management. This is an apprise of the preceding ISO paradigm AS / NZS 4360:2004,in addition, is based on previous standards.
At any phase of life cycle of project, it faces external and internal influences that create uncertainty about the outcome of the project. The uncertainty on this result produces an effect called risk.
The purpose of this model is to form the principles that required to be met to manage these risks. These norms can be executed to the organization and its different aspects, including:
· Decisions
· Strategies
· Processes
· Operations
· Projects
· Functions
· Services
· Products
However, for the objectives of the report, the processes, guidelines and principles for citing ideals will be inside the scope of the construction project.
Standard indicate thatthe risk management frameworks, strategies and plans that must be explicit, considering the individual needs of each project, instead of a comprehensive risk management method that is ineffective because of the inherent variables and size of contemporary construction projects.
The standardsdescribethat risk management permit organizations to
Rise the possibility of attaining project goals
Encourage active rather than passive management
Aware of need to find and address risks in the project’scontext
Improve identification of opportunities and threats
Comply with laws, regulations and international regulations and necessities
Improve shareholder relationships
Develop anauditable and reliable basis for the decision making
Expand project control
Effectively apportion resources for the risk management
Improve loss avoidance as well as incident management
Improve safety and health performance
Strengthen environmental safety
Table taken from the AS/NZS31000:2009
Further consequences from the utilization of this model are exemplified in figure 2
Figure 2: Standard Based Outcomes (Ref. AS/NZS 31000:2009)
This standard is proposed for usage by those who are liable for managing risks within the organization, in this case in relation to those who are responsible for these processes in a specific construction project.
All through the report, processes, ideas and whole other types of assessmentof the risk managementas well as its context in the projects of construction will be raised backtothe standard for evaluation and comparison based upon such rules.
Risk management within the context of a construction project
(AS / NZS ISO 31000:2009) declares that the risk management may be applied to many levels and areas of the organization along with specific activities, projects and functions.
In context of the report, risk as well as its management approaches will be examined from the viewpoint of construction projects.
Change is the factor in eachconstruction project, and the constructionbusiness has poor repute for responding to change. It has been revealed for many years, with project delays, over budget as well as using much resources than initially planned. Instances of these kind of projects comprise the Queensland Desalination Plant and the Lane Cove Tunnel, both have many problems throughout their respective operation and construction phases.
Although thousands of projects are ca
ied out every year, there is no “perfect” design or method to ensure that the project's behaviour is predictable without any ambiguity.
The risk management itself is not intended to forecast what will happen during the life of a project. Its chief purpose is to rise understanding of the project and effectintellectual decision making aboutadministration of that specific project.
(AS / NZS ISO 31000:2009) asserts that the risks themselves include the impacts of the event along with associated possibilities. It may also be stated as the impact of ambiguity on the objectives. This effect is itself adivergence from expected result of theactivity of project or part, and can be negative or positive as described by the standard.
From this, it can be concluded that the risk event means that a series of outcomes of an event may be more favourable or unfavourable than the in all probabilityoutcome or scenario, and each outcome of the given event or activity has a scope. Incidence probability.
This is especially significant when seeing the scale of the modern projects. In the case of John Holland Water's Queensland desalination plant, the total cost of the alliance is more than $1.5 billion. For projects of this size, the number of variables and activities is innumerable, this can be given, and three project objectives based on quality, time and cost will be affected by risks and uncertainties.
Therefore, from the outset, despite of type of the project, the decision-making process for construction projects must be tactical and well thought out, depend onknowledge, accurate data and established risk management strategies to maximize control of outcomes of project without these strategies. Numerous factors, if not managed, may or will have disastrous consequences for the outcome of the project.
With the aim to make such decisions as well as strategies, the authors suggest that repeatable, reasonable risk methods and interpretation of risk are essential.
In addition to the clear consideration of the budget, the difficulty of providing technically demanding projects (such as desalination plants) means that the margin of e
or is small and stakeholder fo
earance is minimal, sopresence of control inexternal and internal facets must be needed to modern construction projects.
Factors,for example, political influences, environmental consequences, social responses, and many other influences may have a direct impact on the outcome of a construction project and indicate that there are inherent risks at almost allthe stages of the project's delivery from beginning. These factors influencing the project will be detailed later in this report.
The project manager then plays an important role in the project during the construction stage and should adopt or propose specific strategies to minimize the occu
ence of risks and uncertainties in the project and to maximize and use all possibilities.
In context of the project, the risk management relies on understanding and transparency. To guarantee effective execution from the project perspective, the basic necessities are like so before developing a strategy:
The issues and scope of the project have been clarified and all related parties understand from the beginning
All the decisions are sustained by analysis and strategy
Continuous monitoring of project scope, structure and definition
Clearly understand the detailed and specific risks associated along with a specific project
The documentation of all decisions and processes to assist upcoming risk analysis of potential projects
Clarify documentation and analysis of external and internal factors affecting project uncertainty and consider these factors in risk management procedure
Based upon these factors, specific, tailored risk management strategies and processes can be developed and executed for specific projects and continuously monitored and evaluated at different stages of lifecycle of the project.
The Risk Assessment Process
Over the years, many basic procedures and processes have been advanced in risk management. This
eaks down the process of risk management to offerthe basic structured context around which process ofmanagement will take place.
Most of the models of risk management developed might include 4 to 9 phases, reliant on how every phase is classified. However, this depends on a model and the overall perspective; the project-based risk management approach will include the subsequent basic elements: risk detection, risk examination, risk assessment, risk processing and mitigation, review and monitoring, consulting and communication.
Stakeholders
The management as well as understanding of stakeholder in the desalination project is key component of risk management procedure. Stakeholders comprise anyone interested in outcome of project, which may be a positive or negative benefit. Stakeholders are important to the organization because they perform animportant role and are influenced by organizational behaviour and also influence the organization's behaviour. They have a potential to abso
or change any potential risks or other influences associated with potential risks. Every stakeholder has different roles related to project construction
Therefore, each stakeholder will have varying degrees of related risk when completing the project.
Project stakeholders are divided into two categories, external and internal stakeholders.
Internal
Compared with external stakeholders, internal shareholders have a significantly greater influence on the desalination plant's results because they are seriously involved in the everyday operations of construction activities related to desalination plants. The subsequent list offers an illustration of internal shareholders as they relate to construction of a desalination plant on Gold Coast:
Project Manager - This comprises any subproject manager, for example, a construction manager. Due to the nature of their work, the employees of desalination plants have anentrusted interest in successful accomplishment of the project;
Project/Site Engineer - Alike the project manager, the field and project engineers are liable for successfully completing the project to the high standard;
Subcontracted labour - Responsible for actual completion of on-site construction activities. These third-party organisations are generally paid through the advanced completion system, in addition, only ifwork has acceptable quality as stipulated by the field or project engineer;
Ordinary employees - These employees form the rest of construction project, for example, finance, information technology and human resources. These shareholders are liable for the overall management and operation of construction project.
External
Impact of external stakeholders on the complete success of desalination project is not more than the impact of internal stakeholders; though, they should be highly valued because it is still extremely important for the entire project. The subsequent list provides examples of external shareholders
End product users - who will get the advantages of completed project;
Environmental activists - can involve members of public and private organizations. These shareholders are often opposed to the implementation of important infrastructure and can actively oppose the project based on its nature. This usually happens in sensitive projects,for example,sewage treatment plants, desalination plants and nuclear infrastructure.
Local and state government parties - These parties can be negative or positive stakeholders. Favourable parties can performan important role in permitting approvals, affectingcommunity and media attitudes, as well as positively impacting project outcomes. The negative effects of political parties may include delays or complete rejection of approval, and may also be strongly influenced by the community’s strong resistance to the project.
From a risk management perspective, the management of external and internal stakeholders is critical to0 success of a project because they are causes behind it and the people indirectly or directly affected by project.
Risk management process have to be accommodatedfor the stakeholders to successfully assess, review and manage project outcomes that may indirectly or directly affect.
Establishing the Context
Establishing a risk context in the project includes many factors.
From the theoretical viewpoint, when setting the background, key customers or stakeholders must have well-defined goals in the results of the projects they search for to attain to properly establish the environment and contextwherein they can find and assess risks related...