CONSTRUCTION RISK MANAGEMENT, A DIFFERENT PERSPECTIVE: WHAT? WHY?

Introduction:

External pressures like Digital transformation, volatile economic situations, lower rates and changing political scenarios are somehow putting more pressure to stay competitive. Disintegration and lack of information flow in 360 degrees (Up and down, internal and external) are the internal factors that constrict an organization’s growth. The ultimate result is falling market share and a decrease in profit. 

Construction program/project execution is cumbersome in nature. Involvement of various stakeholders, internal and external factors and nature of the project itself drive complexity. Regardless of the region, many construction programs/projects are an ultimate failure or jeopardized and require recovery plans; over budget and behind schedule.

The construction project is truly a portfolio or program with many facets. Harnessing the different phases and different facets are the key drivers in construction management.

 Risk management helps to navigate through the complete project cycle and identify the minor to major pitfalls and even the Show Stoppers. Planning, designing, structuring, implementing a risk management system and software in a systematic way are crucial for managing complex construction projects.

Process Driven Risk Management - KRI

Process driven approach is good, but during process design, the most neglected part is people or stakeholders. People plan, design, implement, execute and drive the process. It is not the other way around. Stakeholder focussed, adaptable and agile system provides value to the organization.

Process driven risk management is more robust and structured than software risk driven system. Software is a tool and an integral part of the system. In reality, not a single software alone helps to map risks effectively.

 Key Risk Indicators (KRI) approach to managing program and projects at the portfolio level gives a systematic and structured way to align efforts for achieving overall strategic goals. KRI drives Key Performance Indicators (KPI) for analytics and reporting.  Cluster risks to KRI and risk management based on the priorities provide analytics for decision making. Flexible and adaptive KRI can be helpful for organizational growth and sustainability. Establish constructions KRI with respect to internal, external context, organizational project management methodology and way of managing projects itself. 

Portfolio Construction Risk Management:

Planning and managing projects in silos are common in the construction industry. Managing project at the program and portfolio level helps to align and drive resources to achieve goals. Capacity and the Capability (C&C) alignment and optimization help organization to manage Risks effectively under the umbrella of the Portfolio. A complex project with high budget/capital cost & high resource utilization (C&C) is normally a risky project, but often generates more Return on Investment (ROI) then a low budget small project. The picture given below illustrates an overview of a project portfolio in a bubble chart.

Structuring the project portfolio system around KRI, as a driving force to overall project portfolio risks, helps to understand the common pitfalls and align risk management for Organizational growth, profitability, and sustainability. Does the question arise about profitability? Structured and process driven system help to Quality Conformance i.e. reduces extra work, improve efficiency and optimize all 3M’s (Man {workforce}, Machine, and Material). Given below figure illustrates a simplified process flow of Portfolio risk management. KRI directions are flowing from top to bottom while project risks are escalated to the program and then the portfolio. 

Pic 1 - Capacity and the Capability (C&C)

Risk Management Process Flow:

Simplified risk management process flow illustrates steps for risk management:

Pic 2 - Risk Management Process Flow

Risk management plan documents the flow of information dissemination it to the stakeholders on a regular basis as per requirement. Risk management plan mind map highlights the necessary components of the Risk management plan.  

Pic 3 - Risk Management Plan Mind Map

Risk Advisor Vs Risk Clerk:

Decide whether to hire Risk advisor or risk clerk (collecting data and entering it to risk register, a risk repository). Access denial or hiding risk information from the risk advisor is a common dilemma in the construction industry.

ire risk advisor (specialist, advisor, etc.) based on the following key attribute qualities:

1-     Experience, not a certification only

2-     Exposure (Least considered, but most important quality)

3-     Emotional intelligence

4-     Due Diligence

5-     Networking and socialization (again most neglected part. Risk professional should spend time with coworkers to get insight into the facts)

6-     Learn and train abilities

7-     Adaptability

8-     Act like a Smart Sensor ( According to Wikipedia, Smart transducer, an analog or digital transducer or actuator combined with a processing unit and a communication interface)

9-     Strategic

10-  Process focused, but keep an eye on stakeholder engagement

Project Risk Management a Driver or Driven:

Throughout in the construction industry, Project control drives the risk management. 

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Pic 4 - Project Risk Management as Driven

Driven state unconsciously bringing and backing Risk Tangent. Risk Tangent is a source of cognitive biases. Cognitive biases, difficult to judge and manage, lead to a false alarm.

Successful Construction management lies in effective risk management. Proactive and receptive risk management approach helps to drive other components of project management. Get/receive or retrieve information, process it and send back signals, feedback control system, to the respective component for preventive or corrective actions. Scope baseline, schedule baseline, cost baseline, etc. should be set after performing a risk.

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Pic 5 - Project Risk Management as Driver

Risk Maturity:

Risk Management maturity provides a road-map to benchmark the risk management process. 

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Pic 6 - Risk Maturity Level

Most of the organizations, especially construction organization are in the bottom tier or second (2nd) last bottom tier. Top reasons are a poor Project & Risk management system, lack of commitment and vision and lack of stakeholders involvement.

Risk maturity in projects directly influenced by an organizational project management structure and culture. Conducting project risk maturity assessment is a good start. It provides a baseline to measure system efficacy. It also helps to provide data for analytics to measure success for achieving long-term strategic goals and short-term “Quick wins”.

Transitioning From Threat to Opportunity:

Project management, engineering design, procurement management and execution of construction, etc. require talented human resources. Client, contractor, and consultants discussing and complaining shortage trained workforce. It is phenomenal in construction projects and growing industry-wide.

This known – known (or sometimes Known -Unknown) threat has been predominately highlighted in the risk registers and dashboard reports to management. Grappling with this threat requires to understand root causes and find out the best possible solution out of many alternatives in the long-term. This is a strategic program or portfolio risk. 

Project manager alone can’t resolve or mitigate it alone. Salary/compensation and organizational culture, including the behavior of the immediate boss are the hidden root causes. that hindered to engage and retain a skilled workforce.

This risk impacts every construction project badly, irrespective of project execution region. Best way to mitigate this risk is to transform it into an opportunity. Identify your requirements and establish either training institute or partner with the training institute to have skilled workers/labors ready for current and upcoming construction projects. Construction productivity is directly impacted by the unavailability of skilled labor during construction. Let us understand the risk and discuss possible mitigation actions.  

Cause: Because of 1- Many projects executing in an area

      Risk: Unavailability/shortage of skilled labor for construction

Impact: 1- Schedule Delay

               2- Cost over run

               3- Poor Quality

 

The paradigm shift from threat to opportunity requires management support. It is a Business Risk. Mitigating this threat to opportunity requires the involvement of various key stakeholders. A high-level illustration is given below, and pictures show the transition from threat to opportunity.

 

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Pic 7 - Unavailability of Skilled Worker During Construction

Construction Risk Management Areas

  • Workforce
  • Labor cost
  • Contractual risk
  • Liquidity
  • Profits
  • contracts
  • Procurement risks
  • Penalties
  • Deadlines
  • Project Management
  • Construction Equipment ( Types and depreciation)
  • Long lead items (LLI)
  • Construction sequence
  • Schedule priorities
  • injuries on construction sites
  • Construction Defects
  • Fire
  • Site Protection
  • Natural Disasters
  • Financing Big Projects
  • Regulatory Changes
  • New Technologies
  • Missed Deadlines
  • Insurance Claims

Future Opportunities:

  1. Drones – UAV (Unmanned Air Vehicle)
  2. Digital Transformation
  3. RoboLabour
  4. 3D printing
  5. Enterprise Software
  6. Artificial Intelligence – AI

Decision Making:

Decision making is tedious and long curve task. It involves connection dots, data analytics and expert opinion by the Subject Matter Expert (SME). Sometimes a risk requires more drill down to draw a complete picture for better visualization and making the right decision.

Subcontracting is a good risk mitigation strategy to transfer the risk in case of threat or share responsibility for gaining a competitive edge (opportunity). Subcontracting doesn’t eliminate the risk or liability, possible Secondary risk with multiple impacts over a period. Given below picture portrays a situation in which a decision has to be made to select the best alternative among various scenarios.

Conclusion:

Maximize the impact of opportunities and minimize the impacts of threats is crucial to remain competitive in this digital era.