COBRA '97
R E S E A R C H
COBR A ‘97 Risk analysis and management for major construction projects
Peter Dent, Oxford Brookes University
ISBN 0-85406-840-6
RISK ANALYSIS AND MANAGEMENT FOR MAJOR CONSTRUCTION PROJECTS John Amos, Lecturer, School of Property and Construction, University of Central England, Birmingham. Peter Dent, Lecturer, School of Real Estate Management, Oxford Brookes University.
The research which underpins this paper is based on a random postal questionnaire survey of 187 professional practices involved in the construction business in the UK. These are made up of Quantity Surveyors, Project Managers, and Multi-disciplinary practices. The 40% response rate has been analysed to determine attitude towards risk and how best it can be managed in relation to major construction projects.
1.
Introduction
During the last few years there has been considerable interest shown by the construction industry in risk management techniques that have evolved from those used within the general financial and investment markets. Recent research has concentrated on areas as diverse as determining the individual’s risk attitude, analysing projects to determine overall project risk, and identifying a risk management infrastructure 1
(see for example Terry Williams 1993) . This, in turn, has led to a focus on “systematic” risk management procedures being identified as of benefit to both Quantity Surveyors and Estate Managers within the property development process.
2.
Risk 2
Cooper and Chapman define risk as : “ Exposure to the possibility of economic or financial loss or gain, physical damage or injury, or delay, as a consequence of the uncertainty associated with pursuing a particular course of action ”. The analysis of risk can involve a number of approaches dealing with the problems created by variability, including the identification, evaluation, control and management of sensitive variables. In addition where uncertainty exists, it may be possible to convert this to quantifiable risk using subjective probabilities. Through a process of risk engineering it is possible to develop an integrated approach to all aspects of risk analysis. The intention here is to identify and measure uncertainty, as appropriate, and to develop the insight necessary to change associated risks through effective and efficient decisions. Risk engineering uses risk analysis, defined in a very broad and flexible manner, for the purpose of better Risk Management. Risk Management, when used in the sense that it covers the whole process of “dealing with risk” 3
embraces the three stages outlined below, (from Flanagan & Stevens) .
1
The three stages of Risk Management
3.
Risk in Business
Both risk analysis, and risk management originated in the US insurance industry back in the 1940s 4
(Raftery) . Hence a risk arose when it was possible to make a statistical assessment of the probability of occurrence of a particular event. Risks therefore tended to be insurable, and could be quantified thus : Risk = Probability of event x Magnitude of loss / gain This is in contrast with uncertainty, which can be described as situations where it is impossible to attach a probability to the likelihood of occurrence of an event, and therefore would be uninsurable. 5
Sidney Newton comments that risk and uncertainty are inevitably defined in terms of one another, and to distinguish them might even be unhelpful. For example : " Risk is a measurable uncertainty, while uncertainty is an unmeasurable risk " But whilst, of course, the future is always uncertain, attention to risk is essential in any business decision. To eliminate risk in any enterprise would be futile. It is an inherent, and necessary ingredient of any “organic” enterprise. It should be noted therefore that the purpose of risk processes is not necessarily to avoid risk, but rather to take the risks that the company should take selectively and deliberately on terms which are desirable so that the maximum profit and benefit can be 6
obtained from the activity ( Jean-Marc Morin ) . In fact the secret of the highly successful business may be said to lie in its ability to take the greater risks. 2
7
This is a graphical representation produced by "PREDICT" showing how the balance between certainty, risk, and uncertainty could affect the profitability of a potential project :
The two most important questions this type of representation helps to answer are : 1 ) whether the returns on the project will justify the risks, and 8
2 ) what is the extent of the loss if everything goes wrong (Flanagan & Norman) .
4.
Risk Management - Background
Before any decision to invest in a building is taken it is essential to determine a risk / return profile which is competitive with the best that the financial markets can provide 9
(Flanagan & Norman) . Risk analysis and management techniques are not intended to “kill off” projects, nor to dampen levels of capital investment. They are primarily there to ensure that only those projects which are genuinely worthwhile and meet both internal and external objectives are 10
sanctioned (Thompson & Perry) . All too often risk is either ignored or dealt with in an arbitrary way - simply adding a 10% contingency onto the estimated cost of a project has been typical in the past. Today, this is virtually certain to be inadequate. The greatest uncertainties occur in the early stages of a project, which is also when decisions of the greatest impact are made. All risks must, therefore, be assessed and allowed for at the outset of any project. These risks will change during the project. Risk management should therefore be a 11
continuing activity throughout project duration (Thompson & Norris) .
3
5.
Risk Management
Risk Management is a three stage process : -
The Risk Management Umbrella
NOTE : It will be noted that "Risk Management" appears twice in the above diagram. This is because risk management is, perhaps, a misleading and misunderstood term. In the global sense, risk management is the process that, when carried out, ensures that all that can be done will be done to achieve the objective of the project, within the constraints of the project. In the narrow, specialised sense, risk management is part of the overall process. Once a risk is identified and defined, it ceases to be a risk and becomes a management problem. In this methodology, this phrase is referred to as risk management (response) and concerns the determination of whether to respond, how to respond and when to respond.
5.1
Risk Identification
Risks can only be measured and controlled once they have been identified, as specified above. Once a risk is identified and defined it ceases to be a risk as such and can be a quantifiable management problem. In this context the identification process, by definition, is the most important piece of the jigsaw. There are a number of recognised methods which can be employed in risk identification ; the ones most suitable to the industry concerned and the task in hand should be the ones chosen. The general rule is that the task of matching method to perceived risk should be the first priority. Tools of analysis used in the general business environment can be readily adapted for use to assess 12
specific risks on construction projects. Redmill sets out a simple but effective tool for the assessment and prioritisation of project risks. See below : -
4
Prioritisation of Project Risks
A) Indicates intolerable risk which must be removed or reduced immediately. B) Indicates risk which is not altogether intolerable but which should be removed or reduced at the earliest opportunity. Normally, target dates should be set for implementing the counter measures so that unacceptable delays do not occur. C) Indicates risk which is tolerable but which should be removed or reduced when time allows. D) Indicates risk which may be accepted as it is.
5.2
Risk Analysis
An effective risk-management "infrastructure" will provide the correct "place" for risk analysis within the overall project management set-up. Simply analysing risk and then managing it is not sufficient 13
(Ward & Chapman) .
Risk analysis estimating imposes a discipline to risk identification and 14
evaluation that the traditional systems lack (Barnes) . So when deciding what data to collect, it is essential to have a clear picture of what is trying to be achieved and what the end product is going to be. Analysts need to be able to elicit probabilities and probability distributions from experts.
Formal methods need to be used to ensure consistency and uniformity in this exercise (Kahnenan, 15
Slovic, & Tverskye) . In this way the “spectrum” within which observations are made can be narrowed down. Once it has been decided what information is required, and sufficient data collected, there are various ways in which it can be processed. By various means both the methods to be employed and levels of sophistication to be reached can be determined.
5
16
THE FORECASTING PROCESS
With the level of technology readily available today, it is increasingly more likely that the “mechanics” of the analysis process can be undertaken by some form of computer simulation. This, in turn, increases the number of complex methods that can be considered. The belief that too sophisticated risk analysis leads to overkill may have been true in the past. But this is now a short-sighted view in the light of the availability of “off the shelf software”.
There is no single “best” technique, as every project will almost certainly have individual characteristics which will make it unique. The questionnaire survey undertaken as part of this paper did however identify those techniques which were more “popular” in practice.
Table of Risk Analysis Techniques : χ
SENSITIVITY TESTING (SPIDER DIAGRAMS) RISK PREMIUM EXPECTED MONETARY VALUE (EMV) EXPECTED NET PRESENT VALUE (ENPV) EMV USING A DELPHI PEER GROUP RISK ADJUSTED DISCOUNT RATE (RADR) DETAILED ANALYSIS & SIMULATION STOCHASTIC DOMINANCE
χ χ χ χ χ χ χ
6
WHAT IF ? TO VARIABLES CONTINGENCY FUND OPTIMISTIC χ PESSIMISTIC GROWTH PROBABILITY ñ ò DELPHI FORECASTING METHOD RISK ATTITUDE & EXPOSURE I.T BASED PROB' Y DISTRIB' N PROJECT COMPARISONS
5.3
Risk Response (Risk Management)
Once risks have been identified and analysed, an appropriate response needs to be constructed. Commonly known as Risk Management, this, the final stage in the process can instigate various courses of action. For example : Risk Insurance : Against such things as fire ; accidents ; theft etc
Risk Sharing : On very large, complex, or innovative projects it is sometimes necessary to enter into joint ventures in order to distribute the risks involved into manageable packages. An example of this type of project is the Channel Tunnel.
Risk Reduction : Can be attained by gaining sufficient knowledge on the subject as to minimise the chances of things going wrong due to ignorance etc. Achieved by entering into information, and intelligence gathering programmes.
Once each actionable risk has a response, or combination of responses defined for it, and those responses have been implemented (or not depending on the attitude of the project manager) then the risk management, or response cycle is complete. This is also the end of the overall risk 17
management cycle (Clark, Pledger, & Needler) .
7
GOLDEN RULES for Risk Management Ρ
Risks must be properly identified, classified and analysed before any response can be considered
Ρ
The identified risks are risks no more. They are now management problems
Θ
Do not rely on the intuitive approach or gut feelings to manage risk
Ρ
The risk management process must be continuous from the moment the project starts until the moment it ends
Ρ
Ensure that reporting on risks and risk sources flows correctly up the management structure
Θ
A poorly defined risk structure will breed more risk
Ρ
Use both a wide angled lens and a zoom to aid your vision of what could happen in the future
Ρ
Use both creative and negative brainstorming, don't use the ostrich approach
Ρ
Always have a contingency plan to cope with the worst eventuality
Ρ
Risk management systems should not be too complicated or burdensome, they need to be integrated into a firm's daily operations
Ρ
Problems and potential failure in a project are flagged as early as possible, cancellation possibly being allowed to avoid large nugatory 18
costs (Humphries)
19
Flanagan & Norman 1993
8
From a Project Management point of view, the most important aspect of all this, is keeping track of all the risks.
5.4
Risk Registers
The most common administrative device for keeping track of these risks is the use of a “risk register” 20
(Williams) , a simple collection of risk statements, containing details of, for example : q The " owner " of the risk. q The estimated likelihood of its occurrence. q The project objectives on which it impacts eg : scheduling; cost; some specific specification or performance measure. q The estimated severity of any impact identified above. q Work breakdown items and activities influenced. q Possible contingency plans, to prepare for the event of the risk occurring. q Secondary risks or knock-on effects.
It must be remembered that the Risk Management process costs money. Expenditure on it must be justified. Potential savings must outweigh the costs of performing the analysis and management techniques and when each additional pound spent does not have the potential of saving more, then the process must be curtailed.
6.
Earlier Studies 21
A major study in 1987 (Morris & Hough) covering some 3,500 projects world-wide, quotes “Overruns on cost and/or timescale were the norm with the size of overrun typically being between 40 22
and 200%”. More up-to-date research (Williams 1994) reinforces this situation. Following in-depth interviews with senior managers from over 20 leading organisations the findings reveal that : q Over 40% of respondents estimated that more than half of the projects undertaken by their organisation were not completed within planned timescale or budget. q 55% knew of a recent project which had exceeded its planned budget or timescale by more than 100%. q More than two thirds knew of a recent project that had been abandoned before completion or had failed significantly to achieve planned benefits.
The reasons for this, generally, poor performance are both varied and complex. However the survey respondents commonly quoted the following as the main reasons for a consistent failure to achieve project objectives : -
9
q Uncertainty in estimating resource requirements and timescales, due to a lack of reliable data. q An inherent bias towards underestimating project costs - often due to commercial pressures to win work in a competitive bidding process. q Inadequate or ambiguous definition of project requirements leading to significant cumulative changes to the specification of deliverables as the project progresses. q Unforeseen or uncontrollable events that significantly alter the plan for the project or render it irrelevant.
The common sources of risk which affect most projects have been found to be : q Estimation uncertainty q Estimation bias q Inadequate requirements specification q Unpredictable contingent events or decisions.
When asked how they rated their own organisation's performance in managing risk more than 60% considered it to be “inadequate” or “poor”. But interestingly more than 60% rated their performance as better than that of similar or competing organisations, and nearly half of those rating their performance poor or inadequate still believed it to be better than that of similar or competing organisations.
This suggests that many consider risk management to be an area where performance needs to be improved, but that industry best practice is itself not particularly effective or widely adopted.
If, therefore effective risk management is perceived to be an important factor in delivering successful projects, why is it that more organisations do not invest in it ? Part of the reason may lie in attitude to, and poor understanding of risk management as a process. That is to say, in many minds “risk management” is an integral part of the work of the project manager and that project management is really “risk management” by another name.
During the survey described above, the respondents were asked to describe their organisations approach to risk management on a “best fit” basis to three pre-specified categories. Analysis of the responses were as follows : -
10
A:
Only 15% operated what could be described as a systematic approach.
B:
30% were classified as operating "mandatory procedures" in one or more areas, although these did not constitute a complete process in the sense described.
C:
55% operated advisory guide-lines only, or no discernible approach at all.
If (A and B) are considered as one group, and (C) as another, then when overall performance in achieving project objectives is contrasted for the two groups there is a clear difference. The following graph shows, for both groups, the mean percentage values of projects reported by respondents as failing to meet their objectives in relation to budgeted cost, planned duration and planned benefit : -
The comparison shows that a systematic approach, or even a mandatory set of procedures for project risk management is associated with a better overall performance on the cost and timescale measures. Planned benefits will tend to be achieved as a “must” at the expense of one or both of the other two criteria.
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Organisations that use a systematic, or have in place mandatory procedures for risk management see the following as amongst the benefits to be gained : q Early identification of significant risks enabling potential problems and consequent costs to be avoided later. q A more consistent management approach and performance across project managers and their staff. q Increased accountability and responsibility for controlling costs within project teams. q Early anticipation of problems such as overall resource shortages through the use of centralised reporting and monitoring of risk levels across programmes or groups of related projects. q The ability to make real reductions in project costs while maintaining quality of project deliverables. These benefits equated to a progressive reduction in standard contingency allowances from 10 to 5% over time, and a 15% reduction in the numbers of staff needed for project management and control without adverse impact on project capacity or quality of deliverables. In the context of the survey in question, a “Systematic Approach” involves the use of a well defined and documented process that requires project managers to undertake to : q Identify and record the risks which affect the project at each stage. q Assess the likelihood of each risk occurring in the future and the impact on the project should this happen. q Plan cost effective management actions with clearly identified responsibilities, to avoid, eliminate or reduce any significant risks identified. q Monitor and report the status of these risks and the effectiveness of planned risk management actions. A study undertaken in the summer of 1994 of contractors and project management practices in the 23
U.K. (Akintoye and MacLeod) management techniques :
revealed the following reasons for not using risk analysis and
Contractors q Lack of familiarity with the techniques. q The degree of sophistication involved in the techniques is unwarranted for project performance. q Time plus lack of information and knowledge. q Doubts whether these techniques are applicable to the construction industry. q Most construction projects are seldom large enough to warrant the use of these techniques or research into them. q They require availability of sound data to ensure confidence. q The vast majority of risks are contractual or construction related and are fairly subjective, hence they are better dealt with based on experience from previous contracts undertaken by the firm. 12
q It is difficult to see the benefits.
Project Managers q Risk analysis of construction projects is seldom formally requested by clients clients expect project management practice to set up projects risk-free. q Risk analysis in commercial terms is not always viable on projects. q Project risk management is about people not scientific models. q Lack of expertise in the techniques. 24
The following year Shen construction industry *.
carried out a study in Hong Kong of practitioners working in the
His questionnaire survey revealed that “methods where practitioners experience and subjective judgement are used are the most effective and important risk management action, and that methods using quantitative analytical techniques have been rarely used due to limited understanding and experience”. *
This study was specifically concerned with the risk associated with delays in project completions and the practical actions used to manage such risks.
7
Research Survey
7.1
An introduction
This survey is intended to test current attitude towards risk management in practice. The research is based on the belief that the service provided to the client is the single most important function for any construction professional today and, undoubtedly, this situation can only become more important for the future.
7.2
Purpose
This survey was undertaken to ascertain the extent to which risk analysis and risk management techniques are used by the construction industry professions, and to ascertain how these professions see the development and increased use of the techniques in the future. Satisfying customers must be the prime aim of any professional. Knowing that all human endeavour involves risk, the success or failure of any venture depends on how risk is managed. Unfortunately, the construction industry has a poor reputation for coping with risk with many projects failing to meet 25
their deadlines or their cost targets (Thompson and Perry) . It must be appreciated that by far the most important consideration for any client procuring a new product is its cost, and although risks materialise themselves in many forms, one way or another, they will all end up being reduced to sums of money Risk analysis and risk management is a way of coming up with a realistic target, and then ensuring that it can be achieved. The practice of risk analysis and risk management is becoming increasingly important, more sophisticated, and possibly destined for a time when it is considered an essential ingredient at any project undertaking.
13
8
Questionnaire analysis
200 questionnaires were sent out in the latter part of 1995 to a cross section of construction industry professional practices. Examples being Quantity Surveyors, Project managers, and Multi disciplinary practices. RESPONSE
Questionnaires sent out ........................................................... 200 Returned by Royal mail ( gone away ) or similar ...................... ..13 Effectively sent out .................................................................. 187 Returned completed ................................................................ ..74 Not returned............................................................................. 113 Response level ........................................................................ 40%
Taking into consideration the complexity, and the number of questions posed by each questionnaire, this is a reasonable response rate.
The questionnaire survey covered six main areas in the use of risk analysis and management techniques. These were :
8.1 8.2 8.3 8.4 8.5 8.6
8.1
Type and value of project In-house expertise and training provision Costs Risk identification and “registration” Risk categorisation The application of Information Technology
Type and value of project
Question 1
Broadly speaking, how would you describe your approach to Risk Management on a “best fit” principle to one of the following categories. 14
1 ) Systematic q
2 ) Mandatory Process q
3 ) Advisory guide-lines q
4 ) No set Procedure q
Tick ONE box
Reasoning behind question : - To get parties to state what their official policy line is on the management of project risks. ( or if they have one ).
Findings : -
Comments : - Just over a quarter of firms consider themselves to have a rigid risk management policy (ie when systematic, and mandatory policies, are added together, they amount to 27% of the response). 24% of respondents did not answer this question, and the other 49% was shared between those with no set procedure (29%) and those with an advisory procedure only (20%).
15
Question 2 How do you perceive the two different types of project below in terms of : -
Reasoning behind question : - To ascertain the confidence levels, that firms have on these two different types of project, and to see how they classified that portion that was deemed not to fall into this category.
Findings : -
Comments : - 36 of the 74 respondents completed this question. As would have been expected, there is judged to be less certainty surrounding a civil engineering project, than there is surrounding a building project.
That portion of a project that was deemed to be beyond the realms of certainty was relatively evenly split between risk, and uncertainty, in either type of project. It is, however, apparent from the above diagram, that this portion is much larger in the case of a civil engineering project, than it is for a building project, and therefore civil engineering projects are judged to carry both more risk, and more uncertainty.
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Question 3a
In which year did your particular organisation first use risk analysis and risk management techniques to assist with project evaluation ? 19 .
Reasoning behind question : - Simply to find out how long different firms have been using the techniques, and in what years the techniques were first introduced.
Findings : -
Comments : - As can be seen from the above diagram, 48 out of the 74 respondents answered this question. 2 firms stated that they were using the techniques before 1980, and ever since there has been a steady “up-take” of the techniques, so that by 1995 there were 48 participants. The rate of “up-take” has increased over recent years, with notable increments occurring in the years 1985 and 1990. Question 3b Please indicate (figures or graph) the £value project level at which you introduce risk analysis and management techniques to assist in the evaluation of projects spanning the period 1985 to 2000.
17
Reasoning behind question : - The intention of this question was to test at which point the use of risk techniques becomes more widespread (or not) ; as Client awareness increases ; as the choice of risk management computer software increases ; and as the cost of it, in real terms, decreases, It is suspected that the introduction point for the use of risk techniques for construction projects may actually come down with the passing of time.
Findings : -
Comments : - By plotting the mean values, from the 35 answers that were received for this question, it is apparent that the project value at which firms consider introducing risk management techniques is falling. To put this in perspective, the BCIS tender price index has been plotted for the same period. As can be seen from the graph, since 1985 (where graphs correlate) besides the period between 1987 and 1990, when there was a significant upturn in construction activity, the "introduction point" has been continually falling. Even during the 1987-90 period it was falling with respect to the TPI, and from 1990 to the present time there has been a steady reduction year on year, until it has reached the current level of approximately £2.6M. If this trend continues, by the turn of the century, a figure in the £2M region could be the introduction point.
Question 4
18
Over the same period (1985 to 2000) approximately how many major projects (say £1M +) were evaluated/are anticipated by your organisation, to full feasibility stage or beyond : -
Reasoning behind question : - The answer to this question would give some indication of how many projects were considered by firms when answering question 3b. Findings : Average number of projects evaluated in year
Comments : - 31 respondents to the questionnaire answered this particular question, and as might have been expected, the number of projects evaluated to full feasibility or beyond, peaked around 1990, the height of the boom period, but dropped off soon afterwards, as the recession took hold. The low point occurred in 1993 when business activity had fallen back to 1987 levels. It is interesting to note optimism shown in the forecast period starting around 1995, and continuing beyond 2000. Considering questions 3 and 4 together, it is also encouraging to see that even if the volume of work picks up, firms are prepared to introduce RA/RM techniques at a decreasing level.
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Question 5
What is the approximate division in your work between "Building" and "Civil Engineering" projects.
Reasoning behind question : - This question was designed to provide the ratio of building projects to civil engineering projects typically dealt with by the consultants involved in this survey. This would indicate the nature of the projects being considered when these " Firms " gave their answers.
Findings : -
Comments : - 50 firms completed this question, and the bias in type of project is strongly in favour of building projects. 77% as opposed to only 23 % for civil engineering.
8.2
In-house expertise and training
Question 6 Who, at your firm, is responsible for performing Risk Analysis functions ? 20
a) b) c) d) e)
Director / Partner q Other management level employee q Chartered QS or equivalent in other discipline q Graduate q Person especially employed as a Risk Analyst q
Please Tick Box
Reasoning behind question : - This question was asked to see if : A)
Any person(s) were employed especially to perform RA / RM functions on behalf of the firm / company, and
B)
What position they held / what status they had within that company. This would give some clues as to how important these functions are seen by the firm, and at what level the functions were allowed to be performed.
Findings : -
Comments : THE CHART : The pie chart above has been divided to give a 360° coverage to the 42 ( 57% ) respondents. Some respondents had ticked more than one box, hence the total in the left hand column = 87. THE MESSAGE : Out of the whole of the 74 returned questionnaires, only 8 firms ticked box " e " to say that they had someone especially employed as a Risk Analyst. In the main the responsibility fell to the senior management, with a mere 6% of the function being entrusted to one of graduate status. Interestingly, whilst the RA / RM function is perceived by firms as being of some importance, very few actually employ a specialist to undertake the function. Question 7 Does your organisation have any connections with Research and Development where Risk is the issue ? If so, could you please give details.
21
Reasoning behind question : - The key to any successful product, or process is through R & D. The processes surrounding Risk are no exception. It is therefore important that industry plays its part in this process. Without sponsorship, and support, from industry there is little hope of funding the research, or the research establishments, that are capable of developing new and better processes for the future. This question sets out to establish whether or not the construction and its related industries, together with their associated professionals and consultants, are doing enough to advance this perspective. Findings : -
2 Firms have own In-House Research and Development Programmes 2 Firms are connected with the APM Special Interest Group on Risk 1 In conjunction with Welsh Water Authority ( Unspecified ) 1 Environmental Risk Analysis in conjunction with the NRA 1 Software Development in conjunction with Salford University 1 Involved as " Mentor " to MSc and PhD Students 1 Government Funded, with Teeside University ( Unspecified ) 1 Software Development ( Unspecified ) 1 Unspecified Comments : Only 11 out of the 74 firms that completed the questionnaire declared any R & D connections on Risk. But at 15% this could have been anticipated. Question 8 Ideally, what would you like to see resulting from current Research and Development on Risk, and related topics ? 22
Reasoning behind question : - The intention here was to identify exactly what the industry wanted/expected from existing R & D work. Findings : -
4 Firms : More work done on an " Expert System " for RA/RM 3 : Risk Analysis methodology made more practical 3 : A Network database of " Historic Project Risks " 2 : " Anything that would benefit the Industry ! " 2 : More Procurement methods / types / options 2 : Software for Risk Identification 2 : The production of a RA/RM Guide-lines Manual 1 : More on Project Management for small contracts 1 : A " Master " Construction database ? 1 : A Risk database for Civil Engineering Projects 1 : More sophisticated Project Management Software 1 : Improvement / up-dating to the BCIS 1 : Information on " Corporate Finance " 1 : More " add-ons " for Monte Carlo Simulation Comments : 25 Firms were willing to state what they would like to see developed. Many of the firms are quite capable of making a contribution towards the cause in one form or another, and many of the requirements listed above are well within the scope of construction professionals to do the necessary R & D given the funding.
8.3
Cost
23
Question 9
What % of a major project do you consider acceptable expenditure for the total Risk Management Function. Or put another way, what would you expect to spend on a £10 M Project. ( answers in % or £ )
Reasoning behind question : - This question is designed to find out how much firms are prepared to pay, and what they consider to be an acceptable level of expenditure on the functions.
Findings : -
Comments : - From the results it is apparent that acceptable expenditure is very low. To put this into perspective, on a £10M project, even a figure as low as 0.25% expenditure provides £25,000 to perform the RA / RM function. At the higher end of the scale, some firms quoted a figure as high as 5%. This equates to £0.5M
24
Question 10
In the future, would you consider encouraging Clients to pay an increased fee especially to provide a Risk Management function ? Comments please :
Reasoning behind question : - This question was intended to get firms to indicate whether or not they consider RA/RM should be carried out as part of the normal services offered. Alternatively is it a service for which they can justifiably level an additional charge ?
Findings : -
Comments : - Most firms ( 39 out of 74, or 53% ) say that yes, they would consider levying an extra fee for providing the RA / RM function,. But provisos are shown in the diagram above. On the other hand, 26% of firms thought that clients considered it their duty to provide the function as part of “normal service”, or that they simply would not pay for an additional service for which they saw no apparent benefit.
25
8.4
Risk identification and registration
Question 11 The “Risk Identification” part of the process is said to be the most important. Do you have a set procedure for this ? Your comments please.
Reasoning behind question : - Any firm serious about undertaking RA / RM must have a comprehensive method to identify ALL the possible risks, for any given type of project, before they set about analysing anything, or predicting any of the likely outcomes. This question, together with question 12, is designed to discover what those methods, and procedures are for the firms questioned.
Findings : -
Comments : - Of the 58 firms that answered this question, 35 had a set procedure for risk identification, and 23 did not. The 35 that do have a set procedure have their methods identified around the chart. The descriptions given obviously refer to only part of an overall procedure which would be more comprehensive than time/space would allow when the questionnaires were completed.
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Question 12 Do you have some kind of “DataBase” for recording Risk issues encountered on current projects, for use in the future ? A kind of “Risk Register” Perhaps. If so, please give details : -
Reasoning behind question : - When considered in conjunction with question 11, this question should provide a good picture of the company policy, or strategy for dealing with RA / RM situations. It will provide an insight into how past experiences, current situations and future strategies on RA/RM can be integrated to provide firms with a complete procedural statement/document that will guide their risk analysts and risk managers through the complete programme of [ Risk Management ] for any given type of project. It should cover all eventualities, from inception to final completion. Findings : -
Comments : - Of the 52 firms that answered, 25 have a procedure for compiling information gained from current project experiences for use in the future on further projects. Their database or other system that they have chosen to use can readily expand and improve with time. As more new situations are encountered then, the way in which they are undertaken / overcome becomes part of the historical data for future referral. The 27 firms that do not have a means of recording this historical information, and are therefore compelled to starting afresh for each new project, will almost certainly experience difficulties when in competition with those who have invested in the future. 27
8.5
Risk categorisation
Question 13 In a previous study, the following 7 separate categories of risk were identified. Please indicate (on a scale of 1 - 10) the typical values for your “average” project : ( ie : 1 = Low Risk - 10 = High Risk )
Reasoning behind question : - This question was to see how firms rated the risks, under the headings provided, on the different types of project above. Findings : -
Comments : - There is judged to be more risk on Civil Engineering projects than on Building projects. The findings show that Civil Engineering projects are perceived to carry more risk in every department except one (ie Maintenance Risk). This is understandable due to the robust nature of many Civil Engineering products. On top of the risk league table for both Civil Engineering and Building came “Commercial Risk”. In fact the order in which firms placed all the different categories of risk was exactly the same for both types of project. The top three being : -
28
1)
Commercial Risk
2)
Contractual Risk
3)
Project Risk
Where the two types of project differed most was in “Strategic Risk” where Building Projects were awarded 3.9 out of 10 , and Civil Engineering Projects awarded 4.8
Question 14 Once project risks have been identified, they can be : reTained ( and managed ) : reMoved : Avoided : transFerred : Reduced How would your organisation typically make the division : -
Reasoning behind question : - This question is to find out what firms propose to do about the Risks they discover on the different types of project. The options they have available have been grouped under the five main headings : Retain ; Remove ; Avoid ; Transfer ; and Reduce . Findings : -
Comments : - In each case, firms choose to retain approximately a quarter of the risk ( 26% for Building and 24% for Civils ). This is the largest segment. Second in each case comes risk reduction ( both 23% ). 29
8.6
Use of Information Technology
Question 15
Of all the Risk Management functions you perform, when it comes to the actual Risk Analysis function, what %age is assisted by IT ? And what %age is manual ?
Reasoning behind question : - This question will tell us to what extent the computer has taken over the “number crunching” part of the process.
Findings : -
Comments :
It is interesting to note that the majority of risk analysis is still performed manually. This result suggests some fairly rudimentary techniques to outweigh IT based processes.
30
Question 16
Where you use I.T for Risk Analysis, what form does it take ? ( simulation etc )
Reasoning behind question : This question breaks IT based techniques down into the different methodologies in current use.
Findings : -
Comments : This question produced a far more predictable outcome. Monte Carlo Simulation + Modelling techniques + spreadsheet based methods, when grouped together, accounting for 63% out of the 74% of IT methodologies specified. With 26% of questionnaire respondents choosing not to answer.
It is probable that some of the " Modelling " techniques referred to here are actually performed by some of the commercial software listed below in question 17. Question 17 What Computer Hardware, and Software do you make available for Risk Management functions ? 31
Reasoning behind question : - This question was to ascertain whether firms made sufficient provision for, or even any special provision, for RA / RM functions, in the way of both computer Hardware and in computer Software. Findings : -
Some of the Software Products ( as quoted ) are : -
RISK :
PROJECT MANAGEMENT :
BUSINESS :
@Risk
Super Project Expert
M.S Office
Predict
Primavera
Spreadsheets
RiskBase
M.S Project
DataBase(s)
Opera
In - House Software
Estimating
Comments : -
32
HARDWARE : Of the 33 Firms that answered this question, all had PC's available for RA / RM. In addition to this, 6 Firms indicated that they had Apple Macs available; 7 were up to Pentium technology; and 5 had some kind of network available. SOFTWARE : The 33 Firms that responded to this question collectively quoted the software packages detailed above. What this equates to in practice, is 25 using some form of Business Software, 16 using Risk Analysis Software, and 12 using Project Management Software. Some use more than one or all three groups as indicated in the Venn diagram.
Question 18 When considering the wider issues, and not just matters of Risk, do you use any Computer Software that could be considered to be an “Expert System” - Y / N If Yes please give details :
Reasoning behind question : This question was to ascertain to what extent firms are conversant with this level of information technology, and so help to speculate how the industry might receive a “Risk Expert” system if one was available. Findings : -
14 Firms use an " Expert Systems " A:
5 use " ELSIE "
B:
5 Project Management ?
C:
2 Design Packages
D:
1 Planning
E:
1 Research Project Software
Comments : Only 14 from the 74 respondents (19%) gave details of any use whatsoever. This suggests that it could be some years before the industry adopts an “expert risk system”
33
9
Future Research
Most of the professions within the construction industry are beginning to see where recent developments are leading and are vying for the management role. The next ten years will see a power struggle for these positions, which Peter Brandon back in 1990 saw as being between Accountants, Architects, Quantity Surveyors, General Practitioners, Contractors, Engineers and Lawyers. To this list can be added Project Managers, Value Engineers and Facilities Managers. It is not difficult to determine the attributes of the winners to this struggle. It will be those who can offer the “one stop” service to the client. Those who can demonstrate the widest possible expertise available and at this command and those with the most advanced techniques in information handling facilities. It is no surprise therefore that the Risk business is at the top of the agenda when it comes to learning new skills. In the future systematic risk management procedures will be essential in the construction industry for a variety of reasons. For example:
•
•
•
Increased and continuing pressure to reduce costs and improve reliability in project bid estimation and the management of projects for commercial clients. This is particularly important when bidding for business in new or unfamiliar markets (eg newly privatised operations, and PFI schemes). The need to move from a traditionally risk-adverse project management culture so that a known amount of controllable risk could be included in the project portfolio. This would ensure that the organisation remained competitive in bidding for work. Increased expectations and requirements of major customers for greater professionalism in project management proposals and practice.
In their guide for Chartered Surveyors and their Clients Surveyor thus:
26
the RICS identify the role of the Chartered
The means for achieving VALUE for money is to search for it; the chance of discovery will not do. The tools and techniques are all around. All that is needed is the will to make it happen. We argue the Chartered Surveyors are almost uniquely placed to lead the search for and delivery of sustainable value for money within the property and construction industry. Our concern is that not enough of them realise it. The first part of this paper identifies the needs for effective risk management techniques to be in place for construction projects. The initial analysis from the survey in the second part suggests that the process of introducing such techniques is not as systematic or widespread as perhaps it ought to be from an industry supported by the professional services of Chartered Surveyors and Project Managers. Further analysis of these results is being undertaken to determine the real worth of the techniques currently available, and the industry’s attitude towards them.
REFERENCES 1
2
Williams, T. M. Risk - management infrastructures. International Journal of Project Management. Vol 11. No 1. February 1993. P.5 - 10 Cooper, Dale and Chapman, Chris (1987) Risk Analysis for Large Projects - Models, Methods and Cases
34
3
4 5
6
7 8 9 10
11
12
13
14 15
16
17
18
19
20
21
22
23
24
25
26
Adapted from: Flanagan, Roger and Stevens, Susan. Risk Analysis. Chapter 5 - Quantity Surveying Techniques - New Directions. Edited by Peter Brandon 1990. Raftery, John. (1994) Risk Analysis in Project Management Newton, Sidney. Methods of analysing risk exposure in the cost estimates of high quality offices. Construction Management and Economics (1992) 10, 431 - 449 Morin, Jean-Marc. “Riskman” - A European methodology for Analysing and Managing Project Risk. Project Management Today May (1993) P.20 “PREDICT” is Risk Analysis software from Rick Decisions Limited, Oxford Flanagan, Roger. and Norman, George. (1993) Risk Management and Construction (Page 3) Flanagan, Roger. and Norman, George. (1993) Risk Management and Construction (Page 3) Thompson, Peter. and Perry, John (Editors) (1992) Engineering Construction Risks - A guide to project risk analysis and risk management Thompson, P. and Norris, C. The perception, analysis and management of financial risks in engineering projects. Proceedings of the Institution of Civil Engineers : Civil Engineering, Vol. 97 (issue 1), February 1993 Redmill, Felix. Risk management is for everyone. IText - (First publication) British Computer Society P. 58 - 60 Ward, S. C. and Chapman, C. B. “Extending the use of risk analysis in project management” International Journal of Project Management. Vol 9. No 2. (1991) P.117 - 123 Barnes, Mervyn. Introducing MERA. Chartered Quantity Surveyor. January 1989 P.19 Kahnenan, D. Slovic, P. and Tversky, A. (Eds) Judgement Under Uncertainty : Heuristics and Biases. Cambridge University Press, UK (1986) Adapted from : Flanagan, Roger. and Norman, George. (1993) Risk Management and Construction (Pages 37 and 67) Clark, R. C. : Pledger, M. and Needler, H. M. J. (1989) Risk analysis in the evaluation of nonaerospace projects. Project Management. Vol 8. No 1. February 1990 P. 17 - 24 Humphries, D. E. “Project risk analysis in the aerospace industry” in Project Risk Analysis in the Aerospace Industry - Royal Aeronautical Society, UK (1989) (Proc. Roy. Aeronaut. Soc. [conf] 1989) Adapted from : Flanagan, Roger. and Norman, George. (1993) Risk Management and Construction Williams, T. M. Risk - management infrastructures. International Journal of Project Management. Vol 11. No 1. February 1993. P.5 - 10 Morris, P. G. and Hough G. H. “The Anatomy of Major Projects : A Study of the Reality of Project Management” John Wiley, UK (1987) Williams, Martin. “Managing Project Risks Systematically”. Project Management Today July/August (1994) P. 12 - 14 Akintoye, Akintola S. and MacLeod, Malcolm J. - Risk analysis and management in construction. International Journal of Project Management. Vol 15. No 1. 1997 P. 31 - 38 Shen, L. Y. - Project risk management in Hong Kong. International Journal of Project Management. Vol 15. No 2. 1997 P. 101 - 105 Thompson, Peter. and Perry, John (Editors) (1992) Engineering Construction risks - A guide to project risk analysis and risk management Royal Institution of Chartered Surveyors - Improving Value for Money in Construction Guidance for Chartered Surveyors and their Clients (summary report) February 1996
35
COBR A ‘97 Risk analysis and management for major construction projects
Peter Dent, Oxford Brookes University
ISBN 0-85406-840-6
RISK ANALYSIS AND MANAGEMENT FOR MAJOR CONSTRUCTION PROJECTS John Amos, Lecturer, School of Property and Construction, University of Central England, Birmingham. Peter Dent, Lecturer, School of Real Estate Management, Oxford Brookes University.
The research which underpins this paper is based on a random postal questionnaire survey of 187 professional practices involved in the construction business in the UK. These are made up of Quantity Surveyors, Project Managers, and Multi-disciplinary practices. The 40% response rate has been analysed to determine attitude towards risk and how best it can be managed in relation to major construction projects.
1.
Introduction
During the last few years there has been considerable interest shown by the construction industry in risk management techniques that have evolved from those used within the general financial and investment markets. Recent research has concentrated on areas as diverse as determining the individual’s risk attitude, analysing projects to determine overall project risk, and identifying a risk management infrastructure 1
(see for example Terry Williams 1993) . This, in turn, has led to a focus on “systematic” risk management procedures being identified as of benefit to both Quantity Surveyors and Estate Managers within the property development process.
2.
Risk 2
Cooper and Chapman define risk as : “ Exposure to the possibility of economic or financial loss or gain, physical damage or injury, or delay, as a consequence of the uncertainty associated with pursuing a particular course of action ”. The analysis of risk can involve a number of approaches dealing with the problems created by variability, including the identification, evaluation, control and management of sensitive variables. In addition where uncertainty exists, it may be possible to convert this to quantifiable risk using subjective probabilities. Through a process of risk engineering it is possible to develop an integrated approach to all aspects of risk analysis. The intention here is to identify and measure uncertainty, as appropriate, and to develop the insight necessary to change associated risks through effective and efficient decisions. Risk engineering uses risk analysis, defined in a very broad and flexible manner, for the purpose of better Risk Management. Risk Management, when used in the sense that it covers the whole process of “dealing with risk” 3
embraces the three stages outlined below, (from Flanagan & Stevens) .
1
The three stages of Risk Management
3.
Risk in Business
Both risk analysis, and risk management originated in the US insurance industry back in the 1940s 4
(Raftery) . Hence a risk arose when it was possible to make a statistical assessment of the probability of occurrence of a particular event. Risks therefore tended to be insurable, and could be quantified thus : Risk = Probability of event x Magnitude of loss / gain This is in contrast with uncertainty, which can be described as situations where it is impossible to attach a probability to the likelihood of occurrence of an event, and therefore would be uninsurable. 5
Sidney Newton comments that risk and uncertainty are inevitably defined in terms of one another, and to distinguish them might even be unhelpful. For example : " Risk is a measurable uncertainty, while uncertainty is an unmeasurable risk " But whilst, of course, the future is always uncertain, attention to risk is essential in any business decision. To eliminate risk in any enterprise would be futile. It is an inherent, and necessary ingredient of any “organic” enterprise. It should be noted therefore that the purpose of risk processes is not necessarily to avoid risk, but rather to take the risks that the company should take selectively and deliberately on terms which are desirable so that the maximum profit and benefit can be 6
obtained from the activity ( Jean-Marc Morin ) . In fact the secret of the highly successful business may be said to lie in its ability to take the greater risks. 2
7
This is a graphical representation produced by "PREDICT" showing how the balance between certainty, risk, and uncertainty could affect the profitability of a potential project :
The two most important questions this type of representation helps to answer are : 1 ) whether the returns on the project will justify the risks, and 8
2 ) what is the extent of the loss if everything goes wrong (Flanagan & Norman) .
4.
Risk Management - Background
Before any decision to invest in a building is taken it is essential to determine a risk / return profile which is competitive with the best that the financial markets can provide 9
(Flanagan & Norman) . Risk analysis and management techniques are not intended to “kill off” projects, nor to dampen levels of capital investment. They are primarily there to ensure that only those projects which are genuinely worthwhile and meet both internal and external objectives are 10
sanctioned (Thompson & Perry) . All too often risk is either ignored or dealt with in an arbitrary way - simply adding a 10% contingency onto the estimated cost of a project has been typical in the past. Today, this is virtually certain to be inadequate. The greatest uncertainties occur in the early stages of a project, which is also when decisions of the greatest impact are made. All risks must, therefore, be assessed and allowed for at the outset of any project. These risks will change during the project. Risk management should therefore be a 11
continuing activity throughout project duration (Thompson & Norris) .
3
5.
Risk Management
Risk Management is a three stage process : -
The Risk Management Umbrella
NOTE : It will be noted that "Risk Management" appears twice in the above diagram. This is because risk management is, perhaps, a misleading and misunderstood term. In the global sense, risk management is the process that, when carried out, ensures that all that can be done will be done to achieve the objective of the project, within the constraints of the project. In the narrow, specialised sense, risk management is part of the overall process. Once a risk is identified and defined, it ceases to be a risk and becomes a management problem. In this methodology, this phrase is referred to as risk management (response) and concerns the determination of whether to respond, how to respond and when to respond.
5.1
Risk Identification
Risks can only be measured and controlled once they have been identified, as specified above. Once a risk is identified and defined it ceases to be a risk as such and can be a quantifiable management problem. In this context the identification process, by definition, is the most important piece of the jigsaw. There are a number of recognised methods which can be employed in risk identification ; the ones most suitable to the industry concerned and the task in hand should be the ones chosen. The general rule is that the task of matching method to perceived risk should be the first priority. Tools of analysis used in the general business environment can be readily adapted for use to assess 12
specific risks on construction projects. Redmill sets out a simple but effective tool for the assessment and prioritisation of project risks. See below : -
4
Prioritisation of Project Risks
A) Indicates intolerable risk which must be removed or reduced immediately. B) Indicates risk which is not altogether intolerable but which should be removed or reduced at the earliest opportunity. Normally, target dates should be set for implementing the counter measures so that unacceptable delays do not occur. C) Indicates risk which is tolerable but which should be removed or reduced when time allows. D) Indicates risk which may be accepted as it is.
5.2
Risk Analysis
An effective risk-management "infrastructure" will provide the correct "place" for risk analysis within the overall project management set-up. Simply analysing risk and then managing it is not sufficient 13
(Ward & Chapman) .
Risk analysis estimating imposes a discipline to risk identification and 14
evaluation that the traditional systems lack (Barnes) . So when deciding what data to collect, it is essential to have a clear picture of what is trying to be achieved and what the end product is going to be. Analysts need to be able to elicit probabilities and probability distributions from experts.
Formal methods need to be used to ensure consistency and uniformity in this exercise (Kahnenan, 15
Slovic, & Tverskye) . In this way the “spectrum” within which observations are made can be narrowed down. Once it has been decided what information is required, and sufficient data collected, there are various ways in which it can be processed. By various means both the methods to be employed and levels of sophistication to be reached can be determined.
5
16
THE FORECASTING PROCESS
With the level of technology readily available today, it is increasingly more likely that the “mechanics” of the analysis process can be undertaken by some form of computer simulation. This, in turn, increases the number of complex methods that can be considered. The belief that too sophisticated risk analysis leads to overkill may have been true in the past. But this is now a short-sighted view in the light of the availability of “off the shelf software”.
There is no single “best” technique, as every project will almost certainly have individual characteristics which will make it unique. The questionnaire survey undertaken as part of this paper did however identify those techniques which were more “popular” in practice.
Table of Risk Analysis Techniques : χ
SENSITIVITY TESTING (SPIDER DIAGRAMS) RISK PREMIUM EXPECTED MONETARY VALUE (EMV) EXPECTED NET PRESENT VALUE (ENPV) EMV USING A DELPHI PEER GROUP RISK ADJUSTED DISCOUNT RATE (RADR) DETAILED ANALYSIS & SIMULATION STOCHASTIC DOMINANCE
χ χ χ χ χ χ χ
6
WHAT IF ? TO VARIABLES CONTINGENCY FUND OPTIMISTIC χ PESSIMISTIC GROWTH PROBABILITY ñ ò DELPHI FORECASTING METHOD RISK ATTITUDE & EXPOSURE I.T BASED PROB' Y DISTRIB' N PROJECT COMPARISONS
5.3
Risk Response (Risk Management)
Once risks have been identified and analysed, an appropriate response needs to be constructed. Commonly known as Risk Management, this, the final stage in the process can instigate various courses of action. For example : Risk Insurance : Against such things as fire ; accidents ; theft etc
Risk Sharing : On very large, complex, or innovative projects it is sometimes necessary to enter into joint ventures in order to distribute the risks involved into manageable packages. An example of this type of project is the Channel Tunnel.
Risk Reduction : Can be attained by gaining sufficient knowledge on the subject as to minimise the chances of things going wrong due to ignorance etc. Achieved by entering into information, and intelligence gathering programmes.
Once each actionable risk has a response, or combination of responses defined for it, and those responses have been implemented (or not depending on the attitude of the project manager) then the risk management, or response cycle is complete. This is also the end of the overall risk 17
management cycle (Clark, Pledger, & Needler) .
7
GOLDEN RULES for Risk Management Ρ
Risks must be properly identified, classified and analysed before any response can be considered
Ρ
The identified risks are risks no more. They are now management problems
Θ
Do not rely on the intuitive approach or gut feelings to manage risk
Ρ
The risk management process must be continuous from the moment the project starts until the moment it ends
Ρ
Ensure that reporting on risks and risk sources flows correctly up the management structure
Θ
A poorly defined risk structure will breed more risk
Ρ
Use both a wide angled lens and a zoom to aid your vision of what could happen in the future
Ρ
Use both creative and negative brainstorming, don't use the ostrich approach
Ρ
Always have a contingency plan to cope with the worst eventuality
Ρ
Risk management systems should not be too complicated or burdensome, they need to be integrated into a firm's daily operations
Ρ
Problems and potential failure in a project are flagged as early as possible, cancellation possibly being allowed to avoid large nugatory 18
costs (Humphries)
19
Flanagan & Norman 1993
8
From a Project Management point of view, the most important aspect of all this, is keeping track of all the risks.
5.4
Risk Registers
The most common administrative device for keeping track of these risks is the use of a “risk register” 20
(Williams) , a simple collection of risk statements, containing details of, for example : q The " owner " of the risk. q The estimated likelihood of its occurrence. q The project objectives on which it impacts eg : scheduling; cost; some specific specification or performance measure. q The estimated severity of any impact identified above. q Work breakdown items and activities influenced. q Possible contingency plans, to prepare for the event of the risk occurring. q Secondary risks or knock-on effects.
It must be remembered that the Risk Management process costs money. Expenditure on it must be justified. Potential savings must outweigh the costs of performing the analysis and management techniques and when each additional pound spent does not have the potential of saving more, then the process must be curtailed.
6.
Earlier Studies 21
A major study in 1987 (Morris & Hough) covering some 3,500 projects world-wide, quotes “Overruns on cost and/or timescale were the norm with the size of overrun typically being between 40 22
and 200%”. More up-to-date research (Williams 1994) reinforces this situation. Following in-depth interviews with senior managers from over 20 leading organisations the findings reveal that : q Over 40% of respondents estimated that more than half of the projects undertaken by their organisation were not completed within planned timescale or budget. q 55% knew of a recent project which had exceeded its planned budget or timescale by more than 100%. q More than two thirds knew of a recent project that had been abandoned before completion or had failed significantly to achieve planned benefits.
The reasons for this, generally, poor performance are both varied and complex. However the survey respondents commonly quoted the following as the main reasons for a consistent failure to achieve project objectives : -
9
q Uncertainty in estimating resource requirements and timescales, due to a lack of reliable data. q An inherent bias towards underestimating project costs - often due to commercial pressures to win work in a competitive bidding process. q Inadequate or ambiguous definition of project requirements leading to significant cumulative changes to the specification of deliverables as the project progresses. q Unforeseen or uncontrollable events that significantly alter the plan for the project or render it irrelevant.
The common sources of risk which affect most projects have been found to be : q Estimation uncertainty q Estimation bias q Inadequate requirements specification q Unpredictable contingent events or decisions.
When asked how they rated their own organisation's performance in managing risk more than 60% considered it to be “inadequate” or “poor”. But interestingly more than 60% rated their performance as better than that of similar or competing organisations, and nearly half of those rating their performance poor or inadequate still believed it to be better than that of similar or competing organisations.
This suggests that many consider risk management to be an area where performance needs to be improved, but that industry best practice is itself not particularly effective or widely adopted.
If, therefore effective risk management is perceived to be an important factor in delivering successful projects, why is it that more organisations do not invest in it ? Part of the reason may lie in attitude to, and poor understanding of risk management as a process. That is to say, in many minds “risk management” is an integral part of the work of the project manager and that project management is really “risk management” by another name.
During the survey described above, the respondents were asked to describe their organisations approach to risk management on a “best fit” basis to three pre-specified categories. Analysis of the responses were as follows : -
10
A:
Only 15% operated what could be described as a systematic approach.
B:
30% were classified as operating "mandatory procedures" in one or more areas, although these did not constitute a complete process in the sense described.
C:
55% operated advisory guide-lines only, or no discernible approach at all.
If (A and B) are considered as one group, and (C) as another, then when overall performance in achieving project objectives is contrasted for the two groups there is a clear difference. The following graph shows, for both groups, the mean percentage values of projects reported by respondents as failing to meet their objectives in relation to budgeted cost, planned duration and planned benefit : -
The comparison shows that a systematic approach, or even a mandatory set of procedures for project risk management is associated with a better overall performance on the cost and timescale measures. Planned benefits will tend to be achieved as a “must” at the expense of one or both of the other two criteria.
11
Organisations that use a systematic, or have in place mandatory procedures for risk management see the following as amongst the benefits to be gained : q Early identification of significant risks enabling potential problems and consequent costs to be avoided later. q A more consistent management approach and performance across project managers and their staff. q Increased accountability and responsibility for controlling costs within project teams. q Early anticipation of problems such as overall resource shortages through the use of centralised reporting and monitoring of risk levels across programmes or groups of related projects. q The ability to make real reductions in project costs while maintaining quality of project deliverables. These benefits equated to a progressive reduction in standard contingency allowances from 10 to 5% over time, and a 15% reduction in the numbers of staff needed for project management and control without adverse impact on project capacity or quality of deliverables. In the context of the survey in question, a “Systematic Approach” involves the use of a well defined and documented process that requires project managers to undertake to : q Identify and record the risks which affect the project at each stage. q Assess the likelihood of each risk occurring in the future and the impact on the project should this happen. q Plan cost effective management actions with clearly identified responsibilities, to avoid, eliminate or reduce any significant risks identified. q Monitor and report the status of these risks and the effectiveness of planned risk management actions. A study undertaken in the summer of 1994 of contractors and project management practices in the 23
U.K. (Akintoye and MacLeod) management techniques :
revealed the following reasons for not using risk analysis and
Contractors q Lack of familiarity with the techniques. q The degree of sophistication involved in the techniques is unwarranted for project performance. q Time plus lack of information and knowledge. q Doubts whether these techniques are applicable to the construction industry. q Most construction projects are seldom large enough to warrant the use of these techniques or research into them. q They require availability of sound data to ensure confidence. q The vast majority of risks are contractual or construction related and are fairly subjective, hence they are better dealt with based on experience from previous contracts undertaken by the firm. 12
q It is difficult to see the benefits.
Project Managers q Risk analysis of construction projects is seldom formally requested by clients clients expect project management practice to set up projects risk-free. q Risk analysis in commercial terms is not always viable on projects. q Project risk management is about people not scientific models. q Lack of expertise in the techniques. 24
The following year Shen construction industry *.
carried out a study in Hong Kong of practitioners working in the
His questionnaire survey revealed that “methods where practitioners experience and subjective judgement are used are the most effective and important risk management action, and that methods using quantitative analytical techniques have been rarely used due to limited understanding and experience”. *
This study was specifically concerned with the risk associated with delays in project completions and the practical actions used to manage such risks.
7
Research Survey
7.1
An introduction
This survey is intended to test current attitude towards risk management in practice. The research is based on the belief that the service provided to the client is the single most important function for any construction professional today and, undoubtedly, this situation can only become more important for the future.
7.2
Purpose
This survey was undertaken to ascertain the extent to which risk analysis and risk management techniques are used by the construction industry professions, and to ascertain how these professions see the development and increased use of the techniques in the future. Satisfying customers must be the prime aim of any professional. Knowing that all human endeavour involves risk, the success or failure of any venture depends on how risk is managed. Unfortunately, the construction industry has a poor reputation for coping with risk with many projects failing to meet 25
their deadlines or their cost targets (Thompson and Perry) . It must be appreciated that by far the most important consideration for any client procuring a new product is its cost, and although risks materialise themselves in many forms, one way or another, they will all end up being reduced to sums of money Risk analysis and risk management is a way of coming up with a realistic target, and then ensuring that it can be achieved. The practice of risk analysis and risk management is becoming increasingly important, more sophisticated, and possibly destined for a time when it is considered an essential ingredient at any project undertaking.
13
8
Questionnaire analysis
200 questionnaires were sent out in the latter part of 1995 to a cross section of construction industry professional practices. Examples being Quantity Surveyors, Project managers, and Multi disciplinary practices. RESPONSE
Questionnaires sent out ........................................................... 200 Returned by Royal mail ( gone away ) or similar ...................... ..13 Effectively sent out .................................................................. 187 Returned completed ................................................................ ..74 Not returned............................................................................. 113 Response level ........................................................................ 40%
Taking into consideration the complexity, and the number of questions posed by each questionnaire, this is a reasonable response rate.
The questionnaire survey covered six main areas in the use of risk analysis and management techniques. These were :
8.1 8.2 8.3 8.4 8.5 8.6
8.1
Type and value of project In-house expertise and training provision Costs Risk identification and “registration” Risk categorisation The application of Information Technology
Type and value of project
Question 1
Broadly speaking, how would you describe your approach to Risk Management on a “best fit” principle to one of the following categories. 14
1 ) Systematic q
2 ) Mandatory Process q
3 ) Advisory guide-lines q
4 ) No set Procedure q
Tick ONE box
Reasoning behind question : - To get parties to state what their official policy line is on the management of project risks. ( or if they have one ).
Findings : -
Comments : - Just over a quarter of firms consider themselves to have a rigid risk management policy (ie when systematic, and mandatory policies, are added together, they amount to 27% of the response). 24% of respondents did not answer this question, and the other 49% was shared between those with no set procedure (29%) and those with an advisory procedure only (20%).
15
Question 2 How do you perceive the two different types of project below in terms of : -
Reasoning behind question : - To ascertain the confidence levels, that firms have on these two different types of project, and to see how they classified that portion that was deemed not to fall into this category.
Findings : -
Comments : - 36 of the 74 respondents completed this question. As would have been expected, there is judged to be less certainty surrounding a civil engineering project, than there is surrounding a building project.
That portion of a project that was deemed to be beyond the realms of certainty was relatively evenly split between risk, and uncertainty, in either type of project. It is, however, apparent from the above diagram, that this portion is much larger in the case of a civil engineering project, than it is for a building project, and therefore civil engineering projects are judged to carry both more risk, and more uncertainty.
16
Question 3a
In which year did your particular organisation first use risk analysis and risk management techniques to assist with project evaluation ? 19 .
Reasoning behind question : - Simply to find out how long different firms have been using the techniques, and in what years the techniques were first introduced.
Findings : -
Comments : - As can be seen from the above diagram, 48 out of the 74 respondents answered this question. 2 firms stated that they were using the techniques before 1980, and ever since there has been a steady “up-take” of the techniques, so that by 1995 there were 48 participants. The rate of “up-take” has increased over recent years, with notable increments occurring in the years 1985 and 1990. Question 3b Please indicate (figures or graph) the £value project level at which you introduce risk analysis and management techniques to assist in the evaluation of projects spanning the period 1985 to 2000.
17
Reasoning behind question : - The intention of this question was to test at which point the use of risk techniques becomes more widespread (or not) ; as Client awareness increases ; as the choice of risk management computer software increases ; and as the cost of it, in real terms, decreases, It is suspected that the introduction point for the use of risk techniques for construction projects may actually come down with the passing of time.
Findings : -
Comments : - By plotting the mean values, from the 35 answers that were received for this question, it is apparent that the project value at which firms consider introducing risk management techniques is falling. To put this in perspective, the BCIS tender price index has been plotted for the same period. As can be seen from the graph, since 1985 (where graphs correlate) besides the period between 1987 and 1990, when there was a significant upturn in construction activity, the "introduction point" has been continually falling. Even during the 1987-90 period it was falling with respect to the TPI, and from 1990 to the present time there has been a steady reduction year on year, until it has reached the current level of approximately £2.6M. If this trend continues, by the turn of the century, a figure in the £2M region could be the introduction point.
Question 4
18
Over the same period (1985 to 2000) approximately how many major projects (say £1M +) were evaluated/are anticipated by your organisation, to full feasibility stage or beyond : -
Reasoning behind question : - The answer to this question would give some indication of how many projects were considered by firms when answering question 3b. Findings : Average number of projects evaluated in year
Comments : - 31 respondents to the questionnaire answered this particular question, and as might have been expected, the number of projects evaluated to full feasibility or beyond, peaked around 1990, the height of the boom period, but dropped off soon afterwards, as the recession took hold. The low point occurred in 1993 when business activity had fallen back to 1987 levels. It is interesting to note optimism shown in the forecast period starting around 1995, and continuing beyond 2000. Considering questions 3 and 4 together, it is also encouraging to see that even if the volume of work picks up, firms are prepared to introduce RA/RM techniques at a decreasing level.
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Question 5
What is the approximate division in your work between "Building" and "Civil Engineering" projects.
Reasoning behind question : - This question was designed to provide the ratio of building projects to civil engineering projects typically dealt with by the consultants involved in this survey. This would indicate the nature of the projects being considered when these " Firms " gave their answers.
Findings : -
Comments : - 50 firms completed this question, and the bias in type of project is strongly in favour of building projects. 77% as opposed to only 23 % for civil engineering.
8.2
In-house expertise and training
Question 6 Who, at your firm, is responsible for performing Risk Analysis functions ? 20
a) b) c) d) e)
Director / Partner q Other management level employee q Chartered QS or equivalent in other discipline q Graduate q Person especially employed as a Risk Analyst q
Please Tick Box
Reasoning behind question : - This question was asked to see if : A)
Any person(s) were employed especially to perform RA / RM functions on behalf of the firm / company, and
B)
What position they held / what status they had within that company. This would give some clues as to how important these functions are seen by the firm, and at what level the functions were allowed to be performed.
Findings : -
Comments : THE CHART : The pie chart above has been divided to give a 360° coverage to the 42 ( 57% ) respondents. Some respondents had ticked more than one box, hence the total in the left hand column = 87. THE MESSAGE : Out of the whole of the 74 returned questionnaires, only 8 firms ticked box " e " to say that they had someone especially employed as a Risk Analyst. In the main the responsibility fell to the senior management, with a mere 6% of the function being entrusted to one of graduate status. Interestingly, whilst the RA / RM function is perceived by firms as being of some importance, very few actually employ a specialist to undertake the function. Question 7 Does your organisation have any connections with Research and Development where Risk is the issue ? If so, could you please give details.
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Reasoning behind question : - The key to any successful product, or process is through R & D. The processes surrounding Risk are no exception. It is therefore important that industry plays its part in this process. Without sponsorship, and support, from industry there is little hope of funding the research, or the research establishments, that are capable of developing new and better processes for the future. This question sets out to establish whether or not the construction and its related industries, together with their associated professionals and consultants, are doing enough to advance this perspective. Findings : -
2 Firms have own In-House Research and Development Programmes 2 Firms are connected with the APM Special Interest Group on Risk 1 In conjunction with Welsh Water Authority ( Unspecified ) 1 Environmental Risk Analysis in conjunction with the NRA 1 Software Development in conjunction with Salford University 1 Involved as " Mentor " to MSc and PhD Students 1 Government Funded, with Teeside University ( Unspecified ) 1 Software Development ( Unspecified ) 1 Unspecified Comments : Only 11 out of the 74 firms that completed the questionnaire declared any R & D connections on Risk. But at 15% this could have been anticipated. Question 8 Ideally, what would you like to see resulting from current Research and Development on Risk, and related topics ? 22
Reasoning behind question : - The intention here was to identify exactly what the industry wanted/expected from existing R & D work. Findings : -
4 Firms : More work done on an " Expert System " for RA/RM 3 : Risk Analysis methodology made more practical 3 : A Network database of " Historic Project Risks " 2 : " Anything that would benefit the Industry ! " 2 : More Procurement methods / types / options 2 : Software for Risk Identification 2 : The production of a RA/RM Guide-lines Manual 1 : More on Project Management for small contracts 1 : A " Master " Construction database ? 1 : A Risk database for Civil Engineering Projects 1 : More sophisticated Project Management Software 1 : Improvement / up-dating to the BCIS 1 : Information on " Corporate Finance " 1 : More " add-ons " for Monte Carlo Simulation Comments : 25 Firms were willing to state what they would like to see developed. Many of the firms are quite capable of making a contribution towards the cause in one form or another, and many of the requirements listed above are well within the scope of construction professionals to do the necessary R & D given the funding.
8.3
Cost
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Question 9
What % of a major project do you consider acceptable expenditure for the total Risk Management Function. Or put another way, what would you expect to spend on a £10 M Project. ( answers in % or £ )
Reasoning behind question : - This question is designed to find out how much firms are prepared to pay, and what they consider to be an acceptable level of expenditure on the functions.
Findings : -
Comments : - From the results it is apparent that acceptable expenditure is very low. To put this into perspective, on a £10M project, even a figure as low as 0.25% expenditure provides £25,000 to perform the RA / RM function. At the higher end of the scale, some firms quoted a figure as high as 5%. This equates to £0.5M
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Question 10
In the future, would you consider encouraging Clients to pay an increased fee especially to provide a Risk Management function ? Comments please :
Reasoning behind question : - This question was intended to get firms to indicate whether or not they consider RA/RM should be carried out as part of the normal services offered. Alternatively is it a service for which they can justifiably level an additional charge ?
Findings : -
Comments : - Most firms ( 39 out of 74, or 53% ) say that yes, they would consider levying an extra fee for providing the RA / RM function,. But provisos are shown in the diagram above. On the other hand, 26% of firms thought that clients considered it their duty to provide the function as part of “normal service”, or that they simply would not pay for an additional service for which they saw no apparent benefit.
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8.4
Risk identification and registration
Question 11 The “Risk Identification” part of the process is said to be the most important. Do you have a set procedure for this ? Your comments please.
Reasoning behind question : - Any firm serious about undertaking RA / RM must have a comprehensive method to identify ALL the possible risks, for any given type of project, before they set about analysing anything, or predicting any of the likely outcomes. This question, together with question 12, is designed to discover what those methods, and procedures are for the firms questioned.
Findings : -
Comments : - Of the 58 firms that answered this question, 35 had a set procedure for risk identification, and 23 did not. The 35 that do have a set procedure have their methods identified around the chart. The descriptions given obviously refer to only part of an overall procedure which would be more comprehensive than time/space would allow when the questionnaires were completed.
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Question 12 Do you have some kind of “DataBase” for recording Risk issues encountered on current projects, for use in the future ? A kind of “Risk Register” Perhaps. If so, please give details : -
Reasoning behind question : - When considered in conjunction with question 11, this question should provide a good picture of the company policy, or strategy for dealing with RA / RM situations. It will provide an insight into how past experiences, current situations and future strategies on RA/RM can be integrated to provide firms with a complete procedural statement/document that will guide their risk analysts and risk managers through the complete programme of [ Risk Management ] for any given type of project. It should cover all eventualities, from inception to final completion. Findings : -
Comments : - Of the 52 firms that answered, 25 have a procedure for compiling information gained from current project experiences for use in the future on further projects. Their database or other system that they have chosen to use can readily expand and improve with time. As more new situations are encountered then, the way in which they are undertaken / overcome becomes part of the historical data for future referral. The 27 firms that do not have a means of recording this historical information, and are therefore compelled to starting afresh for each new project, will almost certainly experience difficulties when in competition with those who have invested in the future. 27
8.5
Risk categorisation
Question 13 In a previous study, the following 7 separate categories of risk were identified. Please indicate (on a scale of 1 - 10) the typical values for your “average” project : ( ie : 1 = Low Risk - 10 = High Risk )
Reasoning behind question : - This question was to see how firms rated the risks, under the headings provided, on the different types of project above. Findings : -
Comments : - There is judged to be more risk on Civil Engineering projects than on Building projects. The findings show that Civil Engineering projects are perceived to carry more risk in every department except one (ie Maintenance Risk). This is understandable due to the robust nature of many Civil Engineering products. On top of the risk league table for both Civil Engineering and Building came “Commercial Risk”. In fact the order in which firms placed all the different categories of risk was exactly the same for both types of project. The top three being : -
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1)
Commercial Risk
2)
Contractual Risk
3)
Project Risk
Where the two types of project differed most was in “Strategic Risk” where Building Projects were awarded 3.9 out of 10 , and Civil Engineering Projects awarded 4.8
Question 14 Once project risks have been identified, they can be : reTained ( and managed ) : reMoved : Avoided : transFerred : Reduced How would your organisation typically make the division : -
Reasoning behind question : - This question is to find out what firms propose to do about the Risks they discover on the different types of project. The options they have available have been grouped under the five main headings : Retain ; Remove ; Avoid ; Transfer ; and Reduce . Findings : -
Comments : - In each case, firms choose to retain approximately a quarter of the risk ( 26% for Building and 24% for Civils ). This is the largest segment. Second in each case comes risk reduction ( both 23% ). 29
8.6
Use of Information Technology
Question 15
Of all the Risk Management functions you perform, when it comes to the actual Risk Analysis function, what %age is assisted by IT ? And what %age is manual ?
Reasoning behind question : - This question will tell us to what extent the computer has taken over the “number crunching” part of the process.
Findings : -
Comments :
It is interesting to note that the majority of risk analysis is still performed manually. This result suggests some fairly rudimentary techniques to outweigh IT based processes.
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Question 16
Where you use I.T for Risk Analysis, what form does it take ? ( simulation etc )
Reasoning behind question : This question breaks IT based techniques down into the different methodologies in current use.
Findings : -
Comments : This question produced a far more predictable outcome. Monte Carlo Simulation + Modelling techniques + spreadsheet based methods, when grouped together, accounting for 63% out of the 74% of IT methodologies specified. With 26% of questionnaire respondents choosing not to answer.
It is probable that some of the " Modelling " techniques referred to here are actually performed by some of the commercial software listed below in question 17. Question 17 What Computer Hardware, and Software do you make available for Risk Management functions ? 31
Reasoning behind question : - This question was to ascertain whether firms made sufficient provision for, or even any special provision, for RA / RM functions, in the way of both computer Hardware and in computer Software. Findings : -
Some of the Software Products ( as quoted ) are : -
RISK :
PROJECT MANAGEMENT :
BUSINESS :
@Risk
Super Project Expert
M.S Office
Predict
Primavera
Spreadsheets
RiskBase
M.S Project
DataBase(s)
Opera
In - House Software
Estimating
Comments : -
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HARDWARE : Of the 33 Firms that answered this question, all had PC's available for RA / RM. In addition to this, 6 Firms indicated that they had Apple Macs available; 7 were up to Pentium technology; and 5 had some kind of network available. SOFTWARE : The 33 Firms that responded to this question collectively quoted the software packages detailed above. What this equates to in practice, is 25 using some form of Business Software, 16 using Risk Analysis Software, and 12 using Project Management Software. Some use more than one or all three groups as indicated in the Venn diagram.
Question 18 When considering the wider issues, and not just matters of Risk, do you use any Computer Software that could be considered to be an “Expert System” - Y / N If Yes please give details :
Reasoning behind question : This question was to ascertain to what extent firms are conversant with this level of information technology, and so help to speculate how the industry might receive a “Risk Expert” system if one was available. Findings : -
14 Firms use an " Expert Systems " A:
5 use " ELSIE "
B:
5 Project Management ?
C:
2 Design Packages
D:
1 Planning
E:
1 Research Project Software
Comments : Only 14 from the 74 respondents (19%) gave details of any use whatsoever. This suggests that it could be some years before the industry adopts an “expert risk system”
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9
Future Research
Most of the professions within the construction industry are beginning to see where recent developments are leading and are vying for the management role. The next ten years will see a power struggle for these positions, which Peter Brandon back in 1990 saw as being between Accountants, Architects, Quantity Surveyors, General Practitioners, Contractors, Engineers and Lawyers. To this list can be added Project Managers, Value Engineers and Facilities Managers. It is not difficult to determine the attributes of the winners to this struggle. It will be those who can offer the “one stop” service to the client. Those who can demonstrate the widest possible expertise available and at this command and those with the most advanced techniques in information handling facilities. It is no surprise therefore that the Risk business is at the top of the agenda when it comes to learning new skills. In the future systematic risk management procedures will be essential in the construction industry for a variety of reasons. For example:
•
•
•
Increased and continuing pressure to reduce costs and improve reliability in project bid estimation and the management of projects for commercial clients. This is particularly important when bidding for business in new or unfamiliar markets (eg newly privatised operations, and PFI schemes). The need to move from a traditionally risk-adverse project management culture so that a known amount of controllable risk could be included in the project portfolio. This would ensure that the organisation remained competitive in bidding for work. Increased expectations and requirements of major customers for greater professionalism in project management proposals and practice.
In their guide for Chartered Surveyors and their Clients Surveyor thus:
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the RICS identify the role of the Chartered
The means for achieving VALUE for money is to search for it; the chance of discovery will not do. The tools and techniques are all around. All that is needed is the will to make it happen. We argue the Chartered Surveyors are almost uniquely placed to lead the search for and delivery of sustainable value for money within the property and construction industry. Our concern is that not enough of them realise it. The first part of this paper identifies the needs for effective risk management techniques to be in place for construction projects. The initial analysis from the survey in the second part suggests that the process of introducing such techniques is not as systematic or widespread as perhaps it ought to be from an industry supported by the professional services of Chartered Surveyors and Project Managers. Further analysis of these results is being undertaken to determine the real worth of the techniques currently available, and the industry’s attitude towards them.
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2
Williams, T. M. Risk - management infrastructures. International Journal of Project Management. Vol 11. No 1. February 1993. P.5 - 10 Cooper, Dale and Chapman, Chris (1987) Risk Analysis for Large Projects - Models, Methods and Cases
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3
4 5
6
7 8 9 10
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14 15
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19
20
21
22
23
24
25
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Adapted from: Flanagan, Roger and Stevens, Susan. Risk Analysis. Chapter 5 - Quantity Surveying Techniques - New Directions. Edited by Peter Brandon 1990. Raftery, John. (1994) Risk Analysis in Project Management Newton, Sidney. Methods of analysing risk exposure in the cost estimates of high quality offices. Construction Management and Economics (1992) 10, 431 - 449 Morin, Jean-Marc. “Riskman” - A European methodology for Analysing and Managing Project Risk. Project Management Today May (1993) P.20 “PREDICT” is Risk Analysis software from Rick Decisions Limited, Oxford Flanagan, Roger. and Norman, George. (1993) Risk Management and Construction (Page 3) Flanagan, Roger. and Norman, George. (1993) Risk Management and Construction (Page 3) Thompson, Peter. and Perry, John (Editors) (1992) Engineering Construction Risks - A guide to project risk analysis and risk management Thompson, P. and Norris, C. The perception, analysis and management of financial risks in engineering projects. Proceedings of the Institution of Civil Engineers : Civil Engineering, Vol. 97 (issue 1), February 1993 Redmill, Felix. Risk management is for everyone. IText - (First publication) British Computer Society P. 58 - 60 Ward, S. C. and Chapman, C. B. “Extending the use of risk analysis in project management” International Journal of Project Management. Vol 9. No 2. (1991) P.117 - 123 Barnes, Mervyn. Introducing MERA. Chartered Quantity Surveyor. January 1989 P.19 Kahnenan, D. Slovic, P. and Tversky, A. (Eds) Judgement Under Uncertainty : Heuristics and Biases. Cambridge University Press, UK (1986) Adapted from : Flanagan, Roger. and Norman, George. (1993) Risk Management and Construction (Pages 37 and 67) Clark, R. C. : Pledger, M. and Needler, H. M. J. (1989) Risk analysis in the evaluation of nonaerospace projects. Project Management. Vol 8. No 1. February 1990 P. 17 - 24 Humphries, D. E. “Project risk analysis in the aerospace industry” in Project Risk Analysis in the Aerospace Industry - Royal Aeronautical Society, UK (1989) (Proc. Roy. Aeronaut. Soc. [conf] 1989) Adapted from : Flanagan, Roger. and Norman, George. (1993) Risk Management and Construction Williams, T. M. Risk - management infrastructures. International Journal of Project Management. Vol 11. No 1. February 1993. P.5 - 10 Morris, P. G. and Hough G. H. “The Anatomy of Major Projects : A Study of the Reality of Project Management” John Wiley, UK (1987) Williams, Martin. “Managing Project Risks Systematically”. Project Management Today July/August (1994) P. 12 - 14 Akintoye, Akintola S. and MacLeod, Malcolm J. - Risk analysis and management in construction. International Journal of Project Management. Vol 15. No 1. 1997 P. 31 - 38 Shen, L. Y. - Project risk management in Hong Kong. International Journal of Project Management. Vol 15. No 2. 1997 P. 101 - 105 Thompson, Peter. and Perry, John (Editors) (1992) Engineering Construction risks - A guide to project risk analysis and risk management Royal Institution of Chartered Surveyors - Improving Value for Money in Construction Guidance for Chartered Surveyors and their Clients (summary report) February 1996
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