A002 Effectiveness of risk management: Barriers and solutions

Transcription

1 A002 Effctivnss of risk managmnt: Barrirs and solutions Andy Cartr (Snior Consultant, EC Harris, Birmingham, UK) Ezkil Chinyio (Snior Lcturr, Univrsity of Wolvrhampton, Wolvrhampton,UK) Abstract Th ffctivnss of risk managmnt within th UK construction industry is discussd. A smi-structurd qustionnair was usd in collcting both qualitativ and quantitativ data. 113 construction profssionals wr sampld who includd projct managrs, clints, quantity survyors, and contract xprts. 46 rplis wr rcivd, rprsnting a 40% rspons rat. Th quantitativ data wr analysd by dscriptiv statistics whil th qualitativ data wr synthsisd by th contntidntification of opinions mad. Rsults of th analyss showd that most rspondnts us a structurd approach; and manag risks throughout th diffrnt phass of a projct. Thy also fl that th risk managmnt procss is fairly okay but som barrirs wr idntifid,.g. making a lat start, using inxprincd prsonnl, not fully pro-activ, tc. In viw of ths, solutions for improvmnt wr proffrd such as providing adquat training, not circumvnting som stps in th procss, tc. Kywords Projct managmnt, risk managmnt, projct succss, contract managmnt, tools and tchniqus. 1. Introduction Th construction industry is subjct to mor uncrtainty and risk than many othr industris bcaus many of its projcts ar complx, gnrally bspok and ntail tim consuming dsign and production procsss. Risks in construction can also com from xtrnal factors which can b byond th control of thos involvd in a projct. Th fact that most construction rquirs a multitud of popl with varying skills, abilitis and intrsts adds to th risks associatd with projcts as conflicts can aris in th rlationships amongst participants. Risk can impact on projct tim and cost, somtims significantly. According to Latham (1994) No construction projct is risk fr. Thrfor, all th undrpinning sourcs of risks in a projct should b addrssd to forstall or minimis thir consquncs. Risk managmnt is not nw and its tchniqus ar wll documntd. So it is th implmntation of risk managmnt that has to b don fficintly. On this basis, a rsarch was carrid out to invstigat th fficacy of risk managmnt within th UK Construction Industry with particular mphasis on barrirs and solutions to this activity. Th nxt sction of th articl rviws risk managmnt, aftr which th rsarch mthod is discussd. Th findings and conclusion ar prsntd towards th nd

2 2. Risk Managmnt Risks ar associatd with uncrtainty. A typ of risk which is prvalnt in construction is xposur to accidnts or hazards. This typ of risk tnds to mphasis a downsid, howvr, uncrtainty can yild an upsid. Contractors bids oftn includ an allowanc for risks and if som of ths do not matrialis in th cours of a projct, thn th profit margin bcoms highr than xpctd. So thr is a positiv dimnsion to risks. Construction risks ar always many and it is oftn impossibl to liminat ths all (Simon t al., 1997). So mans of coping with risks hav to b stablishd in ach projct (Kangari, 1995; Franks, 1998). Risk Managmnt assists organisations to addrss th downsids attachd to thir activitis. It adds sustainabl valu to an organisation s activitis and incrass thir probability of succss in thir ndavours whil limiting or controlling thir chancs of failur. Brnstin (1996) and Boothroyd and Emmtt (1996) rckon that modrn risk managmnt is about 350 yars old. Th procss is now associatd with many industris (Raftry, 1994). In th construction sctor, th numbr of publications on this subjct has incrasd continuously from 1960 onwards (Edwards and Bown, 1998). A risk managmnt procss will tnd to involv: 1) risk idntification, analysis and rspons and 2) risk control and managmnt. Ths two broad aspcts ar now considrd blow, bing informd by: PMI (2009) for th first aspct; and IRM (2002) for th scond aspct. 2.1 Risk idntification A starting point is to idntify th risks in a projct. Various mans ar availabl and ths includ th us of: risk rgistrs, xprinc, intuition, analysis of assumptions, analysis of hazards, tc. Whn risks hav bn idntifid, an organisation can bgin to dcid on what to do with th known risks. Som risks may rmain unknown but that dos not man that thy ar not thr. Unknown risks can spring up surprisingly and caus mbarrassing and dtrimntal ffcts. So vry ndavour must b xrcisd to idntify all risks in a projct. 2.2 Risk Analysis Having idntifid risks, thy should b quantifid to stablish thir potntial impacts on th projct ar. This should b don objctivly and accuratly and qualitativly or quantitativly. Qualitativ risk Analysis: This assssmnt is don by using th prsonal xprincs of th risk analysts and rviwing past corporat xprincs whr rcords ar availabl. It can also b achivd with th aid of chcklists, intrviws, brainstorming sssions, tc. Quantitativ Analysis: This involvs a numrical assssmnt that may rquir th us of a computr softwar. A dtaild quantitativ analysis may b carrid out following a qualitativ analysis to nabl th impacts of th risks to b quantifid. A

3 quantitativ analysis can b carrid out by mans of snsitivity analysis, scnario analysis, probability analysis, Mont Carlo simulation, tc. Smith t al., (2006) obsrvd that in most analyss only a fw ky risks ar invstigatd and it should b asy to s which thos risks ar. This obsrvation suggsts that major risks should not b ignord at th xpns of minor risks. Only a good and ffctiv valuation can inform th catgorisation of risks as ithr major or minor. Onc assssd, risks can b catgorisd into high/low probability of occurrnc and major/minor impact on th projct. Also, actions can liminat or minimis crtain risks. Having mitigatd som risks, th assssmnt is carrid out again to stablish th nw risk profil of th projct. This cycl is rpatd svral tims until all outstanding risks cannot b mitigatd. 2.3 Risk rspons This stag of th procss involvs acting to dal with th risks idntifid from th abov activitis. Th gnric stratgis that ar oftn usd to dal with risks ar: Rmov, Minimis, Transfr or Accpt a risk (Bakr t al. 1999). Thr ar many tactics that can b usd in this rgard.g.: idntify prvntativ masurs to avoid a risk or rduc its ffct; considr risk transfr to insurrs; considr risk allocation in contracts; tc. Risk rspons contributs to th itrativ assssmnts rfrrd to in th prvious sction. 2.4 Risk control and managmnt Ultimatly, a contract will nd up with a st of risks that ar assignd to th various participants who hav to own and manag ths. A plan of action should b stablishd for ach risk so that an organisation will know what to do whn a risk matrialiss and that way, avoid surpriss. Not all risks will matrialis in a projct ithr by luck or prudnt managmnt. It is a wlcom rliv to an organisation whn a risk fails to matrialis. Each tim a risk lapss, it is struck-off th rgistr. Consquntly on can s th risks that ar still liv or outstanding at ach stag of a projct. This countdown continus till th projct is finishd and all risk issus ar closd-off. Th Risk Managmnt procss is a continuous procss, but is idally startd in a projct as arly as possibl and sustaind throughout th diffrnt stags of th projct and including th post-construction phas. Idally, a framwork for daling with risks is worth using and most organisations will hav thir approach.g. Figur

4 Figur 1: A risk managmnt procss modl (Sourc: Institut of Risk Managmnt, 2002). 2.5 Th advantags and downsids of risk analysis and managmnt Risk analysis and managmnt offrs many upsids and ths includ (Boothroyd and Emmtt, 1996; ICE and FIA, 1998; Burchtt t al., 1999; Simon t al., 1997): Enhancd dcision making whr svral altrnativs can b compard objctivly; gratr confidnc in ralising th clint s objctivs of cost, tim and quality; improvd communication both; bttr choic of contract; ability to distinction btwn good/bad luck and good/bad managmnt; tc. Th procss has disadvantags which includ (Pouliqun, 1970; CIPFA, 1986; Ranasingh, 1998; Brnstin, 1996): it dos not rplac skilful dcision-making; consums a lot of tim; is at tims subjctiv and unrliabl; can b vry complx; tc. 3. Rsarch Mthod A rsarch was carrid out to assss th fficacy of contmporary practic, any problms bing facd and solutions for improvmnt. A mainly quantitativ approach was usd via a qustionnair as mans of data collction. Th qustionnair was issud lctronically in July and August 2008, to construction profssionals who includd Projct Managrs, Clints, Quantity Survyors, and Contract Exprts (Consultants). Th qustionnair was administrd lctronically (via an intrnt link) and th rsults loggd and stord xtrnally by an xtrnal qustionnair company. 113 popl wr approachd for data and 46 rsponss wr rcivd, rprsnting a rspons rat of approximatly 40%. Figur 2 dtails th typs of

5 organisations survyd, i.. involving clints, contractors and consultants. Th rspondnts wr involvd in risk managmnt on a rgular basis and could draw from thir walth of xprinc to answr th qustionnair. Prcntag Figur 2: Typs of rspondnts Consultants Contractors Clints Othrs Thos sampld ar profssionals who can giv indpndnt and unbiasd opinions; and thir rsponss sm impartial on fac valu, spcially that thy discussd downsids prtaining currnt practic without rsrvation. Ths downsids ar discussd fully in sction 4.2 of this papr. 4. Findings Th rspondnts wr askd whthr thy usd a tmplat for risk managmnt such as in Figur 1. 91% answrd in th affirmativ. Most organisations would adapt a tmplat to suit thir own practic and may mphasis risk managmnt at crtain stags of a projct. Figur 3 shows who th rspondnts flt should driv th risk managmnt procss. Th configuration of Figur 3 contrasts with Figur 2, suggsting that th rspondnts wr not voting for thmslvs. Many rspondnts think that clints should play a lading rol in risk (and projct) managmnt. 4.1 Effctivnss of th risk managmnt procss As to whthr risk managmnt is ffctiv within th projct lif cycl; Figur 4 is mphatic of th rspondnts viw. Th opinion of th rspondnts is that risk managmnt is worthwhil. % of rspondnts Figur 3: Who should lad th risk managmnt procss? Clint Contractor Dsignr Consultant

6 Figur 4: Effctivnss of risk managmnt ts n d n o p s r f o g ta n r c P Effctiv Rspondnts' viw Not Effctiv 4.2 Barrirs to risk managmnt Howvr th rspondnts flt that th risk managmnt procss is not flawlss. Both bspok and gnric flaws wr idntifid as discussd blow Not sufficintly pro-activ: According to on of th rspondnts: a lot of th risk managmnt is ractiv and mor forward planning is ndd. Also in this rgard, th procss is oftn hindrd by lat changs to th dsign scop. This suggsts that assssors somtims struggl to quantify risks on tim Not robust nough: Th procss is also not fully robust. It was suggstd by on of th rspondnts that som contractors do not oftn tak all aspcts of risk itms into considration. Thy do this.g. at tndr stag whr th risks ar not asily idntifiabl. Dsignrs too wr idntifid as somtims not robust with risk assssmnts. This practic is adoptd ithr honstly or intntionally in ordr for th projct to 'appar' halthir than it might b Attitud towards risks: Th industry was sn as bing risk-avrs. It was xplaind by a rspondnt that thr is too much focus on transfrring risk as opposd to sharing and managing Incomptncy of risk managrs: Th comptncy of thos who manag risks was qustiond. On of th rspondnts rmarkd that thr is an incrasing numbr of inxprincd staff within th construction industry who ar managing risks. 4.3 Improving risk managmnt Th flaws idntifid in th forgoing sction ar pointrs to whr and how risk managmnt can b improvd. Accordingly, suggstions wr offrd by som rspondnts on how to improv and ths ar discussd blow Mak an arly start: Risks should b xamind vry arly vn bfor th dsign stag and crtainly bfor actual projcts commnc on sit. A committd and pro-activ approach is rcommndd in this rgard whr a rspondnt rmarkd that clints should allow programm tim at dvlopmntal stag for rationalising risks that hav bn idntifid

7 4.3.2 A sustaind procss: Having startd arly, th risk managmnt procss should b sustaind throughout th projct phass. This can b don through rgular rviws and updats. It was xplaind that a full rviw of risk managmnt at projct compltion should b carrid out so that any lssons larnt can b carrid forward to futur schms Assss and prioritis wll: Practitionrs should thus us vry circumspct mans of assssing risks in a projct. Th ida is to nsur that vry risk is assssd accuratly. Somtims th assssmnt will point to th ky risks that must b monitord closly. Ths show stopprs ar most critical. A rspondnt suggstd a concntration on th top 20 risks which should b assssd at lngth whil a % sum is addd to allow for low risk itms. Thr is no standard rcommndation on how-much an organisation should stimats for its risks, as th pric is informd by svral considrations. Howvr, th assssmnt should b as accurat as possibl Maximis th us of your xprinc: Exprinc is vry valuabl to risk assssmnt and managmnt. As xplaind by on of th rspondnts, you nd th right popl at th right tim. Anothr rspondnt laboratd that popl ar also ndd who ar unmotionally attachd to th projct; ar informd, and undrstand th complxitis of th typ of projct bing discussd. Th suggstion is not to rly on past xprinc alon but not to discount it Right attitud towards risks: Th intrviws pointd out that rganisations must promot th concpt of risk ownrship and rsponsibility in thir cultur. An xampl should b st by clints and should prmat down th supply chain. Thr should b an incrasd focus on rporting and discussing risks. Mor opnnss is likwis rquird amongst th consultants in addrssing risk issus. Popl who own risks should b tratd fairly,.g. a no-blam tactic is worthwhil as things can go somtims wrong Training: Whil xprinc informs risk analysis and managmnt, training is also important. Th qust is to nsur that projct spcific risks ar idntifid, not just gnric lists. A rspondnt advisd thus: Involv many popl; ncourag gks and out of th box thinkrs. Anothr rspondnt advocatd for Bttr ducation and provision of sit basd training. Employs should not b lft alon to fac risks. Managmnt support is vital and whr mploys ar sn to b lacking in knowldg, som form of training should b plannd for thm Minimis informality: Th procss can b mad mor formal whr financial pnaltis can b administrd for non-complianc. A rspondnt suggstd that rgular risk rgistr rviws should bcom a contract rquirmnt. Th NEC standard form of contract promots risk managmnt. Othr forms of contract can b updatd to rflct similar or bttr standards in trms of risk assssmnt and managmnt. 5. Conclusion A rspons to risks is vry important and th rspondnts in this survy ritratd this opinion. Construction practic is convrsant with risk and oftn rsponds to it by using guids. Howvr, most organisations us thir own bspok framworks or tmplats albit ths includ th assssmnt and managmnt of risks

8 Although risks ar managd ffctivly in th cours of construction projcts, th procss is not flawlss. Thr is a nd to kp rviwing th practics within organisations to idntify lapss that can b corrctd. This rsarch provids a cross-sctional viw of construction practic that is coming from a sampl of th population. So, whil w cannot b quick to gnralis th findings, w should not dismiss ths outright ithr. What w can infr is that thr ar risk managmnt procsss that ar workabl in principl but ar somtims not implmntd fully. On plausibl rason for th poor implmntation is th ntranc of nw mploys into organisations. It can tak som tim to train frsh prsonnl in an organisation and whil this training is going on, it is possibl for ths rookis to mak mistaks. So it can b surmisd that som of th poor risk managmnt practics ar attributabl to inxprincd prsonnl who ar still larning. If so, a not of caution to organisations is not to ovr task nw or inxprincd mploys hastily but to train thm proprly and nsur thy ar fit for any assignmnt. Givn th flaws idntifid by th rspondnts, it is worth rcommnding that organisations should improv on th way thy manag th risk procss. If nd b, a risk champion could b utilisd for this purpos. Lapss should not b allowd to manifst. Hopfully, many mor organisations will work on improving thir practics. Projct rviws should hav a sub-sction dvotd to risk managmnt. That way, xprincs gaind and mistaks mad ar capturd and th information xploitd in futur projcts to improv on risk managmnt. A bnchmarking approach is worth rcommnding at this stag. Each yar, an organisation should valuat its prformanc in trms of risk managmnt and aim to improv on it th following yar. By doing so, thir fficincy in this procss will kp growing whil flaws ar minimisd. 6. Rfrncs Bakr, S.; Ponniah, D. and Smith, S. (1999) Risk rspons tchniqus mployd currntly for major projcts. Construction Managmnt and Economics, 17(2), Brnstin, P.L. (1996) Th nw rligion of risk managmnt. Harvard Businss Rviw, 74(2), Boothroyd, C. and Emmtt, J. (1996) Risk Managmnt A practical guid for construction profssionals. Withrby & Co Ltd, London Burchtt, J.F.; Rao Tummala, V.M. and Lung, H.M. (1999) A world-wid survy of currnt practics in th managmnt of risks within lctrical supply projcts. Construction Managmnt and Economics, 17(1), CIPFA (1986) Risk Analysis. CIPFA-Audit Occasional Papr Numbr 4. Edwards, P.J. and Bown, P.A. (1998) Risk and Risk Managmnt in Construction: A rviw and futur dirctions for rsarch. Enginring, Construction and Architctural Managmnt, 5(4), Institut of Risk Managmnt (IRM) (2002) A Risk Managmnt Standard. AIRMIC, ALARM, IRM: London. [Availabl onlin at pdf] Accssd on 12 July Institution of Civil Enginrs and th Faculty and Institut of Actuaris (1998) Risk Analysis and Managmnt for Projcts (RAMP), Thomas Tlford, London

9 Kangari, R. (1995) Risk Managmnt Prcptions and Trnds of U.S. Construction. Journal of Construction Enginring and Managmnt, 121(4), Latham, M. (1994) Constructing th Tam. Final rport of th Govrnmnt / Industry rviw of procurmnt and contractual arrangmnts in th UK construction industry. Pouliqun, L.Y. (1970) Risk Analysis in Projct Managmnt. Intrnational Bank for Rconstruction and Dvlopmnt World Bank Staff Occasional Papr Numbr 11. Privat Financ Panl (1995) Privat Opportunity, Public Bnfit: Progrssing th privat financ initiativ. HMSO, London. Privat Financ Panl (1996) Risk and Rward in PFI Contracts: Practical guidanc on th sharing of risk and structuring of PFI contracts. HMSO, London. Projct Managmnt Institut (PMI) (2009) A Guid to th Projct Managmnt Body of Knowldg: Practic Standard for Projct Risk Managmnt. Nwtown Squar: Projct Managmnt Institut. Raftry, J. (1994) Risk Analysis in Projct Managmnt. E&FN Spon, London. Ranasingh, M. (1998) Risk Managmnt in th Insuranc Industry: Insights for th nginring construction industry. Construction Managmnt and Economics, 16(1), Simon, P.; Hillson, D.; and Nwland, K. (1997) Projct Risk Analysis and Managmnt (PRAM) Guid, Association for Projct Managmnt, Ascot-UK. Smith, N.J.; Mrna, T. and Jobling, P. (2006) Managing risk in construction projcts. Blackwll: Oxford. Abbrviations CIPFA Chartrd Institut of Public Financ and Accountancy FIA Faculty and Institut of Actuaris ICE Th Institution of Civil Enginrs