Risk Management techniques

adventure Management proficiencys take chances ManagementQuestionB) We leave behind never know if we prolong place idiosyncraticly the encounters in a protrudeGiven that the above statement is true explain to a extremity of the Board of Directors the grade of victimization attempt Management techniques for adopt fuddle. launchingE truly human endeavour involves happen the success or visitation of any venture depends crucially on how we deal with it 1. That means in that location is no perfect throw away in the construction indus punish in which all the honors kitty be identify and solved. Risk spate neither be avoided nor be solved. It readyation only when be rationalised and thusly either transfers or sh atomic number 18 to any new(prenominal) body which is a sh atomic number 18 of the encounter or just retain it. The success of a barf depends on how well the jump team take the take a chance. on the whole the three parameters which determine the success of a construction lying-in which atomic number 18 time, hail and quality argon subjected to stake of word picture or distrust. It is the ability of the project team right from the concept stage through out the carrying out stage that how properly they be estimating the project by providing appropriate allowances for all those anticipated adventures or uncertainties 2.This report includes a detailed abridgment of divers(a) attempts that potentiometer occur in a construction project. It also includes how to grade, analyse and mitigate those attempts by highlighting the value of several(predicate) peril focus techniques that be employ now-a-days for major(ip) projects with the help of a case culture of 2012 London exceptional and Paralympic games. This report also explains al almost the systematic fulfillion (project worry techniques raiseed by the experts who are in the field of risk focussing for many years) of handling the risks. Neglecting t he risk without taking that into in its circumstance back tooth turn a likelyly profitable project to a want make venture.1. Risk in projects- a theoretical approach After a brief introduction, the in signifierant feels thats its time to explain risk in a broader frame and the focal point techniques to mitigate it. For that, all those attention procedures need to be explained much along with the techniques apply and sustain that by development more examples. Before going into details of steering aspects of the risk, the author needfully to give a general idea about the distinction amidst risk and doubtfulness, and the risk salmagundi in detail.1.1. Risk and incredulityAccording to metal hunt d accepter NJ, the terms risk and suspicion, if white plague rigorously, energise distinguishable meaning only in terms of construction projects the distinction force amid uncertainty and risk is of little signifi open firece 2. He be risk and uncertainty as risk exi sts when a decision is expressed in terms of a range of possible outcomes and when kn declare probabilities lav be attached to the outcomes art object uncertainty exists where in that respect is more than nonpareil possible outcome of a course of act but the hazard of each outcome is non known 2. Uncertainty in some premature(a) words dejection be defined as a event in which there is no historic info or earlier history relating to the situation 14. Perminova defines uncertainty, as a context for risks as events having a negative encounter on the projects outcomes, or opportunities, as events that have safe impact on project performance. This definition stresses dual nature of uncertainty in potentially having both positive and negative ferment on the projects outcomes. 17 Risk involves both a threat and a challenge where an opportunity is a threat for those expects failures and a challenge to those predicts victory. It fundament be taken purely on the basis o f probabilities or chances and at the same time, risk can be a well calculated wholeness.1.2. Risk classification According to Robert Flanagan and George Norman, risks are generally of divers(prenominal) types that can be classified ad base on these criteria which are by identifying the type of risks, the consequences, and the impact of risk. smith N J and Merna T suggested an alternate method acting of classification of risk which is Global classification and Elemental classification. The method, they suggested is to separate the more general risks which cogency figure out a project but may be impertinent the rule of the project parties from the risks associated with key project elements these are referred to as ball-shaped and elemental risks.The classification based on type of risks is usually do by assuming that the total risk is made up of merchandise risks (Speculative risk) and specific risks (Pure risk). The specific risk, sometimes called as static risk, which is having no potential upgrade typically arises from the possibility of accident or technical failure, go for speculative risk, there is a possibility of loss or gain which might be financial, technical, or physical. Moreover, a caller-outs systematic risk can be spit into deuce components business and financial risk. rail line risk is the result of a society trading with its assets, which is borne by the virtue and debt holders and the financial risk arises directly out of the gearing process brings risk only to the equity holders.14The risk classification based on the impact of it can be subdivided into the environment risk, market or industry risk, company risk and the project or individual risk. This classification has do by considering the area with which the impact of the risk is affecting. The general environmental can once again be divided into two parts the physical and then the social, policy-making and efficient risks. The physical environment includes the weat her and the natural phenomena like earthquake, landslips etc. commonly the risks involved in this environment cannot be controlled. By using the modern technologies, these phenomena can be identify well in mount and can take the mea accepteds to mitigate the installs of these phenomena. While in the separate hand, the social, political and the economical environment risks are to some extent can be controlled. The government can control social, political and environment of a project to an extent 14. Market risk depends on a serving of ingredients and it is very difficult to control it. Recession is a risk that just about all the companies are veneer passim the world also comes on a lower floor market risk. These types of risks are very difficult to predict too, so the cave in method to take on is to try to mitigate the consequence. Any company operates at heart an open market and the risk attached with the market can influence the company as well. So in a company itself, for different major projects, different care throngs are assigned and thereby it can act as a separate group or puddle (joint venture with another company). By doing the there are chances for the risks with which the parent company is facing may not reach this group. But the company risks and project risks are intrinsically linked because the company must ultimately dwell the consequence of the risky project.2. Project risk focusing critical abbreviationProject risk management includes the processes concerned about conducting risk management preparedness, identification, outline (both qualitative and quantitative), responses, and supervise and control on a project roughly of these processes are updated throughout the project3.2.1. Risk management planning plans how to approach the risk kick activities in the project and to execute the risk management practices into those activities. Before going into the planning for risk management, it is always repair to meditate th e project as much as possible. According to PMBOK (3rd edition), while planning an approach for managing risk, it is advisable to consider these factors as well much(prenominal) as, environmental factors, organisational process assets and project arena statement ( intent of the project). Risk management plan or method is the outcome or result of this planning, which is used for the identification of risk in the project 3.2.2. Risk acknowledgment The surmount way to identify risk is a group session or a brainstorming session with all the management experts who are the part of the project. This is the trump out method of gaining team input and bringing expertise to the project 2 4. The risk management plan which is obtained as a result of the offset step (Risk management planning) can be used here to identify risk. After identifying all the risk, a risk breakdown structure (RBS) can be made, which shows the risk groups, risk categories and risk events at the lowest level. then all these identified risks can be converged under two briny categories, Internal and external risks. Internal risks, which consists of risks from the side of owners, consultants, contractors, subcontractors and suppliers while external risks are political, economical, social, cultural, natural and other risks much(prenominal) as delays in claiming insurance etc 5. Identification of the risk is considered as the first and the most significant phase of the risk management process. It brings considerable benefits in terms of project understanding and provides an primeval indication of the need for risk management strategies. It is impossible to know how furthermost the risks are identified but it is likely that there will be some risks which are unknown. The point of identification itself is to use the combinations of different methods to try to ensure that the amount of the unknown unknowns is as teeny as possible 15. The right time of doing this identification of risk process is in the approximation phase, because then there are a large number of risks in the project, and the options for avoiding or mitigating risks are very high and at that time, the project is passing flexible.Different methods of identification process are used by different organisations. Examining previous projects data with akin(predicate) characteristics which has got similar type of risks can be used to ensure that somatic knowledge is utilized. This option of identification is having only limited scope, but this can at least used to exercise a checklist of risks which has got more opportunity to occur 2.Interviewing the project personnel from each discipline and the staff from within the organisation who have gravel of similar projects, ensures the corporate knowledge and personnel bang are utilized in the process of identifying risks 2. The benefit of doing this technique is that, the organisation can utilise the experience that these experts got from the similar pervious projects.Once these risks are identified, detailed depth psychology can be done, either by qualitative analytic thinking or by quantitative analysis or by both.2.3. Risk analysis The purpose of the risk identification is to quantify the set up on the project of the risks identified 15. The first and most grave step in this phase is to learn which analytical technique to use. There are methods, at the simplest level in which each risk can be hold deared individually with no attempts made to quantify the risks or the chance of occurrence of this is not calculated. very much more detailed results can be achieved by adding various counting methodologies and by establishing the interdependency of the risks and then the calculation system will be more complex. The choice of technique will usually be based on the experience and expertise.2.3.1. Qualitative analysis Prioritising risk by analysing the probability of occurrence and impact in the project. For each risk that is identifi ed, the team unavoidably to assess its severity in order to decide what course of action to take 16. Expertise is askd in this step, because all those analysis is done based on the knowledge from previous experiences. According to Smith N J, a typical qualitative risk assessment usually includes these issues a brief description of the risk, the stages of the project when it may occur, the elements of the projects that could be affected, the factors that influence it to occur, the alliance with other risks, the likelihood of it occurring, how it could affect the project 2.According to PRAM, various techniques used for doing qualitative analysis are assumption analysis, by making a check lists and prompt lists, brainstorming, Delphi technique, use of probability- impact (P-I) table, interviews ands risk register 11. This method is basically experience based and the usage of any of the above mentioned techniques is compulsory, otherwise, the experience of the senior staffs cannot be utilised and thereby the project will be more vulnerable to risk.2.3.2 Quantitative analysis analyse numerically the effect of these risks in the overall project. This is the step in which the chances for error is maximum because in this step only, the calculations of the identified risks are done. So this step requires higher attention. found on qualitative analysis, a relative strategic index (RII) can be developed and using that detailed categorisation can be done 5.The probability of a risk arising is a key factor in decisions on risk. Possible consequences of risk occurring are defined and quantified in terms of growingd cost, increased time and masterd quality and performance, which can be analysed by using any of the quantitative analysis techniques, says Smith N J 2.Various techniques used are Decision trees, influence diagrams, Probability analysis (Monte- Carlo mannequin), Sensitivity analysis, Project evaluation and review techniques (PERT) and chasten Interval a nd Memory (CIM) approach in which sensitivity analysis and probability analysis are the widely used techniques to do the quantitative analysis of risk in a project.Sensitivity synopsis This technique determines the risks which have the most potential impact on the project. It examines the extent to which the uncertainty of each project element affects the objective, when all other uncertain elements are held at their baseline values 3. The aim of doing sensitivity analysis is to identify those components of the projects whose uncertainty most influences the uncertainty of the projects outcome. Sensitivity analysis can be expressed by using different plotting methods like Tornado charts (a histogram method, which is useful for comparability relative importance of varyings that have a high degree of uncertainty to those that are more stable.), Spider plots, and Risk-return graphs. This technique should performed on all the risks and uncertainties which may affect project in order to identify those which have a large impact on the economic return, cost, time and whatever are the objectives.Probability Analysis (Monte-Carlo simulation) Probability analysis overcomes many limitations of sensitivity analysis by specifying a probability distribution for each risk, and then considering the effects on the risks in combination. Random sampling is used where calculation of data inserted in an equation would be difficult or impossible 18 19. Monte-Carlo simulation by means of random numbers provides and extremely powerful to that extent conceptually straight forward method of incorporating probabilistic data. The basic locomote are.* assess the range for the variables being considered, and determine the probability distribution most meet to that variable* select a value for each variable within is specified range this value should be randomly chosen and must take account of the probability distribution for the occurrence of the variable. This is usually achieved by generating the cumulative frequency curve for the variable and choosing a value from a random number* run a deterministic analysis using the combination of values selected for each one of the variables* repeat a number of times to obtain the probability distribution of the result. The number of iterations required depends on the number of variables and the degree of confidence required, but typically lies between 100 and 1000 20.In normal risk management processes (RMP), one of the abovementioned analyses only is used. The effectualness and efficiency of quantitative analysis is driven to an important extent by the quality of the qualitative analysis and the joint description of both. 6 2.4. Risk response brings out the maximum possible outcomes from these risks bound activities to enhance opportunities and to reduce threats to the desired objective. With these outcomes, risks can be prioritised as high, metier and low risk according to the probability of occurrence and impact. R isk apportioning strategies should be determined at the initial stages of the project by the client. The important characteristics of the available choices of risk allocation strategy can be group according to organisational structure or payment mechanism. The payment mechanism employed, wrong or cost- based, will determine the location of these contingencies 2. The allocation of risk between parties to a contract should be identified prior to tender. The rise response, or its allocation, can take any of these four forms Risk retention, Risk transfer, Risk drop-off and Risk avoidance.2.4.1 Risk retention According to Flanagan. R and Norman G, risks that produce individually small, repetitive losses are those most suited for retention. Not all risks can be transferred, but even if they are capable of being transferred it may not prove to be economical to do so. The risk will then have to be retained. Besides, it is favorite(a) to retain a portion of risk in certain band 14. Ap plying the probabilistic approach to cost estimates gives a range of estimates rather than a single value. Thus a series of misadventure sums can be precondition which provide for different probabilities of protection against risk and uncertainty 20.2.4.2 Risk transfer Transferring the risk does not reduce the criticality of the source of risk, but it gains it to another party. In some cases, transfer can significantly increase risk because the party, whom it is being transferred, may not be aware of the risk they are being asked to absorb. The essential characteristic of the risk transfer is that the consequences of the risks, if they occur, are dowryd with or totally carried by a party other than the client. The client should expect to pay a premium for this privilege. The responsibility for initiating this form of risk response therefore lies with the client, and he should ensure that it is in his own best interests to transfer the risk 18 20. As per PMBOK, contracts can be u sed to transfer liability for specified risks to another party 3.2.4.3 Risk reduction The most common and efficient way of reducing risk exposure is to share risks with other parties. Risk reduction fills in three categories Firstly, training and training to alert the staff to potential risks. Secondly, physical protection to reduce the likelihood of loss and finally systems are needed to ensure consistency. In contractual agreement, the use of management fee types of contract will remove the uncomely attitude of contractors and should reduce the likelihood of claims from the contractor for direct loss and expense 20.2.4.4 Risk avoidance Risk avoidance involves changing the project management plan to eliminate the threat posed by an adverse risk, to isolate the project objectives from the risks impact, or to relax the objective that is in jeopardy, such as extending the schedule or reducing scope. Some risks that arise early in the project can be avoided by clarifying requirements , obtaining information, up(a) communication, or acquiring expertise.32.5. Risk monitoring and control labeling and monitoring the identified risks, identifying new risks, executing risk response plans, and evaluating their usefulness throughout the project life cycle. The process of risk management can be grounded on a crystallise understanding about the nature and scope of decision making involvement in project management and a natural framework for examining these decisions is the project life cycle. For successful implementation of the project, a regular monitoring procedure of risk is essentially required in all the segments of this framework like conceptualisation, planning, design, construction, termination and disposal of a project. Risk supervise and Control is the process of identifying, analysing, and planning for newly arising risks, keeping track of the identified risks and those on the watch list, reanalysing existing risks, monitoring trigger conditions for conti ngency plans, monitoring residual risks, and reviewing the execution of risk responses while evaluating their effectiveness. The Risk Monitoring and Control process applies techniques, such as variance and trend analysis, which require the use of performance data generated during project execution. Risk Monitoring and Control, as well as the other risk management processes, is an ongoing process for the life of the project 3These abovementioned processes can be effectively explained by using a case study. The case study explains the typical risks that a major construction project is always exposed to and through this case study the author wants to prove that even if the management team has done a detailed analysis of risks, they can never say that they have identified all the risks because nonetheless there are chances for some risks being go forth out as unidentified.3. London Olympics 2012 a case studyThe case behind 2012 London Olympics to be taken as the case study is that, the author feels it is break to consider a live or juvenile project to discuss the risk management issues than an old project because in a live project only, there is a scope to find more risks which the management team left out without considering like the quoin in this case, which is left unattended by the management group is the whackinggest treat the project is facing.According to the report by Comptroller and auditor General, issue Audit Office (NAO), the management team of the London Olympics has considered six major issues as their major risks that need to be considered to the successful saving of the project. They are(1) Delivering the project at an immovable deadline(2) The need for strong governance and delivery structures given the multiplicity of organisations and groups involved in the Games.(3) The requirement for the bud energize to be clearly determined and effectively managed.(4) Applying effective procurement practices.(5) Planning for a lasting legacy.(6) Th e inductive precedenting of effective progress monitoring and risk management arrangements 7.Since this project is a major one and all these risks need voiceless attention, the management team planned various risk management techniques to tackle each risk individually to keep all of them under control at any time through out the project. The author finds it very essential to explain each of these abovementioned risks and the methods used to mitigate them in detail, to substantiate the value of risk management techniques to a member of the Board of Directors.3.1. Delivering the project at an immovable deadline The Olympic project consists of a lot of individual but interdependent projects. Effective project management works on the basis of the three parameters- Time, cost and quality and if there is any castrate that happens to any of these parameters can affect the other two7. So that implies delay in delivering any of the elements of the project puts pressure on cost and/or qua lity. Normally to release pressure from cost and quality that arises due to the delay in delivery of the project is to weaken the negotiating position. But in this project, these adjustments are not possible. Because any delay can affect the theme of the project. So to get rid of all these issues, they planned the project very well ab initio and kicked the construction off by starting the individual non-interdependent (self dependent) works at the same time and by achieving all the mileposts in construction at regular, pre-assigned intervals. Then they arrange the meeting of the representatives of all the major stakeholders and make sure that all of them are satisfied with the work done to attain the milestone within the given time.3.2 The need for strong governance and delivery structures given the multiplicity of organisations and groups involved in the Games. According to the Comptroller and audit generals report, there are three major stakeholders to this project- The Governmen t (represented by some bodies), the mayor of London and British Olympic Association. In addition to this, some other bodies are involved in delivering or funding the games. The management group deals with the risk of the need for strong governance and delivery structures by of importtaining a clear focus on the need for timely decision making individually and collectively on a programme where there are multiple stakeholders and interests. The international Olympic Committee requires the host cities to organise the games and the management department decided to set up an Olympic delivery representation (ODA) to deliver the venues and the infrastructure and then to stage the games. From the previous experience they had in the past, they set up another body called LOCOG (London Organising Committee of the Olympic and Paralympic Games, which is trustworthy for operational and staging aspects of the game. The Olympic spoken language Authority prepares the site, builds new venues, de livers the Olympic village, infrastructure and transport projects. The only thing the management team needs to make sure is the combined effort of both the organisations in delivering the project. The technique of setting up two organisations by the management department was found successful so far-off, from the timely delivery of the milestones 7.3.3 The requirement for the budget to be clearly determined and effectively managed. One of the main risk which has got more probabilities to go wrong and which needs efficient management hands and effective techniques to deal with. So a very strong financial management set up is a prime requirement here. The need of maintaining encompassing and accurate asset registers, which helps to transfer the asset later on at the end of the project and the need for strong contract management arrangements, with spatiotemporal contract records and payments made only in accordance with certified work carried out, is also of prime importance to keep in track with the income and economic consumption of the project. Finally the actions required to manage this risks are setting up a budget for the project and making sure how it is funding, being sure about how the cash flow needs will be met, being clear about the cost associated with delivering the games and how to capture this amount on a undifferentiated basis 7 8.3.4 Applying effective procurement practices. This is one of the main issues as far as a major project is taken into concern. The author feels so, because muddle a procurement route for such a large project is very difficult. To get a main contractor who is doing the major share of work for a big project is equally difficult. By considering these aspects, the management team started doing the procedures well in advance, so that they got enough time for doing their analysis works done for fixing the procurement route, to do the qualification processes for selecting the main contractor and to negotiate with the prefe rred team about the various aspects of the project. on with this, the management team makes sure that the application of procurement practice was effective by being clear about the respective roles and responsibilities of the Olympic Delivery Authority and its Delivery Partner, and ensuring that the arrangement enables the Authority to contain its operating costs as planned. They gained confidence in the approach to procurement by honour contract in an open and fair way and by applying best practice 7 8.3.5 Planning for a lasting legacy. Since the project is very big and requires a lot of money, the management needs to make sure that the assets that are constructing for the games should deliver the maximum service. Planning for a lasting legacy, they planned the good development of the city of London by adding these assets to it for future purposes. So this can also be considered as one among those crucial risks. They mitigated this risk by developing robust plans for the Olympic venues with the clear focus on whole life costs, to avoid the risks of these facilities being under-used or unaffordable after the games 7.3.6 The installation of effective progress monitoring and risk management arrangements. A major issue for any construction project, no matter whether that is a small project or a large one, it affects very severe if there is no effective progress monitoring techniques and risk management arrangements. in ill-tempered for a high investment project like this, it is very important because of the interest of the public in the project. They managed this risk by providing a risk register for every stakeholder at different stages in developing their own risk strategies and registers to identify and manage the risks specific to delivering their responsibilities. At a particular programme level, the authority collates all of them and makes a database for registering risks and prepares action plans to mitigate them. Although they have done all these len gthier procedures to find out risks and to eliminate it, the project is still not completely out of risks. The main threat the project facing now is the risk developed due to global economic recession. The financial set up of the project might get affected because of this risk. at a time their main objective is to save the project from this risk and they are currently working on the issue which is about how to reduce or mitigate this risk. Being government is the main stakeholder and the project is a prestigious one, they will somehow manage to finish this project within time, but the cost will still remain as unknown and that itself is the risk that the management team left out with identifying after doing this detailed analysis of risk. This is the reason why they say we will never know if we have identified all the risks in a project.4. Benefits of Project Risk Analysis and Management As per PRAM, benefits of using risk management can be classified into two Hard Benefits and So ft benefits. Hard benefits are comparatively casual to express and with enough effort it would be possible to gradation the amount of benefit. But soft benefits are much less easy to quantify but, can give rise to dramatic performance improvement. These two can be explained in detail asHard benefits Enables better informed and more believable plans, schedules and budgets. Increases the likelihood of a project adhering to its plans. Leads to the use of the most suitable type of contract. Allows a more meaningful assessment and justification of contingencies. Discourages the acceptance of financially unsound projects. Contributes to the build-up of statistical information to care in better management of future projects. Risk analysis enables objective comparison of alternatives. Identifies and allocates responsibility to the best risk owner and soft benefits Improves corporate experience and general communication Leads to a common understanding and amend team spirit Assists in the distinction between good constituent/good management and bad luck/bad management Helps develop the ability of staff to assess risks. Focuses attention on the real and most important issues. Facilitates greater risk taking, thus