Category Construction Management. for Industrial Projects

Grouping of Risks

After defining the entire range of events that may occur during project execution, affect the project objective or increase the project time or cost, the risks need to be grouped. Quantitative methods are employed to rank identified areas of risk, which also serves to establish the key stage of the project by relatively objective criteria. Project participants are then brought together in a brainstorming session aimed at forming a consensus as to what risks are likeliest in which time periods, and their possible effect on project cost and time targets.

Grouping risks will be more important for large projects than small ones. The general consensus in the business world is that if it takes more than ten people to meet and deal with a group of risks, the meeting is probably too large and will be inefficient. As projects become larger, it is necessary to have a series of risk man­agement meetings, whereas in a small project, one meeting might do. To facilitate this, techniques similar to the techniques that were used in the development of the work breakdown structure can be used. Indeed, the WBS itself can be used to organize meetings for risk management.

Responsibility to look for risk should be assigned to the person most closely associated with where the risk will have its largest impact, or to the person who has the most familiarity with the tech­nology of the risk. A risk that takes place during the completion of a particular task and directly affects only that task should be a con­cern to the person responsible for that task. However, since no task in a project is truly independent of all the others, the assignment of responsibility moves up the organizational ladder to the individual above the person directly or immediately responsible for the task.

Often in projects where risk is of great concern, the project man­ager creates the position of risk manager. This person is responsible for tracking all risks and maintaining the risk management plan. As projects become larger or tolerance for risk is low, this approach becomes more necessary.

The responsible person who will mitigate and follow up this task should be defined clearly, and his or her name can be place in Table (9.3), at the end of Section 9.5.1 below.

Analogy

The analogy method is part of the document review, as this method depends on obtaining the risk management plan of other projects that were similar, an analogy can be formed. By comparing two or more projects, you can find similar characteristics for each project can be found from which to gain an overview of the risks of the new project.

SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis

Among other methods used in defining risk, the SWOT method is probably those single most widely applied practical tool. At its core is a diagrammatic approach that identifies "strengths, weak­nesses, opportunities and threats" by developing a flowchart of the expected sequence of project execution. Like expert interviews, checklists and documentation review, this approach develops a new document on the basis of information gathered and recorded earlier in other formats.

Documentation Review

This method depends on reviewing lessons learned from previ­ous projects. Its use must be approached with some care, however.

Project close-out reports are the usual documentary source of reviews of lessons learned from improper management of unan­ticipated risks or other failures during project execution. However, ISO standards setting out quality standards to be maintained at all stages of project execution may neither have been followed nor existed for many projects executed before the 1990s, not to men­tion the broad principles that Project Management Professionals are expected to be following today. The documentary review method works best for companies that have performed this type of project before many times, and maintained their own database of lessons learned. Its inherent attractiveness is cost, which is effectively zero.

Checklists

Checklists have gained popularity in recent years because of the ease of communicating through computers and the ease of shar­ing information through databases. Every company has established checklists based on their experience, and examples of some of the risks are presented in section 9.2. However, while the checklist is based on concrete thinking around what is known and set out in the checklist, the anticipation of risk and its possible consequences demands a freer-thinking approach that allows thinking "outside the box" of any checklist, no matter how apparently exhaustive.

Root Cause Identification

This method, based on "Root Cause Analysis" (RCA), is used in conjunction with the brainstorming technique and other similar meetings, as the facilitator should be able to define the root cause in any item. The goal of RCA is to find answers to the questions about what, how, and particularly why something could go wrong in the project. This method researches deeply into event probabilities and consequences beyond the immediate cause of the unwanted event. For example, assume that there has been a delay in performing a job offshore due to weather. This method needs to define the way to obtain the weather forecast. For another example assume the poten­tial risk is that spare parts will be delivered late on the offshore plat­forms. Subsequent investigation uncovers the fact that there was a high wind speed and the transfer of the parts was delayed for five days. The root cause of the problem is not the high wind speed. The root-cause approach establishes that ordering the mechanical spare parts early enough to allow for the likelihood of bad weather could avoid repetition of this problem.

Expert Interviews

An expert source, preferably from within the company, can be con­sulted for his/her views of the risks to watch out for. Selection of an outside expert may roil internal company politics by implying, at least in the minds of some, that the company’s own personnel may be insufficiently expert to manage certain tasks that an out­side "expert" might tend to focus upon. For example if a compa­ny’s procurement policies and facilities are weak or insufficiently developed, senior management might be leery of having an outside expert come in, take notice of this deficiency and spread some hint to competitors about this vulnerability. Probably the single great­est material benefit of using "in-house" expertise is that comes free of any charge over and above continuing to pay that employee’s regular salary.

All data on the project is collected before the interview for presentation to the expert. The goals of the interview should be clearly understood by the expert going in, and the interview itself, or detailed notes of his views, recorded. If more than one expert is used, information from the interviews should be consolidated and circulated to the other experts.

Crawford’s Slip

The Crawford’s Slip process has become more popular in recent times. The meeting procedure is that of the brainstorming tech­nique. Advantages of this approach include the lack of any limit on the number of participants and the reduced burden on a facili­tator. Its advantage is that it produces a lot of ideas very quickly. On individual pieces of paper (Post-It-Notes are popularly used), participants write down a single suggestion in answer to a facili­tator-posed question such as: "What risks could you could antici­pate during this project?" There might be 10 suggestions each from 10 participants, creating 100 answers to the one question that are subsequently filtered and grouped under more or less common rubrics. The entire process can take as little as half-an-hour for a small group, but it gets longer faster for larger groups.

Nominal Group Technique

The nominal group technique is similar to the brainstorming meet­ing. In this variant, the facilitator requests everyone in room write down their idea of risks to anticipate. This modified brainstorming approach works well with groups of 7 to 10 persons. Each partici­pant’s list is posted on a flip chart or blackboard. Up to this point, no discussion has been engaged; that proceeds after the flip-chart or blackboard list is compiled. Risks that are similar can be grouped.

While this process reduces the possibility of excessive influence of a high-ranking person on other members of the group, it does not eliminate it like the Delphi technique does. The nominal group technique is faster and requires less effort on the part of the facilitator than the Delphi technique.

Delphi Technique

Brainstorming has potential disadvantages. When meeting attend­ees are not familiar with risk assessment technique, their sug­gestions may not be particularly helpful. If there is a high level manager in the meeting room, individuals may feel a certain chill about uttering their thoughts too forthrightly. Furthermore, the meeting method can miss taking note of important sources of risk. The effort will have been vitiated if, later during project execution, potential risks emerge that were not identified back at the time of the brainstorming session.

The Delphi method is not traditional in practical life, but it has its uses and advantages for focusing the consciousness of key project personnel not only upon identifying sources of risk but also their own responsibility, both individual and collective, to be prepared to manage whatever risks emerge during project execution. The name "Delphi" is derived from the Oracle of Delphi. The authors of the method were not happy with this name, because it implies "something oracular, something smacking a little of the occult." The Delphi method is based on the assumption that group judgments are more valid than individual judgments.

The Delphi method was developed at the beginning of the Cold War to forecast the impact of technology on warfare (1999). In 1944, General Henry H. Arnold ordered the creation of the report for the U. S. Army Air Corps on the future technological capabilities that might be used by the military.

Different approaches were tried, but the shortcomings of tradi­tional forecasting methods, such as theoretical approach, quantita­tive models, or trend extrapolation, in areas where precise scientific laws have not been established yet, quickly became apparent. To combat these shortcomings, the Delphi method was developed by Project RAND during the 1950s and 1960s (1959) by Olaf Helmer, Norman Dalkey, and Nicholas Rescher (1998). It has been used ever since, together with various modifications and reformulations such as the Imen-Delphi procedure.

This method is based on the idea that the opinion of a group is better than the opinion of one person. As during the Vietnam War when the US Chiefs of Staff repeatedly resorted to this approach, the Delphi method was used by asking experts to give their opinion on the probability, frequency, and intensity of possible enemy attacks. Other experts could anonymously give feedback. This process was repeated several times until a consensus emerged.

In the same way, every expert in this type of project should be queried separately about the expected potential risk of the project. Nowadays, this method is easy due to e-mail, video conferences, and other methods of communication that appear every day. The process begins with the facilitator using a questionnaire to solicit risk ideas about the project. The responses from the participants are then categorized and clarified by the facilitator. Several such rounds of one-on-one may be repeated until a consensus emerges around the final list of project risks. The largest benefit from this method is its relatively low cost, but it makes greater demands on whoever fills the facilitator role.