Article #727 Setting the Project Control System (PCS) Risk Management Module

Project Risk Management is one of the important modules in any project control system (PCS) regardless if it was managed by the Project Owner. The fact that projects are about delivering results in the future based on actions taken today makes risks inherited in any project but especially in construction projects.

By definition, A risk is the possibility of a problem that has not occurred yet, and if it occurs it would hurt a project budget, schedule, and scope.  On the other hand, an issue is a problem that is currently occurring. An issue must be resolved as soon as possible, otherwise, it will have detrimental effects on the project budget, schedule, and scope.

Therefore, a project control system (PCS) whether it was managed by the Project Owner or the Contractor, should address the requirement to monitor, and evaluate risks as well as issues.

Risk Management

The PMWeb Risk Analysis module will be used to capture details of the identified risks. The quality of the risk register will depend on the extent of risks identified under each project stage (plan, design, tender, construct, test and commission, and handover) and the risk category. The risk categories for capital construction projects typically include Organizational and Project Management Risks, Technical Risks, Contract Acquisition Risks, Lands and Damages, Regulatory and Environmental Risks, Construction Risks, Estimate and Schedule Risks, and External Risks.

It is highly recommended that risks are well-defined to avoid any confusion. For example, it should be in the format “As a result of (definite cause), (uncertain event) may occur, which would lead to (effect on objective or objectives)”. Causes will use present tense phrases such as “is, do, has, has not, are, etc.”, risks are described with words like “may, might, could, possibly” while effect uses conditional future tense “will, would, could, etc.”.

Another good practice is to use a detailed risk breakdown structure (RBS) for grouping the project risks that organize and defines the total risk exposure of the project. The RBS can be used as a Risk Identification Aid where it can be used as a prompt list to identify risks, Risk Assessment which can be used to categorize risks by their source, Comparison of Projects, Risk Reporting and Roll-up of risks, and Lessons Learned.

The information captured in this risk register will include the risk name, risk type, responsibility, impact category, occurrence likelihood value % and Impact value %, activity duration, and project schedule activity. This information will provide the risk score and schedule impact, which will enable the project team to identify the risk response action to be taken to treat the risk. The register will also be used to capture the residual cost impact, also known as “Cost,” and the expected value of each identified risk, also known as “Risk Cost.” The risk register will also include the project stage the risk is associated with, selected risk response, risk strategy, associated project schedule activity, and others.

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The data captured in the risk analysis will be used to create and share the risk register report. The report will include the details of pre-mitigation and post-mitigation likelihood and the impact and exposure of each risk. The risk can be designed to group risks by project stage, risk category, and response strategy used to treat these risks.

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The risk register table will display the pre-mitigation and post-mitigation assessment of each risk occurrence likelihood, impact, and score, as well as the cost of the residual risk and expected risk value. In addition, the calculated expected exposure value of each residual risk can be reported. This estimated risk exposure will be the basis for setting the contingency reserve value in the project budget. The report may be designed to include visuals that summarize the expected contingency reserve value by risk category, project stage, and selected risk response strategy.

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If the project control system (PCS) requires creating a process for identifying, analyzing, assessing, and responding to risks, the PMWeb custom form builder can be used to create the risk form for which the complete details of every risk will be added.

The Risk Identification and Assessment form approach will incorporate the best practices and functions needed to have a comprehensive risk register checklist created from identifying and assessing individual risks. Accordingly, the Risk Identification and Assessment form will have four sections, the first of which is to capture the project name, record ID, record date, and workflow status. The second section will be for risk identification. All fields, excluding risk description and cause and effect, will be selected from pre-defined lists of values to ensure consistency and expedite the risk identification process. PMWeb will have a pre-defined list of values for risk category, risk type, risk nature, WBS level, project schedule activity imported from Primavera P6 or MS Project, Company owning the risk, risk owner, risk initiator, and risk action. There is, of course, no limit to the additional fields that can be added. For example, whether the risk has an impact on cost or schedule.

The third section will include the score values for the pre-mitigation and post-mitigation likelihood and impact values which will be based on a scale of 5. The section will also explain the score values of “1” to “5” for the likelihood of the risk occurring and the impact or consequences if the risk occurs. The section also details the risk score or level for pre-mitigation and post-mitigation likelihood and consequences risk assessment value. The pre-mitigation and post-mitigation risk scores or level values will be automatically calculated in the form.

The last section will be the Risk Mitigation Actions, where all possible actions that can treat negative risks or threats or improve positive risks or opportunities will be listed. For each identified risk mitigation action, the user will select the relevant risk response action type, including Avoid, Mitigate, Transfer, and Accept options for threats and pursue, enhance, share and ignore options for opportunities. For all mitigation actions, the project team member needs to provide the estimated cost for implementing the action and confirm if this action was selected or not.

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For projects that require the Contractor to simulate the impact of risks on the integrated project schedule, the PMWeb report writer can be used to design a risk register report that will be saved in MS Excel file format so it can be imported to a Monte Carlo risk simulation software application, like Safran, to address the requirements for quantitative risk analysis.

Unlike the traditional project schedule that predicts a single completion date and cost uses single values for activity durations and costs and does not take uncertainty into account, a Monte Carlo simulated project schedule quantifies the probability of completing the project on time and within budget, set 3-point estimates for durations and costs (min, most likely, max) and takes uncertainty into account.

A risk-simulated project schedule helps in analyzing the project schedule and determines if it is a Realists Plan (Most Likely), an Aggressive Plan (Optimistic), a Cautious Plan (Pessimistic), or a Scale Fit Plan (Politics). The Monte Carlo risk simulation enables the project risk team to determine the probability of achieving the project’s milestone dates and approved budget. In addition, it helps to identify the 10 or 20 risk events that have the highest impact on the project which will be presented in a report known as the Tornado report.

In a nutshell, a Monte Carlo simulated schedule will enable the project team to answer the question What chance do I have of finishing the project on the required completion date? What chance do I have of finishing the project within the approved budget? What date can I be 80% confident that the project will finish?  What activities are most likely to cause project delays? And What activities are most likely to cause project overrun?

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For all risk response actions for risks that were initially accepted by the risk owner, the PMWeb Budget Request module will be used to capture the details of all fund transfers from the contingency reserve or any other buffer or allowance category set to respond to accepted risks. The sum value of all those fund transfers will always equal zero as the fund transfer will subtract the buffer amount to be transferred from the relevant buffer type and add the same amount to the cost center level that needs to be adjusted. For example, assume there is a need for US$50,000 from contingency to concrete works, and a budget request will be created to show a positive US$50,000 for ‘03-030000 Concrete’ and a negative US$50,000 for ‘05-005000 Contingency.’ Of course, all supporting documents must be attached. In addition, a workflow will be assigned to enforce formal review and approval of each contingency transfer and incorporate the approval authority levels for those adjustments.

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A report will be created to capture the details of all those buffer transfers. The report will include a table containing details of all allowances, contingency, management reserve, and escalations transfers. The report will also have five donut visuals that will summarize the buffers by type. Each donut will show the amount transferred to date in ‘Red’ and the buffer balance amount in ‘Green’ along with the dollar and percent values for amounts transferred and the balance amount. In addition, each donut will include the total amount of each buffer type. The report also includes a filter to enable viewing the buffer status data for a single project, program, project portfolio, or all projects.

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Issue Management

Unlike project risk, which is the possibility of a problem that has not yet occurred but, if it does occur, could hurt a project budget, schedule, or scope of work (SoW). A project issue is a problem that is currently occurring. An issue must be resolved as soon as possible. If it is not resolved, it will have detrimental effects on the project budget, schedule, and scope.

To succeed in managing, monitoring, and reporting issues raised, a real-time web-enabled solution is needed to empower those involved in managing capital project delivery. They need to raise issues as soon as they occur and ensure they are resolved without affecting the project’s objectives.

Using a PMIS like PMWeb, a new process for managing, monitoring, and reporting project issues will be created. The PMWeb custom form builder allows the organization to create the ‘Issue Resolution’ form in the desired format to capture all needed details. These details could include the issue type, category, criticality, issue description, an issue raised by an Owner, issue resolution date, and which project schedule activity it impacts first. The issue form will also include fields for issue impact and severity, and will automatically calculate issue severity. The form will also include fields for issue resolution actions and a description of the attached documents. The form should generally be detailed to the level that eliminates ambiguities and miscommunication of the reported project issue.

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The Issues Log will provide the real-time status of all project issues captured in this Issues form. The Log, which may be designed in any desired form and format, could also include visuals to summarize issues by status, type, and issue owner, among others. The report’s tabular section will include the complete details of these issues that can be grouped and filtered in any desired format. The Issue Report will usually be needed by senior organization executives and the project team members.

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