What is it? At What Cost? Who Owns it?
Project Risk - What is it?
“Project Risk is an uncertain event or condition that, if it occurs, has an effect on at least one project objective.”[i] – or all project objectives - Cost, Schedule, Quality and Safety.
Projects are never risk-free, it’s simply a matter of degree.
Projects are complex. They involve a large number of people and companies that have never worked together before – each with their own culture, operating systems and tools that need to figure out how to do their work and make a profit. The length of time to deliver a project could be impacted by changes in key personnel, seasonal weather, economic shifts on commodity pricing or market availability of required labour, political or geo-political influences. Site soils, hydrology or environmental conditions typically lack data; regulatory oversight runs on its own schedule and rules and may not be transparent.
Owner stakeholder involvement – or lack thereof may result in unknown or undefined requirements resulting in project ‘scope creep’ or design errors or emissions. Frequently, risk is a result of a lack of information or data and a siloed, competitive, opaque approach to project delivery. The number of events that can have a negative effect on project delivery or outcome is large and varied.
As indicated in the chart here [ii], the three main players in project delivery identified where they believe the greatest project uncertainty or risk resides.
Project management practices suggest risk should be identified, quantified and managed to mitigate potential negative impact – or conversely to capitalize on potential opportunities.
The chart below [iii] is a typical representation of a project risk rating scheme – identifying the probability or likelihood of the risk occurring and the potential severity of the impact. All risk should be quantified with a cost contingency to best understand and make visible the project cost impact. As risk is realized – or not – the contingency is used to either address the risk or repurposed to additional project value opportunity.
Risk - What Cost?
Risk varies – as does the cost. Risk increases variability. Variability increases waste. Waste is costly.
LEAN practitioners manage and mitigate risk collaboratively. Reducing risk and associated contingency reduces the cost of the overall project.
Research on traditional project delivery has identified the extent of risk contingency carried separately by Owners, A&E Designers and Contractors [iv]. To be expected, 81% of Owners carry contingency on 100% of their projects. But of greater interest is the layers of contingency carried by these separate parties to the project.
Specific perceived risks are covered up to 3 times. Wasteful.
Who ‘owns’ the risks?
Risk is experienced by all the project players. Decades of traditional project delivery, has shown, the Owner ‘owns’ the risk impact of project objectives not met and therefore has a vested interest in identifying and mitigating risk. The ‘buck’ stops with the Owner.
Various project delivery models have attempted to off-load risks from the owner to other parties – typically the GC/CM and construction function of the project or to the A&E consultants designing the project systems and details. While others have attempted to manage these risks, they have also included a cost for this effort in their bid price ultimately paid by the Owner.
Contractors and Consultants protect their company as a first priority. The reality of project delivery is that it takes a team to be successful. No one person or party has all the answers. Decisions made or not made - the number of variables leading up to and including the construction phase validate these complexities and the need for a more effective approach.
Collaboration is the better approach to manage risk to mitigation. A shared responsibility. A RACI Chart as defined and illustrated below is a practical planning tool as a starting point for the Owner.
Determine the risks on your project early in the planning phase and record them in the Project Risk Register. Create a working matrix and update it frequently. Create a RACI Chart to make visible the collaborative management of risks. Seek to identify both data and expertise required on your project team to jointly manage and mitigate your project risks. Determine appropriate technology (BIM) to manage information and flow. Once identified, draft your Procurement Plan and ‘go-to-market’ to acquire and build your project team.
Owners, A&E Consultants and Constructors share responsibility for improving on project risk by collaborating on these efforts:
Integrated Planning – Owners own the overall master plan with identified key milestones. A&E Consultants and Constructors – the ones completing the work - are responsible for producing the integrated plan with detailed plans and schedules. Decisions are made collaboratively with the project best value in mind. Constraints are removed by the party best able.
Performance/Productivity Management – collaboratively set and agree on KPIs or the project Conditions of Satisfaction (CoS). Practice Plus/Delta as immediate project learning and capture Percent Promises Completed (PPC), using the Last Planner System as the look-ahead metrics. Common KPIs increase collaboration and effective performance monitoring
Go Slow to Go Fast – start with the end in mind to drive the execution plan. Resist pressure to start digging before all activities to mobilize are completed. Projects are not ‘shovel-ready’ until the mobilization plan is ready.
Reduce variability and waste. Using the Last Planner System as the project ‘operating system’ is a better practice for eliminating variability and waste while increasing project value.
LEAN Learning on the Project Site
Integrate planning from the beginning. Invest wisely. Include builders within the planning & design process to capitalize on their constructability knowledge and off-site construction opportunities. Include major Supply Chain to advise on details and just-in-time delivery. Invite City Planning and regulatory personal to participate.
Collect required data and on-board appropriate expertise early.
Manage the flow of information. Eliminate the need for Requests for Information (RFIs) during construction. Build the team based around trust and collaboration.
Set KPIs and jointly manage the performance to achieve them.
Specify the use of BIM with a document management system. This produces as-built project records as well.
Task the constructors and supply chain with producing the detailed drawings rather than the A&E group to eliminate the waste of rework.
A LEAN collaborative mindset and project operating system using LEAN tools turns project risk into value opportunity.
Stay curious. Stay tuned …
About the Author:
Kathleen Lausman is a Principal at Shift2Lean and building industry professional with a background in architecture and business. Her experience is that of the Public Owner and buyer of design & construction expertise. She is a former Deputy Minister for the Nunavut Government and one of the forming members of the LEAN in design & construction community in Canada. She started her Lean journey sixteen years ago and is still learning. www.shift2lean.ca
[i] Project Management Institute, Inc., A Guide to the Project Management Body of Knowledge (PMBOK), 4th ed.
[ii] Report - McGraw Hill Construction, 2014, Managing Uncertainty and Expectations in Building Design and Construction
[iii] Risk Register Matrix – Shift2Lean
[iv] Report – McGraw Hill Construction, 2014, Managing Uncertainty and Expectations in Building Design and Construction