Each group is requested to start thinking about constructing a scenario, in a structured way, where strategic and/or operational risks come into play. Based on this scenario, you will need to carry out the following assignment tasks:
- Describe the Scenario.
- Provide an overview of the organisation, product/service, key stakeholders, and any other criticalinformation relating to your Scenario. This is an essential background for establishing the relevant context of what you are facing as a risk manager.
- Elaborateon Risk Identification (What, How, and Why in detail with examples).
- Describe how and why you quantified at least three (3) risks in detail.
- Discuss (in general) the development of risk response planning as expected in your scenario.
- Describe (in detail) the risk plan implementation as expected in your scenario.
- Develop an appropriate risk tracking, monitoring and control (TMC) system.
- Identify an incident that has occurred either in one of your identified risks, or related to all your risks, and describe the nature and extent of change that has taken place.
- Elaborate on the (in)effectiveness of your TMC in handling and dealing with the incident occurred in the above point.
- Give a summary of key issues in the scenario.
In responding to the above tasks, it is expected that you will be demonstrating your capabilities in:
Dealing with various Stakeholders having different attitudes towards identified risk(s) Using both objective and subjective risks via probability distribution and fuzzy logic Referring to national or international risk standards
Making decisions under risk (one example) & under uncertainty (one example)
Applying one or more of the risk management tools and techniques to deal with Only One of the following aspects:
Safety, Finance, Procurement, Design, Contracts, Technology, Or Innovation.
Scenario Construction and Assignment Tasks
The risk analysis is the basic technique that is utilized for the proper identification as well as assessment of factors that might easily jeopardize or put in danger the success criteria of the project or achievement of goals and objectives (Glendon Clarke & McKenna, 2016). The technique of risk analysis is even helpful for defining the prevention measures to minimize the basic probability of all these factors like occurrence and identification of counter measures to properly deal with the basic constraints whenever they develop for averting the possible negative effects over the competitiveness or competitive advantages of any specific organization (McNeil, Frey & Embrechts, 2015). The most popular and effective method for performing the risk analysis is known as facilitated risk analysis process or FRAP. There are some of the basic assumptions of this facilitated risk analysis process. The additional efforts are taken into consideration for the proper development of precisely quantified threats and these are not at all cost effective. The major reasons for these assumptions are that they are extremely time consumption. Moreover, the procedure of risk documentation is quite voluminous for the practical usage and the loss estimates are not required for the determination when the controls are required (Chance & Brooks, 2015). As soon as identification and categorization of risks is completed, the risk analysis team identifies the various controls for mitigating those risks. There are several methods that are effective and efficient for the successful mitigation of such risks in any specific organization.
Risk management is the proper identification, prioritization or even evaluation of the various risks that is eventually followed by economical as well as coordinated application of the resources with the major purpose of minimizing, monitoring and finally controlling the impact or probability of the several unfortunate events or the maximization of opportunity realization (Hopkin, 2018). These risks usually come from various types of sources like threats due to failure of projects, credit risks, deliberate attacks, unpredictable or uncertain root causes, uncertainty in the financial markets, natural causes and many others. There are two distinct types of events, which are negative and positive events. The negative events are called the risks and the positive events are called opportunities. Various risk management standards are present that are utilized for dealing with the several risks related to finance, safety, procurement, design, contract, innovation and technology (Pritchard & PMP, 2014). The few methods, goals and objectives widely vary as per the method of risk management within the context of financial portfolios, public health, public safety, security, industrial processes, project management, engineering and actuarial assessments. There are several strategies that are utilized for the basic management of threats or the uncertainties with few negative consequences.
Facilitated Risk Analysis Process and Risk Mitigation Methods
The five major processes of the risk management are identification of risks, analysis of those identified risks, assessment as well as evaluation of the analyzed risks, proper mitigation of the risks and finally monitoring or taking proper follow ups of the risks by implementing various strategies (Wolke, 2017). There are some of the major and the most significant approaches of this risk management. When the various risks of the specific project are being identified properly and the process of risk management is being implemented, four distinct strategies are applied within the project. These are known as approaches of risk management. The first and the foremost approach is risk avoidance. With this approach, the threats are deflected for the purpose of avoiding the expensive as well as disruptive consequences. The next approach is risk reduction, where the several risks are being reduced on the processes of the project (Sadgrove, 2016). The third approach is risk sharing, where the risks are shared with a specific third party like vendor. Finally, the risk retaining approach helps to retain the risk level within the project.
Project risk management is the most significant aspect in project management. Project risk is the uncertain condition or event, which when occurs has a positive effect or a negative effect on the objectives of that project. This project risk management helps to solve risks like operational and financial (Wynne, 2016). The project risk management usually starts either with recognition or identification of threats or by examining the opportunity. The significant analysis of several alternatives and generation of costs are done in this type of management. The following research report outlines a brief description on the risk analysis and management for a manufacturing company, namely ABC Pvt Ltd. This particular company is responsible for manufacturing gear boxes for FORD automobiles. The report provides a proper elaboration of risk identification, and describes five major risks for this organization. Moreover, the development of risk response planning and implementation of risk plan will also be provided here. This report even demonstrates the appropriate risk tracking, monitoring and control or TMC system and elaboration of TMC system in one real life incident. The final part of the report depicts the important issues in the organization of ABC Pvt Ltd.
ABC Pvt Ltd Company is a manufacturing organization that manufactures gear boxes for FORD Automobiles. The respective production department of this company has recognized a new process, called lean production for the same products, they are manufacturing. The direction of ABC Pvt Ltd Company, Mr. Smith will be approaching the production department for building a plan and providing the cost breakdown to develop a brand new process. They would be undergoing this step for the purpose of manufacturing the existing products. The production manager of ABC Pvt Ltd Company reports to Mr. Smith that the development of these new processes majorly includes complexities and hence he does not have any experience in the company for building or developing the new process. Mr. Smith has kept a major condition that during the development of the new process, the existing production must not be affected at any cost and even the employees must be trained well. He wanted to make sure that the organization does not face any issue regarding the development of the new processes. Mr. Smith has set a Guarantee Maximum Price Contract with the sharing clause of 50/50. The project delivery contract is Design Bid Build and a local contractor has accepted the project. The proper identification and analysis of the risks should be done for this project and the handling of subjective and objective risks should be done accordingly.
Types of Project Risks and Risk Management Strategies
ABC Pvt Ltd is manufacturing company that is responsible for manufacturing gear boxes for FORD Automobiles. They manufacture gear boxes with several machines, tools, chemical processing or formulations. They have includes all types of intermediate procedures that are needed for the production or integration of their products’ components. Since, they are manufacturing gear boxes for cars; the process of fabrication is also used. The product designing and material specifications are done in this ABC Pvt Ltd Company and then the materials are modified with the help of manufacturing processes for becoming the required part. Now, this organization has identified a new process known as lean production for their existing products of gear boxes. The Director and the production manager of this organization want to analyze the risks that are common for this new process. Moreover, training is also required for the employees for not affecting or hampering the procedure of existing production.
The products or services of this particular organization of ABC Pvt Ltd Company are manufacturing gear boxes for the popular automobile organization called FORD Automobiles. The stakeholders of any organization can be defined as the individuals or groups, who are majorly linked or have relevant concern for the company. These stakeholders could eventually affect or be affected by the various actions, policies, procedures and objectives of the organization. The negative impact on the stakeholders occurs when that particular company requires to cut the costs and then plans for a round of layoffs. The various changes or modifications in the company are because of the stakeholders or movements of the stakeholders. The several stakeholders of this manufacturing organization of ABC Pvt Ltd Company are director, Mr. Smith, production manager, creditors, employees, suppliers, shareholders or owners, communities from which the business has drawn the resources, government as well as the agencies. All of the above mentioned stakeholders are directly related to the growth and development of the business in ABC Pvt Ltd Company.
The project delivery contract type that Mr. Smith, the director of ABC Pvt Ltd has selected is design bid build (Bolton, Chen & Wang, 2013). This design bid build or design tender is a specific method for delivering projects, where the owner or the enterprise eventually contracts with the different entities for design as well as construction within the project. This particular method of design bid build is completely different from the design build method. There are three major sequential phases, which are the design phase, the bidding or the tender phase and the construction phase (Ho et al., 2015). In the design phase, the owner of the project retains an architect for designing as well as producing the bid documents like technical specifications and construction drawings and on these specifications and drawings the several general contractors would be bidding for executing the project. The completed bid documents are substantially coordinated by the owner and the architect for issuing the general contractors in the next bidding phase. The design fees are usually within 5% to 10% of the total cost of the project (Burke, 2013). The next phase is bidding or tender phase, where the various general contractor bid on that project for obtaining the copies of bid documents and then putting them to the several subcontractors for bidding on the sub components of the project. When bids are received, the respective architect reviews these bids and then seeks any clarification about the bidders and investigates about the qualifications of the contractors. The owner might even reject the bids. There are few options that are available for the owner, which are re bidding or re tendering of the entire project, abandoning the project, issuing the work order for having the architect revise the entire design for making the project smaller and more efficient and even selecting the general contractor like the lowest bidder or any experienced estimator of costs for assisting the architect with the changes in design (Edwards & Bowen, 2013). The final phase in the design bid build contract is the construction phase. When the construction of the specific project is being awarded to the contractor; all the bidding documents like technical specifications and approved construction drawings are not changed.
Project Risk Management for ABC Pvt Ltd Company
The contract type of this project according to Mr. Smith in ABC Pvt Ltd Company is Guaranteed Maximum Price or GMP contract is the cost type contract, in which the contractor is compensated for the original costs that are being incurred with the fixed fee (Hillson & Murray-Webster, 2017). This contractor is solely responsible for the cost overrun, unless and until this type of GMP contractor is being incremented through formal change order. Mr. Smith has also set the sharing clause of 50/50 in his project. This is one of the most popular and significant clause that is present in the Construction All Risk Insurance Policy. In any project, it is mandatory and important for the project owner to safeguard the raw materials, work in progress and the capital investments that are eventually brought together for the utilization within the project against all types of damages and losses (Wu, Chen & Olson, 2014). This particular policy of clause 50/50 helps to save the project by simply safeguarding the liability against the claims of third party that might arise from the activities of the construction. The clause 50/50 policy even involves the fire insurance policy for covering damages and losses caused due to fire. As soon as the goods are arrived at the contract site, the respective policy holder would inspect the materials for finding all possible and probable damages incurred during transit (Giannakis & Papadopoulos, 2016). The organization of ABC Pvt Ltd Company hence would be benefitted with the involvement of this clause.
Risk identification is the major procedure to determine the risks, which could substantially prevent the enterprise, investment, program or process to achieve their goals and objectives. The first and the foremost objective of the risk identification process is to continuously identify those events, which when occur, have negative effects on the ability of that project from achieving the desired outcomes or desired performances (Kardes et al., 2013). These types of risks usually come from several external sources or even from within the project. Various types of risk assessment are present for a project, like risk assessment for supporting the investment decisions, alternative analysis, program risk assessment, cost uncertainty, assessment of program risks and many more.
The significant risk identification technique is the first and the most important step in the entire process of risk management (Woodward, Kapelan & Gouldby, 2014). This identification of risks helps to assess the probability as well as consequences of the identified risks to a greater level so that risk impact assessment is easily done. After this step, the consequences might involve costs, impacts of technical performances, project schedule and many other factors. The risk identification requires matching the type of assessment that is majorly required for supporting the risk informed decision making process (Soin & Collier, 2013). The very first step is to identify the goals and objectives of the program and then a common understanding is being fostered in the team that the major requirements for a successful program.
New Process of Lean Production for Existing Products
The risk register is the living document, which is regularly updated in the entire life cycle of a project (Hinkel et al., 2015). It is the significant part of project documents and is also included within the historical records, which are being utilized for the future projects. This is extremely vital for the project risk management consultant to know about the sources of the risks, since; it is required for their proper mitigation. The risk register of the project also comprises of the potential risk responses and risk categories. The updated risk categories store the risks that are possible in that particular project (Mikes & Kaplan, 2013). The major categories of risks within a project are external risk category, internal risk category, technical risk category and unforeseeable risk category. The external risk category is either related to the market, environment, regulatory or the respective government. The internal risk category is related to customer satisfaction, costs, qualities and services of the organization that is executing the project. Any minor or major change or alterations within the previously existing technology is the technical risk category (Hwang, Zhao & Toh, 2014). Finally, the last risk category is unforeseeable risk, which is unknown for the project manager and the clients of the project. These types of risks are about 9% to 10% in any project and could not be calculated beforehand.
There are some of the major tools and techniques of risk identification process. The most significant and important tools and techniques of this risk identification process for any particular project are as follows:
- Documentation Reviews: This is the first and the most common technique for identifying the risks in any project. It is the standard practice that helps to identify the major risks by simply reviewing the various project related documents like lessons learned, article review, assets of organizational procedure and many more (Matyas & Pelling, 2015). These above mentioned documents are solely required to know about the current scenario in any particular organization. Documentation reviewing is considered as one of the most techniques for risk identification that is being utilized in almost every organization by the respective project risk management consultant. The periodical review of documents is mandatory in all companies to maintain a risk free company and this is even responsible for detection and prevention of probable risks.
- Technique for Information Gathering: The second important and popular technique that is used in any organization to identify the risks or execute the risk management process is the basic technique for gathering information (Grace et al., 2015). There are various techniques for this information gathering and they are given below:
- Brainstorming: The first and the foremost technique for information gathering is brainstorming. It is the specific technique of group creativity, through which major efforts are made to find the respective conclusion for any particular issue by simply gathering the list of ideas that are contributed by the team members (Farrell & Gallagher, 2015). Brainstorming is the situation, in which the project members eventually meet for generating the new solutions and ideas and for risk identification, they find out the probable risks in the project.
- Interviewing: The next technique to gather information is interviewing. It is again one of the major and effective techniques for information gathering within the project. An interview is being conducted with all the members of project, experts, customers, suppliers and all other stakeholders of that particular project for the proper identifying of the risks.
- Root Cause Analysis: The third important technique for information gathering in any project regarding the risk identification is the specific root cause analysis (Bowers & Khorakian, 2014). The root causes are being determined for all the identified risks in the project. All the root causes that are determined by this analysis are further utilized for the identification of any additional risk.
- d) SWOT Analysis: Another important and significant technique for gathering relevant information regarding any project is the SWOT analysis. SWOT analysis refers to the strengths, weaknesses, opportunities and threats for that specific project (Carvalho & Rabechini Junior, 2015). This information is important to learn about the risk determination within the project. The proper identification of the strengths, weaknesses, opportunities and threats is extremely important for all projects to identify, analyse and resolve the risks.
- Checklist Analysis: The next technique for gathering of information is the respective checklist analysis. The proper checklist of all the risk categories is eventually utilized for coming up with the additional risks within the project (Eckles, Hoyt & Miller, 2014). This type of checklist helps to document the various risk categories within the project.
- Delphi Technique: It is again one of the most popular and significant techniques for information gathering, where a team of experts is being consulted in the project anonymously. Next, a list of the required information is being sent to particular team of experts (Teller, 2013). In the next step, the responses are eventually complied and finally the results are sent back to them for more review until and unless a consensus is reached.
- Assumption Analysis: This particular technology of information gathering can be defined as the identification of various assumption of any project for the successful determination of the validity and further helping in the proper identification of the risks within the project.
These above mentioned tools and techniques for the process of risk identification are quite popular and vital for all types of projects (Grötsch, Blome & Schleper, 2013). The various types of projects like quality management, automation, lean production, process optimization, process engineering and many others can easily implement these tools and techniques for successfully identifying the risks in the projects. Moreover, various other tools are also present that help in risk analysis only after the risks are being identified properly. The most significant and noteworthy tools and techniques for the proper analysis of those identified risks in any project are probability and impact matrix, which helps to identify those specific risks that need the most immediate and direct response (Van Deventer, Imai & Mesler, 2013). This matrix is usually customized as per the project requirements and the project managers leverage the standardized templates of this matrix. The next technique is the performing qualitative risk analysis, which helps to identify the risk response of urgent attention and exposure of risk to that project. The other important tools and techniques for risk analysis in any project are risk data quality assessment and performing quantitative risk analysis. In these two techniques quality as well as the reliability of the data of the projects are determined and the data integrity is checked (Webb et al., 2014). Moreover, in quantitative risk analysis, the specific numerical analysis of individual risks is being completed.
Stakeholders in ABC Pvt Ltd Company
There are various important risks that are quite common for project and contracts. The project risks are the various uncertain events or conditions, which when occur have the significant and noteworthy effects and impacts on all types of project objectives (Osipova & Eriksson, 2013). The process of risk management then focuses on the successful identification as well as assessment of risks to that project and hence managing the risks for the major purpose of reducing the impact over the project. ABC Pvt Ltd Company is a manufacturing company that is responsible for manufacturing gear boxes for the popular organization of FORD Automobiles. The director of this organization has decided to build a plan and then provide the cost breakdown structure to develop a new process, called lean production for manufacturing their existing products. The respective production manager of this organization of ABC Pvt Ltd Company has given the report to Mr. Smith that the development of the new process subsequently involves various complexities and he does not have experience on this process (Serpella et al., 2014). For this purpose, the director has hired a risk management consultant for successfully identifying as well as analyzing the risks within the project and contract.
There are two distinct types of risks, namely subjective risks and objective risks. The objective risks are those risks, which could be easily and properly measured either directly or indirectly and also quantified (Falkner & Hiebl, 2015). Almost all the significant risks can become objective, when the number of these types of incidences usually become significant for the statistically estimation of its probability. On the other hand, the subjective risks are less quantifiable and could not be measured directly or indirectly easily. The organization of ABC Pvt Ltd Company might be facing various risks within the new process development of lean production. Since, this particular organization will be having the project delivery contract as Design bid build and the Guaranteed Maximum Price Contract with the respective sharing clause of 50/50, the risks will be related to these (Brustbauer, 2016). The few risks to this new process of lean production are given below:
- Failure of Design Team: The first and the foremost risk for the design bid build for lean production development in the organization of ABC Pvt Ltd Company is that the failure of the specific team of designing is current with the costs of construction and the potential costs would be incrementing during the phase of design in this type of contract (Wiengarten et al., 2016). This kind of increase in the potential costs could subsequently result into major project delay, of the documents of the construction is not redone for the core purpose of minimizing the risks.
- Dispute of Redesigning Costs: The second important and significant risk that is possible for the lean production development in the organization of ABC Pvt Ltd Company would be the redesign expenses or costs could be disputed if the contract of the architect is not properly addressing the issue of revisions that are required for the proper reduction of costs (Marle, Vidal & Bocquet, 2013). When these redesign costs would be disputed, the project will be delayed to a high level and hence the resources like time and cost usage are quite high.
- Selection of Lowest Price Bidder: The third and another important risk with this lean production development in the organization of ABC Pvt Ltd Company is that the development of any cheaper product would be better is major thought within the general contractors while they are bidding for the project (Aven, 2014). Hence, there is the significant tendency of seeking out at the lower cost sub contractors within the given market. In the stronger markets, the general contractors have the major ability for being selective regarding the choice of projects that are to be bid, however in the lean production; the specific desire for the work substantially forces the lowest bidder of all the trades to be selected. Hence, there is an increase in the risk for the general contractors and could also compromise with the respective quality of the construction (Teller, Kock & Gemünden, 2014). ABC Pvt Ltd can be even claim dispute for such products and the thus the quality of the final product is degraded and the organization might face major losses.
- Less Opportunities for Inputs: Another important and significant risk for the lean production development in the organization of ABC Pvt Ltd Company is that since the general contractors are brought to the respective team post designing, there are extremely little opportunities for inputs over the effective alternatives that are being presented (Peng, Peng & Chen, 2014). This could be a major issue for the organization since they will not be able to increase the opportunities for the respective inputs or alternatives within the project. Therefore, changing the project or making few alterations within the project t will not be possible at all.
- Dispute Due to Pressure: The fifth specific risk for the development of lean production process within this organization of ABC Pvt Ltd Company is that the pressures might be exerting over the design as well as construction teams for the various competing interests that might be majorly leading to several disputes within the general contractor and the architect of this project and is responsible for bringing subsequent delays in the project of ABC Pvt Ltd.
These above mentioned risks would be quite common for the design bid build project delivery contract of ABC Pvt Ltd (Ibelings et al., 2014). However, apart from these risks, few other common risks are also possible for the project execution of lean production in this company. These risks are as follows:
- Delays and Disruptions in Supply Chain: The first and the foremost risk that is common for any manufacturing company like ABC Pvt Ltd is the delay or disruption in the total supply chain. This type of risk is responsible for affecting the supply chain in the project massively. These risks are sub divided into two major areas, which are disruptions and delays (Khan, Rathnayaka & Ahmed, 2015). The delays might occur due to the transportation issues and even could come from the issues related to quality control with the supplier of this particular organization of ABC Pvt Ltd for their new process of lean production. This specific organization should select such suppliers, who are close to them for avoiding or reducing these types of risks. Moreover, the frequent quality control issues with the supplier might even indicate that a new supplier is to be found out for the proper diversification of the suppliers that are being used. The disruptions could be harder for prediction. The most significant examples of the disruption risks are labour strikes, fires and natural disasters (Li et al., 2015). These types of risks are difficult to avoid; however, with proper precautions, these risks could be minimized to an extent.
- Third Party Vendors: The second popular and significant risk for the development of lean production within the organization of ABC Pvt Ltd Company is with the presence of third party vendors (Zhao, Hwang & Low, 2013). The subsequent management and control of the third party vendors must be done by them on the basis of the risk that each and every vendor is posing. They should also concentrate on the billing and payroll of their project and should take into consideration about the financial and sensitive information about the vendor selection. The location of the vendors should not be changed at any cost and the regulatory risks should be considered (Lave, 2013). ABC Pvt Ltd Company must conduct a thorough and complete risk assessment of the vendors and then perform the required due diligence with the respective third party relationships for the reduction of the vendors’ risks. Hence, the control and monitoring of the vendors should be done after the proper identification of due diligence.
- Information Technology: The third important and significant risk for the development of lean production in the organization of ABC Pvt Ltd Company is with the information technology (Van Westen, 2013). This is one of the most common risks in any project in which the sensitive information is to be protected. For the purpose of mitigation of these types of risks, the data should be stored in the cloud; however, the cloud storage requires constant up gradation. When the involved data are at risk, the significant risk of regulatory non compliance is being run within the information technology. The data movement is required in this case before the required data are moved to the cloud systems (Aldunce et al., 2015). The risks related to the information technology must be continuously monitored and tracked and even the systems should be updated periodically.
- Staff Management as well as Succession Planning: The next popular risk for the organization of ABC Pvt Ltd in their new project is the staff management and succession planning. The respective profit margins are properly improved with the internal processes and another important element is to be checked in this case, which is the staff of this organization (Patankar & Taylor, 2017). Since, the production manager is responsible for any type of new production or new development in ABC Pvt Ltd Company, the organization should manage their staffs or labours properly and look for their problems or issues. Since, Mr. Smith does not wish to hamper the production of the existing products, he should also check the staffs or labours are working comfortably and the development of new process is not a burden for them.
Project Delivery Contract and Design Bid Build Method
Since, this lean production is of Guaranteed Maximum Price contract, there could be possibility of few other risks as well and these risks are given below:
- Nature of Variations: The first and the foremost risk factor that is common for the Guaranteed Maximum Price contract is the nature of variations (Gao, Sung & Zhang, 2013). The instruction of an engineer or architect is classified in either the variation of GMP that is liable for adjusting the agreed target cost value in design developing change or in contracts. This particular risk of nature of variation could eventually lead to the major source of disputes within the Guaranteed Maximum Price contract schemes. Moreover, the alterations in building services installation as well as the structural building frame erection could be classified as the design development items that cannot change the contract value of Guaranteed Maximum Price contract (Alviniussen & Jankensgard, 2015). The expenses would be higher in this type of change and these changes are deemed to have been covered within the fixed lump sum price of the direct works of the main contractor.
- Quality and Clarity in Tender Documents: The second contractual risk for the development of lean production process in the organization of ABC Pvt Ltd Company is the clarity and quality of tender documents. The specific contract document comprises the several tender documents for allocating the risks (Tao & Hutchinson, 2013). When this type of risk occurs within the contract, the huge number of conflicts and disputes would take place within the project and the unnecessary contract variations can also occur in the post contract stage. The respective contractor of the organization of ABC Pvt Ltd Company has to cover typical risk of inaccuracy of the various firm quantities within the Bill of Quantities or BOQ within the project.
- Change in Scope of Work: Another popular and significant risk that could be possible for the Guaranteed Maximum Price contract for ABC Pvt Ltd Company is the change in the scope of work (Sweeting, 2017). Disputes could eventually occur due to these types of changes or alterations within the scope of their works. When the various standard specifications of the client or the architect changes, the standard of the Guaranteed Maximum Price contract projects will also change and alter accordingly. As the unexpected change within the scope of work might also generate the considerable number of variations in these contracts; it would last till the overall development programmes and the specific cost estimations are being escalated within the project (Xin & Huang, 2013). The improper handling of the issues might even bring out disputes within the project and the organization of ABC Pvt Ltd might face major losses of the resources.
- Fluctuations in the Material Price: The distinct and popular risk for the Guaranteed Maximum Price contract for the organization of ABC Pvt Ltd Company’s new process of lean production is the massive fluctuations in the material prices. This is considered as one of the most significant and common type of risk for any Guaranteed Maximum Price contract (Covello et al., 2013). Several projects and organizations have suffered losses due to this particular risk. This type of fluctuations in material price majorly affects the contractor and the owner of the project suffers losses for the sharp increment within the material prices. Since, the director of ABC Pvt Ltd Company has set a clause of 50/50 in the all risk insurance policy; they might not be facing this problem directly. The capital investments as well as the materials of the project that are brought for use would be eventually protected against the several types of damages and losses (Le et al., 2013). The insurer applies the 50/50 clause within the construction all risk insurance policy and hence protects the data in a high level.
These above mentioned risks clearly depict the types of risks possible within the development of new process of lean production for the organization of ABC Pvt Ltd Company.
The risk response plan for all the above mentioned risks for this particular organization of ABC Pvt Ltd Company is provided below:
Failure of Design Teams
The design team fails to complete the work with the current budget of the project and construction costs are increased (Heazle et al., 2013). This results in project delays.
The impact of this risk is high as it would result in project delay.
Dispute in Redesigning of Costs
This occurs when the architect of the contract is not addressing the revision issues properly and hence these costs are disputed (Bachev, 2013).
The impact of this risk is moderate as the issues could be done revision again.
Selection of the Lowest Price Bidder
Often the project owner in the lean production selects the lowest price bidder for the project and increases the risk of quality and time consumption in the project. Moreover, disputes are also claimed here.
The impact of this risk is high as it could affect the entire project.
Lesser Opportunities for Inputs
Since the general contractors are brought to the respective team post designing, there are extremely little opportunities for inputs over the effective alternatives that are being presented (Kull, Mechler & Hochrainer?Stigler, 2013). Due to the lesser opportunities, project alterations are always not possible here.
The impact of this risk is low since changes could be brought in the project.
Disputes due to Excess Pressure
The excessive pressure on the designing and construction teams for the several competing interests might also lead to project dispute for the architect and the general contractor of the project. It is quite common for the design bid build project delivery contract (Fenz et al., 2014).
The impact of this risk is moderate as the pressure over the designing and construction teams could be reduced.
Delays and Disruptions in the Supply Chains
This type of risk is responsible for affecting the supply chain in the project massively. The delays in the project occur for the issues in transportation and could even come from the few problems related to the quality control with the respective supplier of that project. The second type of risk is the disruption, which is hard to predict in any project (Chan & Wong, 2015). The examples of disruption risks are natural disasters, fires and labour strikes.
The impact of this risk is high since it would bring project delays and disputes.
Third Party Vendors
The proper management and control of the third party vendors must be done by them on the basis of the risk that each and every vendor is posing. They should also concentrate on the billing and payroll of their project and should take into consideration about the financial and sensitive information about the vendor selection (Huber & Scheytt, 2013). As the vendors are responsible for bringing the various changes within the project, the progress is also affected due to this.
The impact of this risk is high as vendors are responsible for bringing success in the project.
Information Technology Failure
The failure of information technology leads to the loss of sensitive and confidential information or data. This type of risk is extremely common for all organizations and hence should be mitigated on time.
The impact of this risk is moderate since it is common for all projects.
Staff Management and Succession Planning
The staffs are the most important assets of a project. They should be properly managed and should be checked that they are not pressurized unnecessarily for the required progress in the project. Moreover, when anyone of the staff or labour is leaving the project, who would be taking his place and position. This is a major risk within the project (Brindley, 2017).
The impact of this risk is low as staffs could be managed properly without many complexities.
Nature of Variations
The proper instruction of any engineer or architect can be classified in either the variation of GMP that is liable for adjusting the agreed target cost value in design developing change or in contracts. This particular risk of nature of variation could eventually lead to the major source of disputes within the Guaranteed Maximum Price contract scheme (Fadun, 2013). Furthermore, alterations are also not possible due to this risk.
The impact of this risk is high as it could lead to project dispute.
Quality and Clarity in Tender Documents
This contractual risk ceases the project from gaining quality as well as clarity within the tender documents. This type of risk is responsible for bringing various unnecessary contract variations, conflicts and disputes. The inaccuracy of the firm’s quantities in the BOQ or bill of quantities is the next effect of this risk (Choi, Chan & Yue, 2017).
The impact of this risk is high since the lack of quality and clarity in the tender documents leads to major failure in the project.
Change in Scope of Work
This type of risk brings disputes within the projects. If the project is changed completely, it would bring both the consumptions of resources like time and cost. As the unexpected change within the scope of work might also generate the considerable number of variations in these contracts; it would last till the overall development programmes and the specific cost estimations are being escalated within the project (Embrechts & Hofert, 2014). Moreover, there is also an improper handling of several issues.
The impact of this risk is moderate as this risk could be avoided.
Fluctuations in the Materials’ Price
This type of risk eventually occurs when there is massive fluctuation in the price of the materials that are being utilized within the project for executing this project (Bertinetti, Cavezzali & Gardenal, 2013). This type of fluctuations in material price majorly affects the contractor and the owner of the project suffers losses for the sharp increment within the material prices.
The impact of this risk is low as major fluctuations could not bring problem for the project because of 50/50 clause.
Table 1: Risk Response Plan for ABC Pvt Ltd Company
As per the risk response plan, there are four risk responses for the thirteen identified risks for the organization of ABC Pvt Ltd Company. These four risk responses are as follows:
- Avoid: This response refers to the fact the specific threat should be eliminated and the project should be protected from its impact (Manuj, Esper & Stank, 2014). The most common actions for threat elimination are changing project scope, extending deadline for timely project completion.
- Transfer: This response refers to the fact the specific threat should be moved to a third party. The direct methods could be use of performance bonds, warranties and insurance. The indirect methods are using unit price contracts instead of lump sum and legal opinions.
- Mitigation: This response refers to the fact the probability or impact of the risk should be minimized and a proper balance should be maintained for the threat (Wu, Olson & Dolgui, 2015).
- Accept: This particular response refers to the fact that since all projects comprise of risks, some of the risks could be accepted within the project. It is a strategy that provides better output to the project.
The risk plan implementation in ABC Pvt Ltd Company for the identified risks within the risk response plan is as follows:
- Failure of Design Teams: The response for this risk is transfer, which depicts that this risk should be transferred to the third party vendors by indirect method of unit price contract (Boyle, 2015).
- Dispute in Redesigning of Costs: The response for this risk is mitigation, which depicts that the risk could be mitigated for reducing the impact of the risk.
- Selection of the Lowest Price Bidder: The response for this risk is avoid, which depicts that the risk should be eliminated and the project should be saved (Didraga, 2013).
- Lesser Opportunities for Inputs: The response for this risk in ABC Pvt Ltd Company is avoid, which depicts that the risk should be eliminated and the project should be saved.
- Delays and Disruptions in Supply Chain: The response for this risk is transfer, which depicts that this risk should be transferred to the third party vendors by indirect method of contracts.
- Third Party Vendors: The response for this risk is avoid, which depicts that the risk should be eliminated and the project should be saved (Cagliano, Grimaldi & Rafele, 2015).
- Nature of Variations: The response for this particular risk is avoid in ABC Pvt Ltd Company, which depicts that the risk should be eliminated and the project should be saved.
- Quality and Clarity in Tender Documents: ABC Pvt Ltd Company should avoid this risk for solving the issues related to project (Zou, Kiviniemi & Jones, 2017).
- Change in Scope of Work: The response for this specific risk is mitigation, which means the risk should be mitigated properly.
The system of risk tracking, monitoring and controlling or TMC is required to track, monitor and control the various identified risks. The requirements of this particular system of risk TMC are as follows:
- The first and the foremost requirement of this type of risk tracking, monitoring and controlling system is for ensuring the proper execution of the several risk plans and then evaluating the effectiveness for the reduction of the identified risks (Wu, Olson & Birge, 2013).
- The second important and significant requirement of the risk TMC system is for keeping subsequent track of all the identified risks and even the watch list.
- The next important requirement of this risk TMC system is to monitor the several trigger conditions for the contingencies within the project to be executed.
- Another vital and noteworthy requirement of the risk tracking, monitoring and controlling system is to monitor the residual risks and also to identify the new or additional risks that are arising while executing the specific project (Kerzner & Kerzner, 2017).
- The subsequent up gradation of the organizational process assets is the next important requirement for this particular system of risk TMC.
The main purposes of the risk TMC system are given below:
- The major purpose for implementing this system is to determine that the risk responses are being implemented as per planned.
- The actions of the risk response are as efficient and effective as per expectations or if the new responses are being developed (Marchewka, 2014).
- Another purpose of this risk tracking, monitoring and controlling system is to determine that the project assumptions are valid and a risk trigger has occurred.
- The next purpose of this system is that the risk exposure has changed from the previous state with proper trend analysis.
- The fifth purpose of the risk TMC system is that the various policies as well as procedures are being followed (Larson et al., 2014).
- The other purpose for developing this system of risk tracking, monitoring and controlling is to check that the additional risks have occurred that were not previously identified.
The various inputs for the risk system of tracking, monitoring and controlling are as follows:
- Risk Management Plan: This plan of risk management helps to manage the risks and comprises of the risks that are being identified in the process.
- Risk Register: The second input is risk register, which comprises of the outputs of all the additional processes (Fleming & Koppelman, 2016). These outputs are identified owners and risks, warning signs, risk responses and triggers.
- Approved Change Requests: These approved changes involve modifications like the scope, schedule, contract terms and methods of work. The risk analysis also has a major impact on the existing risk management plan.
- Work Performance Information: The performance reports and the status of the project is important to track, monitor and control the risks.
The various tools and techniques for setting the system of risk TMC are as follows:
- Risk Reassessment: This technique helps to review the project risks in the team meetings (Walker, 2015). It even reviews the major milestones and the risk ratings as well as prioritization might change in the project life cycle. The changes might even need additional quantitative and qualitative risk analysis.
- Risk Audits: This technique examines and documents the effectiveness of the risk response plan for controlling the risks.
- Variance and Trend Analysis: This technique is used to monitor the total costs and schedule performance of the project after updated identification of risks.
- Reserve Analysis: When the execution comes closer, few risks could bring positive or negative impacts on the costs and schedule (Harrison & Lock, 2017).
- Status Meetings: This technique ensures that the risk management could be addressed properly by inclusion of subject in the project meetings.
The respective outputs of this system of risk tracking, monitoring and control are as follows:
- Risk Register Update: The first output that is possible from the specific system of risk tracking, monitoring and control is risk register update (Heagney, 2016). These updates involve outcomes of the risk reassessment, audit and the risk review. The update might affect the risk’s probability, response, rank and impact.
- Corrective Action: This correction action comprises of the performance of the contingency plans or the workarounds. This workaround is previously unplanned response to the emerging risks.
- Recommended Preventive Action: The recommended preventive action is utilized for directing the project towards compliance with the specific project management plan.
- Project Change Request: The implementation of workarounds or contingency plans eventually result in the major need of changing the entire project plan for responding to the risks. The overall change controls manage the issues of change requests (Choi, Chan & Yue, 2017).
- Organizational Process Assets Update: This particular output occurs after gaining the information by the risk management procedures for keeping them safe to use in the future projects. The information that is gained is probability impact matrix, lessons learned, template for the risk management plan and risk register.
- Project Management Plan Update: The various updates to the plan of project management is the distinct result of the requested changes in the projects.
These above mentioned factors clearly complete the entire system of risk tracking, monitoring and controlling for any particular project.
The clarity and quality of tender documents is one of the most significant risks that occur in any project. Tendering is the major stage in the construction project, which needs extra information as well as exchange of documents (Kull, Mechler & Hochrainer?Stigler, 2013). The specific procedure that is being utilized by several customers of constructions for the major purpose of obtaining the program and price to build any typical project is known as tendering. The customers provide the general contractors with the set of tender documents for a bid proposal on which the contract could be executed. These types of tender documents comprise of the information regarding the project plans of the customer so that the general contractor could price them (Huber & Scheytt, 2013). However, many a times, the tender documents are not always proper, sufficient, clear and consistent. Hence, the evaluation of the tender program as well as price for the respective construction project is quite difficult. The various aspects of the construction management in the project majorly imply the poor quality of the tender documents. These tender documents of the project eventually comprise of the design or specification of the requirement of the customer. It is the same document that the bidders require for calculating the price (Bertinetti, Cavezzali & Gardenal, 2013). The various documents like the rates of schedule, bill of quantities, instructions to the tenders, conditions of the contracts, specifications, drawings, contract form and the list of enclosures.
In XYZ Company, a construction project suffered subsequent losses due to the lack of clarity and quality in the tender documents. The tender documents of this particular organization had major disparities within the bill of quantities, drawings and specifications. Furthermore, the distinct specifications were poorly written and these raised several issues within the tender documents (Manuj, Esper & Stank, 2014). The first and the foremost problem that this organization of XYZ Company faces is the inaccurate estimate, extremely high margins in the bids and claims. They were unable to deal with the situation easily and hence were undergoing significant losses. The most unfortunate incident that occurred due to this type of the risk of lack of clarity and quality in the tender documents was dispute in the project (Zou, Kiviniemi & Jones, 2017). The risk management consultant was unable to provide correct estimate of the project budgets and hence the budget increased to a higher level. Moreover, the contractor of their project raised a high bid for the project and this increased the issue to a high level. The overall costs of the project were raised drastically due to this and the investors decided to cancel the project in the middle. This organization of XYZ Company then finally decided to implement the system of risk tracking, monitoring and controlling to handle as well as deal with the incident (Cagliano, Grimaldi & Rafele, 2015).
The organization of XYZ Company decided to implement the system of risk tracking, monitoring and controlling within their project for successfully handling as well as dealing with this risk of lack of clarity and quality in the tender documents (Fleming & Koppelman, 2016). The risk TMC system ensures that the risk plan is being executed properly and hence the effectiveness of these risk plans is evaluated. This organization of XYZ Company checked for the risks in their project by giving the inputs of risk register and approved change requests.
The risk register is the specific scatter plot that is being utilized as a major tool for risk management and even for fulfilling the regulatory compliances acting as the repositories for the risks that are being identified eventually. This risk register consists of the probability, impact, mitigation and contingency of the identified risks. Hence, finding out the most significant risk in a project is quite easy in this case (Kerzner & Kerzner, 2017). There are various items in this risk register like a risk category to the group similar risks, the respective risk breakdown structure identification number, a concise description of the identified risk for making that risk much easier to discuss, the consequence or the impact of the risk and if that risk occurs what kind of negativity is possible, probability or likelihood of the occurrence, risk rating or risk score and the common steps for mitigating these identified risks. The organization of XYZ Company was able to track this particular risk of lack of clarity and quality in the tender documents by implementing risks register and by involving risk TMC system (Harrison & Lock, 2017). The procedure of risk monitoring and control helped them in monitoring the identified risk and also in identification of the new risks. Moreover, the proper and perfect execution of the planned risk response as well as the total efficiency and effectiveness of this risk management plan is also checked by the risk TMC system.
They even gave the input of approved change requests in the project and identified that the project requires some of the major changes. These changes were to be done as soon as possible since XYZ Company was already suffering from losses (Gao, Sung & Zhang, 2013). The input of approved change requests in a risk TMC system involved various modifications like the scope, schedule, contract terms and work methodologies. They were able to identify the new risks by this and hence were able to solve the issues faced by them.
ABC Pvt Ltd Company manufactures gear boxes for the organization of FORD Automobiles. A new process of lean production is to be developed by them. The director, Mr. Smith has approached to the production department for building a plan and providing cost breakdown structure to develop this new process (Zhao, Hwang & Low, 2013). The director does not want to hamper the previously existing productions of products and even wants to train the employees. Mr. Smith sets a Guarantee Maximum Price Contract with sharing clause of 50/50 and the project delivery contract is design bid build. He has hired a risk management consultant for identifying and analysing risks in the project and contract and also for highlighting the subjective and objective risks that are to be handled for the project (Khan, Rathnayaka & Ahmed, 2015). The stakeholders of this organization are director, Mr. Smith, production manager, creditors, employees, suppliers, shareholders or owners, communities from which the business has drawn the resources, government as well as the agencies. The entire process of risk identification is properly explained for the company. Various risks like delays, third party vendors, quality and clarity in the tender documents, failure of information technology, changing scope of work and several others are being identified and quantified for ABC Pvt Ltd Company. Moreover, the risk response planning and implementation of the risk plan is done properly for this particular organization (Teller, Kock & Gemünden, 2014). An appropriate risk tracking, monitoring and control or TMC system is being developed and one real life incident related to the risk of lack of quality and clarity in the tender documents is being identified. Finally, an elaborate explanation is provided for the effectiveness to handle and deal the risk tracking, monitoring and control system for the identified incident.
Therefore, from the above discussion, it can be concluded that the procedure of risk management helps in proper identification, assessment and finally control of the various risks and threats to the earnings and capitals of any particular organization. All of these risks and threats could easily and promptly start from wider variety of sources, such as the financial uncertainties, strategic management errors, natural disasters, accidents and legal liabilities. The information security risks and the data related risks as well as the risk management strategies are major strategies for reducing these effects in the project.
There are several important and significant standards of risk management. Since the beginning of the year 2000, various government bodies and industries have expanded the rules for regulatory compliance, which check or scrutinize the risk management plans, procedures and plans of the organization. The board of directors or the owners of the organization need to review as well as report over the sufficiency of the processes of enterprise risk management. As a result, the internal audits, risk analysis and the other types of risk assessment have eventually become the main components of the business strategy. The respective risk management standards are being developed by various organizations like AS/NZS IS031000:2009. All of these standards are substantially designed for helping the various companies to identify the various threats or risks, assess the unique vulnerabilities for the successful and proper determination of the risks, identification of ways for properly minimizing the risks and finally implementation of the risk reduction efforts in the project as per the organizational strategies. Various frameworks are being provided by the standards and principles for the improvement of the process of risk management, which could be easily utilized in any project, irrespective of the size of the project.
There are some of major target areas and principles, which should become the parts of the complete process of risk management as per AS/NZS IS031000:2009 standard. These target areas mainly include process must create significant value for the project, must be an integral part of the project life cycle, must explicitly address the uncertainties, must be structured as well as systematic, should be on the basis of information gathering by relevant techniques, should be adaptable, must take into consideration about the potential errors and must be transparent enough for all the stakeholders of that particular project.
There are five distinct steps in a complete process of risk management for any specific project, which are risk identification, risk analysis, risk assessment or evaluation, risk mitigation and finally risk monitoring. In the risk identification step, the potential risks are being identified that would negatively affect the project. The second step is risk analysis; when the risk identification is completed; all the identified risks are properly analyzed for the purpose of understanding the consequences of those risks. The next step is risk assessment as well as evaluation; the risk is evaluated further after the proper determination of the overall likelihood of occurrence of the risks only after combining with the overall consequences. The decision making process depends on this step. After the risks are being assessed and evaluated, a proper plan is made for the project risks for mitigating them with the help of several risk controls. The plans mainly involve risk mitigation process, contingency plans and risk prevention tactics. The final step in the risk management process is risk monitoring. The major portion of the risk mitigation plan involves the follow up on both the risks as well as the complete planning for continuously monitoring and tracking the new or the previously existing risks. Few approaches of risk management are also present for any project, which are risk avoidance, risk reduction, risk sharing and finally risk retaining.
The above report has properly outlined the entire case study of ABC Pvt Ltd Company. It is a manufacturing company that manufacturer gear boxes for FORD Automobiles Company. Recently they have started a new process called lean production and for this purpose, the director of this company, Mr. Smith has hired a risk management consultant for identifying, evaluating and managing the probable risks or threats within the organizational new process. Moreover, he is concerned about the subjective and objective risks in the project. This report has properly evaluated the situation of ABC Pvt Ltd Company and key stakeholders and products or services are being identified. Furthermore, the risks are identified properly and development of risk response planning is being done eventually. The risk plan of the identified risks is being implemented and a correct risk TMC system or risk tracking, monitoring and control system is developed for this organization. The final part of the report has described about a real life incident and the effect of TMC system in that incident for handling the situation.
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Discussion: Description of the Scenario
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