BAFI1026 Risk Management

Introduction

There are various knowledge areas that are associated with a project and all of these knowledge areas are connected with each other. Risk management is one of the significant project knowledge areas that shall be effectively carried out. It is because there are various risks that a project is exposed to. The risks need to be treated and handled correctly so that the project continuity and progress is not impacted. The report covers the risk management strategy for a real-life construction project. The concept of risks, significance of risk management, common risks, and risk management strategy in real-life projects are included in the report. 

Risk Management Strategy

Concept of Risks

A project risk is defined as an event that may be uncertain and may have an impact on the project in the case of its occurrence. The impact of the risks may be positive or negative in nature. However, in a majority of the risk events, the impact of these risks is negative.

Importance of Risk Management

Risk management is important in the projects because there are various risks that a project is exposed to. The risks need to be treated and handled correctly so that the project continuity and progress is not impacted. The nature of impacts of the risks is mostly negative. Some of the impact areas of the risks include project resources, project organization, end-users, customer groups, supplier network, information & data sets, and project stakeholders (Park, Lee and Ahn, 2017).

The inadequate or insufficient risk management in the project may result in significant impact on the project. However, the implementation of adequate risk management strategy will make sure that the impact on the listed areas is controlled. The risks to the project will be identified and analysed in advance to implement treatment strategy for every project risk. The treatment strategies may include mitigation, avoidance, acceptance, transfer, or sharing of the risks. The risk treatment will make sure that the risk handling is successfully done to achieve the project aims and objectives (Shokri and Haas, 2012).

Common Risks in Building & Civil Engineering Project

There are various risks that are involved in the building and civil engineering projects. The risks with the extremely negative implications include health and safety risks. The workers present on-site are exposed to the health and safety issues which may result in minor or major injuries that may be temporary or permanent in nature. In the worst cases, the impact may result in loss of life of the worker(s). Design plays an extremely significant role in the building and construction projects. There may be flaws in design that may come up which may have an impact on the end-users and the project client. Technical risks may also occur in these projects and these may cover errors or fault of a technical tools or complete breakdown of the tool. These projects are also exposed to environmental risks. The occurrence of natural hazards or disasters is uncontrolled risks which may impact the project resources and continuity (Hwang and Chua, 2011). Financial risks are common with building and civil engineering projects. It is because these projects are usually large-scale in nature and there ae various costs associated with the project. The events, such as change in tax rate, inflation rate, and foreign exchange rates impact the project. The increased re-work in the project also has an impact on the project finances. Resource risks, socio-political risks, and logistical risks are some of the other risks that the projects are usually exposed to.

Real-life Project

The real-life project that is selected to determine the risk management strategy in the construction projects is a power station project in Egypt. Multi-package contracting plan was utilized in this large-scale project that was fast-track in nature. Some of the risk categories that were identified in the project included technical risks, financial risks, liability risks, risks related with the changes in the project, and many more (Hassanein and Afify, 2007). Risk identification, assessment, and management was necessary to make sure that the project risks were avoided, controlled, mitigated, and prevented to achieve the project success. 

Stakeholder Management

The power station project involved several internal and external stakeholders in the project. Some of the external stakeholders included the governing bodies, regulatory agencies, supplier groups, external consultants, legal bodies, business partners, and end-users. The internal stakeholders included the project team, project management, and the sponsor.

The decision making authorities in the project were distributed to the internal and external stakeholders so that the project aims could be achieved and the project progress was in the required direction. The stakeholder risks that the project was exposed to were the communication gaps and risks. The stakeholders were geographically distributed and were assigned with the responsibilities from other professional commitments. It led to the issues in availability of the stakeholders at a common timeframe. The absence of effective communication brought project management risks, such as project conflicts, disputes, and inability to manage the project changes (Zou and Zhang, 2009).

Stakeholder management is one of the key areas that go hand in hand with the risk management. The project should have included the stakeholder engagement activities with the aid of the tasks, such as development of stakeholder maps, development of communication plan for the stakeholders, declaration of reporting structure for each of the stakeholder group, and likewise.

The adequate management of the stakeholders would have made sure that the project was being executed as per the expectations. The change management and change handling processes would have also become easier as the changes would have been introduced with the consent from all the project stakeholders.

Resource Management

The resources in the construction projects are exposed to a lot many risks. First and the foremost are the health and safety risks that the resources may experience. The workers present on-site are exposed to the health and safety issues which may result in minor or major injuries that may be temporary or permanent in nature. In the worst cases, the impact may result in loss of life of the worker(s). The project in turn is also exposed to various resource-related risks. For instance, the power station project witnessed the drop in the productivity levels of the resources which had a negative implication on the project. Some other resource risks include the resource unavailability & scarcity, insider threats & attacks, and reduced resource motivation (Becker and Smidt, 2016).

Resource management is essential to make sure that all of these risks are avoided and controlled. The resources must be provided with ethical and organizational trainings to avoid the occurrence of the insider threats and attacks. The information sets will also be protected and maintained with the use of such a practice. The management must conduct interactions and discussions with the resources so that the issues of limited or reduced resource motivation are avoided. The unavailability and scarcity of the resources shall be avoided by conducting one-on-one discussions with the resources to understand their problems and concerns. The resolution of these issues can be made with the adaptation of the actions and follow-up strategies accordingly.

Finance Management

Financial risks are common with building and civil engineering projects. It is because these projects are usually large-scale in nature and there ae various costs associated with the project. The events, such as change in tax rate, inflation rate, and foreign exchange rates impact the project. The increased re-work in the project also has an impact on the project finances. The management of finances is essential to avoid the risks in this domain (Malhotra, 2015).

Some of the risk management strategies to handle the finance risks include:

• Earned Value Management (EVM): The power station project of Egypt had various costs associated with the project that were determined in the initial stages of the pages. It was essential to make sure that the estimated costs were adhered to. EVM is a method that can be used for risk avoidance of the financial risks by determining the gaps in actual and estimated project costs. In the case of negative cost variance, the project could be over budget and the strategies could be taken to prevent and avoid the risks (Menze, 2013).
  
  
• Financial Reviews & Audits: There were financial experts that were associated with the construction project that should have conducted the reviews on project finances along with the conduction of cost-benefit analysis. The results of these reviews and audits would have provided the mechanisms to mitigate and avoid the overrun of the project budget and other financial risks.

Technical Management

Technical risks may also occur in these projects and these may cover errors or fault of a technical tools or complete breakdown of the tool. Technology is being used in every project activity in the current times. The involvement of technology provided power station project with various benefits, such as faster processing speed, enhanced accuracy of results, and better integration. However, the project also got exposed to technical risks and issues.

Technical management is extremely essential to make sure that the technical risks are handled. There were technical experts that were associated with the construction project that should have conducted the reviews on project technical tools and mechanisms along with the conduction of technical reviews. The results of these reviews and audits would have provided the mechanisms to mitigate and avoid the issues of technical failures and faults.

The issues in the behaviour of a technical tool or equipment also result from the user practices and activities. The users of these tools and equipment should have been provided with the trainings so that risks could be avoided and prevented.

Recommendations

The different project areas have their own significance and importance in the project. It is necessary that all of these project areas are integrated with each other so that the overall project management can be effectively done. Risk management is one such project area that is closely linked with other areas, such as resource management, stakeholder management, communication management, cost management, schedule management, and many more. The real-life project that is selected to determine the risk management strategy in the construction projects is a power station project in Egypt. Some of the risk categories that were identified in the project included technical risks, financial risks, liability risks, risks related with the changes in the project, and many more. Risk management was important in the project because there were various risks that the project was exposed to. The risks needed to be treated and handled correctly so that the project continuity and progress was not impacted. The nature of impacts of the risks is mostly negative in nature.

References

Becker, K. and Smidt, M. (2016). A risk perspective on human resource management: A review and directions for future research. Human Resource Management Review, 26(2), pp.149-165.

Hassanein, A. and Afify, H. (2007). Risk management practices of contractors: A case study of power station projects in Egypt. Journal of Financial Management of Property and Construction, 12(3), pp.164-179.

Hwang, B. and Chua, P. (2011). Risk Management Software Utilization in the Singapore Construction Industry: Evaluation and Improvement. Journal of Construction Engineering and Project Management, 1(2), pp.28-36.

Malhotra, Y. (2015). Toward Integrated Enterprise Risk Management, Model Risk Management & Cyber-Finance Risk Management: Bridging Networks, Systems and Controls Frameworks. SSRN Electronic Journal.

Menze, S. (2013). Projekt-Controlling: Earned Value und Earned Schedule. Controlling & Management Review, 57(3), pp.68-76.

Park, K., Lee, S. and Ahn, Y. (2017). Construction Management Risk System (CMRS) for Construction Management (CM) Firms. Future Internet, 9(1), p.5.

Shokri, S. and Haas, C. (2012). Risk Management for Design and Construction. Construction Management and Economics, 30(8), pp.711-713.

Zou, P. and Zhang, G. (2009). Managing Risks in Construction Projects: Life Cycle and Stakeholder Perspectives. International Journal of Construction Management, 9(1), pp.61-77.