Planning and organising Two Risk Management Introduction Use title slide layout Presenter Tony Bosnich July 2015 © Unitec New Zealand >>DEPARTMENT OF CONSTRUCTION

2.An overview of the risk management process Learning outcomes 1.An introduction to the concepts of Risk Management on building construction sites 2.An overview of the risk management process To achieve a new layout – insert a new slide, then in the slide thumbnail left side view, Right Click, choose layout – and pick a content style to use >>DEPARTMENT OF CONSTRUCTION

Risk is The change of something happening that has an impact on the objective of an organisation or project. Risk can be either Positive or Negative Opportunity or Threat DEPARTMENT OF CONSTRUCTION

Fuller definition Risk management may be described as “a systematic way of looking at areas of risk and consciously determining how each should be treated. It is a management tool that aims at identifying sources of risk and uncertainty, determining their impact, and developing appropriate management responces ” (Uher, 2003) >>DEPARTMENT TITLE EDIT IN HEADER & FOOTER

How do we assess and quantify this Risk ? Measured in terms of consequence and likelihood which quantifies the importance of the risk. There are standard documents available to quantify the likely hood of the risk effect. AS/NZS 4360.2004 Now replaced by ISO 31000m mainly used on NZTA projects. Risk = Probability x Consequence TWO COMPONENTS Uncertainty or Probability Exposure or Consequence >>DEPARTMENT TITLE EDIT IN HEADER & FOOTER

Importance of Risk Analysis Owing to its increasing importance, risk management has been recognized as a necessity in most industries today, and a set of techniques have been developed to control the influences brought by potential risks (Schuyler,2001; Baker and Reid, 2005). >>DEPARTMENT TITLE EDIT IN HEADER & FOOTER

Why is Risk consideration important in Building? Compared with many other industries, the construction industry is subject to more risks due to the unique features of construction activities, such as long period, complicated processes, abominable environment, financial intensity and dynamic organization structures (Flanagan and Norman, 1993; Akintoye and MacLeod, 1997; Smith, 2003). >>DEPARTMENT TITLE EDIT IN HEADER & FOOTER

Systematic process A systematic process of risk management has been divided into risk classification, risk identification, risk analysis and risk response, Classify - see list of classification On next slide >>DEPARTMENT TITLE EDIT IN HEADER & FOOTER

Risk Classification Environmental Management Safety Financial Physical Resource Contractual Regulatory >>DEPARTMENT TITLE EDIT IN HEADER & FOOTER

Process Plan Risk management Identify Maybe current , future, visible risk , potential Analyse , After id the next step is to analyse consequence and threat and likely hood of happening. Perform Qualitative risk analysis Perform Quantitative risk analysis Plan risk response Monitor and control risks >>DEPARTMENT TITLE EDIT IN HEADER & FOOTER

Further division Risk response has been further divided into four actions, i.e. retention, reduction, Transfer and avoidance (Berkeley et al., 1991; Flanagan and Norman, 1993). >>DEPARTMENT TITLE EDIT IN HEADER & FOOTER

Risk analysis techniques Qualitative Quantitative Risk prioritization Risk probability and consequence assessment Brainstorming sessions Sensitivity analysis Risk likelihood and consequence assessment Simulation (Monte Carlo simulation) Risk likelihood and consequence matrix Mean-variance criterion Risk scoring Mathematical/analytical techniques

Qualitative analysis An indication based on size and magnitude is used to determine which risks are the most important Based on subjective nominal or descriptive scorings for describing the likelihoods and consequences of various risks Prioritizes risks according to its potential impact on the project (profit, cost, schedule and quality objectives) Should be revised and update during the development period Useful for an initial review or when a quick assessment is required

Likelihood and consequence matrix Risk likelihood Consequences Insignificant 1 Minor 2 Moderate 3 Major 4 Catastrophic 5 A – Almost certain M H E B – Likely C – Possible L D – Unlikely E – Rare Extreme, High, Moderate, Low risk

Qualitative measure of likelihood Level Descriptor Detail A Almost certain Is expected to occur in most circumstances B Likely Will probably occur in most circumstances C Possible Might occur at some time D Unlikely Could occur at some time E Rare May only occur in exceptional circumstances

Risk likelihood and impact assessment Risk likelihood – The likelihood that the risk will occur Risk consequence – The effect on the project objectives if the risk occurs The risk = risk likelihood x risk consequence Example: Construction cost increases Risk likelihood Risk consequence class Class Description 5 4 3 2 1 Almost certain Likely Possible Unlikely Rare Class Corresponding cost increases ($) 5 4 3 2 1 More than 5m From 2m to 5m From 1m to 2m From 0.5 m to 1m Less than 0.5m

Example Description of risk Likelihood Consequence Risk Priority More design modifications than planned 4 2 8 5 More land needed 10 3 Construction cost increases 15 Finance cost increases 1 6 Time delays 20 Changes in market value and capitalization rates 9

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If the Risk is still present ! It is a Constraint >>DEPARTMENT TITLE EDIT IN HEADER & FOOTER

Conclusion Using effective risk management techniques to manage risks associated with variable construction activities has never been more important for the successful delivery of a project >>DEPARTMENT TITLE EDIT IN HEADER & FOOTER