Built Environment Contract and Risk Management PDF

CONSTRUCTION CONTRACT AND RISK MANAGEMENT RISK MANAGEMENT Copyright ©2024 Project Management Institute, Inc. All rights reserved. 1...

CONSTRUCTION CONTRACT AND RISK MANAGEMENT RISK MANAGEMENT Copyright ©2024 Project Management Institute, Inc. All rights reserved. 1 This material is being provided as part of a PMI course.  Avocet Island Project 6 The unexpected happens. What impact might this incident have on the project? Copyright Copyright ©2024 ©2024 Project Project Management Management Institute, Institute, Inc. All Inc. rights All rights reserved. reserved. This 2 This material is being provided as part of a PMI course. The Butterfly Effect BUTTERFLY EFFECT Ensuring project success Reducing the potential for loss Monitoring and managing risk is a collective responsibility Copyright ©2024 Project Management Institute, Inc. All rights reserved. 3 This material is being provided as part of a PMI course. Objectives Classify, Introduce a risk Review risk prioritize, management management and process tools and mitigate risk techniques Copyright ©2024 Project Management Institute, Inc. All rights reserved. 4 This material is being provided as part of a PMI course. Historical Context: Asipu People Risky business ventures Marriage arrangements Suitable building sites Copyright ©2024 Project Management Institute, Inc. All rights reserved. 5 This material is being provided as part of a PMI course.  The Four Revolutions First Steam Second Electricity Third Computer Fourth Technology Revolution Revolution (late Revolution Revolution (Late 1700s) 1800s/early (Late 1900s) (> 2016) 1900s) Mechanization, factories, Accessible power, Personal computers, Cyber systems, smart steam plants, steam ships, lighting, motors, programming, data, technologies, big data, steam trains, early refrigeration, assembly, automation, electronics, advanced analytics, globalization mass production internet, e-commerce, artificial intelligence (AI), email, MS Windows autonomous machines Copyright ©2024 Project Management Institute, Inc. All rights reserved. 6 This material is being provided as part of a PMI course. Innovations in Risk Management Formalization and standardization Analysis Holistic risk management 028 Copyright ©2024 Project Management Institute, Inc. All rights reserved. 7 This material is being provided as part of a PMI course. Risk Management Is the Process of … Identifying Classifying Analyzing Prioritizing Mitigating Copyright ©2024 Project Management Institute, Inc. All rights reserved. 8 This material is being provided as part of a PMI course. Key Principles Identify potential project risks Analyze the impact of risk Reduce or offset validated risks Arrange for risk mitigation implementation Copyright ©2024 Project Management Institute, Inc. All rights reserved. 9 This material is being provided as part of a PMI course. Risk Management Benefits Increased safety Increased productivity Increased quality Reduced time Reduced cost Copyright ©2024 Project Management Institute, Inc. All rights reserved. 10 This material is being provided as part of a PMI course. Sorting Activity: Approaches to Risk Minimize financial loss Manage Ensure Ensure access unexpected owner to owner site Manage Avoid and practice project expectations delay cost commitment resources issues containment Owner Designer Contractor Click to begin Copyright ©2024 Project Management Institute, Inc. All rights reserved. 11 This material is being provided as part of a PMI course.  Approaches to Risk CONTRACTOR Limit poor guidance (owner and DESIGNER designer) ___________ Ensure access to owner resources OWNER ___________ Ensure owner commitment ___________ Minimize financial loss and practice Manage expectations cost containment ___________ Manage unexpected site issues ___________ (e.g., contamination) Avoid project delays and ___________ unforeseen issues Limit damaging advice ___________ Avoid component/materials ___________ disruption or damage Minimize excessive change ___________ Avoid project delays and requests ___________ Limit coordination issues with unforeseen issues suppliers Avoid delayed approvals and ___________ payment Avoid general disruption (industrial, weather, etc.) Copyright ©2024 Project Management Institute, Inc. All rights reserved. 12 This material is being provided as part of a PMI course. Real or Perceived Risk? Availability of information Experience of project participants Understanding risk factors Knowledge of local conditions Stability of risk factors Reliability of assumptions Copyright ©2024 Project Management Institute, Inc. All rights reserved. 13 This material is being provided as part of a PMI course. Types of Risk Strategic risk includes those risks that are externally driven, such as funding, market and economic factors, industry and stakeholder relations, e.g., inflation, COVID-19, and skilled labor shortages. Strategic risk Program risk includes those risks that are associated with coordination, interfacing, and integration of projects. Typically, these are escalated from within subprograms and projects, e.g., cost overruns, budget approval, etc. Program risk Subprogram risk includes those risks that are associated with interfaces among projects, e.g., interdependencies, schedule or material delays, and so forth. Subprogram risk Project risk includes those risks that are associated with the delivery of project scope. Project risk Contractor risk includes those risks associated with individual contractors over whom they have control, e.g., resources, skills, resource availability, and Contractor risk so forth. RISK MANAGEMENT HIERARCHY Copyright ©2024 Project Management Institute, Inc. All rights reserved. 14 This material is being provided as part of a PMI course.  Causes of Risk May include risks such as lack of Pressure to match price or delivery proper project management, terms offered by a competitor, possibly inadequate project policies or lack of Associated with penalties can be due Project-related application of such policies, and Competitiveness putting profitability at risk, straining Contractual to not completing a job on time. resources, or loss of a project or miscalculation of time and/or opportunity to a competitor. resources. Problems of communication, Include rising interest rates, Examples include injury, possibly fatal, misunderstanding of contracts, overtrading, problems with the to a worker because of behavior, Financial economy, and increases in oil and Stakeholder-based deliverables or closeout of a building Occupational methodologies or technologies used, project and/or insufficiency of building supply prices. weather, or a third party. stakeholder funds. Include events such as, floods, earthquakes, and other natural Environmental disasters, that damage construction sites or make access for work 026 impossible. Copyright ©2024 Project Management Institute, Inc. All rights reserved. 15 This material is being provided as part of a PMI course. Identifying and Classifying Risk Very High 5 Stay objective 4 Likelihood of Relative 3 Occurrence (L) Importance Introduce structured methods for 2 identifying and classifying risk 1 Very Low A B C D E Enables risk tracking and mitigation Negligible Extreme Not Applicable Relative Impact (I) Copyright ©2024 Project Management Institute, Inc. All rights reserved. 16 This material is being provided as part of a PMI course. Avocet Island Project: Defining Risk Identify potential risks resulting from the incident Prioritize the risks based on importance to project success 7 Copyright ©2024 Project Management Institute, Inc. All rights reserved. 17 This material is being provided as part of a PMI course. Risk Management Process Copyright ©2024 Project Management Institute, Inc. All rights reserved. 18 This material is being provided as part of a PMI course. Risk Management Process: Introduction Identifying potential risks Analyzing and qualifying risks Prioritizing the mitigation of risks Copyright ©2024 Project Management Institute, Inc. All rights reserved. 19 This material is being provided as part of a PMI course. The Risk Management Process Risk identification Risk assessment and Risk analysis Risk mitigation prioritization Risk measurement Risk evaluation Copyright ©2024 Project Management Institute, Inc. All rights reserved. 20 This material is being provided as part of a PMI course. Risk Identification Know issues, knowledge, and experience Analysis of anticipated issues Context, evidence, and insight Situational awareness and experience Plan, control, and document Copyright ©2024 Project Management Institute, Inc. All rights reserved. 21 This material is being provided as part of a PMI course. Risk Assessment Time and/or cost impact Occurrence Likelihood Probability Copyright ©2024 Project Management Institute, Inc. All rights reserved. 22 This material is being provided as part of a PMI course. Generating Risk Estimates Identify all possible risks Determine mitigation method needs Consider likelihood of risk occurrence Copyright ©2024 Copyright ©2024 Project ProjectManagement ManagementInstitute, Institute, Inc. Inc.All All rights rights reserved. reserved. This material is being provided as part of a PMI course. 23 This material is being provided as part of a PMI course. Risk Prioritization Define the value of risk Very High 5 4 Likelihood of occurrence Likelihood of Relative 3 Occurrence (L) Importance 2 Relative impact 1 Very Low A B C D E Availability of quantifiable evidence Negligible Extreme Not Applicable Relative Impact (I) Addressed by gathering information Copyright ©2024 Project Management Institute, Inc. All rights reserved. 24 This material is being provided as part of a PMI course. Consider Risk Assessment Think back to the Avo incident. Based on your risk identification work as a group earlier in the lesson, is the incident likely to classify as a negligible risk on the relative impact scale when assessing the risk? Yes No Unfortunately, that’s incorrect. The That’s correct. The relative impact, relative impact, regardless of how you regardless of how you identified the risk, is identified the risk, is likely to trend beyond likely to trend beyond negligible, given the negligible, given the potential impacts to potential impacts to schedule and, schedule and, ultimately, cost. ultimately, cost. Copyright ©2024 Project Management Institute, Inc. All rights reserved. Next Slide This material is being provided as part of a PMI course. 25 Risk Analysis Probability of impact Probabilistic analysis models Identify possible outcomes Cost and schedule contingency estimates Copyright ©2024 Project Management Institute, Inc. All rights reserved. 26 This material is being provided as part of a PMI course. Advantages of Probabilistic Methods Management of project costs, schedules, and risks Increase confidence in decision-making Improve collaboration Copyright ©2024 Project Management Institute, Inc. All rights reserved. 27 This material is being provided as part of a PMI course. Risk Mitigation Risk avoidance Risk acceptance Risk control Risk transfer Contingency Copyright ©2024 Project Management Institute, Inc. All rights reserved. 28 This material is being provided as part of a PMI course. Risk Evaluation Evaluate risks, mitigation opportunities, or issues Determine which risks can be closed Enables contingencies to be executed Allows for management of risk Copyright ©2024 Project Management Institute, Inc. All rights reserved. 29 This material is being provided as part of a PMI course. Risk Management Is a Team Sport Risk mitigation and awareness Formal risk Risk tracking and closing It is important to workshops should The whole team track identified risks be held throughout should be made and close them out the course of the aware of all relevant as appropriate; this project to help focus risks, mitigation ensures that more Conducting risk workshops plans, and attention can be on risk management and enable the assumptions. devoted to the team to monitor remaining risks. process health. Copyright ©2024 Project Management Institute, Inc. All rights reserved. 30 This material is being provided as part of a PMI course. Risk Management Process Summarized Identification Mitigation Team member responsibilities Copyright ©2024 Project Management Institute, Inc. All rights reserved. 31 This material is being provided as part of a PMI course. Avocet Island Project: Risk Management Process Which risk has the greatest impact? What ramifications might result from the risk? Which solutions might you consider? How will you evaluate your choice(s)? 9 Copyright ©2024 Project Management Institute, Inc. All rights reserved. Attribution: Image AidanSemmens attribution Pixabay.com This material is being provided as part of a PMI course. 32 BREAK Copyright ©2024 Project Management Institute, Inc. All rights reserved. 33 This material is being provided as part of a PMI course. Capacity for Risk Copyright ©2024 Project Management Institute, Inc. All rights reserved. 34 This material is being provided as part of a PMI course. Risk Appetite Amount and type of risk stakeholders can support Access to financing Projected returns Project type and expected outcomes Copyright ©2024 Project Management Institute, Inc. All rights reserved. 35 This material is being provided as part of a PMI course. Understanding Risk Appetite Strategy Incentivization and performance management Risk management approach Funding structure and budget Copyright ©2024 Project Management Institute, Inc. All rights reserved. 36 This material is being provided as part of a PMI course. Prioritize and Compare Criteria BUDGET DESIGN RISK SCHEDULE OWNER EXPERTISE How much to What the final Exposure to A timetable spend project will danger, for completion The look like and financial loss, and payments company’s how it will and harm to experience in function the brand similar projects Copyright ©2024 Project Management Institute, Inc. All rights reserved. 37 This material is being provided as part of a PMI course. Project Delivery Methods and the Capacity for Risk Design-bid- build (DBB) Select the project delivery method Design-build (DB) Consider and articulate risks Construction manager at risk (CMAR) Integrated project delivery (IPD) Copyright ©2024 Project Management Institute, Inc. All rights reserved. 38 This material is being provided as part of a PMI course. Matching Activity: Project Delivery Methods Design must be completed before construction starts Design-build (DB) turnkey Replaces the owner and combines the designer and Construction Manager at Risk contractor into one builder (CMAR) Click to begin Construction manager Integrated project delivery (IPD) oversees project and provides a guaranteed maximum price Design-bid-build Focuses on collaboration and shared ownership of risk Copyright ©2024 Project Management Institute, Inc. All rights reserved. 39 This material is being provided as part of a PMI course. Discussion: Project Delivery Methods and Risk Appetite Which project delivery method offers the greatest capacity for risk and why? Copyright ©2024 Project Management Institute, Inc. All rights reserved. 40 This material is being provided as part of a PMI course. Project Delivery Model Selection and Risk Mitigation Increased profits and reduced costs On-time completion Reduction in loss Copyright ©2024 Project Management Institute, Inc. All rights reserved. 41 This material is being provided as part of a PMI course. Risk Allocation and Mitigation Copyright ©2024 Project Management Institute, Inc. All rights reserved. 42 This material is being provided as part of a PMI course. Risk Profile Actions taken to manage risk Unintended consequences Unforeseen events Copyright ©2024 Project Management Institute, Inc. All rights reserved. 43 This material is being provided as part of a PMI course. Risk Mitigation Factors Type of risk Effort Contract terms Delivery model Copyright ©2024 Project Management Institute, Inc. All rights reserved. 44 This material is being provided as part of a PMI course.  Risk Mitigation Treatments UNCERTAINTY RISK AVOIDANCE RISK RETENTION/ RISK CONTROL/ RISK TRANSFER/ CONTINGENCY ACCEPTANCE REDUCTION DEFLECTION Used when a Used when a risk is Used when a Used in conjunction process is needed not accepted by a conscious decision with other mitigation for continually Used when the risk project entity, and is made to accept strategies as a "last monitoring and is shared with the project entity the consequences resort" option to correcting the others does not wish to should the event compensate for events, issues, and accept it occur uncertainty conditions 026 Copyright ©2024 Project Management Institute, Inc. All rights reserved. 45 This material is being provided as part of a PMI course. Contingency Risk Scenarios Lack of risk clarity or definition Cost and schedule mitigation cannot be reliably established Accounting for known risks which can be the outcome of a probabilistic evaluation Risks the team is aware of but cannot identify Copyright ©2024 Copyright Project ©2024 Management Project ManagementInstitute, Inc. All Institute, rights Inc. reserved. All rights reserved. This material is being provided as part 46 This material is being provided asof a PMI part of a course. PMI course.  Matching Activity: Risk Mitigation Treatments The last resort option to Risk Avoidance compensate for the uncertainty Risk Retention / Risk is not accepted by the Acceptance project entity Click to begin A decision is made to accept the Risk Control / Reduction 035 consequences A process is needed for Contingency continually monitoring and correcting issues Copyright ©2024 Project Management Institute, Inc. All rights reserved. 47 This material is being provided as part of a PMI course. Risk Management Tools and Techniques Copyright ©2024 Project Management Institute, Inc. All rights reserved. 48 This material is being provided as part of a PMI course. Tools and Techniques Overview Documentation reviews and experience interviews Risk registers Brainstorming and facilitation workshops Monte Carlo simulations The Delphi technique Copyright ©2024 Project Management Institute, Inc. All rights reserved. 49 This material is being provided as part of a PMI course.  Benefits of Standardized Techniques and Tools A process for identifying and A means to monitor progress, Terminology supporting the Checklist ofbepotential A checklist to used for Standardized risk Risk identification assessing and risk that will also and address risk control at initiative, shared across the Progress monitoring risks determining project risks terminology project assessment that will alsoprocesses facilitate various stage in the project life prediction of disruptions cycle Introduction of tools that aid in A means to facilitate A means for project A risk identification and communication and promote Improvedand communication Risk evaluation participants and to reconcile assessment training tool for Project byalignment Training alignment highlight poorly communication understanding between project reconciliation differences using a common organizations and individuals defined areas of risk participants and stakeholders basis for project evaluation across the industry A means for assessing risk management processes vs. Capturing A framework forlessons capturing Benchmarking the performance of past internal and external projects learned lessons learned on a project to predict future success Copyright ©2024 Project Management Institute, Inc. All rights reserved. Next Slide This material is being provided as part of a PMI course. 50 Documentation and Experience Interviews Contracts, design documents, project plans, and risk categorization checklists Project management information systems (PMIS) Experience-based interviews help identify risks Applicable, knowledge-based information Copyright ©2024 Project Management Institute, Inc. All rights reserved. 51 This material is being provided as part of a PMI course. Risk Matrices Risk Matrix for Project in Southwest Asia With Coloration "Big picture" Very High 5 2 1 4 Visualize problems and opportunities 4 5 1 4 Likelihood 3 17 7 2 1 2 6 5 1 1 1 1 11 2 Very Low A B C D E Negligible Extreme 10 Not Applicable Relative Impact Copyright ©2024 Project Management Institute, Inc. All rights reserved. 52 This material is being provided as part of a PMI course. Risk Registers Description and cause Likelihood of occurrence Relative impact Mitigation actions Responsible parties Status of risks Copyright ©2024 Project Management Institute, Inc. All rights reserved. 53 This material is being provided as part of a PMI course.  Integrated Project Risk Assessment (IPRA) Tool Relative Impact (I) (A to of the Mitigation Action Risk Event Description Probability of Success Mitigation (H/M/L or S) Specific Impact to the Likelihood (L) (1 to 5) Person Responsible Mitigation Strategy / Status / Comments Schedule / Scope / IPRA Element ID Action Due Date Relative Cost of Project (Cost / for Action Quality) (H/M/L) Action E) 1 2 3 4 5 6 7 8 9 10 11 Example: Potential new requirements Political stability – – policies / laws / CONTROL – Contact New socialist John II. B2 4 D regulations to increase U.S. Embassy L H 10/17/XX parliament governor Jones percentage of local representative and mayor contractors TRANSFER – OPIC Paul Political Risk M H 12/5/XX Smith Insurance ACCEPT – Assess Rick Taxes expected to rise tax implications and L M 11/1/XX Reyes potential increase CONTROL – Assess More local government local capabilities John interest in all aspects of the M M 10/18/XX and requirements in Jones project permits, labor, etc. detail Copyright ©2024 Project Management Institute, Inc. All rights reserved. 54 This material is being provided as part of a PMI course. Consider Risk Registers The stakeholders are divided about how to record and manage potential risks associated with the Avo incident, with the majority leaning toward less formal documentation, citing time and cost of effort. The situation has already had an impact on the schedule and the financial implications are mounting. Do you agree? Yes No That’s incorrect. Regardless of the impact That’s correct! Regardless of the impact of of the risk, the project team should discuss the risk, the project team should discuss all all risks regularly. The best way to do that risks regularly. The best way to do that is is through creating and reviewing a risk through creating and reviewing a risk register register to assess if risks are still relevant, to assess if risks are still relevant, have the have the same impact, or can be closed. same impact, or can be closed. Copyright ©2024 Project Management Institute, Inc. All rights reserved. 55 This material is being provided as part of a PMI course. Brainstorming Brings together all relevant parties Risk-free environment Copyright ©2024 Project Management Institute, Inc. All rights reserved. 56 This material is being provided as part of a PMI course. Facilitated Workshops GROUPTHINK Common approach to gathering input Reduce biases and provide facilitated guidance to avoid groupthink Copyright ©2024 Project Management Institute, Inc. All rights reserved. 57 This material is being provided as part of a PMI course. Monte Carlo Simulations Copyright ©2024 Project Management Institute, Inc. All rights reserved. This material is being provided as part of a PMI course. The Delphi Technique How long will it take to complete? How confident are you about this date? Copyright ©2024 Project Management Institute, Inc. All rights reserved. 59 This material is being provided as part of a PMI course. The Delphi Technique in Action Latest Project End Copyright ©2024 Project Management Institute, Inc. All rights reserved. 60 This material is being provided as part of a PMI course. Tools and Techniques: Summary Effective communication Regular risk reviews Sound business planning Pre-project planning and alignment Solid project execution Copyright ©2024 Project Management Institute, Inc. All rights reserved. 61 This material is being provided as part of a PMI course. Consider Tools and Techniques Given what’s at stake in the Avo incident, it’s suggested that the team employ the Delphi technique to assess the possible risks and potential outcomes. Is that an overreaction? Yes No That’s incorrect. While it is extra effort, That’s correct! While it is extra effort, estimating worst- and best-case scenarios, estimating worst- and best-case scenarios, and a projected end date for both, helps and a projected end date for both, helps the the stakeholders determine which outcome stakeholders determine which outcome will will minimize impact. minimize impact. Copyright ©2024 Project Management Institute, Inc. All rights reserved. 62 This material is being provided as part of a PMI course. Adopting Risk Management Copyright ©2024 Project Management Institute, Inc. All rights reserved. 63 This material is being provided as part of a PMI course. Value of Risk Management Minimizing risks Increasing predictability of estimates Heading off project disasters Copyright ©2024 Project Management Institute, Inc. All rights reserved. 64 This material is being provided as part of a PMI course. Embedding a Risk-Aware Culture Breaches and near misses Effectiveness of communication Assessing lessons learned and identifying necessary remedial actions Copyright ©2024 Project Management Institute, Inc. All rights reserved. 65 This material is being provided as part of a PMI course. Implementation Challenges Lack of process knowledge Changes to project culture and structure Lack of policies or procedures Lack of transparency Lack of resources and expertise Copyright ©2024 Project Management Institute, Inc. All rights reserved. 66 This material is being provided as part of a PMI course.  Recommendations for Successful Adoption Implementing a Developing a risk Implementing a process to Documenting all Reviewing risks management governance categorize and risks regularly process structure assign ownership of risk levels 026 Copyright ©2024 Project Management Institute, Inc. All rights reserved. 67 This material is being provided as part of a PMI course. Avocet Island Project: Risk Mitigation Treatments Which risk mitigation treatment strategy applies to the scenario? Which risk management tool(s) and/or technique(s) can support the selection? 12 Copyright ©2024 Project Management Institute, Inc. All rights reserved. Attribution: Image AidanSemmens attribution Pixabay.com This material is being provided as part of a PMI course. 68 Questions Copyright ©2024 Project Management Institute, Inc. All rights reserved. 69 This material is being provided as part of a PMI course. Thank You! Copyright ©2024 Project Management Institute, Inc. All rights reserved. 70 This material is being provided as part of a PMI course.