Lecture 1 (Part 2) - Risk Management Process PDF

1 LECTURE 1 (Part 2) THE RISK MANAGEMENT PROCESS Construction Risk and Safety BTQS3103 Management  Syllabus Content - Week 2 2 The Risk Mana...

1 LECTURE 1 (Part 2) THE RISK MANAGEMENT PROCESS Construction Risk and Safety BTQS3103 Management  Syllabus Content - Week 2 2 The Risk Management Process The evolution of risk management Definition of risk management Role and Duties of a risk manager The risk management process Risk management tools Cost and benefits of risk management  Definition of Risk Management 3 1. Risk management is the process of identifying, assessing, prioritizing, and managing risks that could potentially affect a company's ability to achieve its objectives and goals. 2. It involves systematically analyzing the internal and external factors that may pose threats or opportunities to the organization, and implementing strategies to mitigate or capitalize on them. 3. Risk control refers to the processes and strategies implemented by a company to identify, assess, mitigate, and manage risks that may impact its operations, finances, reputation, and objectives. 4. It involves a systematic approach to understanding and addressing various types of risks, such as financial risks, operational risks, strategic risks, compliance risks, and reputational risks. 5. Effective corporate risk control helps organizations anticipate and respond to potential threats and opportunities, thereby safeguarding their long-term success and sustainability.  Evolution of Risk Management 4 1. The evolution of risk management spans centuries, evolving in response to various economic, social, and technological developments. 2. Early Trade and Commerce (Pre-Industrial Revolution): a) Risk management practices likely originated with early traders and merchants who faced risks such as theft, shipwrecks, and market fluctuations. b) Strategies like diversification of trade routes, pooling resources, and informal risk-sharing arrangements were used to mitigate risks. 3. Marine Insurance (17th Century): c) The establishment of marine insurance in the 17th century marked a significant milestone in formal risk management. d) Lloyd's of London, founded in the late 17th century, became a  Evolution of Risk Management 5 4. Emergence of Actuarial Science (18th-19th Century): a) The development of actuarial science in the 18th and 19th centuries laid the foundation for more sophisticated risk assessment techniques. b) Actuaries used mathematical and statistical methods to analyze mortality rates, life expectancies, and insurance risks, leading to the growth of life insurance and pension schemes. 5. Industrial Revolution (Late 18th to Early 19th Century): c) The Industrial Revolution brought new risks associated with industrialization, such as workplace accidents, product liability, and supply chain disruptions. d) Employers began to implement safety measures, liability insurance, and risk management practices to protect workers and assets.  Evolution of Risk Management 6 6. Industrial Revolution (Late 18th to Early 19th Century): a) The Industrial Revolution brought new risks associated with industrialization, such as workplace accidents, product liability, and supply chain disruptions. b) Employers began to implement safety measures, liability insurance, and risk management practices to protect workers and assets. 7. Modern Risk Management (20th Century): c) The early 20th century saw the establishment of risk management as a formal discipline within businesses and organizations. d) The 1930s witnessed the emergence of risk management associations and publications, such as the Risk and Insurance Management Society (RIMS) in the United States. e) Risk management focused primarily on insurance and hazard risks, with an emphasis on loss prevention and risk transfer.  Evolution of Risk Management 7 8. Enterprise Risk Management (Late 20th Century to Present): a) In the late 20th century, there was a shift towards a more holistic approach to risk management, known as enterprise risk management (ERM). b) ERM integrates risk management into strategic decision-making processes, considering a broader range of risks, including strategic, operational, financial, and reputational risks. c) The adoption of frameworks such as the Committee of Sponsoring Organizations of the Treadway Commission (COSO) ERM framework and the International Organization for Standardization (ISO) 31000 standard helped standardize ERM practices.  Evolution of Risk Management 8 9. Digitalization and Data Analytics (21st Century): The 21st century has seen rapid advancements in technology and data analytics, enabling organizations to better understand and manage risks. a) Big data, artificial intelligence (AI), and predictive analytics are increasingly used to identify emerging risks, detect patterns, and make more informed risk management decisions. b) There is also a growing emphasis on cybersecurity risk management in response to the increasing frequency and sophistication of cyber threats.  Roles and Duties of a Risk Manager 9 1. A risk manager is responsible for identifying, assessing, and prioritizing risks to minimize, monitor, and control the probability or impact of unfortunate events. 2. Their role involves a combination of strategic and operational responsibilities to safeguard an organization’s assets, reputation, and operations. 3. Key Skills and Competencies: - Analytical Skills: Ability to analyze complex data and make informed risk assessments. - Communication Skills: Strong verbal and written communication skills for effective risk reporting and stakeholder engagement. - Attention to Detail: Meticulous attention to detail in identifying and assessing risks. - Problem-Solving Skills: Proficiency in developing and implementing effective risk mitigation strategies. - Leadership: Ability to lead and influence organizational change to improve risk management practices. - Technical Knowledge: Understanding of relevant risk management frameworks, standards, and software tools.  This slide is intentionally left BLANK 10 This slide is intentionally left BLANK to encourage students to attend this lecture.  Roles and Duties of a Risk Manager - Key Roles and Duties 11 3. Monitoring and Reporting Continuous Monitoring: Continuously monitor risk factors and the ? effectiveness of risk management strategies. ? Risk Reporting: Prepare regular risk reports for senior management and the board, highlighting key risks, mitigation efforts, and any changes in the risk landscape. ? Compliance Monitoring: Ensure that the organization adheres to relevant laws, regulations, and standards related to risk management. 4. Risk Culture and Communication ? Promote Risk Awareness: Foster a culture of risk awareness throughout the organization, ensuring that employees understand their roles in risk management. ? Training and Education: Conduct training sessions and workshops to educate staff on risk management practices and procedures. ? Stakeholder Communication: Liaise with internal and external stakeholders, including regulators, insurers, and auditors, to ensure comprehensive risk management.  Roles and Duties of a Risk Manager - Key Roles and Duties 12 5. Strategic Risk Management ? Integration with Strategic Planning: Integrate risk management with the organization’s strategic planning process to ensure that risk considerations are embedded in decision-making. ? Scenario Analysis: Conduct scenario analysis and stress testing to evaluate the organization’s readiness for various risk scenarios. ? Risk Appetite and Tolerance: Define and communicate the organization’s risk appetite and tolerance levels to ensure alignment with business objectives. 6. Regulatory and Insurance Management ? Regulatory Compliance: Ensure compliance with relevant regulatory requirements and industry standards. ? Insurance Management: Oversee the organization’s insurance portfolio, ensuring adequate coverage and managing claims processes. 7. Data and Technology Risk Management ? Information Security: Work with IT to manage cyber risks and ensure the security of information systems and data. ? Technology Integration: Utilize risk management software and tools to enhance the efficiency and effectiveness of risk management activities.  Risk Management (RM) Tools Used in the Construction Industry 13 1. The construction industry faces unique risks due to the complexity of projects, variability in site conditions, and numerous stakeholders involved. 2. Effective risk management tools help in identifying, assessing, mitigating, and monitoring these risks to ensure project success. 3. Utilizing a combination of these risk management tools helps construction companies manage hazards and ensure the safety of their workers effectively. 4. The choice of tools depends on the specific hazards, project requirements, and regulatory environment. 5. Integrating these tools into a comprehensive safety management plan is essential for minimizing risks and protecting workers.  RM Tools Used for Hazards and Safety in the Construction Industry 14 - Risk Identification Tools 1. Job Safety Analysis (JSA) / Job Hazard Analysis (JHA) ? Breaks down a job into its component tasks. ? Identifies potential hazards associated with each task. ? Develops mitigation measures for each identified hazard. 2. Hazard Identification (HAZID) Workshops ? Brainstorming sessions with project stakeholders to identify potential hazards. ? Focuses on various stages of the construction project. 3. Safety Checklists ? Standardized checklists based on industry standards and past projects. ? Ensure comprehensive identification of potential hazards. 4. SWOT Analysis ? Identifies internal and external factors impacting safety. ? Analyzes Strengths, Weaknesses, Opportunities, and Threats.  RM Tools Used for Hazards and Safety in the Construction Industry 15 - Risk Assessment Tools 1. Risk Matrix ? Categorizes hazards based on their likelihood and severity. ? Helps prioritize mitigation efforts. 2. Failure Modes and Effects Analysis (FMEA) ? Systematically evaluates potential failure modes within a process. ? Assesses their impact on safety to prioritize areas for improvement. 3. Bow-Tie Analysis ? Visualizes pathways from potential hazards to outcomes. ? Identifies preventive and mitigative controls to manage risks effectively.  RM Tools Used for Hazards and Safety in the Construction Industry 16 - Risk Mitigation Tools 1. Personal Protective Equipment (PPE) ? Ensures appropriate PPE for workers based on specific hazards. ? Includes items like helmets, gloves, goggles, and safety boots. 2. Safety Management Systems (SMS) ? Policies, procedures, and practices designed to manage safety risks. ? Includes safety training, incident reporting, and regular safety audits. 3. Engineering Controls ? Physical barriers such as guardrails, scaffolding, and machine guards. ? Aim to prevent exposure to hazards. 4. Administrative Controls ? Safety procedures, work permits, job rotation schedules, and safety signage. ? Minimize exposure to hazards through organizational measures.  RM Tools Used for Hazards and Safety in the Construction Industry 17 - Risk Monitoring and Reporting Tools 1. Incident Reporting Systems ? Systems for reporting and tracking incidents, near misses, and unsafe conditions. ? Ensure timely investigation and corrective actions. 2. Safety Audits and Inspections ? Regular audits and inspections to identify potential hazards. ? Ensure compliance with safety regulations and standards. 3. Key Performance Indicators (KPIs) ? Metrics such as Lost Time Injury Frequency Rate (LTIFR) and Total Recordable Incident Rate (TRIR). ? Help monitor safety performance. 4. Safety Dashboards ? Provide real-time data on safety performance. ? Facilitate informed decision-making and effective communication with stakeholders.  RM Tools Used for Hazards and Safety in the Construction Industry 18 - Training and Awareness Tools 1. Toolbox Talks ? Regular, short safety meetings focused on specific safety topics. ? Raise awareness and reinforce safe practices among workers. 2. Safety Training Programs ? Comprehensive training on hazard recognition, proper use of PPE, and emergency procedures. ? Ensure workers are well-informed and prepared. 3. Simulation and VR Training ? Immersive training experiences using simulations and virtual reality (VR). ? Allow workers to practice handling hazardous situations in a controlled environment.  RM Tools Used for Hazards and Safety in the Construction Industry 19 - Compliance and Regulatory Tools 1. Compliance Management Systems ? Ensure adherence to safety regulations and standards such as OSHA guidelines. ? Monitor changes in regulations and manage compliance documentation. 2. Policy and Procedure Management ? Tools for creating, maintaining, and communicating safety policies and procedures. ? Ensure consistent implementation across the organization.  This slide is intentionally left BLANK 20 This slide is intentionally left BLANK to encourage students to attend this lecture.  Costs of RM for Hazards and Safety in the Construction Industry 21 1. The costs of risk management for hazards and safety in the construction industry can be significant, but they are necessary to ensure the safety of workers and the successful completion of projects. 2. While the costs of risk management for hazards and safety in the construction industry can be high, they are justified by the benefits of preventing accidents, protecting workers, and ensuring regulatory compliance. 3. These investments ultimately lead to a safer work environment, reduced liability, and potentially lower insurance premiums, contributing to the overall success and sustainability of construction projects. 4. Proper budgeting and strategic allocation of resources towards risk management can also help mitigate these costs over the long term  Costs of RM for Hazards and Safety in the Construction Industry 22 - Direct Costs 1. Personal Protective Equipment (PPE) ? Costs of safety gear such as helmets, gloves, safety glasses, boots, and high-visibility clothing. ? Regular replacement and maintenance of PPE. 2. Safety Training and Education ? Expenses for ongoing safety training programs for workers and management. ? Costs of certifications and specialized safety courses. 3. Safety Personnel ? Salaries and benefits for safety managers, officers, and other dedicated safety staff. ? Costs associated with hiring external safety consultants. 4. Safety Equipment and Tools ? Investment in safety devices such as harnesses, guardrails, scaffolding, and fall arrest systems. ? Costs for technology like drones and wearable safety monitors.  Costs of RM for Hazards and Safety in the Construction Industry 23 - Indirect Costs 1. Administrative Costs ? Costs of developing, maintaining, and updating safety policies and procedures. ? Expenses related to safety audits, inspections, and compliance documentation. 2. Insurance Premiums ? Higher costs for workers' compensation and liability insurance. ? Premiums can be reduced through effective risk management, but initial investments may be high. 3. Regulatory Compliance ? Costs associated with ensuring compliance with OSHA and other safety regulations. ? Penalties and fines for non-compliance can be significant if safety standards are not met.  Costs of RM for Hazards and Safety in the Construction Industry 24 - Opportunity Costs 1. Project Delays ? Time lost due to safety incidents, investigations, and corrective actions. ? Delays in project timelines due to implementing new safety measures or training. 2. Productivity Loss ? Reduced productivity due to the implementation of stringent safety measures. ? Time spent on safety training and meetings can reduce available work hours.  Costs of RM for Hazards and Safety in the Construction Industry 25 - Capital Costs 1. Safety Infrastructure ? Investment in safety infrastructure such as safe walkways, emergency exits, and first aid stations. ? Costs of installing and maintaining safety signage and barriers. 2. Technology and Software ? Investment in safety management software and mobile apps for real-time monitoring and reporting. ? Costs of integrating safety technology like Building Information Modeling (BIM) for hazard identification.  Costs of RM for Hazards and Safety in the Construction Industry 26 - Other Costs 1. Incident Investigation ? Expenses related to investigating safety incidents, including time, resources, and third-party consultants. ? Costs of implementing corrective actions and preventing future incidents. 2. Legal and Litigation Costs ? Potential legal fees and settlements from safety-related incidents and claims. ? Costs associated with defending against regulatory actions or lawsuits. 3. Reputation Management ? Expenses related to managing the company's reputation after a safety incident. ? Costs of public relations efforts to maintain trust and credibility.  Benefits of RM for Hazards and Safety in the Construction Industry 27 1. Effective risk management for hazards and safety in the construction industry offers numerous benefits that extend beyond merely complying with regulations. 2. These benefits can have significant positive impacts on various aspects of a construction project and the organization as a whole. 3. The benefits of risk management for hazards and safety in the construction industry are extensive and multifaceted. 4. By prioritizing safety, companies not only protect their workers but also achieve significant financial, operational, and reputational gains. 5. These benefits contribute to the overall success and sustainability of construction projects and the organizations that undertake them. 6. Effective risk management is, therefore, a critical component of strategic planning and operational excellence in the construction industry.  Benefits of RM for Hazards and Safety in the Construction Industry 28 - Enhanced Worker Safety 1. Reduction in Accidents and Injuries ? Proactive identification and mitigation of hazards lead to fewer accidents and injuries, creating a safer work environment for all employees. ? Improved safety protocols and training ensure that workers are better prepared to handle potential hazards. 2. Increased Worker Morale and Satisfaction ? A strong safety culture fosters a sense of security among workers, leading to higher morale and job satisfaction. ? Employees are more likely to stay with a company that prioritizes their well-being.  Benefits of RM for Hazards and Safety in the Construction Industry 29 - Financial Benefits 1. Lower Insurance Premiums ? Effective risk management practices can lead to reduced workers' compensation and liability insurance premiums. ? Insurers may offer discounts or incentives for companies with strong safety records. 2. Reduced Costs from Accidents ? Minimizing accidents and injuries reduces direct costs such as medical expenses, compensation claims, and legal fees. ? Indirect costs such as lost productivity, equipment damage, and project delays are also mitigated.  This slide is intentionally left BLANK 30 This slide is intentionally left BLANK to encourage students to attend this lecture.  Benefits of RM for Hazards and Safety in the Construction Industry 31 - Operational Efficiency 1. Increased Productivity ? Safe working conditions minimize disruptions caused by accidents, leading to smoother project execution and higher productivity. ? Well-trained workers who understand safety protocols can work more efficiently. 2. Better Resource Allocation ? Effective risk management allows for better planning and allocation of resources, reducing waste and inefficiencies. ? Projects are more likely to stay on schedule and within budget.  Benefits of RM for Hazards and Safety in the Construction Industry 32 - Reputation and Competitiveness 1. Enhanced Reputation ? A strong safety record enhances the company's reputation among clients, stakeholders, and the public. ? Companies known for their commitment to safety are more likely to attract high-quality talent and business opportunities. 2. Competitive Advantage ? Demonstrating a proactive approach to safety can be a key differentiator in competitive bids and contract negotiations. ? Clients and partners prefer working with companies that prioritize risk management and safety.  Benefits of RM for Hazards and Safety in the Construction Industry 33 - Legal and Ethical Benefits 1. Reduced Legal Liability ? Proactively managing risks and ensuring a safe work environment reduces the likelihood of lawsuits and legal claims. ? In the event of an incident, having documented safety procedures and compliance can provide a strong defense. 2. Ethical Responsibility ? Ensuring worker safety aligns with ethical business practices and corporate social responsibility (CSR) commitments. ? Companies that prioritize ethics and safety contribute positively to the community and industry standards.  Benefits of RM for Hazards and Safety in the Construction Industry 34 - Long Term Sustainability 1. Sustainable Business Practices ? Investing in safety and risk management contributes to the long-term sustainability of the business by preserving human capital and resources. ? A sustainable approach to safety can lead to continuous improvement and innovation in safety practices. 2. Resilience to Risks ? A robust risk management framework enhances the company's ability to anticipate, prepare for, and respond to unforeseen challenges and emergencies. ? This resilience is crucial for maintaining business continuity and adapting to changing conditions.  The importance of safety in the workplace - legal responsibilities 35 ▪ Safety is everyone’s responsibility. All individuals have the responsibility and accountability to identify, eliminate or manage risks associated with their workplace ▪ It is an ethical and legal obligation of employers to provide a safe working place and of employees to work safely. ▪ OSHA 1994 specifically requires employers to prevent accidents and incidents. ▪ Employer’s legal duties of care to employees cover the following areas: ▪ safe system of work; ▪ a safe place of work including safe storage and handling of substances and safe access to and egress from workplace; ▪ plant and machinery that are safe to use; ▪ competent supervision, suitable training and adequate instruction; ▪ adequate facilities for welfare at work  The importance of safety in the workplace - ethical and business reasons 36 ▪ Ethical Reason Incidents cause suffering not only for the individual workers involved but also to their families. Employers should not willingly cause suffering to its workers and also the community from where they get their income. Today, workers and the public are aware of their rights and may not allow employers to exploit them as they did before. ▪ Business Reasons Incidents lower the productivity and therefore profitability of an organization. Incidents can involve organization with litigation which may not only cost the organization its profit but also its image.  Costs of accidents – direct costs and indirect costs 37  Costs of accidents – direct costs and indirect costs 38 Direct costs The direct costs are insurance. These include medical costs and others workers’ compensation insurance benefits as well as liability and property-damage insurance. Indirect costs Below are the lists of indirect costs: 1. Transportation costs – include the cost of emergency transportation, together with the cost of other personnel that were necessary to get to the injured worker to proper medical facilities 2. Wages paid to injured worker for time not worked – include all the time in which the worker was not actually doing his or her job and for the wages paid.  Costs of accidents – indirect costs 39 3. Cost incurred because of delays which resulted from accident – other crews affected or delayed; equipment idled; duration of project lengthened; plus all wages, rental fees and indirect supervision costs that occurred as a result of the accident. 4. Costs of overtime necessitated by accidents – overtime occurred because of the accidents 5. Loss of efficiency of crew – decrease of crew efficiency due to low morale or reshuffling that might occur to replace an injured worker. 6. Cost to break in and/or teach replacement worker – hiring new worker would include training and orientation  This slide is intentionally left BLANK 40 This slide is intentionally left BLANK to encourage students to attend this lecture.  Costs of accidents – indirect costs 41 10. Costs of wages for supervision as a result of the accidents – include all time spent on the accident and its results: caring for the worker’s medical treatment, investigation, completing forms, disseminating information, visiting the worker, planning to prevent recurrence, appearance in court 11. Costs for safety and clerical personnel as a result of the accident – typing, investigating, forwarding forms, time with press, etc. 12. OSHA and civil fines – paying fines. 13. Cost of legal assistance – engaging a lawyer to settle the accident claims. 14. Other costs – any other cost that were incurred because of the accidents. The average ratio of indirect costs to direct costs is 4:1.  Costs of Incident Prevention 42 1. Safety Installation Cost Costs required for installing safety net, machine guards, guard rails and barriers to protect workers. 2. Operational Cost Costs of running Safety Department (e.g training, personal protective equipment etc) 3. Planning and consequence-limiting costs Safe guarding of the future costs e.g costs of environmental sampling, cost of safety audits, cost of scaffolding inspections  Consequences of Accidents in a Construction Site 43 1. Cost of project increases (details in previous slides) 2. Progress / schedule is delayed due to work stoppage or extra remedial works 3. If public vehicles or the adjoining properties are affected (e.g. crane overturns, cracks due to earth slip), it may result in litigation and bad reputation for the company 4. The employer may be found guilty of a criminal offence, resulting in fine, jail term and disadvantage in future tenders. 5. The moral of workers may be low, resulting in low productivity and workers leaving the project and the company.  THE END 44 Thank you for your attention  R 45 1. F