By

Bob Prieto
Senior Vice President
Fluor Corporation

Rick Rye
Fluor Corporation

Risk is inherent to major capital construction programs.

The initial paper in this Series defined a ten step process to guide consideration of program risks. Collectively, these interrelated processes contribute to successful strategic risk management.

These ten steps encompassed:

• Plan for Risk
• Make Realistic Assumptions
• Utilize Outside Expertise
• Understand Risk Elements and Their Impacts
• Assess and Analyze Risks
• Develop Mitigation and Contingency Plans
• Synthesize the Risks
• Integrate Risk Management
• Establish Clear Metrics
• Manage Risk Continuously

This paper focuses on the first of these steps.

Plan for Risk

Let’s look at the risk management process from the planning that expectedly occurs during the pre- program phase. All program plans are based on estimates that contain uncertainty. The bigger or more complex the program, the more uncertainty exists and the more severe the consequences can be. One of the problems with planning major capital construction programs is the magnitude of these uncertainties.

Where there is uncertainty, there are also potential unfavorable consequences. The best method for dealing with these uncertainties and the associated consequences is to develop and implement a risk management process as part of the program management effort. A structured risk management methodology should be one of the key management processes integrated with the other program management framework processes. It must receive the same level of attention as budget control and scheduling, decision-making, and other framework processes.

Controlling risks should not be an arbitrary function that is separate or apart from these other program management applications. Rather it is an integral part of the total program that in some way touches each and every one of the other framework processes.

The philosophy across the program management team must be that risk management is expected to be a continuous process at both the program level as well as on all projects that comprise the program. It is imperative that risk analysis be integrated fully into the program management processes.

The first step in risk management strategy is acknowledging that the potential for risk consequences cannot be completely eliminated but it can be mitigated. Major capital construction programs are commonly faced with all types of risk events, such as adverse weather, differing site conditions, unavailability of specific types of resources, unanticipated environmental factors, or community pressures. In addition strategic business objectives may evolve through the program implementation process. The adverse effects associated with these events are normally manifested in the form of increased cost, re-sequencing of project and construction activities, and delays that have the potential to interfere with successful program delivery.

The risk management process should start at the very beginning of the program with development of a Program Risk Management Plan which details the processes planned for assessing, mitigating and managing the potential risks. The plan should contain a statement of purpose for risk management process and the overall program performance objectives to be achieved.

The Program Risk Management Plan should also summarize key definitions of risk terminology, establish program and process policies, and identify each stage of the process. More specifically, the plan should document the risk identification and mitigation methods to be used. This plan in itself should help guide the program and project teams overall understanding of risk management processes and help create personal connection and commitment for using the risk management methodology.