By

Bob Prieto
Senior Vice President
Fluor

Rick Rye
Fluor

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 fourth of these steps.

Understand Risk Elements and Their Impacts

Another risk management process step is to understand the elements of risk and their potential impact early in the program planning and development phase. Not understanding the true impact of a risk event can weaken even the best of risk management planning. Implementing the risk management process starts with identifying as many risks as possible and summarizing the program management’s approach to mitigating these risks. This step should also include a measuring of risk by assigning values to risk probabilities, impact, priorities, and other elements that will ultimately fall into the equation of delivering a risk assessment. At this point the risk management process should include a risk evaluation scoring system to assist in the measurement of severity of the impacts caused by a risk event.

Although the risk methodology ultimately involves statistical analysis and sophisticated computer simulations it is important to not let these tools become the holy grail that substitutes for the fundamentals of good management thinking.

It is important to first think in terms of the following:

• Identifying risks – Identifying risks to the program schedule and budget early in the program development stage, along with actions to mitigate them.
• Determine the top risks – Determining the top risks or the culmination of multiple smaller risks and their impacts.
• Assigning contingency – Evaluating whether there is sufficient contingency in the program budget and schedule to cover the risks identified.
• Confidence level – Determining the level of confidence that the program schedule will be met.
• Determine the effects of risks – Evaluating continuously the effects of risks.
• Monitoring and tracking – Tracking monthly trends and the progress of mitigating the top risks, and intervening when necessary to ensure their resolution.