Abstract
Projects in the contemporary times are characterized by intense risks with the infrastructure projects facing more risks than other types of projects owing to the huge amount of finances involved and the amount of time required to complete such projects. The risks vary from one project to the other hence complicating the standardization of the approaches taken by managers to mitigate them. The objective of this paper shall be to identify the risks associated with the infrastructure projects and to identify the approaches taken by managers to mitigate them. The paper shall explore a case study to illustrate the effectiveness of the identified approaches in minimizing the effects of the risks. A literature review shall also be conducted to assess the different views from different authors.
Introduction
Risk management refers to the identification and assessment of all the inherent uncertainties in a project. Risks are prevalent in almost every project with the infrastructure industry recording more risks compared to other sectors. The intensity of risks in the infrastructure projects is attributed to the huge amount of finances involved and the lengthy amount of time such projects take to complete (Atkinson, Crawford, and Ward 696). Risk managers in the infrastructure projects have to possess exceptional risk management skills to detect and mitigate the risks before they occur. The occurrence of the risks may cause huge losses to the concerned firm if they are not detected in time.
Risk management involves the identification of the risks and the employment of the relevant risk management skills to mitigate them. Risk apportionment is a common phenomenon in risk management whereby the identified risks are apportioned to the functional managers. Under the arrangement, each manager is held responsible for mitigating a certain risk. Failure by the concerned manager to utilize the tools at his/her disposal to mitigate the risks may result in fines to compensate the company for the loss incurred because of his/her negligence.
This paper seeks to identify the major risks associated with construction projects and the strategies employed by the project managers to mitigate them. In the achievement of the stated purpose, the paper shall review the risks associated with the construction of the state highway in Los Angeles County that ran from Indiana Street to Boyle Avenue. All the risks and mitigating factors adopted by the project’s manager shall be discussed in detail in this essay.
The objective of the paper
This paper seeks to add to the current literature exploring the topic of risk management in projects. The paper shall report the key findings of an interview conducted between the author and the PM of the project that was designed to unravel the risks and the mitigating strategies. Additionally, the paper shall review the project’s accounts and relevant documents to unravel the risks affecting the said project and the approaches adopted by the PM to mitigate them.
Significance of the study
The construction activities have increased greatly in the past few decades owing to the need for improved infrastructure. The global countries have invested heavily in their infrastructure to stimulate economic growth. Private firms have invested heavily in the construction industry to benefit from tenders issued by the various global governments. The sponsors of the construction projects require the construction firms to finish the project within the agreed timeframes, and in most cases, fines are imposed for delays in completion (Flyvbjerg 14).
The delays are often caused by poor risk management strategies by the project managers causing inability by the construction firms to handle the risks. This paper seeks to offer insight into the various risks involved in the project execution process and advise project managers on the ways to mitigate them.
Literature review
Kerzner states that one way of managing project risks is by identifying them in their earliest stages and communicating the same to the stakeholders involved (345). According to him, the identification of risk should be done at the planning stage whereby all the risks involved are listed according to their probability of occurrence. Planning is the first stage of project execution, it involves the identification of the various tasks and the determination of the resources needed to accomplish the identified activities. Project managers need to identify the risks inherent in a project at the planning stage to facilitate the formulation and implementation of mitigating strategies.
To identify the risks for a specific project effectively, a project manager needs to be open-minded and use his/her experience. The manager may also hold an open meeting with the stakeholders to attract their views regarding the risks likely to affect the project. Opinions from experts could also be helpful at the planning stage since they may help the manager to identify the risks and opportunities that may present in the course of executing the project. It is important to note that new risks emerge during the execution process, and such risk may not be identified at the planning stage. In that regard, the project manager should hold constant meetings with all the relevant teams to gain insight into the new risks.
Walker found that most projects fail due to the lack of a proper communication system in the firm (161). Communication is essential because it allows the sharing of information between the project manager and the executing team. In that regard, an effective communication channel should be established in the firm. The system should allow for the issuance of orders by the project manager to the employees and should allow employees to give feedback regarding such orders.
To ensure that the risks developing after the planning stage are identified and mitigated, there must be an effective communication channel that facilitates the collection of feedback from the employees. Communication allows the project manager to track the daily or weekly performance of the various activities. Deviations or delays in the schedule may inform the project manager of an imminent risk not identified in the project planning stage. It also allows employees to communicate the risks they have identified in their respective lines of duty. Additionally, communication allows employees to suggest ways to deal with the risks. Viable ideas from the staff may be implemented in the mitigation of the risks.
Zou, Zhang, and Wang state that project risks cause delays in the completion of a project and may lead to cost overrun (609). To mitigate the delays, the PMs need to analyze all the tasks involved using the tree diagram. A tree diagram denotes a type of a chart that identifies all the activities involved in the execution of the project. Activities within the critical path must be prioritized so that they are completed before the Latest Finishing Time (LFT).
After the identification of all the tasks involved using the tree diagram, the following step should be to identify the risks associated with each task. Connecting the risks to the tasks helps the managers to develop mitigation strategies and to identify the managers that shall implement the strategies. The diagram also helps the managers to identify the tasks that can be executed contemporaneously to save time. The saved time may be used to remedy any delays in the completion of other tasks not within the critical path.
Olsson argues that the risk managers should not only focus on the threats but also the opportunities presented by certain types of risks (70). In the past, the project risks had a negative connotation and managers seemed to ignore the positive impacts of risks. The contemporary risk managers have however realized the need to focus on the positives as opposed to the negatives. The positive risks are uncertain events that could be beneficial to the project. Such risks may fasten the project execution process lessening the completion time. The positives may include opportunities that may help the construction firm to achieve savings in terms of time and cost.
Flyvbjerg claims that one of the best ways to deal with risks is by clarifying the ownership of such risks (7). Ownership in this context refers to the sharing of responsibilities of the risks identified in the planning stage. Each functional manager should be notified of his /her responsibility for mitigating a certain type of risk. The managers should also be notified of the consequences of not using the risk management skills that they possess to minimize or even mitigate the risk.
However, the sharing of the risks should be done skillfully to avoid resistance from the staff. The risk managers may feel that they are being subjected to wrongful discrimination and penalties if they fail to mitigate the risks. The ownership trick should not only apply to the negative risks but also to the positive ones. In light of the stated view, the managers who identify opportunities that achieve savings in the form of time or cost should be rewarded to improve their morale.
Meredith and Mantel emphasize the prioritization of risks whereby the risks that have a high probability of occurrence are listed top in the list (156). The view is informed by the fact that most managers treat all the risks equally notwithstanding the intensity of each risk. Some risks have a higher impact as compared to others thus necessitating the need to prioritize the risks so that the risks of higher magnitude are identified and more resources are devoted to mitigate them.
The risks that are likely to cause cost overrun or to delay the project should be prioritized. The risks that may result in maximum gains to the firm should equally be prioritized. The other types of risks identified at the planning stage should be prioritized according to the criteria set by the concerned organization. Such criteria may include the likelihood of occurrence and the impacts of the risks.
Kerzner states that the registration of risks is an important component of risk management, and it involves documenting the entire risks identified in either the planning phase or the execution stage (118). The documentation of the risks ensures that all the risks are taken care of coupled with eliminating chances of forgetting some of the risks during the execution stage of the project. The risk log should include the descriptions, the ownership of the risk and the mitigating factors. The documentation of the risks coupled with the mitigating strategies may inform future risk management endeavors.
Risks associated with constructing this project
This project involved the construction of a highway connecting the Indiana Street to the Boyle Avenue at a cost of $1,128,198.50 as illustrated in Appendix 1 and 2. Just like in any other construction project, this project was subject to risks. As previously indicated in this paper, effective risk management involves the identification of risks in their earliest stages. Once the risks are identified, the project manager in liaison with the line managers should formulate strategies aimed at mitigating them to avoid losses. In the case study presented in this paper, the project manager identified all the risks at the planning stage and documented them for reference. After consultations between the PM, the functional managers, and a few experts, the PM identified the following five broad categories of risks:
- Cost overruns.
- Design constraints.
- Construction related risks.
- Physical.
- Acts of God.
The physical risks denote all the uncertainties attached to the construction site, and they may include injuries inflicted to the employees by the machines and the equipment used for the construction. In most cases, employees executing the project work with dangerous machines that may inflict injuries on them. Such injuries may incapacitate the workforce reducing their overall output (Olsson 64).
Next, the risks under the purview of Acts of God refer to the risks that emanate from nature and they are not preventable by the managers or the employees. Such risks include earthquakes and other natural calamities that may cause a stoppage in the operations. Heavy rains and floods, for example, may delay the delivery of raw materials to the construction site hampering the operations. Design risks refer to the internal risks associated with the project.
Risks under this purview are linked with ineffective workforce and poor communication between the stakeholders involved. Communication between the various departments during the project execution process is essential since it facilitates the passage of information regarding the achievements made at each phase. Communication deficiencies may deter the effective execution of the project. Next, the financial risks denote a class of risks that lead to budget deficits such that the actual costs exceed the planned costs. The variances may be caused by an increase in the cost of the various construction materials or other unplanned expenses.
Lastly, risks associated with the construction site may affect the execution of a project. Such risks include poor management of the site, inaccessibility of the site, and third party delays. Appendix 3 summarizes the five risks.
Tools used to manage the risk successfully
Prompt identification of risks allows managers to develop mitigating strategies to pre-empt their occurrence (Meredith and Mantel 143). During the planning stage, the PM held a meeting with the functional managers and the junior staff to deliberate on the risks likely to influence the project. All the risks suggested by the stakeholders were documented for consideration during the prioritization stage.
The next meeting brought together the PM and the functional managers to further examine the challenges. At this meeting, the original list of risks was condensed to include only the risks relevant to this project. The functional managers assisted in the prioritization of the risks based on their probability of occurrence and their net loss or gains. A copy of the condensed risks was served to each employee requiring the employees to suggest ways to mitigate them.
Moreover, the PM held regular meetings with the entire team to identify the risks that developed in the course of executing the project. The meetings were on a weekly basis, and they brought together the PM and the functional managers to deliberate on the achievements made each week. Any underperformance was explained and any risk associated with the delay identified. Additionally, the PM established a communication system that allowed the junior employees to air their concerns directly to the PM. The communication with the employees involved an open meeting between the PM, the functional managers and the employees. In such meetings, the employees were allowed to air their concerns to the management. Throughout the project, the employees were encouraged to inform the line managers of any imminent risks.
The risks identified were then subjected to scrutiny to identify the activities likely to be affected by the risks. This stage involved the representation of the entire project activities in a network diagram to identify the activities crucial to the success of the project. The critical path analysis informed the positive risks through identification of the activities that could be performed contemporaneously to achieve savings in terms of time and cost.
After the identification of all the tasks of the project, division of labor took place whereby the lined managers were allowed to choose the activities they wanted to be involved. Next, each risk was assessed to determine the activities that it would affect. Managers in charge of the activities that the risk would affect were notified of their responsibility to mitigate them. Contracts indicating the manager’s liability to the company for failure to deal with the risks were signed and witnessed by the PM.
To mitigate the risk in the design, an effective communication system was established that would allow communication between and among all the stakeholders involved. Under the system, the functional managers were answerable to the PM, and they were responsible for the collection of all the information from their subordinates. The line managers would compile a report on the efforts they have made in the implementation of the strategies formulated to mitigate the risks identified and present it to the PM weekly. Orders from the PM would be communicated to the staff by the line managers who would also collect feedback and present it to the PM.
Training of the staff was another strategy adopted by the company to mitigate the physical and the construction related risks. Employees were trained on the effective use of the machinery and the equipment involved in the execution of the project. The training was meant to mitigate injuries to the staff that could cause incapacitation and delays thereof. Additionally, the company acquired an insurance policy that could indemnify it for any loss incurred due to injuries caused to the employees.
The other strategy adopted by the company to mitigate the identified risk was the identification of all the activities to be performed and assigning time for each activity. The network diagram was used to identify the tasks and to determine the Earliest Finishing Time (EFT) and the Latest Finishing Time (LFT). The functional managers were notified of the timeframes, and they were urged to ensure compliance.
Activities falling in the critical path were prioritized such that all the activities were completed between the EFT and the LFT. The activities that could be performed contemporaneously were identified and executed simultaneously. Activities not within the critical path were delayed to allow for the execution of the activities along the critical path. However, such delays were only allowed if the risks under such activities were minimal. Changes in the schedule were only allowed after examination of the risks inherent to the specific activity. The PM was the only person who could authorize the changes in the schedule.
To mitigate the financial and the risks emanating from Acts of God, the company acquired an insurance policy that would indemnify it against any additional costs attributable to one of the identified risks. Atkinson, Crawford, and Ward argue that the acquisition of an insurance cover could be a good strategy to mitigate the risk of cost overruns caused by natural occurrences (694). However, insurance covers only reduce the impact of the risk as opposed to eliminating it. The argument is grounded on the view that the insurance indemnifies the complainant for the loss after it has already occurred.
Conclusion
Risk management is an important aspect of project management, and it involves the identification of the risks and the formulation of strategies to mitigate them. The infrastructure industry faces a myriad of risk apparently due to the huge amounts of finances involved and the length of time to completion. Project managers must devise strategies to mitigate the risks to ensure that the project is profitable. Risks can be either positive or negative.
The negative types of risks denote the uncertainties that harm the profitability of the project or causes delays in the completion of the project. The positive risks, on the other hand, denote the opportunities that may either facilitate saving in terms of time or cost. This paper discussed the major risks associated with the infrastructure projects. In the achievement of the stated purpose, the paper analyzes the risks encountered in the construction of the state highway in Los Angeles County connecting the Indiana Street and the Boyle Avenue. The paper reports an interview between the author and the PM of the project. The risks identified from the interview and the perusal of the project’s documents can be broadly classified as follows:
- Financial risks.
- Physical risks.
- Design risks.
- Acts of God.
- Construction related risks.
All the listed types of risks have been explored in details in this paper. Also explored is the mitigating strategies adopted by the PM to minimize their effects on the execution of the project. The risks and the mitigating factors are compared with the literature to verify their relevance in the construction industry. The results indicate that all the risks and the mitigating factors explored in this paper regarding the said project are relevant to the industry. Therefore, this paper adds to the currently available knowledge regarding project management.
Appendices
Appendix 1
Appendix 2
Appendix 3
Risks associated with the project.
Works Cited
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Flyvbjerg, Bent. “From Nobel prize to project management: Getting risks right.” Project Management Journal 37.3 (2006): 5-15. Print.
Kerzner, Harold. Project management: a systems approach to planning, scheduling, and controlling, New York: John Wiley & Sons, 2013. Print.
Meredith, Jack, and Samuel Mantel. Project management: a managerial approach, New York: John Wiley & Sons, 2011. Print.
Olsson, Rolf. “Risk management in a multi-project environment: An approach to manage portfolio risks.” International Journal of Quality & Reliability Management 25.1 (2008): 60-71. Print.
Walker, Anthony. Project management in construction, New York: John Wiley & Sons, 2015. Print.
Zou, Patrick, Guomin Zhang, and Jiayuan Wang. “Understanding the key risks in construction projects in China.” International Journal of Project Management 25.6 (2007): 601-614. Print.