Risk management for project control

May 2007 » Columns
Many seminars, classes, and articles have addressed the need for a risk management program to improve efficiency and reduce the liability involved in design work. There are many types of risks, controls, and management programs, however. What makes a risk management program successful, and when is it appropriate? Risk management encompasses the complete evaluation, control, and monitoring of risks and their outcomes. This field, because of its history of application, is most often associated with human health and safety, especially with regard to hazardous chemicals, machinery, or energy. More recently, as the effects of legal liability and the costs associated with worker turnover, training, and client relationships have become recognized as real risks, the concept of risk management has evolved to include legal and financial "hazards" as well. While risk management is a tool to evaluate the controls and their effectiveness throughout a project life-cycle, it is of utmost importance to identify properly what risks affect your firm, and address the most critical ones first. This is the purpose of risk assessment and prioritization.
Jason Burke, P.E., MPEM

Many seminars, classes, and articles have addressed the need for a risk management program to improve efficiency and reduce the liability involved in design work. There are many types of risks, controls, and management programs, however. What makes a risk management program successful, and when is it appropriate?

Risk management encompasses the complete evaluation, control, and monitoring of risks and their outcomes. This field, because of its history of application, is most often associated with human health and safety, especially with regard to hazardous chemicals, machinery, or energy. More recently, as the effects of legal liability and the costs associated with worker turnover, training, and client relationships have become recognized as real risks, the concept of risk management has evolved to include legal and financial "hazards" as well. While risk management is a tool to evaluate the controls and their effectiveness throughout a project life-cycle, it is of utmost importance to identify properly what risks affect your firm, and address the most critical ones first. This is the purpose of risk assessment and prioritization.

Most experienced project managers and designers likely have an intuitive feel for what aspects of a particular project may involve the highest risk. For instance, it may be known that a certain phase of design tends to go over budget more than others. Or perhaps construction and field inspection represents a significant liability that must be managed properly to reduce exposure. But is this knowledge consistent throughout the firm, and are younger engineers involved in assessment and management of these risks? Without a procedure in place to identify potential hazards, it is less likely that this training will occur, and worse, unlikely that the firm will be able to react to new regulatory or technological environments.

This is where often-recommended project tracking becomes most useful. To account properly for the significant risks faced by your firm, it is best to assemble a group that will bring diverse backgrounds to the program. Each group member should have intimate knowledge of the types of contracts, proposals, budgets, and problems that are most common during typical projects. This group should use lessons learned from past projects to determine the various types of risks involved in the business. Examples may be poorly scoped contracts, insufficient budgets, poor communication with clients, or simply neglecting to train staff completely in proper procedures. Tabulate all of these risks with a rough approximation of the potential effects on the project and the likelihood of them occurring on a typical job.

When this basic list and categorization is completed, give the most severe risks and those most likely to occur the highest priority for control. If, for instance, it is found that limited scoping leads to significant client dissatisfaction or design delays on many jobs, then some kind of control is necessary to mitigate for this very high risk. Possible solutions may include instituting a contract template, standardizing project codes, or using project checklists to ensure consistent scopes throughout the firm. Once this is addressed, then move to the next priority. As these controls are implemented, it then is necessary to monitor and adjust them to maximize their effectiveness. This represents the continuing program of risk management throughout the design life-cycle and the life of the firm.

Just as every firm’s business model and strategy is unique, a one-size-fits-all risk management program is not a panacea for all financial hazards. Each firm needs to evaluate its particular risks and the costs associated with dedicating a team to resolving them. There will always be some risk in doing business, and one of the keys to maintaining a successful management program is knowing what level is acceptable. By addressing the most critical risks as soon as possible, a firm may significantly reduce its financial and legal exposure resulting from its management and design efforts.

Jason Burke works for Allied Engineering (www.alliedengineering.com) in Bozeman, Mont.

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