Managing risk for predictable outcomes

By Jim Law | June 22, 2017

The concept of risk management is nothing new, although the principles and how rigorously they’re applied have evolved over time. Certainly, we’re seeing more care and scrutiny being given to the risks associated with construction projects today. That’s likely the result of lessons learned from past experiences where sometimes the outcomes have been less than positive.

Projects of all kinds and sizes need to have their related risks properly assessed. It's an exercise that’s best done at the very beginning of the planning stage and updated throughout the project life cycle. The first step is understanding what the specific risks are in any particular project and developing a plan and execution strategy for mitigating them. Always, the goal of managing risk is to strive towards surety of outcome—no surprises.

In construction, poor or ineffective risk management can mean trouble, if, for example, adverse geotechnical conditions are detected only once the work is underway. There can be significant delays if remedial designs are needed. Developing them may impact the project schedule and seriously affect the overall cost of the project.

To illustrate, a 1985 World Bank survey determined that, of sixty-four bank-financed hydroelectric projects, 36 percent encountered significant geologic problems causing substantial cost overruns and construction delays. At that time, it was recommended that bank engineers should assume that the costs of project components that could be impacted by adverse geology could increase by as much as 300 percent.The early implementation of a strong risk management strategy reduces the need for such extreme contingencies. It increases the probability that these kinds of challenges or situations will be detected long before they cause problems—ideally before the project construction starts. Risks that are identified early can be managed thoroughly and throughout the project life cycle.

Procurement is another area in which risk management is critical. Getting materials of the right kind and quality and having them provided to installers or construction teams at the right time can mean the difference between delivering a project on time and on budget, or significant delays and cost overruns. Dealing with quality issues involving procured equipment in the field undoubtedly increases the risk to the project.

Everyone involved in a construction project has responsibility for mitigating risk—owners, contractors, consultants all have a part to play. Of course, different entities have different ways of dealing with it, but the results are always best when risks are managed by the group best suited to doing so. Sometimes that’s the owner, sometimes the contractor. But usually, it’s a team effort.

People’s perception of any particular risk will vary, influenced by their specific experiences, the tools at their disposal to mitigate the risk, and the extent of the potential consequence. However, it is important that the risk tolerance of the various parties working together on a project are aligned, or at least well understood. Without this, the process can disintegrate.

Risk management can only be effective if there is a formal process in place to make it so. A registry can be invaluable for identifying specific risks and determining ways to manage them. Once a risk has been identified in the registry, it can be tracked, reassessed, and managed throughout the life of the project. The registry can also provide a way to itemize lessons learned, which can help inform the list of things to be managed on similar projects going forward.

Essentially, risk management is a matter of considering the probability of an event occurring and determining what the likely result will be. Some things—like natural disasters and forces majeures—may be best dealt with by investing in project insurance. But usually, the various parties cover the contingencies for their own scopes of work. Still, everyone examines the plan, understands the work, and tries to see where different groups can offer the best solution to mitigate risk on a collective level, not as individuals. This typically leads to the most successful project outcomes.

A case in point was a specific hydrologic risk we encountered earlier this year involving a cofferdam and rock plug on the Chaudière project in the Ottawa-Gatineau region of Canada. It was in the contractor’s scope to keep the site dewatered. But this year, a particularly wet spring and significant flooding presented more challenges than might have been anticipated ordinarily. It escalated the risk associated with the flooding of the construction site. Due to the fact that the potential for such risks had been already considered, the project teams collectively managed the escalated river flows conditions and implemented additional measures. Conditions regressed with limited consequences.

There are similar success stories across Hatch, ranging from the successful mitigation of serious ice issues at the Keeyask project in the Canadian province of Manitoba to addressing a severe cofferdam leakage problem that threatened to delay part of the Muskrat Falls project in Labrador, also in Canada, by at least a year. Effectively using risk tools was frequently part of the solution.

In risk management, all the project participants must individually understand the potential risks and their specific responsibilities. But ultimately, it needs the whole team, working to understand and deal with all the issues collaboratively, to develop proactive contingency solutions that will ensure the project’s success.