Risk Management

Vignesh Sivadass

2022MANG6143slidesWeek8v7.ppt

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MANG 6143
Project Risk Management

Mario Brito

Reading for this week

Chapman(2019), Chapter 7, page 345-346
Chapman and Ward (2011), Chapter 9 page 235-350

Learning objectives

To understand the difference between objectives ownership and risk ownership
To understand the difficulties in risk ownership in multi-party projects
To understand the requirements for a contracting strategy

Flowchart
for the
basic SPP

identify all relevant sources,

responses & conditions

structure

all uncertainty

clarify

ownership

quantify

some uncertainty

evaluate

all the relevant implications

to the

appropriate

gateway

stage

capability-culture

assets

capability-culture

liabilities

create & enhance plans

for all relevant concerns

from

project

initiation or a

gateway

stage

select & focus the process

for appropriate clarity

capture the context

with appropriate clarity

shape base plans using

models of some key issues

Your task this week:

Can you identify one project where risk ownership issues are considerable factors for the project failure. Who should own that particular risk and why? For example, the battery failure of Boeing 787 Dreamliner(1). Who should own the risk for battery failure: Boeing or GS Yuasa of Japan (the battery manufacturer). Feel free to select any other project in your subject area.

Write a comment in the discussion board about risk ownership issues.

Write a reply to a comment written by one of your colleagues.

(1) https://en.wikipedia.org/wiki/Boeing_787_Dreamliner_battery_problems

Contract disputes: Volkswagen, Blumenbecker, Rowmetric

The issues from the contractor’s perspective:

Rowmetric left the work site on January 15, upon completion of the work. If there were any technical issues at the time, our technicians would not have left the site. Such request was never made.
The precondition for this work was as requested was a collaboration between the two parties in a short period of time without any previous visit to the site. This, in itself, introduced challenges to the project.
The supply of materials was not included in the budget. Rowmetric was supplying resources only (specialized technicians with personal tools). The technicians had the autonomy to acquire what was necessary to complete the job.
The most important factor, are the project delays caused by the inability to give the technicians access to work areas( for days, because of unavailability of the lifters), removal of cables by order of the programmer without any testing, inaccurate schematics, in availability of key materials and inaccurate specification of key components (such as the emergency push buttons). Our technician updated the planning almost on a daily basis to cope with unpredicted events, such as the lack of lifters, materials and electrical schematics.

The clarify ownership phase

The nature of this phase is highly dependant upon the position reached in terms of the life cycle stage, and sometimes in terms of the position reached in terms of iterative phase cycles within any given stage.

Three longstanding case-based examples to illustrate the range:

- corporate contracting stance early on using BP and MoD examples,

- work packaging at a mid point using a UK Nirex example,

- named parties towards the end.

The WSL examples to illustrate some more complex concerns.

The scope and importance of further clarity in this area.

Risk Ownership, and ownership of
related objectives

If risk management is strongly related to managing objectives….

what issues do we encounter when we try to

theorise the relationships between ‘risk

owners’ and ‘objective owners’?

Multi-party risk issues: Problems in Risk Allocation

Allocation may not be explicit, intentional, or clearly articulated. Implications:
owners unaware
consequences of allocation not fully appreciated
quality of risk management unclear
Preoccupation with risk transfer
Adequacy of guidelines
allocate "to the party best able to manage, estimate and carry the risk" (Latham, 1994)

Project parties and possible owners of uncertainty

Project owner (board)
Agents of project owner: project manager, project team, programme management, internal suppliers, groups within project organisation, contractors, sub-contractors
Other stakeholders: parent organisation, partners, regulatory bodies, customers, suppliers, insurers.

Requirements for effective risk management

Full specification of the project and all associated risks
A clear perception of the risks being borne by each party
Sufficient capability and experience to manage the risks
Motivation to manage risks

Goal of appropriate ownership of uncertainty and risk

Objective: effective management of uncertainty in the interests of the project owner

Purpose of contract strategy:

“The alignment of the motivation of the parties so as to maximise the likelihood of project objectives being achieved, taking account of the constraints and uncertainties that act on the project and the strengths and weaknesses of the parties to it”

(Broome and Perry, 2002, slight variation)

Multi-party risk issues: Contractual Problems in Risk Allocation

Contractual allocation

- more concern with effectiveness of allocation mechanisms than with appropriate allocation

Risk/reward balance influences motivation to manage risks

Risk Allocation in contracts: residual uncertainties

1) Inadequate or ambiguous definition of terms (specifications, responsibilities of parties to cooperate, advise, coordinate, supervise)

2) Inappropriate definition of terms (performance specifications; variations, extensions)

3) Interpretations of risk apportionment may vary between contracting parties

4) Variations (powers to order, payment mechanisms)

5) Payment and claims arrangements (timing and conditions for payment)

6) Defects liability (who has to be satisfied; who is responsible; extent of liability)

Some reading on risk ownership within complex projects:

Stephen Ward. Risk Management Organization and Context. Witherbys, London, 2005. pp. 164.

Also of interest:

Teller, J., Kock, A., Gemünden, H. G., 2015. Risk Management in Project Portfolios Is More Than Managing Project Risks: A Contingency Perspective on Risk Management. Project Management Journal, 45 (4), 67-80.

Thamhain, H., 2013. Managing Risks in Complex Projects. Project Management Journal, 44(2), 20-35.

Small Business Research and Innovation programme

Ownership phase specific tasks

strategy fit

for purpose?

plans fit

for purpose?

overall fit

for purpose?

from the

structure

phase

scope the

contracting strategy

to the quantify

phase

clarify the objectives of

the contracting strategy

identify owners for the sources

of uncertainty and responses

uncertainty appreciation

and contract design

plan/re-plan

the contracts

select a contract approach

select contract terms

contract timing

stop the project

yes

maybe

Moving on to the ‘quantitative’ part of the process, assuming that the ‘qualitative’ part of the analysis is now fit-for-purpose for the rest of this pass through the process in this lifecycle stage. Further passes within this stage may be needed before moving on to a gateway stage.