Managing Risk in Construction Projects
Total Page：16
File Type：pdf, Size：1020Kb
MANAGING RISK IN CONSTRUCTION PROJECTS Jobling: “fm” — 2005/9/27 — 16:18 — pagei—#1 Jobling: “fm” — 2005/9/27 — 16:18 — page ii — #2 MANAGING RISK IN CONSTRUCTION PROJECTS Second Edition Nigel J. Smith Professor of Project & Transport Infrastructure Management School of Civil Engineering University of Leeds Tony Merna Civil & Construction Engineering School of Mechanical, Aerospace and Civil Engineering University of Manchester Paul Jobling Project Director Risk Management Senior Professional Associate Parsons Brinckerhoff Blackwell Publishing Jobling: “fm” — 2005/9/27 — 16:18 — page iii — #3 © 2006 N. J. Smith © 1999 By Blackwell Science Ltd Editorial offices: Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK Tel: +44 (0) 1865 776868 Blackwell Publishing Inc., 350 Main Street, Malden, MA 02148-5020, USA Tel: +1 781 388 8250 Blackwell Science Asia Pty Ltd, 550 Swanston Street, Carlton, Victoria 3053, Australia Tel: +61 (0)3 8359 1011 The right of the Authors to be identified as the Authors of this Work has been asserted in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Firstpublished 1999 Transferred to digital print 2003 Second edition published 2006 ISBN-13: 978-1-4051-3012-7 ISBN-10: 1-4051-3012-1 Library of Congress Cataloging-in-Publication Data Smith, Nigel J. Managing risk: in construction projects/Nigel J. Smith, Tony Merna, Paul Jobling.–2nd ed. p. cm. Includes bibliographical references and index. ISBN-13: 978-1-4051-3012-7 (alk. paper) ISBN-10: 1-4051-3012-1 (alk. paper) 1. Building–Superintendence. 2. Building–Safety measures. 3. Construction industry–Management. 4. Risk assessment. I. Merna, Tony. II. Jobling, Paul 1955- III. Title. TH438.S54 2006 690.068–dc22 2005010452 A catalogue record for this title is available from the British Library Setin 10/13 ptTimes NR by Newgen Imaging Systems (P) Ltd, Chennai, India Printed and bound in India by Replika Press, PvtLtd.,Kundli The publisher’s policy is to use permanent paper from mills that operate a sustainable forestry policy, and which has been manufactured from pulp processed using acid-free and elementary chlorine-free practices. Furthermore, the publisher ensures that the text paper and cover board used have met acceptable environmental accreditation standards. For further information on Blackwell Publishing, visit our website: www.thatconstructionsite.com Jobling: “fm” — 2005/9/27 — 16:18 — page iv — #4 Contents Preface ix Authors Biographies x Acknowledgements xii 1Projects and Risk 1 1.1 Construction projects 1 1.2 Decision making 2 1.3 Risk management strategy 5 1.4 Projectplanning 6 1.5 Summary 7 2 The Project Environment 9 2.1 Projects 9 2.2 The project constitution 11 2.3 Projectorganisation 13 2.4 Projectphases 15 2.5 Effectof projectphase on risk 18 2.6 Projectappraisal 20 2.7 Summary 22 3 Understanding the Human Aspects 24 3.1 Risk management– people 25 3.2 Risk management– organisations 26 3.3 The risk managementprocess 27 3.4 Some guidelines to the risk management process 28 3.5 The risk workshop 30 3.6 Communication 33 3.7 Summary 34 4 Risk and Value Management 36 4.1 Introduction 36 4.2 Approaches to the management of risk 37 v Jobling: “fm” — 2005/9/27 — 16:18 — pagev—#5 vi Contents 4.3 The standard risk management model 40 4.4 Applying risk and value management 41 4.5 Value management processes 43 4.6 Understanding the project risk 44 4.7 Applying value and risk management 52 4.8 Iteration of the process 54 4.9 Summary 55 5 Qualitative Methods and Soft Systems Methodology 57 5.1 Qualitative risk assessment 57 5.2 Review of project programmes and budgets 57 5.3 The risk log 60 5.4 Using a risk log to formulate risk management strategy 62 5.5 Qualitative methods 64 5.6 Soft systems methodology 66 5.7 Case study: SSM in the use of the placement of construction projects 68 5.8 Summary 77 6 Quantitative Methods for Risk Analysis 78 6.1 Sanction 78 6.2 Project appraisal and selection 79 6.3 Project evaluation 82 6.4 Engineering risks 84 6.5 Risk management 87 6.6 Probabilistic analysis 89 6.7 Response to risks 92 6.8 Successful risk management 93 6.9 Principles of contingency fund estimation 94 7 The Contribution of Information Technology to Risk Modelling and Simulation 102 7.1 Purpose of RMS 103 7.2 When to use RMS 103 7.3 Requirements of the analyst 105 7.4 Modelling and simulation 105 7.5 Modelling using RMS 107 7.6 Data management 108 7.7 Analytical mechanisms 108 7.8 Classification of RMS 110 7.9 Selection of RMS 111 Jobling: “fm” — 2005/9/27 — 20:33 — page vi — #6 Contents vii 7.10 Modelling a projectfor risk management 113 7.11 Data requirements for realistic modelling 115 7.12 Choice of variable distribution 117 7.13 Case study 118 7.14 Case study simulations 125 7.15 Analysis of the result 128 7.16 Discussion of findings 134 7.17 Summary 134 8 Risk Allocation in the Contracting and Procurement Cycle 136 8.1 Typical contracting and procurement processes 136 8.2 Value planning case study 140 8.3 Known and unknown risks in contracts 142 8.4 Risk allocation strategies 145 8.5 Risk allocation according to payment mechanism 156 8.6 Contract award 160 8.7 Summary 163 9 Managing Financial Risks in Major Construction and PFI Projects 164 9.1 Projectfinancing 164 9.2 Types of finance 166 9.3 Appraisal and validity of financing projects 171 9.4 Typical financial risks 174 9.5 Promoter 176 9.6 Financial risk in concession contracts 177 9.7 Global and elemental risks in concession contracts 180 9.8 Summary 186 10 Risk Management at Corporate, Strategic Business and Project Levels 187 10.1 Introduction 187 10.2 Risk management188 10.3 The risk managementprocess 189 10.4 Benefits of risk management 191 10.5 Recognising risks 191 10.6 Why risk managementis used 193 10.7 Model for risk management at corporate, strategic business and projectlevels 194 10.8 Summary 200 Jobling: “fm” — 2005/9/27 — 16:18 — page vii — #7 viii Contents 11 Case Studies 202 11.1 Introduction 202 11.2 Case study – cruise ship design and fabrication programme risk assessment203 11.3 Risk identification 204 11.4 The Channel Tunnel Rail Link (CTRL) 208 11.5 Brief history of the CTRL 209 11.6 The risk managementprocess 212 11.7 Risk assessment, analysis and response 219 11.8 Summary of the preliminary schedule risk analysis results 225 12 Guidance in Practical Risk Management 229 12.1 Decision making 229 12.2 Preparation for risk management 230 12.3 Risk identification 232 12.4 Risk analysis 232 12.5 Risk outputs 233 12.6 Models 237 12.7 Communication 238 12.8 Summary 238 Index 240 Jobling: “fm” — 2005/9/27 — 16:18 — page viii — #8 Preface Those of you wanting the answer to the problems of risk management might think of turning straight to the final chapter. Indeed, there you will find a summation of how risk management methods can empower the decision-making of theprojectmanager. However, itis only a thorough understanding of the various concepts involved that can provide the real basis on which to make effective decisions. The essence of the guidance is based on the interaction of concepts, user requirements and specific projects, and it is by obtaining a greater knowledge of the inherent nature of the project that improvements in per- formance can be found. Hence by examining the guidance in this context, the reader will be able to gain the maximum benefit from this book. The authors doubt many people will read this book from cover to cover but if key sections of the text serve to enhance understanding and to facilitate more effectiveprojectmanagementthenitwill have achieved itspurpose. The second edition of this book has been extended to include the input of the Turnbull Report and to introduce the concept of corporate, strate- gic business project level risk. Nevertheless, the basic concept of risk management as a process for making better decisions under conditions of uncertainty remains. This book is not intended as a definitive monograph on risk but as a guide for practitioners having to manage real projects. The authors have assembled a strong team of practitioners and leading academics and it is the blend of theory and practice which is the real message of this work. ix Jobling: “fm” — 2005/9/27 — 16:18 — page ix — #9 Authors Biographies Paul Jobling BSc, MSc, CEng, MICE, MAPM is a Senior Professional Associate of Parsons Brinckerhoff and Project Director for Project Risk Management. He has worked in the field of project and programme management since 1976. He was a member of the research team that pro- duced the Guide to Risk Management in Construction published in 1986. At Eurotunnel he worked in the project control team developing proce- dures for risk analysis and contingency fund management. Further risk managementand analysis work has included theChannel Tunnel Rail Link, major nuclear decommissioning programmes and several major rail programmes including the West Coast Route Modernisation, Train Protection and Warning System, Southern Region New Trains Pro- gramme and the European Rail Traffic Management System. Paul was a member of the working party responsible for the production of the Project Risk Analysis and Management Guide published in 1997 by the Associa- tion for Project Management, and a member of the review team for the revised edition published in 2004.