LEAN CONSTRUCTION PROCEDURES (LCP®)

LEAN Risk

Risk models are common in the construction industry. In general, they vary little in their approach to making a numerical assessment of project risks. Methods focus on a statistical assessment of perceived certainty and effect of individual events.'
These events are collated into a single "risk allowance" that is used to mitigate the cumulative effects. An allowance of between 2 and 10 percent of project cost is common. How effective are these models? What are the pitfalls to this approach to risk?

Constraints in risk model.

 

A constraining factor in achieving a consistent risk model is the variance to the perception of risk. This is a dynamic and will change given the experience of individual, groups or companies to the success of incursions into risk taking - or more correctly their perceived outcome to the fallacy of managing risk.

Approach to management - Guidance is given with BS 62198:2001 with regard to managing project risk. It describes RM as a systematic application of management policies, procedures and practices to undertake certain areas of investigation and consideration in respect to the risks;

• Context
• Identifying
• Analysing
• Evaluating
• Assessing
• Treating
• Monitoring
• Communicating

The risk is then managed in order to minimise loss and maximise opportunity in a cost effective way. It urges the manager to initiate the process at the earliest possible phase of a project and to continue review as a live document. It proposes that the approach is bespoke to specific projects. The general approach is in distinct stages and is broadly suggested as below;

• Establish Objectives and identify the parties to the project
• Identify the risk
• Manage the risk

The standard gives useful advice in regard to other issues with undertaking management of risks and suggests that a risk should be reduced to a tolerable level whilst urging consideration of contingency planning for mitigation. The control method involves a consideration of the risk probability in tandem with the consequence to give an estimate of the level of risk. The possibility of risk carry-over between phases of a project is highlighted.
A Qualitive or Quantitive approach is identified. It is reasoned that a Qualitive approach is only applicable when the level of data is sufficient in the project life cycle. It is reasoned within the BS that a preliminary Qualitive approach is appropriate at the early stage where little or no firm data is available. This raises the question of risk flow and the effectiveness of communicating and dealing with risk between different processes and at different stages. 
The general industry approach seems to be a static time shot during the tender preparation which is nominally reviewed at intervals during execution of the project. Is this a tendency towards conducting a Qualitive analysis only? Is this sufficient and does this effectively manage the dynamics of the environment? Generally, organisations use quantitative risk analysis in a rudimentary manner during project planning, assigning cost implications to various risks. This is conducted by project managers and reviewed by senior management. The majority of these people originate from an engineering background, and it is noted that analytical are favoured over qualitative methods.
The sensitivity in the approach to analysis is often based on a ^{High Medium Low} (RAG) categorization system which can be represented graphically as increasing consequence against increasing probability of occurrence. Is this sensitive enough to allow visibility? Selections of actions are available to the risk manager.

• Avoid / mitigate
• Reduce probability
• Reduce consequence
• Transfer or share
• Retain and plan recovery

A continuous cycle of review is recommended to ensure that the process is effective. What are the observations of current practice from a LEAN perspective?