MCM4433 Project Risk Management Chapter 2: Project Risk Management

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Chapter 2: Project Risk Management

1.0 Project Life Cycle

Every activity or process, regardless of the business domain, has a distinct beginning
and end. In the engineering realm, similar concepts are employed to structure
projects over time. The term "project life cycle" (PLC) serves as a management tool
aimed at enhancing a project's performance. The scope of these life cycles can vary
significantly across industries, and different terminology and phases are utilized
based on specific sectors. However, even within a particular sector, several common
terms are often used, although the number of phases may differ. As a result,
establishing a unified scope and definition for a project life cycle can be challenging.

There are diverse forms of PLC frameworks found in the literature reflect the wide
range of project types. For instance, in the context of construction projects, the PLC
model may consist of eight sequential phases, including pre-feasibility, feasibility,
design, contract/procurement, implementation, commissioning, handover, and
operation. In contrast, four-stage PLC framework with the main phases being
conceptualization, planning, execution, and termination.

Due to the diversity of project types, the PLC framework requires customization and
an individualized approach. The various stages within each phase should be tailored
to each project based on its specific scope and structure. Since each project is
unique, a framework that is suitable for one project may not be applicable to another.

The following framework diverges from the general models mentioned earlier and
delineates phases and steps that are specifically relevant to construction projects. It
comprises six phases, each varying in duration, commencing with the Pre-project
phase, followed by Planning and Design, Contractor Selection, Project Mobilization,
Operations, and concluding with the Close-out and Termination phase. A visual
representation of this framework can be found in Figure 1.

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Figure 1: PLC of a construction project

1.1 Pre-project Phase

The primary objective of the initial phase in a PLC is to generate an idea for a
potential project. This process entails recognizing a subject matter or issue that has
the potential to evolve into a full-fledged project. Identifying such opportunities
necessitates a series of assessments and discussions, ultimately would result in
creating a project idea. Critical aspects, including the initial problem description, its
scope, anticipated timelines, and a basic plan outlining activities and steps for
subsequent PLC phases, should be defined before presenting a proposal to a
potential sponsor.

Besides, during the pre-project phase, organizations must select an appropriate

project delivery system. This decision establishes the relationships among key
stakeholders in the project, namely the owner, the designer, and the construction
firm. Previous research shows that the choice of procurement system has a great
impact of how risks are managed within the construction industry. This suggests a
clear connection between these two factors.

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1.2 Planning and Design Phase

The second phase in the PLC, is the planning and design phase, which is notably
more extensive than the other phases. This phase of project development consists
of three consecutive stages to facilitate smoother phase completion and project
delivery.

In the initial stage, the project organization begins to take shape. Key project
stakeholders are identified, and their respective roles and responsibilities are defined,
along with the competencies required for each position. Following the formation of
the project team, a detailed project brief is drafted, outlining the project's scope and
objectives. In construction projects, it is essential to first identify stakeholders' needs
before the design team generates initial sketches for each idea separately. This
process aids in identifying potential risks associated with proposed solutions.
Following this assessment, all identified ideas are evaluated, and the most viable
one is selected for further development.

Subsequently, in the planning phase, site investigations and constructability

analyses are carried out. Multiple potential sites are examined in terms of soil
conditions, topography, location, and cost considerations. A constructability analysis
assesses whether the proposed structure can be constructed with ease and its
potential impact on schedule, budget, or safety. Within the planning phase, it is
crucial to determine the financial feasibility of the potential investment. Hence, the
cost estimator prepares an initial project budget, delineating all potential costs and
the price per unit or activity.

Once all options in the feasibility study are thoroughly analyzed, the project team
selects the most favorable alternatives and proceeds to the subsequent phase in the
PLC, which is the design process. During this phase, all assumptions made in earlier
stages are put into action. In essence, schematic drawings created during the
planning phase are transformed into detailed plans. Every technical aspect, such as
structural calculations or accessory planning, is developed by a specialized group of
engineers. This comprehensive design process results in a clear vision of the project.

The final task in the planning and design phase involves the development of a
contract document. This document encompasses technical specifications,
preliminary documents, and drawings. Its format often aligns with standards issued
by various institutions, such as FIDIC, a widely used international standard. The
contract document establishes the form, instructions, and invitation to tender.

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Established tendering procedures enable the project team to progress to the

subsequent stage, which is the selection of a contractor.

1.3 Contractor Selection Phase

In this stage, the project moves forward with the selection of a contractor. However,
it's important to note that the decision isn't always solely based on the bid price.
During the selection process, a range of criteria are taken into account, including
qualifications, available resources, and the bid price. These criteria are typically
organized into a matrix for evaluation. The collected data are thoroughly assessed,
and the contract is typically awarded to the offer that receives the highest score,
unless other specific criteria have been established. To formalize this selection
phase, a legally binding contract agreement is signed between the project owner and
the chosen contractor.

1.4 Project Mobilization Phase

During the project mobilization phase, which occurs between the selection of the
contractor and the commencement of construction, several important activities come
into play. The contractor takes on the responsibility of applying for any required
permits and licenses before initiating construction activities. Additionally, the detailed
schedule, initially formulated in the planning phase, is refined using computer
software during this stage. This schedule becomes a crucial tool for planning
workforce allocation and managing the utilization of other resources over time.

1.5 Project Operational Phase

During the operational phase, apart from the actual construction activities, three
primary tasks are carried out: monitoring and control, resource management, and
documentation and management.

Monitoring and Control: This involves overseeing various aspects of the project,
including time, cost, and quality. Typically, the project manager assumes the
responsibility for this task, overseeing ongoing activities. As previously mentioned,
time, cost, and quality are crucial elements of any project, making effective
management of these aspects essential. Time management entails recording the
actual time spent on specific tasks, facilitating better resource allocation and
schedule control. A comparison is made between the current project schedule and

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work progress and the schedule developed in previous phases. Any discrepancies
detected necessitate appropriate actions to realign the project with the original plan.

Resource Management: Efficient resource management is vital for optimizing

project performance. It encompasses supervising personnel to ensure they are
carrying out their tasks correctly and adhering to established working hours.
Additionally, other critical resources, such as materials and equipment, are closely
monitored alongside the workforce. Any deviations in resource management can
have adverse effects on the project, potentially leading to schedule delays or budget
overruns.

Documentation and Management: The final task during the operational phase
centers on effective document management, which plays a pivotal role in project
communication and overall project success. This encompasses various forms of
documentation, including internal project team communication and the management
of essential project documents. As highlighted in previous stages, proper document
management is crucial for ensuring the project progresses in a timely, cost-effective,
and quality-assured manner.

1.6 Project close-out and termination phase

The majority of PLCs typically conclude at the execution phase, where the final
product is delivered and accepted by the client. Preparing a project summary at this
stage requires additional resources, time, and funds, which investors often prefer to
allocate to new investments instead. However, it is essential to note that project
close-out and termination hold significance, particularly from a legal perspective.
Before installation works can be considered as officially completed, several essential
activities must occur. These include final clean-up, inspections, the handover to the
owner, and formal project closure.

The ultimate step in the PLC involves conducting a comprehensive project

completion review. During this phase, an overall assessment of the project is
conducted, providing an opportunity to draw valuable insights for future projects,
ultimately enhancing their performance. All initially planned activities, such as budget,
schedule, or scope, are meticulously compared with the completed activities to
evaluate how well the project's outcomes align with the initial plan. This review can
be conducted sometime after the project handover to comprehensively assess all
benefits and impacts.

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2.0 Risk Management in a Project Life Cycle

To ensure that everyone involved in a project understands the concept of risk, it is

crucial to establish a common definition tailored to the specific project's needs. A risk
plan is required, serving as a tool to monitor and control the previously identified
risks.

Many challenges encountered at the later phases of the PLC stem from unaddressed
risks in the earlier stages. This underscores the importance of conducting a thorough
analysis, especially during the initial phase of a project. The risk management
process commences during project definition and continues through planning,
execution, control, and closure phases. Nevertheless, there are specific project
stages that require greater emphasis on risk management.

During the initial project phase, the feasibility study is conducted, involving a
comprehensive analysis of the project proposal. At this stage, multiple solutions are
identified and assessed, and the study aims to uncover potential risks associated
with these proposed solutions. In the planning phase, a risk plan is developed to
identify potential risks related to project planning. It is essential for all stakeholders
to contribute to the creation of this plan to ensure that all potential risks are
recognized. Additionally, the risk plan specifies the type of action that should be
taken to address specific problems. Conducting this stage during the planning phase
is crucial for risk mitigation before entering the execution phase, where addressing
risks becomes significantly more costly if no proactive measures are taken.

Scholars have proposed that risk assessment should occur during the review of each
phase within the PLC. At the project's outset, a high degree of uncertainty is
expected, which gradually diminishes as the project progresses. Any uncertainties
that arise at any point may necessitate revisiting and reevaluating contentious issues
from their inception. Such a process may require returning to previous phases and
reassessing them in light of new assumptions. Decisions made while advancing
through the PLC may result in modifications to earlier phases' concepts, which were
established during the initial phase.

During the execution phase of the PLC, monitoring and control activities are
performed to ensure that the project is proceeding according to the plan and that all
identified risks are being effectively managed. Continuous monitoring should be
conducted throughout the entire project process, starting from the moment risks were
identified. During project closure, where the entire project is summarized, the

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project's objectives, benefits, and deliverables are evaluated. All involved parties
have an opportunity to list any activities or risks that were not fully managed within
the project. These unmanaged risks can serve as valuable lessons for future projects
and serve as warnings for potential pitfalls.

3.0 Roles of a Project Manager in Project Risk Management

A construction project is not only characterized by its size and complexity but also
by the various events and interactions that occur during its life cycle. The work
environment in construction is constantly changing due to factors such as the
number of participants involved, the project's duration, and the events that unfold
along the way.

In the construction industry, the prevailing approach involves working within project
teams, often temporary organizations. A project as being reliant on human and
equipment resources, with this configuration varying for each project since each
project is unique. The human resources, or the individuals involved, form a project
team whose primary goal is to achieve the project's defined objectives. The
relationships among team members can be likened to a hierarchical structure. In
such an organizational setup, formal leadership is typically provided by a project
manager. The project manager assumes overall responsibility for the project,
organizing its structure and overseeing its operations. Within the project team, tasks
are allocated based on members' areas of expertise.

The primary responsibility of a project manager is to ensure the proper management

of the project, aiming to complete it within the defined timeframe, budget, and
performance requirements. These critical project factors are susceptible to risks and
uncertainties. To address these challenges, project managers should employ a Risk
Management Plan (RMP) to identify, analyze, and manage risks. Some companies
even maintain a dedicated risk management department, a highly specialized unit
focused solely on handling project-related risks. This department's role is to assist
project managers in effectively managing risks associated with their projects,
reflecting a shared responsibility for risk management within the organization.

4.0 Decision Making Process in Project Risk Management

Each phase of the PLC has a distinct purpose and a designated scope of work. At
the conclusion of each phase, there is a critical decision point where a risk
assessment is conducted. Based on this risk assessment, a well-informed decision

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is reached regarding the next steps or whether to proceed to the subsequent phase.
To ensure effective project management, it is essential to evaluate each phase of
the PLC comprehensively.

A decision-making process that includes 'go,' 'maybe,' and 'no-go' options. A 'go'
status signifies the green light to progress to the next phase, while 'no-go' halts the
project. In cases where the evaluation results in a 'maybe' decision, it necessitates
a return to previous phases, or even multiple phases, for further improvements and
risk mitigation. It's important to note that the further along in the stages a 'maybe'
decision is made, requiring a return to the initial phases, the more complications it
can introduce.

There is a possibility of moving back to earlier phases within a PLC, but such a
practice undermines decisions made in prior stages and often leads to the wastage
of resources, including both time and money. Therefore, decisions made at the end
of each stage should be the result of a thorough examination of potential risks and
obstacles that may be encountered.

Self-Assessment Questions
1. What is the significance of project life cycle frameworks in the context of project
management?

2. What are the roles of a project manager in the implementation of risk

management plan?

3. Discuss the possible factors or circumstances that the risk management may
fail.

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