John McArthur
Chairman, Kiewit Development Company, Toronto, ON, Canada
Kiewit Development Company, Omaha, NE, USA
My recent background has focused on Public Private Partnerships so my comments and views come from this perspective. Additionally, the comments and approaches that follow here are based on the premise that securing the project is a result of a highly competitive process. Personally, I have held senior positions in engineering firms and construction companies. For the past 14 years, I have established North American businesses for two different infrastructure investor/constructors. During this period, I have bid over 40 P3 projects and had success in 12, totalling a capital value of US$10 billion. Both wins and losses lead to a vast library of lessons learned, giving invaluable insights into the process of risk management.
Every project progresses through several stages and typically they are:
Risk management practices should be developed and implemented for each of the above six stages. A fundamental to be followed is the involvement by senior management at the starting point of each stage and their continuing supervision and involvement during each stage. In our busy world, too often senior managers delegate too much authority down. This results in the absence of intuition and experience that seasoned professionals bring to transactions.
Project stages – several key risk management points or questions:
Risk management is a process, not a single activity or event. Avoiding the identification of risks, resulting in lack of their effective management, is the most common cause of projects not being fully successful, or failing completely. The process involves looking back, analysing historical information, drawing conclusions from this process, and then putting into place measures embodied in the process of risk management. Conclusions drawn from an open and objective review of past projects, both the successful and unsuccessful ones, will provide the ingredients for a risk management process. It is often best to involve senior management that were not involved in the past projects that are being reviewed. It is difficult to provide objective critical analysis of projects that one has been directly involved in managing. Team members that have been part of an unsuccessful project in the past have difficulty seeing what went wrong – they can't see the forest for the trees.
Successful risk management comes down to the human factor. Regardless of how detailed the plans for managing risk, or how integrated into the design and construction process they are, effectively managing the people that are required to deploy these plans will determine ultimate success. This means understanding the various personality types involved in a project and using the best management methods to bring out the optimum performance in people. This must of course be done in the context of a comprehensive project management plan (PMP). In an ideal setting, where project specific teams are drawn from extensive human resources, combining personality types representing a range of compatible strengths will result in the most productive and cooperative teams. When the pool of potential resources isn't large, it could be effective to have team members formally determine (e.g. the Clifton Strengths) their various strengths (and less strong strengths – formerly known as weaknesses) so that team members have some insight as to why people behave the way they do. Understanding why people behave in certain ways can make team member interaction more effective.
Risk management in North American projects is generally similar to other parts of the world. Probably the key difference in the United States results from there being a history of litigation arising from construction issues. This is less the case in Canada. There is a general propensity to take legal action to compensate wronged (or perceived to be wronged) parties. For this reason many larger construction companies have significant internal legal departments and equally sizeable in‐house insurance and risk management teams. With possible litigation looming, in‐house insurance and risk management teams have developed sophisticated risk analysis processes. As a result, they have considerable involvement in initial and ongoing project decision making.
It is common for the parties to end up in lengthy court battles in situations where disputes cannot be resolved by dispute resolution Boards (DRB's). This can be avoided by placing significant emphasis on establishing good client relationships prior to the bidding cycle that then continues throughout the construction process and into operations.
Success derives from well‐planned and executed risk management.
Determining success can only derive from a common definition of the term.
What are the definitions of risk (management) and success? Using Wikipedia and Webster's Dictionary as the sources, they are:
‘Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events…’.
Wikipedia defines success as:
‘The achievement of a goal – the opposite of failure’.
Webster's Dictionary defines it as:
‘The correct or desired result of an attempt’.
With success as a goal, applying risk management as defined above, will lead to successful projects.
When a project is about to begin, whether using a P3 or a design/build delivery model, there is a sequence of activities that must occur in order to increase the likelihood of successful delivery. The sequence of activities is:
Interesting to note that items 1–8 are undertaken before any project specific construction work has begun. Building the proper foundation is no less important figuratively than it is literally in creating a physical building foundation, or substructure.
Well‐managed project risks lead to project success. The process begins with identifying categories of risk and planning of methods to deal with these risks. In general terms, once risks are identified, methods to deal with them need to be put into place. If risks are not identified and managed they could potentially lead to any combination of the following:
The following is a list of some of these key risk management methods:
There are at least four categories within which projects can measure success and therefore risks managed successfully. There are varying degrees of success derived from risk management, but ultimately a highly successful project achieves all project goals. In order to establish a framework for showing how to achieve success, it is worth reviewing at least four key areas. Achieving goals and successful risk management can be expressed in the following categories:
The four categories within which to measure success and to employ risk management methods are therefore:
Risk management techniques should be designed and used to ensure success in the above four areas.
These are the key measures of success, but how do you go about the process of winning the project and delivering success? What process do you need to follow in order to be able to undertake a project that can then be measured as successful or not?
Success is not the result of luck. It is the result of careful planning. ‘Plan the plan’ and ‘plan to plan’ are keys to success and the fundamental basis for risk management. A famous golfer once said that ‘the more I practice, the luckier I get’. The same idiom applies, although the ‘practice’ component in the context of a construction project would be preparation and planning. I believe that 50% of the contribution to the success of a project occurs before anyone actually gets on a construction site. The same level of effort should be expended in selecting projects as in building them.
There are several key planning activities that should be used in preparation for creating a successful project. These activities should take the form of a risk mitigation matrix where possible. Filling out the risk matrix should then be one of the evaluation tools used in deciding whether or not to pursue a project. Keeping in mind the categories for success measurement, the planning activities (or risk measuring categories) are as follows.
In designing the matrix, key evaluation criteria leading to a ‘go or no go’ decision should occupy the vertical axis. The horizontal axis should contain qualitative categories and mitigation actions that when filled in properly, will result in a risk management plan. In fact, a project will ideally have multiple levels of risk matrix, beginning with a ‘go/no go’ analysis or matrix. Beyond this category, matrices can be prepared for all aspects of the project as follows.
Table 18.1 is a very generic version of a matrix that would contain many more categories and be significantly more comprehensive at the ‘go/no go’ stage of the risk mitigation process.
18.1 An example of some of the components of an initial ‘go/no go’ risk matrix.
| Risk management matrix | ‘Go/no go’ stage | ||||||
| Category | Potential risk | Experience level | Technical issues | Available partners and staff | Safety record on similar | Do we know the authorities? | Who are the competitors? |
| Project type | |||||||
| Personnel | |||||||
| Process and procedures | |||||||
| Authorities | |||||||
| Technical | |||||||
| Competition |
Table 18.2 shows a generic risk matrix based on the assumption the project is proceeding. Once again, it is a summarised version of what would likely be multiple matrices that would relate more specifically to various components of the project.
18.2 An example of a generic risk matrix based on the assumption the project is proceeding.
| Risk management matrix | |||||||
| Category | Potential risk | Schedule mitigation | Price | Insure | Push back to client | Combination of measures – other | Risk not acceptable – do not proceed |
| Specifications | General Conditions vague | ||||||
| Section contradictions | |||||||
| Drawings | Alternates acceptable | ||||||
| Mobilisation | Granular location | ||||||
| Job site lease | |||||||
| Permitting process | |||||||
| Long delivery Items | |||||||
| Consultants | Fee approach |
Keep in mind that when you Google ‘risk management in construction’ you get over 64 million results. Many lengthy books have been written on the subject, so what is contained here is only meant to point out some of the key components of risk management and to give brief guidance and direction as one investigates further the process of risk management.
The following summarises the key components of success through risk management in North American projects:
Project overview – 31 km of 6 and 8 lane divided highway, 14 interchanges, 47 bridges, one road flyover, one railway crossing (flyover), one culvert set, one tunnel, and three river crossings – 30 year operations and maintenance
Delivery model – Public Private Partnership
Developer – Kiewit (Canada) Development Company, Meridiam Infrastructure,Graham Capital, Ledcor Industries
Constructors – Kiewit, Graham, Ledcor
Client – Alberta Transportation
Operations and Maintenance – AHSL
Project Capital Value – CAD1.4 billion
Initial challenge – large team with multiple parties in developer and constructor roles
Project status – construction 30% complete
Keys to success:
Project overview – 168 Bed Tertiary Care medical facility
Delivery model – design/bid/build
Owner/client – Santa Clara County, California
Constructors – Turner Construction
Project capital value – original value US$290 million (at tender award); revised value(after change orders delays, etc.) US$560 million
Initial challenge – applying a delivery model not best suited for implementation withincomplete drawings and specifications and tender time
Project status – in operation
Lessons learned: