7/29/2019 Risk Analysis- 22.01.2012

1/65

RISK ANALYSIS

Upali Fernando

MRICS,MCIOB,MACostE,MASI,Arb,AIQS (SL)(Chartered Surveyor, Chartered QS,Chartered

Builder &Construction Cost Consultant)

7/29/2019 Risk Analysis- 22.01.2012

2/65

'No construction project is risk free. Risk

can be managed, minimised, shared,

transferred or accepted. It cannot be

ignored'

-Sir Michael Latham-

7/29/2019 Risk Analysis- 22.01.2012

3/65

There is risk and opportunity in

everything we do. As the environment in

which we operate changes, risks andopportunities change.

7/29/2019 Risk Analysis- 22.01.2012

4/65

Effective risk management is a means of

monitoring those changes and providing

remedies to eliminate/mitigate/minimiseprobable losses.

7/29/2019 Risk Analysis- 22.01.2012

5/65

Risk analysis allows you to examine the

risks that you or your organization face.

It is based on a structured approach to

thinking through threats, followed by an

evaluation of the probability and cost of

events occurring.

7/29/2019 Risk Analysis- 22.01.2012

6/65

Risk analysis forms the basis for risk

management and crisis prevention. Here

the emphasis is on cost effectiveness.

Risk management involves adapting theuse of existing resources, contingency

planning and good use of new

resources.

7/29/2019 Risk Analysis- 22.01.2012

7/65

Almost everything we do in today's

business world involves a risk of somekind:

Customer habits change,

New competitors appear, Factors outside your control could

delay your project.

7/29/2019 Risk Analysis- 22.01.2012

8/65

But formal risk analysis and risk

management can help you to assessthese risks and decide what actions to

take to minimize disruptions to your

plans.

They will also help you to decide

whether the strategies you could use to

control risk are cost-effective.

7/29/2019 Risk Analysis- 22.01.2012

9/65

How to Use the Tool:

Here we define risk as 'the perceived

extent of possible loss'. Different people

will have different views of the impact ofa particular risk what may be a small

risk for one person may destroy the

livelihood of someone else.

7/29/2019 Risk Analysis- 22.01.2012

10/65

One way of putting figures to risk is to

calculate a value for it as:

risk = probability of event x cost of event

7/29/2019 Risk Analysis- 22.01.2012

11/65

Doing this allows you to compare risks

objectively. We use this approach

formally in decision makingwith Decision Trees.

7/29/2019 Risk Analysis- 22.01.2012

12/65

7/29/2019 Risk Analysis- 22.01.2012

13/65

To carry out a risk analysis, follow these

steps:

The first stage of a risk analysis is to

identify threats facing you. (Quantitative

Risk Assessment)

1. Identify Threats:

7/29/2019 Risk Analysis- 22.01.2012

14/65

Threats may be:

* Humanfrom individuals ororganizations, illness, death, etc.

* Operationalfrom disruption to

supplies and operations, loss of access

to essential assets, failures in

distribution, etc.

* Reputationalfrom loss of business

partner or employee confidence, or

damage to reputation in the market.

7/29/2019 Risk Analysis- 22.01.2012

15/65

*Proceduralfrom failures of

accountability, internal systems andcontrols, organization, fraud, etc.

* Projectrisks of cost over-runs, jobs

taking too long, of insufficient product

or service quality, etc.

* Financialfrom business failure,stock market, interest rates,

unemployment, etc.

7/29/2019 Risk Analysis- 22.01.2012

16/65

*Technicalfrom advances in

technology, technical failure, etc.

* Naturalthreats from weather, natural

disaster, accident, disease, etc.* Politicalfrom changes in tax

regimes, public opinion, government

policy, foreign influence, etc.

* Others

7/29/2019 Risk Analysis- 22.01.2012

17/65

This analysis of threat is important

because it is so easy to overlookimportant threats.

7/29/2019 Risk Analysis- 22.01.2012

18/65

One way of trying to capture them all is

to use a number of different

approaches:

Firstly, run through a list such as the

one above, to see if any apply.

Secondly, think through the systems,

organizations or structures you

operate, and analyze risks to any part

of those.

7/29/2019 Risk Analysis- 22.01.2012

19/65

See if you can see any vulnerabilities

within these systems or structures.

Ask other people, who might have

different perspectives.

7/29/2019 Risk Analysis- 22.01.2012

20/65

HAZARDCHECKLIST1. Equipment/mechanical

* Cutting

* Impact* Crushing

* ejection of parts

7/29/2019 Risk Analysis- 22.01.2012

21/65

2. Transport

* site vehicles

* mechanical handling* people/vehicle interface.

7/29/2019 Risk Analysis- 22.01.2012

22/65

3. Access

* slips,

* trips and falls* falling or moving objects

* working at height

* confined spaces

7/29/2019 Risk Analysis- 22.01.2012

23/65

4. Handling/lifting

* manual handling* mechanical handling.

7/29/2019 Risk Analysis- 22.01.2012

24/65

5. Electricity

* fixed installation* portable and tools equipment

7/29/2019 Risk Analysis- 22.01.2012

25/65

6. Chemicals

* dust/fume/gas* toxic

7/29/2019 Risk Analysis- 22.01.2012

26/65

7/29/2019 Risk Analysis- 22.01.2012

27/65

8. Environmental

* noise* vibration

* light

7/29/2019 Risk Analysis- 22.01.2012

28/65

F E BIRDSWELL - KNOWN ACCIDENT TRIANGLE

MOST ACCIDENT ARE PREDICTABLE AND AVOIDABLE!

Source: Hughes and Ferrett(2008)

7/29/2019 Risk Analysis- 22.01.2012

29/65

7/29/2019 Risk Analysis- 22.01.2012

30/65

7/29/2019 Risk Analysis- 22.01.2012

31/65

One approach to this is to make your

best estimate of the probability of the

event occurring, and to multiply this by

the amount it will cost you to set thingsright if it happens. This gives you a

value for the risk.

7/29/2019 Risk Analysis- 22.01.2012

32/65

Low risk

Medium

riskHigh risk Extreme risk Catastrophic

Numerical: Historical: 1 2 3 4 5

Likelihood

>1 in 10

Is expected to

occur in most

circumstancesCertain 5 5 10 15 20 25

1 in 10 -

100

Will probably

occur

Likely 4 4 8 12 16 20

1 in 100

1,000

Might occur

at some timein the future Possible 3 3 6 9 12 15

1 in 1,000

10,000

Could occur

but doubtful

Unlikely 2 2 4 6 8 10

Risk Matrix Level of Risk

7/29/2019 Risk Analysis- 22.01.2012

33/65

7/29/2019 Risk Analysis- 22.01.2012

34/65

7/29/2019 Risk Analysis- 22.01.2012

35/65

Glossary of terms

Control:

An existing process, policy, device orpractice that acts to minimize negative

risk or enhance positive opportunities.

7/29/2019 Risk Analysis- 22.01.2012

36/65

7/29/2019 Risk Analysis- 22.01.2012

37/65

Event:Occurrence of a particular set of

circumstances.

Frequency:

A measure of the number of

occurrences per unit of time.

7/29/2019 Risk Analysis- 22.01.2012

38/65

7/29/2019 Risk Analysis- 22.01.2012

39/65

7/29/2019 Risk Analysis- 22.01.2012

40/65

7/29/2019 Risk Analysis- 22.01.2012

41/65

Risk:

The chance of something happening

that will have an impact upon theDepartments objectives. It is measured

in terms of likelihood and consequence.

7/29/2019 Risk Analysis- 22.01.2012

42/65

Risk analysis:A systematic process to understand the

nature of and to deduce the level of risk.

Risk Criteria:

Terms of reference by which significance

of risk is assessed.

7/29/2019 Risk Analysis- 22.01.2012

43/65

Risk evaluation:Process of comparing the level of risk

against the risk criteria.

Risk Identification:

The process of determining what,

where, when, why and how something

could happen.

7/29/2019 Risk Analysis- 22.01.2012

44/65

7/29/2019 Risk Analysis- 22.01.2012

45/65

7/29/2019 Risk Analysis- 22.01.2012

46/65

7/29/2019 Risk Analysis- 22.01.2012

47/65

Risk transfer:

Shifting the responsibility or burden for

loss to another party through legislation,

contract, insurance or other means.

Risk transfer can also refer to shifting a

physical risk or part thereof elsewhere.

7/29/2019 Risk Analysis- 22.01.2012

48/65

Risk treatment:

Process of selection and implementationof measures to modify risk.

Stakeholders:Those people and organizations who

may affect, be affected by, or perceive

themselves to be affected by a decision,

activity or risk.

7/29/2019 Risk Analysis- 22.01.2012

49/65

SWOT analysis:

Provides an assessment of an

organization's Strengths, Weaknesses,

Opportunities, and Threats to provide a

snapshot of the present and a view of

what the future may hold.

7/29/2019 Risk Analysis- 22.01.2012

50/65

Once you have worked out the value of

risks you face, you can start to look at

ways of managing them. When you aredoing this, it is important to choose cost

effective approaches in most cases,

there is no point in spending more toeliminating a risk than the cost of the

event if it occurs.

3. Manage Risk:

7/29/2019 Risk Analysis- 22.01.2012

51/65

7/29/2019 Risk Analysis- 22.01.2012

52/65

Risk may be managed in a number of

ways:

* By using existing assets:

Here existing resources can be used

to counter risk. This may involveimprovements to existing methods and

systems, changes in responsibilities,

improvements to accountability andinternal controls, etc.

7/29/2019 Risk Analysis- 22.01.2012

53/65

You may decide to accept a risk, but

choose to develop a plan to minimize itseffects if it happens. A

good contingency plan will allow you to

take action immediately, with theminimum of project control if you find

yourself in a crisis management

situation. Contingency plans also form akey part of Business Continuity Planning

(BCP) or Business Continuity

management (BCM).

* By contingency planning:

7/29/2019 Risk Analysis- 22.01.2012

54/65

Your risk analysis should give you thebasis for deciding whether to bring in

additional resources to counter the risk.

This can also include insuring the risk:

Here you pay someone else to carrypart of the risk this is particularly

important where the risk is so great as to

threaten your or your organization'ssolvency.

* By investing in new resources:

7/29/2019 Risk Analysis- 22.01.2012

55/65

7/29/2019 Risk Analysis- 22.01.2012

56/65

Tools in Risk Analysis and

Management

a) Decision Trees

Decision Tree for Playing Tennis

7/29/2019 Risk Analysis- 22.01.2012

57/65

7/29/2019 Risk Analysis- 22.01.2012

58/65

7/29/2019 Risk Analysis- 22.01.2012

59/65

7/29/2019 Risk Analysis- 22.01.2012

60/65

At the end of each line, consider the results. If

7/29/2019 Risk Analysis- 22.01.2012

61/65

the result of taking that decision is uncertain,

draw a small circle.

If the result is another decision that you need

to make, draw another square.

Squares represent decisions, and circles

represent uncertain outcomes.

At the end of node put Triangle.

7/29/2019 Risk Analysis- 22.01.2012

62/65

b) Plus, Minus, Interesting (PMI) Tool

Plus/Minus/Interesting'. It is a valuableimprovement to the 'weighing pros and cons'technique used for centuries.

ExampleA young professional is deciding where to live.Her question is should

7/29/2019 Risk Analysis- 22.01.2012

63/65

y g p g q

she move to the big city?

She draws up athe PMI table below:

PLUS MINUS INTERESTING

More going on (+5) Have to sell house (-6) Easier to find new job(+2)

Easier to get places (+3) Less space (-3) Meet more people (+1)

Easier to see friends (+5) More pollution (-3) More difficult to get own

work done? (-4)

No countryside (-2 )

More difficult to get

to work? (-4)

+13 -18 -1

7/29/2019 Risk Analysis- 22.01.2012

64/65

She scores the table as 13 (Plus) 18 (Minus)

1 (Interesting) = 6

For her, the comforts of a settled rural

existence outweigh the call of the 'bright

lights' it would be much better for her to live

outside the city, but close enough to travel inif necessary.

7/29/2019 Risk Analysis- 22.01.2012

65/65

c) Primavera based software

i) Monte Carlo Simulation

It is a method for iteratively evaluationa deterministic module using sets of

random number of inputs.

Ii) It is a sampling method for

uncertainty analysis.