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Risk Management

Risk Management for Design and Construction Ovidiu Cretu,Robert Stewart,Terry Berends

Student: Moraru Gabriel Group: I.S.E. 2nd year of master


Professor: Diego Varela

A project manager responsible for the delivery of a new office building identifies a perrmitting concern that could delay the approval of her project. A structural engineer is assessing the quality of the data of a technical report that was performed and fears that the abutments of the bridge he is designing could experience differential settlement. A general contractor fears that the recent volatility in the price of steel could turn a profitable project into a money loser.

Risk Management includes the processes conducting risk management planning, identification, analysis, responses, and monitoring and control on a project.

The objectives of project risk management are to increase the probability and impact of positive events and decrease the probability and impact of negative events in the project.

1.2 What Is Risk Management?

Why and what is Risk Management?

Risk management should: create value be an integral part of organizational processes be part of decision making explieitiv address uncertainty be systematic and structured be based on the best available information

1.3 Why Risk Management?

Why and what is Risk Management?

Research has shown that historically the majority of construction projects experience cost and/or schedule overruns.
A study focused on analyzing the costs of public works projects in Europe and North America found that the incidence and severity of cost overruns was significantly higher than indicated by the previous source. This same study found that cost overruns were found in 86 percent of the 258 projects that were sampled.

1.3 Why Risk Management?

Why and what is Risk Management?

Further, actual costs were, on average, 2.8 percent higher than estimated costs. The authors of the study concluded that the following factors were the primary culprits in cost overruns: Lack of proper risk analysis in developing estimates Poorly defined scope at the time initial project budgets were developed Larger public projects are prone to intentional underestimation due to political

1.4 The Limitations of Risk Management

Why and what is Risk Management?

How can you manage the future? The use of probability distributions, which were first developed by the German mathematician Carl Freidrich Gauss (17771855), were never designed for the purposes modeling complex future events, they are still useful, provided we acknowledge these limitations and ensure that those who make decisions based on them are made aware of them.

1.4 The Limitations of Risk Management

Why and what is Risk Management?

The dangers of modeling risks using statistical methods are abundan e.g.:stock market crash of 2008. Risk analysis will always be limited by the assumptions on which the calculations are based, Financial markets are far too complex to include all data, and any quantitative model is therefore only as good as the information and algorithms used, which can never match the real world.

Cost estimate- aprediction of quantities,cost,and/ or price of resources required by the scope of an asset investment option ,activity,or project.As a prediction, an estimate must adress risks and uncertainties. Schedule estimate-identifies a plan of work to be performed showing the order in which tasks are to be carried out and the amount of time allocated to each of them. Base cost estimate-the cost which can resonable be expected if the project materializes as planned. The base cost estimate must be unbiased and neutral- it should not be optimistic or conservative.

2.1 Introduction

2. Project cost and schedule Estimates

2.2 Cost estimate process

2. Project cost and schedule Estimates

2.2 Cost estimate process

2. Project cost and schedule Estimates

The cost estimating process includes the following steps: -determine the bias estimate -prepare the estimate -review estimate -determine risks and set contingency -determine estimate communication approach -conduct independent review and obtain management endorsement

3.1 RBE-The process


The risk-based estimate (RBE),known as cost risk analysis is an important part of project management as well as the project cost and schedule estimating.
The advantages of using RBE approach includes: -It minimizes the number of suprises during project development and delivery by providing for the identification and quantification of risk events

3.1 RBE-The process


-it creates opportunities to study what-if scenarios using a rigorousand statistical approach -it allows reasonable control over the projects estimate through project risk management -it is a collaborative effort that improves project communication and transfer of information amoung the project team members, stakeholders, and the public.

3.1 RBE-The process

The diagram illustrates the situation when the analysis assumes that changes may occur only for the cost, and the schedule is fixed .