Building a Residential House – Risk Management Plan

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This project will design and construct a residential house for an independent customer. The customer has identified the needs and has purchased a suitable location in a residential area for the house.

Based on customer requirements a project scope has been prepared and presented to the customer for approval. A work breakdown structure (WBS) has been developed, resource requirements have been identified, costs have been estimated, and risks have been identified. At this stage of the project there are several uncertainties and so the risks tend to be higher.

So far in the project lifecycle 20 risks have been identified and scored, several of which are medium risks. As detailed later in the document qualitative risk analysis has been used for this project which identifies risks based on their probability of occurrence and severity of impact on the project.

This document addresses five critical risks and details how these risks will be effectively managed. Critical risks are those risks that have the potential to bring the project to a halt or cause the project to be terminated due to associated costs.

This document, called the risk management plan is intended to be used on an ongoing basis for managing risks throughout the lifecycle of the project. The main objective of this document is to carefully identify all major impact causing risks and will be updated on a regular basis as the project progresses and more information is available.

Project Description

The project is to build a detached house with 4 bedrooms, 3 bathrooms, and an unfinished basement approximately 1800 square feet on a 4356 sq feet plot. The customer has already purchased the plot in a residential area and has secured it with a temporary fence around the perimeter. Based on customer requirements identified earlier, three tentative house plans have been developed and submitted to the customer. For the time being, landscaping is not part of the scope of work.

A work breakdown structure (WBS) has been developed and major activities and sub activities have been identified. As the project progresses and more information is available, the WBS will be further refined. WBS is the fundamental building block of the project and will be used for all future planning purposes.

WBS was used to identify risks associated with specific elements of the project and each element is assessed for risk (Dinsmore, 1993). Based on this, as mentioned above, so far 20 risks have been identified. These risks have been identified during the risk matrix and assessed for impact and probability of occurrence during risk assessment.

Based on information available at the time, suitable contingency plans have been prepared to contain the negative impact of all risks. Importance has been placed on high risk items especially those that have the potential to bring the project to a halt.

Procurement of raw materials is an important activity of building a residential house. Procurement also involves not only buying raw materials but also identifying qualified suppliers and developing criteria for selection of these suppliers. Historical information and current market research have been used to prepare procurement plans.

Several raw material suppliers have been identified and have been qualified based on the criteria specified in the procurement plan. These suppliers have been sent Requests for Quotations (RFQ). A high level risk has been identified in this category and is detailed below.

Based on the WBS, activity list, roles and responsibilities chart, and historical information resource requirements have been identified. Major parts of the project will be out sourced to contractors. Three contractors have been identified based on the experience and past performance. The intent is to have a single prime contractor who will be responsible for ensure safety regulations are consistently met. Contract documents are being prepared and will be submitted to the prime contractor.

A good quality residential house is designed and built to last for several years. The construction industry is a fairly advanced industry and has developed several best practices. To meet our quality standards as well and meet industry rules and regulations, we have prepared a quality assurance document.

This document servers as our guidelines during design and construction and includes industry standard quality standards, processes and metrics. The customer has been provided this document and will be used to ensure the house design and construction meets the approved guidelines. This document can also be used for third party audit purposes to help reduce risk.

Work Breakdown Structure (WBS)

WBS is the basis on which a project is built. For management purposes, the project is broken down into five major phases. They are:

Planning Phase.
Design Phase.
Tendering Phase.
Construction phase.
Monitoring.

Each of these phases is further sub divided into smaller and interrelated tasks. Each of these tasks is further divided into unique, manageable time limited activities to which is assigned a cost and resource. During the brainstorming and interviewing sessions conducted, each of these tasks was assessed for risk. It was identified that most of the high risks occurs in the planning phase of the project which is mainly due to uncertainties.

WBS Critical Risk High Five

While developing the risk matrix along with subject matter experts and other involved in similar projects, several risks were identified and their impact on schedule, cost, quality and technical aspects of the project were identified. Risk assessment was conducted using qualitative risk analysis which identified the probability of them occurring along with the impact on the project. Table 1 gives the definition of probability in terms of its likelihood of occurrence.

Table 1: Probability definition.

High	This risk is more likely to occur	>50%
Medium	The probability of this risk to occur is as likely as not to occur	=50%
Low	This risk is less likely to occur.	<50%

Table 2, summarizes these 5 critical risks and sections below details how these risks are effectively managed.

Table 2: Five Critical Risks.

Risk Item	Description of Risk	Impact (Technical, Schedule, Cost, Quality)	Severity (High, Medium, Low)	Contingency Plan	Rank
Planning WBS 1: Estimation of costs	Inadequate assessment of costs involved in the construction of this house	Technical	High	Develop an alternative project that would be less expensive. Research housing market. Probably, it would be possible to buy a suitable house nearby.	9
Tendering WBS 3: Assessment of different offers	Failure to find effective contractors	Quality and Schedule	High	Evaluate the offers made by different contractors. Search for contractors located in other cities or states.	9
Monitoring WBS 1.2: The establishment of safety standards at the work site	Lethal Outcome	Cost	High	Monitor construction process; Make sure that safety standards are always met In the event of lethal outcome, investigate the case and identify the cause of the tragedy. Indemnify the relatives of the deceased.	9
Planning: WBS 5: The Establishment of supply chain	Failure to find reliable suppliers	Schedule, cost and quality of the construction	High	Provided that local suppliers prove unreliable, it will be necessary to use the services of the companies operating in other city or state. Yet, this possibility is rather unlikely.	8
Design WBS 3.1: The analysis of possible solutions	Poor functional characteristics of the house	Quality	High	Ask independent experts to evaluate the final design. Let them make necessary corrections	8

WBS 1: Estimation of costs

During the initial part of the planning phase, customer requirements were not entirely known as a result of which detailed plans could not be developed. After much discussion and information gathering, 3 plans were provided to the customer, which still have to be approved. To date, the customer has yet to finalize on interior fixtures, heating and cooling systems, and exterior finish.

Brainstorming sessions conducted while developing the risk matrix revealed that accurate construction cost estimation would be a major risk factor, especially having a technical impact on the project. During the risk assessment the probability of occurrence for this risk was 4 and the actual impact of inaccurate construction cost estimation to project was 9.

The risk score of 36 gave it a high risk rating. This has not changed due to the fact that the customer has yet not approved many aspects of the project. To mitigate this risk the PM will have a meeting with the customer and other stakeholders and use the newly acquired 3D imaging software’s to give the customer a feel of what the new house will look like.

It will allow the customer to add various attributes or features to the home and see the effects in real time. This should help the customer make up their mind and help is getting an approval. To add to this, we will provide the customer with multiple quotations, which will give the customer a realistic idea of expected construction costs.

WBS 3: Assessment of different offers

During brainstorming sessions conducted while developing the risk matrix, a major risk identified in the tendering phase was the assessment of different offers.

It was identified that this high risk factor would directly impact the cost and quality of the project outcome. During the risk assessment the probability of occurrence for this risk was 3 and the actual impact of not being able to find qualified contractors to project was 9. The risk score of 27 gave it a high risk rating.

The reason this risk was considered high risk was because it was uncertain if good contractors and tradesmen were easily available to complete the project. To mitigate this risk our contingency plan was to evaluate the offers made by different contractors and also search for contractors located in other cities or states. This would be a tedious and time consuming plan especially because we have no presence in other cities.

Moreover even if we were able to find qualified contractors in other cities, the cost of bringing them into the city would affect the cost of the project. This however has now changed from high risk to medium risk, mostly due to the change in economic situation. The current recession has caused many builders, plumbers, electricians, and other tradesmen and to be laid off by big developers. These are now freely available to work on residential housing projects.

WBS 1.2: The establishment of safety standards at the work site

It was during interviews with subject matter experts and brainstorming with others who were involved in similar projects that this risk was identified. It is true that construction is one of the most types of land based work (Tilley, 2007, p.1).

Protecting workers is important because this could not only cause delays in the project but also cause substantial financial impact of the project. Moreover, Governments are striving for stronger safety standards for construction workers (Stronger safety standards).

Using the qualitative risk analysis approach, during the risk assessment the probability of occurrence for this risk was determined to be as high as 6 and the actual impact to project was 7. The risk score of 42 gave it a very high risk rating. “It must be understood that in the end, safety, productivity and quality are not mutually exclusive” (Tilley, 2007, p.1).

Considering the importance of this risk, it remains an ongoing activity. To mitigate this risk we developed contingency plan as part of the risk matrix, which includes regular site visits to monitor construction process, ensure safety standards are always adhered to, in the event of an accident investigate and identify the cause of the tragedy and finally ensure suitable compensation is in place.

It is also important to ensure the workers are properly insured and that the responsibility of this risk remains with the prime contractor. Care to should be taken to ensure safety standard codes are communicated to subcontractors and others involved in the project.

WBS 5: The Establishment of supply chain

Once the project starts it is important to ensure raw materials are freely available. Failure to find reliable suppliers of raw materials will not only impact the schedule, but will also have an impact on the cost and quality of the construction. Using the Delphi technique, while gathering information from subject matter aspects, anonymously, it was identified that several suppliers had gone out of business due to the economic recession.

Due to this, during the risk assessment although the probability of occurrence for this risk was determined to be 3 the actual impact to project was as high as 8. The risk score of 24 gave it a high risk rating. The contingency plan developed was to look for reliable suppliers operating in other cities. This again would greatly impact the scheduling requirements of the project, not to mention the impact on the associated transportation costs.

Also if the parts for some reason were defective, the additional costs of shipping them back would again add to the costs and make the project prohibitively expensive. What originally was thought to be a high risk item is now considered a medium risk. Recent articles and independent research has identified that most builders are hesitant to start new projects and so many reliable suppliers have a ready supply of raw materials.

WBS 3.1: The analysis of possible solutions

As mentioned previously, three plans were prepared for the customer with the intention of giving the customer options to choose from. Although all three solutions are expected to meet customer requirements some emphasis has been placed on cost.

This may have had some effect not only on the quality of the over all house but also the interior designs. During the brainstorming session with various stakeholders one of the risks identified was the analysis of these various solutions. During risk assessment the probability of occurrence of this risk is 4 and the actual impact to project is as high as 8.

The risk score of 32 gave it a high risk rating. It is quite possible that in an attempt to meet customer requirements within estimated costs, some corners have been cut. While cost of construction is an important criterion, it should not come at the expense of quality. To mitigate risks, contingency plans have developed, to ensure that safety and quality standards are not compromised in an effort to meet customer requirements within cost.

Two independent architectural firms with experience in audit have been identified which will allow these designs be independently reviewed and analyzed. They will be provided with quality assurance documents which will help them determine if the design is in conformity with defined quality standards, process, and metrics.

Risk Management and Monitoring Plan

As mentioned in the sections above, risks during the early part of the project are the highest, mainly due to uncertainties. Scope creep due to changes in customer requirements, changes in schedules or technical factors will require a reevaluation of cost estimates and contingency plans.

By proactively monitoring and managing risks, every effort will be made to avoid risks from occurring. Even if the risk occurs, the contingency plan is designed to mitigate the risks and limit its negative effects. This Risk Management Plan document will be reviewed and updated on a regular basis and the severity or probability of risk changes during the life cycle of the project.

Conclusion

Depending on the complexity of the project, risks may be difficult to identify during the early phases of the project. Therefore having a good WBS is most important as it breaks down the project to the smallest manageable task, against which risk can be assessed.

Risks are further classified based on their severity and probability of occurrence. Risks are one of the most important aspects of the project that need to be effectively managed. While all risks need to be effectively managed special important should be paid to careful identification of high risk items, those that would bring the project to a halt or make the project prohibitively expensive.

By carefully identifying risks early in the project, preparing contingency plans, and proactively managing them, these risks can be eliminated. There are times when risk cannot be eliminated, especially when it is due to external factors. In such cases contingency plans should be in place to mitigate their negative impact on the project.

There are several things I have learnt from this exercise. The importance of a strong WBS cannot be understated because it is used not only as the basis risk identification, but the whole project itself. By carefully planning WBS, a PM is able to better estimate costs of the project.

As mentioned previously, WBS can also aid the PM in estimating resource requirements, allocate time and develop scheduling and understand subtle interdependencies that exist in a project. Therefore getting it right early on in the project is the key to success. In reality, risk management plans are prepared but seldom updated.

It is important to review risk plans from time to time and update it as and when the probability or severity of risk changes. Once the risk plan is prepared, it should be made freely available to all stakeholders. This is important because it may require updated expert advice from subject matter experts.

References

Dinsmore, P. C. (1993). AMA Handbook of Project Management, The. AMACOM Books. Web.

Tilley, R. F. (2007). Implement Construction Safety Standards to Protect Workers. Web.

Stronger Safety Standards For Construction Workers. Web.

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