By: Ted Garrison New Construction Strategies 800-861-0874 [email protected]

By: Ted GarrisonNew Construction Strategies

[email protected]

www.StrategicPlanningforContractors.com

Follow on twitter: www.twitter.com/tedgarrison

Construction Risk Management – Understanding Your Role

mailto:[email protected]

http://www.tedgarrison.com/

http://www.strategicplanningforcontractors.com/

http://www.twitter.com/tedgarrison

(c) 2013 New Construction Strategies

#1: What’s the #1 Cause of Risk?2

Assigning risk to someone not capable of managing it!Solution: Assign risk to the entity best capable of

managing the risk!

(c) 2013 New Construction Strategies 3

How to Minimize Risk!Event - Project Initial conditions

Final conditions

Time

• The more info we have before the event, the easier it is to predict the final outcome

• The less info we have before the event, the harder it is to predict the final outcome

• However, the lack of info will never change the final outcome

• Probability occurs when people don’t understand

• Must think proactively – not reactively


Starts with Effective LeadershipIt’s not about control, influence, or motivation!It’s about perception and the ability to assign the

resources, both capital and human, in the best possible way

Jim Collins referred to this as putting “the right people on the bus in the right seats”

What does it take to be perceptive?• Perceptive ability• Knowledge• Experience• Knowing what you don’t know - wisdom

4


What Causes Risk?

• Assigning risk to the wrong entity• Poor leadership• Subjective decisions• Adversarial environment• Poor planning• Selecting team members based on price instead of performance• Uniqueness or unknowns

5


Flaws to Conventional Wisdom6

A selection process not focus on valueExperts brought in after the horse has left the barnPrice focus lowers performanceManagement (CM’s, owner’s rep, lawyers) takes on

increased significance• Their services are redundant• They typically have no liability or risk – but increase risk to client• They make subjective decisions• They impact those who should be responsible• They become the center of the universe – instead of allowing the

person who should be responsible


#2: Strategies to Reduce Risk7

• Minimize subjective decisions• Get help• Do research• Experiment• Planning • Pre-planning• Continuous planning• Create a matrix of project risks• Select people and teams based upon performance• Identify & then minimize risk you don’t control• Usually the owner is the biggest risk to a project• Accept that minimizing risk is in everyone’s best interest


Select People & Teams Based on Performance8

Approach advocated by Performance Based Studies Research Group at Arizona State University

Past performance • Reveals experience

Risk analysis • Demonstrates knowledge and wisdom

Interviews of key project personnel• Insures key people share the project plan & understand the risks


Planning9

Pre-planning is essential, but it must continue throughout the project

A plan requires measurable goalsA plan must provide specific actionable stepsA good plan minimizes problems

A plan helps everyone to focus on the right things• Minimizes bias of taking action to just doing something

A good plan increases the chances of success• Valley Electric


Use a Risk Assessment Plan

• High performing contractors use the RA Plan to identify and minimize potential risk before the project/task starts

• High performing contractors use the RA Plan to differentiate themselves from their competitors (to prove they are not a commodity)

• The RA Plans identifies high performing contractors that can act in a win-win, visionary, experienced & effective way

Experienced Vendor

Time

Inexperienced Vendor

Time

10


Risk Assessment Plan

• Identify the biggest risks to key project elements• Then develop a plan to minimize or eliminate the

potential risk• This includes not only identifying risks the

contractor can’t control, but how to minimize them• Focus on the most important issues• 80-20 rule – 20% of issues will create 80% of

problems (36% of issues create 96% of problems)

• Keep it simple – non technical

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Benefits of RA Plan

• Protection – identifies who is responsible for what risks

• Forces accountability – contractor won’t shed risk if appears he’s not responsible

• Control project – the contractor is responsible for controlling the project, while not legally responsible for elimination, but makes it accountable to identify and attempt to minimize the risk

• This process forces all contractors to pre plan

• Minimizes unforeseen and uncontrollable risks

12


Contingencies Are Critical

• By definition projects are unique, which means there will be events that cause risk

• Since projects require risk taking, it’s critical to manage risk because it can’t be eliminated

• Projects that seek perfection are usually disasters because people are afraid to take action

• Need to be able to educate the buyer – in other words manage expectations (tell the truth)

• Without a contingency you are planning to fail• If necessary – build one in

13


Contingency Methods

3 Common Contingency Approaches:

• Percentage of entire project

• Percentage of individual items or tasks

• Identify specific areas of risk

14


Weekly ReportsWhat is it / Why is it important

What is it?• Spreadsheet that tracks unforeseen risks on a project

Why is it important?• Allows contractors to track unresolved client issues• Allows contractors to minimize risk • Allows contractor a means to document all client decisions

How much effort?• Minimal (less than 5 minutes), unless vendor did not

preplan, or client making decisions

15


Manage Risk Using DMAIC

DEFINE

MEASURE

ANALYZEIMPROVE

CONTROL

• Client/Expectations• Quality issues• Core Business Process

• Current Performance• Develop a process to

collect data• Implement process

• Data collected/process map • Determine causes of defects • Identify gap between current and goal performance • Identify sources of variation

• Target process • Design solutions to fix/prevent problems • Create innovate solutions • Use technology and discipline • Develop and deploy implementation plan

• Continuous improvement process• Prevent reverting back to the “old way”• Requires development, documentation and implementation of an ongoing monitoring plan

16


#4: Collaborate to Reduce Risk17

The primary reason for problems on projects is a lack of collaboration • Wrong people are making decision

Collaboration allows teams to find the best solution• It’s often not about right or wrong, but what’s most efficient for

those involved• The group is always smarter than the smartest person in the room

Most innovation comes from those closest to the work• Subcontractors • Craftspeople


Final Thoughts on Risk

• You can’t shed risk to someone who is incapable of managing the risk

• Risk is lowered by effective planning

• Risk that can’t be eliminated should be managed through the use of a properly developed contingency

• The idea is to force the contractor to minimize risk they do not control which causes them to:• Be accountable• Take control of project• Pre-planning• Minimize all risk• Identify and document risks they can’t control• Act in the client’s best interest

18


What Are Your Thoughts or Questions?19

By: Ted GarrisonNew Construction Strategies

[email protected]

www.StrategicPlanningforContractors.com

Follow on twitter: www.twitter.com/tedgarrison

Construction Risk Management – Understanding Your Role

mailto:[email protected]

http://www.tedgarrison.com/

http://www.strategicplanningforcontractors.com/

http://www.twitter.com/tedgarrison

Documents

By: Ted Garrison New Construction Strategies 800-861-0874 [email protected]