A project risk is an uncertain event or condition that, if it occurs, could harm the project’s objectives.
The proposed system for identification, evaluation, and management of the significant specific risks related to the implementation of projects provides an opportunity for the effective implementation of the projects.
A particularly important element of this process is the management of the risk register, which is carried out by investigating the process of overcoming them and evaluating the effectiveness. Reference: “Project risk management“, https://bvop.org/learn/pmriskmanagement/
The identification and management of the trinity risks is a complex task requiring the participation of interdisciplinary specialists, therefore the report examines, above all, the main elements of the process, in the context of implementation based on the predetermined budget and schedule of the project.
What is a project risk?
Risk is defined as the probability of the occurrence of an event that may harm the implementation of the infrastructure project. Reference: “What is Project Risk Management“, https://www.policymatters.net/what-is-project-risk-management/
The factors that influence the risk can be divided into three main groups:
External – which indirectly affects the project;
Internal – which directly affects the implementation of the project;
Factors internal to the project, the direct and indirect influence of which is of significant importance;
The external factors that indirectly affect the implementation of the project have the following nature:
The political environment is a significant source of risk. Many risks can be listed on this basis, but the most important are: the political stability, continuity and political priorities of the state administration, and the maintenance and support of the infrastructure project by the government.
The economic environment is strongly influenced by the political environment. Examples of sources of risks related to the economic environment can be found in Mechanics ISSN 1312-3823 Transport Volume 12, Issue 3/3, 2014.
On a global and macro-level – economic depression, and on a micro-level – structure of the national property; property rights on the objects of the immovable property; Taxes and Charges; sources of investment; price level and condition.
Legal and regulatory framework:
In business life, to a large extent, uncertainty depends on the legal system. This system creates risks, not only through the existing laws but also through the imperfection of the newly adopted laws, which necessitates their constant amendments.
The legal framework also has a positive impact from the point of view that laws play a stabilizing role in society and organizations know the limitations they must comply with in their activities.
Environmental and ecological factors:
Here, climatic conditions have a significant influence; Natural Resources;
Characteristics of ecological systems; existing transport networks;
Applicable quality standards.
There are two types of factors internal to the project:
Factors that directly affect the implementation of the project:
- Beneficiary management;
- Areas of investment;
- Areas of transport activity;
- Infrastructure areas;
These factors are specific to each infrastructure project and are described according to the actual situation. The stage of their clarification is only after the approval of the investment initiative and the formation of specific parameters having
importance for the implementation of the project.
Internal factors of the most significant importance for the specific implementation of goals and objectives:
- Management style;
- Organizational structure;
- Project participants;
- Management team;
The complexity and multifacetedness of the influences on the project would lead to a high level of uncertainty, which is why we have to choose a simplified method for identifying the essential risks.
The identification is based on the activities of the critical path of the project, the deviation of which would lead to significant changes in the scope and time of the implementation of the project.
Phases of risk identification and assessment during project implementation
We distinguish three phases of risk identification and assessment during project implementation:
- Conceptual design and preparation
- Development of a technical project.
- Operational design and implementation
In the first two phases, it is very difficult to apply methods for physical identification of the risk, which is why the determination of risks is realized through methods of expert assessment.
The first step is to identify the risk variables, the change of which individually or together would cause a change in the main characteristics of the project. These variables are:
- Timely completion;
- Implementation of the planned activities;
- Achieved results
- Change in scope
The next step is to identify and analyze the risks, the realization of which would lead to a change in the parameters. The analysis includes:
Determining the variables that will be affected by the relevant risk. Most often this is “time to complete the project”;
Reason for choosing the relevant risk;
Justification of materiality:
Probability of occurrence – (up to 30%-insignificant; over 30%-significant);
Assessment – (scale of the probability of event occurrence from 0 to 9);
Negative impact on the weather – (up to 90 days – minor impact; over 90 days – significant impact);
The significance of the identified risks is assessed based on an adopted numerical expression of gradation of probability, exposure, and severity of harm. It is easiest at this stage to use the Belgian practice of defining risk (R) as a quantity made up of the product of three parameters – probability (P), frequency of occurrence (F), and consequences (C)
R = P * F * C
The final result of the risk assessment determines the admissibility of the identified risk and the need to implement measures to prevent or limit it, taking into account the effectiveness of the already implemented risk reduction measures.
The purpose of monitoring, assessing, and managing the risk of the process phase is to identify in time the probability of the occurrence of a given risk and to apply preventively pre-determined measures for its neutralization and management, in a way that allows the achievement of the set final goals and results.
The risk assessment methodology covers:
Risk monitoring and assessment;
Scheduling of inspections.
The purpose of the overall risk assessment for the individual sub-projects and the investment project as a whole, in the course of implementation, is through the general risk indicators of the sub-projects, which are comparable and normalized digital measures/value of the project, experience of the contractor, the consultant, and the beneficiary, complexity of the project and interdependence with other projects, presence of activities ineligible for financing/, to derive a risk matrix for each sub-project and from the result – whether the project has a High, Medium or Low generalized risk – to plan the specifics of the monitoring.
The purpose of risk analysis
The purpose of the specific risk analysis is the effective planning of resources and risk management measures for each sub-project. Reference: “Risk management plan and analysis: a real example“, https://www.businesspad.org/risk-management-plan-analysis-example/
The analysis covers the possible damage, the effectiveness of the measures taken to reduce the risk, the implementation of the recommendations of previous inspections, and the change of risk related to their implementation or non-implementation, as well as the change of risk for the specific sub-project.
The degree of implementation of all schedules and activities is also analyzed – especially how many sites are being worked on simultaneously, how many different types of activities are being carried out, whether there are many, and what hidden works, qualities, and quantities of the input materials, compliance with the requirements of the safety and health plan, environment, incident reports, and other indicators. Reference: “Work Breakdown Structure (WBS) and project risk management“, https://phron.org/work-breakdown-structure-wbs-and-project-risk-management/
In the risk assessment, not only the two main factors – impact and probability of this event occurring – are considered, but also the influence of the human factor, as the main one in the context of project management. Reference: “Methodology for risk assessment and project risk management“, https://www.mmrls.org/methodology-for-risk-assessment-and-project-risk-management/
The risk management analysis is performed in the following sequence:
Risk assessment – identifying and gathering information about risk factors.
Risk analysis and measurement – assessing the vulnerability of projects and the probability of damage occurring and assessing the potential damage that would be caused by an action or factor classified as a risk for a given project.
Risk management process
The risk management process aims to ensure that the level, type, and management of risk are commensurate with both the risk and the significance of the project. At the heart of risk management is planning.
It includes the construction and management of the risk process, as well as the assessment process, contingency plans, the product planning methodology, as well as the adequate identification of assumptions, constraints, dependencies, and other risk factors. The description of the risk characteristics is intended to explain why this risk is perceived to have the potential to affect outcomes. Probability is measured by the possibility that the risk will occur – with the levels of probability being:
- A risk that is expected to occur
- It is most likely to happen
- It might happen
- It’s unlikely to happen.
The impact is measured in terms of deviations from the schedule, as a result of their manifestation with impact levels: very high (irreversible); tall; average;
low; very low.
Information on all aspects of planned risks is contained in the risk register, where the entry of risks is based on certain criteria.
The risk register for a project includes all identified risks, their probability, and impact on the project, the category to which they belong, and the strategy to reduce the impact when the risk will occur.
The identified risks and deadlines in the risk register are added to the project plan. The best time to carry out a risk assessment is at the beginning of the project when the planning is done.
Risk management is an important part of infrastructure project implementation.
Higher efficiency of the process is achieved by forming specialized units that perform the tasks described above. These units communicate with the interested parties regarding the risks and thus the information function is realized, and the involvement of the parties in the process of reducing the risk or reducing its impact.
When we identify risks, we can structure ways to avoid them, as well as effectively deal with their specific manifestations. This sequence of actions is the most direct way to successful project implementation.