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Risk Analysis and Management in Construction Projects Part 1 – RA Milík Tichý [email protected] +420 608 818 016 25. 5. 2017 0:56 Risk Management (09 NOV 20) 1 Who's Milík Tichý ? • • • • • • • • Structural engineering Concrete structures Structural Loads Structural Reliability, Codes of Practice Construction Project Management Risk Analysis and Management Expert Witness Arbitrator 25. 5. 2017 0:56 Risk Management (09 NOV 20) 2 Risk Governance, RG Risk Analysis, RA Risk Management, RM Risk Engineering, RE 25. 5. 2017 0:56 Risk Management (09 NOV 20) 3 RISK GOVERNANCE Risk Engineering Risk Management Hazard Identification Risk Management system Risk Analysis Risk Response Risk Monitoring Measures Take 25. 5. 2017 0:56 Treat Terminate Risk Management (09 NOV 20) Transfer 4 RA and RM Risk Analysis – problem identification – systems identification (hazard sources and project segments) – hazards identification – hazards qualificationn – risk quantification – conclusions for Risk Managers and Decision-Makers – monitoring 25. 5. 2017 0:56 Risk Management – decisions on risk, – identification of summary risk exposure, – hazard and risk governance, – hazard materialization monitoring, – risk connected costs evaluation – information support to the decision-maker ... Risk Management (09 NOV 20) 5 Aims of RA/RM minimization of financial risks: minimization of damage to – health and life – property simplification of – – – – design construction use cost control 25. 5. 2017 0:56 – keep up with the assumed cash flows, budgets, time schedules, etc. – creation and allocation of budget contingency funds – base for insurance/reinsurance, bank guarantees making risks "visible" to Decision Makers Risk Management (09 NOV 20) 6 25. 5. 2017 0:56 Risk Management (09 NOV 20) 7 Scope of RA/RM "Object/process" aspect Object Process ––––––––––––––––––––- ––––––––––––––––––––– – tollway Dxx – section 80.-160. km – pavement – toll gates ... – traffic A => B in AUG – traffic B => A in JAN – winter maintenance ... object ↔ process 25. 5. 2017 0:56 Risk Management (09 NOV 20) 8 Scope of RA/RM Project Aspect Project = a planned, controlled, and continuously evaluated set of material or immaterial activities delimitated by human, financial, and natural sources leading to achievement of specified goals Construction project: goal: transfer of financial capital to material capital Maintenance project: goal: securing the properties of the object or process (in general sense) Risk management project: goal: minimization of loss which the object or process may be exposed (performance optimization of human and financial resources) Project aspect: a specified set of project evaluation approaches (performance, financing, safety, …, social, environmental, …, insurance) 25. 5. 2017 0:56 Risk Management (09 NOV 20) 9 Basic concepts of RA 25. 5. 2017 0:56 Risk Management (09 NOV 20) 10 Descriptions and Variables Descriptions Hazard – Hz (hazard severity Sv) Hazard scenario – Sc Likelihood – Lk Variables Probability – Pr Damage – Dm Random variables in space and time 25. 5. 2017 0:56 Risk Management (09 NOV 20) 11 Hazard sources Man: Nature: individuals groups authorities (in various qualities) "Spring–Summer–Fall– Winter" "Sun–Earth–Water–Air– Life" cosmic bodies… Anthropogenic sources Natural sources Combination: "Man–Nature" 25. 5. 2017 0:56 Risk Management (09 NOV 20) 12 Project segments Project segment = a physical, organizational or defined in other way unit (e.g.., construction phase, object field, network section, organization element of a company) Segment of an aspect 25. 5. 2017 0:56 Risk Management (09 NOV 20) 13 Concurrences Concurrence of a hazard source and a hazard exposed segment Is it possible ? 25. 5. 2017 0:56 Risk Management (09 NOV 20) 14 The Three Questions of RA 25. 5. 2017 0:56 Risk Management (09 NOV 20) 15 Everyday questions: What failures can be expected in the Project considered? How often do such failures occur? What happens after the failure? 25. 5. 2017 0:56 Risk Management (09 NOV 20) 16 Everyday questions re-asked by riskologists What hazards and what hazard scenarios do exist in the Project? What is the probability of a hazard/scenario occurrence? What are the consequences of hazard's materialization? ESTIMATE of the risk 25. 5. 2017 0:56 Risk Management (09 NOV 20) 17 1st Question: Hazards and Hazard Scenarios ? 25. 5. 2017 0:56 Risk Management (09 NOV 20) 18 25. 5. 2017 0:56 Risk Management (09 NOV 20) 19 Hazard fuzzy qualification none minimal zero some almost none large unacceptable high extreme horrendous Relativity of hazards assessment of hazards depends on evaluators Range of a hazard exposure individual, group, … , space, time 25. 5. 2017 0:56 Risk Management (09 NOV 20) 20 Object and process as hazard source and/or hazard recipient H1 Q2 H2 Q1 Hi Q 1 Q3 Hn H1 H3 Hi Qk Qk Qm Object = a process that came to standstill Process = an object in 4-D 25. 5. 2017 0:56 Risk Management (09 NOV 20) 21 Human Attitudes to Events, Phenomena, and Persons Confidence = willingness of a Person to be exposed to the will of other Person or to a Body Objects of confidence are always Persons or Bodies Reliance = state of mind based on experience, observation, or instruction, expressing the supposition that future events will take the expected course Objects of reliance are phenomena, events, and Persons E.g.: • Parliament voted confidence in government. • Farmer relies on clement weather during the crop period. 25. 5. 2017 0:56 Risk Management (09 NOV 20) 22 Human attitudes to hazards/risks Hazard source (active factor) Risk evaluator Decision-maker – on hazard/risk Risk carrier (active factor) Risk recipient (passive factor) 25. 5. 2017 0:56 Risk Management (09 NOV 20) 23 Man as the source of fallacies and errors Fallacy: action based on erroneous opinions, conclusions, etc. Error: nonobservance of rules, guidance, etc., nonperformance due to negligence, etc. 25. 5. 2017 0:56 Risk Management (09 NOV 20) 24 Transgressions negligence bad habit malicious intent – property benefit – social or political benefit – self contention good intent exceptional circumstances 25. 5. 2017 0:56 Risk Management (09 NOV 20) 25 2nd Question: Probability ? 25. 5. 2017 0:56 Risk Management (09 NOV 20) 26 Required information on probability • Required: Occurrence probability of a particular hazard scenario during the reference period Tref and on the reference space Ωref Procedures used: analytic estimate: – aprioristic ― assessment based on data from past observations; – aposterioristic ― assessment based on mathematical models and observation data; empirical estimate – single or group expert estimate, based on experience 25. 5. 2017 0:56 Risk Management (09 NOV 20) 27 3rd Question: Damage ? 25. 5. 2017 0:56 Risk Management (09 NOV 20) 28 Properties of "Damage" Any damage is a random variable (space-and-time dependent) Damage is expressed in terms of Harm caused (material, monetary, physical, psychical, harm to health and life…). Description of damage cannot be generalized. Two basic approaches: objective: a qualified analysis and estimate of consequences subjective: decision of the person exposed to the hard or the person that aims at minimization of damages 25. 5. 2017 0:56 Risk Management (09 NOV 20) 29 Arguments 25. 5. 2017 0:56 Risk Management (09 NOV 20) 30 Two basic arguments of RA/RM Time – reference period Tref Space – reference space Ωref – position of Tref – start moment tref – position of Ωref – location point ωref 25. 5. 2017 0:56 Risk Management (09 NOV 20) 31 Time For the time being, Time is one-dimensional! ● length of the reference period – Tref – travel time from A to B ... – sum of repair periods ... – sum of traffic accident exclusions ... – guarantee period for toll gates ... ● position of the reference period – tref – departure from A ... – construction contract start ... 25. 5. 2017 0:56 Risk Management (09 NOV 20) 32 Space (= sample space of the probability theory) 1D – route A-B 2D – land along the route A-B 3D – atmosphere and subsoil adjacent to the route A-B network – 1D, 2D, 3D 25. 5. 2017 0:56 Risk Management (09 NOV 20) 33 Hyperdependences… All space and time parameters are spaceand-time-dependent, i.e.: • Tref is a function of tref, Ωref, etc. • Ωref is a function of Tref, tref, ωref , etc. E.g., the flight time from Prague to New York depends on which route is taken, when the departure is scheduled, etc. 25. 5. 2017 0:56 Risk Management (09 NOV 20) 34 Risk 25. 5. 2017 0:56 Risk Management (09 NOV 20) 35 Risk definitions Risk is: hazard, danger, peril, etc…. uncertainty... source of hazards… material property… person in general… person insured, material property insured … probability… possibility… Likely value of psychical, physical, or economic loss expressed in monetary or other terms/units 25. 5. 2017 0:56 Risk Management (09 NOV 20) 36 De Moivre's definition of risk (1711) Rs(T, Ω) = Pr(T, Ω) x Dm(T, Ω) 25. 5. 2017 0:56 Risk Management (09 NOV 20) 37 Risk acceptability requirement Rsact (Tref, Ωref) ≤ Rsbar (Tref, Ωref) Rsact = active risk, established by risk quantification, Rsbar = barrier risk, defined by a decision as the maximum acceptable risk to the Project, Tref = reference period Ωref = reference space 25. 5. 2017 0:56 Risk Management (09 NOV 20) 38 Analogies Object/Process Engineering structure hazard source load source hazard load hazard scenario stress-strain state risk ... 25. 5. 2017 0:56 load effects (forces, displacements, and deformations) ... Risk Management (09 NOV 20) 39 Tools of RA 25. 5. 2017 0:56 Risk Management (09 NOV 20) 40 Tools and Concepts of RA Tools Concepts mathematical statistics and probability theory reliability theory logic and "horse sense" finite math tree analysis, influence analysis "exact" empiric expert What-If brainstorming … ... Estimates, estimates, estimates ... 25. 5. 2017 0:56 Risk Management (09 NOV 20) 41 Expert Methods • Experts • Expert teams • Methods: – Verbal (Hazop, Hazan) – Numerical – Verbal-Numerical (FMEA, UMRA) • Randomness of Expert Analyses 25. 5. 2017 0:56 Risk Management (09 NOV 20) 42 Main Groups of Hazards/Risks industry and agriculture transport communications production and transfer of energy … economical technological lawyers courts and arbitration senates laws, codes and other regulatory documents … democratic development revolutions, upstanding terrorism, nationalism … 25. 5. 2017 0:56 climatic longtime variations of climatic conditions climate changes climatic effects upon systems, materials, products, and on man … markets general change in values stock and securities collapse of banks and insurers … political legal and regulatory environmental physiologic Risk Management (09 NOV 20) 43 Hazard sources and segments exposed in construction projects Hazard sources – – – – – – – – – – Owner… Architect and Engineer… Contractor… job inspectors... labs... material and systems producers... proprietors ... tenants… regulators… general public... 25. 5. 2017 0:56 – – – – – – insurers... banks... environment (Nature, Man) adjacent facilities... utilities... transport... Process segment – – – – construction phases site fields management components networks Risk Management (09 NOV 20) 44 Assignment GIVEN: • Construction project: A heritage building in downtown Prague, is to be renovated. • The construction period assumed is 12 months, starting JAN 2. • Size of the Project is about 150 m CZK. • List hazards that might be met with in the order of their severity, Sv. • Specify possible hazard scenarios of the most severe hazard identified. List these scenarios in the order of their likelihood, Lk. • Aim of the task is to give guidance to the Owner on what kind of Risk Management should be applied in The Project 25. 5. 2017 0:56 Risk Management (09 NOV 20) 45 Suggested reading • PM BOK® Guide (A Guide to the Project Management Body of Knowledge), PMI, 2000 • Williams C.A. et al.: Risk Management and Insurance. 7th Edition. McGraw-Hill, 1995 • Savage S.L.: The Flaw of Averages. Wiley, 2009 • Hubbard D.V.: The Failure of Risk Management. Wiley, 2009 25. 5. 2017 0:56 Risk Management (09 NOV 20) 46 See you next week…! [email protected] 25. 5. 2017 0:56 Risk Management (09 NOV 20) 47