Risk analysis

Before a contractor can agree to take on a new project, there must be a lengthy discussion about the risks involved and how these can be anticipated and managed. The analysis of risk, in terms of construction projects, is the identification of random factors, determination of the probability of their occurrence and their impact on the life cycle of the project.

Construction projects are individual so risk analysis will not be the same for each new project. And, with the size and complexity of construction projects increasing each year, the need for a detailed overview of the potential risks and concerns is more important than ever.

In Sir Michael Latham’s Constructing the Team, he says, “No construction project is risk free. Risk can be managed, minimised, shared, transferred, or accepted. It cannot be ignored.”

Areas of risk analysis include quality and safety, cost, human resources (HR), communication and reporting, and time. There is also the consideration of the country and region the contractor would be operating in – its political, economic and social conditions.

Spain-based FCC Group has a risk management and control model that is adapted through each of its business areas by a compliance committee. The contractor says, “They have the executive responsibility of implementing the model, by approving specific risk maps for each activity, valued in terms of impact and likelihood of occurrence, which include strategic, operation, financial, reporting and compliance risks.”

FCC – which reported an increase in net profit of 64% in the second quarter of 2017, compared with the first – says that managing risk is one of the “key strategic items when applying and achieving its strategic pillars”. It identifies events that might affect the company achieving its strategic goals.

The contractor explains that risks are managed throughout the entire life of the project, from the tender until the execution, operation or maintenance are completed. This is because depending on the stage of the project, risks may be of a different nature or have a different likelihood of occurrence.

For FCC, the different areas focus on the technical feasibility of the proposed project in the bidding stage, considering “the specifications and technology required by the client, the partners, the requirements of those providing the financing and the characteristics of the market where the project is developed, for instance security as well as political and socio-economic stability”.

In the company’s delivery stage, it must pay attention to the operational risks that require comprehensive planning and ongoing supervision to guarantee that the conditions of the contracts are met. Risks can come from relations with public administrations, clients and communities within the operating environment.

Levels of risk

FCC says, “The model used by FCC is based on three risk management levels. This ensures the separation of the three functions in order to guarantee that the risks are managed properly: the areas owning and managing risks; the areas monitoring those risks; and the areas providing independent insurance.”

First level – responsible for managing, monitoring and reporting the risk that has been generated within the business unit.

Second level – made up by the support, risk control and risk supervision teams within the business unit itself, which oversee the effective control of risks and ensuring that they are managed according to the risk appetite that is assumed.

Third level – The risk management function is responsible for coordinating the model, centralising and reporting incidents, while the internal audit function assesses that the policies, methods and procedures are suitable, and checks that they have been effectively implemented.

US-based Fluor has a business risk management framework that is a “formalised and systematic process of assessing, managing and monitoring Fluor’s business risks”.

The company has drawn on its experience to establish a uniform process to continuously identify, analyse and respond to risk and opportunity throughout the project’s life cycle. For Fluor, this begins with the FEED (Front-End Engineering Design) phase through to start-up and operation. It refined the ability to conduct reviews for identifying risks, defining mitigation strategies and managing risks properly.

Greg Amparano, head of Fluor’s corporate risk strategy, said, “Risk management at Fluor is a continual process that involves the focus at the project, business line, and corporate levels to make good on our promise of cost certainty, schedule certainty, quality and safety for the facilities that our clients ask us to engineer, procure, construct, and maintain.”

Amparano speaks about a common risk language used by the company along with a software enabler, routine reporting, data analysis and communication with periodic management reviews.

He continued, “Fluor’s approach to risk management is founded on its long history of successful project execution and is based on a facilitated and structured approach that begins with identification, quantification, and mitigation of project or programme risks.”

In terms of securing a project bid, the company sees risk analysis and management as a big part of the package offered. By being meticulous about all foreseeable risks, Fluor can prepare and prevent them from happening – keeping safety, time management and all-imporant cost in control.

Amparano said, “To accommodate the needs of our clients in today’s market, risk management has become an integral part of the value we provide. Our clients are looking for integrated solutions (including construction) where we deliver a much broader scope of work where our experience in risk analysis is essential.”

France-based Bouygues Construction announced in June that its new safety campaign, ‘We Love Life, We Protect It’, would be applied to all construction sites around the world, with the target of zero accidents for the future.

On 13 June – World Health and Safety Day – the company downed tools for the afternoon across virtually all projects in the 80 countries it operates in, so that employees could be reminded of Bouygues’ 12 basic rules of safety, including risk analysis.

Philippe Bonnave, chairman and chief executive of Bouygues Construction, said, “Our most precious asset is the men and women who work on our construction sites. We want to provide them with the best working conditions throughout the world. Whether a site is in Morocco, Hong Kong, Vietnam, Paris or Bordeaux, we have to ensure the best tools, the best standards, the best quality… More than ever, our ambition is to achieve zero accidents.”

Ongoing training

For Bechtel – headquartered in California, USA – risk analysis is taken just as seriously as Fluor, Bouygues and FCC. The company has procedures in place for impact and risk assessment, business ethics and compliance issues, as well as a commitment to training staff in the Bechtel working culture.

As part of the contractor’s impact and risk assessment, its specialists and scientists design, implement, or review third

party assessments, including environment, water, labour,

climate, community, health and safety, responsible security and human rights.

Business ethics and compliance issues include working in a country defined as ‘high risk’ by Bechtel security. There are also risks if the construction project is in a country that hasn’t been worked in before or in the last 10 years. The company says that if its legal department recommends it, these projects must have a ‘project-specific ethics and compliance program procedure’ including a compliance training plan for all project employees.

In terms of ongoing training for Bechtel employees – that considers risk analysis and the smooth transition between different job sites – they receive basic ethics training, compliance training for the legal risk areas they are likely to encounter in their jobs, and scenario-based training led by their managers.

Employees also participate in ethics awareness workshops annually and complete compliance training as assigned.

In early August, Bechtel was selected by the Kenyan National Highways Authority to build the first high-speed expressway in Kenya. Craig Albert, president of Bechtel’s global infrastructure business said, “Bechtel has been working with the government of Kenya for over two years to develop this strategic infrastructure priority project, which will support unlocking significant growth in Kenya and the region.”

Taking over two years to develop, this construction project shows the level of detail needed in terms of planning and, of course, risk analysis. As part of the delivery of the project, Bechtel will employ over 4,000 people and provide training and capacity building.

The high-speed expressway will be one of the most important new pieces of infrastructure in the East African community.

Rating risk

Once Fluor has identified the risks of a specific construction project, they are rated based on the severity of the potential consequences as well as the likelihood of the event. These risks are prioritised accordingly.

The company mentioned mitigation strategies that are researched and evaluated for capability, feasibility, cost effectiveness and preference. Common mitigation strategies for Fluor include avoiding, transferring, reducing and accepting the risk and its consequences.

Once the preferred strategies have been selected, benefit and cost opportunities are evaluated, detailed action plans are put together with due dates and responsible parties – the plan is then reviewed and approved by management.

Risk data is gathered and analysed to provide updates on a routine basis.

The risk management and mitigation plans are developed and updated in line with project cost and scheduling tools to promote an integrated project control baseline. The company said, “Effective risk management at Fluor provides a value-added service by increasing our ability to successfully execute the plan, achieve project objectives and meet performance goals.”

FCC Group’s risk identification process begins with “the specific goals of each business unit, along with the risk events that might affect achieving the goals in each production process, and the dimension of the risk according to its likelihood or impact, and who, from among the risk owners, is responsible for monitoring and mitigating

the risk”.

Risk maps help to identify the potential events that could affect the company achieving its goals. Establishing the prevention and mitigation measures allows the risk level to be kept within the tolerance level set by the FCC board.

These maps are then kept up to date by the directors of each area, who analyse which risks have materialised in each of the group’s divisions, reporting them to the FCC audit and control committee. From the maps, an action plan can be developed to counter the risks.