Risk Assessment and Allocation for Highway Construction Management

2. Risk Identification

2.1. Objectives of Risk Identification

The objectives of risk identification are to ⁽¹⁾ identify and categorize risks that could affect the project and ⁽²⁾ document these risks. The outcome of risk identification is a list of risks. What is done with the list of risks depends on the nature of the risks and the project. On noncomplex, low-cost projects with little uncertainty (few risks), the risks may be kept simply as a list of red flag items. The items can then be assigned to individual team members to watch throughout the project development process and used for risk allocation purposes, as described later in this document. On complex, high-cost projects that are by nature uncertain, the risks can feed the rigorous process of assessment, analysis, mitigation and planning, allocation, and monitoring and updating described in this document.

The risk identification process should stop short of assessing or analyzing risks so that it does not inhibit the identification of "minor" risks. The process should promote creative thinking and leverage team experience and knowledge. In practice, however, risk identification and risk assessment are often completed in a single step, a process that can be called risk assessment. For example, if a risk is identified in the process of interviewing an expert, it is logical to pursue information on the probability that it will occur, its consequences/impacts, the time associated with the risk (i.e., when it might occur), and possible ways of dealing with it. The latter actions are part of risk assessment, but they often begin during risk identification. This document, however, will treat the two activities of risk identification and assessment discretely for clarity.

2.2. Risk Identification Process

The risk identification process begins with the team compiling the project's risk events. The identification process will vary, depending on the nature of the project and the risk management skills of the team members, but most identification processes begin with an examination of issues and concerns created by the project development team. These issues and concerns can be derived from an examination of the project description, work breakdown structure, cost estimate, design and construction schedule, procurement plan, or general risk checklists. Appendix B contains four examples of risk checklists and table 4 provides a summary of two of these checklists. Checklists and databases can be created for recurring risks, but project team experience and subjective analysis almost always will be required to identify projectspecific risks.

The team should examine and identify project events by reducing them to a level of detail that permits an evaluator to understand the significance of any risk and identify its causes, (i.e., risk drivers). This is a practical way of addressing the large and diverse numbers of potential risks that often occur on highway design and construction projects. Risks are those events that team members determine would adversely affect the project.

After the risks are identified, they should be classified into groups of like risks. Classification of risks helps reduce redundancy and provides for easier management of the risks in later phases of the risk analysis process. Classifying risks also provides for the creation of risk checklists, risk registers, and databases for future projects. Table 4 is the highest level classification for the checklist, which is provided in detail in Appendix B. Figure 8 in the Foundations of Risk section of Chapter 3 provides a different classification suggested by the Project Management Institute.

See Appendix B for complete lists.

2.3. Risk Characteristics

Risk characteristics can be defined in a number of ways. Wideman provides one example that has transcended risk management in a number of technical fields: knowns, known-unknowns, and unknown-unknowns. This classification was used to describe project costs and contingency in figure 2. A known is an item or situation containing no uncertainty. Unknowns are things we know but we do not know how they will affect us. A knownunknown is an identifiable uncertainty. An unknownunknown is simply an item or situation whose existence has yet to be encountered or imagined.

Applying these characteristics to the elements of a conceptual cost estimate provides a good illustration. A known cost element is one that we can identify and quantify on the plans. A known-unknown is an item that is known to be required on the project, but at the conceptual stage it is not yet drawn on the plans and not yet quantifiable. An unknown-unknown is a project requirement that is not yet apparent or contemplated and therefore unknown. These characterizations can also be applied to the life cycle of a pavement. It is known that the pavement will fail. A known-unknown is that it will require maintenance (but it is not known when this will be needed). An unknown-unknown might be a new technology that will be invented to extend the life of the pavement.

Another characteristic of risks is that many have triggers. Triggers, sometimes called risk symptoms or warning signs, are indications that a risk has occurred or is about to occur. Triggers may be discovered in the risk identification process and watched in the risk monitoring and updating process. The identification and documentation of triggers early in the process can greatly help the risk management proce

Finally, it is often helpful to think of risk in broader terms of uncertainty. Uncertainty involves both positive and negative events. This document follows the Project Management Institute's definition of risk: an uncertain event or condition that, if it occurs, has a positive or negative effect on a project's objectives.⁽³⁾ However, it is often helpful to separate uncertain events into those events that can have a negative effect (risks) and those that can have a positive effect (opportunities). Examples discussed in this document from the FTA, WSDOT, FHWA's Federal Lands Highway Division, and DOE use the terminology of both risk and opportunity to characterize uncertainty in their risk management programs. However, teams must be cautious not to overlook risk or focus on solving problems using the risk/opportunity characterization during the risk identification process. Engineers and project managers inherently have an optimistic bias when thinking about uncertain items or situations because they are, by nature, problem-solvers. It is often better to focus on risks during the identification stage and explore opportunities during the mitigation process.

2.4. Risk Identification Process

A number of documents and tools are available to support the risk identification process. Table 5 provides an example of project-specific documents, programmatic documents, and techniques available for risk identification.

Project risk can be identified multiple ways. At a minimum, the team should start by examining the project-specific and programmatic documents listed in table 5. Numerous techniques are available to facilitate risk identification after these documents have been reviewed. Brainstorming, scenario planning, and expert interviews are tools highway engineers commonly use in routine engineering and construction management tasks. The nominal group method allows each team member to create a list individually. The Delphi method is a process in which each team member individually and anonymously lists potential risks and their inputs. The Crawford slip method allows the team to individually list up to 10 risks. Afterward these risks are divided by the team into various categories and logged by category. Influence or risk diagramming is explained in the "Probability or Decision Trees and Influence Diagrams"section of Chapter 4. Nominal group, Delphi, Crawford slip, and influence diagramming also serve as good tools for risk assessment, which is often blurred with risk identification.

The key to success with any risk identification tool or technique is to assist the experts in identifying risks. People and the agency's risk culture are the keys to continuous risk identification and risk management. The documents and techniques should only support the people in the risk assessment process and never inhibit or replace the engineering judgment required for a comprehensive risk identification process.

2.5. Conclusions

The risk identification process identifies and categorizes risks that could affect the project. It documents these risks and, at a minimum, produces a list of risks that can be assigned to a team member and tracked throughout the project development and delivery process. Risk identification is continuous and new risks should continually be invited into the process. The tools and techniques outlined in this chapter should support the risk identification process, but it will be the people involved in the exercises who are most critical to the success of the process.

2.6. Illustration: Identification of Major Risks

The following continues the illustration described at the end of Chapter 1. In the previous illustration, QDOT had embarked on the creation of an agencywide risk assessment and allocation program. The following illustrates how QDOT applied the process on a pilot project. The first section describes the pilot project and the second section describes the risk identification process, which follows the tools and techniques outlined in Chapter 2.

US 555-SH 111 Interchange Project

QDOT is planning to design and build an overpass and interchange on the existing at-grade intersections shown below. The project is of average complexity and size, which is appropriate for the agency's first project. The project is at the preliminary engineering stage and has the following characteristics and scope:

• Convert US 555 into a limited access four-lane freeway.
• Convert the intersection of US 555 and SH 111 into a grade-separated interchange.
• Reroute the arterials (Main and 12th Streets) that intersect SH 111 and eliminate the signalized intersections.
• US 555 consists of four 3.3-meter (m) (11-foot (ft)) lanes with no shoulders.
• SH 111 is two 3.3-m (11-ft) lanes with 1.2-m (4-ft) shoulders.
• Right-of-way is available to expand US 555 on the north side only.
• Right-of-way is also available at the US 555-SH 111 junction.

Figure 7: Map of US 555-SH 111 interchange

Risk Identification

QDOT decided to conduct a facilitated risk identification workshop for this project. A consulting firm was selected based on its qualifications to help identify, categorize, and document the risks for the project. The project team gathered preliminary data for the workshop, including the project description, cost estimate, and the design and construction schedule. The facilitator brought a series of standard risk checklists and risk templates to be sure the team did not miss any common risks. All major QDOT disciplines were represented in the workshop, from planning to construction and environmental to right-of-way. The risk workshop began with all team members brainstorming about their issues and concerns on this project. They also brainstormed about risks they had encountered on similar projects.

The outcome of the risk identification workshop was a categorized list of more than 100 risks that could affect the project's success. The following are examples of the categories and risks:

Technical risks

• Right-of-way analysis is in error at US 555 on the north side.
• The bridge piers have unexpected geotechnical issues.

External risks

• Landowners are unwilling to sell land at the US 555-SH 111 junction.
• Local communities pose objections.

Project management risks

• Project purpose and need are poorly defined.
• The QDOT staff has too many projects in the region.