Risk Assessment and Allocation for Highway Construction Management

7. Risk Monitoring and Updating

7.1. Objectives of Monitoring and Updating

The objectives of risk monitoring and updating are to:

1. systematically track the identified risks
2. identify any new risks
3. effectively manage the contingency reserve
4. capture lessons learned for future risk assessment and allocation efforts

The risk monitoring and updating process occurs after the risk mitigation, planning, and allocation processes. It must continue for the life of the project because risks are dynamic. The list of risks and associated risk management strategies will likely change as the project matures and new risks develop or anticipated risks disappear.

Periodic project risk reviews repeat the tasks of identification, assessment, analysis, mitigation, planning, and allocation. Regularly scheduled project risk reviews can be used to ensure that project risk is an agenda item at all project development and construction management meetings. If unanticipated risks emerge or a risk's impact is greater than expected, the planned response or risk allocation may not be adequate. At this point, the project team must perform additional response planning to control the risk.

Risk monitoring and updating tasks can vary depending on unique project goals, but three tasks should be integrated into design and construction management plans:

1. Develop consistent and comprehensive reporting procedures.
2. Monitor risk and contingency resolution.
3. Provide feedback of analysis and mitigation for future risk assessment and allocation.

7.2. Reporting

Risk reporting involves recording, maintaining, and reporting assessments. Monitoring results and assessing the adequacy of existing plans are critical. DOE's Office of Engineering and Construction Management states that the primary criterion for successful management is formally documenting the ongoing risk management process.⁽⁴⁾ This is important for the following reasons:

• It provides the basis for program assessments and updates as the project progresses.
• Formal documentation tends to ensure more comprehensive risk assessments than undocumented efforts.
• It provides a basis for monitoring mitigation and allocation actions and verifying the results.
• It provides project background material for new personnel.
• It is a management tool for the execution of the project.
• It provides the rationale for project decisions.

A comprehensive risk charter can form the basis of documentation for risk monitoring and updating. The Caltrans risk charter/risk management plan in Appendix D provides documentation for risk monitoring and updating. Table 12 provides a summary of the risk monitoring items in the Caltrans risk charter.

Table 12 provides a communication tool for managers. The first two columns communicate if the risk is active and who "owns" the risk. The risk trigger helps management know when to implement a response strategy. The assessment quantifies the magnitude of the risk. The final column for monitoring and control summarizes the ongoing risk management activities.

SOURCE: CALTRANS

Status reports can also be more graphically oriented. Table 13 provides one example of a status presentation of top-level risk information that can be useful to management as well as others external to the program. The example has been adapted by DOE's Office of Engineering and Construction Management and populated with risks from the example risk lists in Appendix B.⁽⁴⁾

SOURCE: ADAPTED FROM PROJECT MANAGEMENT PRACTICES; RISK MANAGEMENT, DOE 2003

WSDOT has developed an exceptional top-level risk status report, shown in figure 22.⁽⁵⁾ The "What's Changed" section also acts as a high-level monitoring report. The status report uses a one-page format to communicate important cost and risk issues to both agency personnel and external stakeholders. It communicates key project information, benefits, and risks. It reports cost and schedule in a range rather than a single point. It also communicates the project design status. In some high-profile projects, the report is done annually and updates information from the previous report. While the example shown is for a large corridor-level program, this format can be implemented successfully on smaller projects as well.

Figure 22: WSDOT cost and risk status report

7.3. Risk Management Metrics

The development of risk management performance metrics is essential to risk monitoring success. The establishment of a management indicator system that provides accurate, timely, and relevant risk information in a clear, easily understood manner is key to risk monitoring. Early in the planning phase of the process, the team should identify specific indicators to be monitored and information to be collected, compiled, and reported. Specific procedures and details for risk reporting should be included in the risk management plans prepared by the agency and the contractor.

Caltrans has proposed performance measures for its risk management program. It is considering:

1. Percentage of projects with risk management plans during the project initiation document (PID) phase (is it happening?).
2. Percentage of project change requests (PCRs) due to unidentified risks (builds into the quality of the PCRs).

These measures will be tracked and reported by division headquarters of project management (for the measure on PCRs) and planning (for the measure on PIDs)

Performance measures can also be project specific rather than program wide. These project risk performance measures can deal with the number or magnitude of risks that have been successfully mitigated. The project risk performance measures can also resemble traditional construction management performance measures, such as cost variance, schedule variance, estimate at completion, design schedule performance, management reserve, or estimate to complete.

7.4. Contingency Management and Contingency Resolution

Contingency is a reserve amount of money or time needed above the estimate to reduce the risk of overruns of project objectives to a level acceptable to the organization. Not all risks can be avoided or fully mitigated. If an agency accepts a risk, it is prudent to maintain a contingency in case the risk occurs. Likewise, the contractor maintains a contingency for risks that have been allocated to its organization in the contract. In the case of a shared contingency pool described in Chapter 6, the contingency is transparent to both parties and there are incentives for completing the project without spending the entire contingency.

The risk monitoring and updating process must address the management and resolution of the project contingency. The process involves a system for tracking and managing the contingency funds. In its simplest form, the estimated contingency reserve is allocated over time to match the exposure to the underlying risks. For example, the contingency derived from uncertainty in a right-of-way acquisition would be allocated before final design and continue until the acquisition is complete. Once the acquisition is complete, any remaining contingency for that item would be removed to avoid the temptation of spending it elsewhere in the project. Projects that have employed this approach often successfully limit the total contingency expended.

Traditional construction management tools, such as variance reports or earned-value methods, can be applied to the management of contingency. The key is tying risk resolution to the contingency pool. As risks are mitigated or resolved over time, the contingency pool should be reduced and reallocated. Likewise, if new risks are identified, the contingency funds should be revisited to ensure that they are adequate for successful completion of the project objectives.

7.5. Conclusions

A successful risk monitoring and updating process will systematically track risks, invite the identification of new risks, and effectively manage the contingency reserve. The system will help ensure successful completion of the project objectives. If documented properly, the monitoring and updating process will capture lessons learned and feed risk identification, assessment, and quantification efforts on future projects.

7.6. Illustration: Risk Monitoring and Reporting

The following illustrates how the QDOT project management team monitored and reported on the risks during construction. It is a highlight from the final step in the risk management process.

US 555-SH 111 Interchange Risk Monitoring

The QDOT team integrated the risk identification, assessment, analysis, planning, and allocation processes into the risk management process during design, procurement, and construction. The team used table 14 as a summary-level status report for the major project risks. The table provided the team with a periodic update of the risks so that the team could bring the risks to resolution. Notice that a new risk, unexpected utilities discovered on SH 111, was identified during construction and has been added to the monitoring system. The full monitoring system included a component for contingency management. The reporting information was also used to generate lessons learned and feedback for the overall risk management program at QDOT.