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BY BEN NOVAK, P.ENG.
Managing risk should be viewed as a distinct and crucial
element of project analysis and management – one
that is essential to all facets of engineering and all
phases of development, and one that protects the bottom
line by lowering overall costs.
This was perhaps the key message of the September 2003 conference
of the International Federation of Consulting Engineers,
or FIDIC, as it is known. Some 62 nations were represented
at the Paris conference, with delegates attending a wide
selection of workshops addressing its Responsible Investment
theme.
Some of the most-attended workshops of FIDIC’s conference
dealt with risk. Many ideas and concepts discussed at these
sessions are worth sharing with Alberta engineers, be they
owners, consultants, contractors or those active in related
service industries, such as insurance.
Professional engineers must always be concerned about the
public protection aspect of risk management. That’s
a given. However, some risks have nothing to do with public
or worker safety. And all risks can be costly if not managed
properly.
The Concepts
What is risk and what is risk management?
In one of its documents, the British Standards Institution
defines risk as “a combination of probability, or frequency,
of occurrence of a defined hazard and the magnitude of the
consequences of the occurrence.” The same document
defines the management of risk as “the process whereby
decisions are made to accept a known or assessed risk and/or
the implementation of actions to reduce the consequences
or probability of occurrence.”
Inherent in this is the definition of a hazard, the likelihood
of some kind of failure or other occurrence, and the consequences,
which usually include additional cost.
There are several levels of risk analysis. As a professional,
you should:
• First, define and describe risks by type and project
phase. An example would be administrative risks in the initial
phases of a development related to permitting or environmental
issues.
• Next, identify associated costs. In the above case
these would be the costs of delays.
• Having identified risk, likely occurrence and the
financial consequences of the risk, develop a mitigation
plan. This relates costs involved in risk management to the
potential costs of inaction.
Examples of risks during the operation of a facility might
be the possibility of human error, or the various things
that can happen during the handling of dangerous chemicals.
Another operational example involves the Confederation Bridge,
which links Prince Edward Island to the mainland. Environmental
risks at the bridge related to extreme weather conditions
were deemed to be sufficient to suspend operations for brief
periods.
In each case mitigative measures are devised to respond
to the costs associated with the risks. How rigorous and
advanced risk management is depends on the type of facility
and the stage a project is at.
Risks can be dealt with in a number of ways, when deciding
on mitigative actions. They are either
• accepted
•
reduced through design or operating procedures
•
eliminated by alternatives
•
or transferred to others, through insurance, contractually
or operationally.
It should be noted that only a small portion of risk in
developments of any sort can be addressed by insurance.
The organized and structured approach to risk management
can be explored through a series of steps, which will lead
to a better understanding of types, costs and possible measures.
It is important to assign the appropriate amount of rigor
to the process, in order to document and understand the interdependence
of various risks at all stages of development of a facility.
See related story, this page.
The Insurer’s View
This is an approach insurers are bound to like. Clear descriptions
of various types of project development risks, as well as
possible mitigative measures, illustrate a managed approach.
This assists insurers when they look at insurance risk, and
it should contribute to better rates for those risks that
can be insured.
The tabulation and analysis of risks will also illustrate
how few of the many possible negative impacts on a project
can actually be insured. Many insurers judge the profile
of their clients on the level of control they exercise in
all their risk management.
This is especially true when a project insurance approach
is contemplated. A detailed risk management plan will assist
in placing coverage at better rates.
The Business Case
Good risk management is part of overall quality management.
For maximum benefit, the process must start early. The international
engineering community is convinced that risk assessment and
management produce better designs and quality projects.
Quality projects have fewer change orders during construction,
resulting in fewer contingencies, lower construction costs
and often lower lifecycle costs. Overall risk and quality
management, therefore, is in everyone’s interest.
Also remember that in-depth analysis does come at a price
in the initial planning and design stages of developments.
But that’s also where the largest savings are possible.
Owners and sponsors of development should recognize the
value of in-depth analysis of both risks and all technical
issues related to a project, with a view of deep, longer-term
savings in capital cost and operations. This case was made
over and over at the conference.
Admittedly, the main participants were consulting engineers.
But the intrinsic value of good analysis and design cannot
be overstated.
The best approach to all this is as a team – sponsor/owner,
designer and contractor, working hand in hand, and each contributing
in their own field of competence.
Ben Novak, P.Eng., a former Stantec vice-president, has
held many positions in consulting associations, including
the
presidency of the Consulting Engineers of Alberta and later
the Association of Consulting Engineers of Canada, after
vice-presidencies in Quebec for both the engineers and
the planners. Mr. Novak is an accredited peer reviewer
for the ACEC Peer Review Program. He’s spent some
36 years in the consulting industry, 20 of them in a variety
of senior positions with Stantec, where he is now senior
consultant to the corporate group and serves on affiliate
boards.
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