The Hows and Whys of Managing Risk

International Conference Emphasizes
Structured, Project Lifecycle Approach


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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