Risk, Risk Management and Reward in Project Execution

Robert C. McCue, P.E.
MDCSystems®
Consulting Engineer

Risk and risk sharing means different things to different people. It may not be possible to eliminate all risk in undertaking capital projects. Owners will attempt to shift risk onto contractors through contract provisions, while contractors will attempt to share risk among the subcontractors and suppliers. Nevertheless some risk remains for all and cannot be eliminated. However, it is possible to recognize and limit risk for the overall project by implementing effective planning and execution strategies during the conceptual stage of the project.

Risk Management also means different things to different project participants. The risk manager looks to insurance to handle the insurable elements of potential risk such as injury and property loss. The CFO looks to contingency, cost forecasts and cost to complete predictions to evaluate the economic risk of any one project to the corporate bottom line. The project management team looks to the current project schedule and budget to determine the risk of finishing the work on schedule and budget. All of these types of risk are nested inside the overall technical risk of implementing the project. What is the risk that the process will not work for the intended purpose or that contractual requirements for efficiency, through-put and economic gain are not realized when the project is completed?

Consider the following situations and associated risks; undertaking the wrong project but doing it the right way, undertaking the wrong project and executing it the wrong way, or executing the right project and performing it the right way. We think it is obvious that even before the project is started that either options one or two above have inherently more risk to all and no amount of contract crafting, insurance or wishful thinking will result in success for the project or the participants.

In future articles MDCSystems® will address each type of risk commonly encountered in real project situations, the appropriate analysis to implement to reduce or limit the risks and offer suggestions for reducing the risk of undertaking projects across the spectrum project types, delivery systems and perspectives.