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61 that could affect the project and to document these risks. The Monitor outcome of the risk identification is a list of risks that is, ide- and Identify Control ally, comprehensive and nonoverlapping. This list of risks can be the basis for estimating and managing project contin- Risk gency. It is also the basis for the risk management plan that is Management used to monitor and control risks and manage contingency Process Assess/ throughout design. Allocate Analyze Although risks will have been previously identified during the planning and programming phases, risk indemnification during the design phase should invite new risks as design de- Mitigate velops. As engineering progresses, new information can lead and Plan to new risks. Changes in design can also lead to new risks. Figure 7.1. Risk management focus Risk identification should be a continuous process through- in the design. out design. The risk identification process should generally stop short the base estimate and a contingency estimate. The goal of the of assessing or analyzing risks so as not to inhibit the identi- design phase risk and cost management processes is to actively fication of "minor" risks. This identification process should manage risk and changes in design so that, ideally, the con- promote creative thinking and leverage team member expe- tingency is retired at the time of letting and the engineer's rience and knowledge. estimate is equal to the baseline estimate (see Figures 3.3 to Perhaps the most challenging aspect of risk identification is 3.5 and associated text). in defining issues at an appropriate level of detail. Issues defined As shown in Figure 7.1, all of the risk management steps are too vaguely or "lumped" into gross generalizations are hard to actively applied in the design phase. Risk identification will assess. Defining too many separate, detailed risks can lead to continue throughout design. While the majority of risk should overlapping among issues or the omission of larger issues (i.e., be identified during planning, programming, and early in "missing the forest for the trees" problem). To the extent pos- design, the project team should continuously identify risks sible, define risks to be independent of each other, thereby elim- throughout design. Risk assessment and analysis is also an ac- inating overlap among risks through their descriptions. tive process. As design progresses, existing risk assessments will Risk checklists and lists of risks from similar projects can need to be updated and new risks will be analyzed. The risk be helpful, but use them only as a back check at the end of the management plan is the key document for planning and miti- risk identification process. Review these lists only at the end gation and should be actively maintained. During the design of the process as a means of ensuring that the list is not ex- phase, important risk allocation decisions will need to be made. cluding any common risks. Avoid beginning the process with If a risk cannot be mitigated or avoided during the design the risk checklists or similar project analyses as the team may phase, the SHA will need to decide how to allocate the risk in overlook unique project risks or include too many risks in the the contract. The SHA will either accept the risk and maintain analysis, and this will make the process less useful. an appropriate contingency during construction or contractu- ally transfer the risk to a contractor and add cost to the engi- 7.2.1 Design Phase Risk neer's estimate to align with the contractor's pricing of the risk. Identification Inputs The final risk management step, monitoring and control, is ad- dressed in earnest during design. Through the risk manage- The project scope (generated during the programming ment plan, all risks should be actively managed and controlled. phase) and the related base estimate package comprise the The remainder of this chapter describes tools and manage- key inputs for risk identification at the start of the design ment practices suggested for use during the Design Phase of phase. Each subsequent design milestone package will create project development. A discussion of how project complexity a new set of inputs for the risk identification process. How- impacts risk management tools and practices is also provided. ever, waiting to identify new risks only at the time of a major design milestone submittal can cause a "cost blackout" as dis- cussed in Section 2.4.3 of this Guidebook. The project team 7.2 Design Phase Risk Identification must continuously evaluate changes (in scope, design, risks, As stated in previous chapters, risk identification is para- and project site or market conditions) in relation to cost and mount to successful risk management and contingency esti- time impacts against the project baseline scope, cost, and mation and this remains true at the Design Phase. The objec- schedule. Any of these changes can trigger the identification tives of risk identification are to identify and categorize risks of new risks.
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62 The determination of project risk stems from a review of 7.2.3 Design Phase Risk the design assumptions made by the design team and the es- Identification Outputs timating assumptions made by the project estimator. The de- sign team must make initial conceptual design assumptions The key risk identification output is a list of risks. On that they will refine as the design progresses. Likewise, the es- minor projects, the list of risks may take the form of a Red timator must make estimating assumptions in a design level Flag Item list (I2.1). On some minor projects, and all moder- estimate because complete design information is not yet ately complex and major projects, the list of risks should form available. Design and estimating assumptions serve as triggers the basis of a Risk Management Plan (R3.1) and Risk Regis- for risk identification. ter (R3.12) for later risk management and control. The design phase risk identification process should begin Categorization of the risk list can be extremely helpful to en- with a review of any risks identified during the planning sure that no risks have been missed. Categorization of risks can and programming phases. However, risks identified during be accomplished through a review of Risk Checklists (I2.3). On the planning and programming phases likely will have major projects, categorization can be achieved through the changed substantially by the design phase. Changes to the application of Risk Breakdown Structure (R3.11). risks from the earlier phases can include a change to the prob- Ideally, the list of risks should be comprehensive and non- ability or impact of the risk, a partial mitigation of the risk, overlapping. This list of risks can be the basis for estimating or why the risk may have occurred. Risk identification at the project contingency and setting the baseline cost estimate. design phase must be rigorous. It can be helpful to go through Comprehensive and nonoverlapping lists of risks are required a new risk identification exercise at the beginning of the de- for detailed risk and contingency modeling in the later steps. sign phase and then use the planning phase risk identifica- tion outputs as a check at the end of the process to ensure 7.2.4 Design Phase Risk Identification that no risks were overlooked. Throughout the design Relationship to Project Complexity phase, it is important to continue to identify new risks and not rely solely on those risks which have been previously On minor projects, the number of inputs to the risk identi- identified. fication step can be small. An estimator or project manager may individually conduct the risk identification or with a small group. Information comes from preliminary estimates, 7.2.2 Design Phase Risk Identification Tools preliminary schedules, the estimators' judgment, scoping doc- Risk identification tools that can be used in the design uments, design assumptions, and other sources. Minor proj- phase are listed in Table 7.1. Note that complex projects can ect risk identification tools may include only a Red Flag Items use all risk identification tools. Refer to Appendix A for com- (I2.1) list. However, consultation with experts (Expert Inter- plete tool descriptions. views, I2.5) can be a good idea if time and budget permits. The use of Risk Checklists (I2.3) is suggested at the end of the iden- tification process to ensure that no risks have escaped detection. Moderately complex projects will require risk identifica- Table 7.1. Design phase risk tion from a greater number of sources. Expert Interviews identification tools. (I2.5) will be a key input on moderately complex projects and Tool they may be used on some minor projects if there is an area Moderately Complex for which the project design lead or cost estimator does not Minor Major have expertise. Formal Assumptions Analysis (I2.4) is typi- cally warranted on projects of all complexity. A Risk Register I2.1 Red Flag Items (R3.12) should always be employed and a Risk Management I2.3 Risk Checklists Plan (R3.1) can be warranted on moderately complex projects I2.4 Assumption Analysis with a high level of uncertainty. I2.5 Expert Interviews Major projects require the highest level of risk identifi- I2.6 Crawford Slip Method cation. All risk identification tools are applicable to major I2.7 SWOT Analysis projects. The Risk Workshops (R3.6) is the principal tool R3.1 Risk Management Plan employed on major projects that is not typically applied to R3.6 Risk Workshops moderately complex or minor projects. Formal Risk Work- R3.11 Risk Breakdown Structure shops (R3.6) are typically facilitated by a professional risk analysis and, depending upon the specific project needs, can R3.12 Risk Register have upwards of 20 experts participating. The time to plan,