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05 December 2022
Navigating the multiple, and often complex, moving parts of any construction project is essential to its timely completion. In a previous article relating to scheduling and project controls fundamentals, it was established that project planning is key to managing uncertainties and risks, especially those resulting from global, geo-political events, such as border closures and labour shortages as a result of the pandemic, or the volatility of commodity prices and construction materials off the back of the Russia-Ukraine conflict.
In this insight article, John Carleton (Director – ANZ) and Dean Nicholson (Senior Planner) put further emphasis on the value of in-depth scheduling and how this helps to mitigate and minimise risks in your construction project.
Linesight’s latest commodity report (Q3 2022) highlights that supply chain disruptions resulting from COVID and geopolitical instability issues, combined with high interest rates, inflation and increasing energy costs, continue to impact construction costs and overall viability of some projects. As an example, procurement of certain equipment or materials may now take up to 24 months, which is a huge leap from the usual 12 months or less.
Similarly, the shortage of skilled labour, particularly of construction workers, continue to result in slower delivery times, thus leading to increased costs for major builds.[1] In fact, skills shortages have been referred to as the ‘Challenge of the Decade’ for the construction industry in Australia, with an anticipated more than 100,000 unfilled roles by next year.[2]
In addition, construction clients, developers, or general contractors are oftentimes involved in multiple construction projects with simultaneous deadlines, and delays in project delivery timelines will ultimately result in unnecessary costs.
An effective way to ensure a construction project stays on track is through in-depth scheduling through quantitative risk analysis (QRA). The type of information and outputs generated from a QRA can be used to inform key stakeholders of the threats to timelines and enables close and regular monitoring of project risks throughout the project life cycle. [3] However, it is important to note that the QRA will be most effective if the appropriate pre-requisite steps are completed in collaboration with all stakeholders involved in the construction project (clients, contractors, suppliers, consultants, etc.) to ensure all potential risks are accounted for.
One of the most effective ways to do this is to hold QRA workshops involving all stakeholders to determine and agree the risks, the likelihood of risk occurrence, the potential impact to schedule, cost and performance, and the required strategies to manage these risks. This type of approach allows for quantitative analysis with a probabilistic outcome of the project, based on the qualitative inputs of the wider project team.
The first step involved is creating a schedule for all stages and aspects of the project, from the procurement of materials and equipment to obtaining the necessary construction permits and approvals, some of which may be subject to the site location. The objective is to create a schedule that provides transparency in terms of the project status, actions required and timeline to achieve completion. The schedule should be developed with the project team through integrated planning sessions, ensuring the steps involved in each stage are fully understood and timelines and durations are validated and agreed by all parties. This allows the identification of high-level pinch points for all stakeholders.
Once the schedule and timeframes are set, the third step is to capture all potential risks that can impact a project into a risk register. The goal is to identify as many risks as possible, regardless of how critical these are. The best way to achieve this is by running a risk workshop with all project stakeholders in attendance to ensure local expertise, subject matter expert insight, and lessons learned are captured as part of the process. Each risk identified is assigned an owner with responsibility for monitoring the risk and its potential impact on schedule and cost and developing risk mitigation and management solutions.
Finally, metrics are applied to quantify the risk. Each risk is assessed in terms of the likelihood of it occurring and the level of impact on the project. For example, 5% chance of occurrence but with high impact to delay timeline by X months. Risk ranging is an integral part of the qualitative process within the workshop. It is imperative that the estimated cost and time impact is discussed and agreed with all stakeholders ensuring that the project team ‘owns’ the risk ranging.
Once all the workshop results are collated, a quantitative analysis on both cost and schedule is conducted using the Monte Carlo simulation using industry-standard risk software applications, to provide a probable statistical outcome of project success against the input dates and costs. Here, we can establish the likelihood of when the project will finish, and how much it is likely to cost when taking account of all the input data from the workshop.
This process delivers a quantifiable analysis that enables clients to make more informed decisions on how to proceed with the project. Clients can consider whether a different methodology needs to be put in place, whether the team needs to be expanded or indeed whether alternative materials should be considered for the construction.
QRA workshops should be run at the end of each execution phase or at least on a quarterly basis, to effectively monitor and assess existing and emerging risks and in conjunction with any re-baselining of the project. This type of consistent monitoring and realignment throughout the project life cycle creates a better and more comprehensive understanding of the impact and probability of risks enabling the necessary adjustments and contingencies and overall delivery of certainty in project outcome for the client.
[1] Infrastructure Magazine: Skilled construction worker shortage to reach critical levels - https://infrastructuremagazine.com.au/2022/08/19/skilled-construction-worker-shortage-to-reach-critical-levels/
[2] The Urban Developer: Skills Shortages ‘Challenge of the Decade’ for Australia’s Construction Industry - https://www.theurbandeveloper.com/articles/skills-shortages-challenge-of-the-decade-for-australia-s-construction-industry
[3] Project Management Institute: Quantifying risk - https://www.pmi.org/learning/library/quantitative-risk-assessment-methods-9929
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