Today’s capital projects are becoming more complex and facing an uncertain risk climate which renders traditional risk management methods increasingly obsolete. Risks such as inflation, supply chain disruption, skills shortages, and extreme weather events increasingly affect multiple project metrics and partners. The increasing cross-sector, multi-disciplinary collaboration and complexity of capital projects will also necessitate more collaborative, comprehensive risk management. Although there continues to be a high level of industry optimism, many construction firms are concerned about disruption from skills shortages and economic stagnation and recession as well as other woes, according to our Global Capital Projects Outlook 2023 (GCPO) survey.
The challenge is that risk planning processes have not evolved in line with the growing complexity of projects and the fast-fluctuating array of threats they face. Risk expertise is often still confined to a few specialists, and risk assessments cover only a few project management processes, preventing collaborative oversight and control of risks across all processes and teams. Fragmented, inaccessible risk data also prevents organizations from joining the dots to form a bigger picture of how individual risks affect wider project performance.
Projects are becoming increasingly complex and diverse, with the movement toward alternative delivery contracting models often resulting in projects becoming larger in scope, rather than being awarded as multiple, smaller projects. Renewable energy projects are prime examples, with renewable technologies such as offshore wind-to-hydrogen involving multidisciplinary collaboration across a wide range of industries from oil and gas to wind and power. At the same time, the operating environment for construction is becoming ever more uncertain. One customer recently reported that average equipment waiting times have risen from 10 to 14 months and face severe challenges finding sufficient skills. Cost and pay inflation also feature heavily among disruptions being experienced across the industry. With these new question marks conspiring with all the traditional challenges of delivering projects against aggressive cost and schedule targets, risk management will need to become far more collaborative and comprehensive.
Yet, today risk assessments are sometimes restricted to a narrow view of project controls, often just scheduling, prohibiting the discovery of the root causes of risk. Quantitative Risk Assessments focus a lot of energy on risk at a specific point in time, then it’s back to executing until it’s time to do the next risk workshop. These infrequent assessments are usually led by specialists using specialized tools, rarely leaving behind meaningful changes in the quest to adopt a disciplined, risk mitigation culture.
The fragmentation of risk information is further reinforced by the continued application of traditional delivery models such as design-bid-build and “waterfall” approaches where each project phase is risk-assessed sequentially and separately. Fragmented project data is itself becoming a delivery risk, with 41% of GCPO respondents reporting that poor data collection, analytics, and insights are now a risk to growth.
Recent project management approaches are breaking down silos and allowing risk management to be spread across all construction processes and personnel. Cloud-based digital tools can assimilate feedback from subject matter experts on a continuous basis, in conjunction with the CPM schedule. The same automated technologies allow ongoing risk assessments throughout project lifecycles to create more agile, adaptive risk management. This democratizes and decentralizes risk assessments so that all teams can bake risk management into their planning and continually adjust to new challenges. Allowing risk management expertise to permeate the entire business empowers all members of the project team—from engineers to procurement managers—to monitor and manage risks in a consistent way.
Digitalization is also simplifying complex risk analytics methods such as Quantitative Risk Analysis (QRA). Some modern project controls systems include the capability to perform QRAs inherently, including management of the risk register, performing simulations and risk calculations, and creating reports such as tornado charts to identify areas of focus. Monte Carlo—the long-accepted computational method that simulates project outcomes across thousands of varying scenarios—can play a central role in a digital QRA, with the advantage of being directly integrated with the CPM schedule and its associated risks. Traditionally, performing a QRA might be done once a quarter, or only at major project milestones in accordance with contract requirements, as it involved a lengthy process to gather up the data to provide to a specialist who would then perform the assessment—yet another lengthy process. Now digital QRAs can be performed as frequently as desired, supporting a culture of continuous risk mitigation. This creates greater transparency and fosters multidisciplinary, multi-party risk management.
Recent advancements in AI hold the potential to further improve the efficiency and effectiveness of risk assessment. By learning from previous projects—both identified risks, and deltas between expectations and outcomes—AI-enabled planning systems can augment human intelligence to great effect. Such systems will result in a better overall planning process by identifying risks earlier and making them visible to a wider project audience.
As the demand for construction continues to outpace the industry’s capacity to keep up, a digitalized risk management approach, augmented with AI, can essentially enable construction firms to do more with less. When everyone in the organization is benefitting from the lessons learned from all previous projects, plans inherently get more accurate and expectations are properly grounded in reality from the outset. All of which leads to more orderly execution of the work and greater project certainty.
As preferred contracting models continue to evolve from traditional design-bid-build to shared risk models, an increasingly critical element of success is a standards-based approach to risk assessment. All parties in a shared-risk contract need transparent visibility to current risks and their impacts on cost and schedule. In such contracts, allowable contingencies related to project price and duration are often tied directly to routine risk assessments. When those assessment are performed “out in the open” through a digital, democratized approach, it builds trust and confidence across all project stakeholders.
Today’s complex, diverse capital projects and fluctuating, far-reaching risks entail a new approach to risk management. Construction firms have a ready-made risk management resource in their wider workforce of discipline experts, and digital transformation can unlock that knowledge and draw on both human and machine insights to fuel smarter risk planning across stakeholders and roles. Digital transformation can be a key enabler for smarter and more resilient projects. The democratization of data will see risk management transformed from an occasional exercise into an ongoing component of every project controls process across project lifecycles.
About the Author:
Brad Barth is chief product officer at InEight. For more, visit www.ineight.com.
Modern Contractor Solutions, September 2023
Did you enjoy this article?
Subscribe to the FREE Digital Edition of Modern Contractor Solutions magazine.