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Risk Management for Ship Repair Projects

Why Risk Management practices are not commonly used in Ship Repair Projects? Risk management is becoming indispensable for any project. If you don’t identify risk either threats or opportunities and treat them, your project could fail. This culture of risk management needs to be improved on ship repair projects, I know that this types of projects are short in time (average from 8d to 15d) and very tight in budget, everything need to be done quickly and well done, planning is crucial, quick response to problems is a must, but the minimum delay can mess up your project schedule and budget and in the same direction you image with your customer. Then, why not include this very important process in your projects?. I know at the beginning couldn’t be an easy topic to understand and use, but when you give a try you start to understand, and when you understand you start to use it and then, you will see the results.

Here in this article I’m going to explain some basics about risk management, how to implement the risk management on a real ship repair project (vessel QUEEN ANDREA the one from the previous articles) and the differences between company risks and project risks. All this information is aligned with the PMI standard – PMBOK 5th Edition.

Basic Concepts About Risk Management

To start with Risk Management, you should understand what a Risk and a Cause are. Please see below the formal definitions.

What is a risk? A project risk is an uncertain event or condition that, if it occur, has a positive or negative effect on one or more on project objectives such as, scope, schedule, cost and quality[1]

What is a Cause? A Cause may be a given or a potential requirement, assumption, constraint or condition that creates the possibility of negative or positive outcomes[2].

How to treat Risks? There are different ways to enhance opportunities or reduce threats to project objectives, those are:

Risk Responses – Negative Effect

  1. Avoid
  2. Transfer
  3. Mitigate
  4. Accept

Risk Responses – Positive effect:

  1. Exploit
  2. Enhance
  3. Share
  4. Accept

According to the PMBOK the risk management knowledge area has 5 processes where you have to apply the basics concepts stated before:

  1. Plan Risk Management
  2. Identify Risks
  3. Perform Qualitative Risk analysis
  4. Perform Quantitative Risk analysis
  5. Plan Risk Responses

For this article purpose I will go in deep only on Identify Risks, Perform Qualitative Risk Analysis and Plan Risk Responses processes. I will start to explain each process and an example with the ship repair project QUEEN ANDREA.

Plan Risk Management

A risk management plan describes how risk management will be managed during the project. The plan should include:

  • Methodology
  • Roles and Responsibilities
  • Budgeting
  • Timing
  • Risk Categories
  • Definition of Risk probability and impact
  • Probability and impact matrix (see section 3 on this document)
  • Reporting Formats
  • Tracking

If you want to learn more about this process please refer to the PMBOK 5th Edition page 309

Identify Risks

Identify Risks is the process of determining which risks may affect the project and documenting their characteristics. They key benefit of this process is the documentation of existing risks and the knowledge and ability it provides to the project team to anticipate events[3]

To identify riks you should be clear how to redact a Risk. I recommend to follow this way:

Risk / Cause / Impact

These are the most important aspects to consider when you are identifying Risk and Causes:

  • The Risks must be identified based on the Project Objectives
  • The Risks cannot be a constraint (a constraint is something that already exists and should be responded with a contingency plan)
  • When the risk is going to be identified you should ask yourself: What are the things I don’t want to happen that can impact the project objectives?
  • The cause of the risk could be a constraint, an assumption, requirement or condition that originates the unwanted or wished event.

The shipyard Project Manager should understand this concepts very well and their project team as well, in such way the risk identification can be successful. Risk identification can be done during Initiating / Planning phase and then during the project duration if needed.

It is very useful to use Risk Categories to identify the risks. In ship repair projects can be:

  • Blasting and Painting
  • Mechanical
  • Electrical
  • Steel
  • Transport and rigging
  • Subcontractors
  • Purchasing
  • Engineering
  • Project Management
  • Scaffolding

Every time a team member identify a risk, should be inform to the Project Manager to be included and analyzed on the Risk Register. As the ship repair projects are short in time and delays can be based on hours, every hour you lose could have a great impact on the project, that’s why this risk management process should be managed as simple as possible.

Every additional job should have a risk assesment with the responsible person for the job and would be good to involve the Superintendent.

Let’s make an example of risk identified for the ship repair project QUEEN ANDREA, see Figure 1. QUEEN ANDREA – Risk Identification List:

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Figure 1. Risk Identification - QUEEN ANDREA

The list of identified risk can be longer, but for the article purpose I will just leave it on 5 identified risks. There are some techniques to identify risks such, interviews, workshops, brainstorming, etc.

Perform Qualitative Risk Analysis

Perform Qualitative Risk Analysis is the process of prioritizing risks for further analysis or action by assessing and combining their probability of occurrence and impact. They Key benefit of this process is that it enables project managers to reduce the level of uncertainty and to focus on high priority risks[4].

In Qualitative Risk Analysis you have to assess the impact and the probability to determine the score of the risk, this can be done through the Probability and Impact Matrix. The risk can be scored as Very High, High, Medium, Low or none. With the score you can prioritize them and then make a treatment plan for each and to define risk reserves.

Coming back to our project QUEEN ANDREA let’s see the Probability and Impact Matrix define for the project and the score for each risk identified on the section 2 of this article.

Let’s assume that the vessel QUEEN ANDREA has a budget of USD $458.000 and 15d in total for repair. So, we need to fill out that information on Risk Assessment Matrix (RAM) heading in order to get the impacts on Cost and Time columns for risk scoring. Below you will find the RAM designed for this project. The RAM has two main items to be understand:

  1. IMPACT ON PROJECT OBJETIVES: Here you can define the impact that the risk could have on, Environment, Cost, Time and Client. Each Impact column has a different SEVERITY (H, VH, M, L, N) based on project information and risk impact.
  2. PROBABILITY: This is the probability that the risk could have during the time frame of the project. It is measured as None, Low, Medium, High or Very High or percentage of occurrence (see Figure 2. QUEEN CATALINA – Risk Assessment Matrix / RAM)

(Click for larger image)

Figure 2. Risk Assesment Matrix (RAM) - QUEEN ANDREA

Now you have the RAM and the list of risk identified for the project, Then you should asses them and score them. First thing you have to do is to define the probability of occurrence. Think about, how likely is that this specific risk arise during the project?, it is 20%, 40%, more than 50% or None??. Once you define the probability you should estimate the impacts on the project objectives to score each one and select the highest one. Let’s see Figure 3. QUEEN CATALINA – Scored Risks, where the risks identified before are now assessed and scored.

I will explain one of them for a better understanding. I will select the RISK ID 5:

Lack of man power, due to interference with other projects, impacting undocking date and departure date.

  1. Define Probability: If I start to analyze the shipyard production at the moment I have found that there are 2 projects more under execution with conversions and it is absorbing 70% of the shipyard man power, so for me this risk is 50% likely that can occur, so in the RAM is located on the column D.
  2. Analyze Impacts: Here you have to analyze that probability against the impacts and select the one that impacts more the project. Let’s continue with the example of the Risk ID 5.
  • Impact on Environment: Zero Effect (Severity 1), this risk will not impact on the Environment, in the matrix is score as N
  • Impact on Cost: If I don’t receive the resources to execute the project according to plan the most probably I should pay fines for $8.000 per day to my client, maybe I can have delays up to 3 days creating me extra costs of $24.000. If you see the RAM the $24.000 are in the range of Severity 4, which in the matrix the risk is score as VH.
  • Impact on Time: If I don’t receive the resources to execute the project according to plan, the most probably I will have a delay form 1 to 3 days based on experience. On the RAM the 3 days are in the range of Severity 5, that in the matrix the risk is score as VH.
  • Impact on Client: If we have this delay of 3 days the most probably the client will complain and fine us, but due to good relationship with the company there is no chance to lose the client. The impact Severity here is 3, which in the matrix the risk is score as M.

Then after this 2 steps you have to select among the impacts which one is the higher one and that will be the final score of the risk. In this case the higher ones were the Impact on Time and Cost with VH, so this risk is scored as VH.

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Figure 3. Risk Scoring - QUEEN ANDREA

As a result of the risk scoring now you have that the project has 2 VERY HIGH risks, 2 HIGH RISKS and 1 MEDIUM risk. We need to focus on the VH and H risks, the Medium risk can be monitor during the project and reassess if needed.

  1. Perform Quantitative Risk Analysis

Perform Quantitative Risk Analysis is the process of numerically analyzing the effect of identified risks on overall project objectives. The key benefit of this process is that it produces quantitative risk information to support decision making in order to reduce project uncertainty.[5]

Quantitative Risk Analysis can be done using specialized software like Project Risky, Crystal Ball, @risk, etc. Those software use statistic models to predict cost and time for certain project such Monte Carlo technique. But here I want to explain a technique that can be used without any fancy risk software and still is useful, it is called EMV (Expected Monetary Value). With this technique you can calculate a contingency reserve in time and cost based on identified risks. The formula to calculate the EMV is Probability x Impact.

Let’s see the example on the project QUEEN ANDREA for the risks identified (Figure 4. QUEEN ANDREA – Expected Monetary Value):

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Figure 4. Expected Monetary Value - QUEEN ANDREA

This contingency reserves (in cost $34,010 and time 3 days) can be assigned it to the project if needed.

Plan Risk Responses

Plan Risk Responses is the process of developing options and actions to enhance opportunities and to reduce threats to project objectives. The key benefit of this process is that it addresses the risks by their priority, inserting resources and activities into the budget, schedule and project management plan as needed. [6]

In this part is when you start to define what to do in order to treat those risks. To make a response you ALWAYS need to attack the cause of the risk, if you don’t so, you are wasting time. Also, you have to define 4 aspects:

  • What
  • When
  • How
  • Who

Without those 4 aspects your response action will be incomplete and uncontrollable. In case of VH risks you should also include a Contingency Plan in case the risk occurred.

 Let’s see the example on the Figure 5. QUEEN ANDREA – Risk Responses

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Figure 5. Risk Responses - QUEEN ANDREA

All the information given above should be performed and controlled during the project duration. If some new risks are identified, it should go through all the process mentioned here in this article. Identified and prioritized risk should be monitored all the time because situations can change and you have to react on time.

Remember that risk responses can have a cost on the project but will be minor comparing with the impact if the risk occur. Also risk responses should be added to the project schedule.

ON THIS LINK YOU CAN DOWNLOAD THE COMPLETE RISK REGISTER FOR THE PROJECT QUEEN ANDREA:

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[button color=”green” size=”big” link=”https://docs.projectmanagers.org/maritime/Risk-Register-QUEEN-ANDREA.pdf” target=”blank” ]Download the Risk Register – QEEN ANDREA »[/button]
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Company Risk vs Project Risks

I want to include this topic into the article because everybody need to understand that there are a difference between Company Risks and Project Risks.

Company Risks are the ones that can impact the business itself, the goals, the mission, vision, even all the risks related to company assets such Drydock, Cranes, Compressors, stock materials, in general all facilities are related to company and has their own risks and their own Risk Assessment Matrix.

Project Risk are strictly related to the project itself, some of the company risks can impact directly the project, so Project Managers need to be aware about this.

Every important decision you must take as a company should be based on a Risk Assessment, nowadays is not accepted to take decision without using this important tool.

Conclusion

Risk management is an important aspect for ship repair projects, doing Risk Management can save you from undesirable situations. Risk management should be perform when shipyard receive the job specifications from vessel owners in order to select the less risky project or to plan how to execute the project, then should be perform during planning, execution and control of the project when vessel arrive to shipyard.

References

[1] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 310). Pennsylvania, USA: Project Management Institute, inc.

[2] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 310). Pennsylvania, USA: Project Management Institute, inc.

[3] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 319). Pennsylvania, USA: Project Management Institute, inc.

[4] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 328). Pennsylvania, USA: Project Management Institute, inc.

[5] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 333). Pennsylvania, USA: Project Management Institute, inc.

[6] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management Body of Knowledge (PMBOK guide) – 5th Edition (p 342). Pennsylvania, USA: Project Management Institute, inc.