Managing Project Risk With Proper Scheduling
By: Maria Petrov, P.E.

1. Introduction
In an increasingly competitive global construction industry, the challenges and risks associated with completing a project "on schedule" and within the contractually specified time frame and budget continually escalate. These time and schedule related challenges are further exacerbated by the current international trend of streamlined project delivery mechanisms, increased multi-firm project execution, alternative contracting arrangements, and the growing utilization of liquidated damage contractual provisions. There are several parameters that can define a successful project, but not many are more significant than time. The current competitive construction market leads to aggressively planned schedules, which make the project more sensitive to different impacts. Therefore, schedule risk shall be identified and managed to mitigate impacts in order to deliver a successful project.

By definition risk is "an unexpected event or occurrence which impacts the project." The risk during the planning and execution stages may evolve from relationship and integration between different project components such as contract, project execution plan and relationships between the parties. Every project is a subject to risk, but the well-planned project is prepared to handle the risk. A good management system in place will help to avoid and mitigate the risk.

Project success comes for timely identifying and managing the project risks as they occur throughout the project life cycle. The construction industry has portrayed that any project can be represented with a four stage "typical" project life cycle - Feasibility Study, Planning and Design, Construction, and Turn over and Start up. Each of these stages in the project lifecycle has its potential of a risk.

Time management has become an essential requirement on all design and construction projects. Today, the planning and execution of project activities are generally presented in a network-based scheduling system known as Critical Path Method (CPM) scheduling. The CPM schedule is a powerful management tool that can assist both owners and contractors in the planning and management of complex projects and by this to mitigate any potential risks.

The overall goal of a project schedule is to give the project participants a reasonable management tool, which enables them to effectively and economically plan and execute construction projects while still maintaining the flexibility to efficiently and promptly react to the dynamic nature of construction projects. Using CPM scheduling to monitor the project critical path allows contractors and owners to detect which activities have caused any delays. In addition, an accurate, consistently used and updated CPM schedule allows both parties to determine how and when the project completion date was impacted. Delivering a project on time is not a simple matter of signing a contract and hoping that the required completion date will be met. The majority of today's construction projects encounter events and/or changed conditions that affect the original plan for their execution. Attempting to solve these unforeseen issues without an established plan to determine the immediate and probable impacts is a major risk which can often lead to delays, disruptions and disputes between the parties involved. Because the delays usually lead to a cost increase, there is an immediate need to determine the right quantification and proper allocation of the delay as well as the causes for the delay and the parties responsible. Therefore, proper planning and scheduling can minimize the risk of a delay and in the case of disputes, an accurate delay analysis can assist in determining "who is going to pay."

2. Project Life Cycle and Sources of Risk
During the project life cycle the level of risk changes and shifts between the owner and the contractor. It is very important to determine exactly when schedule risks impact the project, because during the project life cycle, the risk of experiencing project delay increases and management's options to mitigate the delay decreases.

• Stage I - Feasibility
  This is the stage when the overall project concept has been developed. It includes strategic planning of design and financing to conceptual design and general contract arrangements.
• Stage II - Planning and Design
  During Stage II, the parties continue to further detail the project by executing the basic parameters: Project Delivery System; Contract Terms and Conditions; Planning Mechanism (Project management processes, staffing, resources, procurement, scope changes); Schedule and Cost Requirements; and Detail Design.
  
  The goal of this stage is to develop basic design, cost and schedule requirements, contract terms and conditions in order to allow bidding and awarding of the major contracts in preparation for the next stage.
• Sources of Risk for Stage I and Stage II
  During the first two stages of the project execution the owners are exposed to a higher risk while managing to establish the basic execution parameters, complete the bidding process and awarding of the contract. On the other hand, contractors should be prepared to recognize the sources of risk and implement plans for managing risk. Some of the major sources of schedule risk during Stage I and II are:
  • Project Delivery Method - both Owners and Contractors must be familiar with the project delivery method and the contract requirements. Proper contract management and procedures must be clearly identified in the contract documents. The contract requirements in respect to the completion dates and liquidated damages, and the parties' responsibilities should be represented in the Contract schedule. The scheduling specifications are often vague and inadequate, which represents a great potential risk for project delays. The baseline schedule should be approved before the start of the work and it should represent the true scope of work and main sequence of construction.
  • Contract Roles and Responsibilities, Scope of Work and Execution PlanThe roles and responsibilities and the scope of work are typically identified in the contract framework. Sometimes the contract format, terms and conditions are not clear and may result in misinterpretation of roles and responsibilities as well as an inaccurate definition of the scope of work, which becomes an area of significant risk. Different interpretations of the contract language regarding roles and responsibilities, scope changes and how to address them, requests for time extension and contract administration roles in many cases resulted in disruption and project delays. A proper schedule shall include the full scope of work and correct links between preconstruction work such as issuing permits, material purchase and design, and construction activities. It should include responsibilities such as owner furnished equipment, time for review of submittals, etc. The execution plan considers the contractor's strategic planning for the project including means and methods and subcontracting parts of the project. It is based on a reasonable estimate and should be presented in the schedule.
  • Inaccurate Cost and Schedule Estimate - The initial project estimate is a source of cost and scheduling risk.
  • Design Errors and Omissions - This source of risk includes defective or incomplete design documents, inconsistencies and flaws among the plans and specifications. A proper baseline schedule and regular updates can allow contractors and owners to determine if design errors and omissions impact the schedule critical path and can cause project delays.
  • Multinational Participants and Location Driven Codes and Specifications - In today's developing international construction market, many construction projects involve parties from different countries; projects are designed and executed in different continents. The different design codes and standards of practice as well as the different cultures of the involved parties represent a significant risk for the timely delivery of the project.
• Stage III - Construction
  This stage consists of finalizing the design, procurement and the actual construction of the project. The Construction stage requires the most capital expenditures and project resources and it is performed based on the parameters set up in Stages I and II. The end of Stage III is when the project is substantially complete.
• Stage IV - Turnover and Start-up
  During this final state the project is typically turned over to the Owner for start-up. The major activities consist of testing and commissioning, system turn over, and start of operation and maintenance. At the end of Stage IV the Owner begins full operation and maintenance of the facility.
• Sources of Schedule Risk during Stage III and IV
  During Stages III and IV, contractors are typically exposed to a higher level of risk than the owners. The major contract agreements that are set at the end of Stage II typically allocate the construction responsibilities to the contractor, but owners must remain diligent in managing emerging risk and implement plans to mitigate delays. The following are some of the most common sources of risk during the construction and turnover and start-up stages.
  • Late Design, Construction and Start up Changes - In many cases, changes in the project scope and contract requirements that appear during Stage III and IV of the project life cycle are difficult to implement without impact to the project completion. Late design and construction changes (including issuance of permits) can impact already procured and performed work and require the contractor to change its execution plan, and thus may impact its productivity and cost. Maintaining complete and timely project schedule updates will assist both contractors and owners to identify if there is any schedule delay due to specific change. As mentioned earlier, the schedule specifications should be adequate and in particular should address what method will be used for quantification of delay and requests for time extension.
  • Schedule Revisions - Schedule revisions are issued as a result of design or construction changes or due to a contractor's decision to change the means and methods in order to mitigate delays. Typically, the contract schedule provisions demand a schedule revision to illustrate how delays will be mitigated. Even if the contract specifications are perfectly clear regarding schedule requirements, submissions and revisions, the scheduling process and the project management can represent a risk to the project execution. In many cases, a problem occurs because of lack of experienced scheduling personnel from the contractor and/or owner side.
  • Quantity Variances - Inaccurate estimates can result in increasing risk to the schedule because quantity increases will require additional time and resources for completion of the work.
  • Force Majeure - There are a potential risk to the schedule of an unforeseeable events such as severe weather, acts of God, war and labor strikes and other events or conditions that no project participant could expect or be aware of. In this case, a good baseline schedule with accurate and regular updates can assist the parties to identify the impact.
  • Differing Site Conditions - Differing site conditions is another area of potential risk during project execution which could be monitored, evaluated and mitigated via proper scheduling

3. Conclusion
Stage I and Stage II are more critical with respect to applying a Risk Management program. During this time, there is minimum direct schedule impact, because minimum cost and resources have been invested in the project at this point. Most of the potential sources of risks can be identified during the first two stages of the project life cycle and if an appropriate risk management system is in place, they may not impact Stage III and IV. The major sources of the risk during the construction and turn over stage of the project life cycle are execution risks. At that time, impacts that resulted from Stage I and II may also impact the project and result in exceeding project time and budget. This reinforces the need for the project participants to establish and implement an effective risk management system. The reasonable and well-maintained schedule is a driving force for mitigating project delays and will minimize execution risks. The schedule should represent the scope of work and contractor's plan to construct the project. A reasonable and approved baseline schedule and regularly maintained schedule updates can assist both owners and contractors with identifying any schedule impacts and their root causes. If there is no risk management system in place or if the risk management system is inconsistent and does not represent the project specifics, disputes may arise.

References
- A Guide to the Project Management Body of Knowledge, Third Edition (PMBOK Guide)
- Galloway, P./Petrov, M. - Problems in Underground Construction: Lessons Learned and Methods Developed for Success - ITA - AITES, 2004 Singapore
- Galloway, P. (2005) - CPM Scheduling and How the Industry Views its Use - 2005 AACE International Transaction.
- O'Brien J./Plotnic, F. - CPM in Construction Management, Fifth Edition, McGraw-Hill
- Nielsen, K. - Risk Management Techniques Evolving Project Management Tools For All Seasons, The Third Civil Engineering Conference in the Asian Region (The 3rd CECAR )

Ms. Petrov is Vice President and Managing Director, Europe.  She has extensive experience in structural, civil and field engineering, project management and construction inspection. Ms. Petrov has performed a variety of Dispute Resolution, Risk Management and Management Consulting engagements on behalf of project owners and contractors, public and private, in the infrastructure, transportation, process, power and building industries.

Ms. Petrov acts as an Engagement Manager, leading and executing analyses involving issues of schedule delay, design, causation and responsibility, scope change, change order, cost impact and others. Ms. Petrov has extensive experience with expert reports and testimony, and has participated in claims negotiations in all phases of litigation, including discovery and settlement discussions.

Ms. Petrov’s representative engagement experience includes infrastructure (mass transit, rail, water/wastewater, bridges), Power (fossil, geothermal, hydroelectric), Process and Resource (petrochemical and metals), and Institutional (medical facilities and hotel/casinos) in Europe, North and South America and Asia.

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Pat Galloway, CEO, authors a weekly Blog on Engineering News Record's website posted every Friday. The Blogs discuss a variety of engineering topics and issues. Please visit and see what new this week!

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Harold Dorbin, Executive Vice President, presented Corporate and Project Governance - Zone Defense Is Not For the Pros at the November 14th PMI Houston Chapter Meeting. Specific Tools and Methods were reviewed that focus Governance and Risk Management programs to operate from the work processes and project metrics used everyday in planning and execution projects for Owners and Contractors. If you missed it or for more information on Risk Management and how Nielsen-Wurster can assist your organization, please contact Harold Dorbin at (281) 248-2873 or via email at dorbinnwg@aol.com.

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