Risk Management in

Engineering

by

Dr. Ahmad Mahmood

Case Study
In the early 2000s, Denmark experienced a significant engineering project disaster that cost
hundreds of millions of dollars. The case involves a mammoth suspension bridge, the Great
Belt Fixed Link, which connects the Eastern and Western parts of Denmark.

The project was supposed to be a symbol of excellence in engineering, a feat of modern

technology that would reduce travel time and avoid the need for ferry connections. However,
things did not go as planned, and the project experienced significant cost overruns and
schedule delays. The main issue that plagued the project was the mismanagement of risks.
The construction team faced several challenges, including extreme weather conditions,
unforeseen geological complications, and flawed design.

The project managers did not consider these risks when they were developing the project plan,
and as a result, the project went off the rails.
Case Study
The impact of these cost and schedule overruns was significant. The Danish
government had to shoulder the additional costs, which put a strain on the national
budget. The project also faced major quality issues, leading to concerns about the
bridge's safety and functionality. As a result, the project was subject to a public
inquiry, which concluded that inadequate and ineffective risk management practices
were one of the main culprits for the project's issues. The inquiry found that the
project managers did not adequately account for risks or consider potential design
flaws, which led to the cost overruns, schedule delays, and quality issues.
The Great Belt Fixed Link eventually opened, but it was four years later than
planned, and it cost much more than the original budget. The project experienced
major quality issues, with concerns about its safety and functionality. This is an
example of how inadequate risk management and quality assurance practices can
lead to catastrophic consequences.
This case study emphasizes the critical role that risk management and quality
assurance play in engineering projects. It shows the importance of identifying,
assessing, and mitigating risks at the early stages of a project, as well as the
significance of ensuring that quality standards are met throughout the project
lifecycle.
Risk management process
Risk management is a systematic process designed to identify, assess,
and mitigate risks in engineering projects.
The steps involved in risk management typically include:
1. Risk Identification
• Brainstorming: Engaging team members in discussions to uncover
potential risks.
• Checklists: Using predefined lists of common risks associated with
similar projects.
• Expert Judgment: Consulting with experienced professionals to
identify risks.
• SWOT Analysis: Evaluating the project’s Strengths, Weaknesses,
Opportunities, and Threats to identify risks.
Risk management process
2. Risk Assessment
• Qualitative Risk Analysis: Prioritizing risks based on their
probability and impact using descriptive terms (e.g., high, medium,
low).
• Quantitative Risk Analysis: Using numerical techniques to quantify
the probability and impact of risks (e.g., Monte Carlo simulations,
decision tree analysis).

3. Risk Prioritization
• Risk Matrix: Creating a matrix to rank risks based on their severity
and likelihood.
• Risk Score Calculation: Assigning scores to risks to determine their
priority level.
Risk management process
4. Risk Mitigation Planning
• Avoidance: Changing project plans to eliminate the risk.
• Mitigation: Taking actions to reduce the likelihood or impact of the
risk.
• Transfer: Shifting the risk to a third party (e.g., through insurance or
outsourcing).
• Acceptance: Acknowledging the risk and preparing to manage its
impact if it occurs.

5. Risk Response Implementation

• Action Plans: Developing detailed plans to implement chosen risk
responses.
• Resource Allocation: Assigning necessary resources to execute risk
response plans.
• Schedule Adjustments: Modifying project schedules to
accommodate risk response activities.
Risk management process
6. Monitoring and Review
• Regular Reviews: Conducting periodic reviews to assess the
effectiveness of risk responses and identify new risks.
• Risk Audits: Performing formal audits to ensure risk management
processes are followed.
• Progress Tracking: Monitoring risk response actions to ensure they
are on track.

7. Communication and Documentation

• Risk Register: Maintaining a comprehensive document that records
identified risks, their assessments, and response plans.
• Status Reports: Regularly updating stakeholders on the status of
risks and the effectiveness of risk management efforts.
• Lessons Learned: Documenting lessons from the risk management
process to inform future projects.
Risk management process
8. Continuous Improvement
• Feedback Loops: Gathering feedback from team members and
stakeholders to improve risk management processes.
• Process Refinement: Continuously refining risk management
strategies based on project outcomes and evolving best practices.

By systematically following these steps, engineering projects can

effectively manage risks, thereby enhancing the likelihood of project
success and minimizing potential negative impacts.
Risk Matrix
A Risk Matrix is a tool used in risk management to evaluate and prioritize risks based on their
probability (likelihood) and impact (consequence). It provides a visual representation that
helps project managers and stakeholders identify which risks need the most attention. Here’s
how a typical Risk Matrix works and how to create one:
Steps to Create a Risk Matrix
• Define the Probability and Impact Scales
• Probability Scale: Usually categorized as Very Low, Low, Medium, High, and Very
High (or on a numerical scale from 1 to 5).
• Impact Scale: Similar to the probability scale, it is categorized as Very Low, Low,
Medium, High, and Very High.
• Create the Matrix Grid
• Create a grid with the probability on one axis (usually the vertical axis) and the impact
on the other axis (usually the horizontal axis).
• Assign Risk Scores
• Each cell in the grid represents a combination of probability and impact, typically with
numerical scores. For instance, a risk with high probability and high impact will have
the highest score.
• Plot Risks on the Matrix
• Identify risks and plot them on the matrix based on their assessed probability and
impact.
Risk Matrix
Example of a Risk Matrix
Here is a simplified example of a 5x5 Risk Matrix:

Probability \ Impact Very Low (1) Low (2) Medium (3) High (4) Very High (5)
Very High (5) 5 10 15 20 25
High (4) 4 8 12 16 20
Medium (3) 3 6 9 12 15
Low (2) 2 4 6 8 10
Very Low (1) 1 2 3 4 5

Using the Risk Matrix

• Identify Risks: List all potential risks that could affect the project.
• Assess Probability and Impact: For each risk, determine the likelihood of occurrence and the potential
impact if it occurs.
• Plot on the Matrix: Place each risk in the appropriate cell based on its assessed probability and impact.
• Analyze Results:
• High-Risk Zone: Risks in the upper right (e.g., scores of 10-25) are critical and need immediate
action.
• Medium-Risk Zone: Risks in the middle (e.g., scores of 6-15) should be monitored and mitigated.
• Low-Risk Zone: Risks in the lower left (e.g., scores of 1-5) require minimal attention but should
still be tracked.
Risk Matrix
Benefits of a Risk Matrix:
• Prioritization: Helps prioritize risks so that the most significant ones are addressed first.
• Visualization: Provides a clear visual representation of risks, making it easier for
stakeholders to understand.
• Decision-Making: Aids in making informed decisions about risk mitigation strategies.

Example Scenario:
Suppose you have identified three risks in an engineering project:
• Risk A: High probability (4) and medium impact (3).
• Risk B: Low probability (2) and very high impact (5).
• Risk C: Medium probability (3) and low impact (2).
Plotting these on the matrix:
• Risk A: Cell (4,3) with a score of 12.
• Risk B: Cell (2,5) with a score of 10.
• Risk C: Cell (3,2) with a score of 6.
From this, Risk A is in the medium-risk zone but closer to high-risk, Risk B is in the medium-
risk zone, and Risk C is in the low-risk zone. Therefore, Risk A should be given more
immediate attention compared to the others.
Advanced Risk Management Techniques
"Advanced Risk Management Techniques" typically refer to sophisticated
methodologies employed to identify, assess, and mitigate risks in complex
projects. These techniques go beyond basic risk management practices and
often involve quantitative analysis, decision modeling, and systematic
evaluation of potential failure modes. By utilizing advanced risk
management techniques, project teams can better understand and address
uncertainties, thereby enhancing project resilience and increasing the
likelihood of success.
Monte Carlo Simulation
A quantitative risk analysis technique that uses statistical methods to model
and analyze the impact of risk and uncertainty in project schedules and cost
estimates. It runs thousands of scenarios to predict the probability of
different outcomes.
Application: In a construction project for a new office building,
uncertainties such as weather conditions affecting construction timelines
and fluctuations in material costs are prevalent. Monte Carlo Simulation
can be applied to model the impact of these uncertainties on the project
schedule and cost estimates. By running thousands of simulations, it can
provide a range of possible outcomes and their associated probabilities,
helping project managers make more informed decisions.
Advanced Risk Management Techniques

Sensitivity Analysis
Determines how different values of an independent variable affect a
particular dependent variable under a given set of assumptions. It helps in
understanding which risks have the most impact on the project.
Application: In the same construction project, the budget is limited, and
any increase in construction costs could jeopardize its feasibility.
Sensitivity analysis can be used to identify which factors have the most
significant impact on the project's overall cost. For example, it might reveal
that changes in the price of steel have a disproportionately large effect
compared to other variables. Armed with this knowledge, project managers
can focus their risk mitigation efforts on negotiating favorable contracts
with steel suppliers or exploring alternative building materials.
Advanced Risk Management Techniques
Decision Tree Analysis
A visual and analytical decision support tool where an individual decision
and its possible consequences, including chance event outcomes, resource
costs, and utility, are represented.
Application: The project team must decide whether to invest in additional
insurance coverage to protect against potential delays or accidents.
Decision tree analysis can be used to map out the possible outcomes of
each decision branch. For example, if the team chooses to invest in
additional insurance, there might be a higher upfront cost but a lower risk
of financial losses due to unexpected events. On the other hand, if they
decide not to invest in insurance, they may save money in the short term
but face greater financial risk down the line. By visually representing these
decision paths and their potential consequences, decision tree analysis can
help the team make a more informed choice.
Advanced Risk Management Techniques
Failure Mode and Effects Analysis (FMEA)
A systematic method for evaluating processes to identify where and how
they might fail and assessing the relative impact of different failures to
identify the parts of the process that are most in need of change.
Application: The construction project involves complex processes with
many potential points of failure, such as structural design flaws or
inadequate safety protocols. FMEA can be used to systematically identify
and prioritize potential failure modes and their effects on the project. For
example, the project team might identify a failure mode related to
inadequate soil testing, which could lead to foundation problems later on.
By assessing the severity, occurrence probability, and detectability of each
failure mode, the team can prioritize mitigation efforts to address the most
critical risks and prevent them from derailing the project.
Thanks ☺