Risk Anaysis Case Study

Forewordrequirements which is the main purpose of the
I wish to acknowledge the support of Mr Johnbuilding and had to be altered at later stage.
Tookey University of Auckland for his generously The Running costs for S.O.H proved
support and valuable advises.expensive , it was a very labour intensive building .In
1. Introduction1974 , it operation cost was $A6M, of which only
Risk management is one of the most critical project$A2M was covered by the revenue. Thus costs ruled
management practices, to ensure a project beout small scale opera and the Australian Opera were
successfully completed Risk management is thus inforced to seek a cheaper venue.
direct relation to the successful project completion.2.5 Construction
Project management literature describes a detailedEngineers who revised the concept noted that the
and widely accepted risk management process, whichroof shells were much larger and wider than any
constructed from four iterative phases known as riskshells seen so far. Further, because they stuck up so
management planheight, they would act like sails in strong winds
• Risk identificationblowing up the harbour. Thus, the roof would have to
• Risk estimationbe carefully designed and constructed to resist such
• Risk responsewind pressure.
• Planning and executionThe construction was estimated to take about five
Risk Identificationyears at a cost of A$7 million. Ignoring his request,
In this stage , we identify and name the risks , therethe government pressured Utzon into starting
are different sorts of risks and we need to decideconstruction in 1959, two years ahead of the
on a project by project basis what to do with eacharchitect's proposed schedule.
type. The lack of preparation soon backfired.
Risk QuantificationAfter the completion of the grand podium with an
Risk need to be quantified in two dimensions. Theenormous, 86 meter (282ft) wide stair, several years
impact of the risk needs to be assessed. Thewere spent reworking the design of the roof.
probability of the risk occurring needs to be assessed.• Three tower cranes imported from France
For simplicity, rate each on a 1 to 4 scale. The largerfor this job costing $100,000 each and it was the
the number, the larger the impact or probability. Byfirst building constructed in Australia using tower
using a matrix, a priority can be established.cranes.
Fig 1 quantification scale matrix (Ref. 11)• Unfortunately the roof shells were too
Risk Responseheavy for the supporting columns that were already
There are four things you can do about a risk. Thebuilt, so these were demolished and rebuilt.
strategies are:2.6 What goes wrong Consequences?
• Avoid the risk. Do something to remove it. Coast overrun 1300% (Ref. 18)
Use another supplier for example.As feared many experts the project become an
• Deflect the risk. Make someone elseengineering financial debacle, lasting 15 years and
responsible. Perhaps contracting out or insurancecosting $107 million ($100 million over the initial
against (damage , liability, personnel liability etcestimate).
• Mitigate the risk. Take actions to lessen Schedule overrun 250% (Ref. 18)
the impact or chance of the risk occurring. If the risk Media and public scandal
relates to availability of resources, draw up anFig 5 Time /cost Escalation
agreement and get sign-off for the resource to be Management conflict occur between the
available.client and the architect that cause him to resign
• Accept the risk. The risk might be so smallbefore the end of stage III .
the effort to do anything is not worthwhile or a3. Risk identification quantification
contingency plan may be developed to deal with3.1 Identification
possible effects.By looking at the project there are some risks
Risk Controlappear not used have the most adverse effect on
The final step is to continually monitor risks tothe project
identify any change in the status, or if they turn into1. Poor Cost Estimate.
an issue. It is best to hold regular risk reviews to2. Incomplete design.
identify actions outstanding, risk probability and3. Failure to keep within the cost estimate
impact, remove risks that have passed, and identify4. Failure to achieve the required completion date.
new risks.5. Changes in project scope and requirements.
1.1 Risk management and construction6. Design changes.
The construction industry is subjected to more risk7. Pressure to deliver project on an accelerated
and uncertainty than many other industries. Theschedule.
process of taking a project from initial investment8. Inaccurate contract time estimate
appraisal to completion and into use is complex,9. Lack of communication between project
generally bespoke, and entails time-consuming designparticipants.
and production processes. It requires a multitude of10. Inadequately defined roles and responsibilities.
people with different skills and interests and the11. Insufficient skilled staff.
co-ordination of a wide range of disparate, yet12. Political risks.
interrelated, activities. Such complexity is further3.2 Qualitative risk analysis
compounded by many uncontrollable external factorsQualitative risk analysis assesses the importance of
(Flanagan and Norman, 1983). The constructionthe identified risks and develops the prioritized lists
industry has a poor reputation in coping with risks,,using the 1 to 4 scale matrix discussed above to
many projects failing to meet deadlines and costquantify identified risks
targets. Clients, contractors, the public and othersRisk Probability Impact Risk Importance
have suffered as a result (Edwards 1995). This study1. Poor Cost Estimate. 3 3 Critical
will focus on applying project risk management2. Incomplete design. 1 3 High
strategies on construction of Sydney opera house3. Failure to keep within the cost estimate 3 4 Critical
which is a well-known case for cost overrun.4. Failure to achieve the required completion date. 4 3
1.2 The aim of the studyCritical
The aim of this study is not to reduce the great5. Changes in project scope and requirements. 1 3
achievement of construction such a complicatedHigh
building that changed the face of the city but looking6. Design changes. 2 2 Low
form management point of view to7. Pressure to deliver project on an accelerated
 Identify and quantify the project risksschedule. 2 2 Low
that been overlooked.8. Inaccurate contract time estimate 3 4 Critical
 Highlight the dangers associated with9. Lack of communication between project
using poor estimate.participants. 3 4 Critical
1.3 About the Sydney Opera House10. Inadequately defined roles and responsibilities. 1 4
 The owner :State government of NewHigh
South Wales11. Insufficient skilled staff. 1 2 Low
 Architect :Jorn Utzon12. Political risks. 4 2 Medium
 Engineer: Ove Arup & PartenersThree risks were selected for detailed qualitative risk
 Cost: $102 millionassessment (refer to sheet 1 , 2 and 3)
The Sydney Opera House is the busiest performingRisk Risk Control
arts centre in the world. Since its opening in 1973, it1. Poor Cost Estimate. Client, Contractor
has brought countless hours of entertainment to2. Incomplete design. Client , Contractor
millions of people and has continued to attract the3. Failure to keep within the cost estimate Client
best in world class talent year after year.4. Failure to achieve the required completion date.
1.4 About the BuildingClient, Contractor
There are nearly 1000 rooms in the Opera House5. Changes in project scope and requirements.
including the five main auditoria. There is also aEngineers
Reception Hall, five rehearsal studios, four6. Design changes. Contractor
restaurants, six theatre bars, extensive foyer and7. Pressure to deliver project on an accelerated
lounge areas, sixty dressing rooms and suites, library,schedule. Engineers
an artists' lounge and canteen known as the "Green8. Inaccurate contract time estimate Contractor,
Room", administrative offices and extensive plant andClient
machinery areas. The building covers about 1.89. Lack of communication between project
hectares (4.5 acres) of its 2.2 hectare (5.5 acre) site.participants. Engineers, Contractor, Client
It has about 4.5 hectares (11 acres) of usable floor10. Inadequately defined roles and responsibilities.
space. It is approximately 185 m (611 ft) long andEngineers, Client
120m (380 ft) wide at its widest point. The highest11. Insufficient skilled staff. Client
roof vault (above the Concert Hall) is 67m (221 ft)12. Political risks. Contractor
above sea level.3.2 Risk response
The roofs are made up of 2,194 pre-cast concrete3.2.1 Risk Avoidance
sections. These sections weigh up to 15.5 tones (15As discussed most of the risk could be avoided by
tons) each. They are held together by 350 km (217only
miles) of tensioned steel cable. The roofs weigh• Completed design .
27,230 tones and are covered with exactly 1,056,056• Estimating at a very detailed level.
Swedish ceramic tiles arranged in 4,253 pre-cast lids.• Not selecting untested design .
The entire building weighs 161,000 tones. It is• Using local Architecture office will reduce
supported on 580 concrete piers sunk up to 25 mmany and more communication and experienced
(82 ft) below sea level. The roofs are supported onarchitecture designer
32 concrete columns up to 2.5 m (8 ft) square. The3.2.2 Risk transfer
exterior and interior walls, stairs and floors are faced• Using a fixed price contract will transfer
with pink aggregate granite which was quarried atconstruction risk to the contactor.
Tarana in New South Wales. The two woods used• Obtaining Insurance to cover costly risks.
extensively to decorate the interiors are brush box3.2.3 Mitigate the risk
and white birch plywood which were both cut inRisk analysis shows that no clear management
northern NSW. There are 6,225 sq m (67,000 sq ft)process for controlling the project however using an
of glass, made in France, in the mouths of the roofsexperienced project manager would effectively
and other areas of the building. It is in two layers -reduce probability or impact of risks to an acceptable
one plain and the other demi-topaz tinted. Aboutlevel.
2,000 panes in 700 sizes were installed.4. Assessment forms
There are 645 km (400 miles) of electrical cable. 120Following a three assessment forms for 3 of the
distribution boards regulate the power supply,significant risks
equivalent to the needs of a town of 25,000 people.Performa for a Qualitative Risk Assessment (sheet 1)
Twenty-six air-conditioning plant rooms move moreReference No: 6 Date:25/06/2007
than 28,500 cubic meters (1,000,000 cubic feet) ofPotential risk: Importance of Risk: Low
air per minute through 19.5 km (12 miles) of ducting.Design changes
Fig 2 Sydney opera house (Ref. 6)Probability Medium
Fig 3 Sydney opera house during construction (Ref.Consequence Medium
7)Stage of the project affected by this risk:
Fig 4 Sydney opera house shells (Ref. 7)Construction stage
Fig 4 Sydney opera house shells (Ref. 7)Statement of risk:
1.5 Design StageCost and schedule overrun
The original concept for the project was a sketch(The factor that could cause it to occur)
submitted by Danish architect , Jorn Utzon .JudgesPolitical business interest
selected it from an international open competitionSite problems
that ended with 233 entries from 11 countries.(any relationship or dependency on other risks)
Thought happy to win the competition Utzon wasIncomplete design
mildly shocked .although his concept had caught the(the likelihood of occurring)
attention of the judges, it consisted only if simpleMedium
sketches with no plans or even perspective drawings(how it could be affected)
, because the design was so unique , some peopleDesign checking prior leaving the design office
presumed it would also be inexpensive to build. NoProject:
one knew how it would be build , and some expertsSydney opera house
questioned that it could be built at all.Client:
In spite all uncertainty , the initial project costNew South Wales government Risk Analyzed by:
estimate was pit at $7million.The government wouldKhaled
use profits from a series of state run lotteries to payPerforma for a Qualitative Risk Assessment (sheet 2)
the project.Reference No:1 Date: 25/06/2007
The government was worried that the peoplePotential risk: Importance of Risk: Critical
scrutinizing the design might raise question about thePoor Cost Estimate
potential problems hat would stall the project theyProbability High
thus quickly mover ahead and divided the work intoConsequence High
three main contracts :the foundation and the buildingStage of the project affected by this risk:
except the roof, the roof, and the interior andDesign stage
equipment.Construction stage
1.6 Construction stageStatement of risk:major source of complainttime
Many of the world's best-known constructionconsuming
companies were involved in building(the factor that could cause it to occur)
Sydney Opera House including Arups StructuralChanges in project scope and requirements
Engineering, Hornibrook and Rider Hunt, the(any relationship or dependency on other risks)
construction work of S.O.H was divided into threeInadequately defined roles and responsibilities.
distinct stages as follows (Ref. 19)(the likelihood of occurring)
• Stage IHeight
Sub structure , concrete structure from the(how it could be affected)
foundation up to the auditoria seating levels excludingEffective project management
any finishes.Clearly defined roles
• Stage IIProject:
Superstructure or shells , concrete roof vaults orSydney opera house
major and minor halls an restaurants , including theClient:
claddings.New South Wales government Risk Analyzed by:
• Stage IIIKhaled
Everything not included in stages I and II , stagePerforma for a Qualitative Risk Assessment (sheet 3)
towers, all interior finishes, exterior paving andReference No:9 Date: 25/06/2007
cladding, glass walls , all electrical and mechanicalPotential risk: Importance of Risk: Critical
services.Lack of communication between project participants.
After he was elected premier of New South Wales inProbability high
1965, Askin attempted to force Utzon reduce costsConsequence high
by withholding payments. In 1966 Utzon resigned andStage of the project affected by this risk:
returned to his native Denmark. He never evenConstruction stage
returned to see his masterpiece completed.Design stage
The construction of the Sydney Opera House wasStatement of risk:
now handed over to a group or Australian architects.Insufficient working drawing details
Fortunately, the exterior had already been completedLate and in adequate information
by then so that the impact of the altered design onMajor costly errors.
the overall structure was minimal. The project was(the factor that could cause it to occur)
finally completed in 1973 after a construction periodLack of management
of 14 years and an expenditure of over $A100 million,Interest conflict between project participation
almost 15 times the estimated budget.(any relationship or dependency on other risks)
2. Risk management strategies at S.O.HIncomplete design
2.1 Financial(the likelihood of occurring)
Despite of all cost escalation , taxpayer had little toHeight
pay .Virtually all the costs were covered by the(how it could be affected)
proceeds of State Lotteries. The continued need toProper project management
the subside the running costs of the opera houseProject:
were financed by the continuation of the LotterySydney opera house
State. The first estimate for the Sydney OperaClient:
House was $7.2 million in Australian dollars. OnceNew South Wales government Risk Analyzed by:
started, however, costs kept rising and just toKhaled
complete the building cost $102 million.5. Lessons learned
2.2 Political• Risk must be identified to be managed
Political risks are often occur in government project• A poorly defined risk structure will breed
as they often hide information affecting themore risks.
community's support, which in turn affect the• A proper risk management strategy would
effectiveness of the feasibility study . S.O.H weplanning.
mostly severely effect by political decisions• All designs and calculations should be
2.2.1 Media and public deceptionchecked before they leave the design office further
In S.O.H. the original budget of seven million Australiancheck calculation should be made by the authority ,
dollars was not a real but a political budget .Themany errors that escape are picked up and corrected
labour government of New South Wales the mainduring construction .This often cause a delay to the
proponent of the S.O.H, wanted the project startedproject and might effect the cost.
before elections in March 1959-this would reduce the• The goal is to prevent political and
risk of the stopping the project in case Labour lostbusiness interests from interfering with design and
the elections (8).thus to arrive at an outcome as close as possible to
2.2.2 Deceptive cost estimatethe original design drawings.
Kim Utzon explains in lieu of his father "It was a• Continually monitor risks to identify any
political decision to publicize a low budget for thechange in the status, or if they turn into an issue. It
building, which was expected to gain approval in theis best to hold regular risk reviews to identify actions
political system, but which very quickly wasoutstanding, risk probability and impact, remove risks
exceeded. So even if the cost overrun turned to bethat have passed, and identify new risks.
1400% in relation to the publicized budget, this• Risk management is not one off activity
budget was an eight of the real budget of theinstead, it should be applied continuously through the
building .So the real overrun is only 100% the restproject life.
was politics".• The best way to control budget is not to
2.2.3 Political construction dateproceed with the building unlit you have all the
The start of construction for stage I was fixed .,drawings complete.
largely for political reasons , as the 2nd March6. Conclusion
1959.Thus Proceeding with construction beforeStudy clearly identify the great importance of risk
completing the design process which is a great risk .management on construction projects, negligence will
2.2.4 Political design changeslead to an expensive cost effecting the project
On 1966 major hall was changed from dual purposesuccesses.
for concert and opera to a single purpose concertA risk analysis project shows a large number
hall, the dual purpose was a requirement of thequalitatively ranked as 1 , those risks have a high
competition .probability of occurrence and height consequence
2.3 Structuralshared between the client 42% , the contractor
2.3.1 The Supporting points36% and the engineer 21% .
Arup and his engineers knew very well that theThis indicates that it was a very risky project
cross-section shape Utzon chose was far from idealnevertheless risks were either downplayed or ignored
known structures, however they could not suggest, and not much was done to keep them under
changing to the shape as it will alter the appearancecontrol, the project management strategies was only
of the roof drastically.focused on keeping the project going no matter how
2.3.2 The roofit is going .
A question should be asked if this design isFinally although the opera house put Sydney on the
achievable?. The competition judges choose aworld map, both architecturally and culturally but from
complex art design without asking how it will beproject management perspective it was a
deigned? later on it was a major cause for delayingspectacular failure as a consequence of ignoring risk
the roof design if this point was been consideredmanagement.
they should either choose a simple shape or a knownReferences
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2.3.3 Lack of suitable boundary condition.4. Flyvbjerg, Bent, "Design by Deception: The Politics
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2.4 Technical7. [Accessed 2 May 2007].
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challenges Utzon faced the task of converting the10. [Accessed 25 Jun 2007].
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could be determined.14. Peter Murray "The dramatic storey of the design
2.4.1 Design errors and omissionsand construction of the icon of modern
• Unfortunately, the roof shells were tooAustralia"(London and New York: Spon
heavy for the supporting columns that were alreadyPress,2004),105.
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 The main design overlooked acousticHouse.