11.
Risk Identification and Management
a. How did EID handle their risks? Was this effective? What might they have
done?
EID responded to the business opportunity which was brought about by the mini-
boom in commercial construction in southwestern BC in line with their company’s
risk appetite. In trying mitigate risks along the way EID had planned to allow for
contingencies thus had set money to respond to identified risks. This strategy was
effective in dealing with risks identified but could not respond to unidentified risk or
which could affect the project, (Tesch, 2007). EID could have created a management
reserve that could cover unforeseen risks. With a management reserve in place, the
company could deal with uncertainties such as a change in scope effectively (Fan,
2008).
b. List Woody’s actual surprises and add other possible surprises. What was,
or should have been, done to prepare for and respond to them?
Woody was surprised that the project costs had exceeded the budget when the
project was at 85% complete and the project was not complete. This brought in the
value at risk (VaR) and shortfall risk. The surprises and other possible surprises
included:
i. EID produced a fixed price quotation of $20 million and an eighteen-month
schedule which EID revised after further negotiations to more acceptable
terms;
ii. Change in the production train specification led to the software program to be
rewritten which resulted in severe limiting of Leadbetter’s time to manage the
project;
iii. A two-week delay was caused when the manufacturing drawings for long lead
equipment sat in the junior clerk’s in-tray awaiting approval;
iv. Change in the production train specification required adding another five feet
to the length of the new building and this was only discovered when holding-
down bolts for the new train were laid out on site, long after the perimeter
foundations had been poured;
v. Local inspection authority insisted that the surplus paint disposal
arrangements be upgraded to meet the latest environmental standards;
vi. No planning was done for owner’s inspection and acceptance of the building,
or testing, dry-running and production start-up of the production train; EID did
not obtain the building occupation certificate; these led to loss of several
weeks of production which led to missed customer delivery dates, cancelled
contractor contracts for millwork, depletion of finished goods inventories and
lost sales opportunities in special products areas were woody’s reputation
was based.
vii. Throwing money at problems arising in an effort to get plant operational.
Woody realized that there was an issue of excess expenditure with the project when
increasing costs including delay costs became apparent. The project costs had
overrun the budget, and the project was not complete. In reaction to this, the
company added funds to the project to ensure that the project was complete despite
exceeding the timeframe. The company could have found out that the shop had not
met the specification requirements for the production train. To avoid such surprises
to the company, the project manager should have regularly informed the company
management on the progress of the project and invited them to see its current stage
physically.
c. Were there changes? What were the impacts?
Change in the production train specification required adding another five feet to
the length of the new building and this was only discovered when holding-down
bolts for the new train were laid out on site, long after the perimeter foundations
had been poured;
No planning was done for owner’s inspection and acceptance of the building, or
testing, dry-running and production start-up of the production train and EID did
not obtain the building occupation certificate. These led to loss of several weeks
of production which led to missed customer delivery dates, cancelled contractor
contracts for millwork, depletion of finished goods inventories and lost sales
opportunities in special products areas were woody’s reputation was based.
Change in the production train specification led to the software program to be
rewritten which resulted in severe limiting of Leadbetter’s time to manage the
project;
References
Fan, M., Lin, N. P., and Sheu, C. (2008). Choosing a project risk-handling strategy:
An analytical model. International Journal of Production Economics,112(2), 700-713.
Tesch, D., Kloppenborg, T. and Frolick, M. N. (2007). IT Project Risk Factors: The
Project Management Professional’s Perspective. Faculty Scholarship. 37.
