Construction World June 2015

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SYNAPSE RISK ENGINEERING Risk Management as a discipline is often construed as ‘highly technical’. More often than not, clients and end users of risk management reports are left confused or unsure in terms of the value risk management can add at virtually any level viz. corporate and/or project application. In this thinking piece, a philosophical view is considered in terms of the ‘missing link’ between the vast body of ‘risk management’ knowledge and that of tangible value add. > By Simon van Wyk, an expert in risk management at Aurecon. He is an associate member of IRMSA, a corporate member of the Disaster Management Institute of Southern Africa (DMISA), as well as a Professional natural scientist with the South African Council for Natural Scientific Professions (SACNASP).

The context of this article is the consulting services sector, in which risk management is virtually mandatory on most capital projects. Have you ever considered that the risk management profession relies on various approaches, methodologies and analysis tools, which are either informed by inter- national best practice standards such as ISO 31000: 2009, with tools and techniques as contained in ISO 31010: 2009, of which clients have varying levels of exposure and understanding? This question spawns a fundamental and critical view that risk consulting services often run the risk of not meeting client expectations. To address the disparity, this article seeks to provide some guiding questions that could be considered when engaging clients, to ensure a common alignment at the onset of a new project or service offering. The disconnect – think before you consult Synapse is defined as ‘a junction between two nerve cells consisting of a minute gap across which impulses pass by diffusion of a neuro- transmitter’. In layman’s terms, this means a structure that permits information to flow from one nerve cell to another. As this definition suggests, a connection is made via impulses and it can be stated that the same phenomenon applies when engaging in risk consulting services across multiple clients. Stephen Covey famously quoted ‘start with the end in mind’. This basic yet powerful point of departure is viewed as a fundamental step towards mapping the appropriate application of risk management services which a client/project may require. The ‘disconnect’ becomes evident when a risk consultant applies a vast wealth of knowledge to a particular project which may still be construed as inadequate viz. the proverbial throwing of the book at the problem . This disconnect can be illustrated below (refer to Figure 1). This illustrates the potential disparity between what a client may

want versus what risk consultants may deem necessary (subject to project context). The figure represents the myriad available tools and techniques that could be used to identify and assess risks, as opposed to what the client needs to consider prudent to the project context. The complexity becomes evident when engaging clients within different markets. In some instances, risk management forms part of their way of doing business, whereas other clients use different methodologies such as Cost/Benefit Analysis, hence the analogy of reflecting a level of balancing. Establish optimum risk service Optimal Risk Service (ORS) delivery needs to be mapped and a mutual agreement ought to be found between the risk consultant and the client. ORS is a state in which the level of risk service provided meets both client and best practice demands. As stated earlier, throwing the book at the problem does not equate to the best practicable risk solution viz. optimisation may be way off. Risk consulting organisations have a benefit to offer in that they have an array of technical expertise, best practice knowledge and experi- ence, which should be leveraged in the correct way to benefit client and projects alike. In order to achieve ‘risk optimisation’, it remains crucial to determine exactly what clients need and then to advocate best practice tools and techniques to meet the demands of sound risk management for their project. The basic principles that one may consider to achieve an ORS are as follows: 1. Establish the client’s expectations – engage to determine what ‘they’ really want. 2. Establish the client’s level of risk maturity – apply Synapse Risk Engineering. 3. Make the connection between ‘what is needed’ and ‘what adds genuine value’. 4. Fill in the gaps to arrive at best practice levels. Don't over analyse Based on a specific need, risk management makes use of several value- adding tools and techniques that can be utilised to provide metrics that are needed to inform sound decision making. Generally, two views are taken: qualitative assessment and quantitative assessment. The qualitative assessment is used to inform an order of risk ranking typically using two sets of criteria, such as Consequence/Like- lihood and/or for process orientated applications Frequency, Proba- bility and Severity/Impact can be considered. Quantification of risk relies heavily on sophisticated modelling programmes and methods such as Monte Carlo Analysis (e.g. @Risk), which provides a proba- bilistic view around the level of uncertainty against a preset criterion running repeated algorithms. These ‘traditional’ approaches are very useful in assisting clients with information upon which to take key decisions, however it has

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Figure 1: Conceptual view depicting the disconnect between a client’s expectations and that of a risk consultant.

CONSTRUCTION WORLD JUNE 2015