Mission: To Provide Our Clients with Decision Making Support Systems That Minimize Risk and Maximimize Profitability. 

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Today’s Needs Require a More Sophisticated Approach to Risk

 On the surface, most construction projects appear to be logical and well-structured. However, actual practice presents a different reality. Industry surveys show a sharp increase in the number of projects where the Contractors are participating in the design process. Regulations governing the industry are growing, increasing the cost of regulatory compliance. This additional complexity increases risk to an already complex process. As a result, contractors are facing increased pressure to provide stronger assurances, guarantee performance specifications, eliminate cost overruns, delays and technical shortfalls, and more accurately predict and guarantee potential project outcomes. Proactive and effective risk management processes are becoming vital in ensuring success even on short duration, relatively small budget projects. 

 

 The Overall Project Can Be Compromised by Poorly Estimating its Risks.

For example, if the suitable risk management process is available, there should be little or no reason for avoiding performing comprehensive risk assessments. However, it is unfortunately common-place for project managers to either not embrace risk management, or appoint a risk management team with problematic knowledge, authority and clear direction to effectively implement the process. This can have a severe negative impact on the overall risk management effectiveness, and can adversely affect the overall level of project success. 

 

The Front End Really Matters 

Risk management is concerned with the occurrence of future events, whose exact outcome is unknown. Risk management is a process of forecasting what risks can negatively impact project delivery, and planning the most cost-effective means of reducing probability of occurrence of those risk events, thus protecting the project bottom line. In general, outcomes are categorized as favorable or unfavorable, and risk management is the art and science of planning, assessing, and handling future events to ensure favorable outcomes. The savings from a single successfully averted risk issue can pay for the entire risk management program many times over. For example, TRW implemented risk management in a fast track satellite technology development program. For one optical component a backup strategy involving parallel development with a second vendor was implemented. (Here both the primary and secondary strategy used the control option.) When the optical elements from both vendors were tested, the backup unit passed the performance tests and was selected, while the primary unit would have introduced a substantial performance degradation and was rejected. Had the backup strategy not been pursued, the project would have suffered a substantial adverse cost and schedule impact, and could possibly have been terminated. The use of parallel development for a single optical component led to a 120:1 return on investment when the primary vendor failed to produce an acceptable part. Here, an investment of $15,000 averted a risk of loss of about $1.8 million in delayed damages because the component was on the project’s critical path. And in this case, the savings from this one item was greater than the cost of all risk management activities added to the original development plan!¹

 

“Pay me now, or pay me later”

In order for this to occur, a suitable attitude toward risk management is necessary for its success. When risk management becomes a part of daily decision making, risk management “successes” will repeatedly solve problems and avert others, increasing the probability of cost and schedule savings. This is extremely important, since a “check the box” approach to risk management will almost never be effective. The alternative to risk management is crisis management, which everybody in construction knows only too well is  resource-intensive process that is normally constrained by a restricted set of available options². As shown in a famous Fram Corporation’s TV commercial, when the auto mechanic holds up a dirty oil filter high in the air he says to his customer:  "You can pay me now, or pay me later."

 The construction industry is just beginning to learn what NASA and the space industry has proven successful, and is now a vital part of every project.

 What Others Say

“One thing is certain in the construction industry³ ….is that conventional methods and systems are easily overwhelmed since they rely on people rather than process. Often people believe these failures are lack of attention to detail by individuals. However, more often it is that the processes employed set people up for failure.”⁴

 What is Requirements Analysis?

The objective of requirements analysis is to identify and express verifiable requirements that state customer’s or owner’s needs in appropriate terms to guide system concept and implementation process development. At the same time the limitations, such as environmental factors and regulations, are also addressed. These determine the design boundaries. These limitations are subsequently reflected in the various preconditions that the system to be designed is expected to meet. In addition to the preconditions that apply to the functional requirements, the system is expected to meet other requirements as well.

Model Based Systems Engineering Protects the Bottom Line.

 A risk-based approach to decision-making, using Model Based Systems Engineering, enables the application of a variety of risk perspectives. One of the advantages of using the Model Based Systems Engineering is the continuous improvement aspect that results from linking every management decision to the strategic goals⁵. The driving requirements include realization that the project success includes a more disciplined analysis of risk in order to meet schedule/budget goals, protect the bottom line, and insure customer satisfaction.

 Why do it?

Conventional schedule and cost parameters reflect what is “most likely”- but typically omit risk factors that would render them “unlikely.” Each task is different and has a varying degree of probability of completion within the duration specified and at the estimated cost. Risk assessment attempts to quantify these probabilities by assigning values to each. It bridges the gap between the scheduling and the project’s need to know the likelihood of “when”. 

Risk management is not about predicting the future. It is about understanding your project more thoroughly, and making a better decision with regard to managing your project tomorrow. Sometimes that decision may be to abandon the project.

Our Experience Insures Your Success

The following issues typify our experience, and suggests the need for a systems engineering approach:

• Impacts of Change Orders are often not clear to 2nd and 3rd tier subcontractors and suppliers who often cause delay because they are not in the loop until after the decision to make a change has been made.
• Some contractors fail to mobilize resources sufficient to meet conditions implied or specified within the contract documents.
• Specifications do not always provide the flexibility assumed to exist, and are not responsive to site conditions.
• Compliance with specifications is required, but is hard to verify - even after delivery, and verification is rarely done properly.
• Exceptions nearly always have to be made, and when executed, unintended consequences often occur.
• Changes to specifications are usually the first of several change orders necessary to build the job. This is often an indication of a rushed design using “cut and paste” approach to specifications prepared by unqualified personnel. Risk increases accordingly.
• Project controls fail to integrate permits and building code requirements accurately, fail to properly measure impact of changes, fail to include changes to codes when they occur, fail to confirm compliance with OSHA, and entirely fail to measure risk. 
• The shop drawing review process is sometimes used to redesign significant portions of the project⁶
• Audit trails are often insufficient in proving and pricing claims.

Unfortunately, the above risks exist in the heads of senior management only. Project Managers push hard, but are soon are mentally overburdened as unresolved issues and uncertainty increases. 

How General Electric Got It Right.

This is nothing new. The same scenarios continue to occur within the construction industry over and over despite its long history of so-called “lessons learned.” During a major expansion, General Electric found that every new industrial plant built was either late, over budget or required substantial change orders in order to complete. When senior management evaluated this condition, they discovered that despite having well qualified managers, and despite hiring the best architects and engineers, the best contractors and subcontractors, the results were consistently unsatisfactory. The industry simply was not producing the desired result…despite its promises.

 “We must be doing something wrong” was the conclusion of GE’s senior management.

 To solve this problem GE’s decided to hire professionals outside the company to analyze their risk and manage their capital programs independently. GE’s divisions were their clients⁷. This was the beginning of GE’s Real Estate and Construction Operation (RECO). The results speak for themselves: Few, if any projects came in late or over budget. GE’s use of Guaranteed Maximum Contracts (GMP) resulted in substantial savings being returned to client divisions in project after project. GMP has been around for a long time, but nobody administers it quite the same as General Electric. Mr. Gogulski is a graduate of RECO, and offers lessons learned from many years of successful oversight of capital projects.

 A Unique  Approach  

Today, even more complexity exists in the market. Conventional “risk analysis” helps, but is not enough. We go one step further. Gogulski & Associates Inc. addresses these challenges with a unique program of Construction Risk Management and Systems Engineering. We utilize advanced technologies and methodologies to help companies worldwide optimize their risks and evaluate their exposure to natural, man-made and operational risk. We offer clients a program with a structured environment to accomplish their objectives with much less risk, and will train and/or lead them through the entire process.

The Leading Edge  

Gogulski & Associates Inc. provides leading edge decision management support on risk reduction, ensuring project success. Our Continuous Risk Management Methodology takes your unique needs into account to ensure the seamless integration of risk management into the culture and processes of your project. These products enable the development of Risk Management Plans, processes and procedures as well as tools and training tailored to meet your strictest requirements. We have both the knowledge and “hands on” experience to effectively help your team to: reduce uncertainty, determine previously undetected risks, prevent known risks from becoming problems, better understand your entire risk management process, insure it integrates with other key processes, find potential risk management process shortfalls, and implement your desired improvements.

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(1) NASA upper management continued to fund this project because they could see the progress being made to reduce risk issues to an acceptable level both in a clear and timely manner. (NASA management stated on more than one occasion that the quality of risk management performed greatly contributed to the success of the project and kept it from being terminated.) 
(2) ….and usually happens on every significant construction project. 
(3) emphasis added 
(4) Mike deLamare Co-Chair, INCOSE Infrastructure Working Group, (Linkedin discussion group). 
(5) Specifications are also linked to related activities on the schedule, purchase orders, and other project controls. 
(6) The last part of the design process is usually rushed as the project meets its deadline for bidding. Insufficient review causes design omissions which some firms use to correct during the shop drawing review process., usually at the expense of the contractor or client. 
(7) GE’s divisions are autonomous. They were free to accept RECO’s proposal for services, or continue managing projects as they had in the past. Most general managers accepted because they knew their own career was on the line. Acceptance included full transfer of funds for capital, full authority for RECO’s selection of architects, engineers and contractors, together with all contractual and administrative decisions including change orders and contingency .Few, if any, of the Fortune 500 companies do it this way.