By: Ted Garrison New Construction Strategies 800-861-0874 Ted@TedGarrison.com www.TedGarrison.com

1. Construction Risk Management – Understanding Your Role By: Ted Garrison New Construction Strategies 800-861-0874 Ted@TedGarrison.com www.TedGarrison.com www.StrategicPlanningforContractors.com Follow on twitter: www.twitter.com/tedgarrison

2. #1: What’s the #1 Cause of Risk? Assigning risk to someone not capable of managing it! Solution:Assign risk to the entity best capable of managing the risk! (c) 2013 New Construction Strategies

3. How to Minimize Risk!Event - Project Initial conditions Final conditions Time • The more info we have before the event, the easier it is to predict the final outcome • The less info we have before the event, the harder it is to predict the final outcome • However, the lack of info will never change the final outcome • Probability occurs when people don’t understand • Must think proactively – not reactively (c) 2013 New Construction Strategies

4. Starts with Effective Leadership • It’s not about control, influence, or motivation! • It’s about perception and the ability to assign the resources, both capital and human, in the best possible way • Jim Collins referred to this as putting “the right people on the bus in the right seats” • What does it take to be perceptive? • Perceptive ability • Knowledge • Experience • Knowing what you don’t know - wisdom (c) 2013 New Construction Strategies

5. What Causes Risk? • Assigning risk to the wrong • entity • Poor leadership • Subjective decisions • Adversarial environment • Poor planning • Selecting team members • based on price instead of • performance • Uniqueness or unknowns (c) 2013 New Construction Strategies

6. Flaws to Conventional Wisdom • A selection process not focus on value • Experts brought in after the horse has left the barn • Price focus lowers performance • Management (CM’s, owner’s rep, lawyers) takes on increased significance • Their services are redundant • They typically have no liability or risk – but increase risk to client • They make subjective decisions • They impact those who should be responsible • They become the center of the universe – instead of allowing the person who should be responsible (c) 2013 New Construction Strategies

7. #2: Strategies to Reduce Risk • Minimize subjective decisions • Get help • Do research • Experiment • Planning • Pre-planning • Continuous planning • Create a matrix of project risks • Select people and teams based upon performance • Identify & then minimize risk you don’t control • Usually the owner is the biggest risk to a project • Accept that minimizing risk is in everyone’s best interest (c) 2013 New Construction Strategies

8. Select People & Teams Based on Performance Approach advocated by Performance Based Studies Research Group at Arizona State University • Past performance • Reveals experience • Risk analysis • Demonstrates knowledge and wisdom • Interviews of key project personnel • Insures key people share the project plan & understand the risks (c) 2013 New Construction Strategies

9. Planning • Pre-planning is essential, but it must continue throughout the project • A plan requires measurable goals • A plan must provide specific actionable steps • A good plan minimizes problems • A plan helps everyone to focus on the right things • Minimizes bias of taking action to just doing something • A good plan increases the chances of success • Valley Electric (c) 2013 New Construction Strategies

10. Inexperienced Vendor Experienced Vendor Time Time Use a Risk Assessment Plan • High performing contractors use the RA Plan to identify and minimize potential risk before the project/task starts • High performing contractors use the RA Plan to differentiate themselves from their competitors (to prove they are not a commodity) • The RA Plans identifies high performing contractors that can act in a win-win, visionary, experienced & effective way (c) 2013 New Construction Strategies

11. Risk Assessment Plan • Identify the biggest risks to key project elements • Then develop a plan to minimize or eliminate the potential risk • This includes not only identifying risks the contractor can’t control, but how to minimize them • Focus on the most important issues • 80-20 rule – 20% of issues will create 80% of problems (36% of issues create 96% of problems) • Keep it simple – non technical (c) 2013 New Construction Strategies

12. Benefits of RA Plan • Protection – identifies who is responsible for what risks • Forces accountability – contractor won’t shed risk if appears he’s not responsible • Control project – the contractor is responsible for controlling the project, while not legally responsible for elimination, but makes it accountable to identify and attempt to minimize the risk • This process forces all contractors to pre plan • Minimizes unforeseen and uncontrollable risks (c) 2013 New Construction Strategies

13. Contingencies Are Critical • By definition projects are unique, which means there will be events that cause risk • Since projects require risk taking, it’s critical to manage risk because it can’t be eliminated • Projects that seek perfection are usually disasters because people are afraid to take action • Need to be able to educate the buyer – in other words manage expectations (tell the truth) • Without a contingency you are planning to fail • If necessary – build one in (c) 2013 New Construction Strategies

14. Contingency Methods 3 Common Contingency Approaches: • Percentage of entire project • Percentage of individual items or tasks • Identify specific areas of risk (c) 2013 New Construction Strategies

15. Weekly ReportsWhat is it / Why is it important What is it? • Spreadsheet that tracks unforeseen risks on a project Why is it important? • Allows contractors to track unresolved client issues • Allows contractors to minimize risk • Allows contractor a means to document all client decisions How much effort? • Minimal (less than 5 minutes), unless vendor did not preplan, or client making decisions (c) 2013 New Construction Strategies

16. Manage Risk Using DMAIC • Continuous improvement process • Prevent reverting back to the “old way” • Requires development, documentation • and implementation of an ongoing • monitoring plan • Client/Expectations • Quality issues • Core Business Process DEFINE • Current Performance • Develop a process to collect data • Implement process MEASURE CONTROL ANALYZE IMPROVE • Data collected/process map • Determine causes of defects • Identify gap between current • and goal performance • Identify sources of variation • Target process • Design solutions to fix/prevent problems • Create innovate solutions • Use technology and discipline • Develop and deploy implementation plan (c) 2013 New Construction Strategies

17. #4: Collaborate to Reduce Risk • The primary reason for problems on projects is a lack of collaboration • Wrong people are making decision • Collaboration allows teams to find the best solution • It’s often not about right or wrong, but what’s most efficient for those involved • The group is always smarter than the smartest person in the room • Most innovation comes from those closest to the work • Subcontractors • Craftspeople (c) 2013 New Construction Strategies

18. Final Thoughts on Risk • You can’t shed risk to someone who is incapable of managing the risk • Risk is lowered by effective planning • Risk that can’t be eliminated should be managed through the use of a properly developed contingency • The idea is to force the contractor to minimize risk they do not control which causes them to: • Be accountable • Take control of project • Pre-planning • Minimize all risk • Identify and document risks they can’t control • Act in the client’s best interest (c) 2013 New Construction Strategies

19. What Are Your Thoughts or Questions? (c) 2013 New Construction Strategies

20. Construction Risk Management – Understanding Your Role By: Ted Garrison New Construction Strategies 800-861-0874 Ted@TedGarrison.com www.TedGarrison.com www.StrategicPlanningforContractors.com Follow on twitter: www.twitter.com/tedgarrison