**3. Risk management and infrastructure project**

As infrastructure projects are most frequently integrated into a human living environment, risk factors (generators) appear in the risk assessment of such projects. In normal investment projects, these practically have no or in a few cases have a very small impact on project execution. Among the important impact factors that may cause risk events in infrastructure projects, the following warrant mention:


In investment projects, and even more particularly in infrastructure projects, additional risks can arise due to the following reasons:


Experience in the management of investment projects has shown that, in a project planning phase, very frequently only the scope of a project is defined and a time and project cost plan are prepared. Normally, project managers do not deal with risks in the project planning phase. To assist project managers in risk management, a general model of project risk management was developed [9, 12], which originates from a particularly critical evaluation of the most frequently used project management procedures and especially project risks. The proposed model, which will be subsequently employed to manage a selected infrastructure project, is carried out in four phases and seven steps. Methods that a project team can use for efficient work are indicated for the execution of each individual step.

**5**

**Figure 1.**

*An extended model of infrastructure project risk management.*

*Standard Risk Management Model for Infrastructure Projects*

for planning of measures for risk management (step 5).

**Figure 1** shows an amended project risk analysis model, namely, with reference to [9, 12], and a risk map is added for a qualitative and quantitative analysis of activity risks, for the classification of risks to critical and noncritical ones (step 4) and

*DOI: http://dx.doi.org/10.5772/intechopen.83389*

*Risk Management in Construction Projects*

mention:

into a space.

organisations.

proceedings.

**3. Risk management and infrastructure project**

Slovenia, ministry, local communities).

• Client's incapacity to finance the investment.

additional risks can arise due to the following reasons:

bilities are not precisely defined.

As infrastructure projects are most frequently integrated into a human living environment, risk factors (generators) appear in the risk assessment of such projects. In normal investment projects, these practically have no or in a few cases have a very small impact on project execution. Among the important impact factors that may cause risk events in infrastructure projects, the following warrant

• Impact of space management institutions (Government of the Republic of

• Complicated procedures involving the integration of infrastructure buildings

• In cases of public procurement, the possibility of appeal, auditing, and legal

In investment projects, and even more particularly in infrastructure projects,

• Poorly prepared plans for project execution without the use of adequate meth-

• No reaction to deviations in the actual situation of the project from the plan.

• Frequent conflicts between parties executing the project because the responsi-

Experience in the management of investment projects has shown that, in a project planning phase, very frequently only the scope of a project is defined and a time and project cost plan are prepared. Normally, project managers do not deal with risks in the project planning phase. To assist project managers in risk management, a general model of project risk management was developed [9, 12], which originates from a particularly critical evaluation of the most frequently used project management procedures and especially project risks. The proposed model, which will be subsequently employed to manage a selected infrastructure project, is carried out in four phases and seven steps. Methods that a project team can use for efficient work are indicated for the execution of

• Local population, interest associations, environmental, and other

• Problems relating to solvency or even of contractor bankruptcies.

ods and techniques, usually also without a risk management plan.

• Execution time and cost pressures with a relatively low profit margin.

• Poor work safety due to pressures to produce good returns.

• Poor and irregular reporting on work progress and actual costs.

**4**

each individual step.

**Figure 1** shows an amended project risk analysis model, namely, with reference to [9, 12], and a risk map is added for a qualitative and quantitative analysis of activity risks, for the classification of risks to critical and noncritical ones (step 4) and for planning of measures for risk management (step 5).

**Figure 1.** *An extended model of infrastructure project risk management.*

As evident from **Figure 1**, the risks related to the entire project are first identified in steps 1 and 2. Various approaches can be used. Smith and Merrit [10] propose four different models for the identification and quantification of risks: standard, simple, cascade, and the Ishikawa models. Each of the proposed models has its advantages and disadvantages. When addressing the risks of an entire project, we concentrate on general questions, such as What is the risk, and what kind of loss can be expected if project execution is delayed by 6 months?

The proposed models for risk identification and quantification can also be used in steps 3 and 4, where individual risks can already be assigned to activities.

One of the mentioned risk management models can be used for further risk analysis. In this study the standard model was used to manage the activity risks in infrastructure projects. The reason for this decision lies in the fact that the model is simple to understand that it first identifies potential risk events and only then the impact of a risk event on the execution of project activities using a calculation of the expected loss (in time or money).

According to [10], the standard model can be visualised as shown in **Figure 2**.

In the standard model, a risk event is first identified. We can start from a previously prepared WBS/RBS matrix. One or several risk factors (drivers) can be identified for the incidence of a risk event. A project team must assess a probability of risk event occurrence *Pe* on the basis of the available data, on experience from previous similar situations or by using methods for decision-making in the event of uncertainty [13]. Then, it follows the assessment of the impact (consequences) if the risk event becomes a reality. In this case, again, one or several risk factors (drivers) of potential consequences are identified. The impact probability *Pi* is determined in a way similar to the risk event definition. The model features another parameter, the total loss *Lt*, which is the loss that will occur if a risk event and the impacts are realised. The total loss may be expressed as a loss in time, in working days, in monetary terms (EUR), or in quality (e.g., the number of poor or substandard products).

The expected loss *Le* can be calculated according to Eq. (1) [10]:

$$\text{Le} \quad = \text{Pe} \cdot \text{Pi} \cdot \text{L} \,\tag{1}$$

**7**

*Standard Risk Management Model for Infrastructure Projects*

noncritical risks (Risk 2), which are only identified and monitored, and measures

*Le* in Eq. (2) represents the selected level of expected loss which is defined by the project team under consideration of the circumstances. It represents the value

The example of erecting a reservoir for a hydroelectric power plant (HPP) on the Lower Sava River [14] with a nominal power of 47.4 MW will be presented in the following. The HPP is of an impoundment facility type, with an arrangement of three vertical power units (double-regulated vertical power plant with

and an average annual production of 161 GWh. The test operation of the HPP was

The planned goals for the erection of the reservoir for the HPP were as follows:

• Development of water infrastructure and state-regulated and local infrastructures on the influence area of energy utilisation of the river's water potential.

• A reservoir with high-water dams, drainage ditches, and other corresponding

• Treatment and maintenance of water infrastructure intended for preserving and regulating the quantities of water on the influence area of energy utilisa-

The HPP has a belonging reservoir with an anticipated 19.3 million m3

.

*Le*

*Lt* (2)

/s with five flow-through fields

of water

The threshold line of the expected losses is defined by Eq. (2) [10]:

*Pe* ∙ *Pi* = \_\_\_

a Kaplan turbine) with a nominal flow of 500 m3

• A reservoir with the belonging infrastructure.

up to which the company is prepared to risk and accept the loss.

**4. An example of infrastructure project risk management**

*DOI: http://dx.doi.org/10.5772/intechopen.83389*

are taken only if needed.

**Figure 3.** *Risk map.*

foreseen for October 2017.

on a surface area of 3.12 million m2

site development facilities.

tion of the river's water potential.

In step 4, the criticality of the risk in question needs to be assessed separately from the qualitative and quantitative risk assessment and the total loss. We can use the calculation of the criticality level in the table of critical success factors, which is explained in detail in [9, 12]. In the proposed risk management model, we can use the risk map [10] shown in **Figure 3**.

A risk map is a diagram in which risk likelihood is on the y-axis and represents a product of the probability of risk event occurrence and the probability of risk impact (*Pe* ∙ *Pi*), while the total loss *Lt* is on the x-axis. The threshold line of losses divides the surface of the diagram into two parts: the upper part above the threshold with the field of critical risks (Risk 1), which will have to be addressed by adopting adequate measures and the lower part below the threshold with the field of

**Figure 2.** *Standard risk model.*

*Standard Risk Management Model for Infrastructure Projects DOI: http://dx.doi.org/10.5772/intechopen.83389*

**Figure 3.** *Risk map.*

*Risk Management in Construction Projects*

expected loss (in time or money).

the risk map [10] shown in **Figure 3**.

dard products).

be expected if project execution is delayed by 6 months?

As evident from **Figure 1**, the risks related to the entire project are first identified in steps 1 and 2. Various approaches can be used. Smith and Merrit [10] propose four different models for the identification and quantification of risks: standard, simple, cascade, and the Ishikawa models. Each of the proposed models has its advantages and disadvantages. When addressing the risks of an entire project, we concentrate on general questions, such as What is the risk, and what kind of loss can

The proposed models for risk identification and quantification can also be used

According to [10], the standard model can be visualised as shown in **Figure 2**. In the standard model, a risk event is first identified. We can start from a previously prepared WBS/RBS matrix. One or several risk factors (drivers) can be identified for the incidence of a risk event. A project team must assess a probability of risk event occurrence *Pe* on the basis of the available data, on experience from previous similar situations or by using methods for decision-making in the event of uncertainty [13]. Then, it follows the assessment of the impact (consequences) if the risk event becomes a reality. In this case, again, one or several risk factors (drivers) of potential consequences are identified. The impact probability *Pi* is determined in a way similar to the risk event definition. The model features another parameter, the total loss *Lt*, which is the loss that will occur if a risk event and the impacts are realised. The total loss may be expressed as a loss in time, in working days, in monetary terms (EUR), or in quality (e.g., the number of poor or substan-

in steps 3 and 4, where individual risks can already be assigned to activities. One of the mentioned risk management models can be used for further risk analysis. In this study the standard model was used to manage the activity risks in infrastructure projects. The reason for this decision lies in the fact that the model is simple to understand that it first identifies potential risk events and only then the impact of a risk event on the execution of project activities using a calculation of the

The expected loss *Le* can be calculated according to Eq. (1) [10]:

*Le* = *Pe* ∙ *Pi* ∙ *Lt* (1)

In step 4, the criticality of the risk in question needs to be assessed separately from the qualitative and quantitative risk assessment and the total loss. We can use the calculation of the criticality level in the table of critical success factors, which is explained in detail in [9, 12]. In the proposed risk management model, we can use

A risk map is a diagram in which risk likelihood is on the y-axis and represents a product of the probability of risk event occurrence and the probability of risk impact (*Pe* ∙ *Pi*), while the total loss *Lt* is on the x-axis. The threshold line of losses divides the surface of the diagram into two parts: the upper part above the threshold with the field of critical risks (Risk 1), which will have to be addressed by adopting adequate measures and the lower part below the threshold with the field of

**6**

**Figure 2.**

*Standard risk model.*

noncritical risks (Risk 2), which are only identified and monitored, and measures are taken only if needed.

The threshold line of the expected losses is defined by Eq. (2) [10]:

$$\text{Pe} \cdot \text{P}i \quad = \frac{\text{Le}}{\text{L}t} \tag{2}$$

*Le* in Eq. (2) represents the selected level of expected loss which is defined by the project team under consideration of the circumstances. It represents the value up to which the company is prepared to risk and accept the loss.

### **4. An example of infrastructure project risk management**

The example of erecting a reservoir for a hydroelectric power plant (HPP) on the Lower Sava River [14] with a nominal power of 47.4 MW will be presented in the following. The HPP is of an impoundment facility type, with an arrangement of three vertical power units (double-regulated vertical power plant with a Kaplan turbine) with a nominal flow of 500 m3 /s with five flow-through fields and an average annual production of 161 GWh. The test operation of the HPP was foreseen for October 2017.

The HPP has a belonging reservoir with an anticipated 19.3 million m3 of water on a surface area of 3.12 million m2 .

The planned goals for the erection of the reservoir for the HPP were as follows:


The main stakeholders involved in the implementation of the HPP reservoir are as follows:


The investment value of the project amounted to EUR 140 million.

The contractor appointed a project team for the preparation and management of the project of the erection of the HPP reservoir. The project manager and team members received the following assignments: preparation of technical documentation, preparation of works, acquisition of lands, and maintenance and supervision of the entire project. Contractors for the execution of works were hired for the execution of individual activities.

A project of the erection of a reservoir for this hydroelectric power plant was selected because this was a big and important infrastructure project in Slovenia. This project is especially suitable for presentation of the proposed method of risk management due to its size and intervention in space, and the authors helped the contractor by project preparation especially in creating a project management plan.

**9**

**Figure 4.**

*Timeline for the erection of the HPP reservoir.*

*Standard Risk Management Model for Infrastructure Projects*

The project team broke down the project's work content according to the WBS principle into the following phases: project preparation, designing, acquisition of permits, call for tender for the reservoir, dam house erection, and reservoir erection. For each phase, the team defined the necessary activities and linked them to a project network diagram. The network diagram links 242 activities. This is relatively little given the scope of the investment; however, the timeline here is only meant for the management of the investment and not for the operative management of the works of the project. The contractors prepared their own detailed timelines for the operative execution of the works of the project, which were fully harmonised with the project's timeline. A project time analysis revealed that 1928 days are needed for the execution of the project of the erection of the HPP reservoir, with the beginning of the project scheduled for 1/3/2012 and the completion for 10/6/2017. The term of completion is very important, since the test operation of the HPP depends on it. **Figure 4** shows the project's timeline, wherein only the activities of the first phase are indicated.

In the continuation, a method of use for risk management tools is shown using an example of an infrastructure project. In compliance with the method of **Figure 1**, an Ishikawa diagram of project risks was first drawn up, in which the key risk factors (groups) in this project have been identified: environment, contractor, client, Government of the Republic of Slovenia, and project execution. Possible risks in the

The use of the Ishikawa diagram proved a very efficient tool in our case, since

the team members had already used it in the quality management. The team members highlighted those risks that are most likely to occur in this project and inserted them in the prepared table template of critical success factors from the MS Project software according to [9, 12]. The probability of a risk event occurrence and a probability of consequences were assessed for each activity according to the Likert five-point scale (1–5), and a risk rate for the activity was calculated. It is marked with as indicated (colour indicators: red, high; yellow, medium; and green, low risk rate). **Figure 6** shows part of the project's risk analysis for the activities of the first

project have been identified for individual risk groups (**Figure 5**).

phase (WBS group), which is project preparation.

*DOI: http://dx.doi.org/10.5772/intechopen.83389*

**4.1 Content and project timeline**

**4.2 Project's risk analysis**
