MGMT 610 Week 6 Risk Management Plan Example

Risk Management Plan: Construction of a 72-Bed Behavioral Health Hospital

Introduction

This plan describes how the project team will identify, analyze, respond to and monitor risks during the construction of a 72-bed behavioral health hospital. It is written for the contractor's project leadership, the two owners in the hospital's joint venture and the design team, and it will be reviewed at each phase gate. It follows the PMBOK Guide's sequence for project risk (Project Management Institute, 2017) and the planning approach of Wilson (2015), adapted to a construction project that must end with state licensure and accreditation before the hospital can admit a patient.

Project Description

The hospital is a three-story, 96,000-square-foot building on a regional health system's main campus, connected to the existing medical center by an enclosed corridor. It will hold 72 inpatient beds in six units, including an adolescent unit, along with an intake area, outdoor courtyards and support space. Ownership sits with a joint venture in which the health system partners with a behavioral health company that operates hospitals in several states. The contractor is serving as construction manager at risk under a guaranteed maximum price of $68 million, which includes a construction contingency of $2.4 million. Construction is scheduled for 22 months, from site mobilization in March to substantial completion the following December, with licensing surveys planned for January and the first admissions in February. The design team is completing construction documents now, and early packages for the foundation and steel have been released.

The project has several stakeholders whose interests shape its risks. The health system needs the building to connect safely to an operating hospital without disrupting patient care. The behavioral health operator, which will run the hospital, sets the clinical program and the environment-of-care standards, and its clinical leaders will review mockups of patient rooms. Licensure comes from the state health department, and an accrediting body surveys it before payers will contract with it. Neighbors along the campus's south edge have asked for limits on truck traffic and night work, which the city included as conditions of the site plan approval.

Risk Scope and Objectives

The plan covers risks from the release of the early design packages through the end of the licensing and accreditation surveys. It includes risks to schedule, cost, quality and safety arising from design, procurement, labor, site conditions, regulation and the owners' decisions. It excludes the operator's own risks in hiring clinical staff and in obtaining payer contracts, which the operator manages separately, except where those risks change the construction schedule.

The plan supports four objectives. First, substantial completion by December 15, so that licensing surveys can begin in January. Second, completion within the guaranteed maximum price, with contingency use reported monthly. Third, a building that passes its state licensing and accreditation surveys on the first visit, with no deficiency that delays admissions. Fourth, zero lost-time injuries among workers on the site. Risks are judged by their potential effect on these four objectives.

The plan rests on several assumptions and constraints. It assumes that construction documents will be complete by May, that the owners will respond to requests for information within ten working days, and that the state will schedule its licensing survey within three weeks of the request. It is constrained by the guaranteed maximum price, by the city's limits on work hours along the south edge, and by the infection control requirements that apply wherever the new building meets the existing hospital. If any assumption fails, the risk manager will add a corresponding risk to the register.

Risk Management Methodology

The team will follow the PMBOK Guide's sequence of risk processes: identify risks, perform qualitative analysis, perform quantitative analysis for the largest risks, plan responses, implement responses and monitor risks (Project Management Institute, 2017). Each step has an owner and a schedule.

Roles. The contractor's project executive is accountable for the plan. A senior project manager serves as risk manager, maintains the register and runs the reviews. Every risk in the register has one owner, named by role, who is responsible for its response and for reporting changes. The owners' representative and the architect each name a risk lead who attends the monthly review.

Risk categories. Risks are organized in a breakdown structure with six categories: design, procurement and supply, labor, site conditions, regulatory and owner. The categories follow the industry analysis from the company's case study and help the team check that no area has been overlooked during identification.

Identification. Initial identification draws on the industry risk categories from the company's case study profile, a review of drawings and specifications, lessons-learned files from three prior healthcare projects and a structured workshop with the design team and major subcontractors. Any team member may submit a new risk at any time using the Risk Assessment Form in Appendix A.

Qualitative analysis. Each risk is scored for probability and for impact on each of the four objectives on five-point scales. Probability ranges from 1, under 10 percent, to 5, over 70 percent. For schedule, an impact of 1 is a delay of under one week and 5 is a delay of more than eight weeks. For cost, 1 is under $50,000 and 5 is more than $1 million. For licensure, 5 is a deficiency that would delay admissions. The highest impact score across objectives is multiplied by probability, and the result places the risk in the matrix in Appendix B. A product of 15 to 25 marks a high risk, one from 8 through 14 a moderate risk, and anything under 8 a low one.

Quantitative analysis. Because a matrix can give two very different risks one score, and can even place the cheaper risk higher (Cox, 2008), the team will not rely on matrix scores to size contingency. Instead, all high risks and any moderate risk with a cost impact over $250,000 receive three-point estimates of cost and duration. A Monte Carlo model of the budget and the schedule, of the kind Kwak and Ingall (2007) describe, will be run at each phase gate to estimate the probability of meeting the guaranteed maximum price and the December completion date, and to test whether the contingency is sufficient.

Response planning. Each high and moderate risk receives a response chosen from the PMBOK Guide's strategies for threats: avoid, transfer, mitigate or accept, with escalation for risks outside the project's authority (Project Management Institute, 2017). Responses, owners and triggers are recorded in the Risk Response Matrix in Appendix C.

Contingency management. The $2.4 million construction contingency is held by the contractor and released by the project executive on the risk manager's recommendation. Each draw is recorded against the risk that caused it, so the team can compare actual contingency use with the Monte Carlo forecast. If the model shows less than a 70 percent chance that remaining contingency will cover remaining risk, the project executive will review the response plans with the owners before any further scope is added.

Monitoring. The risk manager reviews the register weekly with the superintendent and holds a full risk review monthly with all risk leads. Risks are re-scored at each review, closed when their window has passed, and new risks are added as work proceeds.

Tools

Four tools support the methodology. The Risk Assessment Form (Appendix A) records each risk when it is first raised: a three-part statement of what could cause the risk, what might happen and what it would do to the project, its category, its probability and impact scores, the objectives it threatens, its proposed owner and any early warning signs. The Risk Assessment Matrix (Appendix B) displays probability against impact and divides the scores into high, moderate and low bands, giving the team a common picture of where each risk sits. The Risk Response Matrix (Appendix C) lists the ten highest risks with their strategy, specific actions, owner, trigger and residual score after response. All three feed a risk register kept in the contractor's project management software, where each entry carries its history of scores, so the team can see whether a risk is growing or shrinking. Wilson (2015) emphasizes that planning tools are only useful when they are kept current, and the register is the record the monthly review works from. The Monte Carlo model is the fourth tool. It is built in a spreadsheet add-in using the three-point estimates recorded on the assessment forms, and it produces two charts for each phase gate: the probability distribution of final cost against the guaranteed maximum price, and the distribution of the substantial completion date against December 15. The model will treat related risks, such as concrete and steel price escalation, as correlated rather than independent, so the results do not appear more certain than they are.

Risk Communication Plan

Risk information will reach each audience at a frequency suited to its role. The superintendent and foremen review field-level risks at the weekly coordination meeting. The project team, owners' representative and design team receive the full register and a summary of changes before each monthly risk review. The joint venture's steering committee receives a one-page risk dashboard each month, showing the top ten risks, contingency use and the most recent Monte Carlo results. Subcontractors receive the risks that affect their scope at their monthly meetings. The dashboard uses plain language rather than risk scores alone: each top risk is described in one sentence, with its owner, its trend since the last report and the next action due. Contingency is shown as a bar comparing the amount used with the amount the model predicted would be used by that date. This format lets owners who do not read the full register see quickly whether the project's risk position is improving.

Escalation does not wait for the calendar. Any risk whose score rises to 15 or more between reviews, or any event that consumes more than $100,000 of contingency, is reported by its owner to the risk manager within one business day, and by the risk manager to the project executive and the owners' representative within two. Any risk that threatens the December completion date by more than four weeks is reported to the steering committee within one week. Closed risks and lessons learned are summarized at each phase gate and in the project's closeout report.

Conclusion

This plan gives the team a shared method for treating uncertainty on a project that cannot slip without delaying care for patients waiting for psychiatric beds. Its scales and thresholds make risk scores comparable, and its quantitative analysis keeps contingency tied to dollars rather than colors. Its communication plan ensures that a risk that grows between meetings reaches the people who can act. The plan will be revised at each phase gate as design is completed and construction proceeds.

Appendix A: Risk Assessment Form

Appendix B: Risk Assessment Matrix

Appendix C: Risk Response Matrix

References

Cox, L. A., Jr. (2008). What's wrong with risk matrices? Risk Analysis, 28(2), 497-512. https://doi.org/10.1111/j.1539-6924.2008.01030.x

Kwak, Y. H., & Ingall, L. (2007). Exploring Monte Carlo simulation applications for project management. Risk Management, 9(1), 44-57. https://doi.org/10.1057/palgrave.rm.8250017

Project Management Institute. (2017). A guide to the project management body of knowledge (PMBOK guide) (6th ed.).

Wilson, R. (2015). Mastering risk and procurement in project management: A guide to planning, controlling, and resolving unexpected problems. Pearson FT Press.