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Enterprise Risk Management (ERM) on large Military Construction (MILCON) projects and programs is often undervalued, not well defined, and inadequately implemented.
What is ERM?
Enterprise Risk Management (ERM) is a set of methods and processes used by organizations to manage risks and seize opportunities. While ERM models and strategies are mature in the financial, insurance, and energy industries, they are still lacking within the construction industry.
This is problematic on two levels. First, risks exist on every project and must be anticipated, assessed, and mitigated to limit impact on project outcomes. Secondly, it's a requirement. The Office of Management and Budget (OMB) Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control, dated July 2016, requires federal agencies to implement ERM.
To ensure that compliance requirements are met, and to get the most out of construction projects and programs, new ERM techniques directly related to construction need to be implemented.
Why is ERM in MILCON projects behind other industries?
The challenges associated with managing risk on large US MILCON projects or programs are complex but well documented. These challenges are also drastically different from other industries and include a long, 2 or 3 year, 1391 development, and approval process, and the complexities of working with multiple stakeholders and DOD organization structures (see Figure 1). As a result, new and innovative ERM techniques are needed to improve construction project and program performance.
Figure 1: Military Construction Process from DOD information, CRS graphics
Recommendations for DOD MILCON executives
The good news is that there are several recommendations that can help DOD MILCON executives implement an ERM strategy on MILCON projects and programs. Figure 2 provides an overview of a strategic process that can be followed to implement a strong Enterprise Risk Management program.
Figure 2: MILCON ERM Strategic Process
There are three components within this Strategic Process.
1. Assess Risk Management Knowledge and Capabilities
This starts with series of self evaluation questions that can establish the baseline of an organization's knowledge and capabilities (questions outlined in accompanying paper). In addition, implementing advanced scheduling techniques on projects and programs drastically reduces project risk. The implementation and project-wide communication of an Integrated Master Schedule (Figure 3) can enhance a massive MILCON program's ability to plan more effectively, control the seams between projects, and deal with unforeseen challenges.
Figure 3: Integrated Master Schedule
2. Evaluate the Organization's Risk Management Maturity (RMM) and Culture
Measuring how well an organization understands, values, and elevates the importance of ERM and is another key assessment area. Is this a "task" that is out-sourced to a partner and or does risk management awareness and practices permeate through all parts of the team and project? A Risk Management Maturity (RMM) Model is a tool to help you determine where you organization ranks on these topics. Unfortunately, no RMM Model exists specifically for the construction industry, however, the industry can take cues from other industries where this is further developed. At a high leval, a RMM Model will evaluate the following:
1. Management Perspective
2. Risk attitude and culture
3. Risk management process
4. Organizational risk management practices
16 detailed assessment areas for MILCON executives are outlined in the accompanying paper.
3. MILCON Enterprise Risk Management Strategy and New Technologies to Improve RM Strategies
Developing an active Enterprise Risk Management strategy requires statistically and qualitatively evaluating risk management registers, lessons learned database, and the big data coming from the MILCON initiative - and communicating these throughout the organization. Fortunately there are many new commercially available technologies which can help.
Implementing new technologies for project control, risk, and schedule management on all projects and programs is one tactic. Risk management practitioners can create unique and innovative risk management registers in Microsoft Excel and other relational database applications - see Figure 4. Some of the other construction industry solutions include Oracle Primavera Risk Analysis and Contractor Analysis, @RISK, risk analysis software Palisade Corporation, and RiskAid from Risk Reasoning Ltd. Finally, there are numerous software solutions from outside of the construction industry that may be useful on MILCON projects, such as: NVIVO qualitative data analysis software from QSR International and SPSS, the statistical analysis software from IBM.
Figure 4: Risk Register Example (Large Program)
Where can DOD MILCON executives get more information on ERM?
Remember, the goal in all risk management initiatives is to not only reduce the probability of bad things happening but, more importantly, to discover opportunities the process uncovers. Implementing these strategies can help achieve this in our next MILCON program.
For more information -
Read the full paper, including full citations here.
Contact the author: Dr. William T Bersing, DM, PE, CCM at +1.703.853.6408 or Bill@iProgramSolutions.com