Risk Management is one of those topics that seems dry and esoteric to some. It’s a subset of project management. But risk is one of those things that is ever-present, depending on how you plan your projects. On today’s show we’re going to look at a deep dive on one specific risk that actually came true.
But before we talk about that specific story, let’s define what we mean by a risk. A risk is something that could happen that is outside your plan. If you’ve already planned for it, then by definition it can’t be a risk.
When we talk about risk we divide risk into likelihood and impact, and then we categorize the impact according to the type of risk that it represents.
It might be a cost risk, or a time risk, or perhaps it could impact the quality of the finished product. There are a number of categories that could apply to any given risk. Again if you want to learn more about this, send me an email to risk@victorjm.com and I’ll send you a link to the webinar on risk management.
So here is the story. My partners and I are building a campus of residential assisted living and memory care homes in Lake Charles Louisiana. If you’ve been following the news over the past couple of months, you’ll know that this market has been hammered not by one, but by two major hurricanes in the span of 6 weeks. This market sustained an incredible amount of damage.
Fortunately, our construction project suffered virtually zero damage from both hurricanes. We did suffer delays from the storms. With the extreme amount of rain, the site drained well. But the community was without electricity for 36 days and we could not find housing for the construction crews to actually come back into the local market to work on the construction of the buildings. In the end, the workers brought RV’s and are staying at an RV Park that we own in order to make progress on the construction.
The demand for roofing materials and roofing labor meant that our roofing contractor refused to honor their contract. Our assessment is that they would rather get a higher rate for emergency roof repair work compared with the price they had quoted us for the new construction roofing.
The impact of the hurricanes was twofold. The first was in a delay in the project. The delay was caused by lack of labor to do the work. The second is the lack of materials which could cause more delay and an increase in project cost. When the demand for roofing materials shot up, you simply could not source the desired product at any price, and the pricing for inferior product jumped locally as demand far exceeded the available supply.
That meant looking further afield for both labor and materials. Just because roofing materials are expensive and in short supply along the gulf coast.
As you are listening to this, Southeast Louisiana and Mississippi just got hammered by yet another hurricane, Hurricane Zeta on Wednesday of this week. While New Orleans is three hours away from Lake Charles, we now have a category 2 hurricane that ripped a lot of roofs in the New Orleans and Biloxi Mississippi markets, putting even more pressure on demand for roofing labor and materials.
There is very little we can do to recover the six weeks that were lost. But we can prevent even more delay due to the shortage of roofing labor and the shortage of roofing materials. We can also protect the project from a cost increase by sourcing the materials from another location. All of this can be mitigated by replanning this part of the project and by taking all these new factors into account.
We can limit the impact of these storms in both cost and time based on replanning this aspect of the project to treat the risks not as a risk, but as a certainty of having occurred. Once the risk is embedded in the plan, it’s no longer a risk by definition.
