Risk Management for Ship Repair Projects

By Kucing-Nafsu

Why Risk Management practices are not commonly used in Ship Repair Projects? Risk management
is becoming indispensable for any project. If you dont identify risk either threats or opportunities
and treat them, your project could fail. This culture of risk management needs to be improved on
ship repair projects, I know that this types of projects are short in time (average from 8d to 15d) and
very tight in budget, everything need to be done quickly and well done, planning is crucial, quick
response to problems is a must, but the minimum delay can mess up your project schedule and
budget and in the same direction you image with your customer. Then, why not include this very
important process in your projects?. I know at the beginning couldnt be an easy topic to understand
and use, but when you give a try you start to understand, and when you understand you start to use
it and then, you will see the results.
Here in this article Im going to explain some basics about risk management, how to implement the
risk management on a real ship repair project (vessel QUEEN ANDREA the one from the previous
articles) and the differences between company risks and project risks. All this information is aligned
with the PMI standard PMBOK 5th Edition.
Basic Concepts About Risk Management
To start with Risk Management, you should understand what a Risk and a Cause are. Please see
below the formal definitions.
What is a risk? A project risk is an uncertain event or condition that, if it occur, has a positive or
negative effect on one or more on project objectives such as, scope, schedule, cost and quality[1]
What is a Cause? A Cause may be a given or a potential requirement, assumption, constraint or
condition that creates the possibility of negative or positive outcomes[2].
How to treat Risks? There are different ways to enhance opportunities or reduce threats to project
objectives, those are:
Risk Responses Negative Effect
Avoid
Transfer
Mitigate
Accept
Risk Responses Positive effect:
Exploit
Enhance
Share
Accept

According to the PMBOK the risk management knowledge area has 5 processes where you have to
apply the basics concepts stated before:
1.
2.
3.
4.
5.

Plan Risk Management

Identify Risks
Perform Qualitative Risk analysis
Perform Quantitative Risk analysis
Plan Risk Responses

For this article purpose I will go in deep only on Identify Risks, Perform Qualitative Risk Analysis and
Plan Risk Responses processes. I will start to explain each process and an example with the ship
repair project QUEEN ANDREA.
1. Plan Risk Management
A risk management plan describes how risk management will be managed during the project. The
plan should include:
Methodology
Roles and Responsibilities
Budgeting
Timing
Risk Categories
Definition of Risk probability and impact
Probability and impact matrix (see section 3 on this document)
Reporting Formats
Tracking
If you want to learn more about this process please refer to the PMBOK 5th Edition page 309
2. Identify Risks
Identify Risks is the process of determining which risks may affect the project and documenting their
characteristics. They key benefit of this process is the documentation of existing risks and the
knowledge and ability it provides to the project team to anticipate events [3]
To identify riks you should be clear how to redact a Risk. I recommend to follow this way:
Risk / Cause / Impact
These are the most important aspects to consider when you are identifying Risk and Causes:

The Risks must be identified based on the Project Objectives.

The Risks cannot be a constraint (a constraint is something that already exists and
should be responded with a contingency plan).
When the risk is going to be identified you should ask yourself: What are the things I
dont want to happen that can impact the project objectives?
The cause of the risk could be a constraint, an assumption, requirement or condition
that originates the unwanted or wished event.

The shipyard Project Manager should understand this concepts very well and their project team as
well, in such way the risk identification can be successful. Risk identification can be done during
Initiating / Planning phase and then during the project duration if needed.

It is very useful to use Risk Categories to identify the risks. In ship repair projects can be:
Blasting and Painting
Mechanical
Electrical
Steel
Transport and rigging
Subcontractors
Purchasing
Engineering
Project Management
Scaffolding
Every time a team member identify a risk, should be inform to the Project Manager to be included
and analyzed on the Risk Register. As the ship repair projects are short in time and delays can be
based on hours, every hour you lose could have a great impact on the project, thats why this risk
management process should be managed as simple as possible.
Every additional job should have a risk assessment with the responsible person for the job and
would be good to involve the Superintendent.
Lets make an example of risk identified for the ship repair project QUEEN ANDREA, see Figure 1.
QUEEN ANDREA Risk Identification List:

The list of identified risk can be longer, but for the article purpose I will just leave it on 5 identified
risks. There are some techniques to identify risks such, interviews, workshops, brainstorming, etc.
3. Perform Qualitative Risk Analysis
Perform Qualitative Risk Analysis is the process of prioritizing risks for further analysis or action by
assessing and combining their probability of occurrence and impact. They Key benefit of this process
is that it enables project managers to reduce the level of uncertainty and to focus on high priority
risks[4].
In Qualitative Risk Analysis you have to assess the impact and the probability to determine the score
of the risk, this can be done through the Probability and Impact Matrix. The risk can be scored as
Very High, High, Medium, Low or none. With the score you can prioritize them and then make a
treatment plan for each and to define risk reserves.
Coming back to our project QUEEN ANDREA lets see the Probability and Impact Matrix define for
the project and the score for each risk identified on the section 2 of this article.
Lets assume that the vessel QUEEN ANDREA has a budget of USD $458.000 and 15d in total for
repair. So, we need to fill out that information on Risk Assessment Matrix (RAM) heading in order to
get the impacts on Cost and Time columns for risk scoring. Below you will find the RAM designed for
this project. The RAM has two main items to be understood:
1. IMPACT ON PROJECT OBJETIVES: Here you can define the impact that the risk could have on,
Environment, Cost, Time and Client. Each Impact column has a different SEVERITY (H, VH, M, L,
N) based on project information and risk impact.
2. PROBABILITY: This is the probability that the risk could have during the time frame of the
project. It is measured as None, Low, Medium, High or Very High or percentage of occurrence
(see Figure 2. QUEEN CATALINA Risk Assessment Matrix / RAM).

Now you have the RAM and the list of risk identified for the project, Then you should asses them and
score them. First thing you have to do is to define the probability of occurrence. Think about, how
likely is that this specific risk arise during the project?, it is 20%, 40%, more than 50% or None??.
Once you define the probability you should estimate the impacts on the project objectives to score
each one and select the highest one. Lets see Figure 3. QUEEN CATALINA Scored Risks, where the
risks identified before are now assessed and scored.
I will explain one of them for a better understanding. I will select the RISK ID 5:

Lack of man power, due to interference with other projects, impacting undocking date and
departure date.
1. Define Probability
If I start to analyze the shipyard production at the moment I have found that there are 2 projects
more under execution with conversions and it is absorbing 70% of the shipyard man power, so for
me this risk is 50% likely that can occur, so in the RAM is located on the column D.
2. Analyze Impacts
Here you have to analyze that probability against the impacts and select the one that impacts more
the project. Lets continue with the example of the Risk ID 5.
Impact on Environment: Zero Effect (Severity 1), this risk will not impact on the Environment, in the
matrix is score as N
Impact on Cost: If I dont receive the resources to execute the project according to plan the most
probably I should pay fines for $8.000 per day to my client, maybe I can have delays up to 3 days
creating me extra costs of $24.000. If you see the RAM the $24.000 are in the range of Severity 4,
which in the matrix the risk is score as VH.
Impact on Time: If I dont receive the resources to execute the project according to plan, the most
probably I will have a delay form 1 to 3 days based on experience. On the RAM the 3 days are in the
range of Severity 5, that in the matrix the risk is score as VH.
Impact on Client: If we have this delay of 3 days the most probably the client will complain and fine
us, but due to good relationship with the company there is no chance to lose the client. The impact
Severity here is 3, which in the matrix the risk is score as M.
Then after this 2 steps you have to select among the impacts which one is the higher one and that
will be the final score of the risk. In this case the higher ones were the Impact on Time and Cost with
VH, so this risk is scored as VH.

As a result of the risk scoring now you have that the project has 2 VERY HIGH risks, 2 HIGH RISKS and
1 MEDIUM risk. We need to focus on the VH and H risks, the Medium risk can be monitor during the
project and reassess if needed.
4. Perform Quantitative Risk Analysis
Perform Quantitative Risk Analysis is the process of numerically analyzing the effect of identified
risks on overall project objectives. The key benefit of this process is that it produces quantitative risk
information to support decision making in order to reduce project uncertainty.[5]
Quantitative Risk Analysis can be done using specialized software like Project Risky, Crystal Ball,
@risk, etc. Those software use statistic models to predict cost and time for certain project such
Monte Carlo technique. But here I want to explain a technique that can be used without any fancy
risk software and still is useful, it is called EMV (Expected Monetary Value). With this technique you
can calculate a contingency reserve in time and cost based on identified risks. The formula to
calculate the EMV is Probability x Impact.
Lets see the example on the project QUEEN ANDREA for the risks identified (Figure 4. QUEEN
ANDREA Expected Monetary Value):

This contingency reserves (in cost $34,010 and time 3 days) can be assigned it to the project if
needed.
Plan Risk Responses
Plan Risk Responses is the process of developing options and actions to enhance opportunities and
to reduce threats to project objectives. The key benefit of this process is that it addresses the risks
by their priority, inserting resources and activities into the budget, schedule and project
management plan as needed. [6]
In this part is when you start to define what to do in order to treat those risks. To make a response
you ALWAYS need to attack the cause of the risk, if you dont so, you are wasting time. Also, you
have to define 4 aspects:
What
When
How
Who
Without those 4 aspects your response action will be incomplete and uncontrollable. In case of VH
risks you should also include a Contingency Plan in case the risk occurred.

Lets see the example on the Figure 5. QUEEN ANDREA Risk Responses

All the information given above should be performed and controlled during the project duration. If
some new risks are identified, it should go through all the process mentioned here in this article.
Identified and prioritized risk should be monitored all the time because situations can change and
you have to react on time.
Remember that risk responses can have a cost on the project but will be minor comparing with the
impact if the risk occurs. Also risk responses should be added to the project schedule.
Company Risk vs Project Risks
I want to include this topic into the article because everybody need to understand that there are a
difference between Company Risks and Project Risks.
Company Risks are the ones that can impact the business itself, the goals, the mission, vision, even
all the risks related to company assets such Drydock, Cranes, Compressors, stock materials, in
general all facilities are related to company and has their own risks and their own Risk Assessment
Matrix.
Project Risk are strictly related to the project itself, some of the company risks can impact directly
the project, so Project Managers need to be aware about this.
Every important decision you must take as a company should be based on a Risk Assessment,
nowadays is not accepted to take decision without using this important tool.
Conclusion
Risk management is an important aspect for ship repair projects, doing Risk Management can save
you from undesirable situations. Risk management should be perform when shipyard receive the job
specifications from vessel owners in order to select the less risky project or to plan how to execute
the project, then should be perform during planning, execution and control of the project when
vessel arrive to shipyard.
References:
[1] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management
Knowledge (PMBOK guide) 5th Edition (p 310). Pennsylvania, USA: Project Management Institute, inc.
[2] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management
Knowledge (PMBOK guide) 5th Edition (p 310). Pennsylvania, USA: Project Management Institute, inc.
[3] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management
Knowledge (PMBOK guide) 5th Edition (p 319). Pennsylvania, USA: Project Management Institute, inc.
[4] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management
Knowledge (PMBOK guide) 5th Edition (p 328). Pennsylvania, USA: Project Management Institute, inc.
[5] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management
Knowledge (PMBOK guide) 5th Edition (p 333). Pennsylvania, USA: Project Management Institute, inc.

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[6] Project Management Institute. (2013). Project Risk Management. A Guide to the Project Management Body
of Knowledge (PMBOK guide) 5th Edition (p 342). Pennsylvania, USA: Project Management Institute, inc.