Planning for Risk Management

This is the second in a series of posts that I'm planning on Construction Risk Management on Campus

Planning for Risk Management

The first step is to develop a process for risk management. This doesn't have to be a major white paper effort, but it is a good idea to formally lay down the outline of a process in a memo form.

Key considerations that should be taken into account include:

• Who will be the members of the risk management group? Typically, that group will include the Director of Construction, the in-house Project Manager, the Architect, and if a contracted Project Manager is being utilized, they should be included as well. Although the Contractor may be brought in from time-to-time to brainstorm on project risk, they should not be a permanent member of the risk group since many of the risks will revolve around the contractor and sub-contractor's performance.
  
  
• What risk categories will be considered? While this may seem inconsequential, defining risk categories can act as a trigger during the risk identification process. Risk categories that are often utilized include:
  
  • Political/Legal Risks- These might range from zoning issues to community opposition, etc. For example, a developer is attempting to get public financing for a low-income housing project in a middle-class neighborhood that is opposed to the project. They ignored the risk that the neighbors would be so vehemently opposed to the project and, as a result, have been unable to get the local government's approval to use tax incremental financing for the project.
    
    
  • Physical Risks – this category can cover a wide range of issues, from equipment failure to defective materials. The "value engineering" process can often degrade into a product substation process in the effort to reduce project costs. Clearly identifying the physical risks associated with those substitutions allows for an informed decision based on cost/risk/benefits.
    
    
  • Design – The diligence and structure of the A/E selection process often determines a host of potential design issues. Drawing and system coordination issues, quantity misstatements, specification issues, inadequate design schedule, program/scope misunderstanding, lack of input from operations and maintenance personnel, lack of input from the building users – all of these can have significant impact on the quality, budget, and timing of a project.
    
    
  • Logistical/Procurement Issues – If the factory in Sweden making the turbines for a power plant goes on strike for 2 months, what impact does that have on the project? After Katrina, here in New Orleans, availability of labor, materials, and equipment all became major issues, affecting both the pricing and timing of the rebuilding effort. While that may seems an extreme example, many owners have experienced the issues of too few contractors chasing too many projects, a shortage of skilled laborers, and the unavailability of materials (the carpet industry used to be famous for shutting down production runs for a month or two at a time, wrecking havoc on those who were hoping to utilize "just-in-time" deliverly.
    
    
  • Financial – With the current state of the economy, many projects are experiencing issues related to the tightening of credit, both on the Contractor and the Owner's side. Other potential issues include unanticipated bidding/project buyout results, significant inflation over the project life-cycle cash flow timing, and the solvency of the contractors business.
    
    
  • Construction – The list of potential risks involved in assembling materials, systems, and equipment on site is significant and fraught with risk. Some of the more obvious include mismatches between bids and project requirements, poor understanding of the requirements to implement the projects plans and specifications, change order documentation and management, field quantities variance to design quantities, and schedule constraints compromising construction quality. For a dopey example, think of the television show Extreme Makeover Home Edition, which attempts to construct entire houses in 48 hours by putting hundreds of volunteers on the job. The project may look good on TV, but I can guarantee that if the drywall float doesn't have time to dry before it is painted, or if the wood floors don't have time to season themselves to the humidity characteristics of the house, there will be major issues to follow.
    

  
   

  Once the basic categories have been established, the next step in the process is to define the risk identification process. That will be the subject of my next post.
  

Managing Construction Risk on Campus

There is one absolute certainty in construction - at some point in the construction process, the project will not proceed according to plan.

Risk management is a tool that has been utilized on major industrial construction projects for years. However, formal procedures for risk management are rarely seen on campus or hospital construction projects. That's unfortunate because the basic concepts and principles can be scaled to match the size of individual projects and construction programs fairly easily. With a risk management process in place, the university is much better positioned to anticipate and deal with plan deviations than they would without such a process.

For example, a residence hall project misses its schedule and isn't ready in time for student move-in. That's an event that can have serious consequences. As CFO or Sr VP, I would want some assurance that this risk is being actively monitored. What sort of contingencies are in place to house the students if the schedule isn't met? How will that be done and how much will it cost? What provisions are in the contract to ensure that the schedule is met and, if it isn't, what provisions have we made to recoup our costs?

While that may seem like an obvious example, there are countless other risks that arise in the course of a construction project, some of which aren't so obvious. Without a formal means of identifying and quantifying those risks, the likelihood of negative consequences significantly increases.

On a $10M project, the process may be as simple as an initial roundtable discussion by the project team to identify potential risks, assigning individuals to deal with those risks, and then formally tracking and monitoring the results. Periodic meetings can be held on a monthly or semi-monthly basis to update the risk log and identify new risks that may appear on the horizon.

It's generally accepted that an effective risk management program includes the following elements:

• Planning
  
• Identification
  
• Analysis
  
• Response
  
• Monitoring
  
• Reporting
  

In future posts, I'll go into the details of each of these components and provide examples of how they would work on a typical campus construction project.

The Semiotics of Climbing Walls

I'm sure I can't do Barthes-ian justice to this idea, but I've been thinking about the symbolic function of climbing walls in campus recreation centers. This idea came up in conversation with a friend about the proliferation of amenities on campuses, and it follows from the responses to budget cuts that ask why the university spends money on stuff like rec centers while it talks about cutting academic programs.

A scene you encounter over and over again is the campus that was largely a commuter school with minimal amenities finding that the path to financial health requires increased enrollment, and that increasing enrollment seems to require offering a richer on-campus experience. This means more dorms, food court style dining, and always a big rec center. And a ubiquitous feature of these rece centers are the climbing walls, in a prominent place behind a wall of glass. At the school where I teach as an adjunct, I cut through the new campus center all the time, past their climbing wall. Textured material, a faux rock face, extends for a couple of stories, studded with colored protuberances to grab. Reasonably frequently a couple of students are using it.

I'm not a climber, so for the most part the wall is a mystery to me. I don't know what the features are, and I don't understand what kind of exercise experience it is--I know what it feels like to run, ride a bike, play tennis or raquetball, lift weights, what muscles you work. I have it from a good source that climbing is good exercise, but I have to take that on faith.

Even so, a climbing wall always looks cool. The big REI store in Seattle has a huge one that you can see from the road. With all my ignorance of the activity, it still sends out strong signals of a vigorous lifestyle. I feel good and healthy when I see it.

I'm sure the student rec center people will have statistics to disprove this, but I can't help think that relatively few students use the climbing wall and even fewer use it as a signficant source of exercise. But I bet all the students like seeing it.

This is where Roland Barthes would come in handy. It seems to me that the climbing wall in the student rec center is nearly a pure symbol, with just enough functional pretext to justify including it in the building program. So far I'm coming up with pretty mundane interpretations of this symbol and the way it functions in the campus' symbolic order--it indicates that the people here are active and vigorous, not square, rebellious in the socially and commerically acceptable way of Thomas Franks' Culture of Cool. It also invovles an inversion of spaces--the interior of the cultivated, civilized world of the college is occupied by a portion of the natural world, not really untamed but offering an escape from the kinds of activities and structures found in classrooms. Or it shows people training for unintellectual activity in an unintellectual realm, just using simple means to get themselves across an expanse of rock somewhere "out there."

Barthes would have done something a lot more interesting with these climbing walls. I don't think I've gotten to the bottom of the symbolic content, but I do know when I am in the presence of something that exists primarily, overtly and unapologetically as symbol. The physical nature of that wall is pure illusion. It exists in the psychological realm, like a dream or a libidinal urge.

Can the university turn sharply?

In discussing budget cuts at schools in Tennessee, a friend asked why her university was spending money on things like rec centers and other extras while considering cutting academic programs. Of course you can argue about the merits of these additions to the campus, but it's interesting to think about what it would take to make this change in course. It would be a major change of institutional strategy, undoing years of investments on the campus that in this case make it increasingly a full-service residential university.

But one can conceive that such an institution might need to make a major change in direction, rather than keep pursuing a strategy that no longer works. The possibility of this change of direction has to be at least a theoretical possibility. But can you imagine the planning process that would lead to this conclusion? A typical strategic planning process will prescribe pulling together a group of people to work out a new vision. This way you get the benefits of many people thinking through the problem and a shared commitment to the course of action. But in general a process like that will involve a lot of compromises and splitting the difference, with the likely result of ending up close to where you started--the closest thing to consensus will be to stick with what you are doing--at least everyone understands that.

If the planning group goes into a very intense process of group formation and working through ideas together, they might be able to come up with a dramatic new vision as a group. But it is more likely that dramatic ideas will come from individuals. The problem with that is that in addition to the individual creating the idea, they will also "own" it and have the most intense sense of the idea's virtues--selling other people on it is another matter altogether. A theoretical alternative is for one of those individuals, presumably the organization's leader, to impose his or her idea on the organization. You can argue that's what happens in the corporate sector, but higher education governance has little place for that.

It seems to me that you might find the conditions for a group to develop and embrace a radically new idea of the institution when it finds its survival at stake, but I'm not sure how often that happens. I think about Antioch trying to save its residential college in Ohio, or the efforts to save the College of Santa Fe by selling it to Laureate or merging it into the New Mexico public system. Neither of these came together in the end. (While it's probably the end for the College of Santa Fe, I'm betting that Antioch will rise from the ashes.)

If I'm on track about this read on the dynamics for a group considering major changes in direction, it is unlikely that a well-established campus will remake itself until it faces a deep crisis that threatens its survival. A budget cut at a public institution probably doesn't rise to that level.

Is Finance winning?

A few reactions to Arjun Appadurai's commentary in the Chronicle of Higher Ed, Higher Education's Coming Leadership Crisis.

In general the article takes aim at the tendencies of universities to "corporatize" themselves. In this piece, he's looking particularly at issues surrounding the leadership of institutions.

His first point involves a prediction that a greater number of leaders will come from outside higher ed and will lack a deep grounding in higher education. I tend to agree with him that movement in this direction would not be good. Not just with Presidents, you can even make the case that CFOs with strong higher ed experience work out better, but I think it all depends on how the person comes into the organization. When I think about CFOs I know, I realize some of the strong ones started out in the corporate world, but have been in higher ed a long time now and come across as fully integrated into this environment. At various levels of the organization, when I hear about business managers without much higher education experience I often want to point out that most of the people on the administrative side of the house had to build their higher ed somewhere at some time.

In a section on management, Appadurai argues the following: "the old tension between full-time administrators and full-time faculty members has become acute, and the balancing act that most presidents perform between their chief financial officers and their chief academic officers has by and large given way to rule by the CFO. As the economy spirals down, the voices of parsimony, thrift, and profit maximization will grow even stronger, and the capacity of academic leaders to shape the agenda of colleges will diminish sharply." There's several things to parse out here.

First, in my experience with Provosts and CFOs, I'm just not seeing "rule by the CFO." Usually, the Provost is the dominant figure. However, it is worth thinking about why Appadurai might see it that way. One explanation is that this reflects his personal experience as Provost at the New School, where he worked with a President from outside academe (Bob Kerrey). But I think there's a more interesting way to look at this.

Focus on the values listed in the last sentence--parsimony, thrift, and profit maximization. Leaving aside that thrift is an enduring value in many institutions (the institutional equivalent of a tweed jacket worn in the sleeves), you can probably make the case that these sorts of economic values may predominate in decisions, even if the Provost or a President with a distinguished academic background is making the decision. I would argue that those values are thrust upon the institution by the fact that universities must operate in the contemporary society and economy, which are dominated by a hyper-charged pervasive market capitalism (to borrow Ed Luttwak's phrase, Turbo-Capitalism). The universities are forced to play by the rules of this climate. It's the same climate that puts tremendous pressure on landowners where I live in Tennessee to exploit every bit of land they hold, getting cash from it in the form of timber harvests or development--it's partly a function of increased costs of living and an increasing need to buy your way into security, higher expectations of luxury, or pressures from taxes as property values rise.

The economic margin of error seems to have tightened in many arenas. There's no reason to think that higher ed would be exempt from these pressures. Even if the Provost retains an appropriately powerful voice, her hand may be forced. Even Presidents with strong records of scholarship will find themselves gaining fluency with bond ratings.

With the current economy, maybe we'll see some easing on this pressure to monetize land. And maybe there's a similar silver lining for higher ed. Otherwise it's hard to say how an individual institution on its own can break out of these structural pressures in the environment.

Lucky firms

In the latest Harvard Business Review there's an article by a professor from UT Austin and a couple of Deloitte consultants that argues that luck has as much to do as anything with the success of the companies written up in various studies of "great" companies. This seems pretty obvious--I was looking at Jim Collins' Good to Great recently and it really hits you when he's talking about Circuit City after driving past the guy holding the Everything Must Go sign as I drive into Nashville every day.

Tennessee Higher Ed dodges a bullet until 2011

In his budget address last night, Governor Bredesen announced that the Federal stimulus plan may give Tennessee public higher ed a reprieve from the big cuts they are looking at. "More than most other areas, higher education has dodged a bullet and bought some time." He says that the stimulus money even restores $100M in cuts taken this year. But he points out that this money only goes on for 2 years, at which point Tennessee higher ed will find itself short $180M in State funding.

Now everyone will be looking to see how the campuses and the systems respond. MTSU and TSU have both been talking about serious cuts, and the MTSU proposal has generated protests and a lot of organizing (not sure if there's been similar activity at TSU). One of the points the organizers made about MTSU's proposal to cut $11M (with the ultimate target being $19M) was that other campuses were waiting to see what would happen with the stimulus program (APSU for one seemed to take this approach, as did Memphis). It turns out they were right, but it will be interesting to see what President McPhee does next. It sounds like it will be hard (impossible?) to avoid the big drop-off in 2011, which argues for making some cuts as soon as you can. Then again, higher education has a long history of dodging a continuing stream of bullets.

No Frills campus

I'm going to post more thoughts on this sooner or later, but for now I just wanted to grab a couple of links to a subject that is getting interesting in the context of various conversations I'm having about the funding for higher education: no frills campuses. Pennsylvania has announced a proposal to create a no frills campus: here's the Philadelphia Inquirer account and a notice on it in the Chronicle of Higher Education. The Chronicle also pointed out that one campus of Southern New Hampshire University might be a model.