1.1

In identifying risks, even with an experienced team, there is a strong possibility that they will fail to identify all the issues. The risk checklist¹¹ (see paragraph 3 below) acts as a memory jogger and a catalyst to the synergy of the group. It helps to generate the ‘what’ of the model, the identified risk list and the risk register.

1.2

Consequently, when choosing the ‘who,’ the people for the team (see Section Q Selecting and Building the Team, Subsection 1), consideration must be given to selecting people on the basis of who is best at managing risk. In choosing who to include in the group risk process, it is useful to have some ‘negative thinking’ people because they are more likely to identify risks.

1.3

It is probably not possible to exclude taking on major risks, such as the first of a kind, a large scale‐up, technical uncertainty, or innovation. That's what project managers are for. However, don't have two of these at once – that will guarantee disaster. If you want to use new materials, use a proven application. If you want to use a new application, use proven materials.

1.4

Each identified risk must be allocated to an ‘owner’ in order to produce a risk responsibility matrix of ‘who owns what.’ The owners remain responsible until the risk is eliminated. A risk must not be allowed to be handed over to another team member. This removes another big risk, namely, interface problems.

1.5

At the execution plan stage of the risk management model, the risk owners develop risk memos. Risk memos are response plans and options for ‘how’ to handle the various ‘what if’ scenarios and the relationships or impact on other risks. It may be useful to hold a workshop to find solutions to some worst‐case scenarios and develop plans to avoid them. Writing risk memos (one page maximum) has a number of benefits; writing things down forces one to focus and crystallise one's plans. The risk memos should be distributed to the project team for information and reviewed by management. Most importantly, they become a library of information, which can be used by other/future projects. They record and become part of the know‐how of the company.

1.6

Use a fault tree analysis to evaluate how the risks should be managed as follows:

1. Recognise the risks.
2. Examine avoidance options.
3. Manage controllable processes.
4. Transfer insurable risks.
5. Quantify residual risk.
6. Set contingencies.

1.7

The last part of the risk management model ‐ the ‘where’ are we – is to review the status of the risks at a regular risk review meeting. This is much more forward‐looking and pro‐active than a progress meeting that is primarily looking backwards.

2.1

You could jump to the final stage of the prioritisation process to produce a final risk register. However, this would miss the intermediate steps that make the team really understand the issues.

2.2

The first step in prioritising the vast number of risks produced by the group identification process is to classify them (using historical data, experience, or the gut feeling of the group) for severity or impact. The impact should be assessed as the maximum likely. It can be viewed from the perspective of capital cost, schedule, and safety, as well as operability or operating costs.

2.3

The next step is to grade the risks for probability: Certain/high probability – 3, undecided/medium probability – 2, and uncertain/low probability – 1.

2.4

There can be so many identified risks that it is difficult to see the wood for the trees. In this case jump to the last step and rank the prioritising process by introducing a time factor: a time scale within three months – 3, four to six months – 2, and beyond six months – 1. If these durations seem long relative to the length of the project, reduce them proportionately, but do not increase them for longer projects.

2.4.1

Select those with the highest number for: impact X probability X time. Evaluate them for: immediate action, development of contingency plans or for transfer to others, or insurance (see Figure V.M.2). During a risk seminar (or team building) this can be a sub‐group exercise and should take the third step, in paragraph 2.5 and 2.6 below, into account.

Figure V.M.2

2.5

The sequential third step is to examine how difficult they would be to manage or the effort required to resolve them using: difficult to manage – 3, reasonable manageability – 2, or easy to manage – 1.

2.6

Having addressed the urgent ones in paragraphs 2.4 and 2.4.1, we can now give time to the remainder and prioritise them (see Figure V.M.3) by plotting risk (Probability X Impact/Severity), against manageability or effort required. Tackle them in the order of 1 – high risk/low effort, 2 – low risk/low effort (get them out of the way) in order to deal with; 3 those left over from 2.4 and 2.4.1 – high risk/high effort. Finally, when you have time, 4 – low risk/high manageability effort. In team building, or a risk seminar, these are tackled in subgroups before sharing/discussing the results with the whole team.

V.M.3

2.7

The final step is to produce the final risk register using all four criteria and the rankings already defined of 3, 2, and 1, namely, Probability x Impact x Manageability x Time. This produces a maximum risk coefficient of 81, requiring immediate attention.

2.7.1

The risk coefficient is tabulated first on the risk register, followed by the description of the risk and then the action time factor so that it is easily seen and updated and followed by the other criteria; see Figure V.M.4. One's views of probability, impact, and manageability may change as work on the project progresses. As indicated above, time generates risk. They may need to be adjusted in the register, but time should be changed and the risk coefficient updated before each risk review meeting.

V.M.4

3.1 Political and Economic

1. War – revolution – civil disorder
2. Political uncertainty – elections due
3. Economic downturn
4. Changes in law, imposition of decrees
5. Changes in specific legislation – financial/social security
6. Corruption
7. Currency restrictions
8. Changing boardroom politics
9. Customs or export restrictions
10. Requirement to use local organization
11. Constraints on available labour
12. Demographic changes
13. The Greens and/or other minority interest groups
14. Protesters at the site gate
15. Impact of failure: on clients, on company reputation, on suppliers, or subcontractors
16. Requirements for permits – approvals
17. Planning permission

3.2 Environmental

1. Pollution – contaminated water
2. Waste treatment
3. Public enquiries
4. Regulations
5. Preservation/conservation/reinstatement
6. Minority interests
7. Demographics
8. Archaeology/artefacts.

3.3 Legal/Contractual

1. Direct liability
2. Liability to others
3. Unlimited liability – Never, ever, agree to this!
4. Local laws and codes
5. Legal differences between countries of execution
6. Conditions of contract: liquidated damages, changes to accepted risks
7. Failure to sign contract
8. Insufficient tendering time
9. Joint venture

3.4 Financial

1. Interest rate changes/fluctuations
2. Inflation rate change
3. Exchange rate fluctuation
4. Availability of foreign exchange
5. Availability of client funds
6. Cash flow of client
7. Repatriation of funds
8. Loss due to default – contractor/sub/supplier
9. Contractor cash flow – late payments
10. Adequate payment for variations
11. Local and national taxes
12. Credit worthiness of contractor
13. Cost of legal decision
14. Insufficient insurance
15. Tender validity extension
16. Tender bonds unfairly called
17. Fixed price overruns – man hours/equipment/bulk materials
18. Contract budget significantly different from tender figure

3.5 Estimating/Costs

1. Budget cut significantly from original estimate
2. Estimate out of date due to late project start
3. Insufficient basic data or detail
4. Low level of confidence in estimating data
5. Lack of confidence in elements of estimate
6. Over‐optimism.

3.6 Planning and Control

1. Urgency
2. Inadequate planning: at tender stage or during project
3. Complex logic
4. Schedule significantly reduced from original targets
5. Client planning system to be used
6. Subcontractors/manufacturers to use unfamiliar planning or reporting tools
7. Unable to forecast events for long project

3.7 Project Team/Personnel

1. New project manager. No experience with project type or contract
2. New project team – many new people new to company
3. Organizational – interfaces/communication/responsibilities
4. Key personnel not managed/worked on similar project or contract before
5. Lack of project manager's or team's business experience
6. Key personnel not available
7. Personnel in new positions
8. Lack of continuity of personnel from previous projects
9. Significant training requirements
10. Availability of key personnel
11. Limited resources
12. Personnel available only part time
13. Reliance on key personnel or external expertise
14. Personnel require training
15. Lack of team spirit
16. Responsibilities not clearly defined
17. Specialists'/architects' egos and other egos!

3.8 Design/Technology

1. New/unfamiliar technology, process, or equipment
2. Insufficient development time
3. Incomplete design scope
4. Evolving scope due to technical uncertainty
5. Availability of information
6. Availability of Users for involvement in early phases
7. Innovative application
8. Level of detail required and accuracy
9. Lack of confidence in basic data/project assumptions
10. Appropriateness of specification
11. Likelihood of change
12. Interaction of design with construction
13. Non‐standard details
14. Non‐standardisation of suppliers
15. Level of quality control
16. Reliance on external expertise
17. New hardware or new software
18. Complex or a lot of software
19. Changes to or updating of software required
20. Unfamiliar systems, interfaces with other systems

3.9 Implementation/Fabrication/Installation/Construction

1. Construction manager not involved in the early design phase
2. Delay in possession of facilities/site
3. Failure of equipment
4. Availability of equipment and materials
5. Weather
6. Quality/availability/productivity of people, both manual staff and management
7. Full time or part time working
8. Industrial relations
9. Absenteeism – sickness
10. Suitability/availability of bulk materials
11. Supply of manufactured items
12. Quality/availability/productivity of subcontractors
13. New methods, systems, or procedures
14. Unusual safety issues
15. Late design changes
16. Failure to maintain productivity
17. Failure to fabricate/construct to specification
18. Poor workmanship
19. Poor ground conditions. Do not accept unknown ground conditions!
20. Relationship of contracting parties
21. Liaison with public authorities
22. Wastage, theft, or damage to materials
23. Errors or omissions in material take‐offs or bills of quantity
24. Communications with project team
25. Delay in design information
26. Poor manufacturers' drawings

1. aa. Access problems/restrictions
2. bb. Damage during transport – storage
3. cc. Damage during installation/construction
4. dd. Traffic violations/congestion charges

3.10 Setting to Work/Commissioning/Start up

1. Failure to meet process guarantees
2. Failure to meet schedule
3. Inadequate mechanical completion tests/system tests
4. Not involving commissioning personnel and/or operators early
5. Test packs not started early enough
6. Availability of client user personnel

3.11 Plan for some of the worst risks, and then you will be better able to cope with a worse than the worst risk!

4.1

It can be argued that the biggest risk of all is the people not performing their work correctly or effectively. The majority of the risks listed are the fault of people failing to perform a study, an analysis, or an investigation, or failing to train staff to have adequate skills and so on.

4.2

On the whole project managers are optimists. So remember that over‐optimism will lead to under‐estimation of cost and time and even to the risk themselves.

4.3

Projects don't seem to go wrong because of the big risks, despite the fact that there is limited ability to control them. Perhaps this is because people give them a great deal of attention. Projects go wrong because of the multitude of high probability, low impact risks, despite the fact that we have total ability to control them as part of the design, procurement, and construction work process. Work at them more.

4.4

People tend to be risk takers when dealing with a loss and risk averse when dealing with a gain.

5.1

Ideally a country risk assessment will be specific to an enquiry for a particular prospect that the business development people have in mind. It needs to be thorough since it should form part of the documentation for the approval‐to‐tender request.

5.2

The introduction to the country report will provide general data about the country: population, economics, rate of inflation, parliamentary system, culture, religion(s), and language(s). See also Section O, Site Checks. Most of this preliminary data can be obtained from financial institutions.

5.3

Credit rating of the country. Check with the national insurers:

5.4 Other information more focused on doing business in the country is as follows:

1. The legal system, is it: English, European, or socialist? What are the rules for establishing a joint venture? What are the formalities for registering a local branch?
2. What are the direct and indirect taxes – national and local taxes and taxes on goods and services (VAT equivalent)? What personal taxation will apply to expatriates? A word of caution: we asked the tax people what we should do with regard to the importation of goods on a project in A*****a. We followed their advice. However, just as the project was coming to an end, we received a tax demand. We responded, “But, we followed your advice.” They replied, “Yes, but we were wrong, and because you haven't paid the taxes you are subject to a 100 per cent fine as well!”
3. Details about the banking system and about the transfer of funds to and from the country. What are the rules for establishing a local bank account? When we came to closing our bank account on the same project as b above, we were not allowed to transfer the balance back home.
4. Methods of doing business: will it be necessary to establish a local company? Will a local partner, consultant, or agent be required? What local subcontractors are available? Are there any minimum rates of pay? We learnt that in one country, you never got paid the last payment. Consequently, you have to adjust your payment schedule to take this into account!
5. Goods and services: obtain a list of restricted goods. List materials and services that are available locally. What duties are payable on imports?
6. Employment of staff and labour: on what basis can expatriates work in the country? What are the employment conditions for local staff and labour? Will religious practices or restraints affect productivity or absenteeism? What is the industrial relations scene, and are there established trade unions?