23
may
2014
infrastructure
investor
How can risk management on
mega-projects be improved?
CD: There are a number of ways that
risk management on mega-projects can
be improved from typical practices. The
first and most important is ensuring that
risk management is not simply a com-
pliance or “box-checking” exercise but
builds a direct line of sight to the value
of the project and has a seat at the table
with critical decision makers.
The second is ensuring that dis-
cipline is instituted and maintained
in keeping the risk management pro-
gramme continually revised and refined
as the project progresses.
Thirdly, many risk management pro-
grammes suffer from an overly narrow
view of risk and uncertainty. It is human
nature to discount uncertainty in the
future. The world is a much more uncer-
tain place than we tend to believe – social
scientists have found hundreds of biases
that lead us to this overly narrow view
of the world. A robust risk management
programme must challenge these biases
and encourage a broad view of risks. This
broader view of risk includes incorporat-
ing “unknown unknown” or “black swan”
risks into the analysis. These are high-
consequence, low-probability risks that
are endemic to mega-projects.
Finally, it is critical for a risk manage-
ment programme to ensure broad aware-
ness across the project and stakeholders
and to build alignment around the risk
mitigation strategy.
Are there examples of mega-projects that
have been successfully executed? What
differentiated them?
CD: There are a number of examples of
successfully executed mega-projects. The
construction of Heathrow Terminal 5 in
a dense, heavily congested urban area,
and with the operating constraints of
one of the largest airports in the world,
would have been expected to encounter
numerous challenges. While the bag-
gage handling system had a number of
problems when the terminal opened, as
a construction project the $6 billion ter-
minal was very successfully executed. This
success was due to the investment of the
owners and constructors in a substantial
amount of advance planning and analysis
(including the use of numerous dry-runs
and mock-ups) as well as an innovative
approach to both risk and consortium
management that the owner adopted.
This innovative approach to risk, in
which the owner essentially assumed
all of the risk on the project, not only
allowed the construction consortium to
be aligned around a single goal, it also
saved considerable schedule and budget
and ultimately, proved its benefit with
the successful execution of the project.
More broadly, there are numer-
ous technologies in the “nth-of-a-kind”
(NOAK) stage of maturity whereby there
have been enough repeated projects that
design is complete and upfront planning
and execution more standardised. Pro-
ject costs and schedule outcomes are
more predictable. The challenge for many
such project types, however, is complet-
ing the initial (FOAK) projects successfully
enough to prove viability to prospective
owners and investors, progress down the
cost learning curve rapidly, and provide
opportunities to build NOAK projects.
What role does Strategy& (formerly Booz
& Company) typically play in mega-project
planning and execution?
CD: Strategy& supports engineering,
procurement, and construction (EPC)
firms, project owners, suppliers, and
investors throughout the life-cycle of a
mega-project with an array of manage-
ment-level advisory services. Specifically
we support initial investment evaluation,
decision analysis, and advance planning
through to programme management, risk
management, the institution of govern-
ance and project controls, and including
start-up and de-commissioning.
We have supported hundreds of
large capital programmes from the $90
billion US Navy nuclear submarine pro-
gramme to transportation, energy and
infrastructure projects in every region
of the world. We have gathered lessons
learned from those projects into tools
such as a global delivery framework and
capabilities assessment tool that allows
us to measure our client’s capabilities
in 30 critical areas against best practices.
We have been able to deliver real
value to our clients in areas such as cost
and schedule improvement and risk miti-
gation as well as finding real savings in
areas such as procurement. The combi-
nation of Strategy& and PwC enables us
to support clients with not only finding
opportunities for performance improve-
ment but also working side by side in
implementing the improvements and
achieving the promised results.
n
Christopher Dann is vice president at Strategy&
(formerly Booz & Company), a member of the
PwC network focused on assurance, tax and
advisory services
“This broader viewof
risk includes incorporating
“unknown unknown”
or “black swan” risks
into the analysis”
RISK
