Risk Analysis

(i) Very high risk potential of collapse or failure of excavation walls and
consequently posing hazard to workers and equipment
(ii) Hazards during excavation due to presence of public utilities, such
as electricity, water, gas, or natural gases and oxygen deficient
atmosphere
(iii) Dewatering problems
(iv) Wet, slushy ground conditions, causing slips, trips, or falls,
complicated by limited spaces in which personnel work
(v) Ground and/or ground water table changes affecting nearby structures.

Wedging or breaking of the grab during excavation may require largescale

and expensive fishing work.
Additional excavation which is necessary if the trench wall is broken
through increases the volume of concrete required and leads to irregularities
in the wall surface (reworking).
More time and additional costs may be necessary if the reinforcement
cage wedges during installation.
It may not be possible to recover spacer tubes, so that they have to be
abandoned.
Leaks may result if the excavation is not accurate to dimension or
from faulty concreting.
Crack formation in neighbouring buildings
Settlement of the surrounding ground surface

Commercial
Competing projects
Competitive pressures
Demand management
Innovation
Market growth
Market share

Contract general conditions

Arbitration, courts
Changes to standard general conditions
Commercial issues
Common use contract
Conditions for acceptance
Contractor to inform himself
Delay due to principal or other factors
Force majeure events
General conditions (and are we aware of contents and implications)?
Insurance, indemnities
International contract terms
Legal, regulatory
Legally binding
Liquidated damages
Practical completion date
Prompt payment
Safety
Scope
Security, warranties
Specification requirements, quality
Variations

Counterparty
Ability to meet contract commitments
Attitude to litigation
Client business failure
Client change of ownership
Client inability to take delivery of project
Client misunderstanding of needs and scope of work
Client speed of response
Examples of risks and treatments 359

Creditworthiness, ability and willingness to pay

Experience with organization
Failure to pay or delayed payment
Future business
Loading or preferential treatment of bids
Payment delay history
Payment philosophy
Principal interaction
Principals attitude to changes in scope
Project culture and attitude: environment, quality, safety, time

Economic
Commodity prices
Currency stability, exchange rate variation

Demand growth
Demographic trends
Discount rate
Energy price
Inflation rate
Interest rates

Environment
Amenity values
Conservation
Contamination of land, water, air (deliberate or inadvertent leak, spill or release)
Dust
Endangered species
Hazardous chemicals and materials
Heritage values
Latent conditions
Legislative and regulatory constraints
Noise
Recycling

Financial
Debt:equity ratios, gearing
Equity funding and ownership
Financing costs
360 Project risk management guidelines

Funding sources
Funding withdrawn or delayed
Investment conditions
Taxation effects
Working capital requirements, liquidity

Industrial relations
Award suitability
Flow-on effects
Job security
Labour laws, regulations
Loss of management control
Strength of unions
Strike leading to delays
Strike settlement leading to higher costs

Interpretation of the brief, understanding the

requirements
Interpretation may cause overestimation and low value for money
Misunderstanding of user expectations
Poor technical knowledge in new area
Quality and detail of specification
Quality level not met
Requirements not understood fully
Timetable not met
Users expectations not met, different user groups have different expectations
Variations in contract

Joint venture, partnership

Complexity of the agreement and documentation
Complexity of the business structure

Level of control
Level of responsibility
Partner financially unstable
Partner lacks technical resources
Partner withdraws from joint venture
Potential for litigation
Probity
Examples of risks and treatments 361

Requirement for skills or equity contribution

Staging aspects

Legal/regulatory
Approval processes
Conflicts of interest
Inadequate terms and conditions
Lack of knowledge of applicable laws and regulations
Unclear contract

Natural events
Drought
Excessive heat, cold
Fire
Flood
Landslip, subsidence
Lightning
Seismic event, earthquake
Storm

Political and social

Community consultation
Community support
Government endorsement
Government or political intervention
Policy change
Political change (effect of change of Government)
Pressure groups
Public misinterpretation of decision without all facts available

Product life cycle stage

Mature
New
R&D required
362 Project risk management guidelines

Resources
Additional capital investment needed
Availability of critical components or materials
Availability of critical equipment
Availability of funds (internal, external)
New plant or equipment required

Safety
Contract safety
Drugs (use, testing)
Equipment failure
Human error
HSE processes

Legal requirements, local regulations

Product contamination
Project safety
Safety guidelines issued in or referenced in contract

Security
Community security
National security
Sabotage
Site security
Vandalism

Skills
Adequate prior experience
Availability of skilled staff
In-house, external provision
Inappropriate mix
Learning curve effects
Loss of critical skills (to illness, competitor)
Poorly defined skill requirements
Potential professional liability
Recruitment
Staff turnover
Training (timeframes, availability, effectiveness)
Training of contractors, suppliers
Examples of risks and treatments 363

Software
Database complexity
Development required
Management ability
Software complexity
Software maturity
System size
Telecommunications aspects

Suppliers and sub-contractors

Ability to deliver, skills, quality of equipment
Accreditation
Alternate suppliers, sub-contractors
Availability
Claims, variations
Commercial terms
Control and supervision
Cost of goods and services provided
Delivery of goods and services provided
Failure of critical supplier, sub-contractor
Flow-on conditions from prime contract
Lead times for orders
Limited number of suppliers or producers
New or existing sub-contract
Overseas vs. local sub-contractors
Quality of goods and services provided
Reliability of supplier
Safety attitude

Special conditions
Stability of joint ventures, partnerships
Timeliness
Transferability of warranties and guarantees
Warranty of goods and services provided

Technology
Availability of key components
Failure rates
Lack of technical knowledge
Maintenance
Need for further development
364 Project risk management guidelines

New or non-standard performance or quality requirements

Obsolescence
Reliability, availability, maintainability
Spare parts and support
Specification does not reflect client needs
Specification incomplete or misleading
Technical standards or regulations change
Technical standards or regulations unclear
Technological change
Technology not available

Transport
Acceptable forms of transport
Availability
Duration
Local conditions
Loss in transport
Police requirements
Product dimensions
Road, bridge, tunnel constraints
Site access
Special equipment
Weather effects

Out-of-area project risks

This section contains lists of risks associated with projects out of the region or country of
the implementing organization.

Communications
Channel
National/international
Reliability
Security

Culture and customs

Agents fees
Clothing and dress codes
Demoralization
Examples of risks and treatments 365

Family dislocation
Food and alcohol
Foreign business culture (including corruption)
Hours of work

Language
Miscommunication
Pay and conditions
Quality culture
Quality of business agent
Rubber time
Staff rejection
Standard of living
Working conditions

Health
Disease
Hospitalization
Injury
Lack of sanitation
Medical treatment facilities and equipment not available or of low quality
Occupational health requirements
Personal health decline
Poor accommodation
Poor working conditions
Repatriation
Safety problems
Vaccinations

Language
Accuracy of technical translation
Body language
Channels of communication
Facial expressions
Humour
Translation
Use of interpreters

Legal/regulatory
Ineffective legal regimes
Local bias in application of laws and regulations
Unfamiliar legal environment
366 Project risk management guidelines

Offshore location
Availability of suitable accommodation
Communication (remoteness, poor infrastructure)
Costs of accommodation, health, travel
Dangerous sites
Emergency response
Equipment (will it operate?)
Import/export restrictions
Material availability
Need for additional resources or time
Proximity to our offices
Support (hardware, software, spares, expertise)
Support from embassy or trade commission
Timeframe
Voltage compatibility
Weather, climate (monsoon, temperature)

Offshore skills
Personnel leave after training
Skills do not fit project work breakdown
Skills not available at the site
Suitable personnel to be sourced from elsewhere

Political
National or racial preference
Policy on repatriation of profits
Project award on basis of political factors
Relationship with home country
Stability (unrest, riots, civil war)

Religion
Holy days and festive seasons
Prayer periods
Fasting
Births, deaths and marriages
Examples of risks and treatments 367

Security
National and community acceptance of foreigners
National and community security
Political situation
Safety of staff and family members
Security of staff and family members
Site security

Staffing
Domestic visits and communication
Stability of employment
Staff absences (e.g. illness, holidays, long service, leaving employment)
Staff unwilling to take overseas assignments

Potential treatments
This section offers examples of potential treatments for a small selection of risks.
Organizations should develop their own lists of treatments for the most common risks
they expect to face.

Treatments for technical risks

Assess technical skill requirements through the life of the project, develop a skill
requirement profile for the project, identify critical skills and resources
Buy or lease rights to technology
Design redundancy into system
Hire internal or external technology experts
Monitor technical standards and regulations
Plan integrated logistics support (ILS) at project start

Treatments for delivery risks

Analyse brief and specification carefully
Assess technical skill requirements through the life of the project, develop a skill
requirement profile for the project, identify critical skills and resources
Consult closely with users and suppliers to ensure mutual understanding
Develop and maintain detailed resource plans
368 Project risk management guidelines

Establish a register of pre-qualified or accredited contractors, suppliers

Establish and maintain an internal skill and resource database

Offer alternative solutions

Plan internal skills development
Provide suitable management tools
Provide training to meet projected skill requirements
Re-allocate internal staff, replace lower skills with contractors
Rearrange other commitments
Review procurement plan in context of user needs

Treatments for supplier risks

Appoint supplier liaison managers
Assess suppliers technical expertise
Determine supplier attitude to safety, quality, environmental aspects
Determine supplier credit rating and business strength
Ensure supplier takes out appropriate insurance
Establish appropriate business structure
Negotiate terms and conditions, including warranty periods and coverage
Provide for compensation or liquidated damages in contract (enforceable in practice?)
Provide for payment and delivery terms in contract
Take suitable legal advice
Third-party or bank guarantees, insurances, confirmed letters of credit

Treatments for project structure risks

Check the regulatory terms and requirements
Determine contract terms and general conditions of contract
Determine creditworthiness and reliability of contractors and suppliers, and their technical
expertise
Draft business agreement to allocate risks and rewards explicitly, prior to commitment
Engage specialist expertise to develop the project structure, including legal, taxation,
accounting and consulting skills
Establish an agreed approval and governance structure, and an agreed internal management
structure
Establish back-to-back contracts with sub-contractors and suppliers
Establish liaison and briefing processes to expedite approvals
Identify responsibilities for liaison and negotiation with users, contractors, suppliers
and partners
Obtain guarantees from contractors and suppliers
Review previous projects
Examples of risks and treatments 369

Treatments for client quality risks

Appoint client liaison managers
Assess clients technical expertise
Determine client attitude to safety, quality, environmental aspects
Determine client credit rating and payment history
Establish appropriate business structure
Negotiate terms and conditions, including warranty periods and coverage
Provide for compensation or liquidated damages in contract (enforceable in practice?)
Provide for pre-payments in contract
Take suitable legal advice

Treatments for out-of-area location risks

Assess sovereign risk, political and currency stability
Build additional contingencies into budget
Contract with tropical diseases centres to establish health guidelines
Determine applicable tax regime and government regulations

Engage local agents

Engage local legal and commercial advisers
Establish procedures for staff to work under non-standard safety conditions
Evaluate cost implications of location on operating budgets and overheads
Evaluate security situation in target markets
Hedge foreign exchange exposures
Nominate own currency as currency of contract where possible
Obtain third-party or bank guarantees, confirmed letters of credit
Pre-fabricate where possible
Provide staff with medical and health supplies and facilities
Provide training for local employees and contractors
Reduce amount of on-site work
Take out appropriate insurance (e.g. with trade facilitation agency)
Train expatriate staff and their families prior to departure
Train staff in first aid
Train staff in relevant health and safety matters
Use local contractors