Risk Management in Infrastructure Needs Improvement as Cost Overruns Surge part 2 of 2


Frequently, project teams have been inclined to link construction project success with the three aspects of time, cost and quality. Cost of risk is a concept that many construction projects or organizations do not pay attention to, despite the fact that it is one of the largest expense items. Cost of Risk may become obvious during construction and continue after turnover of the project to the Owner, who must then spend additional funds to mitigate the realized risks. Authorized Change Orders during the contract provide the appearance that the project was completed within cost, but the reality is that the final cost of the project is now greater than the forecasted budget when the project was proposed.

Paying later for a modification always costs more as the project progresses, than if assessed, addressed and planned for during project initiation.

Todays’ infrastructure projects involve a large number of stakeholders that enter the project life cycle at different stages with different roles, risk-management capabilities, risk-bearing capacities, responsibilities and interests. This complexity requires the division of roles and responsibilities among the various contractors, operators and vendors; thereby producing significant interface risks among the various stakeholders that materialize throughout the life cycle of the project; these must be better anticipated and managed from the outset. Appropriate front-end project planning is critical in shaping the project’s risk profile so it can be managed during execution. Execution has to be about aggressively mitigating the risks that emerge and know what risks are inherent to a project and to what degree of freedom a project manager has to shape the risk profile before committing additional funds.

The lessons learned process at the end of projects reveals that risks which materialized in later stages of a project were actually caused in earlier stages under different responsibilities. This requires an end-to-end risk-management view, as opposed to a specific process-step responsibility. There must be a greater emphasis for risk-management processes from the outset of a project and for these processes to be applied and continuously developed throughout the life of the project.

Project risk management should deliver a clear, quantified review of the risks associated with costs, performance and schedule that allows the project team to work within effective timeframes and a more realistic budget. The outcome is that the stakeholders and financing partners will have increased confidence in the management approach and ability to make project decisions with greater certainty. Strategy and risk-related processes need to be strengthened, and the governance and organizations’ risk cultures enhanced. Risk management is one of the nine knowledge areas propagated by the Project Management Institute. Risk management in the infrastructure context must be a comprehensive and systematic way of identifying, analyzing and responding to risks that achieve the project objectives. The project’s successful completion is dependent on thorough planning and execution that contains contingencies and mitigation of risks that deliver a project within budget and schedule.

Implementation of a state-of-the-art risk management approach for infrastructure projects needs to reflect the idiosyncrasies of the industry that accepts a forward-looking, life-cycle-oriented risk assessment that produces insights into the root causes of identified and potential risks at the beginning and throughout the project. This should be followed by an accurate understanding of the stakeholders’ capabilities, their preparedness to take on and actively manage certain risks, the respective allocation and costs of these risks and the risk-ownership structure. By adopting this state-of-the-art risk management approach, savings potentials will be realized in these large infrastructure projects. The integration of the risk management system within infrastructure projects must be concerned with the progress of the project and permeate all areas, functions and processes of the project.

With infrastructure projects ramping up around the world – many using public sector funding; it is critical to deliver these projects on time and with the budget that was forecasted by the respective agencies.

  • Philippines has nine water related projects in the pipeline until 2020.
  • Water reclamation projects are quickly increasing, requiring a greater level of co-ordination between government agencies and a better understanding of the economic drivers influencing treatment or re-use and determining the means of paying for the required infrastructure.
  • Taiwan has begun a multi-billion dollar endeavor to turn six of its wastewater treatment plants into resource reclamation centers for its industrial customers.
  • Gabon National Infrastructure – has embarked on the implementation of its masterplan over a 15 year period. Its priorities are to increase industrial capacity and process raw materials locally and sustainably manage the country’s resources and economy for its 1.5 million citizens.
  • A Deep Sea Trans-shipment Port in the Republic of Sao Tome e Principe is to be developed and constructed in phases under a PPP model with China Harbour Engineering Company Ltd (CHEC)
  • India and Germany signed a deal this month to fast track business approvals to make it simpler for German companies operating in India. Eighteen (18) Memorandum of Understandings (MoU) were signed for cooperation in the fields for civil aviation, railways etc.
  • Shell Offshore Inc. recently awarded a development of Subsea Infrastructure to Technip in the Walker Ridge area in the US Gulf of Mexico.