Reducing Risk on Infrastructure Projects

Reducing Risk on Infrastructure Projects 

Reducing risk on infrastructure and construction projects presents
many logistical challenges. Getting it wrong right at the start will
bring years of headaches. But, by taking a proactive approach,
stakeholders can reduce uncertainty during the planning stage. This
gives project managers insight into mitigating risks on future
infrastructure projects using lessons learned to save on future project
costs.

Risks on infrastructure projects are predictable. These can include the insecurity of funds, cost of project
overruns, failing to source materials and workers, and delays. These are
the common challenges stakeholders face during large infrastructure
projects.

It takes hands on project management to juggle all moving parts of a long-term infrastructure to keep it on track.  

 

Risk performance influenced by uncertainty

According to the Institute of Risk Management research, Managing cost, risk & Uncertainty in infrastructure projects,
project managers face many challenges. This most important phase of a
long-term, infrastructure project is during in the early, planning
stages. A lack of transparent risk assessment during this phase can mean
high risk and uncertainty throughout the project. This can cause:

1. completing a risk analysis with different possible outcomes
2. poor decision-making
3. stakeholder optimism – delusion or deception
4. loss of focus and sub-optimal risk mitigation.

Risk analysis challenges

A risk analysis is subjective, especially on infrastructure projects.
Why? There is no clear way of progressing hypothetical risk analysis to
project specific cost analysis within a commercial structure. There is
also a tendency to exaggerate how well mitigation strategies work. So,
project managers identify unnecessary risks or overestimate the effects
of mitigating project risks. This leads to overestimating costs. 

Challenges of poor decision-making

An Institute for Government (IfG) report, What’s wrong with infrastructure decision making? found the following key flaws in stakeholder decision-making for infrastructure projects:

• No
  strategies for investing in infrastructure. Stakeholders      often do
  not have clear strategies for investing in infrastructure      projects.
  Without infrastructure investment strategies, it is difficult to make
  good decisions. Also, there is nothing to measure project outcomes
  against.
• Little attention paid to
  assessing options at the start. Stakeholders spend too little time
  during project development looking at all the options. This can result
  in missing better project options causing project cost blow outs.
• Misunderstanding
  project risks. Decision-makers can misunderstand project risks. This
  can mean there is little forward planning for when things go wrong.
• Winners
  and losers. Infrastructure projects can divide communities and create
  winners and losers. These groups can have a lot of influence on
  decision-makers and cause project delays.
• Lack
  of project measurement. Stakeholders fail to measure infrastructure
  project outcomes against the costs when completed. Having key
  performance measures is an invaluable tool for future use. This helps
  stakeholders to learn from past mistakes when commissioning new
  infrastructure projects.

Challenges of stakeholder optimism – delusion or deception

Reducing risk on large infrastructure projects depend on whether:

• the assumptions stakeholders adopt are strategic misrepresentation or genuine optimism
• financial managers ignore/misunderstand real risk levels while pressuring for cost reductions to meet short-term financial goals
• there has been an overestimation of the risks by project managers to secure a larger contingency fund and, thus, cover all bases
• pricing from contractors is low to remain competitive but they may use other means to maintain a profit
• there is resistance from project managers to processes and procedures that reduce contingencies and risks.

Complex
projects increase these risks. Taking control and ensuring transparency
from the start helps reduce infrastructure project risks. You can
mitigate risks during the contract phase.

Reduce risks during the contract phase

It can take years to fully complete infrastructure projects, so they have
long-term project plans and phases. During this time legislation and
regulations can change. This needs careful consideration during the
contract phase, especially if dealing with European contractors.
Consider the following:

• Are
  there higher costs related to dealing with a European contractor? Look
  at the different legislation between the two countries.
• If there are changes to immigration legislation that impacts the contractor’s access to workers, who is responsible for this?
• Who is responsible for paying the taxes between the UK and the EU?

You
should also consider the risks associated with currency variations, as
well as the continuity and cost of a skilled workforce. If sourcing
skilled workers from overseas, can you maintain the workforce for the
duration of the project?

It is important to
mitigate these types of risks at the contract stage. Having these set
out in contracts before starting the work can reduce costly potential
conflicts during long-running infrastructure projects.

Overcome challenges on infrastructure projects using transparency. Good construction risk management software or Infrastructure project management software
can give all stakeholders the transparency required. Planning a
realistic acquisition program allows all stakeholders to fully
investigate all the options. Once these are clear, you can take a
logical approach that accounts for emerging technology and changing
economic times.