In today’s business climate, completing a new capital project (or expanding your existing facility) can feel like swimming through a tank of hungry sharks. New technologies, tight money and schedules, an inexperienced management team, aggressive competitors, and governmental regulations are just a few of the risks that can threaten the success of your project.
Failure to anticipate and manage risks can not only impact the ongoing project but also damage a company’s overall reputation and impair its financial health. In the past year large companies and contractors have experienced financial difficulties and even entered bankruptcy after major projects missed important schedule and cost targets. In addition to impacts to the company, members of a management team that does not proactively identify and mitigate project risk can suffer damage to their personal and professional reputations.
Although most companies do some amount of assessing risk as part of their normal work process, I recommend a more organized, disciplined effort that includes standardized roles and responsibilities, work processes, and tools. This effort drives communication, visibility and ownership of potential risk and will create a risk culture within your organization that supports continuous improvement.
“The process of identifying and mitigating risks should start during the initial effort to develop the plan for a new capital project.”
Begin Assessing Project Risks Early in Your Planning Phase
The key to successfully managing risk is to assess potential risks early. The risk profile for any project will change as it moves through the stages of conceptual design, detailed engineering, procurement, construction, start-up / commissioning and full operations. During conceptual design the risk will be much different than at the commissioning stage. The process of identifying and mitigating risks should start during the initial effort to develop the plan for a new capital project. If you don’t thoroughly assess and minimize risks during each phase of your project, the cost and schedule of facilities completion will be impacted. You are also likely to experience longer-than-expected ramp-up time, higher life cycle operating and maintenance cost, excessive downtime, quality issues and potential safety, health and environmental issues.
A successful risk management program requires the support of upper management to drive the risk culture that should exist through the life of the project. As part of strategic planning for a new plant or facility, this management commitment can be demonstrated by requiring an operational risk assessment that identifies risks to the new operation early enough to confirm strategy and put in place timely, cost-effective mitigation measures that will reduce risk, boost on-time readiness, and lower long-term total cost of ownership. The risk assessment process should continue to monitor and manage risks during the life of the project.
Here are a few examples of risks categories that can be problematic if questions aren’t asked – and answered – early in your planning process:
Corporate Strategy Risk
Do the corporate business objectives and strategies drive the project objectives and strategies? Do the project objectives and strategies focus the project team on critical corporate concerns like cost, schedule, performance, or safety? Is there a process to monitor and measure meeting objectives?
Brand / Reputation Risk
Have you considered the risk of not meeting corporate or project goals and objectives? How could not meeting goals for cost, schedule, or performance affect clients, suppliers and other stakeholders? What corporate commitments could be impacted by missing key milestones?
Project Management Team Risk
Do you have the right resources assigned to the project management team? Are the team members part-time? Do they have the right experience (engineering, procurement, construction, start-up, operations)? Does the project team have the full support of upper management? If the project extends over many months / years, are the team members committed for the long haul? If not, what is the impact of team turnover?
Risk of Competition
There could be existing or new competitors that could shift market demand and customer expectations. Will your project produce the expected financial returns by delivering more value to the customer? Will it help you to remain competitive by improving quality, increasing productivity or reducing costs?
These risk categories represent just a few of the areas explored with an operational risk assessment. Of course, assessing risk is not a one-time exercise to be completed in the early planning stages of a capital project. The size, complexity and criticality of your project will drive the detail and frequency of your risk assessment program. As you transition through the different phases of your project, different risks will need to be identified and mitigated. Monitoring progress will need to be a project team priority and will allow the team to better control project cost and schedule.
If you want to protect your project, your company, and your professional reputation from that tank of hungry sharks, the time to begin identifying and managing your risk is now, while that new capital project is still in the planning phase.