Project Resilience Planning
R/MW Consulting provides a proprietary methodology for assessing a project’s uncontrollable risks, determining vulnerabilities, and providing actional insights to build cost and schedule resilience. This unique approach is described below.
Today’s projects carry high levels of uncontrollable risk
Whether the investment is in renewable energy, oil & gas, chemicals, pharmaceuticals, or datacenters, today’s capital projects are characterized by high cost and long durations. Financing often comes from new types of investors, and economic viability may be dependent on government policy. Large projects experience challenges from non-financial stakeholders, difficulties with new and/or rapidly scaled up technologies, and issues with the supply chain. And they are exposed to geopolitical, economic, regulatory, and other global risks. Recent events such as COVID, and wars in Ukraine and the Middle East have vividly demonstrated the impact these largely uncontrollable risks can have.
Conventional project risk management practices are not effective for uncontrollable risks
Conventional project risk management practices are designed to manage controllable risks such as design changes, as well as quantity, pricing, and productivity variations. These risks are almost certain to occur, are readily managed by project teams, and diminish with time. But the uncontrollable risks surrounding today’s projects are difficult to predict, they may or may not occur, exposure often increases with time, and the impacts are often devastating. While we may not be able to manage these risks in a conventional way, we can focus instead on building resilience.
We can’t prevent uncontrollable risks – but we CAN make projects resilient
Given our limited ability to predict and mitigate uncontrollable risks, we must redirect our focus from risk management to resilience. While we may not be able to prevent a risk from occurring, we can certainly build resilience into our strategies and designs that will preserve the project’s objectives in spite of adverse scenarios. A carefully crafted Project Resilience Plan will give financial stakeholders the confidence they need that their investment goals will be met.
Building project resilience requires us to answer three critical questions. The goal is to understand the uncontrollable risks we face, our vulnerability to these risks, and how we can increase our degree of control over whether they occur and the potential impact if they do. These are described below.
There are three types of uncontrollable risk:
- Ecosystem risks are associated with the business environment in which the project takes place. Examples include global economic trends, and geopolitical events.
- Exogenous risks are associated with unpredictable events that can result in significant loss of life or property. Examples include severe weather, climate change impacts, public health events, armed conflict, and terrorism.
- Extraordinary Execution risks are associated with unexpected, major deviations from the approved scope, design, & execution plan. Examples include major scope changes, supply chain breakdowns, regulatory changes, schedule disruptions due to actions by non-financial stakeholders, and failed new technologies.
To build resilience, we must determine our project’s vulnerability
Focused on controllable risks, conventional project risk management is based on the reasonable assumption that risk exposure is reduced as the project progresses through execution. But uncontrollable risks are just the opposite; exposure is much greater during execution. The key concept here is cost and schedule vulnerability, defined as the probability and impact of a potential risk, adjusted for the degree of control. For example, a project that is procuring engineered items from a low-cost geography may be exposed to the risk of new tariffs resulting from adverse geopolitical trends. Although the likelihood of this happening may be low, the impact would be severe, and so vulnerability is high. While we have little control over tariffs, adding regional diversity to the supply chain would create optionality that increases our degree of control and thereby reduces cost and schedule vulnerability.
Building resilience requires increasing the degree of control over uncontrollable risks. While this may seem counterintuitive, there are several strategic levers that can reduce the likelihood of the risk or the impact if it should occur. Depending on the risk, various forms of influence may be available to reduce likelihood, or strategies to evade it. Commercial, financial, technical, or execution optionality can reduce potential impact, as can ruggedness in the engineering design.
The R/MW Resilience Planning Model provides the insights needed to manage uncontrollable risks
The R/MW Resilience Planning Model addresses the unique challenges of uncontrollable risk analysis including:
- Unpredictability of occurrence – uncontrollable risks may not occur on the project, or they may occur once, or they may occur more than once.
- Compound risk impacts – uncontrollable risks typically have compound impacts; for example, if the risk of a severe delay in permitting occurs, this can disrupt engineering continuity and move procurement and construction to a time of higher activity and cost.
- Interdependency of schedule and cost risks and impacts – uncontrollable risks typically have a high correlation between cost and schedule that increases overall impact.
- Resilience levers often require considerable time and resources, so vulnerability reduction opportunities must be ranked to highlight those with the greatest potential to reduce vulnerability.