Introduction

Overview

This case describes a simple project risk assessment undertaken to initiate formal risk management on a large expansion program for a port that handled significant volumes of bulk commodities for export. It demonstrates the value of tailoring the risk assessment for the circumstances. In this case, a modified pre-mortem process was used for risk identification, and the corporate scales for operational risk analysis were adjusted to better suit the project.

Background

The assessment had a particular focus on major dredging operations that were planned for the port, and disposal of the dredged waste. The first project in the program, the focus of this assessment, was to deepen shipping channels used to access the port area. These works were required to allow access initially for construction vessels, then to build processing and loading facilities at the port, and finally for export vessels.

Apart from some early works, the spoil from the dredging was to be placed to form reclaimed land behind a rock bund made from material to be extracted from a nearby quarry. A haul road was to be constructed to allow heavy trucks to move the rock without using public roads, including a grade separated road crossing.

There were two major milestones:

• Statutory approvals for construction access
• Full approvals for export vessels.

At the time of this workshop, many details of the expansion program were still to be settled, so the initial risk assessment was couched in terms of relatively high-level features of the dredging project. As work progressed, the project team expected far more detail to be developed.

Risk assessment

Stakeholders

The major stakeholders were the port operator, exporting companies that would be the prime users of the expanded facilities, the local community, Government departments and statutory bodies.

The port operator had an interest in the successful execution of the project as a whole, the expanded activity that the development would bring and the future exploitation of the reclaimed land.

Five export businesses had an interest in developing the port. Their commitment was to underpin the investment in the project. None yet had financial close on their own developments but their need for shipping access to start building their own facilities was a major driver for the project schedule. The companies had shown an interest in developing the channels themselves but the port operator was the only body in a position to undertake the work in a manner that was equitable for all those involved.

The project's budget would be very large in the context of the port operator's annual turnover and balance sheet. It was to be funded by the export companies. This form of financing was likely to present challenges for the port operator, as projects that are large in scale in relation to their sponsor’s business can take on a life of their own, particularly if the proponents are in competition with one another.

Community interest in the project arose in the dredging and reclamation works, the development of a heavy haul road to be traversed by 100 tonne trucks and the proximity of the port to major tourist attractions and areas of great natural beauty. Many approvals would be required, and the project was already attracting the attention of local government, regulators and several state government agencies. Some of the environmental aspects of the development would also require national government approval.

Tailoring the risk assessment process

The port operator had an active framework for operational risk management, based on ISO 31000, several components of which were relevant to the project. However, adjustments were required to provide an effective project risk management tool.

In particular, the significance of major milestones to the project's success, the requirement to leave a useable reclaimed area of land, and the differences between project and operating timescales and finances had to be taken into account in the consequence scales. The port operator’s consequence scales for operational risks were revised to include eight criteria related to:

• Financial
• Early works schedule
• Completion schedule
• Reclaimed land
• Workplace health and safety
• Environment
• Community and customer reputation
• Legal.

In addition, while the likelihood of operating risks can usually be characterised well in terms of frequency, some project risks will only happen once if at all and they are better assessed in terms of the probability of them occurring. The operator’s likelihood scale was adjusted to include a frequency scale for recurrent events, adjusted to the timeframe of the project, and an event based scale for risks that could only arise once.

Structuring the risk assessment

It had been intended to use stages of the engineering process as key elements for structuring the workshop, but in practice it proved more effective to use the major milestones in the project instead. The team considered the following milestones and what might cause them to be delayed:

• Engaging construction and dredging contractors
• Starting land based works
• Constructing the bund
• Starting early dredging
• Starting main dredging.

Risk identification

Risk identification began by considering what could delay each of the major milestones. Causes of delay were expressed as risks and analysed further, looking at what in turn would cause them to arise and what other consequences they might have, apart from delaying important milestones.

Additional risks were considered as well, but the milestone focus captured the main concerns at this stage of the project.

Risks were recorded in three parts; causes, a summary name and consequences, illustrated in Figure 1. This promotes concise risk descriptions and leads to a simple and informative risk register.

For each risk, the analysis consisted of three steps.

• Note any existing controls that already tend to mitigate the risk; these might be factors that affect the likelihood or the consequences of the risk
• Taking account of those controls, assign a consequence score, and a score for the likelihood of incurring that level of consequence
• Assign a priority rating.

When the risks had been rated, the most severe were assigned to Risk Owners, who would be the focal point of efforts to treat them. Outline treatment actions for these risks were noted.

Risk assessment outcomes

There were five risks rated as High (Table 1).

Each of these risks was rated as very likely to affect the project. This suggested they might better be considered as assumptions to be included in the project plan rather than as risks. Several other risks with lower ratings had similarly high likelihoods and might also be included in the project plan.

Lessons

Risk identification as pre-mortem

Risk identification started by thinking about what might cause delays to the major milestones for the project. This is not a common way of identifying risks, as people are generally far more comfortable ‘thinking forward’ from causes to consequences, rather than ‘thinking backwards’ from consequences to causes. This is why we usually structure our risk assessments in terms of key elements that are more closely related to possible causes or sources of risks.

For this assessment, the risk identification was akin to a pre-mortem or ‘prospective hindsight’ process, designed to find causes for potential undesired outcomes. Pre-mortems are commonly used to elicit a broad range of causes that people might be uncomfortable or reticent to identify in a ‘standard’ identification.

Here we used parts of the pre-mortem process to identify causes, which we then expanded into extended descriptions of the kind shown in Table 1. It was a straightforward process with which the workshop participants were very comfortable, and the outcomes were readily accepted.

Generally, it is useful for workshop facilitators to be aware of, and competent in, a range of approaches to risk identification. This allows flexibility and tailoring of the process to best suit the circumstances of each risk assessment.

Tailoring the risk analysis

We usually prefer to follow a corporate risk assessment process if there is one, as this promotes consistency and comparability of analysis and evaluation across different parts of the business. However, this is not always possible, and in any case it may not be desirable for projects that are out of the ordinary or not related closely to ‘business as usual’ for the organisation.

• The analysis of risks must be related to the objectives being considered, and specific project objectives may be different from those of the organisation as a whole
• Risks might arise in a one-off project in a different way from regular operations, and this may suggest different ways of thinking about and analysing likelihood
• The way in which consequences and likelihoods are combined to generate a level of risk depends on the organisation’s risk appetite and risk tolerance; these may be different from those for ‘standard’ operations when they are applied in a large, strategic project of the kind considered here.

In these circumstances, tailoring the risk analysis process was important to ensure the assessment and its outcomes ‘made sense’ and reflected the organisation’s strategic perspective of the overall expansion program. Consistency may be useful, but not at the expense of fit-for-purpose outcomes!

Reference

Klein G (2007) Performing a project premortem. Harvard Business Review, September.