How to Deal With Systemic Risks beyond Project Responsibility

Many large projects can be impacted by risks and opportunities which are beyond the control of the project or organisation, and which can be systemic (e.g. like climate change, global economics) or that can be quite unknown. The situation gets worse the longer the project is, or for owners that must consider the full infrastructure lifecycle over decades. How to account for those risks and opportunities as part of the project risk analysis is not always straightforward. In our new White Paper 2023-07 ‘How to Deal with Systemic Risks Beyond Project Remit’, we expose a method which allows for due consideration of those risks and opportunities.

Systemic risks require a specific treatment. Their occurrence is independent of the project or organisation management and only their consequences can be addressed.

Systemic risks affect the entire economic and social environment of the project. They generally have multiple consequences on many project aspects and are not quite under the control of the organisation. Examples include interest rates variations, currency foreign exchange fluctuations, inflation, raw material and equipment price changes, climate change, general economic growth (or recession), social unrest etc.
As project-driven organisations are generally not in the gambling business, the risk and opportunity process aims at protecting the project and the business as much as possible from such risks. Because those risks cannot be addressed by a direct action from the project or the organisation, the only possible protection is by managing the consequences of their occurrence.

The best strategies are to avoid or transfer those risks, followed by internal hedging through diversification. Their evaluation will require specific techniques; they are generally assessed at the organisational or portfolio level, and prospective scenario-based analysis will be more effective than more traditional probability based techniques. Contractors and owners will generally have distinct strategies due to quite different involvement timeframes and strength of their balance sheet. Still, there is always residual risk in any business venture and the residual exposure must generally be publicised for investors to understand the risks they take.

Discover more on this topic in our new White Paper 2023-07 ‘How to Deal with Systemic Risks Beyond Project Remit’.

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