How to conduct Project risk management for Series of Industrial Projects

Some contractors or owners must manage a portfolio of identical or similar projects, and need to account for a series effect between successive projects. Portfolio performance thus depends on each project performance and the actual measured series effect which impacts both cost and schedule. Our new White Paper 2023-08 ‘How to conduct Project risk management for Series of Industrial Projects’ addresses how to specifically structure the risk analysis of those portfolios of projects.

Series of complex projects such as the construction of a series of approximately identical ships, infrastructure or power plants constitutes a portfolio of projects. Its overall performance is heavily defined by the series effect (learning curve and volume effect), whereby significant performance improvement factors both in terms of cost and schedule apply to those projects following the first prototype. This in turn significantly improves the overall economic performance of the series.

For projects performed as part of a series of projects, risk and opportunity management needs to be performed at the portfolio level. It involves different categories of risk: local circumstances, effective series effect, and industrialisation to support the portfolio. This framework can be deployed effectively to assess risk and opportunities of those series of project, where the expected benefits in terms of series effect gain can be very substantial up to the order of 30-40% efficiency improvements. Discover more in our new White Paper 2023-08 ‘How to conduct Project risk management for Series of Industrial Projects’.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-08_series_projet_portfolio_risk_management_v0.pdf

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’.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-07_systemic_risks_v0.pdf

Key steps for an Owner Acquiring a Project in Late Development Phase

Larger owners quite often acquire major projects from junior developers at various development stages, including potentially close to Final Investment Decision. Of course, such a transaction requires a substantial due diligence, as well as some precautions to fully understand the remaining risks associated with the venture. In our new White Paper [2023-06] ‘Key steps for an Owner Acquiring a Project in Late Development Phase’, based on our experience we expose some of the major precautions that need to be considered from the project management perspective.

Taking over a project in the middle of its development phase is a sensitive issue and certain project management key aspects must be particularly evaluated by the new owner during its due diligence. The execution strategy may need to be updated as well as the risk analysis to account for the impact of the new owner circumstances on the project. Many owners also underestimate the impact of the actual transition of the organisation as a result from the transaction, which will necessarily have an impact on the overall project schedule.

The White Paper states some general issues and focuses on several specific topics:

• project maturity: technical maturity, site knowledge and regulatory aspects, project preparedness
• aspects related to the business case such as estimating uncertainties, contingency, operating costs estimates
• integration of the project organisation in the overall owner organisation

Read our new White Paper [2023-06] ‘Key steps for an Owner Acquiring a Project in Late Development Phase’ to understand better the attention areas if as an owner you consider acquiring an industrial project in development phase.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-06_owner_project_takeover__v1.pdf

From Contractor to Owner Support Roles: How to Deal with a Very Different Role as a Contractor

Contractors sometimes take the role of owner support, i.e. providing an owner organisation with competent resources and possibly processes and systems to oversee a major industrial project and other contractors. This type of service actually involves quite a different mindset and setup compared to a normal contractor posture. Our new White Paper [2022-05] ‘From Contractor to Owner Support Roles: how to deal with a very different role’, building on PVD experience supporting organisations in this transition, exposes what needs to be changed in that case.

Owner support contractors are essential contributors to industrial projects when owner project management organisations are not well developed. A number of precautions must be taken when choosing such owner support teams, to avoid untoward conflicts of interest between the owner support role and other roles on the project and to ensure that they adopt an owner mindset rather than a contractor mindset.

While basic technical competencies are similar, it takes time to change the mindset of contractors’ team members to become part of an owner support team, and this needs to be identified and anticipated through proper change management. If an organisation provides both owner support and execution contracting services, we recommend that those activities be performed in two separate business units because the business and success drivers are different.

In any case, as a matter of good practice, the owner in any case needs to keep or develop sufficient capabilities in-house to supervise its interests in the project, and in particular to supervise the owner support contractor itself.

Read our new White Paper [2022-05] ‘From Contractor to Owner Support Roles: how to deal with a very different role’ to understand better the differences in position between the two roles and how to ensure that a proper owner support posture is taken.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-05_contractor_to_owner_assist_v1.pdf

Understand the Specifics of Large Renewable Energy Projects

Large renewable projects and in particular, offshore wind and hydropower projects are becoming more prevalent. They have some specifics that owners and contractors should be aware of. These specifics are due to the specific type of energy source (low density, wide area), and also on the financing requirements as many of those projects are financed using institutional or non-recourse financing. In our new White Paper [2022-04] ‘Specifics of Large Renewable Energy Projects’ we detail some key specifics of those projects.

As large renewable projects become more widespread, it is useful to remember that such projects have some important specific aspects. A lot derive from the fact that such projects are very capital intensive, in terms of share of Capex in the overall economics. Also, due to the low density of the energy source, they tend to spread over a much wider acreage. The current scale of such projects and their sheer number creates bottlenecks in the supply-chain that need to be considered early. Also, series effect, while creating potentially significant savings, can also be a major risk if not properly addressed. Finally, financing arrangements have also to be considered carefully to keep a proper decision-making and governance framework.

All of these aspects need to be understood and require prudence for owners that are involved in other energy sources and would like to develop large renewables projects. Contractors must also understand those factors to keep their risk profile under control.

Read our new White Paper [2022-04] ‘Specifics of Large Renewable Energy Projects’ for those specificities of large renewable energy projects that need to be fully understood before addressing this type of projects.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-04_renewables_projects_specifics_v1.pdf

How to Avoid Underestimating Cost Expectations during Project Definition Phase for Owners

Many owners fail to properly understand the concept of estimating uncertainty. Particularly during project definition phase, inadequate grasp of estimating uncertainty can lead to inadequate expectations of senior management regarding cost at termination, and as a consequence, insufficient funding for the project. In our new White Paper [2022-03] ‘How to Avoid Underestimating Cost Expectations during Project Definition Phase for Owners’ we investigate the issue of accounting for, and presenting, estimating uncertainty. We too often have to remind senior management to add uncertainty on top of Capex estimate when reaching Final Investment Decision!

A proper understanding of the concept of estimating uncertainties is required for owner senior management, so as to fully appreciate the estimating values provided and take decisions in full awareness of the implications. In particular, funding requirements and business planning must fully account for this concept to be realistic. Senior management expectation management is often an essential project success factor, and it is important to provide the fullest and correctly represented information. When presented to senior management, a base estimate must always be qualified and used carefully, including making its uncertainties visible. The number used as an anchor as the value of the project for the organisation must always be considering proper qualifications. This is an essential educational role of the project manager and the lead estimator.

At PVD we have encountered a situation many times, where management held in mind the base estimate value at the end of Preliminary Feasibility as a reference for decision-making. In that case, even if the project is successfully completed, questions will be asked about a visible 20 to 25% increase in actual cost at completion relative to the baseline budget something which will almost inevitably occur as the result of estimating uncertainty at the decision-making time. The reason for this increase may not be poor project management, but rather inadequate management of senior management expectations. Nevertheless, this situation can create significant issues in the middle of project execution if senior management questions actual project performance compared to its expectations.

Read our new White Paper [2022-03] ‘How to Avoid Underestimating Cost Expectations during Project Definition Phase for Owners’ to better understand how to account for estimating uncertainties when presenting early stage estimates to project sponsors and project management.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-03_capex_estimating_expectations_v1.pdf