Assessing the Impact of Regional Risks on Capital Project Outcomes
IPA’s Project Regional Risk Analysis and Country Profile reduces the burdens project organizations and businesses face in executing a capital project in a new and/or unfamiliar region or country. Organizations must assess local risks and their impact on project performance to select the best opportunity for business needs. Business executives are expected to ensure their project teams are sufficiently experienced and have access to meaningful information on regional labor performance, logistical challenges, and the political environment. However, owner companies often lack detailed and unbiased data to assess these types of specific regional project risks.
IPA’s robust datasets can be used to supplement or validate a company’s regional risk assessments. With the application of a number of statistical methodologies, IPA can produce an analysis of risks specific to executing a project in the given region or country. This makes it possible to estimate the effect of various regional factors on project outcomes, and highlight the areas of greatest risk and uncertainty.
Data-Driven Project Risk Evaluation
IPA’s Project Regional Risk Analysis and Country Profile includes the following data-driven project risk evaluation findings for proposed capital projects in a given geographical region:
- Planned cost and schedule benchmarks so portfolio managers are able to understand the total cost of a given facility among different regions relative to a reference location.
- Comprehensive analysis of the probability of leveraging events in a selected region: Weather, labor strikes, NGO interference, and economic volatility—suitable as the basis for a set of probabilistic project risk mitigation strategies and outcome scenarios. The analysis provides direct incremental cost and schedule effect due to the occurrence of these events. They are summarized into a “traffic light” type matrix. The matrix uses global averages as a baseline, in order to highlight the relative risks of building projects in these regions.
- Analysis of regional environment on project risk: A “ground up” analysis of historical project outcomes for the region, including a narrative of risks and lessons learned specific to projects completed in the region and a set of risk mitigation recommendations.
- Assessment of contracting strategies typical for the region and strength of the EPC market
- Regional labor productivity analysis, including descriptive statistics for various trades.
- Lessons learned specific to the risk factors inherent to the proposed investment: This approach can be used to aid executives in evaluating project risks even when no actual project data from a region exist. The robustness of IPA’s projects database, plus its experience with projects with like characteristics executed in diverse regions, stands apart from other consultancies.
How We Help Our Clients
Selecting the Right Location for a New Chemical Production Plant
A medium sized chemical company was targeting 4 different regions as potential sites for its new production plant. IPA provided baseline data that supported an FEL1 decision process to identify the right location based on regional risks. IPA’s work, which was being incorporated as part of a broader risk matrix analysis, focused on three different approaches to address the client’s questions and concerns:
- Historical Cost & Schedule Outcomes by Region
IPA provided distributions of historical cost and schedule outcomes for each of the four regions, given a similar production plant with industry average cost and schedule targets. Relative cost forecasts were generated for each region using IPA’s regional factor data. The prevalent contracting strategies for the regions were also evaluated, and differences in performance reported when significant.
- Event-Based Risk
A heat map of event-based risks was generated to compare the four regions. The evaluated risks included: construction labor shortages, engineering labor shortages, unanticipated wage changes, labor strikes, price changes, and weather events. The frequencies and expected values of these events specific to the region were calculated and reported, and the risk relative to the global average was used as the basis to assemble the heat map.
- Regional Risks vs. General Project Risks
One particular region was subject to high variance in project outcomes, and the client requested a deeper analysis of the risks experienced by projects in that region to determine if the risks were increased due to factors specific to the region, or if they were general project risks that were independent of region. The analysis identified several issues whose impact was resultant from gaps in practices that led to increases in the impact of the regional risks. These lessons learned then provided a basis for reducing risks on subsequent projects in the region.
Using a Risk Register to Mitigate Regional Project Risks
An energy company approached IPA early in the definition phase of their offshore megaproject to assist with the development of an execution phase risk register. From a large population of megaprojects similar to the client’s project, IPA generated a risk register containing over 100 incidents, organized into thematic categories such as quality assurance problems, procurement delays, design issues, and field labor. For each incident theme, IPA provided analysis based on detailed case histories for each project, related relevant research, and, quantified the effects of certain incidents on project outcomes. The resulting register was presented to the client, who used it to develop detailed mitigation plans including a number of historically-proven preventative strategies and tactics.
Evaluating Perceived Gaps in a Capital Investment Risk Process
A large mining company contracted IPA to evaluate possible gaps they perceived in their corporate risk process as applied to capital investment. IPA first provided a detailed audit of their practices, comparing them against empirically validated best practices employed by other industry peers. This audit provided the basis for a detailed report documenting an updated risk management process, inclusive of detailed requirements and definitions to support both qualitative and quantitative risk analysis. A comprehensive analysis of contingency setting and management practices was also developed with requirements, costs of implementation, and resultant benefits identified. This report was used as the basis to implement new systems and procedures, educate project stakeholders about risk management methods, and set a baseline for targeted project system improvements.
For more information about the Project Regional Risk Analysis and Country Profile contact Natalia Zwart or Alex Ogilvie.