Putting the breaks on spiraling project costs

Applying risk management to project planning and execution prevents surprises, reduces costs and ensures a successful outcome.

Typically, projects start with a great idea. To get the buy-in of senior teams, attract partners, raise funding and generate sufficient interest to get a project off the ground people inevitably focus on the end event.

Oliver Laloux, Business Unit Leader, Strategic Risk Consulting, a division of Alexander Forbes Risk Services calls this, “Funnel vision, when everyone gets excited about the end product.

“All lines of sight are focused at the endof the funnel – where the project is going to be delivered. No one looks at all the points and factors along the way where things can go wrong.”

Laloux believes, “The importance of taking a step back from a project and considering it as a complex of many parts, rather than an end event, cannot be overemphasised.”

In the experience of Alexander Forbes’ Risk Management Consulting Unit, things that typically go wrong ‘inside the funnel’ that prevent a successful end point include:

• Projects run overtime. The longer a project is delayed the more it costs in salaries, equipment hire, professional fees and lost earnings.

Laloux says, “The fact that over 60% of big capital projects are delivered late means that risk analysis is seldom successfully applied.”

• Strikes drive costs up and cause delay. Contractors or consultants wanting more money because they have not planned properly, late payment or disagreements between various contractors, or extraneous political and economic factors can result in strikes and industrial disputes.

• Skills are unavailable. Once a project is well underway people often discover that the skills are not available to complete critical parts of the project. And even if skills are available it is often suddenly discovered that a number of other projects requiring the same skills are happening at the same time - driving the cost of critical skills through the roof.

• Tie-in problems. In brownfield environments projects are commissioned as extensions of existing projects.

For example, factory construction projects are usually commissioned as extensions to existing operations and new mining projects are often linked to an older mine. As

such, the scope of things that can go wrong during the ‘tie-in’ phase of a project is vast.

Says Laloux, “If these potential problems have not been anticipated by seasoned professionals capable of identifying tie-in issues in advance there could be months or

even years of delay before a new project actually starts delivering what it was commissioned to deliver.”

• Original design parameters are compromised during construction. The practical realities of several different contractors, construction disciplines, unforeseen geological and other problems often results in projects being constructed differently to what was originally planned.

As such, commissioning owners often experience difficulties operating their new projects as final project parameters differ crucially from the original design specifications.

• Projects are white elephants. Despite the best intentions of their designers or the failure of those that commission them properly to communicate their needs or understand the plans, projects can turn out to be white elephants at completion.

Laloux adds that, “It is surprising how many projects that take years in time and hundreds of millions in cash to complete are failures – are simply never used.”

A thorough understanding of a project’s business case and the application of effective risk assessment techniques during conceptualisation can prevent a team getting so

excited about the end point that they don’t take realities or new developments into consideration.

Laloux believes that, “Knowing what questions to ask at all the points of the project funnel can mitigate the factors that threaten the delivery or relevance of a project.”

Importantly, however, this planning needs to be done upfront, at the very wide end of the funnel

Most critically, adds Laloux, “Risk planning and assessment needs to be done by a team of professionals that do not have a vested interest in seeing the project commissioned.

“Experience shows that using project risk planning improves delivery times and cost estimate accuracy by 60%.”