Risk Management and Feasibility - Example

Name : xxxxxx Tutor : xxxxxxx Title : Risk Management Feasibility Institution : xxxxxxx @2016 Abstract This report details a risk assessment of the Melbourne-Sydney High Speed Train. The report utilizes the approach of quantitative analysis to assess the risks involved in the project. The report also gives detailed information on the risks as well as the risk mitigation strategies for the respective risks. The report is a master piece for the success reporting on the implementation of the project under consideration. Various risk assessment tools are utilized in order to achieve efficiency and accuracy in reporting. Contents Abstract 2 1.0 CHAPTER ONE 3 1.1 Introduction 3 1.2 Risk management framework 4 1.3 The risk management process 5 CHAPTER TWO 6 2.1 Risk identification 6 2.1.1 Key Risks 6 2.1.2 Cost and schedule 6 2.1.3 Possible consequences 7 2.1.4 Risk mitigation strategies 7 2.1.5 Potential consequences 9 2.1.6 Risk mitigation and management strategies 9 2.2 Project funding 10 2.2.1 Potential consequences 10 2.2.2 Risk mitigation and management strategies. 10 2.3 Risk Assessment 11 2.3.1 Risk register 11 2.4 Risk Analysis 12 2.4.1 Monte Carlo simulation 13 2.4.2 Overall risk matrix 13 3.0 Conclusion 14 References 15 Table of figures Figure 1: Flow diagram of a risk analysis of Malboroune high speed train 5 Figure 2: Summary of the risk management process 5 Figure 3: A 5 x 5 risk level determination chart: 12 Table of tables Table 1: Key risk matrix classification table 14 Table 2: A risk matrix table for the key risks based on the table 1 above values 14 1.0 CHAPTER ONE 1.1 Introduction Melbourne-Sydney High Speed Train has been under investigation for its feasibility for several years. Its implementation has never been commenced although several analytics have been performed by various scholars. Initials investigations commenced way back in the year 1982 and since then, no major implementation strategies have been put in place. In the year 2013, the Australian government rolled out its first implementation plan on the project under consideration (Munier 2009). Melbourne-Sydney High Speed Train project is meant to link Melbourne, Canberra, Sidney as well as Brisbane although various suggestion to extend the network to Adelaide has been under contemplation. The first phase of the economic feasibility study was released by Australian government in the year 2011. The study span through the identification of potential routes as well as near accurate projections of the cost of implementing the project. The cost was projected to range between 60 and 110bmillion Australian Dollars. Further studies were done and in April 2013, another report was released. The report argued that the entire project would cost Australian Government a revised cost of 115 billion Australian Dollars and was accurately projected for completion by the year 2065 (Staveren 2006). The trained is intended to travel at a super speed of up to 210km/hr. which is way above the accepted train speed of 200km/hr. by the various international train’s conventions. The train speed capabilities were developed and trial runs done by Queensland Rails. The construction of a high speed train network through the East Coast is a project that is meant to solve the problem of most intra-rural travels in Australia being majorly car based. Air travels is a major means of transport used in the country due to its convenience and the speed. The need for development of the high speed train is therefore a necessity. This is a major reason why its feasibility has been under investigation for several years. High speed rail systems are very expensive as well as complicated system to construct and maintain. The design and construction should put into consideration various factors such as environmental issues, scheduling, safety for both users and other occupants of the flora and fauna within the same vicinity. Reliability is another major factor that should be of focus during design and development of such systems. Assessment for viability as well as risks for such projects is an important task that should be done always. Such assessments should include an in-depth understanding of the physical environment involved as well as well as the various dimensions of the risks anticipated during the use of the system (Demkin 2008). Projections from the feasibility study reveals that high speed trains could be more viable than air travel and my crop up to being regarded to as an alternative to air travel. Such recommendations emanates from the public sector and always creates great interests in the imagination of the general public. 1.2 Risk management framework Design, development and implementation of a huge project such as the high speed train system under consideration involves a lot of both foreseen as well as unforeseeable risks. The risk exists at both the project as well as the program level perspective. It is therefore very important to identify the possible risks for the projects, find an optimal way of managing the risk as well as designing a special way of mitigating the risks. Such a process is optimally performed at each stage. The risk assessment for the project under consideration should therefore be done in such a manner so as to ensure risk free development or at minimal, minimized risk project. The analysis takes the structure summarized in the figure below. Figure 1: Flow diagram of a risk analysis of Malboroune high speed train 1.3 The risk management process The risk management from the perspective of a process is done in five steps with great emphasis on each step. The risk identification and management is of great focus in such a process (Demkin 2008). The flow diagram below summarizes the summary of risk management process. Figure 2: Summary of the risk management process CHAPTER TWO 2.1 Risk identification 2.1.1 Key Risks 2.1.2 Cost and schedule As discussed earlier in the introduction of the report, the cost estimates for the project under consideration is based on static input estimations. Such estimations do not put into consideration such aspects such as price fluctuations due to inflation and economies of scale. Thus, this possess a great risk to the development of the project since the project cost and schedule could fluctuate as the inputs under consideration keep changing within the world markets. The first phase of the economic and feasibility study projected that the entire high speed train project would cost an estimated amount of between 60billion and 120billion Australian Dollars. However, several years later, a final report on the same was released showing that a revised total cost of the project is estimated to be approximately 115billion Australian Dollars. The magnitude of monetary changes is a direct function of time which is directly related to the projects schedule. The environmental demands for the projects keeps changing with time and this means that the cost would also change upwards in order for the project to meet the standard environmental needs. Moreover, the time of completion projections is within a span of more than fifty years and this is not taken into consideration by the economic feasibility study. The schedule is directly affected by availability of funding and as normally happens, the schedule would be subjected to fluctuation due to unforeseen shortcomings. In a situation where the funding are provided by a spread of a longer time span, the cost of inputs will keep rising and the total cost of the project will keep rising as a result. This is considered as a major risk for the project under consideration (Demkin 2008). 2.1.3 Possible consequences As a result of the above risk, several consequences are likely to be anticipated. Among them are as shown below. Delay of project completion or in a worst case scenario; inability to complete the project. The rise in the project`s construction cost. The stakeholders may also likely revoke their support for the projects as the timelines keep extending. Delay of funding from the stake holders or in some cases inability to receive or keep funding. 2.1.4 Risk mitigation strategies In order to overcome the stringent consequences of the risk under consideration on the high speed train project, the following risk mitigation strategies would come in handy. Development and implementation of the project using phased approach – development of the project in a phased approach allows section completion of the projects in a standalone manner as well as possible increment on the strategy of proceeding with the project. Phased approach significantly reduces the size of the project and enables minimized cost overrun risks. Inclusion of contingencies, inflation effects as well as timeframe extension in the financial strategy – the phases already researched and developed should include a reasonable percentage of contingency to protect the project’s cost estimates against rise in cost, need to use different parts or tools a well as unforeseen changes in quantities and qualities due to effects such as environment among others. An extension schedule in terms of years should also be include. For the case of the project under consideration, a six year extension schedule would be appropriate to account for delays in funding among others. Procurement of all the project`s inputs and outputs under contracts – it would be efficient to transfer the functionality of all the inputs and outputs required by the project to the contractor. By doing so, all the risks with regards to cost fluctuations and schedule would be considered solved as the client would be immune from the effect as stipulated by the build contracts law. a) Staffing and management structure The design, development as well as implementation of the high speed rail is considered a very complex undertaking. The scale of the project as well as size and technical complexities necessitates the presence of a team with advanced and sufficient technical know-how for both operation and management of the project (U.S 2012). The construction of the project alone is done through phases that are estimated in terms of billions with regards to cost. The management staff should therefore have the capabilities of constant negotiation and consultation with the heads of staffing personnel in a related field both within and outside the vicinity of the project. Finding personnel with such extreme experience and expertise is both expensive and hard to come by. Since the management of such projects will be fully mandated by the state, augmentation would not help relieve the necessity to build a management team since support personnel from people such as consultants are not within the jurisdiction of expending strategic and management decisions on behalf of the state. 2.1.5 Potential consequences As a result of the possibility of the risk described above, several consequences are equally possible. Some of the consequences include; Delay in some of the important management decisions. Risk of Revocation of stakeholder support. The completion of the project under consideration is likely to be delayed. Disbursement and receiving of funding is likely to be delayed. Great increase in cost of construction and operation of the project under consideration. 2.1.6 Risk mitigation and management strategies The management board for the project under consideration has the capabilities of evading the effects of the consequences facing them as a result of the risk under consideration (Leach 2000). However, the following risk mitigation strategies if put in place would help. Incorporation of supplemental expertise from experienced consultants on matters regarding the design and construction of high speed rails would be necessary. This can include incorporation of such personal into the organizational structure for the project. Creation of various lead personnel for various work streams would help in simplifying the management of the projects development and operation. 2.2 Project funding Several risk are existent within the perspective of project’s funding. The project is under full funding by the public and as such, funding is subject to failure to receive the expected amount at the expected time frame. This could threaten the feasibility as well as the pace of project`s development. The delay in reception of the public funding is also likely to affect various other aspects of the project such as project schedule, implementation, staffing as well as management approach. 2.2.1 Potential consequences As a result of delay of public funding, various consequences to the project development can be anticipated (Leach 2000). Among them include; The completion of the project under consideration would be delayed or its completion stalled completely. A significant rise in the project’s cost. A likely revocation of the stakeholders support. 2.2.2 Risk mitigation and management strategies. Early securing of back up funding for purchase of all inputs and outputs from other stakeholders such as Australian department of finance would be necessary. This would help cover up for cost of purchasing the inputs and outputs incase public funding is delayed. This is a major strategy in the mitigation strategy for the impending risk of delayed funding on the project. Development of system functional phases as well as placement of completed phases into operational phase as soon as completed. This would significantly aid in mitigation of risk as a result of project funding. This is attributed to the fact that one phase is left functional giving an economic benefit while development of the other phase is under planning. Maintaining an effective communication channel with state agencies as well as the policy makers for appropriate fiscal budget allocation with regard to the project funding requirements. The authority in charge of implementation of the project under consideration will therefore be required to deliver an expenditure funding plan for approval before budget allocation by the state. 2.3 Risk Assessment The severity and extend to which the risk affect the development and implementation of the project under consideration should be analyzed appropriately. Risk assessment workshops should be carried out regularly and this task is mandated to the Authority in conjunction with its consultant teams. The team is therefore tasked with assessing the identified risks, its mitigation plans as well as the risk management plans. Risk assessment is facilitated through risk assessment workshop that are done at various project milestones such as completion of each phase among others (Staveren 2006). Apart from the workshops, key management personnel for the projects implementation hold meetings on a monthly basis to review and discuss the key risks as well as the progress of the mitigation strategies already in place. 2.3.1 Risk register This is a tool designed to integrate risk identification, assessment, and management as well as mitigation status information with regards to the risks under consideration. The documents is considered to be dynamic and constantly change as the project advances in its progress. The registers stores all the details with regards to the risk including the risk description, its consequences on the project, the mitigation strategies in place as well as details on the responsibility of the risk or the risk owner(Staveren 2006). The risk register therefore serves as an tool for communication that helps in prioritization and identification of the challenges within the project. It also contains details of the action plan with detailed specifications of the actions to be undertaken by identified teams. 2.4 Risk Analysis Risk analysis can be carried out by actual simulation of the extend of the risk if the mitigation strategies are out of question as well as the level of risk when mitigation strategies are in place. Therefore, the risk analysis can be used as a tool of measuring the effectiveness of the mitigation strategies in place (U.S 2012). The chart below shows the distribution of risk levels on a 5 x 5 matrix table that was used in determining the severity of the various risks stated in the report. Figure 3: A 5 x 5 risk level determination chart: 2.4.1 Monte Carlo simulation Monte Carlo simulation puts into use the information gathered by the risk register as its input. This is a simulation program that puts the risk analysis in a quantitative perspective and numerical perspective. Monte Carlo analyses the assessed risk for its probability of occurrence as well as projections of potential costs. Thus Monte Carlo simulation will give a simulation of project cost as well as scheduled outcomes based on the underlying cost estimates for the project (U.S 2012). Therefore, the authority in charge of development and implementation of the high speed rails would utilize Monte Carlo simulation in projecting the expected cost analysis model as well as the likelihood of a particular cost and schedule outcomes given the identified risks. 2.4.2 Overall risk matrix In order to have a clear perspective of the numerical perspective of the risk analysis, the level of the risk can be summarized in a risk matrix. The risk matrix in assigning values to various risks s shown in the table below. For the high speed rail project under consideration, the risk distribution table is as shown below. Key Risk Description Value risk description Negligible 1 Unlikely Slight 2 Possible Moderate 3 Quite possible Severe 4 Likely Very severe 5 Very Likely Table 1: Key risk matrix classification table From the above values in the table, the following risk matrix table can be developed as will be as shown in the figure below. Table 2: A risk matrix table for the key risks based on the table 1 above values 3.0 Conclusion Risk assessment is an important endeavor in any massive project before implementation. It is always important to put into consideration the risk analysis for any project as a way of identifying possible risk before actual project implementation. The risk analysis for the Melbourne – Sidney high speed train has helped in identification of the key risks, risk mitigation strategies as well as management strategies for the risks. Therefore, project implementation will have minimized risk encounters and its implementation will have a higher degree of smoothness. References 1. SUMMERHAYES, S. (2010). Design risk management contribution to health and safety. Chichester, West Sussex, U.K., Blackwell. http://dx.doi.org/10.1002/9781444318890. 2. DEMKIN, J. A. (2008). The architect's handbook of professional practice. Hoboken, Wiley. http://site.ebrary.com/id/10501320. 3. MUNIER, N. (2004). Multicriteria environmental assessment a practical guide. Dordrecht, Kluwer Academic Publishers. http://public.eblib.com/choice/publicfullrecord.aspx?p=197961. 4. INTERNATIONAL CONFERENCE ON VULNERABILITY AND RISK ANALYSIS AND MANAGEMENT, BEER, M., AU, S.-K., & HALL, J. W. (2014). Vulnerability, uncertainty, and risk: quantification, mitigation, and management : proceedings of the Second International Conference on Vulnerability and Risk Analysis and Management (ICVRAM) and the Sixth International Symposium on Uncertainty Modeling and Analysis (ISUMA), July 13-16, 2014, Liverpool, United Kingdom. http://ascelibrary.org/doi/book/10.1061/9780784413609. 5. UNITED STATES. (2012). Feasibility report and environmental impact statement: Fargo-Moorhead metropolitan area flood risk management, July 2011: communication from the Assistant Secretary of the Army, Civil Works, the Department of Defense, transmitting the Corps final feasibility report and environmental impact statement. http://purl.fdlp.gov/GPO/gpo44866. 6. STAVEREN, M. V. (2006). Uncertainty and ground conditions a risk management approach. Oxford, Butterworth-Heinemann. http://www.engineeringvillage.com/controller/servlet/OpenURL?genre=book&isbn=9780750669580. 7. LEACH, L. P. (2000). Critical chain project management. Boston, Artech House. http://www.books24x7.com/marc.asp?isbn=1580530745. 8. SCHNEEWEIS, T., CROWDER, G. B., & KAZEMI, H. (2010). The new science of asset allocation risk management in a multi-asset world. Hoboken, N.J., John Wiley. http://www.books24x7.com/marc.asp?bookid=40855. Read More

1.2 Risk management framework Design, development and implementation of a huge project such as the high speed train system under consideration involves a lot of both foreseen as well as unforeseeable risks. The risk exists at both the project as well as the program level perspective. It is therefore very important to identify the possible risks for the projects, find an optimal way of managing the risk as well as designing a special way of mitigating the risks. Such a process is optimally performed at each stage.

The risk assessment for the project under consideration should therefore be done in such a manner so as to ensure risk free development or at minimal, minimized risk project. The analysis takes the structure summarized in the figure below. Figure 1: Flow diagram of a risk analysis of Malboroune high speed train 1.3 The risk management process The risk management from the perspective of a process is done in five steps with great emphasis on each step. The risk identification and management is of great focus in such a process (Demkin 2008).

The flow diagram below summarizes the summary of risk management process. Figure 2: Summary of the risk management process CHAPTER TWO 2.1 Risk identification 2.1.1 Key Risks 2.1.2 Cost and schedule As discussed earlier in the introduction of the report, the cost estimates for the project under consideration is based on static input estimations. Such estimations do not put into consideration such aspects such as price fluctuations due to inflation and economies of scale. Thus, this possess a great risk to the development of the project since the project cost and schedule could fluctuate as the inputs under consideration keep changing within the world markets.

The first phase of the economic and feasibility study projected that the entire high speed train project would cost an estimated amount of between 60billion and 120billion Australian Dollars. However, several years later, a final report on the same was released showing that a revised total cost of the project is estimated to be approximately 115billion Australian Dollars. The magnitude of monetary changes is a direct function of time which is directly related to the projects schedule. The environmental demands for the projects keeps changing with time and this means that the cost would also change upwards in order for the project to meet the standard environmental needs.

Moreover, the time of completion projections is within a span of more than fifty years and this is not taken into consideration by the economic feasibility study. The schedule is directly affected by availability of funding and as normally happens, the schedule would be subjected to fluctuation due to unforeseen shortcomings. In a situation where the funding are provided by a spread of a longer time span, the cost of inputs will keep rising and the total cost of the project will keep rising as a result.

This is considered as a major risk for the project under consideration (Demkin 2008). 2.1.3 Possible consequences As a result of the above risk, several consequences are likely to be anticipated. Among them are as shown below. Delay of project completion or in a worst case scenario; inability to complete the project. The rise in the project`s construction cost. The stakeholders may also likely revoke their support for the projects as the timelines keep extending. Delay of funding from the stake holders or in some cases inability to receive or keep funding. 2.1.

4 Risk mitigation strategies In order to overcome the stringent consequences of the risk under consideration on the high speed train project, the following risk mitigation strategies would come in handy. Development and implementation of the project using phased approach – development of the project in a phased approach allows section completion of the projects in a standalone manner as well as possible increment on the strategy of proceeding with the project. Phased approach significantly reduces the size of the project and enables minimized cost overrun risks.

Read More