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UNDERSTANDING RISK IN ENGINEERING FACILITIES AND PROJECTS BY U.M. UDONQUAK, BSC. PGDS. PGDE. MSC. MBSC. MNSE.FRSAN

UNDERSTANDING RISK IN ENGINEERING FACILITIES AND PROJECTS BY U.M. UDONQUAK, BSC. PGDS. PGDE. MSC. MBSC. MNSE.FRSAN PRESENTED AT SEMINAR ON RISK MANAGEMENT IN ENGINEERING FACILITIES AND PROJECTS ORGANISED BY RISK & INSURANCE MANAGERS SOCIETY OF NIGERIA ON 27 TH - 28 TH JUNE, 2013

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UNDERSTANDING RISK IN ENGINEERING FACILITIES AND PROJECTS BY U.M. UDONQUAK, BSC. PGDS. PGDE. MSC. MBSC. MNSE.FRSAN

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  1. UNDERSTANDING RISK IN ENGINEERING FACILITIES AND PROJECTS • BY • U.M. UDONQUAK, BSC. PGDS. PGDE. MSC. MBSC. MNSE.FRSAN • PRESENTED AT • SEMINAR ON RISK MANAGEMENT IN ENGINEERING FACILITIES AND PROJECTS • ORGANISED BY • RISK & INSURANCE MANAGERS SOCIETY OF NIGERIA • ON • 27TH - 28TH JUNE, 2013 • HELD AT • NECA HOUSE, ALAUSA-IKEJA

  2. INTRUDUCTION • The ability to Perceive and Comprehend the Nature and Significance of Risks Associated with a given Engineering Project or Facility right from the drawing board stage always forms the foundation for a successfully completed venture. • In this country, many viable projects have been either abandoned at the foundation stage or found defective while being test run. • This has a lot to do with poor attention to key Risk Management tools or lack of attention to key Risk factors by the project team right from the outset of the project. • This paper focuses on some significant Risk Elements that should be applied from the start to the end of a project.

  3. WHAT IS AN ENGINEERING PROJECT • Any project which ‘Engineering’ plays a role. • Another school of thought believes that for it to be qualified as an ‘Engineering Project’, it should be focused on something with good deployment of ‘Engineering Design Process’ such as Research, Conceptualization, Feasibility Assessment, Establishing Design requirements, Preliminary design, Production planning, Tool design and Production…

  4. WHAT IS RISK—The possibility of an adverse outcome. In all activities undertaken in an engineering project or even in the case of an existing engineering facility, RISK IS PRESENT. Risk is highly associated with every stage of an engineering project and must be properly Identified, Evaluated and Treated if you want a successful turnkey project. There is no investor that starts a project with the mind to fail, but “DEAD PROJECTS” dotting every State of this nation, from Power, Steel, Refinery, Roads, Manufacturing to Communications etc go to show that Trillions of Naira worth of projects die even before the commencement of those projects. There is a direct effect on thousands of families that would have depended or earned a living from these facilities ( if they had become ‘turn key’)

  5. Some major engineering projects; • Proposed new Governors office Secretariat-Ekiti State---1.8B Construction in progress( 2012) • Project Knightsbridge, Ikoyi-1.8B Construction in progress(2012) • Proposed fruit and Nutty Factory at Agbara-1.9B Construction in progress( 2011) • Proposed development for Charvet Nig Ltd at Mafuluku-2.3B Design in progress(2011)

  6. Proposed Creek Haven Estate, Ikota -5.2B construction in progress(2010) • National Strategic Grain Reserve Silo Project-52B Construction in progress(2009) (Courtesy Pinconsult Associates Limited) Major engineering projects take years to complete. Large capital cost is deployed accompanied by high interest rate on borrowed funds. Inflations sometimes set in and if work schedule is not properly followed, creditors become apprehensive.

  7. Monitoring risks in engineering projects therefore goes beyond the principal as even creditors are expected to show high level of interest on utilization of their borrowed funds. Many project risks emerge over time, sometimes projects that appeared sound at a point in time suddenly becomes unmanageable. While some risks are linked to the life cycle of the project, some diminish as the project matures. There are also some risks that are outside the control of all the stakeholders.

  8. When analyzing risk factors affecting a specific engineering project, we should focus on both external and internal risk factors because while the internal factors may look satisfactory, the whole process can be upset by external factors like political unrest, Government new regulatory policies etc

  9. We will now look at few components of risk in large engineering projects; • OIL PLATFORM -High Technical risk -High Institutional risk -High Social risk -Desired by many because of the high revenues they bring to communities and even the country.

  10. HYDROELECTRIC POWER PROJECT -High Technical risk, but not as high as the oil platform. -High Institutional risk -High Social risk

  11. NUCLEAR POWER -High Technical risk -High Institutional risk -High Social risk

  12. ROAD AND TUNNELS -High Market risk in the area of concessionary schemes -High Technical risk for tunnels as it is difficult to predict rock formations sometimes. -High Sovereign risk -High Social risk

  13. In the IMEC study of 60 large projects across the world, managers were asked to identify and rank the risks they face in the early front end period of each project and they were ranked as below; • Market related risks-----------------------41.7% • Technical risks-------------------------------37.8% • Institutional/Sovereignrisks--------------20.5% (Source-Miller and Lessard-2001)

  14. Risks can also be ranked on the basis of their index scores measuring their significance on the Project Cost, Time, Quality, Environment and Safety. Below are top 10 ranked risks as per their significance in relation to project objectives;

  15. COST RELATED RISKS • Tight Project Schedule----------------------------0.67 • Design Variations-----------------------------------0.49 • Variations by the client-----------------------------0.46 • Unsuitable construction program planning------0.42 • Occurrence of dispute------------------------------0.42 • Price inflation of construction materials---------0.41 • Excessive approval procedures in Admin Govt departments-------------------------------------------0.40 • Incomplete approval and other documents------0.39 • Incomplete or inaccurate cost estimate-----------0.38 • Inadequate program scheduling-------------------0.38

  16. TIME RELATED RISKS • Tight project schedule--------------------------------------0.57 • Design variations--------------------------------------------0.48 • Excessive approval procedures in Admin Govt dpmts-0.48 • Variations by the client-------------------------------------0.47 • Incomplete approval and other documents---------------0.45 • Unsuitable construction program planning---------------0.45 • Inadequate program scheduling----------------------------0.42 • Bureaucracy of Govt----------------------------------------0.39 • High performance or quality expectations---------------0.38 • Variations of construction programs-----------------------0.38

  17. QUALITY RELATED RISKS • Tight project schedule-----------------------------------0.56 • Inadequate program scheduling------------------------0.41 • Unsuitable construction program planning -----------0.38 • Incomplete or inaccurate cost estimate----------------0.38 • Low management competency of subcontractors----0.36 • High performance or quality expectations------------0.35 • Variations of construction program--------------------0.35 • Unavailability of sufficient amount of skilled labour-0.31 • Design variations------------------------------------------0.30 • Lack of coordination between project participants---0.29

  18. ENVIRONMENT RELATED RISKS • Tight project schedule-----------------------------------------------0.39 • Variations of construction programs-------------------------------0.28 • Unavailability of sufficient professionals and managers--------0.27 • Excessive approval procedures in Admin Govt departments---0.27 • Variations by the client----------------------------------------------0.25 • Inadequate or insufficient site information • ( soil test and survey report)-----------------------------------------0.25 • Low management competency of subcontractors---------------0.24 • High performance or quality expectations------------------------0.24 • Inadequate program scheduling-------------------------------------0.23 • Serious noise pollution caused by construction------------------0.23

  19. SAFETY AND RELATED RISKS • Tight project schedule-------------------------------------------0.45 • Low management competency of subcontractors------------0.37 • Unsuitable construction program planning--------------------0.33 • Variations of construction programs----------------------------0.30 • General safety accident occurrence-----------------------------0.30 • High performance or quality expectations--------------------0.27 • Design variations-------------------------------------------------0.26 • Lack of coordination between project participants-----------0.26 • Excessive approval procedures in admin Govt departments-0.25 • Unavailability of sufficient amount of skilled labour--------0.24 • Unavailability of sufficient professionals and managers-----0.24 • Data courtesy of McIntosh & McCable-2003

  20. From the table, it is found that 51 risks were deemed to be able to influence the project objectives , with 10 factors related to each project objective and 11 factors related to safety. A total of 20 factors are highlighted as key risks to influence the achievement of project objectives which are; • Tight project schedule • Design variations • Excessive approval procedures in administrative government departments • High performance / high quality expectations • Inadequate program scheduling • Unsuitable construction program planning

  21. Low management competency of subcontractors • Variations by the client • Variations of construction programs • Incomplete approval and other documents • Incomplete or inaccurate cost estimate • Lack of coordination between project participants • Unavailability of sufficient professional and managers

  22. Unavailability of sufficient amount of skilled labour • Bureaucracy of Government • General safety accident occurrence • Inadequate or insufficient site information( soil test and survey report) • Occurrence of dispute • Price inflation of construction materials • Serious noise pollution caused by construction

  23. CONCLUSION In any Engineering Project , the major key to its success is an Effective Risk Management . We must have at the back of our mind that engineering projects comprise both related and none-related operations that must be technically harmonized in order to achieve the required project objective(s) For this to be realized therefore calls for a proper and an in-depth appreciation of the risks associated with entire life cycle of the project and then systematically evaluating the identified risks and then treating them.

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