I compare fortune to one of those violent rivers which, when they are enraged,

1. 13 : Managing Uncertainty and Risk on the Project I compare fortune to one of those violent rivers which, when they are enraged, flood the plains, tear down trees and buildings wash soil from one place to another…… She shows her power where there is no force to hold her in check: and her impetus is felt where she knows there are no embankments and dykes built to restrain her Machiavelli.

2. Managing Uncertainty and Risk on the Project • what is risk? • project risk management • risk management practice • elicitation of subjective probabilities • strategic management of project risks

3. What is Risk? • uncertainty and the absence of information regarding occurrence • risk and the probability of an occurrence • understanding risk requires some information • risk and reward • this includes safety

4. Decision-Makers’ Risk Preferences • risk-seeking • risk-averse • risk neutral • transaction cost adjusted risk neutrality • factors affecting preferences • risk preference profiles

5. Risk Preference Profiles

6. Project Risk Management • the features of projects and their clients • project large proportion of client’s total assets • projects tend to be one-off • clients tend to be bureaucracies • lack of managerial capabilities • the uneven distribution of risk and reward • client’s risk profile • project manager’s risk profile

7. The Client’s Risk Profile expected NPV @ 20% ROCE £12.6m expected ROCE tender price £10.5m positive ROCE out-turn price probability % income stream - variations + negative ROCE

8. expected profit cost estimate = budget = £10m tender price £10.5m profit out-turn price probability % out-turn cost loss - variations + £ m - variances + The Construction Project Manager’s Risk Profile

9. Risk Management Practice • the risk management process • identify and classify the risk • analyse the risk • respond to the risk • monitor the risk • the risk management process • the probability/impact matrix Riding the Project Life-cycle

10. The Risk Management Process identify & classify the risk monitor the risk analyse the risk respond to the risk

11. high mitigate / cancel insure / mitigate probable disaster rare catastrophe impact management challenge bad luck externalise accept low low high probability The Probability / Impact Matrix

12. The Elicitation of Subjective Probabilities • attempting to solve the problem of inadequate data • mobilising expert judgement • the importance of methodology • the value is in the process, not the outputs

13. Strategic Management of Project Risks • the broad categories of risk • market risks • completion risks • institutional risks • project shaping • project governability

14. Project Shaping • information search • network building • incentives • design • influence

15. Project Governability • aligning incentive through equity participation • incentive contracts • flexibility and modularity • deep pockets and project portfolios • partnering arrangements