422429N |201550E

Kosovo Motorway, Kosovo

CIVIL
GOVERNMENT SERVICES
MINING & METALS
OIL, GAS & CHEMICALS
POWER

Managing Risk in Mega-EPC

Projects Where Do We
Start?
 Concept: Risk
What is Risk?
A risk is an uncertain event or condition that, if it occurs, has a
positive or negative effect on the business - at a project, GBU or
enterprise level.
Risks can be Threats or Opportunities
Its the essence of business must take risks to generate returns
Importance of Risk Management
Every business is surrounded by risks, many of which are
identifiable and manageable
Differentiate between risks taken after careful judgment and those
taken unwittingly
The risk management framework must be robust enough to cope
with unexpected risks
How much risk is appropriate?
Risk management is an art as well as a science

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 Risk Management Philosophy in a
Nutshell
Identify and assess the risks of a proposed project
comprehensively, rigorously and honestly.
Do not just focus on project execution risks there are many
other risks that need to be managed (third party risk, political
risk, jurisdictional risks etc.)
Do not just focus on contractual risks.
Surface new or unusual risks early.
Manage the risks of each project:
Allocate and limit the risks in the prime contract
Insure the risks that can be insured.
Flow down appropriate risks to subs and suppliers.
Build risk mitigation into the project execution plan.
Price the residual risk (in contingency and fee) to balance risk
and reward.
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 A Risk Management Process Typical
Model Risk Analysis Process
A. Risk Identification
B. Risk Assessment/Evaluation

Risk Management Process

C. Risk Management Strategies

Avoid Assume Reduce/Exploit

Informed Assumption of Through Execution,
Avoid the Threat Transfer/Share
Threat Performance, processes,
Forego the Opportunity
Keep the Opportunity planning

Decline Work
By Contract By Insurance
Funded Unfunded

(Priced Reserved) (Run the Risk)

Administrative Process
D. Active co-ordinated monitoring of risk
and effectiveness of mitigation plans
E. Claims Management
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F. Feedback: Learning
 Importance of Managing the Risk vs.
Reward Relationship

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 The Risk vs. Reward Relationship
Business is about taking risks:
Intelligently and on an informed and evaluated basis
Receiving adequate reward for the risks assumed (by contract
or otherwise)
Developing a robust framework to cope with the unexpected
Bechtels principal ways of managing risks are:
Through engineering
Our execution e.g. our processes and procedures around
procurement, construction and management
Fair contract terms
Insurance

Using core competencies will enhance rewards in risk taking.

Project and corporate overall success depends on effective
risk management.
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 Allocation and Alignment of risk

Allocation of risk by
agreement

Alignment of risk and

ability to control the
occurrence

Alignment of risk and

ability to mitigate the
effects

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 WEF Top Global Risks : 2011 - 2013
Probability
2011 2012 2013
st
1 Meteorological Severe income disparity Severe income disparity
Catastrophes
2nd Hydrological catastrophes Chronic fiscal imbalances Chronic fiscal imbalances

3rd Corruption Rising greenhouse gas Rising greenhouse gas

emissions emissions
4th Biodiversity loss Cyber attacks Water supply crises

5th Climatological catastrophes Water supply crises Mismanagement of

population ageing
Impact
2011 2012 2013
st
1 Fiscal crises Major systemic financial Major systemic financial
failure failure
2nd Climatological catastrophes Water supply crises Water supply crises

3rd Geopolitical conflict Food shortage crises Chronic fiscal imbalances

4th Asset price collapse Chronic fiscal imbalances Diffusion of weapons of

mass destruction
5th Extreme energy price Extreme volatility in energy Failure of climate change
volatility and agriculture prices adaption

Economic Environmental Geopolitical Societal Technological

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 Global Risks - Categorisation

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 Project vs Corporate Risk - Frequency
and Impact
Frequency

Losses

Severe Losses

Catastrophic Losses

Business
Facility/Project Line Enterprise

Cost Impact

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 Management of Risk During the Project
Life Cycle
Prospect
screening Identification
Partners
Prospect approval Subcontractors
Shaping the deal
Submission of proposal

Contract signed
The deal
Risk flow down
Engineering and construction commenced
Risk transfer
PERM Risk analysis
Other works/client changes
Execution methods
ES&H
Financial management

Construction completed/signoff
Project close out
Warranties Insurance claims/financial
Latent liabilities recovery/ wrap-up

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 Corporate Risk Management Strategies
for Catastrophic Exposures

Contractual Allocation

Insurance

Corporate Architecture?

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 Project Insurances
Liability CGL/TPL
Builders Risk (CAR)
Workers compensation
Employers liability
Construction equipment
Professional liability/indemnity
Contractors pollution liability
Marine cargo
Aircraft liability
Marine liability
Railroad protective
Etc..

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 OCIPs and CCIPs (Wrap Ups)
Different terms, different meanings

Typical structure vs wrap up

Does it matter which party

arranges?

What are the drivers for the wrap

up?

Loss funds

Contract issues wrap up manuals

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 Pricing. Coverage, Service Variables

Service (claims)

Insurance
Variables....

Coverage Price

Risk Management
November 1, 2012
and Insurance
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