Critical Risk Management Analysis For Channel Tunnel, Great Belt, Øresund And Other Projects

Risk Identification and Analysis

Risk is defined as one of the most commonly occurring uncertain event or situation that can hamper the megaproject success and also restrict the success line with roadblocks. The nominated project which is critically analyzed for the development and discussion is “Channel tunnel, Great Belt, Øresund and other projects”.  Eurotunnel went public as a company in the year of 1987.

The aim of the report is to identify the key challenges that the project team was facing during the megaproject risk management stage. This report depicts a risk management program supported by risk identification, qualitative and quantitative risk analysis, risk mitigation strategies and risk response strategies as well. In this analysis, the areas those are considered include complex organizational and environmental (internal and external) factors and effective theoretical framework (Pitsis et al. 2018). In this tunnel construction project, some construction risks were identified, cost and risk with the investors including large numbers of small investors. Risk identification is one of the bases of risk management. Therefore, to manage a project successfully, risks are needed to be identified at the initial stage.  For theses megaprojects, some technological and some geological risks were also identified.

From the overall analysis, it is determined that, risks related to major infrastructure are substantial but cannot be completely eliminated from a megaproject. Regarding the risks related to the megaproject the public, private investors, general public and media were not regularly informed or updated.  Considering MLD principles a vast risk analysis was not at all carried out (Machiels, Compernolle and Coppens 2021). The risk analysis must comprise worst case scenario, that was not done. For future projects, no feasibility study and risk analysis were conducted. Institutional risk analysis is a perquisite for risk elimination but that was also not done properly. Great Belt and Øresund failed to reduce risks and it only successfully transferred risks from the leaders to the taxpayers. As a result, the overall risks and cost for the project were increased. The most difficult risk identified for the project was market risk because from economic perspective, analysis of this risk is very complex. The economic cost of market risk is much complex to manage. The roadmap of the report is supported with a background analysis, development, discussion and detail risk management-based conclusion.

The nominated projects for which the report is prepared consider “Channel tunnel, Great Belt, Øresund and other projects”. When Eurotunnel went public as a company in the year of 1987, the investors were informed that the project is completely straightforward. The tunnelling project includes some construction risks (Dyer 2017). The figures for cost and risks were communicated by 200 banks. In this section, the macro historic, economic and social influence, macro factors as well.

The estimated cost for lists has turned out to be the best event possible outcome depending on no changes in performance, no managerial problems, no contractual and technological problem, no geological problem and no massive conflict. The actual risk with the Chunnel project were higher than what was communicated to the investors (AlSanad 2017). Before endorsement of the Great Belt project, the Danish parliament members were informed. The risks related to construction costs were higher.

Complex Organizational and Environmental Factors

The major political risk identified for the projects is failure of the politicians to keep their promises. Before implementation of the megaproject, no detail economic and financial risk analysis was conducted in Great Belt Project. Partial risk analysis was conducted for the Øresund link. The main sources of financial risks in the major transport infrastructure projects are- overrunning construction cost, increased financing cost, lower revenue rate. The risk management plan is developed considering the AS/NZS 4360: 1995 risk standard. The scope for implementing new technologies for reducing cost are also limited (Zhai, Shan and Le 2020). The current contracting format is also changed which leads towards occurrence of major challenge. During the project cycle, no such contractual problems occurred. No problems with new technologies, major conflicts, geological practices and performance specification problems occurred.

The projects faced issues with capital market risks. The risks with capital risks are comprised of two elements such as currency risks and interest rate of risks. The capital market is capable to give financing on condition which allows borrowers to protect themselves against interest rate adjustments and currency risks. One of the most consequential problems related to risk analysis is feasibility studies and decision making. Followed by MLD principles, the roles if feasibility analysis was performed by the professionals.  The investment done for the infrastructure was also full of risks (Machiels, Compernolle and Coppens 2021). The likelihood of switching values occurring was also estimated. The robustness of the project was estimated using the feasibility analysis. 

Th projects were facing issues with the micro environment as well. The market risk identified was different than other economic risks. The economic cost related to market risk cannot be managed easily. The authority who is responsible to bear the cost related to risk. This is an essential as well as income distributional question and also requires institutional implications (Yuan et al. 2021). In the world bank study of 92 projects, a handful was found for containing thoughtful risk analysis that shows good practices. It is determined that, the world bank projects are much complex and difficult than the appraisal of other projects.

Risk management plan is defined as one of the major parts of project management. In order to define and execute any project successfully, it is mandatory for the project manager and team to develop a risk management plan. in this section, the key issues, ideas practices eta will be elaborated.

The tunnelling projects usually faces major construction risks. 200 banks communicated the risk and cost figures to investors that includes many small investors. The other related risks identified are technological risks and geological risks. During the project cycle no financial or economic risk analysis was conducted. 110% overrunning cost was the other challenge identified (Zhai, Shan and Le 2020). A risk with rail link identified was non-viable and rescued by cross-subsidisation mainly from the road link. The money of the taxpayers has been replaced with major risk Great belt. Apart from that, partial risk analysis was also carried out during the project cycle. The risk treatment approach developed in for Channel Tunnel was inadequate. The main sources of financial risks in the major infrastructure project includes overrunning construction cost, increased financial cost and lower expected revenue (Johansen, Bjerke and Landmark 2018). The typical risks identified for the risk are- delay and lower realized demand, project specific risk, market size, risks with secret policy and capital market risks. The other identified risks are sector policy risks, interest rate risk, capital market risk, currency risk. It is also identified that, some of the risk management approaches are overlapped.

Feasibility Studies and Decision Making

The basic idea developed for this project is identification of negative condition from project point of view and analysis implication of project viability and financing.  In order to analyse the robustness of the project this approach is very essential. In order to mitigate risks and make sure project success some supplementary actions are definitely needed to be identified. In order to ensure successful risk management plan, another idea that has been planned to implement is feasibility analysis (Pollack et al. 2018). In order to achieve a certain level of performance, the contractors have planned to develop specific techniques and approaches. Different ideas were also developed to reduce some level of risks and costs. For eliminating the risks with management, different contracting techniques were identified and ideate to adopt. The present contracting format is planned to change. There are many approaches considered for finalizing the risk management plan.

Based on the risks and their mitigation strategies, for the Channel tunnel, Great Belt, Øresund and other projects, it is determined that in order to develop an accurate risk management plan the common practices that are usually adopted and applied by the project team members are risk identification, risk analysis, risk assessment, risk monitoring and risk treatment (Dunn et al. 2018). All the practices are equally essential to identify and mitigate the risks. These practices are collectively known as a risk management framework. The practices identify different levels of risks related to the investments. It identifies the practices that reflect minimum rate of return.  On government bonds, normally lowest return is required.

For managing the risks related to the megaprojects different basic risk management approaches are available. Some of the risk management approaches are again overlapped.  The most widely used risk management approach is risk elimination. The risk management approach is comprised of identify the risk context, risk identification, risk analysis, risk assessment, risk monitoring and risk mitigation. All the stages of risk management plan are connected to each other (Hopkin 2018). No megaproject can be successfully executed without accurate risk management program. Risk is a common event that usually occur during the project cycle and must be mitigated. The risks are identified considering strategic context such as strategic context, organizational context and risk management context. After that, the risk management structure should be developed accurately. Once the risk context will be identified, the potential risks related to Channel tunnel, Great Belt, Øresund and other projects must be identified (Eyvindson and Kangas, 2018). The probable construction level risks that can hamper the project progress and expected outcomes include financial failure if contractor, unavailability of funds, poor level supervision and site management, inadequate project planning, accidents in the construction site, bad weather condition and improper site investigation (Sohrabi et al. 2018). All the risks identified for the mega project, are needed to be analyzed. Risk analysis is defined as a process to identify and analyze the probable risks those could negatively impact the key business initiatives or projects. In order to help the project with effective key strategies and practices, the risks are needed to be analyzed.

Capital Market Risks

Risk analysis is defined as a process that figures out how frequently the risks can arise in projects. The impact of the project on scope, cost, time and quality are the other factors considered to analyse the risks. It is important for not only the project manager but team to analyse the factors related to the megaproject. The risks are needed to be analyzed by determining risk likelihood and its consequences in future project practices. The score of each risk is determined followed by impact and probability (Gaspars-Wieloch 2021). The product of probability and impact calculates the risk score.  The likelihood of the risks is scored on a scale of 1 to 5. The impact of the risks is again scored in a scale of 1 to 5. The risk level gives the basis for action and prioritization. Performing an effective risk analysis includes considering the possibility of adverse events caused by either natural process such as overrunning project budget, delay to deliver the project, construction risks (such as improper contract regulations, inadequate safety and protection in the construction site, selection of wrong construction tools etc) Risk analysis is important for project success because it helps to analyze the causes and their consequences of risk. In order to anticipate and reduce the impacts of the harmful results from adverse events, risk analysis is needed to be performed.

For evaluating the potential risks of a project effective decision process are also necessary. The construction manager should plan effective response for technologies and equipment failure. While conducting the analysis, the megaproject leader should identify the impact of the changes within the construction site, the likelihood of the new competitors, risks with regulatory policy and government policies etc (Taghipour et al. 2021). The project leaders should understand the risks associated to the Channel tunnel, Great Belt, Øresund and other projects for protecting the project elements successfully.

Effective risk analysis will help the project manager and team to understand the risks associated to the construction site. For this megaproject, the project manager should conduct risk assessment survey. Critical risk assessment survey is a way to initiate a risk assessment with specific risk identification and the probable threats related to it (Afzal et al. 2019). based on the levels of risks the risks are needed to be prioritized and ranked accordingly. The risk assessment matrix considered based on which the risks analysis is performed and scored are-

It has been determined that, cost of the largest tunnel and bridge projects carried out in Denmark before Great Belt was much less than 10^th of the actual great belt budget. None of these projects incorporate a bored tunnel. The technological and geological risks linked to the construction project is always higher than others (Sami et al. 2020). However, for the great belt project no such economical and financial risk analysis was conducted.  

For this Channel tunnel, Great Belt, Øresund megaproject, a risk monitoring is also needed to be conducted. The risks are needed to be monitored successfully. the most commonly used risk control and monitoring tools are risk reassessment, variance and trend analysis, risk audit, technical performance analysis, meetings and reverse analysis (Islam et al. 2017). All the tools are equally important for the successful design and implementation of the project. The risk management framework considered for this project is comprised of continuous risk identification, risk evaluation, risk mitigation and contingency measures, risk monitoring and risk mitigation strategy. 

Micro Environment Risk Identification

Detail risk assessment is performed based on risk priorities. In other words, the risk assessment is needed to be set based on some criteria.  Risk monitoring is defined as another essential part of project management (Asadi et al. 2018). Risk monitoring is also essential for successful risk management. Regardless of the nature, type and size of a project, risk monitoring should be performed. For this mega construction project, risk monitoring is essential because it helps to improve communication of the project team members and the project leaders. risk monitoring helps to give better quality data for better decision making. It helps the project team to remain focused. It also ensures that the risks are easier to manage and absolutely clear to the team members (Zhang et al. 2019). Effective risk monitoring helps to keep the project on track by avoiding overrunning budget and delay delivery of the project.

Figure 1: Risk assessment framework

(Source: Taghipour et al. 2020, pp- 32)

In this section the risks or challenges identified for the project earlier will be mitigated followed by impact and likelihood analysis. The impact and likelihood of each identified risks are different from each other. Risk register is defined as a document used for managing risks. This is the most widely used tools that helps to identify the probability of the risks, their impact, likelihood and mitigation strategy as well (Hatefi, Basiri and Tamošaitien? 2019). The impact and likelihood of each risk are again different. After analysing the identified risks, respective risk mitigation strategies can be developed.

Conclusion

From the overall discussion it can be concluded that, in order to execute a megaproject successfully, it is mandatory for the project manager and team to develop an accurate risk management plan supported by risk identification, risk analysis, risk evaluation, risk monitoring and risk mitigation strategies. The risk treatment approaches that are usually developed for megaprojects are risk avoidance, risk treatment, risk control, risk transfer and risk mitigation. For the Channel tunnel, Great Belt, Øresund and other megaprojects also, a detail risk management plan is developed in this report.

References

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