Managing Construction Development Risks For Eigenvalue Coal Company

Viable Solutions for Eigenvalue Coal Company

Discuss about the Managing Construction Development Risks.

It has been determined that for Eigenvalue Coal Company to meet its market demands projected over the next 15years, it must increase its supply capacity while putting to considerations economic and environmental factors under which the company must adhere to regulations and attain an economically sustainable outcome. The company’s market projection shows that coal demand is expected to relatively rise from 330,000 in 2017 to 490,000 in 2021. Coal demand is however expected to remain at 500,000 constantly between 2027 and 2033.  From the options analysis report, a number of possible solutions have been presented. These solutions include the establishment of new port and rail network, dredging of existing shipping lane, dredging of the new shipping lane, construction of a new rail bypass section, and expansion of storage capacity. This paper intends to develop solutions, assess risks that may be associated with these solutions and present their appropriate management strategies, develop an evaluation framework, and consequently recommend the most suitable solutions that shall enable the Eigenvalue coal company to meet its projected market demands.

According to Romeo (2016), successful transportation infrastructure depends on the efficiency of the complementing seaport infrastructure. The said infrastructure relies on prevailing or projected market demand of the commodities in transits for it to meet sustainable economic objectives that will translate to benefits for the acting stakeholders and the economy in general. Demand for in the market served by Eigenvalue Coal Company is estimated to increase by approximately 51.5% within a ten-year period. Therefore, there is need to establish modernized port infrastructure and as well develop complementary transport infrastructure that will ease access to all parts connected to their chain of supply.

Following this perception, it can be considered that development of a new port and a rail network is a viable solution that will present Eigenvalue Coal Company with the capacity to satisfy market demands over the projected period and in long-term future. This approach is faced by challenges in that the intended port is to be established at a location 350 km away from the existing port. This shall imply that due to the limitations of proximity, the existing port, and the intended port may not enjoy benefits that come with the closeness of facilities in central places. Another point that may pose a challenge is the cost which the company is expected to cover in this project, estimated at $200,000,000. This resource must be availed in time for the establishment to be effected within the specified period. However, with the consideration that the new port and rail network shall be designed and developed using the best available technology, issues with proximity to the existing port and any other significant central place will not be a problem because port operations and transportation of the commodity shall be fast and timely.

Risks Associated with Identified Solutions

Another solution would be to extend the storage stockpile capacity. It has been observed that the existing a discrepancy of about 16,000 tonnes between maximum rail capacity and the maximum projected demand. Therefore, the approach of extending the storage stockpile capacity shall involve increasing the storage capacity from 24,000 tonnes to at least 40,000 tonnes. Apart from providing adequate storage space, this choice shall also maximize utilization of trains since, with the extended storage, it shall be possible to unload two trains per day throughout a typical operating season.

This port improvement approach shall also involve the acquisition of coal loading equipment so as to increase the rate of loading the ships and to ensure that no additional time will be required to load the ships from extended stockpiles. The loading rate of the upgraded equipment shall be such that ships that have a capacity of 18,000 shall be loaded in same time duration as the time currently spent to load a 12,00 0tonne ship. This will enable the port to attain a capacity of loading 576,000 tonnes in one operation period which is above the maximum projected demand of 500,000 tonnes. This project is estimated to cost $4,500,000 and take a period of one year for completion. On implementation, this project shall imply pressure on the rail system as it requires seven extra days for train access and the stockpiles of coal to accumulate to 33,600 tonnes prior to the beginning of a season. This stock shall be enough to load one 18,000 tonnes ship and one 12,000 tonnes ship without interruption.

The third solution is dredging a new shipping line. Assessment on the current port indicates that the port cannot harbor two ships at the same time and thus, wait ships are cannot approach the port until a preceding ship has been loaded and exited the port into open waters. Dredging a new shipping lane shall allow ships to approach the port while another ship is being loaded. This shall significantly reduce the time taken by the ships to load and exit the port. This improvement is estimated to allow shipping of 768,000 tonnes in one season, a capacity that is way above the maximum projected demand of 500,000 tonnes. This project is estimated to cost $20,000,000 and one-year period to complete. The limitations of this approach lie in the fact that this port will remain to be limited to the capacity of harboring only 12,000 tonnes ships. However, the estimated volume of coal to be shipped in one season surpasses the volume that would be shipped if the harbor was alternatively dredged to attain the capacity of harboring 18,000 tonnes of ships.

Risk Management Strategies

In any practical business environment, risks are unpredictable. Therefore, it is upon stakeholders to adequately assess the possibility of such risks occurring and the kind and extent of impacts they would pose in the eventuality of occurrence (Global Maritime Consultancy, 2018). These assessments should guide development and implementation of comprehensive risk and management strategies which supports the reliability of the infrastructure in question and ensure safety all stakeholders and the surrounding environment. The three identified solution to coal supply by Eigenvalue Coal Company have unique risks associated with them, which are subject to monitoring during construction and preconstruction period.

The proposed solution by the establishment of a new port and rail network appears to be the largest project approach and undoubtedly calls for heavy capital investment. It is sound to think that financial capital will not be a problem for the project because it is a joint venture between Eigen Company and government. Considering that the new port is intended to be developed as a high standard, state of the art facility, there is a risk of the project being faced with a shortage of human resources in terms of expertise during development phase and early operation stages. This may lead to delays in effecting and running the port. Another factor that may hinder the success of the project is delay by the government to approve the project or avail the required funds whereby it is to be noted that the share capital contributed by governmental parties is large compared to the contribution made by the company.

The likelihood of the project being faced with a shortage of expertise and the skilled human resource may be given less consideration if it can be assumed that the financial capital shall be availed in time good enough for the development and commencement of operations of the new port to be effected in time. However, the risk of delay caused by the failure of the government to approve the project and consequent delay in the provision of funds that go towards the government share capital which is estimated to be $530,000,000 out of the total $750,000,000. The decision on approval of the project heavily relies on the satisfaction of government agencies that the company is upholding standards of environmental protection. This is a case for which straightforward assurance cannot be granted since opinions of the inhabitants surrounding the proposed port location might object the establishment of the new facility.

Evaluation Framework

In the event that commencement of the port project delays beyond the year 2018, due to either unavailability of resources or objection to approval and licensing of port operations, the company shall not be able to meet its market demands starting from the year 2021. This is because development of the new port is scheduled to take three years for completion upon commencement implying that if the project is not initiated in 2018, the port will not be ready for use in 2021. During the 2021 season, demand for coal is estimated to be 390,000 tonnes which are above the current maximum shipping capacity which stands at 384,000 tonnes.

Another major risk that faces the new port project is environmental pollution. In the project assessment, government stakeholders have made it clear that establishment and operation of the new port are dependent of the company maintaining environmental protection against any kind of pollution that may be imposed on marine and offshore environment during pre-construction, construction, and operational phases of the project. Risks of environmental pollution may occur due to contamination of structures like tanks, vaults, or pipelines, or may occur from construction defects or human errors during maintenance activities. It is worth noting that coal can pose serious risks to the environment because it produces hazardous methane and carbon monoxide gasses.

The occurrence of environmental pollution arising from coal shipping at any point of the Eigenvalue Company operations is likely to implicate serious costs on the company. Whether the risk factors are gradual or rapid, the eventuality of adverse effects on environment arising to any fault related to construction any infrastructure may result in enormous cost (McLellan, B., Zhang, Q., Farzaneh, H., Utama, N. and Ishihara, K. 2012, 165). These costs may include serious delays, the liability of the company to unforeseen cost considering that the government impose responsibility for environmental protection to the company, and definitely increased financial costs. Additionally, depending on the extent of effects caused by an eventual environmental pollution, the Company is at risk of having the operating license revoked, a scenario that would lead to the shutdown of coal operations at the port thus negative financial and economic implications.

In consideration of the option to extend storage facility along with the acquisition of a new loading equipment, the approach is reasonable in its own capacity. However, there are two major risks facing it that may lead to serious financial, social and environmental implications. One of these risks arises from possible over-reliance on the loading machine. The assessment recognizes that expanding the storage facility only cannot be an adequate improvement in the port for the Eigenvalue Company to count on in its attempt to meet market demands. It is for this reason that a loading machine is included so as to increase the rate of shipping and for the purpose of maximizing on rail transport system.

Conclusion

A scenario of the loading machine experiencing a breakdown, or having to be taken through scheduled or unscheduled maintenance, would lead to havoc and interruption in shipping operations. A single day routine disruption due to such interruption would translate disruption in rail transport system because of limitations posed by the number of effective days stipulated by mining regulating agency. If the breakdown persisted for some days, the reduced rate of shipping operation would imply that the Company may lose its ability to meet market demands for that season.

The other major risk facing an expanded port facility arises from hoarding of the coal before it is shipped. The capacity of storage is intended to be increased to 40,000 tonnes of stockpiled coal. Of these, 33,600 tonnes are to be accumulated prior to the beginning of a season Despite the additional environmental risk management measures the Eigenvalue company intends to put in place, the risk of environmental pollution remains a major risk factor. This is because there still exist possibilities of human errors occurring during port operation and maintenance practices which may lead to contamination of the surrounding environment. It is as well notable that coal can be a risk to fire explosion if it is not well stored hence implying significant risk that may arise from such exceptional accidents.

Cases of exposure to hazardous elements released from stored coal, or damages that may be caused by fire explosion accidents would imply losses for the company, risk to lives of the workers, and effects on the surrounding environment. At the global level, it is a priority for companies, government, and individuals to ensure safety and sustainability of natural environment and resources therein. At a more sensitive perspective lies an interest by facility stakeholders to observe and maintain safety measures in facilities, especially where hazardous compounds are in question. However, accidents are unpredictable occurrences and human beings are subject to committing errors thus the risk of environmental pollution and risks in operation cannot be overruled in this project.

The other identified solution involves dredging a new shipping lane. The assessment shows that the dredging activity shall pose medium level risks on the surrounding environment. Marine life is specifically very sensitive to changes in their surroundings and the most likely aspects that are prone to effects of dredging are coral reefs and fish breeding sites (Erftemeijer, P. and Todd, P. 2012, 1738). Movement of material during dredging may lead to suspension of sediments that may significantly alter characteristics of the aquatic water and the suspended sediments may spread to other areas onshore. Apart from the disruption due to dredged materials, alteration of the aquatic environment may be caused by contamination of the environment by predisposed equipment and installations.

In case of the disruption of the marine environment due to dredging activities that are to be carried in this port improvement project, coral reefs present within near vicinity of the port may disappear. Additionally, breeding sites for fish and other aquatic animals are likely to be destroyed. The impact of such occurrences translates to total disruption of the ecological setup of the surrounding marine life whose effects may spread to other parts further from this port.

The other major risk that is likely to face this port if it is made to operate two shipping lanes is accidents at the port facility. In this approach, the increased flow of ships calls for an increased rate of loading activities at the port. However, the proposal does not account for any complimentary alteration of a port facility like storage or inclusion of more efficient loading equipment. This leaves the current system and workers prone to pressure which shall definitely build up and increase as market demand increase over the projected period. Any factor that increases workload and pressure at any point of coal handling process poses a risk to the port because most people can quickly detect and react to strain and stress in work environment which makes them more likely to make errors.

Despite the safety measures put in place, there is no assurance that all the workers involved at the port shall at all times follow these measures strictly. Any human error is likely to lead to accidents at the port whether occurring in abrupt cases like say an explosion or occurring as a gradual process of leakage. This puts the port and stakeholders at risk which may arise from unfavorable working conditions.  

In the three identified solutions, environmental pollution has dominated among all of them. Port operations have many unpredictable ways through which the surrounding environment and the port operators may be exposed to environmental hazards. Consequently, the government through licensing and regulation holds the Eigenvalue Company accountable for environmental pollution that may emanate from their activities while handling the coal. These regulations are meant to strike balance between development and environmental concerns as illustrated by Rahman, N and Esa N. (2014, 193) Apart from safety measures and site procedures put in place, the company may consider risk-transfer options like acquiring specialised environmental insurance covers which shall help them better address issues of liabilities related to environmental impacts related to development, operation, and maintenance of the port (MARSH, 2018, 6). This risk management strategy is most suitable if the company goes for the option of establishing a new port and rail network because the approval and restriction by the government demand that the company demonstrate the capability of managing the risk of environmental pollution.

Another strategy that may be adopted by the company to address the risk of environmental pollution is by the company seeking risk management support. A consortium of environmental management experts may come in hand to assist the company in the analysis of exposure and review the company’s risk management procedures. Additionally, such consultation may assist the company better understand and review their proposals in their development projects (MARSH, 2018. 7). This support should come in hand with an appropriate assessment of environmental risks which shall define and estimate potential costs that may arise from risks of environmental damage.    

Malfunctioning of port equipment poses the biggest risk for port operations. This issue also encompasses the incidents of interruption of port operations following scheduled or unscheduled maintenance activities of equipment at the port. Studies by Loh, H., and Thai, Vinh (2015, 350), and Talas, Menachof, and Harris (2017) indicates that disruption to port-related supply platforms may be managed through avoidance of disruption, mitigation of disruption, and deviation of the transportation plan. In consideration of the three identified solutions, disruption of port operations is more likely to affect the solution involving the extension of the storage facility and the solution involving dredging of a new shipping line. The two approaches are dependent on the efficiency of the loading equipment that is used at the port. The project involving the development of a new port and rail network is presented to meet high technological and technical standards and may, therefore, be considered to be in a position to handle equipment problems more effectively.

The other two solutions can be said to have a weakness of over-relying on a dominant loading equipment. The solution with extended storage and upgraded loading equipment have chances to remain resilient in the short run because the equipment can be considered to be acquired in good operating conditions. However, the continued intense use of the equipment may lead to the emergence of technical problems and demand for increased maintenance requirements. It is notable that the option of deviation of transportation plan is not available in this case because this port is a monopolistic port and also the development plan requires that in case a new port is developed, the existing system shall be decommissioned. This leaves the company with the option of avoiding or mitigating disruption of port operations.

The solution of dredging a new shipping lane is prone to the same kind of risk of disruption due to the failure of loading equipment. In this case, the existing equipment has been in use for some time and is thus likely to require frequent maintenance due to continued wear and tear, especially with the increased shipping workload that is expected to come with the faster movement of ships at the port. Therefore, this approach to solving demand problem for Eigenvalue company is as well prone to delay due to the inefficiency of equipment of which the only available management strategy is avoidance of such disruptions from occurring.

Even with the application of the above-outlined risk management strategies, risks facing the port cannot be fully eliminated. The main risk that remains dominant on all the options that have been identified as solutions is an interruption of operation routines caused by breakdown or maintenance of equipment. Breakdown of machines is in most cases unforeseen even when maintenance routines are followed. The company may be keen to ensure that maintenance operations are performed by qualified technicians and standard equipment installations are used at all times. This can contribute to avoidance of frequent equipment breakdown and hence allow smooth running of port operations.

Contamination of environment is also a risk posed by dealings in coal and remains prevalent at significant levels in some of the identified solutions. Mukherejee, P. (2017) identifies coal liquefaction and dust from working cargo as some of the major risks posed by holding coal in bulk. In the scenario that Eigenvalue company decides to venture in the construction of new port or decide to extend the storage facility of the existing port, holding the coal will pose a risk of environmental pollution through contamination which may occur accidentally or from long-term leakages due to faults in storage facilities or human error. The company as required by regulations is expected to maintain high standards of environmental protection. To this effect, the company can only commit some level of assurance on preventing eventualities of environmental pollution. However, there cannot be complete assurance that the activities of the company in shipping the coal shall never cause pollution due to unforeseen accidental risks.

An evaluation framework is a management tool that is used to describe indicators that measure whether a project is successful

Solution Evaluation Framework for Eigenvalue Coal Company

This evaluation framework is formulated with considerations that all operations and developments made by the company have the main priority as making profits. In this regard, the company is expected to consider the solution that enables it to be prepared to meet market demands in time, have the capacity to adapt to dynamics of the business environment and meet economic goals. In this endeavor, the company is limited by regulations by the government and constraints of financial and human resource capital. As much as the specification report does not put weight on other factors of resources other than financial capital, changes in business location or mode of operation have obvious implication on other forms of a resource like workers.

Therefore, formulation of this framework focuses on guiding the Eigenvalue coal company to determining the most favorable solution for their future operations and dealings in coal. The framework should guide the company in determining whether it has access to the resource required in effecting the solution of preference in an efficient and effective manner such that adjustment to or incorporation of the solution enables the company to meet market demands with the assurance of timeliness and reliability. All approaches of the company lie within limits of the government regulations and adherence to them hall at all time be a responsibility of the company.

I would recommend the Eigenvalue Coal Company to consider the option of developing a new port and rail network. This option is the most capital intensive and it appears to be highly regulated by the government. Assuming that the involved parties are ready to avail their capital investment and allow commencement of the project once the documented requirements are met, it is the best option for the company to strive to meet the set regulations quickly and allow commencement of the project.

On completion of the new port and rail network, specified to be effected in three years, the company shall have capacity supply coal effectively and reliably. It is notable that the new port shall have a capacity of handling volumes of coal that are up to twice the volume that the market is expected demand at the fifteenth year of the market projection. This may sound like underutilization of resources but it should be considered that the other proposed solutions cannot approach this level of effectiveness without formation of a hybrid of two or more other solutions that were presented. For example, augmenting the existing rail network to allow faster movement of trains demands an upgrade in holding a capacity of the existing port and improvement of loading equipment. If this improvement was done, the slow movement of ships at the port would be a limitation and therefore, these options cannot be effective enough on their own unless a hybrid is formed from them.

In addition to that, assessment of the mines shows that the coal ore is sufficient to maintain supply way beyond the projected period. Therefore, it is sensible to consider an option that will be able to take the company through the projected period and beyond while involving minimum possibilities of incurring costs in maintenance and breakdowns.

In the assessment of viability and suitability of solutions proposed to address limitations facing supply system of Eigenvalue Coal Company, a brainstorming session was conducted by the consultant team. The main aim was to identify the most viable options that the company may adopt for it to gain sufficient capacity it requires to meet market demands for the projected period of 15 years between 2017 and 2033. The consultation team was informed by information provided through project specification report. Another factor that was put into consideration was involvement of government and its influence on operations of the company.

The discussion led to a consensus of five options that the company may adopt to counter its problem with the existing coal supply system. Four of these options proposed improvements of various components of the existing system including the rail network, the storage facility at existing port, and the existing harbor. The other option proposed the development of a new port and a new rail network connecting the proposed port to the three mines from which the company acquires its coal.

The main constraints that were presented for consideration by the company were the cost of financial capital that would be incurred in implementing each option, the period of time that would be needed for proposed developments to be affected, and the assessed environmental impact that would be caused by the implementation of each of the proposed option. By providing more options inclined towards improving the existing team, the consultation team can be said to have honored the main objective of the company, which is profit-making, and at the same time seeking to adequately inform the company on important aspects of the options which may lead to challenges during implementation.

In case this brainstorming session was held on an online platform, the consultants would be faced with the challenge of limitation in the number of participants that would participate in the discussion. Unlike an online platform, a roundtable discussion allows room for each team to bring in as many team participants as it may be deemed appropriate. During professional consultations, one representative of a team may not be able to have adequate knowledge in various fields which may have implications on the issue under discussion. For example, a consultant representing an engineering team may not have sufficient knowledge about the implication of their argument on environmental or financial aspects. Therefore, holding such a discussion on the online platform would cause a limitation on information availed.

Another challenge would be preparedness of the participants. The thought of appearing on a video conference may be a distraction to the participants whereby they may tend to concentrate more on their appearance during the conference at the expense of internalizing and equipping themselves with relevant information that would be needed during the discussion.

References

Erftemeijer, P., Todd, P., 2012, Environmental Impacts of Dredging and Other Sediment Disturbances on Corals: A Review. Marine Pollution Bulletin. Vol 64, Issue 9. pp.1737-1765. https://doi.org/10.1016/j.marpolbul.2012.05.008. Accessed on June 2, 2018.

Global Maritime Consultancy (2018). Managing Risk in Port Developments. https://www.maritimejournal.com/

Jim Romeo 2016, Building Infrastructure to Meet Market demands. American Association of port authorities. Updated on March 3, 2016. Retrieved from https://www.aapaseaports.com.  accessed; June 2, 2018

Loh, H., & Thai, V. (2015). Cost Consequences of a Port-Related Supply Chain Disruption. The Asian Journal of Shipping and Logistics. Vol 31, Issue 3. pp.319-340. https://doi.org/10.1016/j.ajsl.2015.09.001 Accessed; June 2, 2018

MARSH (2018). Managing Environmental Risk in Infrastructure Development. https://www.marsh.com/us/industries/environmental/managing-environmental-risk-infrastructure-development.html. Accessed; June 2, 2018

MARSH (2018). Ports and Terminals Risks, Challenges, and Solutions. Global Infrastructure and marine Practices. MARSH Ltd

McLellan, B., Zhang, Q., Farzaneh, H., Utama, N. and Ishihara, K. (2012). Resilience, Sustainability and Risk Management: A Focus on Energy. Challenges Vol 3. pp.153-182. doi: 10.3390/challe3020153

 Mukherjee, P. (2017). Common Hazards of Bulk Cargo. MarineInsight. www.marineinsight.com

Rahman N.N.N.A.& Esa N. (2014) Managing Construction Development Risks to the Environment. Sustainable Living with Environmental Risks. ISBN: 978-4-431-54804-1.  Springer, Tokyo. pp. 193-202 https://doi.org/10.1007/978-4-431-54804-1_16

Talas, R., Menachof, D., & Harris, K (2017). Supply Chain Risks and Vulnerability in Maritime Ports and Terminals. doi: https://doi.org/10.1002/9781118476406.emoe550

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