Operational Risk in Major Infrastructure Projects

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Operational risk in major infrastructure projects/businesses Stephen Ward, University of Southampton, UK Professor of Management School of Management, University of Southampton, Highfield Campus, Southampton, SO17 1BJ , UK Email: scw@soton.ac.uk Tel: +44 (0)23 8059 2556 and members of the OPrisk Working Group: Roger Allport, Chris Chapman, Chris Lewin, Mike Nichols and Gerald Orman .

December 2008

Acknowledgements This research was funded by the Institution of Civil Engineers Research and Development Enabling Fund, whose support is gratefully acknowledged. The views and evaluations in this report do not necessarily reflect those of the Institution.

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CONTENTS
List of Tables List of Figures List of Abbreviations Executive Summary 1 Introduction 1.1 Importance of operational risk 1.2 Strategic, project and operations management 1.3 Study objectives and methodology 1.4 Four sectors 2 Operational risk in four sectors 2.1 The energy sector 2.2 The transport sector 2.3 The material resources and waste management sector 2.4 The water sector 2.5 Towards a generic set of risk drivers 3 Key issues 3.1 Interdependencies between elements of infrastructure within and across sectors. 3.2 Clarity and stability of operational performance objectives 3.3 Short-termism 3.4 Appreciation of the asset life cycle 3.5 Asset management. 4 Conclusions 4.1 The extent and significance of operational risks 4.2 Existing practices for managing operational risk 4.3 The implications of existing practices for project success 4.4 Problems in achieving more effective identification and management of operational risks 4.5 Ways in which operational risk should be addressed in different phases of the project life cycle 4.6 Differences between the public and private sector sponsors 4.7 Issues that warrant further study 4.8 Differences between UK and international practice 4.9 Conclusions 5 Recommended reading APPENDIX A Interviewee organisations APPENDIX B References Page iii iii iv v 1 1 3 5 7 11 11 14 21 26 29 31 31 34 38 41 44 50 50 53 53 53 54 57 58 59 60 62 63 64

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List of Tables
1.1 1.2 1.3 2.1 2.2 2.3 2.4 A generic infrastructure asset life cycle Basic questions for interviews Summary features of operations in each sector The Energy sector sources of operational risk The Transport sector: roads –sources of operational risk The Transport sector: rail –sources of operational risk The Material resources and waste management sector – sources of operational risk 2.5a The water sector: water supply –sources of operational risk 2.5b The water sector: waste water – sources of operational risk 2.6 Areas of uncertainty driving operational risk 3.1 Performance criteria for operational infrastructure 4.1 Factors influencing the bankability of infrastructure projects 4.2 Purposes of risk management in the asset life cycle 4.3 Major differences between UK and developing countries

Page 4 6 13 12 17 19 24 27 28 30 35 51 55 59

List of Figures
3.1 A portfolio of infrastructure projects 3.2 Possible linkages between operational performance criteria

Page 32 37

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Abbreviations
BTSCP Business task force on sustainable consumption and production www.cpi.cam.ac.uk/scptaskforce Previously known as the County Surveyors’ Society, CSS represents local authority chief officers www.cssnet.org.uk Chartered Institute of Public Finance and Accountancy www.cipfa.org.uk projects- Design build finance and operate projects Department for Environment Food and Rural Affairs www.defra.gov.uk US department of energy www.energy.gov Institution of Civil Engineers www.ice.org.uk Material resources and waste management National Audit Office (UK) www.nao.org.uk National Underground Assets Group www.nuag.co.uk The Water Services Regulation Authority www.ofwat.gov.uk Office of Government Commerce www.ogc.gov.uk

CSS

CIPFA

DBFO Defra DOE ICE MRWM NAO NUAG Ofwat OGC

ORR

The Office of Rail Regulation – safety and economic regulator for Britain’s...
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