Heathrow Terminal 5 Risk Management

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Introduction

Work on the London Heathrow terminal 5(T5) began in 2002 after a 4 year public enquiry. It took six years to build at a cost of £4.3bn. The facility, situated on a 251hectar site had 6000 people working on site at any one time (Health and Safety Executive, 2005). It boasts of 30,000 square meters of glass walls, has 60 new aircraft stands and includes 13km of tunnels which were bored for baggage handling and rail links (BBC, 2007a). This report will be evaluating the project risk management in the construction of T5 airport. It will start with a brief background on Heathrow terminal 5. The report will then take a critical look at some of the British Airport Authority’s (BAA) method of risk allocation and identification. It will then provide an analysis and will finally conclude with recommendations. In undertaking a project of this magnitude, BAA would have had to overcome a fundamental characteristic of any project; risk. Kerzner (2009:743) defines risk as “a measure of the probability and consequence of not achieving a defined project goal” and suggests that risk management must judge both the probability and the consequence as significant to be efficient. It has also been recognised by Chapman and Ward(2003) that, it is a basic good practice to ensure that all the risks be allocated to an owner in financial terms and they should possibly be different parties as suggested in their Shape, Harness And Manage Project Uncertainty (SHAMPU) process. In its simplest form, the SHAMPU process advocates the shaping of the project which will include clarification of risk ownership, harnessing plans and implementation management. Risk identification

It could be argued that one of the main sources of risk identification for BAA was through lessons learned due to the amount of time it took for planning and enquiry which included a look at various other airport projects. During his interview with the House of Commons, Mr. Collins Matthew, the chief executive of BAA suggested that they had taken into account lessons learned from various other airports projects and were aware of the various risks that could be realised on the T5 project (Parliament.uk, 2008). It could also be suggested that through the lessons learned from their research into past projects, BAA may have identified as a major risk the likelihood of legal disputes between contractors having a detrimental effect on the time and cost constraints of the project and therefore put in place mitigating factors which lead to them agreeing to take on all the risk. This is also supported by evidence which shows that major UK construction projects in the past decade preceding the T5 project had always finished beyond schedule and above cost, most of which was to do with legal disputes between the contracting parties involved.BAA was also already involved in the Heathrow express project which was running behind schedule and It decided to adopt a different contractual approach which aided in the completion of the expressway on schedule and this was then incorporated into the T5 agreement(Davies et al, 2009). In addition BAA adopted the view that partners are worth more than suppliers and hence developed an ‘integrated project team approach’ when it drafted the T5 agreement which focused on the causes of risk. What this did was to allow BAA to work closely with its suppliers and hence allowed them to minimise risk along the supply chain (National Audit Office, 2005). Also included in the T5 agreement was an open book cost reimbursable contract wherein BAA would repay the contractors for incurred costs and would also include profits dependent on performance. Project risk and uncertainty is normally evident throughout the entire life cycle of a project. Chapman and Ward (2003) argue however that it is at the pre-execution stages of the project where risks become particularly evident, with regards to variable estimates, uncertainty with estimates, design and...
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