Risk Management and Contingency Planning

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Project: A case of manufacturing, delivery and installation of a large power transformer.

A project to manufacture, deliver and install a large power transformer is time and resource (material and labour) consuming, relies on services and products provided by more than one supplier, involves multiple expertise, and costs tens of millions of Rands. If a transformer fails, the cost of rectification can go as high as over 70% of the price of a new one. By so saying, risk management and contingency planning plays a key role in the management of such a project. In this report, the need and process of risk management as well as the types of risks in relation to the power transformer project are discussed.


A power transformer is an electrical machine used in reticulation/distribution networks which steps voltage up or down (according to network requirements) for the efficient supply of electricity to various connection points. The transformers vary in size and capacity – the bigger the capacity of transformation, the bigger the size. Manufacturing a transformer requires specialized machinery as well as hand craft – the bigger the size of a transformer, the more the hand craft. Transformer parts cannot be discretely tested, all parts (including accessories) have to be assembled into a complete transformer machine before testing its performance – this is mentioned to highlight the due diligence required. Manufacturing of large transformers is traditionally done in European countries and therefore delivery means moving the transformer from a manufacturing factory in Europe to a customer base in South Africa. It involves various mode of transportation, namely: railway, sea and road. From factory, the transformer is crane lifted onto a rail bed and moved to a harbour where it is hoisted onto a ship and transported to South Africa. From a South African harbour, a transformer is placed onto a low bed ‘abnormal’ vehicle and driven to its destination. For the ease of transportation, accessory parts (e.g. fans and oil) are removed from the transformer and packaged separately. Thus site installation entails assembly of transformer accessories, filling the transformer with oil (oil is used as a cooling and insulating medium), testing and commissioning of the machinery.


The overall objective of the project is to provide a transformer that operates safely and meet the performance requirements specified by the customer and regulatory standards. The three sequential milestones: manufacturing, delivery and installation, each involves various activities and tasks, and there are risks/uncertainties associated with such tasks and activities – most of which are known or foreseen and therefore contingency planning can be done prior to commencement of the project, i.e. as part of project preparation stage. For instance, budget variations are expected in this project – due to cross boundary collaborations, the project is subject to foreign exchange currency volatility and a contingency plan thereof can be inflating project costs using treasury forecasts and/or providing a monetary risk allowance for commodities (e.g. steel and copper prices) in accordance with consumer or product price indexes (CPI or PPI). Another example of risk associated with transportation, is that of pirates hijacking the ship or a transformer falling off a moving vehicle due to speed or road maneuvers – taking insurance cover is one of the contingency plans made. Such contingency plan may never be used but it is there if the incidents occur.

Due to their long life span, large power transformers are not manufactured in bulk, they are mostly customised to suite the needs of each customer. If a transformer fails beyond repair, another one has to be made. Due to the irreversible commitment in investment, risk management in this project is not taken lightly. Mistakes, accidents,...
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