Risk Analysis and Management for Projects

RAMP
Third edition

A strategic framework for managing project risk and its financial implications

Institution of Civil Engineers and the Institute and Faculty of Actuaries

Downloaded by [] on [06/03/24]. Copyright © ICE Publishing, all rights reserved.

RAMP3e-Mar14.indd 1 11/06/2014 16:43

 Published for The Institution of Civil Engineers and the Institute and Faculty of Actuaries
by ICE Publishing, One Great George Street, Westminster, London SW1P 3AA.

Full details of ICE Publishing sales representatives and distributors can be found at:
www.icevirtuallibrary.com/info/printbooksales

Other titles by ICE Publishing:

BIM in Principle and in Practice
P.T. Barnes and N. Davies
ISBN 978-07277-5863-7
Art and Practice of Managing Projects
A. Hamilton.
ISBN 978-0-7277-3456-3
Cost-Benefit Analysis, 2nd edition
M. Snell.
ISBN 978-0-7277-4134-9
Planning Major Projects
R.J. Allport.
ISBN 978-0-7277-4110-3
Strategic Risk
Actuarial Profession and ICE.
ISBN 978-0-7277-3467-9

www.icevirtuallibrary.com

First published 1998

Revised, 2002
Second edition 2005
Third edition 2014

A catalogue record for this book is available from the British Library

ISBN: 978-0-7277-4157-8

© The Institution of Civil Engineers and the Institute and Faculty of Actuaries, 1998, 2002, 2005, 2014

All rights, including translation, reserved. Except as permitted by the Copyright, Designs and Patents
Act 1988, no part of this publication may be reproduced, stored in a retrieval system or transmitted in
any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior
written permission of the Publisher, ICE Publishing, One Great George Street, Westminster, London
SW1P 3AA.
This book is published on the understanding that the authors are solely responsible for the statements
made and opinions expressed in it and that its publication does not necessarily imply that such
statements and/or opinions are or reflect the views or opinions of the publishers.
Whilst every effort has been made to ensure that the statements made and the opinions expressed in
this publication provide a safe and accurate guide, no liability or responsibility can be accepted in this
respect by the author or publishers.
Whilst every reasonable effort has been undertaken by the author and the publisher to acknowledge
copyright on material reproduced, if there has been an oversight please contact the publisher and we
will endeavour to correct this upon a reprint.

Commissioning Editor: Jennifer Saines

Production Editor: Tamsin Cousins
Market Development Executive: Catherine de Gatacre

Designed and typeset by Kneath Associates, Swansea

Printed and bound in Great Britain by TJ International, Padstow

Downloaded by [] on [06/03/24]. Copyright © ICE Publishing, all rights reserved.

RAMP3e-Mar14.indd 2 11/06/2014 16:43

 R I S K A N A L Y S I S A N D M A N A G E M E N T F O R P R O J E C T S

Dedication to Mike Nichols

This third edition of the RAMP guide is dedicated to the memory of our colleague and friend Mike Nichols
(founder of the Nichols Group and chairman for several years of the Association for Project Management), who
died on 3 December 2013.
When Chris Lewin and I first began the collaboration of Actuaries and Civil Engineers in 1994, to address
the subject of risk, I was quickly able to persuade Mike to join us as a member of the committee that became
the RAMP working group. Notwithstanding his extremely busy full-time business and professional life, he soon
became one of our stalwarts.
This eventually led to the STRATrisk development group, and then to the enterprise risk management group.
‘The rest is history’ as one says. Throughout this time Mike’s intellect, enthusiasm and spirit of collaboration has
made a massive contribution to the success of our joint venture.
We think it appropriate therefore to dedicate this third edition to his memory.

Tony Ridley
Past President, ICE

3
Downloaded by [] on [06/03/24]. Copyright © ICE Publishing, all rights reserved.

RAMP3e-Mar14.indd 3 11/06/2014 16:43

Downloaded by [] on [06/03/24]. Copyright © ICE Publishing, all rights reserved.

RAMP3e-Mar14.indd 4 11/06/2014 16:43

 R I S K
Foreword
Managing the risks in projects is important to both
our professions. In civil engineering the project will
usually focus on the construction of a significant
physical asset, while in other large organisations,
including those in government or financial
services, it may centre round a major business or
administrative change. In either case the project
will carry large and complex risks, and these need
to be managed carefully.
The RAMP method for managing project risk
is now well established and its principles are
enduring. However, it is 9 years since the last
edition of this guide, and events since then
have demonstrated only too clearly what a
changing and turbulent world we live in, with
much uncertainty about the future. This new
edition therefore pays particular attention to
the methodical management of the uncertainty
surrounding projects, emphasising the need to
reduce uncertainty as far as possible by searching
out relevant knowledge.
Over the past 9 years a considerable amount of
Geoff French
President, Institution of Civil Engineers
5
Downloaded by [] on [06/03/24]. Copyright © ICE Publishing, all rights reserved.
RAMP3e-Mar14.indd 5
A N A L Y S I S A N D M A N A G E M E N T F O R P R O J E C T S
new infrastructure has been constructed around the
world, particularly in roads and railways, and there
is every indication that this trend will continue, not
only in developing nations but also in the countries
(such as the UK) where infrastructure already
exists but is no longer meeting modern needs. It is
therefore timely that this new edition of the guide
includes a chapter devoted to managing the social
and environmental risks in infrastructure projects.
Such projects will increasingly be considered as
possible avenues of investment by pension funds
and insurance companies, who will need to know
that these and other risks are well managed.
Although RAMP was developed with major
projects in mind, the underlying principles are
extremely straightforward, and it can therefore
also be applied easily to smaller projects, using
simplifying assumptions and less depth of analysis.
For all projects we firmly believe that the process
described here, applied in conjunction with sound
judgement, will increase the chance of ultimate
success.
David Hare
President, Institute and Faculty of Actuaries
11/06/2014 16:43
 R I S K A N A L Y S I S A N D M A N A G E M E N T F O R
Acknowledgements
The RAMP working party is part of a joint initiative
on risk management, sponsored by the actuarial
and civil engineering professions. The members of
the RAMP working party who prepared this guide
are as follows.
Roger Allport is by profession a civil engineer
and transport economist. He has spent most of
his career with Halcrow, developing transport
policy and major transport infrastructure projects
worldwide. Following a PhD at Imperial College he
authored a book Planning Major Projects, and now
works mainly with Imperial College Rail Transport
Strategy Centre, advising metros worldwide. He
has worked with the ICE/Actuarial Profession on
risk research for many years.
Michael Clark is treasurer of Shell’s downstream
and trading businesses, with responsibility for
the optimal financing and the identification and
management of treasury risks for global businesses.
He recently led the $5.3 billion financing of the
world’s then largest oil and gas project on Sakhalin
Island in Russia. With over 100 consultants,
lawyers and bankers involved, the role extended
to negotiations with engineering contractors and
gas buyers as well as governmental briefings in
London, Washington, Tokyo and Moscow. Project
Finance magazine commented, ‘the deal deserves
to be a case study for the financing of large
extractive industries projects. Few others have
managed to combine environmental, construction
and political risks in such a dramatic fashion’.
Michael joined Shell in 1997 from Hambros Bank,
where he advised on the financing of infrastructure
and transport projects such as toll roads in the
UK and Portugal, a new Scottish air traffic control
Downloaded by [] on [06/03/24]. Copyright © ICE Publishing, all rights reserved.
RAMP3e-Mar14.indd 6
P R O J E C T S
centre and new trains for Gatwick Express. Before
joining Hambros, he worked for 6 years at the
Scottish Life Assurance Company in Edinburgh. He
has a degree in mathematical statistics from the
University of the Witwatersrand in Johannesburg
and is a fellow of the Faculty of Actuaries in
Scotland. He is the current chairman of the RAMP
working party.
Jerry Greenhalgh is a chartered quantity surveyor
by profession and has spent his 50-year career in
commercial and project management within the
construction industry. Most of this time has been
with Costain Group plc where he was responsible
for the initial delivery of project risk management
best practice within the company. Jerry has served
on the ICE management panel as well as the RAMP
and enterprise risk management working groups.
Chris Lewin is an actuary who has spent most
of his career as the chief executive of pension
schemes at British Rail, Associated Newspapers,
Guinness, Unilever and EDF Energy. In these roles
he managed significant risks, led change projects
and participated in directing the investment of
substantial funds. He is currently a public member
of Network Rail. For the past 20 years he has led
the joint risk-management initiative between the
actuarial and civil engineering professions, and he
has edited this third edition of the RAMP guide.
Mike Nichols (until his death in December 2013)
was chairman and chief executive of the Nichols
Group, providing consultancy services on project
delivery to many large organisations, including the
Highways Agency. He had a degree in economics
and was a fellow of the Institution of Civil
6
11/06/2014 16:43
 R I S K A N A L Y S I S A N D M A N A G E M E N T F O R P R O J E C T S

Engineers and an honorary fellow of the Institute
and Faculty of Actuaries. He played a major role in
the development of both RAMP and STRATrisk.
Clara Yan is an actuary in UBS where she is
responsible for developing asset management
software and capital optimised solutions for
European insurers. Before joining UBS, she
worked in various insurers in the UK and Australia
where she developed asset-liability models and
implemented investment strategies and derivative
overlays.
Previous members of the RAMP working party,
who contributed to the development of the
methodology, are John Bennett, Chris Chapman,
Robert Clarkson, Clare Delmar, Patrick
Godfrey, Peter Hansford, Clive Hopkins, Terry
Mulroy, Gerald Orman, Jonathan Readings,
Tony Ridley, Nigel de Rivaz, Owen Simon,
Matthew Stainer, Mark Symons, David Tilston,
Brendan Walshe, Luke Watts and Graham
Withers.
Thanks are due to Alan Botterill, Rebecca
Bowry, Christopher Bull, Harry Dimitriou,
Reg Harman, Charles Jensen, Matthew Lynch,
John Ward and others, who have contributed
to the thinking behind RAMP or helped in the
preparation of this edition of the guide.
The working party’s contact details are as
follows:
Charles Jensen, secretary of the RAMP working
party, Institution of Civil Engineers, One Great
George Street, Westminster, London SW1P 3AA
(tel: 020 7665 2225, management@ice.org.uk).
Updates to RAMP can be viewed online at http://
www.ice.org.uk/ramp. This site also includes some
material that appeared in the second edition but
has been omitted from this third edition, although
is still of possible use.
Other publications of the joint initiative between
the two professions are
• Strategic Risk – a guide for directors (known
informally as the STRATrisk guide), published
by Thomas Telford, 2006. See www.STRATrisk.
co.uk
• ERM – a guide to implementation (can be
viewed online at http://www.actuaries.org.uk/
research-and-resources/documents/erm-guide-
implementation-draft)
• Handling uncertainty – the key to truly effective
Enterprise Risk Management, The Actuarial
Profession, June 2011 (can be viewed online
at http://www.actuaries.org.uk/research-and-
resources/documents/handling-uncertainty-key-
truly-effective-enterprise-risk-manageme-0)

7
Downloaded by [] on [06/03/24]. Copyright © ICE Publishing, all rights reserved.

RAMP3e-Mar14.indd 7 11/06/2014 16:43

 R I S K A N A L Y S I S A N D M A N A G E M E N T F O R P R O J E C T S

Contents
Introduction Chapter 4: Responding to risks
Who is this guide aimed at? 10 Describes how to devise and analyse possible ways of
What is RAMP? 10 responding to risks
Benefits of RAMP 10
This new edition 11 4.1 Identifying and analysing risks 55
Users of RAMP 12 4.2 Responding to risks 55
Common, good and future recommended practice 12 4.3 Developing risk responses 56
Why actuaries and civil engineers? 12 4.4 Determining whether risk responses
Using RAMP to make success more likely 13 are cost effective 56
4.5 Cost effectiveness of risk responses when
Chapter 1: Overview resources are scarce 58
Summarises the basic ideas behind the RAMP method 4.6 Ways of mitigating threats 58
4.7 Reducing or eliminating threats 59
1.1 First principles 15 4.8 Transferring risks 59
1.2 The nature of projects 17 4.9 Avoiding risks 62
1.3 Recommended good practice 19 4.10 Absorbing and pooling risks 63
1.4 What makes a project successful? 22 4.11 Optimising opportunities 63
1.5 Differing approaches to risk by various 4.12 Responding to uncertainty 64
stakeholders 24 4.13 Planning for risks of the operating phase 64
1.6 RAMP: studying risks throughout the 4.14 Developing a risk response plan 66
project’s expected life 25 4.15 Scenario analysis 67
1.7 RAMP’s stages 26 4.16 Dealing with residual risks 71
1.8 The investment model 29
1.9 Balancing risk and reward 31 Chapter 5: Social and environmental risks in
1.10 Special features of RAMP 32 infrastructure projects
1.11 RAMP as part of enterprise risk management 33 Discusses the management of the complex social and
environmental risks found in infrastructure projects
Chapter 2: Getting started
Outlines how to build the foundations for applying 5.1 The overall objectives 72
RAMP to a project 5.2 Examples of social and environmental risks 72
5.3 Basis for guidance 75
2.1 Defining the risk strategy 35 5.4 Sustainability 75
2.2 Establishing the baseline 37 5.5 Working with stakeholders 79
2.3 The first risk review 39 5.6 Responding to social and environmental risks 83
5.7 Influencing decisions 84
Chapter 3: The management of uncertainty 5.8 Quantitative appraisal methods 86
Discusses the nature of uncertainty and how to 5.9 Recommended multi-criteria approach 89
manage it 5.10 Good practices: a summary 90

3.1 The nature of uncertainty 42 Chapter 6: The investment decision and

3.2 Reducing uncertainty 44 afterwards
3.3 Ways of acquiring more knowledge 46 Deals with investment decisions and subsequent risk
3.4 Making assumptions 48 management
3.5 Other techniques for dealing with uncertainty 48
3.6 Making decisions when uncertainty remains 50 6.1 The investment submission 92
3.7 Managing the residual uncertainty 50 6.2 Need for confidence in the investment
3.8 Uncertainty posed by hostile interests 52 submission 93
3.9 Uncertainty surrounding catastrophe risks 52 6.3 Wider considerations 94
3.10 A systems approach to uncertainty 53 6.4 Rejected projects 95
3.11 Moving forward once uncertainty has 6.5 Decisions about the risk response package 96
been reduced 54 6.6 Real options 96
6.7 Shareholder value 96
6.8 Implementation risks 96
6.9 Importance of communication 99
6.10 Procurement risks 100

8
Downloaded by [] on [06/03/24]. Copyright © ICE Publishing, all rights reserved.

RAMP3e-Mar14.indd 8 11/06/2014 16:43

 R I S K A N A L Y S I S A N D M A N A G E M E N T F O R P R O J E C T S

Appendix 1: A practical step-by-step guide TABLES

to applying the RAMP process
Table 1. Common, good and future
Part 1. Benefiting from RAMP 102 recommended practice in risk
Part 2. Preparing for the RAMP process 105 management 14
Part 3. Studying uncertainties 107 Table 4.1 Choosing between projects 70
Part 4. Making sure data are accurate 109 Table 5.1 Example of social and environmental
Part 5. Studying key scenarios 110 issues and risks: a metro project 74
Part 6. Looking at the cost effectiveness of risk Table 5.2 Appraisal issues: good practice
mitigation 112 approach 85
Part 7. Making a decision based on different Table 5.3 Estimation of the financial impact
possible outcomes 116 of some social risks 88
Part 8. Programme/project appraisal template 118 Table A1.1 Project benefits in different scenarios 104
Part 9. Ensuring adequate follow-through to Table A1.2 Results of scenario analysis 112
implementation 122 Table A1.3 Risk mitigation options 114
Table A1.4 Testing the cost effectiveness of risk
Appendix 2: Case study mitigation options 114
– A simple RAMP appraisal process 123 Table A1.5 Revised scenario analysis assuming risks
are mitigated 115
Appendix 3: Case study Table A2.1 Cash flows for most likely scenario in
– Applying RAMP to a large project 128 terms of present day prices 124
Table A2.2 Major alternative scenarios 125
Appendix 4: Constructing and Table A2.3 Obtaining a probability distribution
analysing the risk register 133 of net present values 125
Table A2.4 Evaluation of the various scenarios 126
Appendix 5: Examples of handling Table A3.1 Risk response options 130
social and environmental risks 138 Table A5.1 Example of an appraisal summary
table: highway upgrading 139
Appendix 6: Description of the
RAMP process 141 FIGURES

Appendix 7: Glossary 151 Figure 1.1 First thoughts about a project 21

Figure 1.2 The RAMP process 28
Appendix 8: References and select Figure 1.3 The investment model 29
bibliography 158 Figure 1.4 Net present value 30
Figure 1.5 Components of enterprise risk 33
Appendix 9: Self-assessment check 160 Figure 2.1 Causes and outcomes 39
Figure 2.2 Results from a stochastic model 41
Index 161 Figure 3.1 A person’s perceptions of
uncertainty about the future 43
Figure 3.2 Searching for additional knowledge 45
Figure 3.3 Managing uncertainty for different
kinds of risk 49
Figure 3.4 The ‘Italian flag’ technique 49
Figure 3.5 First draft of a concept map 53
Figure 4.1 Ways to mitigate threats 58
Figure 4.2 How RAMP leads to the contract 62
Figure 4.3 Some selected scenarios 68
Figure 5.1 Stakeholder analysis: an example for
a proposed metro 79
Figure 5.2 Stakeholder influence 82
Figure 6.1 The decision-making process 95
Figure A1.1 Net present values (NPVs) before and
after risk mitigation 116

9
Downloaded by [] on [06/03/24]. Copyright © ICE Publishing, all rights reserved.

RAMP3e-Mar14.indd 9 11/06/2014 16:43