Project Analytics Assignment

Applying a Risk Management Process (RMP)

to manage cost risk for an EHV transmission line project

Guided By: Prof Kanchan Joshi

Submitted by: Amit Kumar Sahu

PGPEx-VLFM03
1907002
NITIE Mumbai
 Introduction

1. In managing a project, a quality system is normally employed in order to

meet the objectives and expectations of a company.

2. Due to the high inherent risks associated with the building of an extra
high voltage (EHV) trans- mission line, that is to be completed on-time
and within budget, a new approach was needed to improve the
information required to monitor and control such risks

3. A risk management process (RMP) methodology is used to formulate a

risk management model incorporating transmission line costs for
capital budgeting purpose and apply it to an existing EHV transmission
line project.

4. These core elements include risk identification, risk measurement, risk

assessment, risk evaluation, risk control and monitoring.

5. The RMP begins with identifying the strategic im- portance of the
project and the corresponding project mission, aims and objectives.
6. Risk identification, risk measurement and risk assessment form a system
that includes several tools to identify all potential risk factors and to
enumerate the consequences and their severity of the identified risk factors.

7. It also includes several tech- niques of assessing the uncertainties

associated with the consequences in the form of probability distri- butions
and determining the probability distributions for project critical success
factors.

8. The risk evaluation phase of the RMP involves iden- tifying several
decision alternatives and evaluating them based on the risk profiles obtained
in the risk assessment phase, and taking necessary corrective actions if the
project outcomes are at variance with the planned outcomes.

9. In the risk control and monitoring phase, the project manager can examine
the progress as well as any deviations that would occur and corrective actions
required for achieving the desired objectives of the project.
 
Risk Management Process
Transmission line project description
1. In Kowloon and the New Territories of the Hong Hong region, EHV
overhead transmission lines are constructed by China Light and Power
Company Limited (CLP), to deliver bulk electricity from generat- ing
sources located in the New Territories to major consumer centers, mainly
located in the urban areas of the territory.

A RMP based risk management model for transmission line costs

1.The cost model is selected as the basis for this case study.

Mission & Aims:

2. The mission of the project is to ‘develop, operate and maintain CLP’s
Transmission Business Group activities by safely obtaining and delivering
quality electricity supplies and providing services in a way that meets the
expectations of customers, shareholders and employees’.
Objectives:
1. As each project is unique, the strategy to be followed needs to be
tailored to suit its uniqueness.
2. When the plans of a project are established, the cost review is
initiated at the next stage of the process involving risk
identification, risk measurement and risk assessment.
3. The risk identification starts with a Base Cost and Schedule,
which is prepared when the project was first selected, together
with a Risk List that is used to assist in categorizing potential risk
factors associated with the project.
4. A work breakdown schedule (WBS) is then used at high level to
determine appro- priate cost centers, allocate the potential risk
factors to these cost centers, and then prioritize risks by check-
lists for the next phase of risk measurement.
5. Risk measurement stage then models each of the risk factors
identified on checklists in terms of consequential cost as a range
estimate (magnitude of impact), and with the assistance of the
WBS at various levels, defines cost relationships to determine the
total project cost
The following points need to be made to ensure good practice in
project management:
1.Project risks need to be identified during the earliest project phases.

2.No project risk should be ignored or dealt with in an arbitrary fashion.

3.All risks having greatest impact must be clearly understood before major
project decisions are made.

4.Project risk appraisals should be practical and be available for regular

reviews.

5.Assessment of risks acting on the project need to be completed and their

likely extent and level of inter- action should be determined.

6.Risk management during the project life cycle must be rigorous and given
continuity by project management.
Risk Identification:
1. As a first step in the development of the model, all potential risk factors
that would erect the project cost must be identified.
2. The risks can be considered with respect to six categories (financial,
economic, political, environmental, design, site construction, physical and
acts of God).
1. Risk reduction: This is the first step in loss control to make sure that the risk is as low
as possible. Two possible aspects are involved, namely pre-loss and post-loss
reduction. The pre-loss reduction involves steps, which the risk man- ager can think of
taking once a risk has been identified but prior to any loss occurring.

2. Risk retention: Depending on the level or value of potential risk, some retention of
risk can be made by the responsible project manager.

3. This is essentially trying to transfer the risk to another party. For a construction
project, an insurance premium would not relieve all risks, although it gives some
benefit as a potential loss is covered by fixed costs.

4. Turnnkey contract: This contract is a total package, the contractor (or a consortium
or joint venture) takes over the wayl eave tower sites from the client at the outset,
executing the whole of the civil, mechanical and electrical engineer- ing, construction
and commissioning through to commercial operation.

5. Multicontract
This would divide the project into numerous parcels of work of varying sizes, each
individually contracted. The advantages are in the competition achieved by contracting
parcels directly with a specialist supplier, and avoid mark-up of an intermediary.
Conclusion:
1. In the EHV overhead transmission line project, the proposed RMP based
risk management model has been applied at the project definition stage
which has assisted in refining the capital budget needs, and ident- ified the
risks which need continuous review during the engineering stage of the
project life cycle.
2. The WBS has enabled risks to be packaged and as the model has prioritized
the risks, each work package manager is required to pay special attention to
those risks and report on any significant changes in their conse- quences, to
enable a follow up review.
3. By assessing all the risks of each work package together, the total out- come
has been evaluated to provide a ‘risk pool’ or ‘contingency sum’ that will
cover all likely risks.
4. The model will continue to be re-cycled throughout the project life cycle and
be used to review capital budgets at half yearly intervals.
5. The RMP methodology has been successfully applied to a specific live
project which has demonstrated its capability in providing more
information on risk factors that guides managers in their decision making
process.
6. It also illustrates how readily the RMP can be tailored to meet various
project environments, which will ensure its potential usefulness in a variety
of other applications.