Quantitative Risk Assessment & Risk Management on a large transportation project

July 2019| HIGHWAY CONCESSION CONFERENCEINFRA | TECH | O&G | MARITIME

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01 Malaysia Development Bank at a glance

02 Risk Management Overview

03 Risk Management Process

04 Qualitative & Quantitative Risk

05 Conclusion

Content

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Corporate Information

Marine venture

capital investment holding

Provision of credit

facilities to SMEs

Regulator

Date of Establishment

28 November 1973

Shareholders

MoF (99.99%)

Federal Land Commissioner (0.01%)

Authorised Capital

RM10.0 B

Paid Up Capital

RM3.1 B

Credit Rating

AAA by RAM

$$$

Group Structure Brief Information

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Focus on Mandated Sectors

Infrastructure MaritimeOil & Gas

• Area Development

(Mixed / Commercial /

Industrial)

• Community & Public

Services (Education /

Health)

• Port (Airport /

Warehouse / Logistics

Hub)

• Road / Highways /

Bridges / Transport

• Tourism

• Utilities (Water / Power /

Sewerage)

• Vessels

• Shipyard

• Shipbuilding

• Ship repair

• Engineering Works

• Yard Facilities

• Fabrication

• Vessel Services

• Machinery

• Offshore

• Onshore

• Support Vessels &

Logistic

• Air Transportation

• Fabricators

• Operators (Fields / Rigs

/ Platforms / Tank

Farms)

• Machinery

Technology

• Telco

• Aerospace

• Renewable Energy

• Waste to Wealth

• Manufacturing

• Biotech / Biofuel

• Electrical

• Engineering

• ICT

• Pharmaceutical

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“To provide medium to long term credit facilities to finance mandated

sectors i.e. infrastructure, maritime, oil

& gas and technology, in line with the

country’s development policy”

Building The

Nation

Risk Management Overview

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What is Risk ?

“An uncertain event that may have a positive or

negative effect on one or more project objective/s

“ by Project Management Book Of Knowledge (PMBOK)- PMI June 2015

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WHY do we need to manage risk?

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VUCA is an acronym used by the American Military to describe

extreme conditions in Afghanistan and Iraq.

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Volatility Explained

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Uncertainty explained

Uncertain weather leads to unusually heavy

rainfall and flood

New Strait TimesFebruary 9, 2017 @ 10:11am

IDF - Intensity Duration Frequency

Intensity–duration–frequency (IDF)

relationship of rainfall amounts is

one of the most commonly used

tools in water resources engineering

for planning, design and operation

of water resources projects

Flood model vs actual event

(prediction accuracy?)

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Complexity explained

Source from moxa.com

Risk Management Process -Implementation in Projects

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Facts about Projects in general

“The risks associated with megaprojects—those that cost

$1 billion or more—are well documented. In one influential

study, Bent Flyvbjerg, an expert in project management at

Oxford’s business school, estimated that nine out of ten go

over budget.1

Rail projects, for example, go over budget by an average

of 44.7 percent, and their demand is overestimated by

51.4 percent”

Source McKinsey Article 2015 by Niklas Garemo, Stefan Matzinger and Robert Palter

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BPMB’s current portfolio (Highway)

“As of July 2019, BPMB financed a total of 5 road

construction projects (4 highways and 1 federal road

upgrading) by means of either Term Loan, BG or

Revolving Credit. A total 5 out of 5 projects are facing

delays of more than 45 days and the construction work

programme (CWP) has been re-baselined at least once”

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Risk Management Process

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1. Risk Identification: RBS for a Project

POLITICAL/

SOCIAL

TECHNICAL

FINANCIAL

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Political & Social Risk

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Political & Social Risk- Example

1. Public objection on the proposed alignment – e.g. the pier located very near to

schools, mosque, temple etc.

2. Delay in land acquisition resulted in a delay to commencement of the

construction.

3. Change of Policy, Laws and Local Standards (foreign worker, technology

transfer etc.)

4. Public complaint due to heavy congestion, safety issues, noise as a result of

the highway construction.

5. River pollution – leads to stop work order and river cleaning to be conducted

accordingly.

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Risk Engineering/Construction

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Engineering & Construction Risk- Example

1. Misinterpretation of Drawings and Specification

2. Delay issuance of construction drawings (requires input from Architect, C&S ,

M&E and so on)

3. Shortage of Manpower, Material and Equipment/Machineries

4. Major safety incident – heavy crane, segments collapsed etc.

5. Construction at a flood prone area – leads to very low production at site.

6. Management risk: improper planning, poor communication between parties

involved, changes in management, poor resource management.

7. Unforeseen underground condition (utilities, geotechnical)

8. Poor site supervision and management

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Financial

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Financial Risk- Example

1. Delay in payment to main contractor, subcontractor

2. Contractor’s cash flow constraint

3. Inaccurate and unrealistic cost/budget estimation – too optimistic assumption

that didn’t take into consideration of the risks that might occur.

4. FOREX risks – equipment and material imported from foreign country.

5. Substantial construction delay that leads to cost overrun. (LD & LAD)

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Highway project risk overview

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Risk Analysis & Management (RAMP) Example

Source: Published by Institute of Civil Engineer UK

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2. Risk Analysis (Evaluate P and I of Risk)

Risk Management Process : Risk Analysis (Qualitative)

PMBOK® Guide Sixth Edition defines Perform Qualitative Risk as “The process of

prioritizing individual project risks for further analysis or action by assessing their

probability of occurrence and impact as well as other characteristics.”

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Qualitative – Impact determination

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PROBABILITY

/LIKELIHOOD1 2 3 4 5

Minimal Minor Moderate Major Critical

5 Almost certain (75%-

100%)

Likely to occur 12 time

or more per year

5 10 15 20 25

4 Very Likely (50% to

75%)

Like to occur 4 times or

more per year

4 8 12 16 20

3 Likely – could happen

occasionally (25% to

50%)

Likely to occur once a

year

3 6 9 12 15

2 Unlikely – could happen

rarely (5% to 25%

Likely to occur once in 5

years 2 4 6 8

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1 Very Unlikely – probably

will not happen (0% to

5%)

Unlikely, but may

exceptionally occur

1 2 3 4 5

Qualitative – Risk Assessment Matrix

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Qualitative – Risk statement example

Risk: Delay in commencement of SBG launching

Cause: 1) Approval delay from TNB due to incomplete documentation/drawings (1mo)

2) Delay in finalizing the drawings by consultant (1.5mo)

3) Delay in Land Acquisition (2.0mo)

Impact: Direct impact on the schedule (4.5 months delay on average based on previous

projects)

Probability: 50% of the times, it happened in the past

Risk Management Process : Risk Analysis (Quantitative)

PMBOK® Guide Sixth Edition defines Perform Quantitative risk Analysis as “The

process of numerically analysing the combined effect of identified individual

project risks and other sources of uncertainty on overall project objectives.

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Quantitative Risk Analysis

“In particular, for large transportation construction projects,

quantitative risk management is being utilized as an optimal

process. Quantitative risk management involves quantitative (i.e.

probabilistic) risk assessment in addition to risk response.

Probabilistic risk assessment of a project takes into account all

significant uncertainties that affect project “

QRA Output (Cost Exposure)

There is a 80% chance that this project shall experience RM2,11b cost

increase on top of the project budget. For a project that cost RM10b, P80

represent 20% of the budget.

It is way above its initial contingency level set at 10% of the project budget.

Thus a diligent risk mitigation plan is needed to further reduce the risk for this

project.

QRA Output (Tornado Chart)

Tornado Chart provide actual impact of the risk on project duration. With this

chart project team would be able to prioritise their effort for mitigation action.

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1) Determine Likelihood for the project to complete on

time, budget and specs.

2) Estimate reasonable contingency (Duration & Cost)

needed to achieve the desired level of certainty.

3) Identify which risks that hurts project the most, thus

effectively assign resource to mitigate those risks.

Benefits of implementing QRA

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In a Nutshell , Project Risk Management ….

Thank You