Minimizing Project Risk

Once the Division of Responsibilities and Scope of Work are defined the project risk will be minimized. One of the key elements for a project's success lies in the project manager's ability to identify and equitably distribute risks during project development.

The project manager should define responsibilities of each project participant as illustrated in Figure 1-3.

^Participant Cooperation Eases Project Risk Management. R.S. Madenburg and M.C.Hum-phie,Power, June 1986.

Figure 1-2. Defining the Scope of Work This document must contain a precise description of the project, defining the proposed work as completely as possible. The scope of work defines what is required of all parties in the project, the services that each will provide, and the type of support each can expect from the plant or company. The scope of work should always contain certain types of basic information.

Brief description of the plant where the work will be performed

Historical outline of developments that have led to the decision to proceed with the project

General description of the project and its objective—a technical definition of the project that includes project characteristics, design criteria, and building descriptions

Location of project

Project organization

List of services to be provided by the plant (engineering office space, water, electricity, etc.), procedural control, and work coordination

Duration of project

Brief description of construction practices and labor market in area Initial engineering and purchasing schedules Type of contract required for contractors

Detailed drawings, sketches, and specifications that describe the project or work required

Procedures. schedules, quality requirements, performance reports, and final report required from contractors.

Figure 1-3. Responsibilities of Project Participants Are Defined by Roles in Operation

Owner owns the physical plant,furnishes or arranges financing, provides site and access, acquires permits and licenses, uses project tax benefits and cash flow, and contracts for all necessary goods and services. By default, the owner assumes all risks that have not been assigned to or assumed by others.

Architect/engineer provides preliminary engineering and detailed design, specifies and may procure major engineered items, and may provide construction-managementservices.

Constructor furnishes materials and equipment not procured directly by the owner or engineer and erects the facility as designed by the engineer.

Process vendor provides the process technology, may furnish equipment, supervises equipment and plant startup and performance testing, guarantees process performance, and supervises the training of operations personnel.

Operator operates and maintains the plant, coordinates acquisition of fuel and feedstock supply, disposes of wastes, and provides operational review of facility design.

Suppliers furnish fuel and utilities as specified for quantity and quality. Usually the owner or operator will require a "put-or-pay" contract which unconditionally guarantees the supply of fuel or feedstock to the project for a specified term.

Product purchaser buys the items produced by the project—for example, steam and electricity. A single purchaser may enter into a "take-or-pay" or "take, if tendered" agreement with the facility owner, or the product may be placed on the commercial or consumer open market.

Financier provides for full or partial funding of the project, which may involve construction and take-out financial rating, and represents the project in the solicitation of stock or bond offerings. A financier may have a limited ownership interest in the project.

Insurance underwriter insures the nonspeculative risks—those risks where there is a chance of financial loss but no chance of gain.

Risks are those situations or events arising during the execution of a project which may adversely affect its financial success. Risks may be either inherent or artificial. Inherent risks are those that arise from the nature of the project. They are usually allocated according to each participant's role. Artificial risks arise from the relationships between participants and from attempts to transfer risks among them without sound reasons.

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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