ECRI ENGINEE RING & CONSTRUCTION RISK INSTITUT E 27 September - - PowerPoint PPT Presentation

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

1

27 September 2006

ECRI Sponsors Meeting

Hilton Post Oak Hotel – Houston Day 1 – Wednesday 5th December 2018

WELCOME

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session – 1

Welcome, Safety Moment, New Introductions, Administration, Adoption of Previous Minutes and Review of Agenda

Rod Kyle, ECRI

2

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Programme – Wednesday 5th December 2018

3

Session Time Description Discussion Leader 08.00 - 08.30 Registration / Refreshments 1. 08.30 - 08.50 Welcome, Safety Moment, New Introductions, Administration, Adoption of Previous Minutes and Review of Agenda Rod Kyle 2. 08.50 - 09.10 “ Company Introduction - ARCADIS “ -- Jan Bouten, Chief Risk Officer, ARCADIS 09.10 - 10.30 Tea / Coffee Break 3. 10.30 - 11.20 “ How Big Data & Innovation is Disrupting Approaches to Sustainability Risk“ -- Heloisa Schmidt, Sustainability Manager, Bechtel Corp. 4. 11.20 - 12.10 “ Cyber Security Up-Date ” – Tim Potier, VP, Chief Security Officer, Parsons Corp. and Darren Albers, Director – Information Security, Fluor Corp. 5. 12.10 - 13.00 “ Progress and Lessons Learned on the Risk Management Journey “ -- Borys Yarosh, VP Risk Management, Global Projects Support, SNC Lavalin 13.00 - 14.00 Lunch 6. 14.00 - 14.30 “ Breakout Group Topic Introductions ”

• A. “ Key Geographic / Regional Risks ”
• B. “ Is Risk Management Working “
• C. “ Increasing Political & Unforeseen Risks “

Rod Kyle 7. 14.30 - 15.30 “Breakout Work Sessions” Groups 1,2 and 3 15.30 - 15.50 Tea / Coffee Break 8. 15.50 - 16.50 “Breakout Groups Feedback and Discussion”

• - Workshop Topic A, Group 1
• - Workshop Topic B, Group 2
• - Workshop Topic C, Group 3

All Michael Neal Kenneth Grajek Mark Lemon 9. 16.50 - 17.00 Wrap-Up and Close Rod Kyle 17.00 End of Day 1 Session / Departure

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session - 2

Company Introduction – ARCADIS

Jan Bouten Chief Risk Officer ARCADIS

4

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session - 3

How Big Data & Innovation is Disrupting Approaches to Sustainability Risk

Heloisa Schmidt Sustainability Manager Bechtel Corp.

5

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session - 4

Cyber Security Update

Tim Potier VP, Chief Security Officer, Parsons Corp. Darren Albers, Director – Information Security, Fluor Corp.

6

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session – 5

Progress and Lessons Learned on the Risk Management Journey

Borys Yarosh VP Risk Management, Global Projects Support SNC Lavalin

7

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session – 6

Introduction to Breakout Group Workshops

Rod Kyle, ECRI

8

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Breakout Topics

Topics taken from Sponsor Inputs, SIG Mtgs. and ECRI’s Annual Risk Survey – 2018 The above, plus Breakout Group Feedback used as the basis for possible New White Papers or Best Practices

9

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Group Workshops

10

Topic A – “ Key Geographic / Regional Risks “ Group 1 Facilitator / Presenter : Michael Neal, Tecnicas Reunidas Group 1 Recorder : John Ruckert, ECRI (Breakout Group Allocation in Handout Packs)

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Groups Topic A – Key Geographic / Regional Risks

➢ Questions have arisen as to what are the Key Risks in the current

and future geographic / regional markets and how are we addressing them

➢ Question is very relevant due to forecast increasing opportunities

and growth in developing areas ( See attached slide )

➢ There will therefore be increased Political Risk in many areas of

• pportunity ( which we are covering in Topic C )

➢ Project location trends are, and will be, causing many other risk-

related issues , some of which are highlighted below:

• - Increased dealing with State Enterprises
• - Dealing with bureaucracy, lack of experience / competence, “not

doing things in the Internationally accepted way etc.”

• - Increased Corruption Exposure and Reputational Risk

11

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Groups Increasing Importance of Emerging Markets

12 Source: Global Construction Perspectives and Oxford Economics www.globalconstruction2030.com

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Groups Topic A – Key Geographic / Regional Risks

• - “Souk Mentality” causing significant Pricing Pressure
• - Increased dealing with Client JV’s with State Enterprises

(Misaligned Parties, Confusion of Responsibilities, Accountability, Cultural clashes, “Worst-of-all-worlds“ Contracts with most

• nerous from each Party, Partner with No money / Approvals,

Counter Party Payment Risk, Several Liability !!)

• - Greater Contractor need for JV’s ( Project size, Risk sharing,

Access to local knowledge in difficult areas etc. )

• - More Client Forced “Shotgun marriages” with local Contractors
• - Client Forced additional Local Content for Eqpt. / Matls. and Labour

with less sophisticated Supply Chains

• - Greater need for Financing, Technology Transfer, Counter-

Purchase / Offsets ( but could be a big differentiator )

13

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Groups Topic A – Key Geographic / Regional Risks

• - Introduction of VAT extending to most GCC Countries with

Compliance and Procedural issues and impact on existing Contracts

• - Greater use of standard “Model Contracts” and “Take it or Leave”

is more widespread especially in the ME.

• - Challenges of increased working with “High Value” Centres
• - Requirement for Extensive and Expensive Due Diligence when

entering New Geographic Territories

➢ With some focus on the Near and Middle East, India and China, we

would like Group 1 to pool its views of the current and emerging difficulties and possible solutions in this increasing area of Risk

➢ Based upon the Feedback, we will then consider a whether a first-

step White Paper would be of general benefit

14

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Group Workshops

Topic B – “ Is Risk Management Working” Group 2 Facilitator / Presenter : Kenneth Grajek, KBR Group 2 Recorder : Susan Mahon, ECRI (Breakout Group Allocation in Handout Packs)

15

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Groups Topic B – Is Risk Management Working

➢ Question arises time and again as to tangible benefits to sound Risk

Management and how to demonstrate and measure effectiveness

➢ Linked to concerns about consequent Reputational Damage, Investor

Confidence, Stock Price Decline, Loss making Jobs, Morale and Career Security arising from inadequate RM effectiveness

➢ Most Sponsors today agree that we are better today than say 10yrs.

ago and there is certainly a trend towards Risk Management, and not Crisis Management , being understood as central to success and avoidance of catastrophe

➢ So, some examples of what measures can be used :

• - Is there an Increased sales success rate
• - Are we better able to meet Client’s RM requirements
• - Are there overall Customer Satisfaction improvements
• - Is there an improvement in Change Management and a more

successful Client approval rate

16

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

• - Are there Fewer Projects on “Loss making Jobs” Report
• - Is there Increased consistency / accuracy of forecasting and

increased Project / Company profitability over time

• - Has there been an Enhanced Credit Rating / Lower cost of Debt
• - Is there an improvement in Claims History and Success Rate
• - Are Analysts Views, where Relevant, more favourable
• - Comparison of Risk Registers – Initial / Mitigated v. Realised
• - Comparison of Key Enterprise Financial Metrics with Industry

Averages over time

➢ With the above “seed” thoughts, we would like the Group’s views

regarding what key measures are or could be used for measuring Risk Management success

Session 6 – Introduction to Breakout Groups Topic B – Is Risk Management Working

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Group Workshops

Topic C – “Increasing Political & Unforeseen Risks ” Group 3 Facilitator / Presenter : Mark Lemon, Skanska Group 3 Recorder : John Lee, ECRI (Breakout Group Allocation in Handout Packs)

18

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Groups Topic C – Increasing Political & Unforeseen Risks

➢ Significant concerns reported about world instability, uncertainty and

tensions in the Geopolitical Landscape

➢ Perceived increase in exposure to sanctions, revolutions, invasion,

sequestration, nationalisation, economic warfare, security and safety issues, unforeseen natural phenomena etc. - You name it !

➢ Reported specific concerns around :

• Geopolitical Situation in the Middle East, North Africa, Venezuela, South

China Sea, West Asia and renewed “Cold War”, as examples

• - Impact of further sanctions on China, Russia, Iran, North Korea and

possibly Saudi Arabia ?

• - US International Trade Policy and use of Tariffs, Sanctions, Re-

Negotiation of Trade Agreements and other Reactionary Policies to achieve “Level Playing Field”. Perceived as Anti-Globalisation

• - Continued uncertainty regarding Brexit and its impact
• - Impact of Consequent Retaliatory Actions stemming from the above

19

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Groups Topic C – Increasing Political & Unforeseen Risks

• - UK abandoning PFI ( No enhanced taxpayer value, No transfer of Risk and

moving from State to Private Sector Monopolies )

• - Saudi Aramco IPO stalling
• - Changes in Local labour Laws or Interpretation / Stricter Enforcement

with unforeseen impact on labour Costs

• - Concerns about stability of recent increase in Oil Prices
• - Concerns about Attempted “Pass Downs” of these “Emerging” Risks to

the Contractor

• - Attendant impact on Procurement and Project Implementation Strategies

and Pricing

• - Threats of War, Terrorism, Nationalisation, Major Currency Swings /

Devaluations, Changes in Dividend Repatriation and unilateral Digital Taxation

• - Greater awareness and attention to Extremely Rare or Unheard of Events

( Black Swans ) which, if they occur, could have catastrophic consequences on both Projects and Enterprise itself

20

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Groups Topic C – Increasing Political & Unforeseen Risks

• - Not just Schedules but more importantly Cost
• - The slide is not big enough to list all of the received Concerns !
• - But all are causing destabilisation of global growth, impacting

business confidence and causing increased uncertainty with Project Cost, Schedule , Safety and Security

➢ Question for the Group is therefore “What can we do as an

Industry to better Anticipate and either Avoid or at least Mitigate the impact of this current situation”

➢ ECRI will then determine whether theses notes together with the

Feedback can be developed into a useful White Paper or Best Practice

21

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Group Workshops

AND The Groups should avoid “So What” type of feedback which states the issues without suggesting considered steps and measures in response to the issues

22

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 6 – Introduction to Breakout Group Workshops

Breakout Group Room Locations Group 1 – Concorde A Group 2 – Concorde B Group 3 – Concorde C ( Signage provided )

23

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session - 7

Breakout Work Sessions 14.30 – 15.30

24

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

ECRI Sponsors Meeting

15.30 – 15.50 Coming Up – Sessions 8 and 9

25

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic A, Group 1 Feedback

Topic A – “ Key Geographic / Regional Risks ” Group 1 Feedback Presenter – Michael Neal, Tecnicas Reunidas

26

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic A, Group 1 Feedback

27

➢ Some locations – new and/or evolving laws, lack of

adequate or experienced local labor, unwillingness of expat to relocate to “exotic” locations

➢ Location where common law not the basis ➢ Risk in India – change in government next year.

Projects planned may not go forward

➢ India – rise in cost of imported equipment & material for

projects

➢ Political climate change – even in developed markets

elections can result in reneging on previous direction

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic A, Group 1 Feedback

28

➢ First time at a location – no basis for determining

expected craft productivity

➢ Local content requirements unclear / exceed capacity

local market to comply

➢ Unwillingness of client to negotiate change orders until

the end of the project

➢ Impact on contractor cash flow ➢ Impact on supply chain and relationship with key

suppliers

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic A, Group 1 Feedback

29

➢ Lack of recognition by contractor of staffing needs as

number of changes increases

➢ Middle East has evolved to take or leave it with respect

to contract T&Cs, deteriation in payment terms

➢ Use of local agents sometimes required: potential

reputational risk

➢ PMC strategy employed to insulate owner, puts

contractor at a disadvantaged position, requires escalation to get decision which introduces delays

➢ Clients have become have become more beaucratic

with no decision making authority at project level. All decisions must be escalated driving project delay

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic A, Group 1 Feedback

30

➢ If client is developer and wants contractor to bring

financing – big warning sign. Many have no balance sheet

➢ Clients insisting on contractual LDs: then use as

bartering chips to avoid / reduce paying change orders and claims.

➢ Delay settlement and payment of COs / Claims until

project end. Also creates cash flow issue for contractor and consequently suppliers and subcontractors.

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic A, Group 1 Feedback

31

Mitigations

➢ Need to condition self and client to what walk away

position is…and stick to it. Oftrn client bluffing other contractors in the wings. If contractor local presence and market intelligence to determine client veracity.

➢ In riskier emerging market countries, invest more

heavily in due diligence and be willing to walk away. Due diligence can even be at c-suite level for key partnerships.

➢ Before RFP should be vetting potential partners and

subs

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic A, Group 1 Feedback

32

➢ Develop risk triggers in go/no go stage which elevates

decisions to appropriate level of management (even CEO)

➢ IP – Assume you are handing over the IP and price it in ➢ Employ Change Order Timing Index highlighting change

• rder status, and Settlement Index documenting agreed

changes

➢ Determine contingency to cover risk both cost and

schedule

➢ Use local intelligence to assist in decision making when

accepting risks

➢ Make sure which entity is the decision maker

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic A, Group 1 Feedback

33

➢ Understanding client culture especially important in

• China. Get local specialists to provide support.

➢ Use of local agents that are vetted and approved ➢ Ensure you know who has decision making authority in

client organization.

➢ If client is requiring or there is risk of IP technology

transfer price in bid.

➢ Work with key suppliers to develop local presence for

strategic long term business interests

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic B, Group 2 Feedback

Topic B – “ Is Risk Management Working “ Group 2 Feedback Presenter – Kenneth Grajek, KBR

34

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic B, Group 2 Feedback

35

➢ Topic discussed in 2012 – current approach offers more

• pportunities to analyse data and develop RM metrics

➢ Enterprise Risk Management ➢ RM KRI able to be linked to KPI (such as schedule) ➢ Portfolio Risk Management ➢ Risk indicators – mix of work to risk profile

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic B, Group 2 Feedback

36

➢ Project Risk Management ➢ Improved on what we can measure / tangible ➢ Churn in the risk assessment – more risk factors ➢ Exposure and gap / classic waterfalls to indicate if

taking on greater exposure than historic

➢ Key question remains how to measure RM ➢ Indicators: lagging / leading

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic B, Group 2 Feedback

37

➢ Safety ➢ HSE performance ➢ Insurance rates ➢ Correlate to overall performance of the company? ➢ Compare against average for industry (can

benchmark if have public information) +/- basis

➢ Trend assessments still difficult – managing contingent

• r uncertain gaps – accountants will take a different

view (monetizing) vs RM managing and providing mitigation

➢ Sometimes can manage through GAAP and

corporate policies

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic B, Group 2 Feedback

38

➢ Process can be measured but how to show value? ➢ Correlation – difficult to benchmark because speaking in terms

• f potential savings

➢ Gross margin variance – volatility of the gross margin vs. risk

profile (financial tracking measure)

➢ Data already measured – track across organization ➢ Tendering phase assessment – trend projects over time –

show effectiveness of risk process early on – gaming by the tendering team

➢ Contingency (related to uncertainty of occurrence and cost)

and risk allowance – if have not spent risk allowance can measure

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic B, Group 2 Feedback

39

➢ Disciplines – how many are helping determine the risk

assessment?

➢ Metric percentage of process areas involved in the risk

assessment – siloed vs cross-sectional – correct number of disciplines reviewing – number of cross functional areas contributing to risk assessment

➢ Probabilistic Activities linked to criticality index (dates –

curves by activity to predict trend of project delivery, etc.)

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic B, Group 2 Feedback

40

➢ Monitor time contingencies on milestones becomes a metric –

response strategy – schedule or cost – systemic factors driving risk (over technical factors) – team development, complexity of execution strategy.

➢ Predictable results ➢ No beta 1 / high correlation ➢ Finding leading indicators and filter for risk management ➢ Recruitment: counts of recs and time to fill recs – count what peers

are soliciting for and what remains from month to month to create an average – leading indicator of project suffering because cannot recruit for the project – but is not an apples to apples in terms of positions needed for projects – risk-based decision model to determine how risky is the coming landscape – can indicate

• pportunities in the non-competitive areas – to develop a project

risk profile – red/yellow/green.

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 8 – Topic C, Group 3 Feedback

Topic C – “ Increasing Political & Unforeseen Risks “ Group 3 Feedback Presenter – Mark Lemon, Skanska

41

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Political and Unforeseen Risks

4 2

➢ Political Risk ➢ Not “traditional” political risk (the world is changing) ➢ Sanctions, new regs, changing cultures, trade

disputes, etc drive different behaviors by clients and countries

➢ Project could be “collateral damage” to a dispute

between countries

➢ Driven emotionally and with push by social media

and third parties

➢ Sanctions Risk ➢ 2 Risks: Risk of new sanctions during a project and

Risk of inadvertently violating an existing sanction

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Mitigative Actions

4 3

➢ Stick to a disciplined risk identification and evaluation process and do not

dismiss risks that you might have dismissed before based on “traditional” client behaviors

➢ Need to investigate deeper rather than trust on past behaviors ➢ Note that some risks haven’t changed (e.g. hazards in O&G

projects). However, response of clients and countries may be much more severe than in the past

➢ Scenario Planning: ➢ Should consider a wide variety of possible scenarios about what

could happen after a realized risk

➢ Consider risk-reward ratios and acceptability given “additional

conditions”

➢ Include a stress test on capital reserves ➢ Consider Third Parties becoming involved with a totally different

agenda

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Mitigative Actions, Continued

4 4

➢ Protecting against new tariffs ➢ Carve out tariff risk in contracts (include as Force Majeure) ➢ Be careful where lump sum is used ➢ Form alliances with local contractors to spread the pain ➢ Planning for Black Swans (which seem more frequent) ➢ Not really practical, but can work to minimize through broad Force Majeure

clauses

➢ Ensure contract provisions ensure you are cash positive (or within an

acceptable risk value) and that you can walk-away from the contract if necessary without penalty

➢ Include in contract broad examples of the type of events that are no-

penalty walk-aways

➢ Consider insurance ➢ Ensure your company fosters healthy relationships with client, country/local

leadership and workforce labor representatives (to the extent practical and legal)

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Mitigative Actions, Continued

4 5

➢ Supply chain (materials and labor): ➢ Strengthen and diversify supply chain to ensure

• ptions if events impact original plan

➢ Local contents requirements: ➢ Form long term JV relationships with local

contractors

➢ Enterprise planning: ➢ Ensure business is appropriately diversified ➢ Opportunity: ➢ Don’t lose site of the opportunities that exist due

to the uncertainties

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session - 9

Day 1 Wrap – Up and Close

Rod Kyle, ECRI

46

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Session 10 – Day 1 Meeting Wrap - Up

47

➢ All of today’s material will be posted on the ECRI private

website

➢ Cocktails / Dinner tonight is at 19.00hrs. at “ Masraff’s

Restaurant ”

➢ Restaurant address – Masraffs, 1753 Post Oak Boulevard,

Houston TX 77056. Tel: 713 355 1975

➢ The Restaurant is within walking distance of the Hilton Post

Oak hotel (5 minutes)

➢ Dress Code is “ Smart Casual “ ➢ Tomorrow, we will re-convene in this Room for Day 2 Mtg.

from 8 am. for a 8.30 am start.

➢ Day 2 Meeting ends after lunch at 2 pm.

ECRI

ENGINEE RING & CONSTRUCTION RISK INSTITUT E

Thank you

At ECRI – We are raising the Bar in Risk Management THANK YOU