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Presentation Overview
• Case Studies• Drivers• Elements to Consider/risk allocation• The Risk Management Process• Risk Mitigation• Implementation of an ongoing
management plan
The Biogas and Upgrading Plant (the Vaxtkraft Project) in Sweden
• Started in 2001-02• A similar plant had never been built before• Technology had to be developed after the
contract had been signed• The project involved innovation including the
creation of new markets.• A complete system for handling waste was
integrated with a production facility for bio‐fuel• local public agencies could introduce vehicles
that would run on bio‐fuel.
The integrated waste management contract with the Greater Manchester Waste
Disposal Authority (GMWDA)
Expenditure on Waste Management
48%
15%
15%
22%
Breakdown of Expenses
Contract and subcontract expenses
Wages and Salaries
Fees
Other
General government sector expenditure on waste management activities was $2.2b during 2009-10. (Australian Bureau of Statistics)
Drivers
• Lack of existing facilities or infrastructure is one of the main factors hampering resource recovery activities.
• NSW Government’s Focus Area 4 of the “Reducing Waste: Implementation Strategy” (Facilitating investment in waste infrastructure)
Why Worry About Risk? • Three aspects of significant government
projects that make risk management desirable:
1. The project size
2. Potentially long lives
3. Where private sector funding is required, what are the residual risks for government
Crucial Elements to Consider• Strategic project development • Potential partnerships • Technology due diligence• Market capacity and market testing• Contract design and process• The balance of risk, affordability and value for
money• Financing the procurement process • Current legislative and strategic waste issues
Definitions
• Risk = the ‘effect of uncertainty on objectives’ ISO 31000 (2009) /ISO Guide 73:2002
• Risk = Likelihood x consequence (AS/NZS 4360:2004)
Establishing the Context Involves;
1. Identification of risk in a selected domain of interest
2. Planning the remainder of the process3. Mapping out:
• The social scope• The identity and objectives of stakeholders• Risk evaluation criteria
4. Analysing risks
5. Mitigating risks
Framework for Risk Identification
Contract
Planning and Preparation
•Unrealistic time/cost expectations•Conflict with existing supply arrangements•Lack of a clear procurement strategy
•Inaccurate specification•Delivery and installation delays•Limited options/availability
•Technical capability and capacity•Lack of communication from supplier•Ineffective evaluation
•Failure to adequately address public concerns•Conflict•Changes in government policy
•Legal issues/ Insolvency issues•Time validity•Supplier default
Product/Service/ Technology
Tendering and Procurement
Process
Qualified Suppliers
Management
Stakeholders
•Probity Issues•Scope or specification changes•Value for money
•Limited number of suppliers•Competing contracts•Lack of capacity
Risk Analysis
• Different risks can impact projects in different ways.
• Risk assessment criteria needs to address multiple impact areas and be defined for each impact area.
Potential Areas of Impact
• Cause damage to an organization’s reputation
• Have a financial impact• Affect ability to comply with
regulations/legal implications• Impact on the operation of the
project/timeframe for delivery• Have a strategic impact
Levels of Consequence
• Catastrophic• Major• Moderate• Minor • Insignificant
In developing criteria for financial risk assessment councils should be aware of their risk appetite including triggers such as economic reporting requirements, levels of authority for expenditure, budget tolerances etc.
Likelihood• The timescale should reflect that of the project to which
the risk assessment relates.Descriptor Description Indicative Frequency (expected to
Occur)
Almost Certain The event will occur at least once during the project timeframe
Once or more during the project timeframe
Likely You have seen the event occur several times previously on other projects
Every third or so project
Possible The event might occur Once every ten projects
Unlikely The event does occur from time to time Once every thirty projects
Rare You have heard of something like this happening elsewhere but have never experienced it
Once every hundred projects
Risk Ranking and Matrix
Rare Unlikely Possible Likely Almost Certain
Catastrophic High High High Extreme Extreme
Major Moderate Moderate High High Extreme
Moderate Low Moderate Moderate High High
Minor Low Low Moderate Moderate High
Insignificant Low Low Low Moderate Moderate
Management or Mitigation Requirement
Risk Rating Action Required
Extreme Risk Immediate action required including allocation of responsibility and required resources
High Risk Senior Management Attention
Moderate Risk Management Responsibility must be specified
Minor Risk Manage by routine measures
Insignificant Risk Address as appropriate
Developing a Risk Management Plan
• Consider the risk treatment options available:
1. Accept the risk
2. Transfer the risk
3. Reduce the likelihood of the risk
4. Avoid the Risk
• For risks you are prepared to accept, a detailed risk management plan should be developed.
Purpose of the Plan
• To ensure;–Senior management support –Adequate allocation of resources–Consistency in approach with the
organization’s risk management policy–Ongoing management for the risk is
embedded into existing practices and procedures.
The risk management plan should consider;
• The current controls in place• The planned course of action to minimize or
mitigate the risk• Allocation of responsibility• Timeframe for implementation• Effectiveness of the treatment• Severity of the remaining risk• Monitoring and reporting procedures
Embedding and Ongoing Management
• Back up the activities with:– A risk management policy,– A risk management plan and:– Ongoing support arrangements
• Use existing systems, processes and practices.
• Ensure the risk register is regularly reviewed and updated throughout the various stages of the procurement process/project.
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