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Six key ways to de-risk your infrastructure project

Six key ways to de-risk your infrastructure project

by James Sherrard

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Why do so many building projects run over time and budget? We think that when it comes to Australian infrastructure projects, government would do well to apply the old adage ‘proper planning prevents poor performance’.


By their very nature, large infrastructure projects involve a significant level of risk, with potentially major consequences – financially, environmentally and reputationally. For government projects, political pressure and heightened public scrutiny can compound the risk and compromise decision-making processes. This article identifies six key elements of risk management to keep large government infrastructure programs on track and off the front page for the wrong reasons.

1. Establishing good governance and leadership

It all starts with good governance. Regardless of the size and complexity of the project, a robust and transparent governance framework is essential. This framework should document:

  • Roles and responsibilities
  • Limits of authority
  • Decision-making processes
  • Underlying investment decisions
  • Change management procedures
  • Quality requirements
  • Risk allocation

Each project should have a bespoke governance plan appropriate to the circumstances. This plan needs to be developed in collaboration with all stakeholders, endorsed at the highest level, and implemented at the commencement of the project. Most importantly, there should be no situation where the governance plan is set aside, particularly projects subject to a high level of political and media attention that are consequently at risk of uninformed influence. This is best countered by a sound governance structure which is broadly understood and rigorously adhered to.

Establishing a strong team of experienced professionals to lead projects is fundamental. The infrastructure market is currently buoyant and competition for the best resources is fierce. The development of a strong, coherent, diverse and inclusive culture is important in attracting the best quality resources available. Projects that are led by an experienced, dedicated infrastructure professional are more likely to succeed. This person needs to provide a strong foundation for collaboration with all stakeholders, including subject matter experts, to draw on all relevant input while minimising the risk of miscommunication among the project team. Well-led teams are happier, and happier team members tend to stay in their roles for longer, providing greater continuity which in turn assists in decision-making and project understanding.


2. Being realistic about timeframes

The first and perhaps most fundamental document to be produced for any large infrastructure project is the program of work. This schedule of activities describes the sequence in which actions will take place, allowing resources and costs to be planned with accuracy.

One of the main reasons for a blowout in project timeframes is because the time allowed for the build element has been compressed. Key dates as agreed at the planning phase need to be recognised as individual elements. When there is a delay in the design, planning and approvals phase (as there almost always is) don’t assume that this time can be made up through a corresponding reduction of time in the construction phase. Although it is common to hear terms like ‘acceleration’, ‘double shift’ and ‘ramp-up’, it is rarely possible to complete the construction phase more quickly than initially planned. Trying to make up time by drafting a tender that imposes unrealistic deadlines on contractors is simply a folly. Moreover, the very real correlation between time and cost in construction means that any attempt to speed up the build element is almost certain to result in the project going over budget.


3. Sharing the risk burden

Identifying and addressing risk should be a regular exercise, and one conducted across the whole team. Establish a comprehensive risk register from the beginning and revise it regularly to ensure decisions factor in all relevant information.

In addition to creating a risk register, there are a number of fundamental measures that can be implemented to minimise the risks of an infrastructure project. Using a standard form of contract (and, if possible, a full suite of contracts for all engagements across the project) streamlines contract management by making it easier to maintain alignment across all suppliers and identify any breaches. Non-standard or ‘bespoke’ contracts also attract a risk premium from most contractors.

Additionally, it is essential that risks sit with the party best able to manage that risk. Writing back-to-back risk transfer which ultimately ends with a subcontractor taking on all of the risk of a project will not reduce its impact on the client, and if the party taking on the risk isn’t well placed to manage or mitigate it, then it becomes ineffective as a risk mitigation tool.


4. Properly costing risk and tracking cash flow

Costing project risks doesn’t have to be complicated, but it does have to be done properly. Ensure you value and include any and all exclusions and price in risk. On many projects we see a long list of ‘exclusions’ in the cost plan. Ultimately, all these costs will be borne by the project so for realistic planning they should not be excluded. If there is uncertainty around actual cost then, some form of considered estimate should be allowed. If the costs aren’t properly understood this can lead to misinformation, sometimes making it look like the project has gone over budget when this is not in fact the case.

Pricing the risk register should be a standard exercise for contingency control. Too often the contingency is expressed as a single number rather than as an allocated allowance. If the contingency is not apportioned as part of the risk allowance, the tendency is for clients to believe they have this money available to spend – particularly at the completion of the project where it can be a big number. Pricing the risk and using the governance process to determine change will help minimise these cost blowouts.

When it comes to tracking cashflow over the lifespan of the project, regular monitoring is vital. Yet it is increasingly common to find that the fundamentals of expenditure are not part of a project’s monthly reporting. A simple s-curve graph plotting forecast expenditure vs actual expenditure will very quickly reveal whether a project is behind schedule or on track.


5. Understanding the implications of design

It is important to understand that a design incorporating unconventional elements will not just cost more, but it will also take more time to deliver. While innovative and cutting-edge engineering can inspire admiration, it is also harder to design, more challenging to find fabricators and builders to construct, requires more quality inspections to ensure compliance and will likely interfere with other aspects of the project. None of these factors should deter clients from seeking quality and interesting design, but they need to be fully aware of the time and cost implications of their decisions.


6. Providing clear and consistent communication

The final consideration in de-risking government infrastructure projects is maintaining the quality and consistency of project communications. A communication plan should be developed early on and maintained for the duration of the project to build momentum and interest around the project, as well as to ensure messages provided to leadership, contractors, key stakeholders and the wider community are regular and unambiguous.

Good internal and external communication also informs the market from the development stage of the project, contributing to project awareness and interest. In addition, good informal communication between the members of the broader team will lead to early identification and rectification of project issues as they arise.


With a huge amount of funding available for infrastructure projects both at a Federal and a State level there is an incredible opportunity to improve Australia’s infrastructure profile with both innovative and successful builds. But there are clearly opportunities to improve and manage this process in a way that both helps deliver the best possible outcome, while also ensuring projects are delivered on time and budget. Proper planning should never be overlooked as a key aspect of the infrastructure process.

 

Contact us

James Sherrard

Partner, Integrated Infrastructure, Capital Projects, PwC Australia

Tel: +61 2 8266 5122

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