Risk Management on Global Projects

By Tom Sawyer in Palo Alto

Experts, including, from left to right, Rita Nangia, Asian Development Bank; Richard Burt, Bechtel Corp.; John Grayzel, USAID and Todd Rowland, Zurich Construction, shared insights on risk management and infrastructure construction to come.

Ballooning population, coupled with urban migration and the globalization of communications and trade, adds up to a demand for about $1-trillion in infrastructure development over the next five years in East Asia alone, according to World Bank estimates. Now, engineering and social science researchers at Stanford University are trying to help the construction industry get ready to do something about it.

"The magnitude of the need for infrastructure in the next decade is mind-boggeling, particularly in developing countries," says Julie Kim, the outgoing executive director of the Stanford civil engineering department's fast-growing Collaboratory for Research on Global Projects. The two-year-old center is organizing to help the industry prepare for the challenge. Kim, a civil engineer and industry veteran, has spent the last year helping CRGP director, Prof. Raymond Levitt, pull in academic and commercial partners to get the CRGP off the ground.

Levitt

Levitt says the predicted addition of a billion people to world population in the next 10 years–"another China–"mostly in emerging economies, will inevitably lead to a broader repeat of the wave of public/private projects that swelled through East Asia in the 1990s. But he warns that the pitfalls that contributed to the bust that followed, in which private sector investment evaporated and many projects foundered over financial, legal, political, cultural or organizational issues, must be analyzed, understood and corrected if investors are going to be enticed again. Kim adds that construction productivity also must break out of its doldrums, if demand has any chance of being met.

To address those issues, the CGRP held its first general-session with about 50 participants after two years of workshops and preparation, in mid June at Stanford, in Palo Alto, Calif. It has launched research and is bringing in not only architectural, engineering and construction academics but their industry counterparts from global firms including Fluor Corp., Bechtel and EarthTech, and top experts in contract law, finance, insurance, economics and sociology.

They are already engaged in numerous joint projects to dissect the dynamics of risk management and organization for infrastructure development in the Third World.

The work is informed by the experiences and data of industry practitioners and analyzed with the enormous intellect of coordinated research. Levitt, who has no less than seven doctoral candidates poised to take their degrees in June in studies on the topic, refers to it as "a perfect storm" of academic focus. Private sector participants at the session, who spent two days in a lively exchange of presentations with researchers, apparently agree.

Presentations from industry and institutions included a report by Richard Burt, senior vice president and general counsel at Bechtel Corp., San Francisco, on risk management considerations in approaching global project participation. There also was a presentation by Rita Ravi Nangia, director of finance and infrastructure at the Asian Development Bank, of the draft of a soon-to-be released study on the past, present and future role of governments and private investors in infrastructure development in the region. The study was conducted by ADB with the World Bank and the Japan Bank for International Cooperation. It warns that "poorly conceived infrastructure investments today will have huge environmental, economic and social impacts and be costly to fix later." It also warns that neglecting to meet the demand in an inclusive way that serves the poor "will also be costly in human and political terms....The cost of getting things wrong is high."

John Grayzel from the U.S. Agency for International Development, described lessons learned in Third World development projects, and the perils of what Ryan Orr, a Stanford civil engineering researcher who succeeds Kim as the next CRGP director, calls "plop and drop" infrastructure development, where projects suffer costly, unanticipated consequences when they are visited on local populations with insufficient regard for political, cultural, economic and ecological concerns.

Scott

Stanford sociologist W. Richard Scott shared insights into the under-appreciated role the sociological environment plays in influencing project success, and how early sensitivity to, and respect for not just the explicit regulatory standards of a community, but also its consciously and even subconsciously held beliefs and understandings, can make the difference between projects that work, and ones that blow up in your face. That, too, is a subject of CRGP research.

"One of the problems with engineers is they go into the situation with a set of blinders on... and when things go wrong, they don't know what to do,"Scott says. Bechtel's Burt says the lesson his company has learned along those lines is, "that if you want to build a dam, you should go in and build a doghouse first." He says that by working first within a culture in a small way, you can form the relationships and learn the lessons that may save your large project from enormous trouble in the end.

Burt said the other lesson Bechtel has absorbed is to walk away from job opportunities tainted with corruption. He called on CRGP to take a strong anti-corruption stand as well, although the suggestion was met with a typically academic question of what defines corruption, and are there legitimate differences in its definition from culture to culture whose nuances need to be understood.

That, also, will be a subject of research, promises Orr. Other industry presentations included a report from Gregory Keever, of New York City-based international law firm Coudert Brothers, on a CRGP subcommittee's ongoing analysis of the contractual and legal risk management issues that contributed to the project disruptions of the late 1990s, and reports from the Rand Corp. and operations and security directors from the Port of Los Angeles and San Francisco International Airport on the implications of changing security demands on the global containerized supply-chain, as well as passenger transportation infrastructure.

Academic presentations shared studies on creating trust between international project partners and the dynamics of multicultural, multinational project teams, and the consequences to efficiency, as well as strategies for shortening schedules by optimizing individual player roles.

One analysis covered the business/structural issues that lie behind the high adoption rate of building information modeling technology in Finland, where it is delivering significant efficiency gains and bringing changes to risk-management strategies, and the relatively slow adoption of the technology by U.S. firms.

Another presentation described Stanford's 12-year, multi-continent courses in global project collaboration, which train teams of students in the personal and technical discipline required to develop projects on tight schedules with participants scattered across world time zones.

"A forum is taking shape for people to come together and begin to understand the factors that influence these things," says Antti Ainamo, a research fellow from the Helsinki School of Economics, in Finland, and project manager for a Finnish construction industry consortium called Global Projects Strategies. "This kind of a forum has never existed before." His organization, which is doing extensive research in risk management for communications network rollouts, has also signed on as a CRGP partner.

More information on the conference and CRGP is available at http://crgp.stanford.edu.

Article courtesy of ENR. More information on ENR is available at http://www.enr.com.

(Photos above by Tom Sawyer for ENR.)

Posted by rjorr at June 27, 2005 1:44 PM