Managing cost risk and uncertainty in infrastructure projects

Who wrote this?

The Infrastructure Risk Group (IRG) on behalf of Infrastructure UK, a unit within the UK Treasury.

Infrastructure Risk Group:

• Miles Ashley, London Underground
• Will Boxall, London Underground
• Rob Halstead, Crossrail
• Jeremy Harrison, Network Rail
• Mike Bartlett, Network Rail
• Tony Rose, Scottish Futures
• Ibar Murphy, Heathrow
• Gary Thomas, Highways Agency
• Simon Longstaffe, HS2
• Andy Garlick, Schofield Lothian
• David Penhallurick, Infrastructure UK

This research was undertaken by the IRG industry group with representation from major infrastructure owner operators, and supported by the Institute of Risk Management.

When?

It was first published in November 2013.

Why?

To influence, share and improve leading practice on mega-projects, to create more efficiency for the taxpayer.

Who should read this?

Anyone who can exert influence on sharing and improving this leading practice on multi-billion pound infrastructure projects, e.g. directors, senior managers and experienced risk managers.

Content

This research looked at the management of cost risk and uncertainty throughout the project life cycle. This paper gives 9 key recommendations, guidance for improvement and case studies.

Cost and risk estimation:

1. Present risk exposure as a range, to promote more informed decisions and communications (particularly at strategic-level)

2. Leading organisations to underpin early-stage risk allowances with both reference-class forecasting, and risk analysis, rather than Optimism Bias-based uplifts

3. Consider cost and risk estimates side-by-side, for completeness and to combat double counting

Active risk mitigation and management:

4. Incentivise risk mitigation to ensure risk actually gets managed in the face of other behavioural influences (c.f. London 2012 Olympics delivery programme and London Underground’s Ring-Fenced risk model)

5. Adopt informed and rapid contingency draw-down processes (e.g. as for the Olympics)

6. Different organisations to cooperate on risk and contingency management of interfacing programmes, to enhance mitigation and avoid duplicating contingencies

Enabling and supporting activity:

7. Use a common vocabulary and develop a generic risk profile

8. Set up a UK-wide body to collect and share data

9. Establish a UK forum to share good practice

The existing industry group that carried out this research should be formally established as the guardians of leading UK practice in project risk and contingency management to support recommendations 8 and 9. This group will be known as the Infrastructure Risk Group.

For more information and questions, please contact [email protected].

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