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Risk Resolution™

The Westney Risk Resolution™ process addresses head-on the primary reasons why so many major projects experience significant cost overruns and schedule delays.  Clearly, the conventional approach to project risk management is no longer sufficient to address the risks associated with major projects today.

Risk Resolution™ enables the recognition and understanding of the financial Risk Exposure associated with a project’s Strategic Risks and Volatility, improving decision – making, and providing the basis for risk-driven strategies and plans.  The result is reduced Risk Exposure and an improved ability to achieve sanction and financial close. 

Risk Framing can begin in the development phase, prior to the decision to create a project an initiate early planning.  It includes Risk Discovery, and Risk Assessment which produce the Risk Heat Map.  This provides an executive – level understanding of the most severe risks and provides the basis for alignment on risk management strategies.

Risk Analysis provides an early assessment of the project’s Risk Exposure using Westney’s Project Indicative Modeling System (PRIMS™). 

An early framing of strategic risks enables developers and project executives to develop strategies for mitigation.  Risk Mitigation may involve such decisions as renegotiating the “deal”, changing technology, bringing in additional partners, changing the portfolio management strategy, implementing a staged development approach, or a developing different financing plan.

Today’s seller’s market and the current high levels of project risk have dramatically changed contractors’ ability and willingness to accept project risks.  When forced to do so, the fixed price contract may require a risk premium may be so high as to render the project uneconomic. 

When a project is financed, of course, there can be no project without financial close; this, in turn, requires that all risks be identified and allocated.  Risk Resolution™ provides the role of an independent, third party “honest broker” to work with the parties to ensure a shared understanding of all project risks, and facilitate a process of optimum allocation.

Capital Efficiency and its impact on Free Cash Flow are, of course, primary drivers of shareholder return.  Clearly, effective management of the capital project portfolio is critical.  To that end, the Risk Resolution™ process allows the development of  CAPEX VaR™ to describe the value at risk in the portfolio.  This provides a basis for strategic decisions such as the selection and timing of projects in a given region.  It also provides essential information for the reporting required by public companies.

Risk Monitoring is an ongoing tracking & trending of the strategic and tactical risks identified in Risk Framing.  This provides the basis for periodic updating of the risk scenarios and frames, as well as the risk-driven strategies and mitigation plans.  For example, a strategic risk may be associated with the demand for construction labor in the Middle East – the announcement of new projects in the region or of delays in the completion of existing projects could increase the Risk Exposure and indicate the need for timely decisions.

Risk Surveillance is an ongoing process of scanning the project environment for threats and risks that have not previously been identified.  For example, timely awareness of potential changes in legislation can provide early warning of threats to project economics and the need for different commercial decisions to be considered.