MANAGING RISK IN UNDERGROUND ENGINEERING, TRANSPORTATION AND SOFTWARE DEVELOPMENT
Project Risk Management and
Madrid’s New Airport
By Paul Callender, Manchester, UK 44-(0)161-200-5000, paulcallender@hotmail.com
H oping for the best, preparing for the worst, and anticipating possible
scenarios—PB is providing a three-tiered comprehensive risk
management program for the $3.5 billion expansion of Madrid’s Barajas Airport.
The Barajas Airport is undergoing substantial expansion in
response to a rise in predicted demand from today’s 30 million
passengers per annum to more than 70 million by 2025. The
project, known as Plan Barajas, consists of two new runways,
associated aprons and taxiways, a new terminal building, a
satellite terminal with an automated people mover and an
automated baggage handling system. Contractors have started
construction on several of the primary work packages, such as the
new passenger terminal, satellite building and the car parking
facilities. The remaining work packages are in various stages
of progress ranging from design up to tender stage (bidding).
PB’s program management team, headed by Peter Wright,
recognised the need for a project risk management program that
would provide a structured approach to identifying and evaluating
risks and a procedure for developing and implementing risk
mitigation strategies. A comprehensive proposal was presented
and accepted by the client, permitting the commissioning of our
group to develop and implement a risk management procedure
tailored to the requirements of Plan Barajas.
Objectives
Project risk management is a fundamental element of the overall
project management strategy. The principal aim of the process is
to ensure that the project meets its objectives with an acceptable
risk exposure while providing value to the client.
Project risk management is most effective when applied early in
the project life cycle, preferably at the outset of the project before
any significant commitments have been made. For Plan Barajas,
we were able to develop a risk management process that identifies
and responds to potential problems with sufficient lead-time to
avoid crises.
The principal objectives of this process are to:
• Enable a formal and systematic approach to identifying risks
and uncertainties that might impact delivery of Plan Barajas
• Evaluate the probable effects of identified risks and
uncertainties to support risk prioritisation
• Develop a targeted risk mitigation or risk removal strategy
PB Network January 2002
• Manage and monitor residual and secondary risks (including
risks inherent in the risk mitigation strategy)
• Improve confidence in contract estimates, budgets and
allowances
• Provide a robust completion date for the project
• Develop contingency plans, estimates and trigger dates
• Evaluate the probable effects of external projects
• Establish a process for communicating key issues.
Application
Our team developed the following three-tiered risk management
approach that was tailored to Barajas’ substantial size and
complexity. This approach became necessary due to the complex
nature of the project (more than 25 individual projects and more
than 1000 individual contracts). It has the benefit of enabling
users to pin point specific risks without losing sight of the overall
project objective.
The process that we developed and follow for each level
(see Figures 1 and 2 on the following page) is as follows.
• Level 1: Global Project. The project as a whole is examined,
including its objectives and the potential risks to achieving
those objectives. Risks identified and evaluated at this level may
require a change in strategy or reassessment of the global cost/
programme estimates. Any changes would then feed into the
principal projects. An example of a global-level risk encountered
is the potential for late approval of the environmental impact
study, an event that could possibly require a rescheduling of the
work packages to ensure the new airport opens on time. Scenarios
have been developed looking at the various options available.
• Level 2: Principal Projects and Interfaces. This level goes
into more detail by examining the individual objectives of each
primary project and how the project interfaces with the other
projects. Risks identified at the project level may include project
scope changes in the new terminal building to accommodate
peak passenger flows following the introduction of the new
large aircraft (Boeing 380X). Results from this analysis may
require changes to the individual contracts, timescales and
budgets or allowances against potential risks.
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 MANAGING RISK IN UNDERGROUND ENGINEERING, TRANSPORTATION AND SOFTWARE DEVELOPMENT
Plan Global Objective 1
LEVEL 1 Barajas Global Objective 2
Global Objective Z
Priciple Proj. Obj. 1
Proposal Proposal Priciple Proj. Obj. 2
LEVEL 2
Project 1 Project X
Priciple Proj. Obj. Z
Contract Objective 1
LEVEL 3 Contract Contract Contract Contract Contract Objective 2
1 2 3 y
Contract Objective Z
Figure 1: Overview of Project Risk Management Plan
• Level 3: Individual Contracts and Their Interfaces. At this
level, risks are identified within each contract and in the
interfaces with other contracts. Contract-level risks are
specific to the particular contract. Identified risks to date
include inadequately defined interfaces between contracts
that impact directly on the efficiency of each contract.
Methods
Phase One: Baselining. This phase of the risk management
procedure prepared for Plan Barajas was to baseline the project,
confirming the project objectives and parameters. This step proved
very useful as it ensures that all staff members have a common
understanding of the project and provides a reference point against
which to measure progress. Levels of tolerance were also formalised
establishing the level of risk Plan Barajas is willing to accept.
Phase Two: Risk Identification. This phase is carried out by
using the tried and tested method of brainstorming. Structured
one-day workshops are convened with the relevant stakeholders
and project staff, and risks are identified and categorised, and
their potential causes and effects are detailed. This information is
fed directly into a spreadsheet using a laptop and screen projector.
Phase Three: Risk Evaluation. A preliminary evaluation of the
risks is undertaken with ratings of between 1 (low) and 5 (high)
being assigned for the probability of occurrence and its potential
impact. Risks that are evaluated as being intolerable are then
subjected to a more rigorous quantitative analysis using
techniques such as Monte Carlo analysis1. The Plan Barajas
is using two software programs for the quantitative analysis.
• Crystal Ball Pro. This spreadsheet-based analysis tool uses
Monte Carlo techniques modelled on an Excel spreadsheet.
It is ideal for modelling cost scenarios and probabilities.
• Pertmaster Professional. This software also uses the principals
of Monte Carlo analysis but applies them to a program schedule
for modelling time-based scenarios and their combined effect on
the program.
1
Monte Carlo is a method of analysing stochastic (governed by the laws of probability)
processes that are so difficult that a purely mathematical treatment is not practical. The
method relies on the random calculation of values that fall within a specified probability
distribution, often described by using three estimates: minimum, most likely and maximum.
Global Risk 1
Global Risk 2
Global Risk Z
Priciple Proj. Risk 1
Priciple Proj. Risk 2
Priciple Proj. Risk Z
Contract Risk 1
Contract Risk 2
Contract Risk Z
Figure 2: Project
Risk Analysis and
Management Cycle
Risks identified at each level are fed into a risk register (defined
on page 23) written specifically for Plan Barajas by using a
Microsoft Access database.
Phase Four: Response. Risk responses, mitigation strategies and
contingency plans are developed for all intolerable risks. Each
contingency plan identifies the particular trigger date and conditions
associated with the risk to enable implementation of the mitigation
plan in sufficient time to minimise the risk to an acceptable level.
For example, a change in passenger forecasts of, say, ±30 percent
might require the team to redesign passenger areas to accommodate
these figures if the probability of this risk occurring is high. The
mitigation plan would identify trigger dates and conditions for
implementation of a scope change that would cause the least
disruption to the project.
Phase Five: Risk Management. This phase of the process is
fundamental to its success. As situations change and the project
progresses, new risks become evident, existing risks are re-
evaluated and trigger dates and conditions are monitored closely
for activation of mitigation plans. Monthly status reports that high-
light the current status of each risk and the combined effects of
the risks identified on the project are produced and communicated
to each division. The status report also details risk trends, indicating
the level of proactive management being instilled by each division
as they come to terms with the philosophy of risk management.
Summary
The project risk management process for Plan Barajas, which is
programmed for inauguration in March 2004, has been up and
running for almost a year now. Within this relatively short time
we have been able to allow the client and his staff to concentrate
their efforts on critical issues that could jeopardise the project’s
(continued on the following page)
57 PB Network January 2002
MANAGING RISK IN UNDERGROUND ENGINEERING, TRANSPORTATION AND SOFTWARE DEVELOPMENT
Lessons Learned
To date, the fundamental lesson learned from the application
of a structured project risk management process on a project
as large and complex as Plan Barajas is the level of resources
required to actively control and monitor risks at the outset. Each
intolerable risk identified requires a structured mitigation plan.
Should the trigger conditions occur, the mitigation plan requires
implementation—activities that draw on both time and effort of
the available resources.
Advice to anyone who is preparing to implement a risk management
procedure is to make realistic estimates for the level of resourcing
required, not only within the consultant’s team but the reciprocal
time and effort required on the client’s side as well. Once a
procedure has been established, however, resources are
allocated more effectively (i.e., prioritising activities that
have a direct impact on the achievement of the projects
objectives). A well implemented project risk management
procedure encourages a more proactive attitude
within the workforce and management of a project,
minimising the fire fighting culture that is
evident in many complex projects.
objectives. In so doing, we have also been able to emphasise the
need for a proactive management regime, looking for areas of
potential failure and ensuring that measures are in place in a time-
ly manner to avoid them.
Applying a structured, risk-based approach to project management
provides an effective and thorough mechanism for delivering an
efficient, timely, and cost effective project. In essence, project risk
management provides a structured methodology that enables the
project manager to make informed decisions at each juncture, to
proactively address issues and concerns, and to have contingency
plans and mitigation strategies ready for implementation prior to
the occurrence of a risk. ◆
Paul Callender is a principal consultant with PB’s Manchester office.
He graduated from Kingston University in 1995 with an MSc in pro-
ject management and law and has been employed within a number of
industries, including rail, aeronautical, highways and manufacturing,
and as a contractor in Dubai. Since graduating, he has been employed
primarily as a project manager and was responsible for the preparation
of the 20-year upgrade strategy for the London Underground Network.
PB Network January 2002
Controlling Risks of Introducing
New Signalling Equipment in the UK
(continued from page 55)
induced current was significantly less than the threshold voltage
of the relays and that, as such, would not cause their inadvertent
operation.
Cross-Acceptance. The concept of cross-acceptance has been
difficult to get to terms with for both the project and the
acceptance bodies. Because it is still a new concept for the UK
rail industry, the boundaries of where and how it can be used
are still being defined and there are not many people who are
experienced in using it.
An example of where this has made a big impact is with hazard
identification. Normally with a new system or product we would
try to find as many potential hazards as possible. With cross-
acceptance we do not identify hazards associated with the “core”
product (i.e., the product that is not modified for use in the UK) as
these are assumed to already be of sufficiently low risk. We can
argue that this is so by claiming that the acceptance procedures
used in Italy for that “core” product ensure that these risks have
already been sufficiently mitigated. Therefore, we apply the hazard
identification processes only on the differences between then
Italian application and the Manchester South application
(i.e., where the product has been modified for use in the UK).
There is, therefore, a significant risk to the project if the cross-
acceptance argument does not hold up to scrutiny, as the basis
of the product safety cases will be substantially undermined.
Conclusion
Manchester South is an extremely challenging project as it aims to
introduce high technology systems within project timescales, using
new concepts. Safety is of paramount importance, and the evidence
that new systems are safe is scrutinised more than ever before in
light of recent rail accidents in the UK. By a process of continual
improvement, however, the project has now developed to a point
where the teams are focussed and have clear and achievable
objectives. ◆
Karl Virden joined PB in 2000 and is based in PB Infrastructure
Limited in the Manchester office (UK) as part of the Risk Management
Consulting group. A member of the Safety and Reliability Society, he
is currently working full-time on the Manchester South Alliance as the
Hazard Log Manager in his first major project both with PB and in
the rail industry.
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