Chris Money, Director, PwC New Zealand - Managing Risk in Infrastructure Developments

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Chris Money delivered the presentation at the 2014 NEW ZEALAND INFRASTRUCTURE SUMMIT.

The New Zealand Infrastructure Summit brings you the most up to date infrastructure news combining case studies and key presentations, addressing developments in the some of the main infrastructure hubs, such as Auckland and Christchurch.

For more information about the event, please visit: http://www.informa.com.au/nzinfra14

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Chris Money, Director, PwC New Zealand - Managing Risk in Infrastructure Developments

  1. 1. Managing Risk in Infrastructure Developments Chris Money www.pwc.com/nz
  2. 2. pwc Overview Why is risk more important as you get closer to PPP? Types of risk • Bid risk • Finance • Delivery • Ongoing management • External risk Slide 2 February 2014Business Case: Joint Modelling Application Centre
  3. 3. pwc What underpins risk transfer February 2014 Slide 3
  4. 4. pwc Why is risk more important in PPP February 2014 Slide 4
  5. 5. pwc Why is risk transfer so important in a project? • The competitive advantage of taking the time to understand “why” a project is being procured the way it is. • Why Wiri prison? • Why the schools? • Why Transmission Gully? February 2014 Slide 5
  6. 6. pwc Types of risk that can be transferred • NZ market is about transferring output risk • Design and construction phase • Adverse events • Delivery • Operations and management phase • Incentivise whole of life cost management • Availability • Appetite for moving to outcomes risk February 2014 Slide 6
  7. 7. pwc Managing risk pre-bid February 2014 Slide 7
  8. 8. pwc The biggest risk is not getting the project in the first place! • Not much point bidding if you haven’t got a great team • Form the core team early • Know who you are partnering with • The importance of the Market Sounding process • The importance of team culture and operations Pre-bid risk is the most overlooked part of private sector risk management February 2014 Slide 8
  9. 9. pwc Case study 1. “Contracts for a string of homes between Tawa and Pukerua Bay” 2. One buyer backed by an international engineering company 3. 16 properties to house executives and "riggers" who worked for what "appeared to be a large, reputable company with offices worldwide" February 2014 Slide 9
  10. 10. pwc Financial risk February 2014 Slide 10
  11. 11. pwc February 2014 Slide 11
  12. 12. pwc Financial risk matters not just for the financiers February 2014 Slide 12
  13. 13. pwc Managing financial risk • Fixed-price sub-contracts • Step in rights • Hedging and insurance • Modelling • Third party advice February 2014 Slide 13
  14. 14. pwc Managing Risk in the Design and Construction Phase February 2014 Slide 14
  15. 15. pwc The most common failures in D&C component 1. Unclear project definition and objectives 2. Lack of transparent control environment 3. Lack of internal accountability 4. Poorly defined project delivery and engagement strategies 5. Absence of a robust approach to communication and reporting These failures apply equally to owner and delivery sides and are compounded when they exist on both sides February 2014 Slide 15
  16. 16. pwc A capital project organisation framework • Most successful delivery groups are highly skilled professionals • Delivery groups are very good in their areas of expertise • So why do projects go wrong? • What differentiates a group from a team? February 2014 Slide 16
  17. 17. pwc Developing a capital project governance model • Prepare for failure! • Give your professionals the space to succeed • Establish a common language • Think about risk and disputes in the contracting phase • Take a longitudinal approach to risk February 2014 Slide 17
  18. 18. pwc Developing a capital project governance model February 2014 Slide 18
  19. 19. pwc Managing Risk in the Operations and Maintenance Phase February 2014 Slide 19
  20. 20. pwc The importance of life cycle cost risk • A key benefit of PPPs is the transfer of lifecycle cost risk • Major change in the mindset of NZ infrastructure market • The lions share of NZ PPPs will have a hefty operating component • Likely that views on operating risk will be less well developed • Market appetite for demand risk is very low at the moment • Focus currently on availability, asset performance and operations performance February 2014 Slide 20
  21. 21. pwc Principles of risk management in O&M phase • Governance model applies • Delivery partner due diligence • Ensuring right financial risk profile • 3rd party advice and modelling critical • Institutional knowledge and project handover February 2014 Slide 21
  22. 22. Thank you © 2014 PricewaterhouseCoopers New Zealand. All rights reserved. “PwC” refers to PricewaterhouseCoopers New Zealand or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

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