Presentation given to MBA students around the success of the T5 project and risk management

1. Heathrow Terminal 5 Project Success or Failure?- a tale of two halves 8th May 2009 Dr David Hancock PhD MBA BEng CEng FRSA FIMMM RRP Chartered FCIPD David Hancock Consulting

3. “ The uncertainty of outcome, whether positive or negative threat, of actions and events. It is the combination of likelihood and impact, including perceived importance.” (HM Treasury, The Orange Book, 2004) A statistical certainty? What is meant by a Risk?

5. Scoring and Traffic Light Notation L I K 5 E L I 4 H O O 3 D 2 1 1 2 3 4 5 SEVERITY LDA Legal Impact 1 Improvement notice 2 Prohibition notice. 3 Prosecution with fine. 4 Directors charged with Corporate killing, fraud etc.. 5 Directors charged with Corporate killing, fraud etc.. LDA Reputation Impact 1 No press coverage 2 Minor, local reputation damage. 3 Major, local reputation damage. 4 National adverse media coverage. 5 International adverse media coverage Financial 1 £ thousands 2 £ tens of 3 £ hundreds of 4 £ Millions 5 £ tens of millions thousands thousands Descriptor 1 Improbable 2 Unlikely 3 Less likely than not 4 Likely 5 Probable Likelihood Descriptor 1 Minor 2 Moderate 3 Significant 4 Substantial 5 Catastrophic Impact LDA Output Targets 1 Exactly meets targets 2 Significantly meets targets 3 Meets 50% of targets 4 partially meets targets 5 Does not meet targets Health & Safety 1 Negligible injuries 2 Minor injuries 3 Major injuries 4 Single fatality 5 Multiple fatalities Schedule 1 Day 2 Week 3 Month 4 Year 5 Years

6. The Risk Process Set Objectives Monitor the risks Report movement of the risk Identify Threats and Opportunities to Objectives Assess the risks associated with each threat and opportunity ( Inherent ) and map exposure (PxC) Consider actions to manage risk terminate, tolerate, treat, transfer Reassess the risk ( Residual ) and remap (PxC) in light of actions in place

7. Response to risk… the 4 Ts Terminate – Do things differently and thus remove the risk Tolerate – Nothing can be done at a reasonable cost to mitigate the risk or the likelihood and impact are at a reasonable level Treat – Take action to control the risk either by reducing the likelihood of the risk developing or limiting the impact it will have on the project Transfer – Some of the financial risk may be transferable via insurance or contractual arrangements or accepted by third parties

8. Risk and Opportunity

11. Understanding what is meant by project success is crucial

14. Why was T5 Different? Where we want to be

15. Terminal 5 Project - Background The Public Inquiry into the proposal to build a fifth terminal at Heathrow Airport started in May 1995 and finally finished after having sat for 525 days, in March 1999, making it the longest public inquiry in British planning history and at a cost of £80m in legal fees. The report was submitted to the UK Government 20 th December 2000. Planning costs at risk were £320m. The decision to go ahead was given on 20 th November 2001 by Stephen Byers transport secretary and the terminal is expected to be completed by 04:00 on 30 March 2008.

17. Terminal 5 Project - Orientation Terminal 4 Terminal 1 Terminal 2 Terminal 3 Terminal 5

18. Terminal 5 Project - Orientation

19. Terminal 5 Project - Orientation

21. The Project Organisations Rod Eddington Chief Executive John Rishton Chief Financial Officer Mike Street Director Customer Service and Operations Robert Boyle Director of Commercial Planning Paul Coby Chief Information Officer Lloyd Cromwell Griffiths Director of Flight Operations Martin George Commercial Director Alan Mcdonald Engineering Director Robert Webb QC General Counsel Neil Robertson Director For People

22. Environment – October 1994 Canteen & Welfare Units Cambourne House

23. Heathrow Express Collapse Record fine after tunnel collapse One of the worst civil engineering disasters for 25 years. Builder Balfour Beatty has been fined a record £1.2m for the collapse of a tunnel at Heathrow Airport, which put lives at risk and caused the cancellation of hundreds of flights. The tunnel collapsed in the early hours of October 21, 1994. Fortunately no-one was in the tunnel at the time. However, the court was told that the collapse could have crushed to death people using the nearby Piccadilly tube line and the judge hearing the case, Justice Peter Cresswell, said it was "luck more than judgment" that this did not happen. Huge crater The collapse could have ended in real disaster. The engineering disaster caused a huge crater to appear between the airport's two main runways and caused damage to car parks and buildings. It took months to clear up the damage. The collapse occurred during the construction of a tunnel for the Heathrow Express Rail Link. Balfour Beatty pleaded guilty to failing to ensure the safety of both its employees and members of the public. Austrian engineering firm Geoconsult, which was responsible for monitoring the progress of the Heathrow Express Link, was also fined £500,000. The judge ordered both companies to pay a further £100,00 each in costs. Terrible disaster Justice Cresswell said: "This was one of the worst civil engineering disasters in the United Kingdom in the last quarter of a century. The tunnels were being built below part of the world's busiest international airport and there was considerable potential for harm." Both firms were found guilty of falling "seriously short" of the appropriate standards and reasonable steps, resulting in serious breaches of the Health and Safety Regulations. Martin Thurgood, of the Health and Safety Executive, told the BBC: "This level of fine sends a clear message to the industry, whether (to) the client's designers, contractors or sub-contractors, that they do need to take full account of workers safety and public safety in the way in which they go about their business." Balfour Beatty, based in Edinburgh, is one of the UK's largest building groups, and is part of the engineering group BICC. It said it deeply regretted the accident. The tunnel's collapse delayed the opening of the Heathrow Express by six months and caused long hold ups on part of the Jubilee line extension, where engineers were using similar building techniques.

24. Understanding what is meant by project success is crucial

26. Risk and Opportunity

28. T5 Agreement

29. Behavioural Contract

31. Problem Solving Problem Solution Gather Data Analyse Data Formulate Solution Implement Solution “ TAME” Problems can be solved by linear or “waterfall” process Time since beginning

33. “ MESSES ” meet the following criteria: Organisational Complexity - clusters of interrelated or interdependent problems, or systems of problems. Messes are puzzles; rather than solving them we resolve their complexities. Cannot be solved in relative isolation from one another .

35. “ WICKED PROBLEMS ” are characterised by: An evolving set of interlocking issues and constraints - no definitive statement of the problem (no understanding of the problem until the solution has been developed). Many stakeholders - the problem solving process is fundamentally social (getting the right answer is not as important as having stakeholders accept the solution). The constraints (resources, politics) change with time - stakeholders come and go, change their minds or change the rules. Since there is no definitive Problem there is no definitive Solution .

36. Wickedness Time since beginning “ WICKED” Problems cannot be solved by linear or “waterfall” process Problem Solution

37. Wicked Problem Solving Because of the number of stakeholders, changing constraints and dynamics of the problem, there is no ideal solution-it is “as good as it gets” or “good enough” The Problem solving process ends when resource (time, money energy etc.) runs out! Therefore we need a different approach when handling risk with respect to problems which are not Tame Resolving “ WICKED MESSES ” is “ SATISFICING ” (H. Simon 1956)

38. Risk Management

43. Why might this be?

44. British Airways Financial Highlights

45. BAA Terminal 5 Project Costs Multiplex losses £183 million Multiplex sues Cleveland steel for £38 million counter case for £22.6 million Multiplex sues FA for £150 million (Settled at £36 million) Multiplex sued by shareholders for £40 million Multiplex sues designer Mott MacDonald for £253 million ** Costs at project end * Costs at contract signing Costs Original (millions) Costs Final (millions) Costs Claims (millions) Opening Costs (millions) Terminal 5 £4,200 £4,200 0 £10 ? Wembley £326.5 *£445 £900 **£757 £36 (£291) 0

46. Terminal 5 – The future?

47. “ When all you have is a hammer, everything looks like a nail ” . Japanese Proverb “ Successful problem solving requires finding the right solution to the right problem. We fail more often because we solve the wrong problem than because we get the wrong solution to the right problem”. Russell Ackoff, 1974

48. Any Questions ? [email_address]