This document summarizes a study on project risks for rail projects in Brazil. It finds that rail projects regularly overrun budgets by 45% on average due to underestimating risks. Common risks include cost overruns, delays, subcontractor quality issues, and cultural/implementation challenges. The document recommends focusing on contract management, planning, scheduling and addressing implementation risks early in large projects to control costs.

1. September 2011EdgilisProject Management Risks for Rail projects in Brazil

2. Introduction to EdgilisOverview of Project Risk ManagementPreliminary Findings from Brazil StudyRecommendations and Next Steps

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6. Introduction to EdgilisOverview of Project Risk ManagementPreliminary Findings from Brazil StudyRecommendations and Next Steps

7. Rail projects regularly overrun budget as project risks are often under-estimatedOn average rail projects overrun budget by 45%Longer and bigger projects tends to overrun their budgets by an even wider margin. No single explanation as many technical risks are under-estimated and their overall impact is hard to measure: Client’s capital is unavailableDesign VariationsVariations by the clientInflation in price of construction materialsContractor’s security of paymentCost estimation is crudeInsufficient liquidated capitalDispute for ambiguity of contract conditionsCorruption and briberyInadequate or insufficient site informationPoor management levelUnreasonable project construction period requirementLow competency of the subcontractorBureaucratic, inefficient and delay on Examining and ApprovingInadequate program schedulingInaccuracy of construction cost forecasts for rail projects 7Average Cost Escalation+45%Frequency (%)Cost Increase (%) in constant pricesSource: B .Flyvbjerg, 2004. Based on 58 rail infrastructure projects

8. Cost uncertainties in mega-projects need to be addressed early onRisk factors for larger projects ($ 1bn+)Delays have a major impact on overall costs. Longer and bigger projects tends to overrun their budgets by an even wider margin. For e.g. on the $8 billion Channel Tunnel project, a one year delay cost $371m, or approximately $1million a day.

9. Cost-related decisions have the most impact at the beginning of the project. There is ‘lock in’ or ‘capture’ of a certain project concept, leaving analysis of alternatives weak or absent. Construction Cost Can be Influenced at the beginningConstruction CostsLevel of Influence on costAbility to influence costs

10. Top 10 risks as per their significance in relation to project objectivesSource: Identifying Key Risks in Construction Projects: Life Cycle and Stakeholder Perspectives, Dr Patrick. X.W. Zou, Dr Guomin Zhang and Professor Jia-Yuan Wang

11. Risk Factors in a Consortium

12. Introduction to EdgilisOverview of Project Risk ManagementPreliminary Findings from Brazil StudyRecommendations and Next Steps

13. Study Overview and MethodologyPreliminary study was conducted among engineers with management responsibilities in engineering and construction projects in BrazilQuestions focused on the quality of the local subcontractors/engineers and the main risks related to project-work in Brazil

14. Quality of the subcontractors from 1 (lowest) to 5 (highest)Testimonials:“Local subcontractor installation quality is very poor and requires close supervision”“Planning of the subcontractors is, based on what I have experienced, the major issue. Plan carefully, get some safety nets and monitor the relation closely.”“The installation suffered from a lack of knowledge by the workers.”“You need an operations manager with vast experience in the Brazilian market to manage and supervise the works. Otherwise, you will risk to disappoint the client. Reputation in Brazil is built up quickly. A bad review can put at risk all future business deals.

15. Subcontractors: areas of weaknessTestimonials:“Beware of the risk in planning due to civil contractors delaying work using all excuses available, as well as the risk in contract and claims, and in logistics”“Shipping equipment into country can be complex and Brazil is very protective of both it’s manufacturing industry and workforce.”Did local subcontractors meet your expectations in the following?

16. Local Manpower Strengths and WeaknessesTestimonials:“Foreign contractors should take into account that Brazilian workers do not work no so hard as European or US workers.”“Delays will always happen, this is in the culture.”“It is common to work extra hours and to work towards of the solution rather than point fingers.”“Foreign managers need to have at least 5 years experience and to be able to show their international expertise.”Competencies of the Brazilian Engineering Workforce

17. Introduction to EdgilisOverview of Project Risk ManagementPreliminary Findings from Brazil StudyRecommendations and Next Steps

18. Contract Management Risks

19. Culture and Environment

20. Planning and Scheduling

21. Implementation Risks

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