This report provides guidelines for identifying, quantifying, controlling, and mitigating risks associated with large projects, known as megaprojects. Megaprojects are defined as projects requiring over $1 billion in investment and lasting over 4 years. They present challenges such as lengthy timeframes, complex designs and technologies, multiple stakeholders, and difficulties in cost and schedule estimation. The report identifies internal risks, which arise during project execution, and external risks outside the project's control. It recommends early risk identification, monitoring, and applying mitigation plans to control impacts on cost, schedule, and scope when risks materialize.

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in megaprojects
Report prepared by Guillermo Nalli, Project manager with a vast experience in engineering companies such as Hatch, Fluor, Aker and Codelco.
This article provides some guidelines helping in the identification,
quantification, control and mitigation of risks associated to large projects.
It is important that all professionals participating in the execution of megaprojects have a clear perception
of their main characteristics and associated risks, so as to identify, quantify, control and mitigate them, as
necessary. This document provides some general guidelines to help in this task.
Characteristics
Megaproject is that in which investment exceeds the amount of US$1 billion and its duration exceeds 4
years from conception to execution completion. In some cases, they exceed US$10 billion investment and
a 10-year term. The main characteristics of these initiatives are:
• Lengthy duration, with associated multiple lacks of knowledge, ambiguities, uncertainties and risks.
They require a large amount of resources, including labor, financing, supplies and equipment.
• Their life cycle is hard to be defined in traditional terms. They have many stages; it is not clear when
one of them starts and the other ends. Their start is lengthy, complex and critical, i.e. from start to final
approvals.
• They present technology, design and construction complexities. Many of these projects use new
technologies and require a number of stages to achieve final objectives. Their construction requires a
complex organization hard to be integrated.
• Usually, their sponsorship and financing require of models that involve combinations of debts, subsidies,
bonds and contributions, etc. In many cases they require multiple public and private sponsors.
• High public profile. Because of their size, the governments, press and communities are aware of them.
They are subject to public scrutiny. They have impact on many areas, such as environment,
communities, safety, culture, socio-economy, etc.
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• Purchases and contracts in megaprojects are complex, require innovation to direct and assign
responsibility for risks, and decide the best strategy to follow.
• In lengthy projects, it is hard to maintain the continuity in management. It is normal to have changes in
their leadership.
• Often, complex projects have unique organization structures with multiple authority levels, requiring
vertical and horizontal coordination, which hinders work team communication and integration.
• Multiples stakeholders, almost always involved in a complex net of public interests with connections
and influence, having an interest on project results.
• It is complicated to estimate their execution cost and schedule. Due to their lengthy duration, they are
affected by changes in political and economy regulations, with risk of difficult quantification and
control. Assumptions considered in their estimation change over time.
Main risks
Above mentioned characteristics of
megaprojects have implicit associated
risks, some of which are shown in Figure 1
(red for external and blue for internal
ones).
Internal risks
Their generation is the result of the project
execution. Most of them may be identified,
quantified and controlled by means of an
adequate risk management:
• Lack of critical resources. Mainly lack,
on time and number, of critical human
resources for key positions. The most
adequate scenario is to have these
key professionals at the start of the
project.
• External dependencies. These risks are
related to external companies that are
contracted to compensate for the lack of highly specialized resources; often times they do not work
under the required quality and strictness procedures. It is important to identify the specialists that meet
the project’s requirements; that makes it imperative to pre-qualify them, so as to have them available
when their service is needed.
• Financing. Megaprojects require high capital expenditure to be contributed by diverse entities, apart
from the owner, which is hard to obtain. At project’s formulation stage, a financing plan must be
defined and an assessment made of each one of the alternatives with the corresponding entities.
• Changes in management team. Key management team changes cause losses of projects recording
and knowledge. There is a need for having a record of all information providing grounds to key
decision-making and lessons learned.
• Risk inadequate transference. It is important to be clear in relation to which risks will be transferred to
contractors and equipment vendors. These should be risks that may be absorbed by them.
• Technology, design and construction complexities. Design complexity refers to the time a megaproject
takes from the approval period to engineering completion. It is many years and a vast number of
changes are produced. Critical issues must be addressed with the best resources the project has.
Technology complexity has to do with those innovative technologies that have not been proven at
industrial level. For the project’s critical processes, it is fundamental to choose technologies that have
been successfully proven in similar operation situations. In relation to construction risks, constructability
analysis of complex processes must be permanently performed, starting from the project conception
up until its execution completion, prioritizing on individuals’ and goods’ safety, followed by the
schedule and quality.
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• Unreasonable stakeholders’ public management and interests. It is important to keep public entities
well informed in relation to project’s progress and future evolvement to prevent generating
unreasonable interests in stakeholders, especially when requiring the support of some of these entities
to expedite the project’s execution.
• Change management and claim management. It is relevant to keep a detailed record of all changes
and claims generated in the project, assign individuals in charge of gathering support information,
resolve and control their evolvement, setting clear dates and programs, thus preventing their
accumulation at the end of the project.
External risks
These are risks generated as a result of external demands. They are hard to be identified, quantified,
controlled or mitigated.
• Obtaining environmental permits. Requirements for environmental permits increase by the day. Usually,
meeting these requirement take a time longer than estimated, with no certainty that the permit will be
granted. A joint work with regulatory agencies as of the project’s conception, i.e. the business study.
• Communities. Requirements are more stringent every day and most often have a great impact on the
project’s cost. In some cases, even meeting community requirements, the risk persists. It is necessary to
maintain good communication with communities as of the moment the idea of a project is conceived,
so as to evaluate the perception of these communities.
• Water and power supply. This is a very complex issue in
Chile, since the pace growth of mining projects versus
power generating projects, dictates that in 2020 there
will be no enough power to operate these plants. It is
critical to identify these requirements at the study
initial stage and verify whether it is possible to obtain
what is required in quantity, quality and time from the
existing sources. For this to be an internal risk,
generation should be considered as part of the
project (Codelco and Antofagasta Minerals are
developing power initiatives to meet some of their
project needs). In the case of water, desalinating
seawater is an alternative to be taken into account,
although these plants consume a great deal of
power.
• Nature risks. These are very difficult to forecast
(earthquakes, slides, rainstorms and snowstorms), and
more still to quantify their material and economic
impact on the project. It is recommended to request
the support from institutions that have statistic records
of these occurrences and their impact.
• Commodity price decrease. The market of commodities such as copper, gold and silver, is highly
dependent and its evolvement is linked with China economy. On the other hand, production costs are
ever increasing in Chile, as compared with our competitors.
• Changes in political and economic regulations. Political and economic instability is associated to
various risks very hard to quantify, such as strikes, work stoppages and social unrest.
Permanent monitoring and mitigation plans
In summary, when these risks materialize, they impact on project’s cost, schedule and scope objectives. To
have these impacts under control, we require to periodically monitor these objectives and apply mitigation
plans when these risks get materialized, thus preventing any deviation leading to project failure. There are
two basic options available for risk management: cause management or effect management. In case of
managing the causes, there are prevention alternatives, eliminating or avoiding risk, reducing its chances
or potential impact, mitigating or transferring the risk. It is important to early detect risks with the key project
team and control them, using the procedures and recommendations of institutions such as Project
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Management Institute (PMI); these are vastly applied by most of the large construction and engineering
service companies, one of which is shown in Figure 2. mch
Report prepared by Guillermo Nalli.
References:
Project Management: A Systems Approach to Planning, Scheduling and Controlling. Harold Kerzner.
Megaproject Management: Lessons on Risk and Project Management from the Big Dig. Virginia A.
Greiman. Managing Gigaprojects. Patricia D. Galloway, Kris
R. Nielsen, Jack L. Dignum. Identifying and Managing Project Risk. Tom Kendrick.
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