By

Bob Prieto
Senior Vice President
Fluor Corporation

Rick Rye
Fluor Corporation

Risk is inherent to major capital construction programs.

The initial paper in this series defined a ten step process to guide consideration of program risks. Collectively, these interrelated processes contribute to successful strategic risk management.

These ten steps encompassed:

• Plan for Risk
• Make Realistic Assumptions
• Utilize Outside Expertise
• Understand Risk Elements and Their Impacts
• Assess and Analyze Risks
• Develop Mitigation and Contingency Plans
• Synthesize the Risks
• Integrate Risk Management
• Establish Clear Metrics
• Manage Risk Continuously

This paper focuses on the second of these steps.

Make Realistic Assumptions

Program and project assumptions are to be viewed in a realistic manner and not in the most optimistic (or idealistic) manner. Such an approach would influence the thinking that everything will go according to plan. Interpreting the program and project assumptions in the most optimistic manner can be fatal to the implementation of a successful program. Because of the optimistic interpretation, there are many cases where teams take risk without ever constructively thinking about the ramifications of their actions. The optimistic view can often be the result of extreme political pressures, monetary and time frame pressures, and even inexperience of the team.

This over zealous expectation is sometimes referred to as the EGAP-principal (everything goes according to plan) which characteristically means:

• no changes in performance specs
• no management problems
• no contract problems
• no geology, environmental or technology problems
• no political, administrative, or commitment promises are compromised

For an effective risk management strategy, the expected results, in terms of cost and schedule, must be objective and realistic.