PM WORLD TODAY – FEATURED PAPER – SEPTEMBER 2008 Evolving Nature of Program Risks in the Engineering & Construction Industry By Robert Prieto Senior Vice President, Fluor Corporation The scope and scale of major capital construction programs is growing worldwide driven by a combination of technological and demographic factors. Whether manifested by expanded energy and industrial capacity to meet the world’s growing demands or complex infrastructure to replace or renew that of the developed world, today’s major capital construction projects are at a scale and complexity that challenges our collective ability to efficiently and effectively deliver them. But scale and sheer numbers are far from the only challenge. Today’s major capital construction programs face an emerging set of risks that extend well beyond the project’s battery limits. While such over-arching or multi-project risks have existed in the past in the form of regional or national political risks, labor strife or even common exposure to natural events, today’s increasingly networked supply chains face new challenges of a scale and consequence rarely seen in the past. This paper seeks to outline some of the risks that major capital construction programs are increasingly exposed to today and posits that some of these emerging risks are the result of “industrial” style management and governance models which do not adequately reflect the networked nature of delivery of today’s mega-construction programs. Failure of Financial Sector Risk Management as an Analog It was spring of 1827 and Robert Brown had just returned from collecting pollen in the Scottish countryside. A botanist, Brown placed some of the pollen in water under his microscope and observed the grains of pollen moving about completely randomly. That random motion, now called Brownian motion after its discoverer is a useful tool in studying truly random events. Many of today’s risk models are founded on the principles of Brownian motion, at least as Robert Brown understood them in the spring of 1827. Financial models and their associated risk management tools, built on the randomness underlying Brownian motion, served the financial industries well, at least to the current financial crisis. But recent events have highlighted that many of these risks and financial markets were more tightly coupled than many recognized even if the coupling was not apparently obvious (1). In reality, it was a similar, complex coupling (constantly moving water molecules) that underpinned the apparently random motion that Robert Brown saw on that spring day in 1827. The effects of this less than apparent coupling between seemingly random elements in complex systems has been seen by the engineering and construction industry across a broad array of Published in PM World Today - Spetember 2008 (Vol. X, Issue IX) PM World Today is a free monthly eJournal. Free subscriptions available at: http://www.pmworldtoday.net Page 1