Evolving Nature of Program Risks




By Bob Prieto

Jupiter, Florida, USA



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 engineering failures. Today, analogous forms of tight coupling are creating new risks to be understood and managed in the delivery of major capital construction programs.

Emerging “Correlated” Risks

“Correlated” risks in and of themselves are not new. What is new is the nature of some of these risks and the global nature of their reach. Ten such emerging risks are described below, others exist.

  1. Common global demand drivers for natural resources and primary materials

Large, rapidly growing, developing countries represent emerging market shifting drivers for the materials of construction.  As these emerging economic powerhouses move through the various stages of development, underlying market drivers are likely to shift in more dramatic ways than we have previously seen. Price points are likely to shift dynamically and spot market volatility likely to increase, reflecting the time lag between growing demand and the ability to increase supply of these basic materials. Industrial policy in China and India may impact cost and schedule of major capital construction programs across all industries around the world. Risk assessment and management strategies must recognize and address this challenge through new supply chain solutions, modified capital expenditure profiles and changed engineering and procurement cycles.

  1. Energy security

Growth in worldwide demand for energy, driven in large part by the common global drivers described above, carries with it an additional risk element whose importance has grown as marginal industry capacity is increasingly absorbed. This additional risk element is associated with potential threats to energy security from both state and non-state actors. Energy flows through the Straits of Hormuz and Mallaca are growing (over half of all seaborne oil) and increasingly vulnerable to disruption from terrorist, piracy or accidental events. State actors with an ability to disrupt already stretched global energy flows have shown an increased willingness to wield their supply concentration power. (Russia; Venezuela)


To read entire article, click here

Editor’s note: Second Editions are previously published papers that have continued relevance in today’s project management world, or which were originally published in conference proceedings or in a language other than English.  Original publication acknowledged; authors retain copyright.  This paper was originally published in PM World Today in September 2008.  It is republished here with the author’s permission.

How to cite this paper: Prieto, R. (2008). Evolving Nature of Program Risks in the Engineering & Construction Industry, Second Edition, PM World Journal, Vol. IX, Issue X, October 2020.  Originally published in PM World Today, September. Available online at https://pmworldlibrary.net/wp-content/uploads/2020/09/pmwj98-Oct2020-Prieto-evolving-nature-of-program-risks-in-engineering-and-construction.pdf



About the Author

Bob Prieto

Chairman & CEO
Strategic Program Management LLC
Jupiter, Florida, USA


 Bob Prieto is a senior executive effective in shaping and executing business strategy and a recognized leader within the infrastructure, engineering and construction industries. Currently Bob heads his own management consulting practice, Strategic Program Management LLC. He previously served as a senior vice president of Fluor, one of the largest engineering and construction companies in the world. He focuses on the development and delivery of large, complex projects worldwide and consults with owners across all market sectors in the development of programmatic delivery strategies. He is author of nine books including “Strategic Program Management”, “The Giga Factor: Program Management in the Engineering and Construction Industry”, “Application of Life Cycle Analysis in the Capital Assets Industry”, “Capital Efficiency: Pull All the Levers” and, most recently, “Theory of Management of Large Complex Projects” published by the Construction Management Association of America (CMAA) as well as over 700 other papers and presentations.

Bob is an Independent Member of the Shareholder Committee of Mott MacDonald. He is a member of the ASCE Industry Leaders Council, National Academy of Construction, a Fellow of the Construction Management Association of America and member of several university departmental and campus advisory boards. Bob served until 2006 as a U.S. presidential appointee to the Asia Pacific Economic Cooperation (APEC) Business Advisory Council (ABAC), working with U.S. and Asia-Pacific business leaders to shape the framework for trade and economic growth. He had previously served as both as Chairman of the Engineering and Construction Governors of the World Economic Forum and co-chair of the infrastructure task force formed after September 11th by the New York City Chamber of Commerce. Previously, he served as Chairman at Parsons Brinckerhoff (PB) and a non-executive director of Cardno (ASX)

Bob can be contacted at rpstrategic@comcast.net.

To view more works by Bob Prieto, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/bob-prieto/