Handling major risk events

Published by Mitch Provost on

What do you do when a major risk event occurs? Typically, it’s brace for the impact then do your best to control the damage. Alternatively, you can take a proactive approach and break down your response into a series of actions that minimize the overall impact and mitigates further events from occurring.

One major event that occurred to me was on a very large project that spanned several years and included engineering, procurement and construction delivery. The project, as usual, had a clear budget and schedule that many stake holders were carefully monitoring. The schedule implications were as important as the budget since any delays resulted in substantial costs to the stake holders.

This particular event occurred on several thousand tons of engineered material costing tens of millions of dollars. The material was being transported over seas across the world. The chosen transportation route took the ship through several major shipping ports. The risk strategy was to monitor the ship’s transit through and between each port of call and be ready for anything that would threaten the schedule. What happened to the material was totally unexpected and never conceived a possibility.

While going through routine customs inspection in one of the ports, weapons grade material was found in separate cargo containers not on the shipping manifest and without proper paperwork. No one claimed the material and the shipping company denounced its knowledge of it, raising suspicion. Since the ship was destined for another country’s port where political tensions were historic between the two countries, the military confiscated the entire ship along with our cargo and immediately arrested the ship’s captain. The ship remained at-bay under military guard along with all of her cargo.

The advise from experts at that point was the country would likely retain ownership of the ship and all of her cargo, meaning we may never see our cargo again. Now you’re probably thinking, better find some more material and kiss this material goodbye. This was definitely one of our options and one we did pursue at some expense, however the timing was unacceptable even if we could somehow absorb the cost. We knew that even though the chances were slim, we had to find a way to get our original cargo back into our hands.

Kiss goodbye

Our standard risk management process included the development of a risk matrix before execution of the project to identify as many risk items as possible. These items were then evaluated one at a time to determine the potential impact and probability of their occurrence. This provided a ranking of each risk so we could focus on the most critical ones. Several mitigation strategies with actions were also identified for each risk to help reduce their probability and/or impact. The risk matrix was reviewed each month to determine if any items made their way to the top or if others had expired to help us maintain focus.

With all efforts made to identify every possible risk event on the matrix and continuous reviews and updates to keep our attention, the risk of material detained in a foreign country was not on the list. So when this event occurred, we didn’t have a prepared mitigation strategy or plan of action. However, the team realized the magnitude of the consequence and accepting failure was not a consideration.

We immediately formed a task force to address the problem from several different fronts, including ‘boots on the ground’ in country. We sent native language speaking representatives directly to the consulates and appropriate government officials to appeal our case to have our material removed from the ship. In the meantime, we seconded a second ship for standby to transport the material the rest of the way. This whole process still took months with daily conference calls seven days a week among task force members around the world and appeals to government officials and the shipping company executives. The government eventually allowed the release of our material and we recovered the delays in our schedule with a resulting project on time and budget.

Success

It sometimes seems impossible to overcome what appears to be catastrophic events, but by being prepared for the unknown, following a methodical approach, taking the right actions and focusing on key objectives, it can be accomplished. Sponsors of syndicated real estate apartment deals have a large responsibility as custodian of their investor’s money. The threat to and protection of principle is the foremost duty for the sponsor. A plan to address risk throughout the project is essential to ensure a return of that principle and optimization of returns. Careful planning for a call to action to address unknowns and unexpected events will ensure the best possible results. This embodies the process of engineering conservative apartment deals.

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How do you handle major risk events?

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