Risk Analysis: Facilitating and Analysis Guidelines for Capital Expenditure Projects

By Minnesh Kaliprasad

All endeavours involve some element of risk with the success or failure of any particular venture depending on how this element of risk is dealt with. This is no different in the projects environment where the primary key issues dealt with are meeting deadlines (schedule) and cost targets.
Very often, risk may be ignored altogether or dealt with in a rather superficial manner, for example adding ‘x’ % as a contingency amount or allowance onto the estimated cost of the project as a single line item in the cost estimate.
Whilst known that the greatest uncertainty rests in the earlier stages of a project, this is also the stage at which decisions having the greatest impact are made. The assessment of risk has to be appropriately allowed for in these stages. What is therefore needed is effective cost control.
As typical projects are the primary “vehicles” through which these business decisions manifest themselves, it is only fitting that risk analysis within the broader context of projects be given due consideration at all times.
In determining the feasibility of projects where capital investments are concerned, various methods are utilised. The focus of these methods is on returns, so it is often asked as to what extent any of these methods take the element of risk into account. The execution of the capital investment decision requires the decision-maker to evaluate and analyse the risks involved. It requires a systematic evaluation of capital investment proposals. Poor decisions in the project management context may have an enormous adverse impact on the profitability of an organisation, as decisions involving capital expenditure on projects usually cannot be undone totally.
This book seeks to investigate the current guidelines utilised for risk facilitating and risk analysis of cost estimates for capital expenditure projects in a typical projects environment. A “model” is also proposed whereby project risk management is incorporated into the cost estimating function, thereby attempting to bridge the disconnect between risk management and the cost estimating function which is fairly common on projects.

• Language: English
• Publisher: Minnesh Kaliprasad
• Release date: Jul 18, 2018
• ISBN: 9780463838105

Minnesh Kaliprasad

Minnesh Kaliprasad is a qualified Chemical Engineer who has migrated towards the field of project management and project controls in particular for the larger part of his working career thus far. He has over 20 years working experience with various companies ranging from the petroleum, mining, and construction sectors, in varying roles. He is currently a Project Controls Manager for South Africa's public electricity utility, ESKOM. He also holds a qualification in the field of Project Management, and a post graduate degree in Technology Management. Furthermore, he has earned accreditation from the Association for the Advancement of Cost Engineering (AACE) for the Certified Cost Professional (CCP) and Earned Value Professional (EVP) credentials. In addition, he is also a Project Management Professional (PMP) with the Project Management Institute (PMI). He has held the positions of Technical Director and President of the Cost Engineering Association of South Africa (CEASA) which was later rebranded as the Southern African Project Controls Institute (SAPCI) under his leadership. He has had a total of 3 peer reviewed technical articles published in the Cost Engineering Journal, viz. Proactive Risk Management ( Cost Engineering Journal December 2006, Human Factor I and II, Cost Engineering Journal June 2006). The former article has since been featured in AACE International’s Professional Practice Guide to Cost Engineering in the Global Environment, while the latter two articles have been featured in AACE International’s Professional Practice Guide to Leadership and Management of People. When he is not working he is probably running, gardening, or reading.

Book preview

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Risk Analysis: Facilitating and Analysis Guidelines for Capital Expenditure Projects

Copyright 2018 Minnesh Kaliprasad

Published by Minnesh Kaliprasad at Smashwords

Smashwords Edition License Notes

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Other books by Minnesh Kaliprasad

Project Controls Effectiveness on Successful Construction Projects

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Acknowledgements

I wish to thank the Lord Almighty for granting me yet another opportunity of writing a book about a subject I am passionate about.

I would also like to thank my wife Salika and daughter Michala for supporting me yet again in everything related to this journey of writing a book. Your constant motivation and positive energy helped me get this one over the finish line.

I am hoping that this book can be viewed as an extension of my previous book entitled Project Controls Effectiveness on Successful Construction Projects. It is hoped that with more books in the future, they can be seen as a collection on the subject of Project Controls and Project Management.

Watch this space…there will be more books in the not too distant future!

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Table of Contents

Introduction and Background

Historical development and the current state of risk in capital investment decisions

Techniques to evaluate investment opportunities

The problem

Some points to ponder

Review of Project Risk Management

Current theories

Risk Modelling

Risk in Cost Estimating

Types of Estimates

Risk Analysis Models

Need for a new or improved theory

Conclusions

References and Bibliography

List of Acronyms

About Minnesh Kaliprasad

Other books by Minnesh Kaliprasad

Connect with Minnesh Kaliprasad

Introduction and Background

All endeavours involve some element of risk with the success or failure of any particular venture depending on how this element of risk is dealt with. This is no different in the projects environment where the primary key issues dealt with are meeting deadlines (schedule) and cost targets.

The PMBOK Guide (2017:720) defines project risk as an uncertain event or condition that, if it occurs, has a positive or a negative effect on one or more project objectives. Clemen (1996:5) states that risks are also to be considered in a typical decision analysis process before anything can be accomplished. Kerzner (1998:877) goes on to state that in the early days of project management, the majority of project decisions heavily favoured cost and schedule due to the knowledge of costing and scheduling versus risks.

Very often, risk may be ignored altogether or dealt with in a rather superficial manner. A typical example might be to add a 10% or 15% (or other pre-determined) contingency amount or allowance onto the estimated cost of the project as a single line item in the cost estimate. The AACE handbook