Creating additional value through managing non-technical risk

Industry experience suggests that up to 70 per cent of major capital projects are subject to significant delays or cost overruns as a result of non-technical risk (NTR). Understandably, senior executives across the energy industry commonly view non-technical risk as one of their top three current concerns.

Non-technical risk (NTR) – sometimes referred to as ‘above ground risk’ – refers to a broad set of risks, including those arising from environmental, health, safety, community and stakeholder issues. In addition to causing significant schedule and cost issues, NTR also has the potential to adversely impact reputation and shareholder value, and can prevent project development altogether.

Today, NTR is often viewed as a ‘business’ rather than a ‘project’ issue and many companies have now embedded organisational commitments around standards, policies and auditing procedures to avoid any material negative impact or catastrophic failure from NTR.

ERM has gained significant experience in working closely with our clients around the globe to mitigate the impact of NTR on their business ventures. Some of the key success themes are as follows.

• Earning the privilege to operate

Operators can face moratoriums, reactive new laws and reputational damage if projects are advanced with a basic expectation that a statutory permit is all that is needed. Active engagement from the outset with all key stakeholders is generally critical to success.

No stakeholders should be surprised by development plans, nor allowed to become ‘big losers’ when projects are advanced. Adjusting physical plans in response to the needs of others and acknowledging the legitimacy of stakeholders’ interests in a respectful and meaningful way is a powerful means of creating an environment of mutual acceptance and shared benefit.

Capturing opportunities for capacity building and training are also important, not only in the short term through project development but also in the longer term through operation.

• Earlier permitting conversations

The traditional ‘design-permit-build’ model needs to be refined, as gaining approval is now too complex and sensitive an issue to start after the design process.

Effective project development now generally adopts well-informed permitting strategies to shape engineering designs and schedules, thus reducing NTR from the outset.

• Integrating NTR across project functions through the project lifecycle

Teams work best when there is a common set of principles and an iterative approach to sharing information. Effective dialogue on NTR issues between design, construction and permitting teams clearly helps provide early sight of potential challenges and inspires fresh design solutions that avoid failures later on the ground.

A broader and more comprehensive approach to dialogue and design generates a significant amount of valuable data. Our experience suggests that effective use of information technology, including geographic information systems, has a great impact on improving project performance and stakeholder buy-in, also helping to reduce risk.

• The outcome of successful risk management

A robust approach to the consideration of NTR not only increases the likelihood of delivering more projects on time and within budget – it also provides the opportunity to enhance company reputation and share value while delivering a positive legacy to key stakeholders and communities.

ERM would be delighted to share our knowledge and experience of NTR with operators wishing to invest successfully in the Atlantic Margin of Ireland or any frontier region.

For further information, please contact Walter Bruton
Tel: +353 1 814 7700
Email: walter.bruton@erm.com