Professional Documents
Culture Documents
International Journal of ProJect Management Vol. 16, No. 1, pp. 35-41, 1998
(~ 1997 Elsevier Science Ltd and IPMA. All rights reserved
Prmted in Great Britain
0263-7863/98 $19.00 + 0.00
Plh S0263-7863(97)00015-X
Risk is an implicit element in the execution of capital projects and manifests itself in numerous
forms at different stages in the project life cycle. For public sector organisations, which act as a
project sponsor, the risk exposure, and the consequent risk impacts, are a function of the cultural and environmental framework within which they are required to operate. This paper discusses and evaluates the significance of project risk in this setting and examines the impact of
risk outcomes which are both financial and non-financial in nature. The ability and capacity of
public sector organisations to manage project risk are considered together with proposals for the
wider adoption of risk management techniques. 1997 Elsevier Science Ltd and IPMA
Keywords: Risk, pubhc sector, organlsat~onal culture, risk management
The management of project activity in the public sector has been traditionally characterised by the pursuit
of financial rectitude, reliability of performance, and
the mitigation of risk and uncertainty. Methods of
project delivery have often been extensively developed
and refined but objectives and success criteria poorly
defined with responsibility and authority for delivery
widely distributed across a broad range of participants.
Throughout the 1980s and into the 1990s dramatic
changes have occurred in the manner in which public
sector projects have been planned, commissioned, and
controlled. Compulsory Competitive Tendering of services, including those of a professional nature, the
ongoing conversion of government departments to
Executive Agencies, the transfer of some central government project management functions to commercial
project organisations, and the emerging use of Private
Finance Initiatives, have done much to alter the manner of delivery of project services. When coupled with
the explicit standards of performance to be delivered
by public sector agencies and the increased transparency expected of their activities, it can be readily seen
that the profile of risk inherent in these major capital
ventures is becoming increasingly significant and substantial.
This paper sets out to consider and evaluate the risk
profile present in public sector capital projects and to
develop an understanding of how this may be structured and controlled by the application of appropriate
project management techniques. Reference is made to
the cultural and environmental framework within
which the public sector now operates and traces the
link between the impact of project performance and
the quality of service delivery, and the degree to which
an appreciation of risk influences the manner of delivery of these services. The paper will conclude with an
identification of the way in which operational research
techniques may contribute to the effective management
of risk in this specific context.
Nature and characteristics o f public sector
organisations
The public sector of the United Kingdom is substantial, diverse, and highly significant in economic, social,
and political terms. Expenditure on public services,
excluding defence and support for nationalised industries, totalled 212bn during 1991/92, and employed
over 4 million people, concentrated in Local
Government and major central government functions
such as Social Security, Health Care, Inland Revenue,
and Home Office. 1 The emphasis of public sector activity has been upon the delivery of services, often of a
personal nature, rather than the production and distribution of goods.
Political initiatives during the 1980s, and continuing
into the 1990s, have sought to modify the modus operandi and cultures of public sector organisations by the
introduction of the practices and processes of the commercial marketplace. Hitherto the government had
functioned as both provider and deliverer of services
to its constituent departments, including project functions, thereby in effect purchasing from itself.
Carnaghan and Bracewell-Milnes 2 have articulated
how a service which is provided monopolistically by
an arm of government, and which is free at the point
of consumption, is divorced completely from the market economy, resulting in inefficiencies of delivery with
consequent cost and time penalties. The history of
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very broad range of procurement methods and techniques are employed, sometimes involving the commercial contract partner in some aspects of the
funding or resource provision;
success criteria are many and varied, often particular
to a stakeholder's perspective, and are commonly of
a non-financial, qualitative nature relating to such
matters as functional satisfaction, aesthetic merit,
environmental improvement, or hazard removal;
the project cycle is conducted within the public
domain and is subject to formal review and evaluation by statutory bodies and informal scrutiny by
stakeholders and interested parties.
The impact of these features is to create a project
culture in which the majority of risk outcomes which
occur have their causes, and most importantly their
effects, beyond the scope and terms of reference of the
project itself. When attempting to analyse risk in these
circumstances it becomes difficult to distinguish
between single and multiple events, to identify where
there is an interaction of risk events, and even to separate cause from effect. What becomes evident, however, is that the impact of risks which arise in public
sector capital projects is capable of extending beyond
the current project which is the vehicle for the risk
event and into other projects of the organisation, into
the general operational activities of the organisation,
and beyond the boundaries into the constituency of
users, dependants, clients, and consumers. These
impacts may include:
project cost overrun causing deferment or even cancellation of other projects within same funding
period;
project time overrun causing operational difficulties
due to unavailability of new or improved facility or
service, or to evolution of changed operational practices now incompatible with facilities created;
project performance criteria not fully achieved
resulting in inadequate operational support, consumer dissatisfaction, or perpetuation of hazardous or
unacceptable conditions;
perceived inadequate project performance causing
erosion of stakeholder confidence in project delivery
service to disadvantage of other projects.
Negative aspects of inadequate public sector capital
projects are often long lasting and widespread and
penetrate deeply into the associated activities of the
project sponsor and beyond into everyday community
experiences. A House of Commons Committee Report
into the troubled history of the building of the new
British Library concluded that the project has failed to
provide the nation with the building it deserves.
jects centres upon issues of social responsibility, in particular as to whether some projects should proceed at
all, the manner in which they should be conducted,
and the success criteria to be adopted for their contemporary and post-completion evaluation. Milton
Friedman's maxim l' that "the only social responsibility
of business is to increase its profit" can clearly not be
readily transferred to the public sector although the
obligation to behave in a manner which is economic in
the consumption of financial and material resources
can not be ignored. Covello '2, writing in the context of
risk management of safety in the nuclear power industries, expressed the view that despite an inherent distrust of public agencies the public has a greater level
of concern about managerial competence and conscientiousness than about specific risks, and that determining what is an acceptable level of risk is a value
judgement to be considered rather than a technical
issue to be resolved.
The development of alternative methods of procuring and managing public sector capital projects,
including the increasingly significant role of private
sector contractors in design, management, and consultancy roles, has changed the composition of the body
of stakeholders, and modified the ethical standards
and mission-based values of the project process. The
selection of project participants by the project sponsor
is a critical task as the cultures and values which a
range of experts bring to the project process will be a
significant determinant of the manner of delivery and
the risk profile of the project as success relies considerably upon the level of their performance. Chicken '3
identifies the selection of expert consultants as one
critical issue and describes the World Bank procedures
in this regard in which a consultant's suitability is
judged on the basis of three weighted factors: the
firm's general experience, their work plan, and their
key personnel, with a greater weighting being applied
to the latter. Private finance initiatives and BuildOperate-Own-Transfer project types place contractors
in a different position than hitherto as they assume a
client role as well as that of a constituent member of
the supply process.
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improved mechanisms for disseminating project experiences such that design, planning, and management procedures may benefit from a continual
learning process.
References
Conclusion
Public sector capital projects are characterised by an
emphasis on prescribed methods of delivery which, in
principle, are designed to facilitate rigorous standards
of control and promote indicators of measurable performance. In practice, however, the history of the performance of such projects in general, and certain
notable projects in particular, has indicted a less than
satisfactory level of performance resulting in substantial cost and time overruns, inappropriate project outcomes, and significant secondary effects in terms of
disruption and frustration of operational and strategic
activity.
In recent years dramatic changes have taken place
to the operating environments of public projects in the
form of organisational restructuring, the adoption of
innovative and novel procurement and contracting
arrangements, and the influences arising from the
raised profile of a heterogeneous group of stakeholders
who have become advocates of new measures of project success. The delivery of successful projects has
resulted in the process becoming exceedingly complex
and presenting demanding managerial challenges.
There is an overwhelming need for a markedly
improved system of risk management which identifies
and analyses those risks which may occur within the
very broad sphere of influence of a major project,
including the impact which is likely to occur beyond
the parameters of the project process. The benefits to
be derived from this would be:
clearer and better informed perceptions of the types
of risk, their range of impact, and the interactions
which occur firstly amongst risk outcomes, and secondly within the broad context of the project including secondary outcomes;
improved and refined ways of recognising risk
impacts, in particular the effects of the 'soft issues'
which arise from human behaviour and intervention
in the project process;
superior means of developing contingency arrangements to mitigate the negative effects of project failure upon the functions and processes of the sponsor
organisation and the expectations of stakeholders;
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20.
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