Tenders are in different formats Difficult to compare tenders
Require schedule formats for critical data
Nominate format for other responses
Consequences
Risk measures
Insufficient or inadequate information
provided on which to base tender
Poor pricing
No responses
Inadequate design
Initiate early contact with utilities
Provide all known and available
information to tenderers
Include PC provisions for third party
costs
Total project costs not identified
Low construction but high overall
project costs
High construction but low overall
project costs
Conduct discounted cash flow analysis
of total project costs
Ensure appropriate risk apportionment
Include statement of assumptions in
tenders
Include schedules for tenderers to
break up their costs
Tender exceeds the cost limit for the
project
Project not viable
Review project or DCM concept
including the following:
• Funding
• Concept
• Design
• Scope
Design is deficient
Legal problems/unclear liability
Reduced asset life
Safety problems
Inconsistent with user expectations
Develop a review/ acceptance process
Ensure code and performance criteria
compliance
Pay for changes requested
Project construction adversely impacts Community resistance on
local community because of: Poor project image
• Access
• Noise
• Dust
Limit types of construction equipment
to be used
Require a sedimentation control plan
for construction and operation
Document standards to be maintained
during construction in tender
Comply with EPA requirements
Maintain community information and
liaison
Maximum permissible axle loadings Reduced pavement life
increase Increased maintenance cost
Structural damage
Obtain increased funds for
maintenance
Contractor’s ongoing financial viability Bankruptcy
Takeover/merger
Lower maintenance activity
Require ongoing bond from contractor
for maintenance costs
Include step in rights and criteria in
contract
Include termination rights and criteria
in contract
Risk
Case #2 Commercial budget and business plan
Proposal familiarisation
An Australian communications equipment and service provider had prepared a business plan and budget
for the next financial year. The objectives were to:
• reduce costs
• withstand an anticipated substantial increase in competition, and
• generate a significant improvement in profitability.
Management was concerned that the key risks had been addressed adequately in the business plan and
that the budget projection was reasonable.
Assessment criteria were:
• the level of profitability, and
• the level of residual risk to which the company was exposed.
Key elements of the project were the main revenue and expenditure items in the budget.
Risk analysis
Risks were identified in a workshop involving the senior managers of the company. Examples
of risks are shown in the tables.
Likelihoods, consequences and risk priorities were not identified separately. Risk priorities were assessed
directly by the responsible managers
1 Increased competition Major (likely, severe impact): develop action plan as key part of the Marketing Plan
2 Price changes Moderate (result of Item 1): monitor
3 Negative customer price perception Moderate: include in Marketing Plan
4 Lack of product penetration Minor (mature product)
5 Competing product, product substitution Major (related to Item 9): review with R&D and include in
Marketing Plan
6 Shift in pattern of demand Moderate (unlikely but high impact): monitor
7 Slow fault correction response Moderate: include monitoring in Operations plan 8 Industrial action
Major (due to staff reductions): include in HR Plan 9 Technological change Major: include with Item 5.
10 Fee for service leakage Major (likely, potentially large impact on revenue)
11 Price change processes inadequate Moderate (large impact): review
12 Insufficient cross-selling Moderate (likely, but low impact): include training in HR Plan
Risk Management
Options for managing risks were developed by the senior managers in a team workshop. The following
table summarises the responses to Item 10, the fee-for-service leakage risk (revenue loss from under-
charging by customer service personnel), and the recommended actions.
Risks
Risk ranking
Management plans, which were in effect risk action schedules, came to form an important part of the
Business Plan. The table shows responses to risks in one area may appear in the action plans of several
different managers. The action proposed included provisions for monitoring and reporting together with
progress and completion dates.
Risk action schedule (extract)
1 Managers to identify sources of leakage Review Fee-for-service usage and billing, to be assessed by
managers responsible
2 Better QA QA Manager tasked to ensure billings aspects covered in
procedures
3 Improve computer systems to link work and MIS Manager tasked to provide feasibility estimates for further
account records assessment
4 Show staff how loss can be measured Incorporate in staff training
5 Follow up and audit fee-for-service quotes Delay action until tasks 8.1.1 and 8.1.3 completed
6 Contract out activities Not feasible yet, no current action
7 Provide additional training and support Training Manager tasked to modify training for relevant customer
service staff
10
Fee for service leakage: Major risk
Risk measures
Management actions
