The BAA Terminal 5 Programme at Heathrow Airport is currently one of the largest development projects in all of Europe. After it is finished, the ai

Executive Summary

The BAA Terminal 5 Programme at Heathrow Airport is currently one of the largest development projects in all of Europe. After it is finished, the airport will be able to handle an additional 30 million passengers and 1,000 more planes every year. An investment of 4.2 billion, the airport will welcome its first passengers on March 30, 2008.

This report seeks to evaluate the case study, applying literature review on risk management to create a unique risk management plan for the project with key performance indicators (KPIs), provide the detailed implementation of the risk management process, apply the Monte - Carlo Simulation in this context, and reflect on the personal learning via this project.

Table of Contents

Executive Summary ...2

1.Introduction.....4

2.Bespoke Risk Management Plan for the case study of BAA Terminal 5 with KPIs4

3.Implementation of Risk Management for BAA Terminal 5 Project..6

4.Application of Monte Carlo Simulation in the context of BAA Terminal 5.........10

5.Conclusion and Recommendation........................................................................11

Reference..........................................................................................................................13

Appendix

Appendix 1: Personal reflection.......................................................................................14

Appendix 2: Risk management plan of the team.............................................................14

Appendix 3: Risk register of the team..............................................................................15

Appendix 3: Group presentation ....................................................................................15

Introduction

Construction project planning and management must include risk management. Risk management studies and handles building concerns. Financial, ecological, economic, and physical hazards exist. Risk management identifies, assesses, and mitigates possible hazards to a project's success (Iqbal et al., 2015).

BAA Terminal 5 Programme at Heathrow Airport is one of Europe's largest development projects. Its completion will enhance terminal and airplane parking capacity by 30 million people yearly. BAA's 4.2bn airport opens on March 30, 2008.

Due to its massive scale, this report aims to evaluate the case study, thus applying literature review on risk management to develop a bespoke risk management plan for the project with KPIs, provide the detailed implementation of the risk management process, and apply Monte Carlo Simulation in this context.

This project report reviews a case study and relevant research articles to present a 1) customised risk management framework, 2) risk management framework execution using suitable tools and techniques, and 3) Monte-Carlo simulation to assess contract options.

Bespoke Risk Management Plan for the case study of BAA Terminal 5 with KPIs

To describe and isolate the essential components of generic risk management, numerous frameworks have been developed. The most famous one is the seven-step process of risk management, which has been outlined by PMI (2017) (Tummala et al., 2011).

Figure SEQ Figure * ARABIC 1: Seven Step Risk Management Process (Tummala et al., 2011)

According to the figure 1, there are seven steps in risk management, including understanding the context, risk identification (listing potential risks), risk analysis (evaluating frequency of risks) , risk assessment (using matrix to assess level of risks), adoption of optimal risk strategy, risk monitoring and controlling, and evaluation of the risk management plan thus establishing the new context. Apart from seven step processes, there is other risks management plan including only five steps: planning, identifying, analyzing, responding, monitoring and controlling. However, it is critical that these processes be updated consistently to create the best possible and precise risk management plan.

When it comes to risk identification, risks can be classified in different types as follows

Figure SEQ Figure * ARABIC 2: Risk identification in mega construction projects (Banerjee et al., 2021)

Applying this risk classification boards, the team has identified four key risk areas in the BAA Terminal 5 Project, including procurement risk, contract risk, commercial risk and performance risk (Banerjee et al., 2021). As can be seen in the table above, each of the risk areas is attached with key performance indicators to measure, which are displayed in the last column of the table.

Figure SEQ Figure * ARABIC 3: Bespoke Risk Management Plan (Source: author team)

Implementation of Risk Management for BAA Terminal 5 Project

The structure described above will serve as the basis for implementing the risk management strategy for the BAA Terminal 5 project.

At this point, the author has already identified the four primary risk categories, namely procurement, contract, commercial, and performance.

After identifying the primary risk areas, the team utilized historical data and information from the case study, as well as examined future case scenarios, to construct the following risk breakdown structure for BAA Terminal 5.

Figure SEQ Figure * ARABIC 4: Risk breakdown structure (source: author team)

As seen in Figure 4, each important risk category carries its own unique dangers. However, numerous dangers in distinct risk categories may be interconnected. For instance, the risk of delays in meeting team objectives in the performance risk area might be related to the risk of being unable to pay off commitments following the conclusion of the project due to inadequate revenues.

Next, risks are appraised using established criteria. After conducting a thorough assessment and analysis of the hazards involved, a unique risk rating might be assigned to each danger. Risk assessment is "the process of estimating the likelihood and severity of an unfavorable event's possible impact on a project's planned objectives" (Aven, 2016). In addition, there are other techniques to build a numerical score matrix utilizing mathematical operations (Ni et al., 2010). PMI (2017) stated, however, that an objective-based impact scale is required. Ultimately, a risk rating may be determined as a function of probability and impact.

Regarding risk analysis for BAA Terminal 5, the team has effectively designed a matrix to evaluate risks based on the risk's impact and likelihood. In addition, the team assessed the risk on a five-point scale based on the probability and effect of hazards, so categorizing the grades as low risk, medium risk, and high risk.

Figure SEQ Figure * ARABIC 5: Risk assessment matrix (source: author team)

Based on the assessment of the risks, the team can grade the risk level, thus developing risks response strategy. A risk response strategy plays an important part in risk management plan. The risk response strategy aims to properly treat the potential identified risks, thus improving the outcomes of the projects. There are four distinct forms of risk response, including avoid, accept, mitigate, and transfer (Pinto, 2016). The focus of this report, however, will be on transfer and mitigation. A detailed risk response strategy is displayed in the following risk register, which can be understood as a document that records all the identified risks of the project, its assessment results and actions to be taken to mitigate or transfer the risks as follows .

Figure SEQ Figure * ARABIC 7: Fishbone diagram for BAA procurement problems (source: author team)

The procurement fishbone diagram has described the origins of the process's issues in a simple and straightforward manner. Contractor issues, environmental concerns, delays in the project's completion, issues with the RS governments, and disputes over who has the power to issue contracts are the five most pressing concerns (Ilie et al., 2010). The fishbone diagram is developed based on the information provided in the company and other secondary research, thus the effectiveness and accuracy can be limited due to the fact that it can be affected by subjective thought in the previous research.

Application of Monte Carlo Simulation in the context of BAA Terminal 5

Monte Carlo Simulation Method is developed to establish the potential outcomes resulting from an uncertain event by determining risks factors affecting the operations. Therefore, this method will enable the manager to make decisions on the operations by using graphic presentation (Harrison, 2010).

As the risks identified in the BAA Terminal 5 project are uncertain, Monte Carlo model would be a best suitable tool to measure the risks.

Figure SEQ Figure * ARABIC 8: Schedule risk of BAA Terminal 5 (Source: author team)

The Monte Carlo model will begin its analysis of the project by establishing a probability distribution for the deliverables, which are the project's critical variables. Then, for each variable, a cumulative probability distribution and interval of random numbers are determined. Based on this, the model will generate random numbers through a series of tests to determine the results, therefore presenting a clear picture of how the plan will be implemented (Rubinstein et al. 2016).

Regarding the most crucial aspect of BAA-H5 contract administration, there are two contract kinds to consider. There were two sorts of contracts, as outlined by Cooper et al. : fixed price and cost plus (2014). It was discovered that fixed price provides greater risk management for the BAA, whilst cost plus pricing provides superior risk management for suppliers. However, it was emphasized that BAA had entire control over the deal. The BAA opted for a cost-plus contract structure. It is essential to comprehend BAA's decision-making process in light of the alternatives offered (Irvine et al., 2015).

By applying simulation techniques like Monte-Carlo, the risk of budget overruns and missed deadlines may be minimised (Heizer et al., 2017). Figure 2 illustrates how historical data analysis may be utilized to estimate the best-case scenario, the worst-case scenario, and the predicted variable input for delivery delays of important vendors. This could also be accomplished with other tools, but the capability of this simulation to run with thousands of random number generations improves the precision of the probability estimations (Eele et al., 2013).

Figure 8 indicates that if the project is completed within 42 months, there will be an 80% likelihood and a 20% risk. Simulation might be used to determine the monetary effect of this risk. BAA may opt to implement a fixed-price contract if historical data and Monte Carlo simulations indicate that the project's completion risk is significant. If it is 20%, which is somewhat over the industry average, BAA may opt to enter into a cost-plus contract in which the related risk is distributed over a greater sum. BAA's choice to employ a cost-plus contract and the related mitigation techniques, which included giving contractors with strong incentives and moving some risk to insurers, was supported by a detailed examination of the case. Prior to reaching a final choice on the contract type, it is the responsibility of the project management group to evaluate the simulation's qualitative and quantitative outcomes (Callegari, Szklo & Schaeffer, 2018).

Conclusion and Recommendation

To sum up, BAA's innovative method of risk management allows them to investigate the inner workings of a supplier and its pricing policies. Given the dangers involved with working with a tier 2 or tier 3 contractor, BAA includes stipulations about how tier 2 suppliers should be engaged in their contracts with tier 1 contractors. To avoid passing the delivery risk onto T5, BAA does not want to award fixed-price contracts to its most important suppliers in areas with a high potential for failure.

Several recommendations for the project can be displayed as follows. First, the manager should appoint an expert group to solicit feedback, keeping in mind the project's breadth and the complexity of associated processes like procurement and contracting, then create a long-term strategy for managing human resources for efficient operation. Moreover, cost plus and fixed profit contract systems could be an attractive choice for projects with a high degree of risk and scope complexity, and penalties and a formalized legal framework could be implemented for subcontractors.

Reference

Aven, T. (2016) Risk assessment and risk management: Review of recent advances on their foundation, European Journal of Operational Research, 253(1), pp. 1-13.

Banerjee Chattapadhyay, D., Putta, J., & Rao P, R. M. (2021) Risk Identification, Assessments, and Prediction for Mega Construction Projects: A Risk Prediction Paradigm Based on Cross Analytical-Machine Learning Model, Buildings, 11(4), pp. 172.

Callegari, C., Szklo, A., & Schaeffer, R. (2018) Cost overruns and delays in energy megaprojects: How big is big enough?, Energy Policy, 1(14), pp. 211-220.

Eele, A. J., Maciejowski, J. M., Chau, T., & Luk, W. (2013), Control of aircraft in the terminal manoeuvring area using parallelised sequential Monte Carlo, InAIAA Guidance, Navigation, and Control (GNC) Conference, 3 (4), pp. 52 - 57.

Harrison, R. L. (2010, January) Introduction to monte carlo simulation. In AIP conference proceedings (Vol. 1204, No. 1, pp. 17-21). American Institute of Physics.

Ilie, G., & Ciocoiu, C. N. (2010). Application of fishbone diagram to determine the risk of an event with multiple causes, Management research and practice, 2(1), pp. 1-20.

Iqbal, S., Choudhry, R. M., Holschemacher, K., Ali, A., & Tamoaitien, J. (2015) Risk management in construction projects, Technological and economic development of economy, 21(1), pp. 65-78.

Irvine, D., Budd, L. C., & Pitfield, D. E. (2015). A Monte-Carlo approach to estimating the effects of selected airport capacity options in London.Journal of Air Transport Management,4 (2), pp. 1-9.

Rubinstein, R. Y., & Kroese, D. P. (2016),Simulation and the Monte Carlo method, John Wiley & Sons, 3(2), pp. 17 36.

Tummala, R., & Schoenherr, T. (2011) Assessing and managing risks using the supply chain risk management process (SCRMP), Supply Chain Management: An International Journal, 16(6), pp. 474-483.

Appendix

Appendix 1: Personal reflection

In this project, I have contributed to identifying key risk areas of the project, and developed fishbone diagram of the procurement problem, thus clarifying the root causes as well as their effect on the procurement strategy of the project. Reflecting on my teamwork in this project, I learn a lot about the project management process, especially risk management of construction projects, and understand different project management tools, thus being able to apply the Monte Carlo Simulation method to a project. I do not only learn about project management tools and techniques but also learn soft skills such as group working and leadership skills. During the group working, I learn to help other team members as well as learn how to ask people for help. For instance, at first, I do not know how to draw the fishbone diagram, thus I asked another team member to teach me that. In return, I helped him on reading the case and determining the main points, thus identifying the key risk areas. Also, I learned how to manage time effectively and efficiently to meet the group deadline. Based on the skills learned in this assignment, I will be able to update my resume about these skills by describing this project and how I handled this project using these skills.

Appendix 2: Risk management plan of the team

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Appendix 3: Risk register of the team

Appendix 4: Group presentation