As changes in its domestic and global markets expose Murray & Roberts to increasing levels of risk, the Group has introduced a rigorous system to assess all new projects.

In recent years, Murray & Roberts has developed a framework that identifies strategic clarity and focus, strong leadership and discipline as key factors in the management of risk. The Group is now introducing specific initiatives to assess the risk of all new projects.

“Effectively, we are offering the corporate balance sheet to projects on the condition that they pass through the risk assessment process,” says Group CE Brian Bruce.

“Murray & Roberts has always had a red flag system to highlight unacceptable risks within a project – but this has not stopped people from bypassing the system and taking on projects which clearly exceeded the corporate risk appetite,” he says. Now, the red-flag system is being re-introduced and made a mandatory part of group procurement.

In terms of the system, every project tendered is evaluated against a number of criteria and flagged red, amber or green. A scorecard approach then determines which projects can proceed, which must be dropped and which can proceed only with rigorous monitoring.

About 80% of projects should naturally flow through, with about 20% requiring rigorous management. Any project awarded even a single red flag will be treated as amber and managed closely, irrespective of its overall rating.

Learning from mistakes
Murray & Roberts is involved in projects, such as San Stefano in Egypt, Khalifa Stadium in the UAE and Gorongoza road in Mozambique, which it may not have undertaken had the opportunity management system been in place.

Mistakes common to most of the problem projects have been: working in markets that were not properly understood, agreeing to work with partners who did not have the necessary capacity for the project, failure to conduct proper credit assessments of clients and undertaking design-build projects without exercising control over the design process.

“In these projects, we wandered outside the strict bounds of what we have the capacity to do and that created risk for us,” says Brian.

“We have learned painful lessons and we now have a process which is so important to our risk management that it will be audited regularly. The 20% of projects requiring close management will receive external supervision from a steering committee staffed from the corporate office.”

Leadership capacity
Murray & Roberts’ risk management capability has been strengthened considerably with the appointment of both Terry Rensen, whose primary role is to provide leadership and Dr Greg Ker-Fox, who is implementing the risk management framework. Greg combines an engineering outlook with a rare ability to identify risks in any project or environment.

Risk criteria

Country
Countries in which Murray & Roberts is considering working are risk-assessed. Factors such as an understanding of political, economic and social systems, culture, the business environment and whether Murray & Roberts has a trusted local partner in the country are all taken into account.

Nature
Projects in which Murray & Roberts does not have appropriate capability are classified as red. Large industrial or contract mining projects are generally green due to the Group’s experience and capability in this area. Projects, such as bridge-building, which are now rarely undertaken because of skills scarcity, are amber.

Client
The assessment of clients is based largely on creditworthiness and Murray & Roberts’ past experience. A company may be rated AAA, but if Murray & Roberts’ experience with it has been troubled, then the Group may classify it amber or even red. Similarly, while a country might be green, its government could be amber or red.

Professionals
To introduce some rigor and objectivity to this criterion, Murray & Roberts is currently rating all of the professionals it works with based on its past experience with them. This is particularly important in instances where the project design is done by a professional.

Partners
Murray & Roberts has a good record of successful partnerships. However, there are times when it may not have the choice of its partners in a project, as a result of client or BEE requirements.

Team
The capacity and capability of the project team is crucial and can be the main factor in the success or failure of a project.

Scale
Major projects carry significant risk which has to be offset by partners and financial consortia. But the involvement of many partners is also risky as they may have differing views on fundamental issues such as governance.

Smaller projects may also be risky because they require the investment of valuable resources which may be more effectively employed elsewhere.

In a recent move that will bring world class experience to the risk management of major projects, Murray & Roberts has appointed Balachandra (Bal) Panicker as group international projects director.

Bal was previously principal vice president and head of global mining and minerals at Bechtel in the US. He will play a key role in the establishment and oversight of major projects throughout Murray & Roberts. By Eamonn Ryan.