Risk Management Case 1: 2012 Olympics 3
• Background: 3
• Risk Management Planning: 3
o Inputs: 3
o Output: 3
• Identify Risks 4
o Inputs: 4
o Tools and Techniques: 4
o Output: 5
• Perform Qualitative Risk Analysis 5
o Input: 5
o Tools and Techniques: 5
o Output: 6
• Perform Quantitative Risk Analysis 6
o Input: 6
o Tools and Techniques: 6
o Output: 6
• Plan Risk Responses 7
o Inputs: 7
o Outputs: 7
• Monitor and Control Risks 8
o Input: 8
o Tools and Techniques: 8
o Output: 8
Case study 2: The World Island 9
• About Nakheel Properties: 9
• Literature Review: 10
• Context setting: 11
• Main Body: 11
Failure to manage Risk is considered to be the most striking feature in project failures. Any project with great resources fails, if the risk is not properly managed by the Organization or Organizing committee. The success of a project depends on how well the risk is mitigated. Hence, risk management led to their success or failure.
Risk Management Case 1: 2012 Olympics
London Olympics 2012, are one of the biggest ever Olympics in the World. They were the 30th Modern Day Olympics since first in 1896 in Athens.
The Olympic was a master piece of successful Project management work in the World. The event concluded with no major issues. It was not that there was no risk in organizing the Event, but management of risk was done in the most precise way and we could witness the greatest even of the century till now.
Risk Management Planning:
The Olympics are often considered to be a showdown of power by the host nation. The Olympics in 2008 were a proof for China and hence it was a challenge for the London Olympics 2012 to repeat the success. The challenge was not only limited to organize and host the Olympics but also to manage all kinds of risks evolved in the host. The risk was not limited to finance but also there were risks of terrorist, transportation, natural issues glooming around. Since winning the bid, London had witnessed terrorist attack, power problems, etc. The 1996 Olympics is considered to be the nadir of organization of any modern Olympics. There were bombings in the city, and they were followed by logistics and transport problems and over commercialization. The motto of the Olympics is to conduct an Olympics with excellence in sports and spreading humanity and brotherhood through sports.
Risk Management Plan:
Methodology: Learning from past events would be considered. The external and internal environments would decide risk management.
Roles and Responsibility: A stakeholder team was formed in London. It consists of Government, the Mayor of London and the British Olympic Association. This committee would take care of the risk management of the Olympics.
Budget: The total budget for risk management was 109 million Pounds
Olympic Objectives Low Medium High
Cost Least concerned Marginal Growth in Cost High increase in cost
Time Complete on time Some facilities running behind Huge pressure to finish before the Opening ceremony
Scope No impact Few glitches in the Operations Called as failed event, E.g. 1996 Atlanta
Quality Marginal Impact, not much concerned There are marginal glitches in operational front of the Olympics. A negative impact on UK as they would lose credibility to host International events. The Olympics operations would suffer the most.
To identify risks, the Organization Committee used experiences of all past Olympics. They also used the external and internal environment of the City of London and the UK including security threats, past accidents, global issues, etc. The risk management plan made was further used to identify risks.
Tools and Techniques:
SWOT analysis of London 2012:
• The infrastructure is 60% already present in the City of London
• Government is ready to fund the Olympics. Even the Majesty Treasure has been approved for funding the mega event. Weakness:
• Many sponsors backed out before the Olympics commenced.
• The event would be the biggest mega sports event.
• It would bring a lot of revenue through tourism. Threats:
• The Olympics is considered to be the best place for global issues
• Terrorist threats are major security concern in these kinds of mega events
The infrastructure of the Olympic Games is better and hence, it is low risk. The problem in the finances caused by Sponsors are somewhat removed due to government funding. It has an opportunity to be known as the biggest event in the world surpassing the last Olympics in China, but has various threats like Terrorism, protests, internal security, etc. that could bring down the glory of the Olympics.
Security Can create chaos and cancellation of events
Human diseases Catastrophic effect of human beings. The Olympics could be cancelled.
Financial Risk Over budget, loss to IOC
Transport Difficulties in operations and impact on city life
Logistics Smooth operations is a difficulty
Sponsorship Lack of sponsorships might affect the profitability as the Olympics make money through Sponsorships only
Exchange Rate The Olympics Committee would either gain or lose financially if exchange rate fluctuates strongly
Infrastructure Poor infrastructure might cause some collapse of infrastructure during the Olympics.
Perform Qualitative Risk Analysis
The information from the Risk identification is used to further perform qualitative analysis of the risk. For this method, each risk is qualitatively analysed to analyze its probability and impact.
Tools and Techniques:
The probability and impact matrix was created to measure the kind of risks.
Probability Very High
High Transportation Sponsorship Cost
Medium Exchange Rate Fluctuation Logistics Security
Low Human Endemic Disease
Very Low Infrastructure
Very Low Low Medium High Very High
Risk Implication Impact Probability Risk Score
Security Can create chaos and cancellation of events Very High Medium High
Human diseases Catastrophic effect of human beings. The Olympics could be cancelled. High Low Medium
Financial Risk Over budget, loss to IOC High High Very High
Transport Difficulties in operations and impact on city life Low High Medium
Logistics Smooth operations is a difficulty Medium Medium Medium
Sponsorship Lack of sponsorships might affect the profitability, as the Olympics make money through Sponsorships only Medium High High
Exchange Rate fluctuation Olympics Committee would either gain or lose financially if exchange rate fluctuates strongly Low Medium Low
Infrastructure Poor infrastructure might cause some collapse of infrastructure during the Olympics. Very Low Very Low Very Low
Perform Quantitative Risk Analysis
The risk assessment done in the qualitative techniques is used to identify the core risk through quantitative methods in this analysis. Each risk is given numerical probability and impact
Tools and Techniques:
Quantitative analysis of each risk was done to estimate the impact of each risk.
The risk register can identify the risks with the numerical probability of occurrence and impact of risks.
Risk Implication Impact (0-1) Probability (0-1) Risk Score
Security Can create chaos and cancellation of events 1 .6 .6
Human diseases Catastrophic effect of human beings. The Olympics could be cancelled. .8 .4 .32
Financial Risk Over budget, loss to IOC .8 .8 .64
Transport Difficulties in operations and impact on city life .4 .8 .32
Logistics Smooth operations is a difficulty .6 .6 .36
Sponsorship Lack of sponsorships might affect the profitability as the Olympics make money through Sponsorships only .6 .8 .48
Exchange Rate The Olympics Committee would either gain or lose financially if exchange rate fluctuates strongly .4 .6 .24
Infrastructure Poor infrastructure might cause some collapse of infrastructure during the Olympics. .2 .2 .04
Plan Risk Responses
All the external and internal data, past experiences, environment data and qualitative and quantitative risk analysis were used to plan a risk response strategy for London 2012
Tools and Techniques:
The risk were categorised in to negative and positive risks. The plan was to mitigate negative risks and enhance positive risks.
Negative Risks: Increase in Cost, Security, Transportation, Human Endemic diseases, Infrastructure, Logistics, Decrease in Exchange rates and Loss of Sponsorships
Positive Risks: If the exchange rate increases (i.e. the value of Pound decreases in the term of Dollars) then the Olympic Committee would benefit from it. In that case as because of better rates, they would get more money from sponsors as for each Dollar they would get more pounds.
Updated Risk Register:
Risk Implication Impact (0-1) Probability (0-1) Risk Score Response Plan
Security Can create chaos and cancellation of events 1 .6 .6 13000 Police and Army force. Use of Navy and Air Force equipments
Human diseases Catastrophic effect of human beings. The Olympics could be cancelled. .8 .4 .32 Medical checkups of all visitors
Financial Risk Over budget, loss to IOC .8 .8 .64 Budget increased to 9.3 billion
Transport Difficulties in operations and impact on city life .4 .8 .32 Additional Budget for Transportation improvement
Logistics Smooth operations is a difficulty .6 .6 .36 Additional budget for logistics
Sponsorship Lack of sponsorships might affect of the profitability as the Olympics make money through Sponsorships only .6 .8 .48 The London Olympics Act, 2005 incorporated to safeguard interest of Sponsors
Exchange Rate The Olympics Committee would either gain or lose financially if exchange rate fluctuates strongly .4 .6 .24 Introduced Hedging Contracts
Infrastructure Poor infrastructure might cause some collapse of infrastructure during the Olympics. .2 .2 .04 Both Government and Olympic committee decided to invest in infrastructure improvement.
Monitor and Control Risks
For monitoring and control process, all the information gathered, stored and created was used like risk register. All the previous Olympics were used as learning examples.
Tools and Techniques:
Different bodies and teams were created to monitor and control risks.
• Counter Intelligence team was formed.
• Audit Body (Olympic Delivery Authority) was formed
Updated risk register:
Risk Implication Risk Score Response Plan Final effects
Security Can create chaos and cancellation of events .6 13000 Police and Army force. Use of Navy and Air Force equipments No major security lapse during the whole duration.
Human diseases A catastrophic effect of human beings. The Olympics could be cancelled. .32 Medical checkups of all visitors No break of any endemic disease
Financial Risk Over budget, loss to IOC .64 Budget increased to 9.3 billion The Olympics was managed by International Olympic Committee and Government
Transport Difficulties in operations and impact on city life .32 Additional Budget for Transportation improvement Apart from initial glitches, it was without any big issues
Logistics Smooth operations is a difficulty .36 Additional budget for logistics The Olympics concluded smoothly
Sponsorship Lack of sponsorships might affect the profitability as Olympics make money through Sponsorships only .48 The London Olympics Act, 2005 incorporated to safeguard interest of Sponsors Barring few sponsors, all remained with Olympics
Exchange Rate The Olympics Committee would either gain or lose financially if exchange rate fluctuates strongly .24 Introduced Hedging Contracts The fluctuation did not affect the Olympics
Infrastructure Poor infrastructure might cause some collapse of infrastructure during the Olympics. .04 Both Government and Olympic committee decided to invest in infrastructure improvement. Most of the stadiums were praised for great infrastructure
Case study 2: The World Island
About Nakheel Properties:
Nakheel Properties is one of the largest Real estate companies in UAE. Nakheel is an Arabic word for Palm tree. Nakheel is known for several projects based on land reclamation. Some of its most exciting projects include the Palm islands in Dubai, the Dubai waterfront, the World Island and the Jumeirah Islands. The palm islands in Dubai are the grandest architecture work accomplished by Nakheel Properties.
The Organization is known for creating grand architecture masterpieces by land reclamation. The vision of the Organization is very clean:
“To create a world class destination for living, business and tourism” (Nakheel.com, 2014)
Nakheel Properties is one of the companies working under the bigger brand Dubai World. It is a Government Organization and chaired by present ruler of Dubai; Sheikh Ahmed bin Saeed Al Maktoum. Living true to its vision, Nakheel has actually created world class destinations. Their projects are combination of vision and architecture brought together. The initiated another master class project known as “The World Island.” This project was initiated in 2003. It is an archipelago of 300 islands giving it a shape of Earth about 4 KM from Dubai coast.
The issue with the Project:
The project came to a sudden stop in 2008 after Dubai financial crisis. There have been over 60% of the islands being sold already, but still none of them have been completed even after being sold 5 years back.
Construction projects are developed in a very risky and uncertain environment, where the idea of doomsday is as active as success chance. Time, money and quality are considered to be the top reason for failure of any project (Al Bahar and Cradall, 1990). The risk management in the construction projects is generally used to measure risk due to over cost and time. But, project managers are too preoccupied with the work that they can’t implement these risk management techniques (Carr and Tah, 2001).
Risk management is to minimize the risk and maximize the profit through better decision making (Mengesha, n.d.) Mengesha also described the risk management process in the construction business.
Mengesha divided the process into 3 processes and called them Establishing context, risk assessment and risk treatment. According to Mengesha (Mengesha, n.d) cost and time delay are two important factors in construction projects for risk identification. The risk assessment is further divided into 3 sub categories of risk identification, risk analyzing and risk evaluation. The final process is called as risk treatment.
The risk identification process should include brainstorming to identify all the possible categories in the construction business like commercial risk, financial risk, legal issues risk, human factors risk, political risk and environment risk (Holden, 2009). The risk identification is succeded by risk analyzing process. In this process, risks are analysed through two components of probability of occurance of the risks and the damage caused by the risk. Mengesha described qualitative and quantitative methods to perform the action of risk analyzing (Mengehsa, n.d).
Mengesha said that the combined effect of probability and affetcs should be taken into account to rank the risk and prioritize them accordingly for treatment. This way the most important risk is ranked highest and so on. Once the risk has been prioritized they should be treated through implementation and monitoring. These implementations should be done as per above analysis, and then, they should be monitored to see the effect. Finally, it should be communicated to key stakeholders (Mengesha, n.d).
Nakheel started the dream project of “The World Island” in 2003. It was supposed to be completed in 2008. The problems begin when they could not develop a single island till 2008 and still they sold over 60% of the islands to private developers. The total budget of the project was around 14 billion US Dollars. The biggest blow to the Organization came through the Dubai real estate crisis of 2008. Nakheel was not prepared for these crises. Further, individual buyers have complained that they have islands but no infrastructure to develop these islands. Hence, the cost of the project has escalated. They never took providing infrastructure into account and buyers believed that it would be borne by Nakheel.
When Nakheel decided to launch the dream project of “The World Island”, people all around the globe were impressed by the concept. They believe in Nakheel as they had delivered many projects before that were very different in the ideation. The fact that Palm Island was highly appreciated as a human wonder added more trust on this new project. It all started smoothly in 2003. World was waiting for 2008 when the Project was to be completed. Nakheel had already finished its homework. The team was ready and aspects were covered or thought to be covered. There was a team of project manager, risk management, controller, etc. All went right till 2008 when the ground reality hit the world. Out of 300 Islands, that were supposed to be developed into a beautiful man creature in the ocean, only one has been developed and other 299 are barren land with forty degree temperature. There is no construction taking place on any other island. Now moving forward to 2014, the picture is still same as only 2 islands are complete and others are still barren.
So what happened in reality?
The biggest factor that crushed the project is Dubai real estate crisis. But, the big question is that why was Nakheel not prepared for it. It is into real estate business, so why they didn’t see this coming was it an improper risk assessment. Using the literature review as our source let’s define the risk in the project:
Risk Probability Impact Effect
Cost going high High Very High Project can be halted. There might not be enough money to sponsor the project
Construction delay High High The construction may get delayed as the project is huge in scale
Logistics High High There was no road connectivity to the islands hence it would be difficult to develop them as the material transportation was a big risk and time consuming via sea.
Failure is risk assessment:
Cost: The risk management team failed to calculate the risk due to the economical environment. There was no provision for any risk management for the economic slowdown. Worst, the economic slowdown in Dubai was caused by real estate. Hence the whole industry had a setback. The market crashed and real estate prices dipped. There were no takers for the project and hence the project doomed. Many private owners wanted to sell the Islands but there were no takers.
Time: Another risk management failure comes for the Organization as they could not develop the island as planned. The financial crisis came in 2008, but still till 2008 there was only one island completed. The time of completion of the project went and only one out of 300 Island was complete. The issue here was the legal issue between private contractors and Nakheel. Nakheel did not provide any kind of infrastructure to them for completion of the project and they had no facility to complete the work without assistance of Nakheel. No one could foresee it in 2003, and it became a baggage for Nakheel in 2008.
Construction issues: The project was initiated by pouring sand in the shallow sea. It had all kinds of scientific calculations, but still they failed to realize that the island may sink. The construction of the island failed to analyze this risk and in last few years there are independent researches showing that many islands are sinking. There is no provisional plan to save these islands. In fact, Nakheel is clarifying that no island is sinking and the reports are baseless.
Nakheel is one of the most innovative construction companies in the World and not just UAE, but they failed to analyze the risk management aspect of the Project of the World Island and hence they failed. They had no solution to the issues that came. They failed to rectify them even in 6 years as they had no plan for these risks. They may deny it but the reality would remain same.
Projects fail and succeed due to many different reasons. These reasons vary from industry to industry, but some of them are same for all industries including risk management. Risk management can hamper the project in a big way. Many organizations spend their time, money, and human resources to handle risk management properly so that they do not face undue problems. From the two case of Olympics 2012 and The world Island, we have seen that how a multinational and Organizational event was handled and managed properly due to proper risk management and how a big construction project was blown away by a reputed Organization in UAE just because they never anticipated some changes as risk management failed to gauge them.
Nakheel did the biggest mistake when they did not have any response plan for Risk failure. Their website is still not updated since 2008 and this shows that the operations of the project have been a failure and the whole team of operations failed. Nakheel should have gone to its business associates at the time of financial crises and seek their financial help to at least complete the project. They could have insured the project against any financial losses. They should have been a contingency monetary fund for the project in the way Olympics committee had for Olympics 2012. Still they are not providing any assistance to the individual developers and this would hamper the sales of 30% of the islands still left unsold. They should provide infrastructure for these developers to develop their individual islands.
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Trenwith, C. (2013). Second The World island owner hits out at Dubai’s Nakheel. Arabian Business. Retrieved 12 May 2014, from http://www.arabianbusiness.com/second-world-island-owner-hits-out-at-dubai-s-nakheel-492857.html#.U3MY0fmSxOx