APPLYING RISK

MITIGATION
TECHNIQUES
by Mark Bridgers

uthor’s note: The Spring 2018 issue of the NUCA Business

A Journal featured Part I of my two-part Risk Management

article, which introduced the concepts of risk identification
and risk analysis as the first two steps in an effective risk
There were significant management system. Critical to this process in Part I was the use of the
Trees and/or Forest techniques to identify and analyze risks. A summary
differences in the perception
of these techniques is in the blue box on page 13. If you did not read
and mitigation of selected Part I you may want to read it first. Part II of the article, Applying Risk
Management Techniques, will explore these techniques and briefly review
risks among capital asset, how risk implement/control approaches are applied. The article will also
facility, and infrastructure explore how the perspectives of state or local agencies differ from utility
contractors and review their perceptions of risk and approaches to risk
owners, developers, and management.

various operators. Public

Risk Mitigation
agencies are more risk
An industry study conducted by the Construction Management Association
adverse and perceive many of America (CMAA) asked capital asset, facility, and infrastructure owners,
developers, and operators to respond to a series of questions regarding their
risks as having higher impact risk management philosophies and approaches. The study yielded insights
or higher frequency than other into how respondents perceived risk and chose to mitigate it. The owners’
method of mitigation has implications for utility contractors when these risks
respondents. This perception are transferred or ignored. The following general risk mitigation strategies
and insights were drawn from the CMAA study and demonstrate some of
creates an opportunity for
respondents’ flaws of risk mitigation: 1
utility contractors.
• Throwing Money at the Problem: 33% of the time, agencies or owners
request a budget increase as their primary risk mitigation strategy.

12 NUCA Business Journal | Summer 2018

• Application of Leverage: 75% of the time, agencies or TREE AND FOREST ASSESSMENT OF RISK MANAGEMENT
owners use some form of program-level purchasing
When assessing risk, analysis demands more than simply
power to transfer or manage project or program risks.
relying on traditional risk management techniques. Contractors
• Hammer Looking for a Nail: 25% of the time, agencies need to look at two distinctly different types of risk—Tree
or owners use the same strategy, tactic, or process to assessment and Forest assessment.
address both frequency and impact (severity) without
The Trees
recognizing the different challenges of each.
The Trees risk assessment approaches risks that tend to occur
• Black Swans Do Exist: Every risk presented in the survey
with frequency and severity and fall within three standard
for assessment was reported as generating a catastrophic
deviations from the expected mean. These risks tend to lend
impact to a construction project by more than one owner. themselves to traditional risk analysis and require robust
analysis, including at least four steps:
• Greatest Fear: Risks yielding some type of schedule
impact were rated with twice as many “major” and 1. Develop a robust list of risks. 2. Collect the necessary data to
“immense” impacts, indicating they were the most develop accurate forecasts of frequency and severity of these
severe and disruptive. risks using statistical methods like linear regression. 3. Develop
mitigation strategies and tactics where contractors, engineers,
• Size Matters: Large capital programs managers select an insurance professionals, and owners work collaboratively to
“accept and manage” strategy 70% of the time for the select the most robust risk management approach for each
risk types offered for assessment (50% more than the risk: accept and manage, accept and transfer, recognize and
smallest programs that “avoid” or “accept and transfer” ignore, or avoid. 4. Select a strategy or tactic to control the risk
nearly 60% of the time). or exposure to the risk.

• Risk Appetite Matters: Financial institutions, real-estate Once each of these steps is applied to the traditional risks,
developers, and sports authorities have the lowest risk it is necessary to step back and take a look at the “Forest”
appetite and frequently choose to “avoid” or “accept and of risks faced.
transfer” risk, while petrochemical companies, energy
The Forest
firms, and various types of manufacturers tend to show
the highest risk appetite and “accept and manage” risks The most immense and severe impacts during capital
frequently. construction projects are unpredicted (but not unpredict-
able)—infrequent events that happen with greater regularity
• Avoidance: 41% of time, when inability to effectively plan than anticipated. The Forest approach relies upon a scenario
is perceived as a risk, owners prefer to avoid the project planning technique to address difficult to define, nontraditional
through cancelation, delay, or removing the project from risks. These difficult to define and nontraditional risks tend to
the risk. be better understood and mitigated when applying the following
steps to them:
Regarding size and risk appetite, the study yielded a finding
of particular interest. There were significant differences 1. Develop a robust list of non-traditional or difficult to define
in the perception and mitigation of selected risks among risks. 2. Describe a set of environments or scenarios; typically,
capital asset, facility, and infrastructure owners, developers, a minimum of four and maximum of eight, in which construc-
and operators of various sizes and types. Public agencies, tion may take place in the future. 3. Focus on recognizing their
range of impact for potential for extreme type events in each
as a rule, are more risk adverse and perceive many of the
scenario (e.g. the price of ductile iron pipe will rise 100% over
risks described in Figure 1.9 as having higher impact or
the course of construction). 4. Create mitigation strategies
higher frequency. This perception creates an opportunity
and tactics for each of the scenarios. 5. Select strategies and
for utility contractors to differentiate their services, make potential tactics that address multiple scenario impacts from
alternative proposals, or in the case of pure lump sum the mitigation strategies as a way to predict and mute the
projects, adjust their bidding strategy to address this higher unpredicted.
risk perspective by public agencies. Broadly speaking, these
same risks, either from hubris, competence, or experience Once each of these steps is applied to the non-traditional risks,
are mistakenly perceived as less severe and less frequent by a utility contractor can develop the most robust set of strategies
and tactics in order to better control the risks they face.
other types of owners. 2

Summer 2018 | NUCA Business Journal 13

 Figure 1.9
Study Risk Heat Map

In Figure 1.9, risks plotted in the upper left corner are low Leverage may be a fifth strategy to address unique risks,
frequency and high severity type exposures and are titled where the risk is treated as a positive and something to
Hurricanes. Risks plotted in the upper right corner are take advantage of to generate gain as opposed to mitigate
high frequency and high severity type exposures and are downside.
titled Tornados. Risks plotted in the lower left corner are
both low frequency and low severity and are titled Water
Spouts. The last classification of risks, Thunderstorms, Figure 1.10
are plotted in the lower right corner and are high Risk Quadrant Chart
frequency and low severity.

Using a structured approach to risk mitigation that

includes the Trees and Forest risk assessment is a
necessity. This structured approach requires developing
mitigation strategies and tactics, primarily from one of four
strategic groupings. There are four basic strategies and a
series of tactics that can be used to mitigate risk, as seen
in (Figure 1.10).

These strategies include the following:

1. Recognize & Ignore
2. Accept & Manage
3. Accept & Transfer
4. Avoid

Summer 2018 | NUCA Business Journal 15

 Strategy 1: Recognize & Ignore are typically appropriate for risks that are traditional in nature,
This strategy revolves around recognizing an identified well-defined (or definable), and the contractor’s ability to
risk as a potential threat to success, recording it in the influence or control these risks is high. Examples of risks that
risk log, and taking no action to reduce its frequency may fall into this category include estimating accuracy, ac-
and/or impact. Typically, this strategy is appropriate for cess to competent and capable project managers, access to
risks where the severity is perceived as moderate to an appropriate quantity and quality of skilled craftsman, and
low. If the risk’s severity is more extreme, avoiding the increasing commodity demand leading to shortages or price
risk is strategically a better fit. These risks can be very increases, etc.
broad, non-traditional, difficult-to-define, and difficult to
In each case, the utility contractor would follow the four steps
influence or control. One example might be the risk of a
for risks that fall into the Trees category. The third step of the
national trade labor strike that impacts the availability of
Tree strategy, “Develop mitigation strategies and tactics where
labor on a particular jobsite. Another example might be
contractors, engineers, insurance professionals, and owners
aging workforce issues impacting availability, productivity,
work collaboratively to select the most robust risk manage-
and safety performance. In many instances, these types
ment approach for each risk: accept and manage, accept and
of risks will not fit well into traditional risk management
transfer, recognize and ignore, or avoid” is designed to ensure
techniques and are better addressed using the Forest or
that a robust set of actions are undertaken to control the risk
scenario approach previously described.
or exposure to the risk.
Strategy 2: Accept & Manage The example below offers a set of mitigation tactics that were
The accept and manage strategy revolves around accept- selected by public agencies for the general risks described
ing the risk as a threat to success, recording it in the risk above. In many instances, a utility contractor can better un-
log, and choosing to manage it internally to reduce its derstand how the customer might respond to a particular risk,
frequency and/or impact. Accept and manage strategies which could indicate the most effective approach the utility
contractor can implement.

16 NUCA Business Journal | Summer 2018

Accept & Manage Risk Examples and Mitigation Tactics Dispute Resolution Techniques
Mitigating Tactics
Estimating Accuracy
• Use of a standardized approach
My capital construction program is at risk due to cost
• Hire or assign internal staff
escalation driven by inaccurate estimates or budgets.

Mitigating Tactics Ultimately, the public agency or utility asset owners and the
• Use of a standardized approach utility contractors working for these customers are responsible
• Request a budget increase both for identifying and controlling the risks to which the
project is subject.
Program or Construction Manager Access
Strategy #3 Accept & Transfer
My capital construction program is at risk due to an inability
to attract qualified program management or construction The strategy of accept and transfer revolves around accepting
management resources. the risk as a threat to success, recording it in the risk log, and
choosing to transfer this risk to an external party to reduce its
Mitigating Tactics frequency and/or impact. External party can mean a supplier,
• Hire or assign internal staff service provider, contractor, designer, insurer, etc. It is typical
• Pre-qualify and partner with program management that risks where this strategy is appropriate tend to be risks
service providers that are traditional in nature, well-defined (or definable), and
• Purchase technology/software to capture and display the contractor’s ability to influence or control these risks is
critical information high. Insurable or bondable risks tend to particularly fall into
• Increase frequency of meetings this category where the use of actuarial techniques allows for
highly accurate prediction of frequency and severity over a
Skilled Craftsman Availability large historical database of occurrences. Examples of risks
My capital construction program is at risk due to an inability that may fall into this category include Design Review Quality
to attract qualified construction management practitioners. & Detail; Design/Construction Team Integration; Construction
Firm Quality & Access; Engineer Quality & Access, etc.
Mitigating Tactics
• Pre-qualified and partnered with union locals and/or In each case, the utility contractor would follow the four steps
contractors outlined for risks that fall into the Trees category. The third
of these steps, “Develop mitigation strategies and tactics
Commodity Demand
where contractors, engineers, insurance professionals, and
My capital construction program is at risk due to cost
owners work collaboratively to select the most robust risk
escalation driven by world demand for commodities
management approach for each risk: accept and manage,
Mitigating Tactics accept and transfer, recognize and ignore, or avoid” is
• Used program-level purchasing power designed to ensure that a robust set of actions are undertaken
• Use hedging to control the risk or exposure to the risk. The list on page 18
offers a set of example mitigation tactics that were selected by
Permit Receipt & Timeliness
public agencies for the general risks described above. In many
Mitigating Tactics
instances, a utility contractor can better understand how the
• Hire or assign internal staff
customer might respond to a particular risk which informs the
• Use of a standardized approach
most effective approach the utility contractor can implement.
Performance Bonus Payment
Mitigating Tactics
• Use hedging

Summer 2018 | NUCA Business Journal 17

 Accept & Transfer Risk Examples and Mitigation Tactics Strategy 4: Avoid
Design Review Quality & Detail The avoid strategy revolves around recognizing the risk as a
My capital construction program is at risk due to an inabil- potential threat to success, recording it in the risk log, and
ity to control the planned scope of work due to ineffective taking action to remove the project from exposure to the
design reviews. risk. Risks where this strategy is appropriate tend to be risks
Mitigating Tactics where the severity is high to extreme or perceived to be high
• Integrate risk into contracts to extreme. If the perception of the severity is moderate to
low, the strategy of recognize and ignore might be more ap-
Design/Construction Team Integration propriate. In addition, the risks that might fall into the avoid
My capital construction program is at risk due to cost category tend to be very broad, non-traditional, difficult to
escalation driven by no or ineffective integration of define, and difficult to influence or control.
engineers, contractors and suppliers into planning and
In many instances, these types of risks will not fit well
pre-design activities.
into traditional risk management techniques and are
Mitigating Tactics better addressed using the “Forest” or scenario approach
• Integrate risk into contracts (e.g. Design/Build previously described. Examples of risks that may fall
Contract) into this category include lack of or ineffective planning
• Require an equity involvement in project (e.g. P3, techniques; clearing customs; architects’ quality & access;
Integrated Project Delivery, Concession Model) constructability quality & detail, etc.

Construction Firm Quality & Access At the point that a utility contractor might become involved
My capital construction program is at risk due to an in the project, it is likely that the owner choosing to cancel
inability to attract qualified construction contractors. the project or selecting an alternative project is not pos-
sible because the decision to move forward has already
Mitigating Tactics
been made. If this is the case, one of the previously defined
• Require an equity involvement in project (e.g., P3,
strategies will be more appropriate to help mitigate and
Integrated Project Delivery, Concession Model)
control exposure. In any case, the utility contractor would
follow the four steps outlined above for risks that fall into the
Engineer Quality & Access
“Trees” category or the five steps outlined above for risks
My capital construction program is at risk due to an
that fall into the “Forest” category. Both approaches include
inability to attract qualified engineering resources.
“Develop mitigation strategies…” or tactics designed to
Mitigating Tactics ensure that a robust set of actions are undertaken to control
• Integrate risk into contracts the risk or exposure to the risk. The table below offers a set
• Hire a firm with qualified resources of example mitigation tactics that were selected by public
agencies for the example general risks described above. In
Heavy Equipment Availability many instances, utility contractors can better understand
Mitigating Tactics how their customers might respond to a particular risk,
• Integrate risk into contracts which informs the most effective approach the utility con-
• Hire a firm with adequate equipment availability tractor can implement.

Liquidated Damages Assessment & Collection

Examples to Avoid Risk and Mitigating Tactics
Mitigating Tactics
No or Ineffective Planning Techniques
• Integrate risk into contracts
My capital construction program is at risk due to an inability
• Require an equity involvement in project (e.g. P3,
to meet schedule completion date due to no or ineffective
Integrated Project Delivery, Concession Model)
use of pre-project, resource, and short-interval planning
Ultimately, the public agency or utility asset owners and techniques.
the utility contractors working for these customers are
responsible both for identifying and controlling the risks to
which the project is subject.

18 NUCA Business Journal | Summer 2018

Mitigation Tactics One example might be the risk of an early completion that in
• Delay or adjust project timing the case of a water or sewer pipeline could result in the ear-
• Cancel the project lier systems or line startup. Another example might be com-
• Select an alternative project modity price improvement that results in lower material cost
and consequently a lower total construction cost that can be
Clearing Customs translated into an increase in scope that is paid for through
My capital construction program is at risk due to the savings generated in another area. Ultimately, the utility
an inability to meet schedule completion date due to asset owners and utility contractors are responsible both for
clearing speed of foreign produced equipment, identifying and controlling these upside risks to which the
material or supplies. project is subject using the same set of tools and techniques
described previously.
Mitigation Tactics
• Delay or adjust project timing
Risk Implement/Control
Architects Quality & Access For each individual risk identified and recorded in the
My capital construction program is at risk due to an risk log (See Part I, Spring 2018), one of the four or five
inability to attract qualified architectural resources. potential strategies should be selected to manage this risk,
and where appropriate, a set of tactics for implementation
Mitigation Tactics and control of each risk. The three-leg stool example is based
• Select an alternative scope upon the balancing of insurance, contract language, and
• Select an alternative project claims management techniques in order to achieve effective

Constructability Quality & Detail

My capital construction program is at risk due to an
inability to control the planned scope of work due to
ineffective constructability review use.

Mitigation Tactics
• Select an alternative scope
• Select an alternative project

Ultimately, the public agency or utility asset owners and

the utility contractors working for these customers are
responsible both for identifying and controlling the risks
to which the project is subject.

Strategy 5: Avoid
The last of the strategies can only be applied in unique
instances where a profitable or positive outcome can
be achieved by effectively controlling or mitigating the
risk as opposed to only mitigating downside is Leverage.
The fact that these unique risks can generate a positive
outcome does not mean they should be excluded from
the risk log as the same set of “Trees” or “Forest” steps
would be applied to these risks in order to attempt to
generate the leverage available.

Summer 2018 | NUCA Business Journal 19

 risk management. The process steps of identify, analyze, Innovative agencies or owners in the utility space and innova-
mitigate, are followed by the effective implementation and tive utility contractors working for these customers creating
control through both traditional (“Trees”) and non-traditional highly engaged capital construction teams are injecting risk
(“Forest”) management techniques. This implementation management discussions routinely into their capital planning
and control is the ultimate responsibility of the power plant and execution process. These efforts are yielding more suc-
construction manager. cessful projects. This type of assertiveness is necessary across
the industry and unfortunately, too rare. The pace of change,
Projects do not spontaneously fail. There is always a trail
design challenges, and financial complexity makes the pro-
that leads back to unrealized risk, misunderstood risk, or
cess of capital construction higher risk and more challenging
unmanaged risk that are a root cause of project failure.
even for the most sophisticated owners.

Routinely Discuss Risk Management In Project Planning More can be done and we believe that the most successful
and Execution utility contractors will move “beyond the bell curve” in risk
At the end of the day, the most immense and severe impacts management of their projects. These efforts will recognize and
to capital construction programs are unpredicted (but not take into account the following:
unpredictable), infrequent events that happen with greater • History is less applicable today because complexity is
regularity than anticipated. Unfortunately, history takes the changing the nature of capital construction.
sharp edges off these types of events that have devastated
• The most immense and severe impacts to capital
construction projects, compelling practitioners to underesti-
construction programs are unpredicted, one-time events.
mate the probability that they will occur.
• “Black Swan”-type events will take place and recognizing
their range of impact is more critical than attempting to
predict when they might occur.
• Work to specifically avoid underestimating the impact and
likelihood of improbable events and understanding the
nature of more frequent risks.
• Focus on the “Forest” as the source of the most
devastating risks while managing the “Trees” which are
easier to see and discuss. n

FOOTNOTES
1.
Beyond the Bell Curve: A Report on Managing Capital Project Risk,
CMAA Ninth Annual Survey of Owners, pg. 3-4.

2.
Proprietary analysis by Continuum Capital of data provided from CMAA
and collected as part of the preparation of the report, Beyond the Bell
Curve: A Report on Managing Capital Project Risk, CMAA Ninth Annual
Survey of Owners, pg. 8.

Mark Bridgers is a lecturer, speaker, researcher,

writer, and consultant specializing in driving
performance improvements through the capital
construction process for the worldwide utility and
infrastructure construction industry. He helps
energy firms, utilities, and industrial firms
streamline the capital construction process
and guides engineers and contractors toward
generating reasonable returns for the risk undertaken. Continuum
Capital provides management consulting, training, and investment
banking services to the worldwide energy, utility, and infrastructure
industry. Mark can be reached at (919) 345-0403 or
MBridgers@ContinuumCapital.net and followed on
twitter @MarkBridgers — for more information on Continuum,
visit www.ContinuumCapital.net.

20 NUCA Business Journal | Summer 2018