So the fifth chair around this round table, we're looking at risk, are around intellectual risk, so the risks of ideas, associated with ideas if you will. And so what do I mean by that? Well, ideas, such as corporate social responsibility. If this is an idea with growing importance or with strong import where you're undertaking a construction project. Then you need to understand how it's going to manifest that you manifest itself in your project. So in some settings, some countries, the use of child labor may have been considered acceptable as a norm. If you're a company practicing CSR, this is unacceptable to you. How you deal and treat Indigenous peoples, do you engage them as part of the labor force? Do you treat them as a special stakeholder? These are all a function of how this CSR concept, for example, manifests itself in the construction setting that you're in. Environmental stewardship can take many forms from the very big global climate change type of concerns to ones about ensuring that migratory animals aren't impacted by the project. That wildlife in the area is preserved. Or if you have to damage habitat, that you're replacing it in kind or better elsewhere. Corporate governance, projects have many more stakeholders than I think people really recognize. There's always that first layer of proper name stakeholders, and if we're good, we try to manage them. I like telling people I have three kids. I have never figured out how to manage them, so what hope do you have of managing groups of perfect strangers? Best you can do is engage with them. And this becomes even more important when you understand that two out of three large projects fail, fail. And they fail not because of bad construction or bad design or bad equipment, they fail because of disruption, which comes from external stakeholder groups. So engaging those stakeholders, recognizing that you are just one of the stakeholders in the local setting. Recognizing that more transparency is required. And understanding how that presence, that recognition of this multitude of stakeholders that are acting on each other, not just on you. How they shape your appetite for risk as it relates to that local construction project. You'll see evolving political form, increased emphasis on homeland defense, various pressure groups, growing importance on access to knowledge and information. All of these intellectual and ideas are carried within not only risk but also opportunities. Each of these represents an opportunity to help mitigate a wide range of risks. They become great points of discussion for risk sharing in many of these large international construction projects. So the last seat at this table for understanding risk is around technological-type risks. And technological type risks can run the gamut from new technology through scales, through intellectual property, and the other things that you see in between. So if we look at some of those new technology risks. If we're building a project that's relying on this new technology, where it's an essential element. We need to recognize that times to demployment may not have as much certainty and confidence level as we might want in this construction project. Learning curves are gonna be real, failure rates are going to be higher than maybe what we're prepared to accept. There's gonna be export import controls that may have to be addressed. And new tax regimes that are gonna have to be considered. And these new technologies, may be fighting against established industries that do it one particular way, or use one particular technology, or one particular feed stock material. And you're trying to introduce a second, okay? Some new applications kind of risks would be around learning curve, the impacts that it may represent on the environment of the project it's set in, the social setting of the project as well. Can you take lessons that you've learned elsewhere and actually bring them into this new application or are you learning everything from scratch? And then finally, you're trying to extend existing supply chains into new areas, new technologies, new kinds of applications, and that brings on a whole raft of supply chain risks if you will. Scale, I said it before two out of three large projects fail, the normal state of a large project is failure. So how do you avoid failure? You avoid failure by having an outstanding handle on what are the risks associated with scale, so that includes scalability. Doubling the size just doesn't double the cost or double the schedule, it could be much, much more than that. Replicability, can I repeat what I've done here again? Are the external resources I need to deal with this much larger project available? Whether that's skilled labor or some other critical material or equipment. And then finally a known unknowns grow. Think of these large projects as a series of activities with white space between the activities. As these projects grow in scale, that white space grows as well. and in that white space live unknown unknowns. And in that white space are where black swan risks, nests, and breed. So controlling the growth of unknown unknowns is a particular challenge as projects scale and yet well-executed projects of scale produce outstanding results. So that risk, reward point Is something you need to be sensitive to and understand what scal- type risks, as a contractor for example, have you taken on? And what scale-type risks would you as, let's say, the owner of the facility still be retaining? And this becomes very important. Internationally, you'll work in many areas where there is not adequate capacity, not adequate skilled labor, not adequate management talent. And so you'll go about not only trying to find that capacity, but also help create new capacity in the market. You'll do that by running training programs, you'll do that by actually helping create companies. And in some instances, even helping create new industries in those country. So over the years, I've seen the learning of how to use a hammer by somebody that was going to be a carpenter. Training him to use that hammer the right way was an important first step in capacity building of the local construction labor force for a multi-billion dollar project that was going to go into that setting. Intellectual property growing in importance. You can't log onto anything today without, in effect, saying you're gonna respect the intellectual property of others. And you're gonna use it per all of the constraints that they impose on you in the use of that intellectual property. That intellectual property can include patents and trademarks and copyrights and limitations on usage or license of usage. All these become very, very important but so does counterfeiting. And as a contractor, it is important to understand that the equipment that you're buying, the critical equipment that you're buying in particular, is not counterfeit equipment. That it's what you thought it was and it's gonna perform in a way that you expect that equipment to perform. And that you're not dealing with a counterfeit which may or may not perform with equal capability. So we've gone through a very extensive discussion on understanding risks. I'm gonna touch briefly on the allocational risks, and then we'll come to the final topic on managing risks. So on allocating risk, there are a range of potential risk managers around this construction project. You can see a number of them on the slide. I'm gonna touch just on two of them, which are much more common around development-type projects. Which again will tend to be the larger projects that you might encounter in an international setting. So the government is a potential risk manager, it can play that role in a number of different ways. There may be a set of multilateral or bilateral agreements that the government is party to. And those agreements help define how you might be treated a dispute, for example. There may be international lending agency money in the projects and those carry with it certain risk mitigating aspects to it. They also offer some payment protections if it is structured right and offers another level of oversight and another check on the threat of corruption in the project, if you will. You'll see quasi-government corporations, government departments in other levels of government. All are potential risk managers. Each is also a potential source of risk. But I think in this context, they're really also potential risk managers. But that means understanding the risks that they are capable of mitigating, and then bringing that thinking forward as you identify risks. So that you can understand where you may have risk mitigation strategies with government as the risk mitigator. Similarly with sponsors, sponsors can include public, private partnerships, non-governmental organizations or NGOs, financial institutions and many other benefiting type parties. Each of the parties that has an interest in the facility that's being constructed represents a potential retainer of risk, Aa potential assumer of risk, a mitigator of risk. And being aware of what their capabilities are, what their appetites are, and what the risks are that they can best help mitigate becomes very important. Before you've ever initiated this project in an international setting. So finally, let me turn to managing of risks, okay? We've talked about what the risks are. We've highlighted a couple of management strategies along the way. We've talked about the fact that you can allocate risks maybe to others. But at the end of the day, there are some risks that you're going to have to manage. And again, with all of these aspects, understand that they not only can change that they will change on you. So when we look at managing risks, how do you manage risks? Well, most effectively, it's having the right people in the right place at the right time with the right approach and the right attitude. If you do that, you've gone a long way towards the management of risks. You wanna manage risks in any areas where you've identified a high-risk exposure, particularly in contractual matters, financial matters, or in your professional reputation. If you're seeing high risks after your mitigation strategy still persists in any of those three areas, they should be examined closely. And even if you feel they've been mitigated, you really need to step back and re-examine your decision to go ahead with the project. So again, contractual matters, financial matters, or professional reputation. If there's a residual high-risk exposure after you've identified the risks, allocated the risks, and you've done some initial management of the risks, then maybe it is not the project for you. And again, this project initiation process has to have a clear focus on constantly asking why shouldn't I do this project? So a go, no go decision needs to persist through the entire project initiation process, if you will. So any good lecture needs to end with a test and so we're going to do a in-video test. The question for you to answer is should you do business here? And I'm gonna describe the setting. So the setting is a place, a country where corporate political contributions are not only encouraged, they're actively solicited. They do provide timely access to people who can influence government action. Developers, engineers and contractors are typically significant contributors in this regard. They're sought out for their contributions. Government officials regularly receive the minimist favors from the private sector. Procurements are often based on factors other than just price, lapses of ethical judgement are not uncommon. There's a high level of government sector and trade debt that's financed by others from outside the country. There's a growing percentage of national expenditures targeted to the military. And there has been a persistent and ongoing high exposure to energy security risks. The risks associated with infrastructure, development projects are high. Labor, productivity, growth, and engineering construction has been negligible for decades. And it most certainly lagging other of most other sectors and obtaining timely approval from government is challenging at best. The tax environment has a high probability of increasing in the near to medium term. Insurance and bonding capacity is limited for development and sharing in construction sector projects. And there's a growing risk of terrorism and security-related cost. So I've just described a very specific country to you. And the question is should you do business here? I'll give you a couple of minutes to think about that. Okay, for those of you who said you should do business here, the country I described was the United States. For those of you who said you shouldn't do business here, it's meant to help you understand that the nature of risks that you face even domestically, may be much greater than you recognize. And so while the focus of this lecture has been on international development and construction risks and the importance of undertaking those in the project initiation phase. Those same kinds of risks, maybe not all of them, but those same kinds of risks should be considered. Whether you're undertaking an international development in construction project or a domestic one. So I hope this lecture has been helpful to you in understanding how to put a solid risk foundation in as part of the project initiation process. And I thank you for your time
