As states manage shelter in place orders, budgetary shortfalls loom with long-planned capital projects increasingly at risk of falling victim to financial woes. AECOM’s Eduardo Gamez discusses the major risks associated with the global pandemic and how effective, systematic risk management can identify sensitivities.
Coronavirus is a public health emergency that has rapidly spiraled into an economic emergency. The pandemic is wreaking havoc with state and city finances across the United States. While these conditions are serious, quantitative assessment tool kits combined with foresight, expertise and experience can inform owners and agencies enabling capital plan restructuring that can keep programs and projects on track.
The first step is an assessment of risks that include:
- Reduced productivity related to social distancing, limits on the allowable number of worksite personnel and staff missing work.
- Supply chain impacts such as import and export disruptions causing material and equipment delays and slowing production.
- Cash flow issues resulting from economic conditions that have driven some supply chains out of business. In less drastic situations, agencies, states and municipalities are adjusting to reduced liquidity and low or unsustainable margins.
- Procurement/Tender delays including bidding challenges resulting from VPN or internet access issues which can add to estimating difficulties.
The path forward has no shortcuts. Protecting capital programs requires risk assessment tools and expertise to develop accurate modeling and planning. These tools are crucial drivers of decisions that determine the future of capital plans.
As experienced professionals in producing risk assessments for capital programs we have learned that effective risk management plans must:
- Reassess organizational objectives and priorities: These plans must target the priorities related to government agencies, utility companies and the private sector which may each have different goals. Major urban transit agencies, for example, may be most concerned with mobility and incorporating social distancing to their models. Private developers engaged in designing gathering clusters for people, may be forced to re-assess their vision.
- Develop risk-informed capital plans: It’s important to reassess capital plans and establish scenario analysis to understand, map and quantify risks while reflecting risk tolerance.
- Restart disciplined risk mitigations: An event like coronavirus affects nearly every facet of the economy and our capital projects. More than ever, our industry needs disciplined risk management. A return to planning and forecasting is the best way to create proactive response and mitigations plan. That means being ahead of potential events and putting proactive mitigations in place that address future occurrences of sudden challenges.
The impacts of coronavirus are presenting clear needs for project resequencing and reprioritization based on known impacts and future uncertainties. At AECOM, we have adapted our existing tools – typically used to support multi-year capital plans – making them applicable to coronavirus-associated risk assessments. As more is learned about these new risk scenarios, we continue to update these tools. By cultivating predictability in this unpredictable world, our objective is to help our clients advance capital programs that improves the lives of the people that they serve.
Eduardo Gamez, Ph.D., is the managing director for AECOM’s Risk Management practice.