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The Risk Assessment of Edinburgh Trams Network Project in Scotland, UK

Engineering Production & Risk Management / Construction Project Risk Management

Abstract

The current study assesses the risk management system of the Edinburg Trams Network (ETN) project. Through conducting the study, a better understanding of risk management and risk assessment tools. Risk management processes include risk identification, risk assessment, risk
reduction, emergency preparedness, and recommendations.

The Edinburgh Trams Network project was proposed in 2004 and became functional in 2014. Throughout the project lifecycle, the ETN faced cost overruns and schedule delays due to various risks.

These various risks were identified and analyzed throughout the report. It was concluded that major risks that resulted in cost and time overruns were the ambiguity of project scope and inaccurate project cost estimates.

Other risks that have been identified were also analyzed for the extent of the impact. Afterwards, a risk output analysis was produced, which categorized the risks and  further helped develop an emergency preparedness plan.

The report concludes with recommendations for risk mitigation and future projects. It is suggested that future projects implement these recommendations to avoid cost overruns and schedule delays.

Introduction

Overview of Risk Management

According to Serpella et al. (2014), to develop a risk management approach that is both effective and efficient, the approach must include methods, knowledge, and experience, which is appropriate and systematic. The duty of a project manager includes the management of risk within a complex project.

It is considered inefficient if risk management is not conducted from the initiation of the project (Serpella, et al., 2014, p. 654). It has been noted that construction projects are often exposed to numerous risks since the time of their inception and through the various stages, it is imperative to consider what risks the project owner would want to counter with appropriate measures and the cost of using those measures to counter the risks (Schieg, 2010).

Aims and Objectives

The current study attempts to comprehend construction project risk management and apply risk management techniques to the Edinburgh Trams Network (ETN) megaproject that began as an idea in 2003 and its first service starting in 2014. Based on the assessment of risk for the case study
recommendations will be formulated to improve the risk management system associated with such projects in the future.

The objectives of the report are:

1. Examine the construction risk management system and apply it to the case study.
2. Assess the various risks involved in the case study parallel to construction project risk management
   concepts.
3. Develop recommendations that will help improve risk management assessment within
   construction projects in the future.

Overview of Case Study

The Scottish Parliament had proposed a mass transit project for commuters in January 2004, which received Royal Assent in 2006 known as the Edinburg Tram Line One and Two Act 2006. The proposed tramline is illustrated in figure 1 below, which is composed of three lines. Based on an assessment of the Parliament, all three lines’ funding was considered not possible, and only permissions for Line 1a and Line 1b were given.

According to Scotsman (2007), CEC passed the final business case for the ETN project, and the Transport Initiatives Edinburg (TIE) was hired to deliver the project. Contracts were finalized in 2008 with a construction deadline given for the summer of 2011, concluding a total cost of £545 million (Scotsman, 2007)

Figure 1- Proposed Route for ETN Project

However, there have been multitudes of issues, resulting in changes being made to deliver the original design plan noted in Figure 1. According to Johnson (2008), tram lines extending from Roseburn to Granton Square became deferred because of the economic downturn
during the time period.

Other issues for these lines included various delays, overrun of costs, and contractual disputes imploding between TIE and Bilfinger Berger & Siemens (BBS) and funding issues that resulted in extensive changes to the proposed route (Boateng, 2014).

The CEC hypothesized that the trams project would carry large volumes of passengers without being delayed by traffic due to their separate route system and being environmentally friendly. The system is electrically powered, reducing vehicle emissions.

For the whole project’s basic information summary, refer to Appendix A; Stakeholder Relationship Map in Appendix B; and Environmental Analysis in Appendix C. The actual system became functional in 2014 and went over budget to a cost of £1 billion, including loan interests.

Risk Management Requirements for Analysis

Project Management Institute (PMI) (2008) has stated that conducting an appropriate risk management analysis benefits the project’s various aspects, including risk management planning, identification, qualitative analysis, quantitative risk, response planning, and monitoring & control of risk.

Banaitiene and Banaitis (2012, p. 431) argue that a project manager’s most difficult task is the management of risk when attempting to manage a project, making it essential that managers have the ability to recognize the basis of risks and track them back from causes to
consequences within a project.

Wysocki (2009) sums up the process of conducting risk management through; risk identification, assessment, mitigation, and lastly, monitoring. Wang and Chou (2003) consider risk identification to be the most imperative process for managing risk as it allows the sources and types of risks to come forward.

Through risk identification, further steps of the process can initiate, such as analysis and control of risk (Wang & Chou, 2003; Wysocki, 2009; Banaitis, 2012). Risk management is effective through correct risk identification (Banaitiene & Banaitis, 2012).

The current study will go through risk management to analyze the various risks that impacted the Edinburgh Trams Network (ETN) project. This process will start first with risk identification and continue with risk analysis/assessment to comprehend the present risks, leading to cost and time overruns.

Risk Information and Data Collection

The current study uses data and sources’ amplitude to identify risk and compose a risk assessment analysis. The ETN project has been under a great deal of controversy since the construction of the project began. Its constant time delay and overrun costs have brought it under fire throughout the Scottish government and publicly.

The greatest source of information for the current study was the Edinburg Tram Inquiry web page developed to establish why the ETN project had incurred delays and cost more than it was originally budgeted. There are also preliminary hearings of the Edinburgh Tram inquiry that took place on 6th October 2015, which covered the process to date and the procedures for future oral hearings regarding the project.

The procedural hearings can provide a plethora of information about the project to recognize numerous risks linked to the project caused project delays. Information was also extracted from a council report (Kerr, et al., 2015) which detailed recommendations to the City of Edinburgh Council about the ETN project in terms of improving cost-effectiveness and project planning
through a risk assessment of the project.

Risk Identification

According to An (2015), it is not possible to identify all the possible risks associated with a construction project, and it is also not possible to know for sure if all risks have been identified. Risk identification is to identify risks that are considered hazards and have a high probability of occurrence, and may impact the project (An, 2015).

For the current study, risk identification was conducted by brainstorming and using the “What if” process to identify potential risks (An, 2015). The risks were then categorized using STEEP (see table 1); social, technical, economic, environmental, and political challenges (Boateng, 2014). All such factors contributed to cost and schedule overruns in the ETN project. The categories of risk identified are discussed at length in section 6 of the report.

Table 1- Risk Identification ETN Project using STEEP

Risk Analysis

Risk assessment can be defined as the process by which risks are identified, assessed, reduced, and managed throughout a project (Chapman, 2001; Champan & Ward, 2004; An, 2015). The process of risk analysis is important to a project’s success.

According to Bellasi and Tukel (1996), without a conventional procedure, team members of a project can be considered to be operating with blindspots throughout the course of the lifecycle of the project, and they will be unprepared for what occurs as a resultant impact to the project scope, cost, and schedule.

Furthermore, contractual terms and conditions that are vague are also considered a significant factor for project failure. All parties that are participating in the project are going to misunderstand the requirements of the project leading to costly litigation processes.

Contractual risks, along with scope and project management risks, have been identified throughout the ETN project. The risks were then quantified using a severity and frequency scale devised from a review of various literature (Bellasi & Tukel, 1996; Chen, et al., 2004; Banaitiene & Banaitis, 2012; Lee, 2008; Wysocki, 2009) for risk occurrence and severity in terms of time overruns and cost overruns.

Table 2- Scale of severity in terms of cost overruns (Banaitiene & Banaitis, 2012; Bellasi & Tukel, 1996; Vargas, 2013

Table 3- Scale of severity for time and deadlines (Vargas, 2013)

Table 4- Scale of the probability of occurrence/frequency of risk (Banaitiene & Banaitis, 2012; Wysocki, 2009; Vargas, 2013)

Identified risks were then sorted to categorize which risks will be the most significant and impact
the ETN project for cost overruns and time overruns. These selected risks were then used to
calculate the threshold of risk using Expect Value and a quadratic mean (root square mean)
calculation (Vargas, 2013).

The variables of the impact equation, x, y, z, etc., are various risks that impact the project. For the ETN project, variables of time and cost were considered about the risk occurring.

The calculated expected value has been illustrated below in the following table;

Table 5- The expected value of Risk for selected Hazards

Based on the results of table 5, a risk matrix was developed, as illustrated below

Figure 2- Risk Matrix for ETN Project

The quadratic value for impact has been separately calculated (see Appendix D). The final results of the total impact to expect value has been illustrated in the table below.

Table 6- Results of Total Impact to Expected Values

From figure 2 and table 6 the risk analysis output shows that risks;

Table 7- Risk Analysis Output

5.1 RISK RESPONSE OF ETN PROJECT

The basis of risk response is to develop a strategy to reduce risk through either risk reduction, transfer, or retention. For the ETN project, it is recommended to reduce the major risk of cost and time overrun. This illustrated in the table below;

Table 8- Risk Response & Risk Reduction Strategy

Emergency Preparedness

According to An (2015), emergency preparedness allows project managers to devise effective and reliable actions to hazards that may occur. For the ETN project, the detrimental risk was Unfavorable Climate Conditions (UCC). Below is an emergency plan for the risk:

Table 9- Emergency Plan for R5- Unfavourable Climate Conditions (UCC)

Output Analysis and Discussion

Based on the risk matrix in figure 2 and table 6, the risks that have been identified for the ETN project are quite severe and are the reasons for the resulted cost and time overruns. The risks were colour-coded based on a predefined scale (Appendix E) which was used to score the risks chance
of occurring and the effect that it may have on the objectives of the current project analyzed.

All threats have been identified as negative threats. For example, based on the project cost risks, all costs have had a negative impact, as seen in table 7 in which Material Price (MP), Inaccurate project costs estimates (ICE), Economic Recession (ER), and Changes in government funding policy (CGFP) have had large values of the expected value of risk which has significantly influenced the total expected value of risk being raised to 339.

It is obvious from the results obtained that ambiguity in project scope and scope changes has had a large impact as being a significant risk. It is also thought that this particular risk is considered a root cause for project failure.

The project’s stakeholders and supervisors0 must ensure that the basic project requirements are defined at the early stages of the project to avoid scope creep (Lock, 2007).

Organizing the regular requirement gathering at the start of the project will mitigate the chance that the requirement is left incomplete. Therefore, it was essential that stakeholders of the ETN project had conducted meetings and then revisit these meetings during the project’s execution/ construction phase to ensure that the existing requirements are easily achieved within the given time framework (Kerr, et al., 2015).

For the ETN project, the governance arrangements and the first five years of the ETN project were ineffectual and complicated, resulting
in responsibility lines that are vague and slower decision making (Boateng, 2014). The project board had failed significantly as an appropriate decision-making forum leading to cost overruns and time delays (Lock, 2007).

Social Risks

Before the project’s actual implementation, various consultants and stakeholders were extensively involved, and consultations were carried out on the ETN project. However, during the project’s construction phases, the project’s social environment became accumulated opposition and controversy.

Delays on the trams added to the general populace’s grievances and criticisms, especially the business community that held shop along or around the tram routes (BBC News, 2008). Many business owners became opponents to the tram project as they asserted that income generation was severely affected by the long-term road closed at the Centre of Edinburg (BBC News, 2008).

Added obstruction of work in progress on the project had occurred in January 2010. ETN construction was postponed due to freezing temperatures which were not predicted to hit the country during winters (Edinburgh Evening News, 2010).

Technical Risks

A leading technical issue was the project scope changes throughout the construction phase of the ETN Project. Due to the various scope changes, there were constant engineering and design changes which furthered the technical risk. Various ground conditions led to the emergence of difficulties faced during utility diversion.

Construction was disrupted various times due to the exposure of wartime tunnels found under Haymarket. Concerns were raised by individuals residing parallel to the tramlines for the interruption of electricity from overhead cables located on domestic properties. Marshall (2010) reported that various residential owners had outright refused to allot consent for overhead cables to be connected.

According to Marshall (2010), many property owners refused to permit the overhead cables to be attached.

Environmental Risks

The Environmental Statement (ES) of the ETN Project for Line 1 was issued in agreement to the standing orders of the Parliament that made it necessary for any mass project to be first approved by private Act of Parliament and adhere to Environmental Impact Assessment (Scotland) Regulations 1999 (Boateng, 2014).

A red flag present for environmental risk at the preliminary stage of the project was that line one of the ETN Project was already exceeding the limit set by the EIA Regulations of one hectare. Many of the characteristics of the project pointed to significant environmental effects. Site visits between 2011 and 2013 revealed the need for repairs on Prince Street and Haymarket. These damages on the lines were hypothesized to be caused by risky weather circumstances observed in 2009 and 2010, a risk that neither contractors nor project owners had any control over (Edinburgh Evening News, 2010; Boateng, 2014).

Economic Risks

The ETN project had faced a great deal of economic risk, especially with the unpredictable downturn of economic events leading to a recession in 2009. The capital costs of the project were greatly influenced by the constant vacillations in the exchange rates of foreign currencies against the dollar (Chen, et al., 2004) at that time, causing the government to alter their fiscal policies during the recession period, which affect the project as it led to time overruns (Ling & Lim, 2007; Lee, 2008).

The ETN project was also impacted by financing nature and the various other risk present levels throughout the project lifecycle, which included completion risks and market risks (Olper, et al., 1997).

According to Olper et al. (1997) and Boateng (2014) demonstrated, completion risks are generally revealed during the investment stage of mass transit projects. On the other hand, market risks arise during the project’s operational phases (Olper, et al., 1997).

Political Risks

Often, major national projects are marred with political issues since inception, which was also the case with the ETN project. Various political disputes were occurring amongst SNP; who were against the project, and Conservatives, Green Party, Labour and Liberal Democrats, who supported the project’s completion (Boateng, 2014).

Further political grievances were generated when road closures had occurred for the MUDFA contract, which also led to public opinion’s discontentment to rise over the project (Scotland & Commission, 2011).

Recommendations for Improvement

It is evident from the analysis of literature that the ETN project had various consultations from industry leaders. Still, there is no evidence of risk assessment and risk management from the initiation of the project. This led to cost overruns and time delays that significantly impacted the support for the project and the government. Failure to conduct a risk assessment led to various foreseeable risks to negatively impact the overall project life cycle.

According to Chapman and Ward (2004), projects considered megaprojects, particularly for improvements to the transportation system, are composed of five subsystems;

1. Social
2. Technical
3. Economic
4. Environmental
5. Political

The subsystems mentioned above need to work coherently and in harmony to maximize their performance and deliver results. Therefore, it is recommended that project managers of ETN should have considered all these systems before the construction of the project to ensure that all factors are equally important and incorporated during the development of the project lifecycle.

From the Edinburg Tram Network Project’s standpoint, the risk management system needed to be established that also required organizing and connecting all actors within the organization, which can enable the development and advancement of the project.

This means that for risk management to successful, all experienced stakeholders within the applicable organizational backgrounds and official engagements needed to be involved at all times (Charmaz, 2006). With the ETN project, their many actors, and according to Chapman (200a 1), the greater number of stakeholders result in an increased probability of risk occurrence.

Future Work

It is recommended that future work is needed to develop improve risk response strategies for mega projects such as the ETN project that was analyzed. Based on the results obtained using this method and tolerance thresholds composed, the total risk exposure can be compared with other megaprojects of the same industry and other corporate limits to define potential risk response plans.

The recommendations devised in the current study can be implemented in future projects to ensure that risk management occurs from the start of the project. By implementing the new recommendations, their feasibility and practicability can be assessed and then concluded if the recommendations can be used for the project management industry.

Conclusions

The current study had analyzed the Edinburg Trams Network Project, whose initial objective was to improve the public transport system in the country by utilizing energy-efficient and environmentally friendly trams for public transport. The project aimed to reduce commuter traffic and pollution.

However, the project had faced a great deal of backlash because it had gone over the initial budget significantly and also, there was a great deal of project time delay.

The current study had analyzed the risks associated with the project by first brainstorming risks and categorizing them using STEEP. Afterwards, the current study used a quadratic mean process to quantify the qualitative risk analysis (Vargas, 2013).

In summary, the ETN project had various risks associated with its delays and cost overruns. However, economic risks and technical risks had dominated and resulted in cost overruns and time delays throughout construction, with the environmental, political, and social risk being secondary.

For project managers of the current project under study, it was evident that they could not manage the inter-relations, which were among the risk to make sure appropriate steps were taken to resolve issues related to the working environment.

It is concluded from the current study that risk assessment and management is significant in ensuring the projects are completed on time and within the constructed budget.

References

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Appendix A- Summary of Basic Information of ETN Project

The Scottish Parliament had proposed a mass transit project for commuters in January 2004, which received Royal Assent in 2006 known
as the Edinburg Tram Line One and Two Act 2006. The proposed tramline is illustrated in figure 1 below, which is composed of three lines. Based
on an assessment of the Parliament, all three lines’ funding was considered not possible, and only permissions for Line 1a and Line 1b were given.
According to Scotsman (2007), CEC passed the final business case for the ETN project, and the Transport Initiatives Edinburg (TIE) was hired
to deliver the project. Contracts were finalised in 2008 with a construction deadline given for the summer of 2011, concluding a total cost of £545
million (Scotsman, 2007)

Table 10- Summary of Basic Information of ETN Project (Boateng, 2014)

Appendix B Stakeholder Relationship Map for ETN Project

Figure 3- Stakeholder Relationship Map for ETN Project (Boateng, 2014)

Appendix C- Project Environmental Analysis of ETN Project

Table 11- Project Environment Analysis of ETN Project (Boateng, 2014)

Appendix D- Quadratic Value for Risk Impact (Calculations)

Table 12- Quadratic Value of Risk Impact Calculated

Appendix E- Predefined Scale

Table 13- Predefined Scale for qualitative risk analysis (Vargas, 2013)