Prepare a critical report on the proposed expansion of Heathrow Airport.

Report Brief

Basic Purpose: Prepare a critical report on the proposed expansion of Heathrow Airport.

Word Count: 2500 (excluding references); 250 Words for references; 250 words for summary slide presentation (3000 altogether).

Word Count Distribution: see below.

Section 1 – Risk Identification

Word Count Distribution: 250 words.

Content of Section 1: section 1 should identify the main risks that could impact on the airport expansion project.

Specific instructions on content of section 1:

Short introduction: two sentences introducing the purpose of the report. To be clear, the purpose of the report is to be i) a critical report on the case made for the airport’s expansion by Heathrow Airports Ltd by in terms of the most important Quantitative and Qualitative (Technical, Economic and Political) risks faced by the project and ii) a discussion of the most appropriate responses to these risks.

Identification of main risks: the vast majority of the word-count in section 1 should be used to identify the main risks and, in particular, how those main risks were identified (the techniques used to identify the risks must be named).

To be clear, the acceptable identification techniques are those techniques which are typical for risk identification in construction projects (i.e. interviews with key project participants; analysis of historical data for similar projects; standard form risk assessments used in the UK construction industry; lessons learned; brainstorming. There is a decent bit of literature on Methods for Risk Identification in Construction Projects here (http://web.usm.my/jcdc/vol17_s1_2012/Art%204_jcdc17-s1.pdf) which could be used.

The risks named in section 1 should be the same risks which are to be the subject of the later sections of the report. And each risk named in section 1 should be categorised. For instance, political risks (e.g. war, change of government, local pressure / protest groups); technical risks (e.g. Technical risks include anything that restricts you from creating the product that your customer wants. This can include uncertainty of resources and availability of materials, inadequate site investigation, or incomplete design. These risks can commonly occur when there are changes in project scope and requirements, and if there are design errors or omissions); economic risks (e.g. unexpected changes in supplying materials and labour, availability of equipment, inflation, tariffs, fiscal policies and exchange rates. Cost escalation is another economic risk of construction).

Section 2 – Quantitative Risk Analysis

Word Count Distribution: 1000 words.

Content of Section 2: this section is to be critical evaluation of the case made by Heathrow Airports Ltd not the case made by critics such as GreenPeace. The case made by Heathrow Airports Ltd is found across all the documents entitled ‘Heathrow Expansion – HAL Case.pdf’.

This section should also touch on the recent High Court ruling blocking the project and then the Supreme Court ruling allowing the project to proceed subject to planning permission, which itself may be subject to further legal challenge (see here: https://www.whitecase.com/publications/alert/supreme-court-overturns-block-heathrows-expansion). Quantifying any risks which may follow from future action.

Also, an attempt to quantify the risk posed by COVID-19 to the project should be made (it is therefore implicit that COVID-19 is both a political and economic risk that should be named in section 1).

The quantitative risk analysis under this section must propose its findings in quantified terms and in terms of either i) increased cost (£); ii) extension of time to complete; iii) reduced quality or performance.

Changes in the interest rate, inflation rate and exchange rate should be modelled by use of
sensitivity analysis.

Other acceptable Quantitative Risk Analysis techniques include: Multiple Estimate Risk Analysis; Indifference Analysis; Estimates based on Confidence Intervals or any other common estimation technique deployed by Quantity Surveyors in Construction Project contexts. For complete guidance, see the guidance on Quantitative Risk Analysis attached Quantitative Risk Analysis.pdf.

Note that Indifference analysis can also be employed for issues such as project life against a key variable for the project cost.

Note that Sensitivity analysis can be used to test the validity of the cost model used for the project in case of changes in key variables such as construction costs etc.

Utility theory is probably best suited to assessing the impact of specific risks where both the probability of its occurrence and expected impact can be modelled.

There must be an overall critical attitude / conclusion on whether the Quantitative Analysis makes a convincing case for the project, in light of the alternatives present in the literature. To be clear, those alternatives are i) to build a complete new airport or to expand at Stansted or Gatwick and ii) make more use of provincial airports.

There must be proper, costed (£), rigorous analysis within this section.

Section 3 (Technical Risks) + Section 4 (Economic Risks) + Section 5 (Political Risks)

Word Count Distribution: 250 words per section.

Content of Sections 3, 4 and 5: each section should contain: i) a short introduction and ii) a conclusion; and, most importantly, each section should mostly be made up of a completed ‘Qualitative Risk Assessment Pro-Forma’. See below:

Proforma for a Qualitative Risk Assessment
Reference No: Date:
Potential risk: Importance of Risk:
(a brief description of the risk) Probability High/Low() Consequence High/Low()
Stage of the project affected by this risk:
(the stages of the project that could be expected)

Statement of risk:
(the elements of the project that could be affected)

(the factor that could cause it to occur)

(any relationship or dependency on other risks)

(the likelihood of occurring)

(how it could impact)

Project: Heathrow Airport Expansion Client: Heathrow Airport Ltd Risk Analysed by: Joe Bloggs

There should be one or two pro-formas for each category of risk identified (i.e. technical, economic or political).

*The most important risk will be Grade 1 that is high probability and high impact. The least important will be Grade 4 risks that are low probability and low impact. Grade 3 risks are low probability high impact while Grade 3 risk is high probability low impact.

Section 6 – Risk Response

Word Count Distribution: 500 words.

Content of Section 6: this section should focus on the response to the Qualitative Risk (i.e. the technical, political and economic risks identified in the report).

There are four things that can be done to respond to identified risks

Attempt to reduce or eliminate them (must specify how);
Insure against the risk;
Transfer all or part of the risk to another party;
Retain all or part of the risk.

There are a number of things that can reduce risk in design and construction:

Avoiding innovative technology;
Reduce reliance on imported documents;
Value management;

There are a number of things that can reduce economic risk:

Currency hedging / no imported components;
Interest rate coupon swap: one party exchanges an obligation for payment of interest at a floating rate basis to payment at a fixed rate. The other party does the reverse.
Have contractors procure performance bonds / warranty bonds to incentive their performance or PCGs from smaller contractors;
Setting aside contingency (i.e. estimating and budgeting for risks which may materialise).

Procurement strategy / derisking:

Change / selection of contracting strategy to de-risk project (i.e. contractor to take all design and build risk, passing maximum risk to contractor; or cost-plus where client takes all risk but contract price may be lower in the beginning at least).

All of the above must be dealt with / computed in this section.

Slide Presentation – PowerPoint

This should simply be a summary of each section of the report and the key findings / recommendations from each.

250 words.

References

These should be a final section (section 7 / reference list) in the report. Harvard is the necessary styling.

The references should be to the documentation attached – papers have been uploaded for review / reference ‘Heathrow Literature.zip’.

250 words.