[Haichuan Chemical EPC] 26 risk factors across 6 categories in EPC projects and guidance for addressing them
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26 Risk Points in the Six Categories of EPC Projects and Corresponding Countermeasures Original author: He Lihua et al., Building Economy & Management, May 7, 2017 ---------------------------------------------------------- Introduction: EPC is a turnkey project management model in which the general contractor is responsible for design, procurement, and construction; it has become the dominant approach in the field of large-scale international engineering projects. For various reasons, the EPC general contracting system still faces many problems in China. Here, six categories and 26 risk points are outlined to serve as a reference for participants in EPC projects.
The first category relates to external environments and risk management: it includes 9 risk factors, namely the cultural environment, political environment, natural environment, economic environment, legal and regulatory support, limited market, effective communication, public support, and risk allocation mechanisms
Category 2: Participants’ capabilities and project complexity: It includes 8 risk factors: subcontractor capability maturity, supplier reliability, contractor management skills, supervisor capabilities, project quality control, completeness of project design, project complexity, and project construction organization and schedule
Third category: Financing level: Includes 3 risk factors: profit distribution, economic feasibility, and financing plan
Category 4: Project management level: Includes 3 risk factors: the degree of overlap between design, procurement, and construction, responsibility allocation, and compliance with procurement procedures
Category 5: Degree of cooperation: It includes 2 risk factors: agreements stipulated in the contract, and cooperation among the various parties involved
Category 6: Technical level: Includes 1 risk factor: degree of technical advancement
Strategy 1: Strengthen environmental monitoring and risk oversight. In EPC projects, it is necessary to enhance the observation of the external environment, in order to accurately and promptly identify, analyze, and monitor the risks associated with such projects. First of all, it is necessary to strengthen the observation, analysis, and assessment of the political, economic, market, cultural, legal, technical, and natural environments of the countries and regions where the projects are located. Secondly, it is necessary to strengthen the identification, assessment, monitoring, and control of project risks at various stages such as project initiation, bidding, design, procurement, and construction. In particular, regarding the different risks associated with EPC projects, it is important to ensure an appropriate distribution of these risks among the various parties involved.
Strategy 2: Strengthen the management of the project and its participants. Based on the capabilities of the participants and the complexity of the project, the owner should first enhance the organization and management of the project, particularly by ensuring effective control over design, construction organization, and quality. At the same time, it is necessary to strengthen the selection, evaluation, and management of project participants, in order to ensure and continuously improve their technical and organizational capabilities to carry out EPC projects.
Strategy 3: Improve the level of investment and financing management. Strengthen the management of investment and financing for EPC projects, standardize such activities, and establish a proper system for investment and financing management. To improve the investment level and efficiency of EPC projects, it is necessary to adhere to the cost-benefit principle, improve the systems for budgeting, estimation, and settlement, and adopt a concept of full-process cost management ； It is necessary to continuously explore and innovate financing channels and models to improve the efficiency and quality of financing.
Strategy 4: Leverage the advantages of EPC general contracting to improve project management capabilities. Make use of the strengths associated with EPC project general contracting in order to enhance the level of project management for such projects. It is necessary to fully leverage the advantages of EPC to achieve integration and consolidation of project design, procurement, and construction, eliminate misunderstandings, shorten project timelines, reduce costs, and ensure project quality ； It is necessary to make full use of advanced project management tools, technologies, and methods to develop integrated project management systems, thereby effectively improving the level of project management.