Risks of International Projects: Reward or Folly? By: G. Edward Gibson, Jr, Ph. D, P.E. and John walewski Abstract Assessing and managing risk is a complex and critical task for international construction projects that support new business ventures. Indeed, it could be argued that the word risk and the term international projects could be used interchangeably. Driven by such factors as new markets, domestic competition, and trade liberalization, U.S. owners and contractors have in recent years aggressively pursued international business opportunities and projects. International work requires owners to assess a diverse set of political, geographic, economic,environmental, regulatory, and cultural risk factors when contemplating an international capital project. In addition, contractors must consider a similar set of risk factors in determining whether to undertake uch projects, and how to price and schedule the work if they do. A limited amount of research has been undertaken to address these issues. and current efforts to assess and evaluate the risks associated international construction are fragmented and fail to provide adequate assistance to project managers. Can be systematically addressed and mitigated on these types of projects or is it folly to attempt this process? This paper will report the results of our research project focused on international projects sponsored by the Center for Construction Industry Studies(CCIS), the Construction Industry Institute( CIl) and the Project Management Institute(PMi). This research included input from over 100 industry experts representing 58 organizations. Data from 65 international projects, with a total cost of approximately $27 billion(U.S )were analyzed. We will present key risk issues and a management approach to help mitigate risks. Included in that discussion will be the International Project Risk Assessment(PRA) tool developed in collaboration with dustry. This management tool provides a systematic method to identify, assess, and determine the relative importance of international-specific risks across the projects life cycle. The reward of risk management on international ventures will be explored. How industries other than construction can gain from this research will be outlined ntroduction Construction is a major worldwide industry accounting for approximately $3. 4 trillion USD, or almost ten percent of global Gross Domestic Product(ENR 2000, Batchelor 2000; Bon 2001). Proportionally, the majority of international construction activity is conducted by local, regional, or national entities, yet an increasing percentage of industry participants operate on an international level (Bon 2001 ). Although the United States is the largest construction market--estimated at over $800 billion USD--projects completed outside of the domestic market, have become an even greater part of the capital investment portfolio of U.S owners. Historically, U.S. companies have been significant participants in most global markets and U.S.-based contractors have a long tradition of overseas work. The growth and activities of multinational corporations has been a major contributor to the creation of an international construction market (United Nations 2001) Facility construction involves a wide variety of risks. International projects- defined as those in which the investor, owner and/or contractor are from a country different than where the project is physically located- typically involve a wider range of risks than"domestic" projects. In effect, moving outside of ones al business jurisdiction interjects many unknowns. Political interference, social unrest, and currency exchange are some of the concerns that add to the complexity of international ventures. Assessing and managing risk is therefore a complex and critical task for international construction projects and has proven to ustin Industries Endowed Teaching Fellow and Professor of Civil Engineering, University of Texas at Austin, I University Station, Austin, Texas 78712, phone 512-471-4522, fax 512-471-3191, email gibson @mail. utexas. edu 2 Ph.D. Candidate and Graduate Research Assistant, University of Texas at Austin, I University Station, Austin, Texas 787121 Risks of International Projects: Reward or Folly? By: G. Edward Gibson, Jr.1 , Ph.D., P.E. and John Walewski2 Abstract Assessing and managing risk is a complex and critical task for international construction projects that support new business ventures. Indeed, it could be argued that the word “risk” and the term “international projects” could be used interchangeably. Driven by such factors as new markets, domestic competition, and trade liberalization, U.S. owners and contractors have in recent years aggressively pursued international business opportunities and projects. International work requires owners to assess a diverse set of political, geographic, economic, environmental, regulatory, and cultural risk factors when contemplating an international capital project. In addition, contractors must consider a similar set of risk factors in determining whether to undertake such projects, and how to price and schedule the work if they do. A limited amount of research has been undertaken to address these issues, and current efforts to assess and evaluate the risks associated with international construction are fragmented and fail to provide adequate assistance to project managers. Can risks be systematically addressed and mitigated on these types of projects or is it folly to attempt this process? This paper will report the results of our research project focused on international projects sponsored by the Center for Construction Industry Studies (CCIS), the Construction Industry Institute (CII) and the Project Management Institute (PMI). This research included input from over 100 industry experts representing 58 organizations. Data from 65 international projects, with a total cost of approximately $27 billion (U.S.) were analyzed. We will present key risk issues and a management approach to help mitigate risks. Included in that discussion will be the International Project Risk Assessment (IPRA) tool developed in collaboration with industry. This management tool provides a systematic method to identify, assess, and determine the relative importance of international-specific risks across the project’s life cycle. The reward of risk management on international ventures will be explored. How industries other than construction can gain from this research will be outlined. Introduction Construction is a major worldwide industry accounting for approximately $3.4 trillion USD, or almost ten percent of global Gross Domestic Product (ENR 2000; Batchelor 2000; Bon 2001). Proportionally, the majority of international construction activity is conducted by local, regional, or national entities, yet an increasing percentage of industry participants operate on an international level (Bon 2001). Although the United States is the largest construction market—estimated at over $800 billion USD—projects completed outside of the domestic market, have become an even greater part of the capital investment portfolio of U.S. owners. Historically, U.S. companies have been significant participants in most global markets and U.S.-based contractors have a long tradition of overseas work. The growth and activities of multinational corporations has been a major contributor to the creation of an international construction market (United Nations 2001). Facility construction involves a wide variety of risks. International projects — defined as those in which the investor, owner and/or contractor are from a country different than where the project is physically located — typically involve a wider range of risks than “domestic” projects. In effect, moving outside of one’s usual business jurisdiction interjects many unknowns. Political interference, social unrest, and currency exchange are some of the concerns that add to the complexity of international ventures. Assessing and managing risk is therefore a complex and critical task for international construction projects and has proven to 1 Austin Industries Endowed Teaching Fellow and Professor of Civil Engineering, University of Texas at Austin, 1 University Station, Austin, Texas 78712, phone 512-471-4522, fax 512-471-3191, email egibson@mail.utexas.edu 2 Ph.D. Candidate and Graduate Research Assistant, University of Texas at Austin, 1 University Station, Austin, Texas 78712