Major Capital Projects (MCPs) face a wide range of operational, regulatory, and reputational risks. Each of these issues has a strong element of "social risk." Despite progress in the quantification of delays on MCPs in terms of cost and schedule implications after-the-fact, little attention has been paid to quantifying social risk.
This paper focuses on the potential implications that social risk, in its various forms, can have on MCPs. Then, taking existing knowledge on the quantification of budget overruns and schedule delays, it examines the case for more thorough quantification of social risk, early in the MCP planning process.
Examining a series of recent MCPs, this paper makes the case that there is a strong rationale for systematic management and mitigation of social risk. Applying experiences from MCPs worldwide, this paper explores tools for effective social risk management, including social and community health impact assessments, targeted stakeholder engagement, and strategic community investment.
The potential cost of delays and budget overruns on MCPs today is immense. With a significant percentage of the world’s largest MCPs experiencing adverse effects from social risk, there is a strong economic rationale for robust social risk identification. If identified and quantified early in MCP planning, effective social risk mitigation and management is possible.
Too often, however, population surveys, community consultation, and social investment are not applied in a way that is targeted at a MCP’s social risks. Where these mitigation strategies are not implemented in an effective or timely manner, they can "count for nothing." This paper takes the position that MCP sponsors need to adequately quantify, and then manage, these social risks to support successful MCP implementation.