Risk Management Of Mega Events

World expositions, Olympic Games and other Mega-Events are unique in that their construction schemes into the dominions of numerous other functions and disciplines, and they tend to affect large commercial, industrial or residential areas. As such, they affect, and get swayed by many stakeholders. Risk management in projects and Stakeholders are closely interrelated. Project Managers who do not interact thoughtfully with the environment of their projects are expected to acquire difficulties during conception, planning and execution of their projects.

The Olympic Games have become an increasingly large event. Beginning in 1896 in Athens with a mere 14 nations and only 241 athletes, they have this past year 2008 reached a record 205 nations at the Beijing Olympics with 11,468 athletes. This number is double the 5,516 athletes that attended the Mexico Olympic Games in 1968, where 112 countries were represented. It is because of these facts that Olympic Games have become so attractive to many countries in the world regardless of her (country’s) location or economic status. In the past, few countries were known as the traditional bidders for such events. For Olympic Games for instance, cities like Seoul, Barcelona, Atlanta, Sydney, Athens and Beijing were the main contenders. New cities are coming on board to bid for future events. London has already won the right to host 2012 Olympic Games, and Rio de Janeiro for 2016. Participants in the race for the 2020 Olympic Games include Istanbul, Delhi, Cape Town, Melbourne, Brisbane, Toronto and many more cities are also bidding for the 2018 Commonwealth Games. These cities include Auckland, Lagos, Canberra and Toronto. The 2018 Asian Games have Jakarta, Hanoi, Manila, Singapore and Dubai all bidding.

Apart from Olympic and sporting events, cities are delving into hosting World major events, such as FIFA World Cups, UEFA European Football Championships, World Expos and Trade Exhibitions, not to mention conferences such as UN conventions. Shanghai, for instance, was determined to present itself to the world with its showcase in 2010. It is an event city that is increasingly becoming the focus for events and the resulting publicity around the world. It is the city that is becoming the attractor of tourism and a city’s identity is often an important byproduct of one or more mega-event (ME).

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Clearly, these cities see value in hosting mega-events despite their increasing costs. One major fact is that cities that host such events have gained heightened global attention, recognition, relevance and other benefits such as image branding. Despite all these, the question arises: Has legacy been achieved in those cities that have already hosted such events? For Olympic host cities, it is constantly a major challenge to guarantee the venues will be used afterwards the Games.

The Athens government is still paying the maintenance bills for several Olympiad venues six years after the 2004 Olympics.

Various venues for the Sydney Olympics in 2000 are left vacant, with a few starting to sell off their building materials. However Dr. Richard Cashman ‘{10} has informed the Author of this dissertation in recent emails, that ‘Since 2001, Banks, hotels, office buildings have been built and 20-storey residential towers will be completed by 2010. SOP contains a lot of sites that have been ‘sold’ (99-year-lease or freehold title) to many companies. As a result there is now a daily working population of 10,000 and it will be 30,000 by 2030. The development of the town centre (approximately 100 hectares) helps pay for the cost of the adjacent parklands (430 hectares). In contrast the Beijing Olympic venues has less potential for commercial development.’.

Nagano in Japan after hosting the Winter Olympics in 1998, has struggled with the financial weight of paying the costly maintenance bills for the venues.

On emails1 exchanged between the Author of this paper and Dr. Richard Burnet-Thornton ‘{9} actually living in the city that hosted the 1976 Montreal Olympics, has stated that ‘as taxpayers we have only recently paid the debt’.

With all these examples it is only natural that people around the world have doubts about the fate of Beijing’s and London’s Olympic legacy. It is clear that planning for long-term use is an element that needs to be well integrated into the planning for mega-event city developments, particularly for an Olympic Games. It is with this view that London has built long-term legacy into its planning, and integrated the plan of risk management, as is now required by the International Olympic Committee (IOC).

In a publication from Preuss, H et al. (2008) he states ‘Each mega-sport event requires specific structures. All event structures that exist after the event change the quality of the host city in a positive or negative way. Each city has different quality factors that make the city more or less attractive for living in, for tourists, for industry, or for hosting future sport events. Today cities are in global competition to attract economic activity. Where the event legacy in these terms is significant, the host city is in a better position to face this global competition. The possibility of this happening is enhanced by strategically embedding the event in the broader processes of development.’ In the same publication illustrates the process of building up an event legacy.

Figure xxx: Process of building up planned event legacy. Source Preuss, H et al. (2008)

‘The strategy of building up an event legacy starts with the decision to bid for a specific event (1). Mega-events differ in the structures they require and cities differ in the structures they can provide. The strategy focuses on the additional structures an event creates and the long-term need for these structures. During the candidature process, (2) some required structures (‘compulsory measures’) as well as some ‘optional measures’ will be provided. By means of the ‘optional measures’, the city aims to be strategically best positioned in the bid competition. Therefore, these measures may not be sustainable. During the preparation for the event (3) the compulsory structures are set up. ‘Optional measures’ can be embedded to improve the competitive position of the host city to attract more economic activity in the future. During the event (4), all ‘event structures’ are present. After the event (5), some ‘event structures’ disappear or are reduced in size, but others exist for a long time after the event. Six ‘event structures’ are usually preserved after an event.’, Preuss, H et al. (2008).

There is, of course, a dramatic difference in city population between Sydney, London and Beijing. The larger the city, the easier it is for the mega-event to be incorporated into long term planning for a city. The smaller the city, the more impact a mega-event has in terms of determining the region’s future structure.

It is clear from the literature available that there have been mistakes made in the past when factoring in long-term use of buildings and infrastructures during the design and construction phases. For instance, according to Malcolm Moore, journalist for the Telegraph [2], in Athens ‘of the 22 venues in the city, 21 are in a state of disrepair and under guard to prevent vandalism’. In contrast to what happened to the buildings from World fairs of Seville and Lisbon, as well as the buildings from the Olympic Games from Sydney, it would appear, that there are only a few that are not being used.

From the beginning the research was meant to establish the construction project management cycle around mega-events – with a view to drawing lessons from past mistakes; to inform better policies and guidelines that can be utilised in future host cities to improve the percentage of success of the Mega Projects Legacy. However, due to the difficulties of getting testimonials or comments from Construction Project Managers responsible for previous works within Mega Events venues, this dissertation will focus purely on risk areas of the Olympic Games. It’s the aim of creating a risk framework and then creating a ‘ranking’ position of the different risk parts.

Evidence from published sources were used in the assembly of this paper which highlighted the weaknesses from management in the context of such risk, and disclosure probable answers that can help minimize and mitigate risk. Considering lessons from previous experience, and the shape of the current outline of risk management for 2012 London Olympics, this dissertation makes an implied example.

1.2 – Aim and objectives

World Expos and Olympic Games are sequential events. Learning from past events are key to moderation of risk on all fronts and its ultimate success. This aspect can be generalized to mega events including other sporting events like in football and non-sporting events like world fairs. The idea is ‘learning from past experiences’ for performance improvement. The sequential settings provide for a control in conditions and agendas to some degree making learning for improving strategic and operational impetus possible. Such studies have already being applied by national armies across mega events of military operations (Thomas et al., 2001)3. However, in the case of Olympic Games its access and impact on community is likely to be easier from a confidentiality perspective, but will require better resources, researcher time and a longer time frame to conduct.

The aim of the research is to evaluate the mistakes and lessons learned from the past and consider previous, existing and potential future guidelines; to accurately reflect the risk that governments and its construction sector face, we must access the legacy of its buildings and park venues through effective risk management and risk analysis techniques.

1.3 – Key questions

The core research questions that determine this study are as follows:

1.) What are the qualified areas of risk that are connected with the Olympic Games?

2.) What are the deficiencies presently of managing risks within the Mega Events, and how can these deficiencies be addressed as well as mitigated?

1.4 – Key questions Background

The above questions arise from the initial questions that were initially asked in the author’s research proposal:

1. Within the design and construction phase of the events project management, what guidelines should companies follow to not repeat the mistakes that occurred in the past?

2. How the Olympic villas for London 2012 were planned and managed at the planning phase to be profitable by the end of the Olympic Games?

3. What guidelines should be followed to achieve and improve the percentage of success of the Mega Projects Legacy?

4. Do the Procurement, Management and construction of Mega-events precincts have an impact on its legacy?

5. What are the main types of risk that Project Management face on the Mega-events different phases?

6. What methods do the consultants utilise in order to account for this risk exposure?

7. How conservation and management of resources for sustainable environment are envisaged?

8. How can the systems in place be improved?

These questions were queried to different authors and competent individuals within the industry. Their comments relating to Mega-Events are now summarized.

On a phone call between the author of this paper and Dr. Dirk Weiss {2} ‘Mega-events like Olympic Games, FIFA World Cup and world fairs have evolved over the last century and developed into an essential element of modern society. These events are an important economic factor with regular investments of billions and its planning and implementation is an enormous complexity to overcome. The conceptual approach to the strategic shaping and risk management of mega events is very important’.

Extract from his latest email,

‘Participating companies could achieve more:

1. through strategic management (effective planning)

2. through central features (overall economic effects, competitive environment).

The model of a ‘Life cycle’ can be created through systematic research:

1. Experience from the similar events in the past.

2. Network structure within the participating companies.

Effective planning and risk management can make a very positive in a very positive impact in a ‘Life cycle’ of mega events.’Heuristic’ problem handling process helps to prevent badly organized structure. It helps to form the ‘Life cycle’ through separate phases (splitting the problems > major and minor problems).

It helps to achieve innovative decisions too. Problem handling process is not only a tool for planning. It helps to handle the whole problem. Especially when we speak about individual decision making ‘ when simplifying the original problem and making suboptimal decisions.

The use of process, theory, practice helps the decision maker to manage everything more efficient:

1. Strategy.

2. Analysis of general conditions ‘ effective planning.

3. It offers approach to plan strategic direction and implement it systematically.

Strategy and associated Risk Management can be based on experience from the past. This helps to avoid the mistakes that were done. Sometimes organizers follow only the experience and miss the opportunity to innovation.’

Project Management is part of overall governance of the games on Mega Events, example such as Athens (Poor) and Barcelona (Partially Successful), reflect this.

Governance systems are often complex (London 2012) or mainly driven by central government (Beijing) or private sector (Atlanta). Construction and project management facilitated in Olympic cities by unique planning powers (compulsory purchase orders etc), helps speed up the development process but can also make it difficult for local community involvement.

Professor Gavin Poynter {4} when queried with these previous questions, stated that ‘Sydney is a good example in which a single park authority oversaw the development of the park post-games; that role lies with the OPLC in the London context’.The key to effective project management lies in the coordination at the major project level, undertaken by the Olympic Delivery Authority (ODA) in the London context. The ODA requires clarity in project outlines, risk management and budgets.’

Always with mega events (it seems) initial scoping studies reflect indicative budgets that fail to capture costs effectively. This is in part attributable to the distinction between the bidding phase and the actual process of development that occurs once a city has won the competition. It appears that London’s construction of the Olympic Park has always included a legacy dimension; legacy is a theme running through the pre-event, event and post-event phases, and is not merely confined to the post-event phase. In principle, this should assist in avoiding ‘white elephants’

Details of procurement procedures may be found on the ODA website in the case of London. The question of the project-management approach and Risk Management is an issue on a report for the London Olympiad, as indicated by Professor Ian MacRury ‘{7} in email exchanged with the author of this dissertation.

Procurement has to follow EU legislative frameworks but is set within a framework of government promises concerning the commitment to use Small and Medium Enterprises and for UK regions to benefit from contracts. It is at this level of government policies/aspirations that the environmental agenda is important since Olympic developments can become examples of ‘best practice’ in sustainability etc. The capacity to achieve this, however, is influenced by budgetary and financial issues and can be compromised as in London and Sydney for example.

An Olympic project can be treated as a specific type of megaproject, which (nearly) always serves these goals:

– The specific function during the Olympic Games;

– The more strategic, long-term functions after the Olympic Games.

These goals are shared among several individuals, Professor Dr. Philippe Bovy ‘{8} in his latest email with the author of this paper has stated ‘as a transport planner and not a construction man, is that recent Olympic project management and associated risk management is geared to:

1. Meet deadlines

2. Respect cost as much as possible

3. Abide to strict environmental rules and local constraints.

Since all Olympic projects have an absolute imperative deadline (Opening Ceremony), huge additional costs occur when the political decision process and project design and approvals run very late and construction moves to 3 shifts 24h/24h 7d/7d, like for many late infrastructures in Athens.

Probably the best source of current Olympic works sound policy orientations and good practice is right in London with ODA (start projects early so as not to have to rush them), minimize the carbon footprint, optimize recycling of about anything you could find in this big East London regeneration project which probably would never have taken place if not for the 2012 Olympics.’

The government should encourage more private capital in the construction and management of Olympic venues and Mega Events. (Private capital is more than half of the total investment in the venue construction), In the case of London the project is public funded; private investment is confined to Olympic sponsor scheme. London was not able to lever private sector capital to support development. The key for data could be obtained from ex-post evaluations. ‘I guess that it will be difficult to obtain reliable information ex-post from Beijing, but Barcelona seems to me an attractive case: pretty successful, European and not too long ago. We have to follow Bent Flyvbjerg (who is now at Oxford University) who argues that data ex-ante is mostly over-optimistic and not realistic. That is why ex post data (for instance about costs and benefits) are so important. Has a cost-benefit analysis been conducted? And what are ex post the real costs and benefits?’ as stated by Professor Hugo Priemus ‘{6} in emails exchanged with the author of this paper.

Undeniably Professor Bent Flyvberg has stated in an Inaugural Speech in 2007 ‘At present, ex-post studies are all too rare, which hampers learning. Only when ex-ante predictions are tested against ex-post outcomes, is it possible to begin to understand whether the assumptions underlying infrastructure policy, planning, and theory hold up in practice and what the causes are of success and failure.’. In his book ‘Megaprojects and Risk’ (2003), concludes that ‘cost overruns for multibillion-dollar infrastructure projects (such as the English Channel tunnel) are due primarily to the fact that the project was underestimated to begin with.’ He goes on to suggest that this “appraisal optimism” represents rational behaviour on the part of most participants, who have far more to gain if the project moves forward.

In a visit from the author to Professor Ferran Brunet {3} has stated that ‘the source of funding (of 1992 Barcelona Olympics) were divided on 40% from Public-Government and 60% Private-Commercial’ and the destination of resources were divided on 14.5% in Organization (Technology, Olympic Family) and 85.5% in Investments (Roads, Communications, Hotels, Housing, Sport Facilities)’. In his presentation ‘An Economic Overview of the Sport , Social , Urban and Environmental Impacts and Legacies of the Olympic Games’ for the ‘IX Seminario Nacional Pol’ticas P’blicas de Esporte e Lazer: Brasil 2016: a Ol’mpiada e os impactos desejados nas pol’ticas p’blicas de esporte e lazer das cidades brasileiras’ illustrates the expenditures on the Olympic Games:

‘ Ferran Brunet 2010

Figure xxx: Expenditures on the Olympic Games, 1964-2016 (2010) [ in English: (1) ‘ Olympic Games Organization; (2) ‘ Olympic investment generated; (3) ‘ Induced economic impact; (4) ‘ Millions of $USD (2010)

The organization’s governance model is generally not structured to recognize, quantify or communicate the cost impact of strategic risks. In fact, most current governance structures tend to discourage the disclosure of strategic risks. If the governance structure is organized such that a management focus is brought to the identification and understanding of strategic risks, and matched with the correct level of authority, many of these risks can be managed or avoided. What is wrong with the typical governance model for project risk management?

Richard Westney {11} have addressed this query in his article ‘CAPEX Var: Key to Improving Predictability’ at the World Energy Magazine Vol.9 No.2 (2006), and an email to the author of this dissertation, has stated ‘Armed with realistic estimates of cost and risk, we can understand the risks at a early point in the capital expenditure investment process where risk management can be effective. For example, this type of analysis is useful:

‘ to “tune” the commercial deal consistent with the risks;

‘ to support the financing process;

‘ to educate partners in risk/reward issues

Examples of executive decisions or actions that may be used to address strategic risk include;

‘ breaking a mega-project into lower-capacity sub-projects to be executed sequentially;

‘ using creative contracting strategies to optimize the allocation and pricing of risk;

‘ applying other resources to address specific risk issues;

‘ deferring or canceling the project

When a financial risk reserve is established as a result of the strategic risk analysis, it is clear that, unlike the contingency that is included in the project budget; these funds are released only as each of the strategic risks can be demonstrated to occur. These individual risk reserves can then be aggregated across the project portfolio, using standard techniques such as Monte Carlo simulation.

Executives can take the lead in improving predictability by:

‘ improving communication to make sure risk information flows freely uphill;

‘ placing accountability and authority for managing strategic risks at a level high enough to be effective;

‘ requiring the assessment of strategic risks (in addition to the traditional project-level risk analysis) and incorporating financial risk reserve into the management of the capital project portfolio.’

Within the perspective of the risk management tools, Christina Chin May May {1} in her last email to the author of this paper have stated ‘Different industries require distinct variations in project management knowledge as well as sector specific regulations, rules and approaches to run projects. Sector specific methodologies are built by extracting the appropriate elements from the roots and adding components required by sector specific rules, regulations, best practices and mapping them to the natural flow of work within the sector. Among the various industrial sectors, the construction sector makes the most frequent reference to Project Management Methodology. Methodologies developed and applied in the construction sector have been very successful in saving developers and countries billions of dollars. The need for specificity arises due to the differences in nature of the work, flow of work, pressures, skill sets of the people involved and the risk and priorities between sectors.’