KINGSTON UNIVERSITY, LONDON

MNM102 FINANCE RESOURCE MANAGEMENT

REPORT ON THE FINANCIAL POSITION AND PERFORMANCE OF ROLLS ROYCE PLC AND COSTAIN PLC FOR THE YEAR 2011

Plagiarism declaration: The attached coursework is my own work and all references contained within it have been correctly cited and the original authors acknowledged. Student: Ogle, Paul 25 May, 2012 (K1059295)

Introduction
The processes involved in building a solar energy network for 10,000 households in the UK are very complex. A project of such magnitude has numerous potential adverse risk factors, however corresponding positive environmental, financial and sociological benefits. This project is unique in its concept, particularly for such a northern latitude, therefore an effective project management planning process is demanded. Breaking down the complexity of this project into definable tasks and measurable accomplishments is necessary to improve the chances of successful completion. The Work Breakdown Structure (WBS) is an effective example of a technique used to handle a program of such scale and will be described in this paper. There are also a number of risks associated with the planning, construction and operational processes of this massive solar installation program. The recent UK political uncertainty regarding renewable solar energy, coupled with the aforementioned factors, means these risks must be measured and analysed to determine firstly, whether project actually goes ahead and secondly, how they can be mitigated. This report will therefore initially define and evaluate the Risk Management Strategy for this solar power network.

Why Risk Management?

Risk can be defined as the probability or threat of damage, injury liability, loss or other negative occurrence caused by external or internal vulnerabilities and which may be neutralized through pre-mediated action (EGM202, 2011). Risk Management is a proactive approach used to control and mediate the hazards associated with a project and improves its chances of success. Hence, Risk Management techniques need to be implemented as part of this solar energy project planning process. The scale of dependence for reliable energy supply to such a substantial population base means negative outcomes could be catastrophic. 10,000 homes without electricity in the heart of winter would not create a life-threatening situation, but would also be national embarrassment. The trust in the reliability of UK solar powered renewable energy would be heavily tainted, jeopardizing future projects and harming the industry. The primary risk phases for this project are both the operational characteristics of the finished energy network itself and also risks associated with the construction phase of the process. An example of a construction phase risk could be lack of human and material resources to cater for such a massive project.

How to incorporate Risk Management?

The uncertainty of the hazards associated with both these types of risks need to be firstly defined and the affected parties recognized. Brainstorming sessions, checklists, interviews with experts, assumptions analysis and techniques such as SWOT (Strength, Weakness, Opportunities and Threats) are some methods which promote a better assessment of the main risks of this project. Initially, the risks and affected persons could be listed in a table as follows:
# 1 2 Risk Description Lack of electricity during peak demand periods (e.g. triad period) Material distribution delays during construction Labour resource unavailability Excessive down-time/loss of power during switchover Subsidised govt Feed in Tariff relinquished FIT subsidy reduced Extreme weather events = damage, project slow down Construction fault in solar panels Increase in material costs between planning and initiation Major hold-ups throughout all stages of planning/installation Electricity price increases Individual contractor insolvency Serious injury/death during installation Minor injury during installation Increasing fuel prices Construction costs exceed budget Environmental damage during installation Time lost though sickness Public distrust and unwilling participation for scheme Lack of investor support Lack of government support Electricity price increases Excessive electricity production in summer Affected Parties Customers Customers, contractors, suppliers Mgt, customers Mgt, customers Company Company, customer All All Company, customers All Company, customers All Contractor, company Contractor Contractor Co./Contr. All Co./Contr. All All All Customer Customer Probability V. High High Impact Catastrophic Critical

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Med Med Med High Low Low Low High Med Very low Low High High Med v.low High V.High High Low Med Low

Significant Catastrophic Catastrophic Significant Medium V.high Low. med Catastrophic Negligible Critical Critical V. High Marginal Significant Significant Negligible Catastrophic Catastrophic Catastrophic Negligible Negligible

24 25 26 27 28

Noise Logistical complexity in supplying reliable electricity Significant exchange rate fluctuations Archaeological find during construction Fuel price drop significantly

Low Co./Contr. Co./Contr. Contractor Contractor

Low High Low V.Low V.Low

Low Significant Significant Marginal Negligible

Table 1: Details for the PI Matrix Diagram Next, an evaluation of the recognized risks needs to be performed to establish what the likelihood of them occurring is and what the severity is of the impacts on those parties affected. This evaluation is probably the most significant in the entire project planning process, as this will decide whether the project actually takes place. The risk factors can be clearly presented in a Probability, Impact (PI) Matrix Diagram as shown below: Very High 0.9 High 0.7 Medium 0.5 Low 0.3 Very Low 0.1 Negligible 18 0.045 14 0.035 11, 22 14, 15 0.09 22 0.07 27 0.05 9 0.03 18, 27 0.01 Marginal 24 0.18 6, 25 0.14 25, 16 0.1 7, 26 0.06 12, 17, 28 0.02 Significant 0.2 19 0.36 2 0.28 3 0.2 21, 16 0.12 13 0.04 Critical 0.4 1 0.72 10, 20 0.56 4 0.4 5 0.24 8 0.08 Catastrophic 0.8

23, 24

28

0.05 0.1 Diagram 1: PI Matrix Diagram

Note: Upper number in each cloured box represents the risk category from table 1. The lower number is the overall risk factor, multiplied by the probability factor and the impact factor. Where the risk factor is 0.2, this then needs urgent attention. 0.08 to 0.2 requires regular attention and 0.08 needs merely to be regularly monitored.

The probability figures and ratings themselves are critical in the effectiveness of this PI matrix. Under or over estimating a risks impact, or the probability of it occurring affects the significance of this technique greatly. Hence, accuracy is key to getting the most out of this system.

Once the PI Matrix is refined, the most critical tasks need to be reviewed and then the implementation of planning processes as mediation measures. The most critical zones in a PI matrix is the upper right hand red zone, or those tasks with an overall rating higher than a defined limit. For this project, this level has been set at 0.2. These things are most likely to occur with the most disastrous consequences. Risk reduction measures for some of the most critical risks in Table 1 could be undertaken in the following ways: Reliability is the biggest issue with solar energy in the UK. Therefore, the system needs to be supplemented with mains grid connection as a smart grid operation system i.e. balancing variances in power production and demand. A worrying study by Boyle (2008) suggests domestic applications for domestic solar PV in Ireland is not currently feasible, even with government support. Therefore, a balance will need to be reached between the types of solar energy types to be used. Concentrated solar heating for example is not suited to the UK (EGM202, 2011). Storage mechanisms are not yet effective enough to allow an independent solar energy system for stand-alone, grid-free systems of anywhere near 10,000 houses. However, integrating solar heating is an effective means of storing the suns energy and reducing electricity consumption. Without financial backing, this project will not go ahead. Government and local unwillingness to support this project because of misguided information will also have the same result. In-depth research and reporting on estimated energy and water heating production needs to be completed to assure the feasibility of this project and earn investor trust. Major logistical hold-ups will ruin the project companys reputation and also reduce the chances of the operations completion. Contingencies such as back-up supply sources and large scale storage facilities could reduce the chances problems eventuating.

Review and updates of the planning processes must be continuous before, during and after project completion. Those with higher risk values clearly take priority in review regularity.

Why a Work implemented

Breakdown

Structure

(WBS)

should

be

Potentially unknown variables and high-risk areas should have been defined and accounted for since the risk management process forces a closer analysis of the entire project. The risk management system allows the decision tree technique to be used to determine whether this project is ultimately feasible. Providing this is the case, a pooling of all the work and tasks and jobs needs to be categorized. The Work Breakdown Structure (WBS) is an effective method grouping together all such tasks into a diagrammatic, flow-chart form and provides a platform to initialise more detailed planning systems such as MS Project.

How is the WBS implemented?

Each underlying level of a WBS expands the details of its predecessor and continues to a particular level of detail desired. For instance, the CEO will not be interested in the number of bolts necessary to fasten the PV panels to the framing, yet a WBS for an installer would be. The WBS is a useful method in getting an overall picture of who needs to do what and what resources are required in a visual format. Naturally, the scope of this report limits the detail to which the WBS can be broken down into its components for planning such an enormous energy project. Smaller sub groups such as Assembly Breakdown Structure (ABS), Product (PBS), Cost (CBS) and operational Breakdown Structures would be defined diagrammatically and combined to create the overall WBS for the project (EGM202, 2011). Diagram 2, WBS for UK Energy Project, provides an example of a WBS system for this project, which could be presented to upper management so they have a clearer picture of the project in its entirety.

Discussion and Conclusion

This report has shown how the Risk Management and Work Breakdown Structure techniques are two useful methods in planning large projects such as a solar energy network for 10,000 homes in the UK. The Work Breakdown Structure system has perhaps less significance as a Risk Assessment undertaking since the WBS is less critical to the ultimate success of the operation. It acts more as an aid and puts the entire project into clearer perspective. A WBS in greater detail for the appropriate area of interest can, however, simplify the creation of definitive project planning tools such MS Project. For this specific project, it was found a number of contingences measures could be put in place, which can mitigate the effect of adverse risk factors associated with large-scale solar installations in the UK.

References
Boyle, F (2008). Domestic applications of solar PV systems in Ireland: The reality of their economic viability. Ept of mech engr, Dublin Institute of Technology, Dublin. EGM202 (2011). Project Management EGM202, Kingston University . Handout and online resources made available by lecturers during renewable energy engineering postgrad course; Lung, Robson & Yeghiazarian (21-25 Nov, 2011). Viewable at: https://studyspace.kingston.ac.uk/webapps/portal/frameset.jsp?tab_tab_group _id=_11_1&url=%2Fwebapps%2Fblackboard%2Fexecute%2Flauncher%3Fty pe%3DCourse%26id%3D_5883892_1%26url%3D

Other Resources Bachy, G (1997). What to be implemented at the early stage of a large scale project. Elsevier publication, University of Helsinki. Komendantova & Patt (2005). Perception of risks in renewable energy projects: thecase of concentrated solar power in north Africa. International Institute for applied systemy and analysis, Austria