Professor James Young
“Politics, Institutions, and Project Finance: The Dabhol Power Project.
Strayer University 2011
Project risk management has been identified as the number one cause of project failure by most if not all organizations. In view of that project risk management is given prominent place in any project undertaken by businesses. Project managers are therefore are under immersed pressure to practice the best risk analysis methods in order to complete projects in time and within budget for the organization to be profitable.
Project risk management is a science if you will, that uses several methods in identifying and accessing the risk factors and ...view middle of the document...
The bidding process was flowed as Enron was the only company and its financials were not scrutinized by the Indian Government before awarding the contract to them. Politics also played a great part in awarding the contract to Enron by overriding India’s federal authority who studied the project independently and also found that the entire Memorandum of Understanding (MoU) was one sided in favor of Enron. In addition the World Bank after analyzing the financial application from Enron and the central government concluded that the project would compel MSEB to replace cheaper coal-fired power output with a source that was much as five times more costly and most state electricity boards were in poor financial condition. The bank also noted that the Dabhol plant was planned as a base load power station when Maharashtra faced electricity shortage only during peak hours, and the use of LNG as fuel was dubious given the cost of domestic coal was considerably lower.
RBS LEVEL 0 | RBS LEVEL 1 | RBS LEVEL 2 | Risk | Potential | |
Diagnosis project risk | TECHNICAL RISK | 1.1 Scope definition | Broad complex project scope: Changes in the middle of the project. | Yes | |
| | 1.2 Requirements definition | Local experts, project managers, professional team members. | Yes | |
| | | Technical expert in financial institutions. | Maybe | |
| | 1.3 Performance | Project schedule changes | Yes | |
| | | Additional requirements could cost money. | No | |
| | 1.4 Test & acceptance | Time constraint on construction changes could cost more. | Yes | |
| MANAGEMENT RISK | 2.1 Organization | Lack of good management | Yes | |
| | 2.2 Resourcing | No trained management expertise, Enron and central management are incompetent. | Yes | |
| | | Lack of business experts in management | Maybe | |
| | | Financial managers | Yes | |
| | | Local contractors no involved. | Yes | |
| | | Foreign contractors will create cost overrun. | Maybe | |
| | | Use of outside consultants equal more funds | Maybe | |
| | | Lack of professionals will delay project | Maybe | |
| | | | Maybe | |
| | 2.6 Communication | project reporting will be cumbersome and not cost effective among local and foreign teams | Yes | |
| | | | | |
| 3. OTHER RISK | 3.1 Contractual terms & conditions | Contractor’s central government, Enron and financial institutions will mean cost and time constraints. | Maybe | |