Do you sometimes worry about the risks to which your organisation's new projects or ongoing activities are exposed?

If so, you will be interested in a new process which has been developed (by a joint working party of the actuarial and civil engineering professions) for the evaluation and control of risk.

Visit the RAMP website

Bring your risks under full control

A new process known as Risk Analysis and Management for Projects (RAMP) has been developed by the actuarial and civil engineering professions. It demonstrates how to identify, analyse and mitigate risks, and how to place financial values on them. It aims to achieve as much certainty as possible about a long-term and uncertain future.

Once allied with sound judgement, it will make it less likely that the resources committed to a project will be wasted or that the project will be a financial or total failure. This should lead to better financial returns for sponsors, investors and lenders.

The RAMP process covers the entire investment lifecycle of a project, with regular reviews at key points and a system for the control of those risks which remain.

RAMP is particularly useful for:

• Appraising new projects.
• Deciding on whether to invest in a project or lend money for it.
• Assessing projects under the Private Finance Initiative.
• Buying a business.
• Launching a new product or service.
• Reducing risks in an ongoing business.

Outline of RAMP

A: Process launch
Conducted: Early in investment lifecycle

B: Risk review
Conducted: Before key decisions or at intervals

C: Risk management
Conducted: Continually between risk reviews

D: Process close-down
Conducted: At the end of investment lifecycle

The key to success in investments is not to ignore risk but to analyse and manage it effectively. This allows profitable opportunities to be exploited which would otherwise be judged too risky.

Under existing methods of dealing with risk there are often shortcomings, such as:

• Differing standards of analysis, even for the same sponsoring organisation.
• Inability of investors and lenders to rely on the results of risk analysis.
• Lack of a framework for developing a record of experience or carrying out risk audits.
• The possibility that risks identified for mitigation can remain unmitigated.

Some companies feel that they do not need to analyse risk because they use a very 'high hurdle rate of return' (or a short payback period) against which to assess their projects. This is dangerous because it can lead to the incorrect acceptance of high risk projects which may have large returns in some circumstances. It can also cause the incorrect rejection of low risk projects with good returns but which fail to meet the artificially high hurdle rate. It may even result in risk mitigation opportunities remaining unexplored.

Features of RAMP

• It is a logical process, designed to provide a useful and practical framework for the identification, analysis, mitigation and control of the risks inherent in projects and other activities, however complex.
• It is designed to evaluate all major risks over the life-cycle of a project, including the vital revenue risks in the operating phase.
• It is disciplined and needs to be applied carefully.
• It will ensure all major issues get addressed.
• It pays special attention to disaster scenarios, even if the probability of occurrence is low.
• It links with investment models which place suitable financial values on the risks.
• It highlights the key risk areas which must be kept under review in future.
• It keeps unnecessary work to a minimum.
• It provides a strong linkage between the initial risk assessment process and the process for controlling the risks in practice once implementation commences.
• It focuses clearly on risk mitigation by reducing, eliminating, transferring, insuring, avoiding, absorbing or pooling risks.
• It demonstrates which of the possible risk mitigation options are financially worthwhile.

For further details (without obligation) please contact:

Mark Symons
Institute of Actuaries
Staple Inn Hall, High Holborn, London WC1V 7QJ
Tel: +44 (0)20 7632 2133
Fax: +44 (0)20 7632 2131

The RAMP report

Available from the publishers: Thomas Telford Publications Ltd, Book Sales Department,
1 Heron Quay, London E14 4JD. Price: £30.00.