Welcome. I'm Bob Prieto Chairman and CEO of Strategic Program Management. And today I'm going to be talking about International Development and Construction Projects. But let me set the stage. As you begin projects or even consider projects, especially in the international environment, it's essential that you get a solid foundation that you're going to build on. So, in the class today, I will talk about one key element of founding of international development and construction projects. And that is in the area of risk. Risk is a major element that both shapes projects and shapes how we initiate them. And how we execute them. And I'll be covering a wide range of risks that you need to consider as you begin your planning and initiation of construction projects anywhere in the world. So risk is something that can be good, it can be bad, it's really about where is your balance point? What is your risk tolerance? And in determining your risk tolerance, it's essential that you understand what are the risks that you're going to face. So, in general, in large projects in particular, but in projects in general, there are four types of risks. Known Knowns, kind of the things that you see everyday. Known Unknowns, you know what the risk is, but you're not quite certain how big it is. Unknown Knowns, again it's unknown, but you kind of know that it's out there, if you will. And then the most dangerous type of risk, Unknown Unknowns. Now this last type is where, so called black swan type events appear. And it's also an area that, as you move into new areas, new countries, new technologies, new cultures, first of a kind projects, large scale projects, this is the area of risk that can create the most havoc both in the execution of the project but most importantly the ultimate performance of the project. So, the risks that we face as we move into an international environment, really change from what we're more conventionally used to. So more simple kinds of risks that we encounter every day in more routine types of projects are suddenly compounded by complexity. Static risks, the risk of working on this particular site are now not static as we move into longer time horizons, greater distances and areas of more uncertainty. They become dynamic, they change over time, they change through the course of the project and therefore our view of risk needs to stay current with what the current condition or risk is. Today on more conventional projects, we'll be in more certain environments. Whereas, in many international projects, we'll be working in first of the kind places, with first of the kind technologies, introducing new levels of uncertainty that we have to take into account in our planning, in our assessment, in our execution of the project. Capital efficiency which we try to achieve on projects, now is giving way to more life cycle effectiveness. The assets that we'll be developing, the projects we'll be building have to last long, long times. And that means they have to perform well, not just in the construction phase but importantly during the operation and maintenance phase. So we're no longer building for decades, we're building for generations. And it's no longer just the economic bottom line, the financial bottom line, but it's really a triple bottom line as considerations around social equality and environmental considerations become as important as the financial performance in many, many parts of the world. The safety focus that is a must In the construction business has to move beyond that especially as we move into areas with potentially new hazards. And that's becomes a focus on avoiding or even better eliminating those hazards completely. And the business cases that we rely on really have to recognize that the future is uncertain. That it's not predictable and that what we want to do is deliver projects and assets that can respond resiliently to a wide range of scenarios. So as we look at what the challenge of international projects are, we can really dissect this into three parts. First, understanding risks, then allocating them, and finally managing them. But through the entire process recognizing that they change. Now most of this lecture will focus on understanding risks. And with that, let me kind of get right into it and layout a framework that I've used for a couple decades now that helps me look at a particular opportunity, a particular situation and ensure that I'm getting a good handle on what all of the risks are, that we might face as we go about developing this project, building this project, and then in later years operating this project. And so, the acronym I've used is Espirit. And I'll talk about that in just a second. But again, think about it as representing a half a dozen perspectives or half a dozen seats around the round table, and you're looking at the project that's in the middle of this table and you're looking at it from multiple perspectives, trying to ensure that you really understand all of the risks that go into the project. So, the six categories, or the six perspectives, that we'll look at as we move through the recognition and understanding of risk are, economic risks, social risks, political risks, religious risks, intellectual risks, and technological risks. So let me just comment on one of them up front, which are religious risks. When I developed this presentation the first time a couple decades ago, it was because of experiences in dealing with multicultural construction settings. So, where you would have one culture with certain dietary, and prayer, and worship requirements, and at the same construction site, two or three other cultures with very different dietary belief sets, and religious, and cultural frameworks in which they operated. And so being able to integrate multiple cultures usually represented by multiple religions, in my experience at that time, became something that was very important. It's also a good way to begin to develop a deeper cultural understanding of the setting in which this project is going to happen. And I'll touch on that as we move through some of the other risks as well. So let me begin with economic risks. So, economic risks fall into three broad categories. Market and revenue risks, finance risks, and cost risks both during the construction and operations phase. And one of the biggest problems with risks is believing that we actually understand what they are. So as our level of overconfidence increases, the cost of the mistakes that we're likely to make similarly increases and it does so at an exponential rate. So one of the cautions as we're undertaking this understanding of risk is to not prematurely screen out what we view as low probability risks and at the same time, to not let an optimism by us creep in that adds to the creation of planning risks, which will come back and haunt us in significant ways as we move through the project. So I'm going to go through each of these three major categories of economic risks, and so let's start with market and revenue risks. So, there's a wide range of risks. One is that the market for the project that we're developing actually develops slower than projected. So, an example of that would be building a toll road, where the traffic on the toll road doesn't begin to develop in the first one or two years, but rather, it takes five or six years to develop, or the market rates that the project will support are lower than projected. We thought we could charge so many cents per kilowatt hour for power, but in reality, the market will only support a number, 80% of that, or other competitors have seen the opportunity and increased the level of competition, reducing the premium pricing that we might have thought we could have got when we first entered the market. Sometimes that competition comes from government itself, introducing free alternatives or competing facilities. Reduced market share. If we're late in getting the project online, we may lose valuable market share. And as I go through these various risks, you'll notice that time or schedule becomes a very, very important consideration, both in assessing the financial returns, but also the times at which one is exposed to larger risks, if you will. And then synergistic opportunities that we thought we're going to develop, don't develop and anyone of these can have significant financial impacts on the ability of the project to both proceed and then generate the types of economic returns that are ultimately required. And when we're doing this economic planning upfront, the future is not static, there are many, many, many potential futures. And so a key part when we're accessing these risks, assessing the economic potential of the projects, include looking at a wide range of scenarios and understanding where our approach will sit in terms of addressing these multiple potential futures. There are some excellent scenarios developed out there periodically, by a wide range of large international organizations. And I would recommend that if you're going to undertake scenario analysis that you seek out some of those scenarios and use them because they're very, very good starting points, if you will. Financing risks can range from cost of money to cost of currency. Today, we're in a low interest rate environment but if our project is going to extend over a number of years, or the schedules going to slip, we run the risk that interest rates during that period will increase, that inflation or deflation may grow or change from what was in our plans. So again, cost of money in and of itself is not necessarily a risk, it's the uncertainty around cost and money especially that created by changes in the overall schedule and durations of the projects. Now many of the construction projects that you would undertake overseas do not have access to long term local financing, and what this means is that there'll be international financing brought to bear and therefore foreign exchange risk becomes necessary. There are many strategies for mitigating it but first, you must start with an understanding of what is the level and the nature of construction financing risk that you'll incur. And of all of the finance risks perhaps the one that is the hardest to hedge, the hardest to protect against, is really just volatility. And so while there are hedging strategies, and some of which are very, very sophisticated, volatility and uncertainty are among the greatest challenges, among the greatest risks that international development and construction projects face. Now the projects you would undertake internationally can be undertaken in a wide range of financing structures that resort to a combination of equity and debt structures. They can include partnerships or stock corporations. They could include financial instruments that are looking for return on equity or capital gains and others that are looking for taxable or non-taxable interest returns. The whole subject of financing structures and the intendent risks associated with each of them would be a lecture unto themselves. But at this stage it is important for you to understand that the financing structure that you select for the project, carries with it a set of risks. And also will shape how you go about contracting for and executing the project. Where can you lay risk off, where should you retain risk and at what levels.