RAMP – Risk Analysis and Management for Projects

The result of a partnership between the Institution of Civil Engineers, Facultyof Actuaries, and Institute of Actuaries.

Text from the web site www.ramprisk.com © Copyright 2004

Risk Management: Basic Concepts

The basic idea behind RAMP is extremely simple. It can be illustrated byconsidering the steps you take when considering going for a country walk withyour family when on holiday. First you and your family identify the risks suchas being caught in a thunderstorm, encountering a muddy path or getting lostYou then analyse the likelihood of each such event and how serious theconsequences might be, for example ruined clothing or getting back too lateto go to the show for which you have tickets.

The next step is to identify the risk mitigation options, such as carryingumbrellas and rainwear, wearing boots, taking a map and compass, or takinga mobile phone to call a taxi if necessary. In each case, there will be aninconvenience or cost factor and a decision will have to be made on whethermitigation is worthwhile.

Unless all the risks are mitigated, some residual risks will remain. Suppose itis decided not to take rainwear. The residual storm risk will then have to becontrolled by keeping an eye on the sky and heading for shelter in time ifblack clouds roll up. The time risk will likewise have to be controlled byoccasionally looking at a watch so that the taxi can be called when necessary.

These concepts of identification, analysis, mitigation, and control of theresidual risks lie at the heart of the RAMP process. For a major project thesituation is much more complicated than a country walk, with far more risks.Some of the risks will be dependent on others and many of the probabilities,costs and outcomes will be uncertain.

Risk Management: Need for RAMP

Why do so many projects fail, either operationally or financially? Manycompanies have become insolvent because they have not paid enoughattention to risk. Existing methods of risk management often fail to identifymany of the risks. A new method for dealing with such problems is known asRAMP. The actuarial and civil engineering professions have developed itjointly.

RAMP is a comprehensive framework within which risks can be managedeffectively and financial values placed upon them. It aims to achieve as muchcertainty as possible about a long term and uncertain future. In the case of anew project, the RAMP process covers the project’s entire lifecycle, frominitial conception to eventual termination. The process facilitates riskmitigation and provides a system for the control of the remaining risks.

Uses include:appraising new projectsdeciding on whether to invest in a project or lend money for itassessing projects under the Government’s Private Finance Initiativebuying a businesslaunching a new product or servicereducing risks in an ongoing business

The method is disciplined and, when applies carefully, ensures that all majorissues get addressed. It pays special attention to disaster scenarios, even ifthe probability of occurrence is low.

Risk Management: RAMP Method

The RAMP process consists of four activities, which are generally carried outat different times in the life-cycle of an investment as indicated below:

§ Process launch: conducted early in the investment life-cycle.

§ Risk review: conducted before key decisions or at intervals.

§ Risk management conducted continually between risk reviews.

§ Process close-down: conducted at the end of the investment life-cycle oron premature termination.

Each activity is composed of several phases, each of which is made up of anumber of process steps. The first and last activities -process launch andprocess close-down -are each performed once only, around the start and endof the investment.

There are a number of risk reviews carried out at crucial stages or timeintervals within the investment life-cycle. Risk management activities areperformed continually between risk reviews based on the analyses, strategiesand plans produced by the preceding risk review.