Hello, listeners. This is the risky planner podcast. Thanks for tuning in. Actually, so totally separate topic. Yesterday, I went to a panel hosted by the Canada club, and it was on indigenous involvement in capital projects in Canada, in particular, a new piece of legislation that mandates indigenous involvement in all major projects in Canada, and we're in like a crazy build phase right now? Yeah, it was really interesting. It was, I mean, better late than never, I guess, yeah, but yeah, it was super interesting. I learned a lot. You know what? I am, by no means a libertarian, okay, but one of the like libertarian talking points that actually really does resonate with me, is why make law when another one already exists? And I don't know with 100% certainty what the like legal coverage framework is for indigenous consultation, but I do know that there is one at the provincial level in Alberta, at the very least, because I've done a fair bit of work here in areas where, you know, it's traditional native land, and there's, there's lots of activity on it that, for example, we have to respect the the hunting and fishing rights of the indigenous populations When we're designing things like our construction seasons and the eventual impact of of whatever we're building has to be, you know, has to comprehend that or or make some kind of compensation for removing it at with their consent, right? Like this is a conversation that it's a conversation. And literally, every project I've ever worked on anywhere in Canada has involved an indigenous consultation piece where there is, like, a real concerted effort to involve everybody and make sure that like, opinions are respected and that they're in the room literally, right? So, you know, it's, it's always like, you know, it's, it's easy to to kind of glom onto the narrative that indigenous rights are being, you know, violated by by these major projects, and you know, the companies that run them, and I am sure that that is true to at least some degree, like, depending on where you look, right, like, on which project, which owner is, like, all those things, there's going to be some of that. That's true for sure, but it's not true, like, across the board, you know what I mean, yeah. And even those times when, when rights are not properly respected, like, those are regrettable things that we should all be learning from. But it's not the norm, right? You know? And there's also, like, there's responsibility on the part of of major infrastructure owners and new project proponents to get that right, right? There's also a responsibility for the indigenous groups to show up, right? Yeah? Like, well, that's, that's what this panel was talking about. Is this new Advisory Council? Yeah, so it's, it's not like one community or nation. I mean, it's, it's a conglomerate, like, it's a group of nations together. And when a project gets identified and picked, because it is a very good project, and we should be building this. This advisory council comes in and makes sure that the process by which, you know that owner operator is building, the process for involving whoever, catching everybody, and you know all that table that sounds great, honestly, because we'll see what happens. Well, for sure, yeah, it's all proof is in the pudding type of stuff. But yep, the biggest failure I've seen on projects is that they make a good faith effort to engage everybody. They do all of the communication sweeps, and they catch as many, you know, indigenous groups as they can. And there's always one or two that just aren't contacted. Yeah, that aren't contacted. And why that is, is remains a mystery to me. It some I feel like I've been on at least one or two projects where the answer was, we just didn't know they existed, right? Like, we had no idea they were there, you know, our sweet because, like, they all, like, all the major I think that's their their attempt is to prevent exactly that situation. That's what I based on what you're saying. Like, that's what it sounds like, and that would be a genuinely useful thing. Honestly sounds like it. I mean, the other part of it, and it's also sound like something this Council could maybe help with, assuming it takes the form of a council or something. But like, if, if, because, because, because the other problem is, like, there are a fair handful where you attempt consultation, they just don't respond right? Like, they just don't come to the table at all, even though they've been invited. And then when, when the rubber meets the road and it's time to go do projects, all of a sudden they're there and be like, Well, why weren't we consulted, you know? And it's like, so, like, the flip side of those coins is, like, you can never really be 100% sure. Which type of failure you're looking at right away, right? So it's tempting to just assume, Oh, well, we tried and you didn't say anything. So like, jokes on you, buddy, but like, that's not the right way to handle it, right? So the fact of the fact is that that that situation happens, it does happen, really, no matter what community you're engaging, right? Like, it happens in, I'm in Toronto, you're in Calgary, like it happens even, like, you know, neighborhoods. It happens with residents. I mean, it's, like, literally any group. It's, you know, a lot of people aren't responding or reacting until, well, maybe it's until it's kind of too late. Yeah, yeah. So anyways, it was really interesting, and the thing that we left with, I actually got a lapel pin that's actual moose hide. And it's a the moose hide campaign, which is a indigenous led grassroots movement for of men and boys who are advocate well, and it's for all Canadians, but indigenous led and men and boys that are advocating and fighting against violence against women and girls, which I thought was, I mean, I like lapel pens for my suits. It was pretty unique. It was like, Hey, this is moose. But check out. Check out. I want to give them a shout out moose hide campaign.ca, and put a link to that in our in our show notes. Yeah, yeah. Well, by the way, speaking of which, I'm Albert, he's Nate, this is the risky planner podcast. Welcome everybody to the risky planner podcast. Was so let's switch gears. We have, it's pretty interesting. Like, I we're going to talk about, actually, we're talking about oil. Yeah, a lot more than just oil, but like oil and supply chains and war, Nate is current. Nate buried the lead three list items deep there, right? Because we are recording this on March the 12th, which makes this, I believe we're two weeks in to the Iran war at this point, something like that. Yeah. So, yeah, the we changed gears last minutes to record and talk about this instead. Because, quite frankly, what else is there to talk about right now? Nate, that's right. Well, I mean, the supply, I think what's wild is, you know, just watching the price of crude oil, I was looking at like bent crude, and this morning it was at 99 and then I watched it go to 100 and then to $100.50 and then, I mean, it's just, you can see it ticking up and up, and it's it whipsawed from what$70 to $120 and back to 80, like, all in the span of a week. Maybe it's like, yeah, so we're switching gears, because it's like, what is the impact on all the supply chains that are serving the capital projects. You know this to us is like, what does it all mean for capital? Yeah, and like, I think, before we get rolling on that, I mean, it's worth it's worth mentioning that we are a project management podcast, so that's the element of this that we're going to focus on, but it is a colossal human tragedy happening all across the region right now, and has has been for years, right like, you know, be because of, you know, conflicts between Iran and its neighbors. Sorry, I meant to say Israel and its neighbors. Actually, Iran, you know, backs some of the groups that, you know, Israel seems to enjoy. I hate to use that word, fighting against, but you know, given how often they do it, it's difficult to find another word. But anyway, at the risk of getting political, I just want to say, like, we're not blind to the fact that this is a human tragedy with human stories involved, that there's a lot of injustice, and, you know, it's clearly a war of adventure. There's no reason for any of this to be happening right now, but it is happening. And if you are a project director, if you are a VP, if you are, you know, in the C suite of a company that runs projects, you need to be thinking about it from these, you know, financial and practical perspectives. But that doesn't mean that it has to get, you know, the human side of it has to get lost. It doesn't like we're we're living with that all the time. That's probably the part of this that you and I talk about the most, actually, yeah, I think that was a really good I thank you for that, because that's a good sort of segue into the topic. And we don't want people to think that we're just ignoring some of that. But we want to focus on, yeah, what our expertise is, right? Like, any way you can help go hella, right? Like, figure out a way to make things easier for, you know, your your friends and maybe future friends that live in the region. And, you know, there's a lot of expats who are stuck out there. There's a lot of that's in addition to the the obvious, you know, issues with people who live in. In Iran and the neighboring countries, you know, it's a, it's a bad situation for everybody. And we have colleagues too, that are, you know, they do only you know, and they're from various countries in the Middle East. So we, you know, have some, you know, they have connections. So it's English expats who are, you know, stuck in in the UAE, unable to travel, you know, sheltering we have. One of our directors is from Ras Al Khama. No, he's not. He's in Ras Al khema. Now, he's from Abu Dhabi, like, he's from an extremely short walk from the US Air Base in Abu Dhabi. So you bet, when the bomb started falling, you know, he got his family out, yeah, and we were very pleased to hear that he's okay. But it's a lot. There's a lot of those stories going on right now. This is not a project management story first, but it is the element that we're going to cover, the hardness. Let's, let's switch gears. Yeah. So I've been following this closely because I just, I mean, I can't, not, you know anything, if it's global, political, macroeconomic, whatever, like Albert, this is like, you know, let's just focus on the capital project environment like this was already under pressure, right? So, tariffs, inflation, talent, sort. We've talked about that, and, yeah, all of a sudden, it seemed like overnight, the Strait of Hormuz was just completely closed. Yep, yeah, right. And traffic, nobody's going in or out like now ships are being attacked like it is shut. So Albert, my question to you, just to start us off, is when you look, if you're sitting with a project sponsor who has, you know, a high investment capital portfolio in any sector, we don't you know, nothing specific, like, what's the first decision? They should be considerate. Like, what do you think their first consider? Their first decision they should be considering today. Well, like this is, you know, our friend and colleague Roger has been all over this on LinkedIn. He's been talking about the impacts of the closure of the strait and what they mean for a risk profile. And, you know, I stuck in his comments and made my two cents. So I'll kind of repeat what I said there, which was that this is a really good example of the purpose of enterprise risk management, right? Like, no one project, okay, so, like, the distinction here that I'm making is between project and enterprise risk so, you know, both are effectively measured in dollars, right? Like they're measured in money. But you know, some of them are a little more granular and some of them a little bit more global. And it really boils down to who has the responsible authority to manage the impacts of that risk. So at the project level, things like, you know, I'm building a tall structure, somebody might fall off and die, right? That's a risk you can manage at the project level. So you make sure that everybody has fall arrest, you have, you know, important pre job briefs that people that are mandatory, that involve a lot of participation on site, safety stuff, regular training. You've mitigated that risk as much as you can, right? And you can do all that at the project level. But there are other risks, like the Strait of Hormuz is closed because of a war, right? Like that is not something that a project manager can do anything about at all, right, project managers are receivers of the impacts of that. So you have to think about like your framing of the question was, was spot on? Because you're talking about people who are sitting at the portfolio level making making big decision. That's where enterprise can be. So can I interrupt you real quick? So yeah, do you think that these people, the project sponsors a portfolio low. Do you think they considered that this would happen? I mean, if you're involved in, I guess, the region, maybe you would. This is where, like Rogers, well, first off, because the region is not exactly the most stable place on Earth. The region we're talking about is the Middle East, of course, but like that it there is some amount of baking in of risk that you do when you're doing work out there or when you're dependent on inputs from there. So yes, is the short answer. Of course, they did. But did they think about this specifically? Like maybe it was on a scenario board somewhere, right? But it's probably not how they are building their their risk allowances. You know, you don't think, I mean, obviously, when you're when you're trying to build a risk profile for a like the geopolitical risk attached to a region that supplies you with goods and services, then you have to think about some of the plausible things that might happen out there. So, you know, I mentioned it earlier, but like, Israel lashing out against its neighbors, or its neighbors lashing out against it, is a fairly plausible scenario, right? It's one that you can kind of put on the dream board and say, like, well, not the dream board, the nightmare board, and say, like, this might happen, right? So we need to think about that as part of our overall risk exposure, right? Like our risk universe includes things like this. Does it? Include this specific thing, almost certainly not right, right? This was a surprise to basically everybody you know, but, but the executives must have been if they were dependent on this, like, you say, like once the US buildup of of ships and and military, you know, once that buildup started happening, I imagine that some of those conversations began, yeah, well, me and my friends too. So like, if me and my buddy from college noticed that, you know, F sixteens are sorting with equipment that that has only ever flown on test planes before, right, and now suddenly they're being deployed, you know, to to the Middle East, or that's what seems, you know what I mean, like, you can follow the logistics trail. If my buddy from college and I figured it out. A lot of other people figured it out too, yeah, but that was like, two weeks prior to it happening. That is not enough time to adjust Enterprise Risk foot, not at all. Right? No, two weeks is zero days, right? At the enterprise level. I mean, these decisions are made over the course of, you know, quarters, mostly years and chunks of five years, right? So actually, I was talking to somebody at the university pension fund here in Canada, and I asked if this was affecting, sort of their portfolio management, totally different industry. But, I mean, they're planning three, five, you know, more years out. So, yeah, the risk of supply chain disruption, I mean, that sure that's factored in, but it doesn't affect them because they're in a completely different space. But it's just interesting that everybody's talking about it every Well, of course, I mean, they have to be, but like, they're not thinking about it because of the five year plan. They're thinking about it because of the next quarter plan, right? Exactly. I mean so, because, if you think about it from the perspective of, I can't remember the name of the guy, but there's like a retail investor who made himself somewhat famous by outperforming most hedge funds and professional investment firms and things by basically never buying or selling anything right? Like his portfolio is extremely stable, and he has outperformed most of the professional hedge funds just because he's not reactive to market. Is just like, it'll even out. And, you know, did not buy GameStop. He did not buy GameStop, but, but the point is that even if he had bought Gamespot, stop, He also bought stop, right? GameStop. He also bought other things, yeah, that were hedges against GameStop, and he didn't do it, you know? He didn't like panic sell GameStop, right? If he owned it, he just waited it out, yeah, because things do tend to even out, and the general trend is towards growth, right? So when you think about it from that perspective, your next quarter as a portfolio planning director looks really rocky and unpleasant for you, right? But the next five years looks the same as the last five. So what's the so in terms of that quarter? What's the what's the decision that they should be considering just for the next quarter? Well, it's not necessarily true that, like so most of these guys have their these folks, I should say, have have their budgets locked in already, right? So whatever they executing over the next three months, like they know what that money is, they can't really spend more than that, and they really shouldn't be spending less either. So if they've got that time already programmed out with what they intend to spend, yep, then, then, basically the the risk part of it just takes a bigger chunk of that space away to actual do work, right? So if they're assigning dollar values to all of these enterprise level risks and using that to inform their capital planning, then the risk component of that just got a little bit bigger, as sure happened. Okay, so that just means that the actual capital spend part is getting squeezed out somewhat, but, but weirdly, in a way, this might actually make some portfolio planning look a little better than it would have without the war really. How so? Because especially when you're dealing with big tranches of small projects, yeah, projects tend to get delayed on schedule, which moves our cash flow to the right, right, like it moves everything out. So if you had a capital plan that had you doing three projects that cost $100 million you know, in Why do I always give myself fun math problems? You have four projects that cost $100 billion in the next quarter, and one of them gets shoved out. Then you know, you're only going to be spending 75 million, right? So the overall cost of that work just went up because of the war, but the impacts in quarter maybe actually smooth out versus your plan. This is a really dangerous I like to compare this to squeezing the toothpaste to the end of the tube like it does have to come out at some point. My dad used to Captain Habermeyer used to use the paper clip. You remember the little black paper I use the binder clip? Yeah, the binder clip. That Nate issue. That's what I do. That's funny. Well, so I'm basically a submarine captain. Is what I'm saying. Yeah, you are basically, yes, we can all be Captain Habermeyer in our heads. So, yeah. So. The real cost impact on capital projects. And, you know, may appear, you know, quarter, like, years later, you know, it may appear, whatever, it's not going to happen today, but it's going to happen, you know, sometime later cycles impacts to, like, long term planning, yeah, like 90 days, 100 are we talking 180 days? Like, I think we're gonna see some, we're gonna see some, some quarterly revisions amongst publicly traded companies in the next quarter. Like, maybe when they do their quarterly announcements. Yeah, exactly. So, what other industries do you think are experiencing disruptions with this? You know, whole the war and Hormuz being closed down. Like, I've heard about fertilizer, right? Like being disrupted? Well, you know why, right? Why? Because a huge percentage of the world's urea, u, r, e, a supply comes from there. That's a key input into fertilizer, okay? And basically, you know when, when the Strait of Hormuz is closed, an enormous amount of that urea is trapped where it is, right, okay, which means that, you know, if you are, say, an American farmer, and you're thinking about your spring planting season and you've placed orders for fertilizer, like last year, those orders are being reported as stranded now, right by the logistics companies, and there are some force majeure claims happening there. We'll get to that later, but the the price for for fertilizer is about to skyrocket, like, for sure. Yeah, that's so that's one of the big and that's getting a lot of news coverage now. One that's getting a lot less coverage, though, is aluminum. Yeah, so a huge percentage of the world's aluminum comes from the Middle East. I don't know why I thought aluminum went into fertilizer when I asked the question anyway, shows how much I know about livestock. But what you're saying is that, if you're a farmer, all of that like it's gonna affect that's that's where the consumer effect comes in, because the price of beef goes up, or the price of chicken goes up, or the price of, I don't know, corn in the fall goes up like it just depends on what the fertilizer is for. Well, we'll see supply constraints. We'll see price hikes for sure. And what I find really kind of fascinating about this. I was doing a little research over dinner about this in anticipation of recording this episode, but also just because I find it interesting, and, you know, I was curious because we were, there's a lot of talk about the strategic oil reserves, right, like in the US and elsewhere, like yesterday, it was the big announcement, yeah, right, releasing some, and that's gonna help a little bit. But the the thing I was curious about is, okay, oil fine, makes sense. There's like an international treaty that governs strategic stockpiles of oil. What about other things? Like, do nations maintain strategic stockpiles of other things? And the short answer is yes, but not the US, right? Like the US doesn't have a strategic fertilizer stockpile, right? But guess who does China? China? Yeah, yeah. In fact, it's deemed a national asset there. So in China, like fertilizer is meted out to farming interests on an as needed basis by the government. You know, interesting story that I have let me take us on a tangent real quick, on just how that so about 12 years ago, we had a Chinese mining client who came to Regina to buy the permits to mine potash outside of Regina from get this the Russians. And so our job, my agency's job, it was, you know, on the ground, with, with the clients, was, was basically to keep, like, you know, this, like two dozen, you know, this group of two dozen Chinese engineers, and I don't know, chemical, chemical engineers and others, out of the news, out of the Regina newspaper, basically running around. I've been to every Chinese restaurant in Regina, but it's because China has designated fertilizer potash as a strategic asset. I mean, it's food, right? So that does not surprise me, yeah, yeah, no, but it's something that didn't, didn't click for me right away until I asked the question. Did a little bit of reading on it. And it's not just China. Like India also maintains a massive urea buffer, which they've announced publicly that they have enough to get them through the next monsoon season, like they had pre bought a lot last year, which has started to look like a really smart strategic choice at this point. But yeah, so like and this, this is another example of, you know, the the US pulling out both of its guns and immediately shooting itself in the foot, right? Yes, you know, it's because the US doesn't have a strategic, you know, urea or fertilizer stockpile. They also don't maintain an aluminum, uh. Reserve, right? Some countries do, but the US does act that's going to affect capital projects big time. It's going to affect capital projects more than, arguably, than than fertilizer and 100% and maybe not as much as oil, but it'll be similar. Yeah. I mean, there are force majeures and shutdowns and all that. Things happening across the the region, like the most high profile, which is Qatar's Catalan plant, which has just begun a controlled shutdown. And that is because of a lack of incoming, like risk to their supply chain, basically. So it's because of the LNG stuff that they weren't able to continue producing. LNG is a whole separate thing, like LNG is also blockaded, so it's just and because, like, oil and LNG and aluminum and, you know, fertilizer, like, that's going to have ripple effects across every element of the economy. Well, it's funny you like fertilizer the discussion, because it makes me think of food, and then it makes me think of talent, right? And then also, to your point about attacks on Qatar is like water supply, right? Bahrain, oh, my god. Bahrain has a desalination plant that was attacked by a ray, I think, last weekend, by an Iranian drone. And that water supply cut off maybe to dozens of villages, right? So there's a knock on effect, a direct, like, actually, direct effect on human talent for these projects. And that's another big, big it's gonna have a huge impact. It is. And Dubai also had a near miss on a desalination plant recently. And like, if you're, if you're cutting off the route to the plant, you may as well destroy the plant, right? Like you can't operate. It doesn't it doesn't work. So, you know, there's, there's a lot of concern about that right now. You know, back to my let's not ignore the human cost thing. Like attacking critical water supplies is, in fact, a massive violation of international human rights law. And the reason is because it immediately degrades the civilian population's quality of life and lowers life expectancies, right, right? If you can't get access to enough clean water, you get sicker, you die faster. It's bad, right? Obviously, this has impacts from a humanitarian perspective, but it also has impacts on, you know, who can be doing, which projects and where? Right? You know the workforce is, is what it is. It's all but miss, made up of No, I'm glad, I'm glad you pointed that out, because you and I do have these conversations. So yes, you, you 100% there is the massive humanitarian crisis. And arguably that is most important. It is most important. But, you know, like we said earlier, project management podcast, let's talk about the project management element of it. Let me so just on top, on the topic of, of like, you know, the desalination plant you were talking about, you know, if it get hit, you got to destroy it. Like, then there are strait of Hormuz. There's like, so there's LNG, there's urea, there's crude that goes through there. Like, these are multiple systems that are failing simultaneously, right? Yeah, so is that. Shipping is failing, energy is failing, water infrastructure is failing. Like are risk registers even equipped to manage that kind of like simultaneous failure. Like, what do project control teams do? Or, what do they know? No, which? What should they be thinking about? Well, the short answer is, no, they're not equipped to handle it. And like, you know, you kind of mentioned offhandedly the hooties, but like, it's worth mentioning that the hooties started resuming attacks in the, in the in the Red Sea, right, right? That's not, that's not the Gulf, right? That's the Red Sea. So this is where the strait the Suez Canal is, right? So now the Strait of Hormuz is effectively closed, and the Suez Canal just got a lot more hazardous. You know, like, there are oil supplies now being shipped in the other direction, like by super long pipelines to get to the Red Sea, but then once it gets there, Hootie attacks, right, right. So, or around this the or around Africa, right? I mean, it adds so much extra time. Oh, yeah, and cost, yeah. I mean, we're already exactly so, like some if you are a container ship, and you're trying to de risk your route. You're not looking at the Suez Canal or the Strait of Hormuz. You're going all the way around, you know, the Horn of Africa. And that's weeks, it's 1000s of miles. It's extra risk. It's extra delays, you know, so how does, how does the project controls team like, Look, if they're thinking about a schedule, how are like, what should they be thinking? How should they be thinking? What are they thinking? I guess that's a lot of questions. There it is. Yeah, go ahead. I'll let you in. Should they be thinking? Yes, the answer that last one is, you know, six months ago, right? Because when, when we do a a quantitative risk assessment for a project. Risk we should do a lot of those right. As part of our embedded Project Control Services, we provide a lot of quantitative risk assessments for our clients, and there's always two elements to the risk inputs, right, broadly speaking. So those two elements are discrete risks, right? Like things, risk events that you can see coming, or, you know, things I gave an example earlier, of the worker climbing on top of the tall, tall tower and falling off. Right, right? Like that is a risk you can see coming. There are other risks that you can't see coming. But you know something like, in the in the in the big stew pot of craziness that happens to projects and in the world, something's gonna happen, right? So we call that, depending on, you know, your preferred definition, systemic risk or base uncertainty. Okay, so the idea that, for reasons, you know, in scare quotes, things will be delayed and they will cost more, right? It's it's difficult to say, and by the way, for for similar reasons, in scare quotes, things might come in sooner and cost less. So based on certainty and systemic risk is often modeled, you know, in both directions. Right? Positive and negative history tells us that positive wins out. Right? Projects cost more and take longer. They don't cost less and take shorter. That's just how it is, right? So when you're modeling for systemic risks and uncertainties, you typically would, you know, put a right word bias on them. Yep. So you're supposed to, as a project team, maintain a reserve of time and money that is sufficient to cover off your discrete risks and your systemic risks and uncertainties to a certain confidence interval right now, your your average when we set up program and portfolio risk methodologies for our clients, we typically would put the project p value or the confidence interval at 50% and the program or portfolio one at somewhere between 70 and 90% depending on the risk appetite of the company. Right? So the the in broad strokes, what that means, and you know, in poor words, is that every project in your portfolio has a 50% chance of succeeding or failing, you know, given the conditions that existed at the time, but the whole portfolio has more like a 70 to 90% chance of succeeding, right, right, right, right. So, and that's how you want it, right? Like you want, you want every project to be beholden to its neighbors, like there's a balancing act of which capital goes. We actually have written a paper for the A, C, E. I mentioned this on the last show, so I won't get too deep into it, but, like, it covers off some of this about the different ways that the math works out when you do things without getting into the technical specifics. The reason I bring it up is you have a lot of projects who have estimated for these systemic risks and uncertainties doing the best and most responsible job they could at the time that are now looking like maybe they won't complete on their P 50, but they might complete on their P 70. So it's more or less like just a mindset and adjusting the schedule is what you're saying. Like they're going to finish, but it's not going to be what you thought it was going to be, yeah, there's definitely going to be some of that, right? The most immediate effects are coming from, you know, we talked about those container ships getting rerouted around Africa, yeah, you know, if you have a piece of important equipment, you know, we just talked to a client about procuring medical equipment, right? So if you got a CT machine, you know, coming in from China, and it was going to go through or maybe not coming in from China, that would make sense. They would just go to California. But, you know, if coming from so I gave you a really terrible example, but let's just run with it. Yeah, right, it's all, you know. Let's How about this? We're buying surplus equipment from a hospital in Dubai. That makes much more sense. Okay, does so? That container ship is now going all the way around Africa. Your piece of equipment, is now weeks behind schedule, right? So you can't even do project until it shows up. So, you know, if you're replacing old equipment, then the risk of that equipment failing has just gotten higher, you know. So there's a lot of things going on when your schedule gets delayed, but yes, like, what you basically said is, is accurate? Like, things will happen. It'll just take longer, and it might cost you more. It might cost you more, right? The you brought up force majeure, which I want to ask you about now, because I mean to me, I don't think I've ever you know seen like, force majeure, being act, can we say activated at declared? Yeah, declared at this level, like it is mind blowing to see that happen, because that is going to, that's gonna, like, I mean, the economist said it right, like the world economy has changed overnight. And when somebody's declaring force majeure, people are thinking about contracts, and they're thinking about rates, and they're thinking about, you know, exposure to those contracts, and what's the final I mean, there's so many discussions to be had when that happens. So put me like, think about and put me into the mind of the project controls team, like, what are they doing? Right now, considering, you know maybe their contracts aren't going to be honored. Well, this is where things get really hairy from a contract management perspective, because you remember, you remember covid, remember that a few years ago, crazy pandemic. Remember that? Yeah? Me too. So, yeah, yeah. The reason I bring it up is that was a good example of the worst case scenario for price impacts from a situation like that, right? You know, it had there were legitimate supply chain, chain disruptions that made prices go skyward, and they kind of didn't come down. Why? Because companies realized they could get away with selling things for more money, and so they did. You remember the Evergreen getting stuck, the ever give, the ever giving, ever giving, getting stuck in the it was run by evergreen, but the ever giving getting stuck in the Suez Canal, and like the disruption that caused too, that was, yeah, for sure, not as major as covid, but definitely major it was, it was actually more like what's happening now, and that it's a short term shock that has ripple effects, right? And that's definitely what's happening now. But the reason I bring up covid Is there is going to be a temptation amongst commodity resellers and people who install equipment and buy equipment for it, things like that. There's going to be a temptation to Jack prices up, whether they are impacted by this situation or not. I think there was legislation, like some countries, about around, like, just price gouging and, you know, groceries and, yeah, I think there was more profiteering. And it's disgusting, yeah, but it is realistic, and it does happen, you know, yeah, yeah. So it's the kind of thing that you know, you as a project management team, need to be really mindful of because you can't, you know, I'm a big fan of the phrase trust but verify, right? So when your contractors are coming to you and saying, Hey, we're gonna see, you know, $40,000 impact and a two week delay from this piece of equipment, you need them to show you their receipts, right? You need them to show up with documentation. You can't just take their word for it, they're gonna say something to the effect of like, well, haven't you? Haven't you? Aren't you watching the news? I'm like, Yeah, I'm watching the news. And my CT machine is not specifically in the news, so you need to give me some equipment information about it. Well, and those end users are going to start submitting claims, right? They're going to want money back, or that's why, like, a claims process is really, really important to any project, right? I mean, the when, and this is earlier when, when you said when, I was kind of joking around. I said, Well, when should I be thinking of this? And the answer I gave was six months ago. I mean, that's part of the reason why, because a strong claims process that requires proof of impact, right? Yeah, and that impact statement to be evaluated and all that stuff like, you know, a good claims process should, should exclude the stuff that's too small to matter, right? That where you're just throwing good money after bad by by chasing it, evaluating it. So, like, small claims and small changes and things should be absorbed by the project plan and the existing contracts. Well, there's ones like for this, yeah, exactly. Like, that's, at least in principle, that's what the contingency is for. So as long as you kind of have some comfort level that you've you, quote, unquote, planned for this as part of your discrete risks, or your your your systemic risks and uncertainties, you should be able to pay for some of the small stuff, but some of the really big dollar stuff that that constitutes, by virtue of needing to replan your project, it kind of constitutes a scope change, you know, right? So, because you're planning based, so how? So, what do you mean? Well, like, if my scope basis is that I'm going to do things X, Y and Z, like, irrespective of any time or sequencing, my scope is X, Y and Z, no matter what happens in the world, right? But the fact that I'm installing X, Y and Z doesn't necessarily mean that I'm doing them in that order. Maybe I'm doing them sequentially. Maybe I'm not right, maybe I'm doing them with different contractors. Maybe it's the same contractor, right? And all of that stuff taken together, I think of all those things as elements of your scope, right, right, okay, because the scope is defined by your contracts, not just by your design, and by, you know, like your project brief, or anything like that. Like, there's a lot of things that go into what your scope is. Into what your scope is, and contracts are a big part of it. So if your contracts need to change, that's effectively a change to your project's scope, right? Even if this, even if X, Y and Z didn't change, what sequence they're coming in, higher contractually arranging, things, all that stuff. Like, that's that all is changing, right, right? So, you know, the six months ago, comment was about the project. Systems that are in place need to be able to absorb and handle those kinds of things regardless of what the source of change is like. So today, it's real messages. If you don't have it, it's you better be it's too late. The horse is out of the barn, yeah? Horses out of the barn. The horse is out of the barn. Yeah, exactly. So we're really, you know, as Project professionals, it's incumbent on us to make sure that those things are there in case we need them, right? Yeah, yeah. So, yeah, you know the handshake agreement. And I could plan this on the back of the napkin. Like, great for you, but what about this, right? Like, I guess your back of Nate can plan probably did not include a war of adventure in Iraq. Um, you know, the the claims process is interesting. I think some companies, like, in covid, there is like, kind of a wait and see trap, if you will, like, it happened. People just kind of paused. People, I mean, like companies paused and project, let's wait and see. Prices went up. Then suppliers left those prices alone, then stuff cost extra. So is the instinct at the portfolio? Enterprise portfolio? Is the instinct to pause and wait for clarity? Or is there something, something else at play? Well, that instinct is damaging, yeah, you know, to macroeconomics and maybe even to your individual project, and I'll tell you why. Like, we touched on this, and, you know, in a season one episode, you know, we talked about how the worry about covid actually wasn't inflation at first, it was deflation, right? Because when the Great Depression was caused by a deflationary cycle, or was exacerbated by a deflationary cycle where, you know, people are concerned about the state of the economy, and hold back their their money to buy things, and then the money starts to dry up, and all of a sudden they're like, well, now I can't afford to buy that thing that I wanted to buy, so need to buy, so need to wait for the price to go down. So then you get a glut of supply. You know, inventories build up. And as we know from previous discussions, inventory is not an asset, it's a liability, right? So when companies have that much liability on their books, by the way, in accounting terms, it is an asset. I understand that. So sit down. I understand all right, but from a planning perspective, it's very much a liability, right? Because, think, because if you don't have a thing in a warehouse, it can't catch on fire, it can't get stolen, it can't be mishandled, like it can't be misdelivered, like, if it doesn't exist, nothing can happen to it, yeah, yeah. Well, I don't think any of our listeners are going to be grabbing, like, their P and L and be like, no, no, it's an asset. Like, I don't think that's gonna happen. Well, I welcome, I welcome the conversation. So if you, if you are, you know, a corporate accountant, and you take great umbrage at what I'm saying, like, let's talk about it. Like, you know, we'll leave a link in the show notes for comments and feedback. But yeah, if you're an accountant, please, by all means, leave a comment. Oh, and fill out our survey. Albert, yes, thank you. Yeah. Fill out our survey. Yeah, tell us what an idiot I am and how I don't understand how accounting works. That's, that's I would love that I would love nothing more. So let me ask you, oh, sorry, you're gonna go back to the well, let me, let me see if I can remember what I was trying to talk about there, like the deflationary cycle. Yeah, the deflationary Yep. So as inventories build up, right? Companies don't need to make as much stuff, which means they lay people off, which means that people have even less money on average, which means that prices continue to go down. So that's the deflationary cycle that that the Great Depression was kind of, you know, built on, right? So the the quantitative easing and government spending and those kinds of things are what traditionally help get you out of a deflationary cycle. And a lot of that happened in during covid and that's like the point of that is to be inflationary, right? Because a healthy economy is slightly inflationary, right? So if I'm a board, I'm at the enterprise portfolio level project sponsor, the real choice is not to pause, you know, wait, you know that trap that truly is a trap. You're saying it's to reconfigure and then press forward somehow. Yeah, that's exactly it. I mean, it's, really, it's a tough pill to swallow, right, that your thing is going to cost more and it's going to take longer, but you should still do it right. Like, does a project sponsor say to the PMO, like, well, actually, what do they say? Like, what's that conversation like? Well, I guess that depends on, I say that answer a lot. It depends on the project, right? Yeah. And it really does, hard, hard, heterogeneous, hard. There are going to be some tough decisions that need to get made. And we're kind of, you know, I might want to save this for my, my piece of advice, yeah, don't give it away. Don't give it away. I won't give it not yet. No, you got to listen to the end for that. Sorry, sorry, Charlie. But the, the main thing I want to, the main thing I want to the main point I want to make here is that just the fact that things got harder doesn't mean you should stop necessarily. Okay, there is definitely, you know, a wait and see trap that you know you were alluding to earlier. If things aren't going to get any better, then that means that they're either going to stay the same or get worse? Well, that's becomes your new planning basis, right? Because you can't plan on running a company that's project driven and just not doing anything ever, right? Like eventually you are going to have to do project at some point. So you know, if you put too much of that stuff on ice, your impact. Testing your future cash flow. The point of capital projects is to make you money down the road, right? Yeah, well, so cash flow, interesting, right? Like, that's an interesting topic. Like interest rates. We talked about inflation. You're talking about deflation. Like, yeah, the Fed is kind of in a no win position, right? With this in, like, talking about, like, talking about, like, national banks, more generally, really, yeah, more generally, like, this is not, is it? It's not really a win, win position that they're in. I don't think, like, I'm reading The Economist, and they're talking about negative supply shocks invest, like, inflation starts to happen. It hurts growth. Then, like, even futures, you know, the market pricing is implying that no change of a rate cut is happening. I think in some of my research, there's the 10 year treasury yield like these are already climbing, right? Like they're getting higher. So there's impact. If I'm a capital intensive organization. And let's say I'm financing projects with debt. Like, how am I supposed to be interpreting this on the topic of financing? I mean the numbers, the numbers are going to go up almost certainly. And so this is, this is going to be really this is why you describe it as a no win scenario. I guess because the typical way that you encourage growth in an economy is by lowering interest rates, but the way that you curb inflation is by raising them, right? So we have slower growth and higher inflation, which, you know, is, we've termed that stagflation in the past. That's, that's a, you know, an economics term. It's one of the boogeymen of economics. And a stagflationary cycle is really, really damaging for an economy, and we really don't want to get into one. But right now, it seems like it might not be possible to avoid it, because if you try to keep things stable, right, they're currently like benchmark interest rates in the US are a little higher than they typically are. So if you keep them the same, then you're not encouraging growth, right? Because you're not you're not flooding the market with cheap capital to let people go do project and make a bunch more. You know, productivity happen, but if you if you do lower them, then you're contributing to a bunch of other inflationary pressures that are going to drive prices way up. And so any productivity gains you might have had a they won't be evenly shared, because that's just the world we live in the, you know, cyberpunk future where, you know, a vast majority of the wealth is controlled by an entire incredibly tiny number of people. So, like, you know, when, when you are talking about productivity gains, they tend to get concentrated amongst the ultra wealthy who don't need it, and the rest of us are left wondering, you know, well, I just got a raise, but I'm still poor, right? Yeah, so, like, and that's that's the problem with trying to stimulate an economy in a situation like this, is that prices will go up and they will outpace the the the benefits of that economy as they surface to most people. Well, in that on the topic of capital projects, like they're these owner operator companies are not going out and financing a capital project, you know, based on, like, a reserve account that they have, like, they're going out and financing with the banks, with governments, yeah, they're getting capital projects are heavily leveraged, right? Yeah, yeah. So it does mean that industries that and companies that can sell finance projects are starting on third base right now, but that also means that their portfolio just shrunk somewhat. You know, earlier I said, Yeah, you got a project in the pipeline. Go do it. But that can't necessarily mean practically, there are limits to that, right? Like, if you can't afford the financing, then you can't afford the project, then you're self financing, and you kind of have to find that money somewhere, right? So the traditional way of finding that money is by selling off assets and laying people off, right? And maybe at the end of a rainbow. Well, look, I mean, those of us who don't own gigantic multinational companies are hoping for a leprechaun situation, right? Exactly that would be. That's not going to help Albert. We've covered oil shocks, supply chain, you know, simultaneous kind of crashing. We've talked about force majeure, exposure, workforce, risk, water, you know, the human humanitarian cost and all that. There's a lot hitting our project sponsor listeners right now. So, yeah, I think for your one piece of advice, like, what I'd like to ask you is, if you're sitting across the table from a, let's say, a VP of project controls, you know, maybe a CFO, somebody who's looking after sort of the enterprise portfolio, like, what's your one piece of advice for something they should do by the end of the month? Well, I imagine that these meetings are already happening, but if they if they aren't, then here's the meeting you should have, right? You know, we were talking earlier about these planning cycles being multiple years long. You know, the next few quarters are planned out with. Scope driven cost estimates for what people intend to do, and some of those products will be in flight right now, right? Yeah, and those in flight projects are the ones that are at the greatest risk, because they're the ones that didn't have the opportunity to price all this stuff in except, as you know, uncertainty and systemic risk, which is likely not going to be enough for a lot of them. So you're effectively having to bucket your projects in your pipeline in three ways, like first, are the projects that you accelerate, the ones that you bring to now, right? Those are going to be the ones that are insulated from these exposures, right? Because they're driven by domestically produced materials or things that you have on hand. You know, you can execute them quickly and locally. Those kinds of things are where you should be spending your money right now, you know, because it limits your exposure to a capital environment that has gone haywire, at least in the short term. So you you really need to, just like, take those things and focus on them, right? So that's especially true if you have projects in the pipeline that are coming up soon that have dependencies on things that are supplied out of the Middle East, or the things that are going to be impacted by the more broad, you know, pricing crisis. You know, one of the things like the fallacy is told in the US right now is, well, we're oil independent, so we're insulated from this. No, you're not right like the the US is a net exporter of of oil and of energy more generally, and they are the largest LNG supplier in the world, and they're already hurting from these because the prices for these commodities are not local. They are global, right, right, right, right. But, but having said that, having that local supply does help, and it gives you levers that you can pull that other other countries won't have. Right? Like, the US is currently exporting an enormous amount of LNG and does not have a specific stockpile for it. Well, what if it did, right? Like, one act of Congress, which, you know, haha, right, that's that's gonna happen, creates an LNG stockpile and encourages the US government to spend taxpayer dollars on buying LNG so they can do easing in the future. You know that that is the kind of thing that could actually happen so, but it can happen if you don't produce enough of it to store right, right, right. Otherwise you're buying it from the open market, we're back to square one. So anyway, domestically produced materials and things on hand, and stuff that is procurement light and labor heavy accelerate those projects. Okay? The really, really tough one, though, is that some of the products that are in flight right now may become unaffordable because of current price fluctuations, so you either need to mothball or cancel those okay. There is you guys. You're very aware of the sun. Sounds like the second bucket that you're gonna get into, right here. The second bucket, what is shut it down, right? Second bucket is shutter okay? Like there are plenty of projects out there right now that are not going to make their money back, right, because the prices that they're about to pay for commodities, both basic and finished, are going to go up in the next six months. Yeah, yeah. And like, how much that increase is, like, we really don't know yet, but it's not nothing, right, right? So if you, if you're taking a risk impacted view of your portfolio, which you should then there are projects in there, in your pipeline right now, that are active, that are in progress, that's going to feel bad. It's going to feel bad to cut those projects, but you have to right, right? So that's bucket two, and bucket three is basically for all the remaining stuff. It's time to do a comprehensive re plan. Okay, what is that? Well, you know, I was talking earlier about the Enterprise Risk component to portfolio planning, right, and how that takes up a bigger share, you know. So if you're thinking about longer procurement cycles, and, you know, just schedule extension more generally, and you're thinking about higher prices for things, then you know, in your head, you're probably building a little cash flow diagram, right? Like, you now have a bigger number spread out over a longer period of time, and no matter how you slice it, that's different from whatever you had before, right, right? So bring the team together, and you need to bring the team, yeah, exactly, to have that conversation. You got it, right? So, you know, it's, it's really and, by the way, the the shuttering projects thing, like, you know, it sucks and it's gonna hurt, but it frees up money and also human capital, right? Like the people who are working on those projects, and the materials they had procured to advance those projects exists in your organization today, right? So it's, it's, you can think of it less as like, I'm cutting things, it's gonna feel bad, like, you know, and more like, I'm freeing up resources, right? So that I can do some of these higher ROI projects. Because, like, right now, this is, this is real dog eat dog stuff in the project V product, because that's how it breaks down. Like at the portfolio level, projects are battling with each other for capital, for, like, the scarce resource of money, right, right, right? So they have to make their case. One. Way more strongly than they would have six weeks ago. So you know, that's just the facts of life, but once that conversation happens, you're going to wind up with a more robust portfolio that's more easily able to weather this storm. And if things get better, you can do it again, right? You can come back together. You can have the conversation again. You can replan things again. But I'm betting that a lot of the decisions that get made over the next, you know, six weeks, will be durable for the next at least six months, right? Probably year or two, right? So that's part of the reason why, you know, I said earlier, the five year picture probably looks a lot like the last five years. And I do genuinely believe that, but that doesn't mean that the next two years look the same. They won't, right, and this is why. Anyway, that's, that's, that's my take on it. Yeah, thanks, Albert. Well, thanks, that was an interesting conversation. So I just want to mention our listener survey, please. You know if you're listening, we would love to hear your feedback. If you're an accountant, you can, you know, thrash Albert on his liabilities versus assets, but yeah, we'd love to hear your feedback. It's a survey. Check out our show notes. You'll find a link. We're going to use some of that for, you know, planning future episodes and yeah, very important that we hear from you so absolutely, and I enjoy reading them. So if your only goal in life is to is to give me joy, then that's one way to do it. Yeah. So, all right, well, thanks, Albert, thank you. Nate. Hey everybody. It's Albert here. Thanks for tuning in to the risky planner podcast. We hope today's conversation was informative, and above all else, inspires you to excellence in what you do. If you liked today's episode, don't forget to rate, subscribe and leave a review. It helps us reach more listeners just like you. I'd also like to thank Thompson Igbo, Igbo for letting us use his excellent music on our show. 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