SESSION 19

Unit – IV Elements of risk management and value engineering

Introduction

Risk is the process by which risk or uncertainty in the project is minimized and the project is
completed in optimum duration, qualitatively and with maximum return. It is used assertively to
plan and reduce the adverse asserts in completion of project and possibility.

Risk management:

Risk management is defined as identification, assessment and economic control of those risks
that endanger the asserts and earning capacity of a business.

A risk can be tolerated if:

1. The likelihood of its occurrence is sufficient remote.

2. The consequences are not severe.

What is Risk Management?

Risk management is defined as identification, assessment and economic control of those risks
that endanger the assets and earning capacity of a business.

A risk can be tolerated if:

1. The likelihood of its occurrence is sufficiently remote.

2. The consequences are not severe.

Why Is Risk Management Important to Project Success?

Effective risk management strategies allow you to identify your project’s strengths, weaknesses,
opportunities and threats. By planning for unexpected events, you can be ready to respond if they
arise. To ensure your project’s success, define how you will handle potential risks so you can
identify, mitigate or avoid problems when you need to do. Successful project managers
recognize that risk management is important, because achieving a project’s goals depends on
planning, preparation, results and evaluation that contribute to achieving strategic goals.

1. Plans
Risk management plans contribute to project success by establishing a list of internal and
external risks. This plan typically includes the identified risks, probability of occurrence,
potential impact and proposed actions. Low risk events usually have little or no impact on cost,
schedule or performance. Moderate risk causes some increase in cost, disruption of schedule or
degradation of performance. High risk events are likely to cause a significant increase in the
budget, disruption of the schedule or performance problems.

2. Preparation
To ensure that projects run smoothly, effective project managers communicate their plan to the
project sponsors, stakeholders and team members. This sets expectations to people who provide
funding and are affected by the outcomes. It ensures that the project runs smoothly so one step
proceeds to the next without disruption. By identifying, avoiding and dealing with potential risks
in advance, you ensure that your employees can respond effectively when challenges emerge and
require intervention.

3. Results
By defining risk management processes for your company, you make success more likely by
minimizing and eliminating negative risks so projects can be finished on time. This enables you
to meet your budget and fulfill targeted objectives. When you don’t have risk management
strategies in place, your projects get exposed to problems and become vulnerable. Effective risk
management strategies allow your company to maximize profits and minimize expenses on
activities that don’t produce a return on investment. Through detailed analysis, effective leaders
prioritize ongoing work based on the results produced, despite the odds.

4. Evaluation
To evaluate your project’s success so you can use the best practices on your next project, assess
the impact of your activities on mitigating exposure to problems and exploiting opportunities that
capitalize on your company’s strengths. For example, if you develop and deliver a training
program that creates awareness about internet security, including phishing, viruses and identity
theft, measure the number of help desk calls received about these problems. If they go down, you
can reasonably assume your risk management initiatives have contributed to success. If not,
revise your training program.

Risk can be eliminated or reduced by:

1. Changes in the processes.

2. Transferring all or part of the risk.

Each company’s Risk Management system is different because:

1. Their risks are different.

2. Their operations and organizations are unique.
3. Their corporate culture is unique.
Basic activities in any risk management system are:

1. Risk Identification.
2. Risk Assessment.
3. Risk Control.

Risk Management is a process through which the companies control their level of risk and the
key elements of an effective risk management programme are: policy, procedures and standards

1. Policy describes the objectives of the Risk Management programme.

2. Procedures determine how the policy will be implemented.
3. Standards provide guidance on particular issues.

In short, the larger or more complex the business, the more it will benefit from risk assessment

Why is Risk Management Growing in Importance?

 Legislation is becoming tougher.

1. Legislation is now more extensive.

2. Legislation is now more stringent.
3. Risk Assessment is growing more common in many areas of legislation.

 Insurance is more expensive and more difficult to obtain.

1. Insurance is no longer the cheap option.

2. Open ended cover is no longer widely available.
3. Insurance companies like their clients to actively manage their risks.
4. Insurance does not compensate the full loss.
5. Insurance pay outs may be delayed.

 Customer Attitudes.

1. Corporate customers want to pass on their legal responsibilities to their suppliers.

2. Customers are more litigious.
3. Shareholders are more aware of the risks.

 A More Critical Public.

 Management Attitudes.

1. Management have learned from other firms disasters.

2. Companies are becoming professional.
3. Companies are becoming global.
 What are business risks?

There are two types of business risks.

The first and more traditional type, is non-entrepreneurial risk, typically fire, pollution, fraud
risks. Companies used to protect against these by buying insurance, which is not a complete
protection and is also not the only one.

The second type of risk is entrepreneurial risk. This occurs when a company builds a new plant,
launches a new product or buys a company. If the company gets its forecast wrong, it loses
money. There are ways of reducing these risks by way of adopting a proper risk management
system.

The role of the Risk Manager

 Provide a methodology to identify and analyze the financial impact of loss to the organization,
employees, the public, and the environment.
 Examine the use of realistic and cost-effective opportunities to balance retention programs with
commercial insurance.
 Prepare risk management and insurance budgets and allocate claim costs and premiums to
departments and divisions.
 Provide for the establishment and maintenance of records including insurance policies, claim and
loss experience.
 Assist in the review of major contracts, proposed facilities, and/or new program activities for loss
and insurance implications.
 In cooperation with General Counsel, maintain control over the claims process to assure that
claims are being settled fairly, consistently, and in the best interest of the entity.

Role of other managers

The Risk Manager cannot be successful without the assistance of other groups within the
organization. At Marquette University, cooperation from departments' and divisions' staff is
essential.

 Other managers must provide information necessary for the risk manager to review and identify
loss exposures.
 Supervisors must be aware of their role in the prevention of loss and be accountable to follow
procedures, attend risk control meetings, and, when appropriate, provide any recommended
training.
Risk Probability
Once a complete list of risks has been established, some risk managers advise that each risk be
assessed for its probability of occurrence using a scale such as the following:
 Very likely to occur
 Some chance of occurrence
 Small chance of occurrence
 Very little chance of occurrence
In addition to employing the occurrence probability scale, it’s important to evaluate the potential
financial damage that could result from each risk in order to respond appropriately. If a risk is
very likely to occur, but doesn’t present a huge loss, it could be less threatening than a risk that
has very little chance of occurring, but could devastate the company. Actuarial tables providing a
statistical analysis of these variables can be very helpful and are available in various types of
software and also on the Internet.
Depending upon the nature of the identified risks, they can either be managed or controlled
economically by transferring the risk to various forms of insurance or mitigated through a variety
of business practices and policies in-house. In deciding how to manage the risk of a potentially
dangerous animal act on stage, for example, the business owner can transfer some of the risk to
an insurance carrier, modify the conditions under which the act takes place and have money set
aside to satisfy any liability actions or even decide that because the risk is too great and would
cost too much to mitigate it’s not a good idea to even have the act.
Risk management decisions should be based upon preventing as much risk as possible (although
complete eradication is not realistic for everything) and/or mitigating risks to a level that is at
least somewhat tolerable for the business. “There will always be risks or events that cannot be
fully prevented or contained, so it’s important for businesses to develop effective response and
recovery plans,” says Todd Macumber, president of the Risk Services Division of HUB
International Limited.
A key component in the decision making process is timeliness. “They need to consider
proactively what the choices are,” Bubala says. “It’s better to talk to us before your problems. If
you come afterwards, the ink is already dry.” Those involved in risk management agree that the
operative word is “early.” “You need to be ever vigilant,” emphasizes John A. Hunt, Esq., a legal
partner in Raleigh & Hunt, PC in Las Vegas. “Without protection, the business could take a fatal
blow.”

Legal Risks
Legal risks can be viewed by some business owners as an enormous dark shadow that can
threaten the company in a variety of ways. Complying with the increasing regulations that
burden businesses is very challenging for everyone. Being in noncompliance, however, can
expose a business to serious financial penalties and can even cause an outright failure of the
enterprise under certain conditions. Other legal risks can be incurred if contractual agreements,
such as leases and employment contracts, are not properly negotiated to protect the business
from unnecessary liability. “Most everybody has to deal with a lease or franchise requirements,”
Heurer says. Bubala says he gets drawn into the lease agreement process quite often. “I don’t
want my client to get stuck holding the bag. The worst thing is for people to just stop paying
because they run out of money,” he says. “My job is to figure out how to protect my client’s
assets.”

Physical Risks
Common physical risks are fire, explosions and floods, but depending upon the individual
business, risks can also include hazardous material spills, such as acid, gas, toxic fumes and
poisonous waste. In addition to having adequate insurance to cover losses from these risks,
businesses can help reduce the risk substantially with effective planning. Sound risk management
includes working with government agencies and first responders to obtain information about how
to prevent, control and minimize damages resulting from these types of events. Of increasing
concern are threats posed by terrorism and violence as well as data breaches and viruses.
“Consider business interruption and extra expense insurance to hedge against having to shut
down operations for a few days or even weeks. Another important consideration today is cyber
insurance,” Macumber advises. For businesses who fail to plan ahead the price can be high.
About 75% of companies that do not have an effective plan fail within three years of a major
disaster and those who cannot resume operations within ten days will likely not survive,
according to the U.S. Bureau of Labor Statistics.

Financial Risks
Much of the financial risk incurred in a business can be reduced before the owner even opens the
doors, according to Bubala. “You see in a lot of businesses that people think they can do and
don’t know anything about it. I see this happening in bankruptcies all the time. Everybody thinks
they can run a restaurant, for example,” he says. “People just get in over their heads.” Before
jumping into a business, it’s essential to have a business plan and to evaluate your knowledge
and experience in this particular enterprise so that you can determine what your success might
be. If you’re weak, but persistent in going ahead, it’s critical to get people on board with the
needed expertise. In the absence of that knowledge, in many instances it might be prudent to just
not do the deal.
If you’re a business owner who is looking for a buyer, it’s equally important that you take the
time to qualify a potential buyer before inking the deal, according to Bubala. “A lot of businesses
are sold without evaluating the buyer,” he says. “They have to have a good understanding of how
it works and an understanding of cash flow.” Another high risk is carrying the paper for a buyer
who either can’t or won’t pay or finance it himself or herself. The seller may be very unhappy to
find it necessary to repossess the business sometime later on because of nonpayment.
Intellectual Property Risks
In a very broad sense, intellectual property (IP) encompasses creations of the mind, such as
works by artists, writers, designers and inventors. The legal protection of these creations includes
copyrights, trademarks, patents, industrial design rights and trade dress, which refers to the
visual appearance of a product. “If you don’t protect your IP it could have devastating
consequences on the overall profitability of the business,” Hunt says.
The more important the IP is to the business, the higher the risk if it’s not protected. It’s critical
to proactively protect it by having reserves on hand to prosecute anyone who infringes on your
rights and to take those rights into consideration in any contractual negotiations you might enter
in to. Hunt says he had clients with patent rights to a process used in the gaming industry, but
they refused to protect their rights with reserves. “The company is now out of business. They
were given the opportunity to assess the risk, but didn’t provide the resources,” he says. A
common mistake business owners make is to not put people on notice about infringement as
soon as they find out about it. “You have to remember one thing—protect yourself at all times,”
he says.

Affects of Economy
Although the poor economy makes it more difficult for many businesses to afford the expenses
of risk management, the irony is that the need for protection is greater now. “Risk management
has become more prevalent in the past four or five years because there are so many avenues
where business is vulnerable,” Pike says. Society has become ever more litigious in many arenas.
Employees who lose their jobs are more likely to file a lawsuit because of the increased difficulty
in finding other work, for example.
“Insurance has been a pawn of the economy these past five years,” Heuer says. He explains that
even though businesses probably need more protection now, insurance can be harder to buy. The
industry is at the beginning of a hard cycle which means products are harder to find and buy.
“The decline in the economy has forced people to pay more attention to the basics. Hiccups were
covered up in a strong economy, but it’s not so forgiving now,” Bubala says. “We don’t have
these issues in an economy that’s growing,” Pike says.
Cost related risks:

1. Tight project schedule

2. Design variations
3. Variations by the client
4. Unsuitable construction program planning
5. Occurrence of dispute
6. Price inflation of construction materials
 7. Excessive approval procedures in administrative government departments
8. Incomplete approval and other documents
9. Incomplete or inaccurate cost estimate
10. Inadequate program scheduling

Time related risks:

1. Tight project schedule

2. Design variations
3. Excessive approval procedures in administrative government departments
4. Variations by the client
5. Incomplete approval and other documents
6. Unsuitable construction program planning
7. Inadequate program scheduling
8. Bureaucracy of government
9. High performance or quality expectations
10. Variations of construction programs

Quality related risks:

1. Tight project schedule

2. Inadequate program scheduling
3. Unsuitable construction program planning
4. Incomplete or inaccurate cost estimate
5. Low management competency of subcontractors
6. High performance or quality expectations
7. Variations of construction programs
8. Unavailability of sufficient amount of skilled labour
9. Design variations
10. Lack of coordination between project participants

Environment related risks:

1. Tight project schedule

2. Variations of construction programs
3. Unavailability of sufficient professionals and managers
4. Excessive approval procedures in administrative government departments
5. Variations by the client
6. Inadequate or insufficient site information (soil test and survey report)
7. Low management competency of subcontractors
8. High performance or quality expectations
9. Inadequate program scheduling
10. Serious noise pollution caused by construction
Safety related risks:

1. Tight project schedule

2. Low management competency of subcontractors
3. Unsuitable construction program planning
4. Variations of construction programs
5. General safety accident occurrence
6. High performance or quality expectations
7. Design variations
8. Lack of coordination between project participants
9. Excessive approval procedures in administrative government departments
10. Unavailability of sufficient amount of skilled labour
11. Unavailability of sufficient professionals and manager

Sensitivity analysis

Sensitivity analysis is the study of how the uncertainty in the output of a mathematical model or
system (numerical or otherwise) can be apportioned to different sources of uncertainty in its
inputs. A related practice is uncertainty analysis, which has a greater focus on uncertainty
quantification and propagation of uncertainty; ideally, uncertainty and sensitivity analysis should
be run in tandem.

Taking an example from economics, in any budgeting process there are always variables that are
uncertain. Future tax rates, interest rates, inflation rates, headcount, operating expenses and other
variables may not be known with great precision. Sensitivity analysis answers the question, "if
these deviate from expectations, what will the effect be (on the business, model, system, or
whatever is being analyzed), and which variables are causing the largest deviations?"

The process of recalculating outcomes under alternative assumptions to determine the impact of
a variable under sensitivity analysis can be useful for a range of purposes,including:

12. Testing the robustness of the results of a model or system in the presence of uncertainty.
13. Increased understanding of the relationships between input and output variables in a
system or model.
14. Uncertainty reduction, through the identification of model inputs that cause significant
uncertainty in the output and should therefore be the focus of attention in order to
increase robustness (perhaps by further research).
15. Searching for errors in the model (by encountering unexpected relationships between
inputs and outputs).
16. Model simplification – fixing model inputs that have no effect on the output, or
identifying and removing redundant parts of the model structure.
17. Enhancing communication from modelers to decision makers (e.g. by making
recommendations more credible, understandable, compelling or persuasive).
 18. Finding regions in the space of input factors for which the model output is either
maximum or minimum or meets some optimum criterion (see optimization and Monte
Carlo filtering).
19. In case of calibrating models with large number of parameters, a primary sensitivity test
can ease the calibration stage by focusing on the sensitive parameters. Not knowing the
sensitivity of parameters can result in time being uselessly spent on non-sensitive ones.[4]
20. To seek to identify important connections between observations, model inputs, and
predictions or forecasts, leading to the development of better models.

Session 20

Break-even analysis

Break-even analysis entails the calculation and examination of the margin of safety for an
entity based on the revenues collected and associated costs. Analyzing different price levels
relating to various levels of demand, an entity uses break-even analysis to determine what level
of sales are needed to cover total fixed costs. A demand-side analysis would give a seller greater
insight regarding selling capabilities.
Break-even analysis is useful in the determination of the level of production or in a
targeted desired sales mix. The analysis is for management’s use only as the metric and
calculations are often not required to be disclosed to external sources such as investors,
regulators or financial institutions. Break-even analysis looks at the level of fixed costs relative
to the profit earned by each additional unit produced and sold. In general, a company with lower
fixed costs will have a lower break-even point of sale. For example, a company with $0 of fixed
costs will automatically have broken even upon the sale of the first product assuming variable
costs do not exceed sales revenue. However, the accumulation of variable costs will limit the
leverage of the company as these expenses are incurred for each item sold.

Formulas for Break-Even Analysis

The calculation of break-even analysis may be performed using two formulas. First, the total
fixed costs are divided the unit contribution margin. In the example above, assume total company
fixed costs are $20,000. With a contribution margin of $40, the break-even point is 500 units
($20,000 divided by $40). Upon the sale of 500 units, all fixed costs will be paid for, and the
company will report a net profit or loss of $0.

Alternatively, the break-even point in sales dollars is calculated by dividing total fixed costs by
the contribution margin ratio. The contribution margin ratio is the contribution margin per unit
divided by the sale price. Using the example above, the contribution margin ratio is 40% ($40
contribution margin per unit divided by $100 sale price per unit). Therefore, the break-even point
in sales dollars is $50,000 ($20,000 total fixed costs divided by 40%). This figured may be
confirmed as the break-even in units (500) multiplied by the sale price ($100) equals $50,000.

Simulation
Simulation is the imitation of the operation of a real-world process or system over time.[1] The
act of simulating something first requires that a model be developed; this model represents the
key characteristics or behaviors/functions of the selected physical or abstract system or process.
The model represents the system itself, whereas the simulation represents the operation of the
system over time.

Simulation is used in many contexts, such as simulation of technology for performance

optimization, safety engineering, testing, training, education, and video games. Often, computer
experiments are used to study simulation models. Simulation is also used with scientific
modelling of natural systems or human systems to gain insight into their functioning.Simulation
can be used to show the eventual real effects of alternative conditions and courses of action.
Simulation is also used when the real system cannot be engaged, because it may not be
accessible, or it may be dangerous or unacceptable to engage, or it is being designed but not yet
built, or it may simply not exist.

Key issues in simulation include acquisition of valid source information about the relevant
selection of key characteristics and behaviours, the use of simplifying approximations and
assumptions within the simulation, and fidelity and validity of the simulation outcomes.
Procedures and protocols for model verification and validation are an ongoing field of academic
study, refinement, research and development in simulations technology or practice, particularly
in the field of computer simulation.

Decision Tree

A decision tree is a decision support tool that uses a tree-like graph or model of decisions and
their possible consequences, including chance event outcomes, resource costs, and utility. It is
one way to display an algorithm. Decision trees are commonly used in operations research,
specifically in decision analysis, to help identify a strategy most likely to reach a goal, but are
also a popular tool in machine learning.

A decision tree is a flowchart-like structure in which each internal node represents a "test" on an
attribute (e.g. whether a coin flip comes up heads or tails), each branch represents the outcome of
the test and each leaf node represents a class label (decision taken after computing all attributes).
The paths from root to leaf represents classification rules.

In decision analysis a decision tree and the closely related influence diagram are used as a visual
and analytical decision support tool, where the expected values (or expected utility) of competing
alternatives are calculated.

A decision tree consists of 3 types of nodes:

1. Decision nodes - commonly represented by squares

2. Chance nodes - represented by circles
3. End nodes - represented by triangles
Decision trees are commonly used in operations research and operations management. If in
practice decisions have to be taken online with no recall under incomplete knowledge, a decision
tree should be paralleled by a probability model as a best choice model or online selection model
algorithm. Another use of decision trees is as a descriptive means for calculating conditional
probabilities.

Decision trees, influence diagrams, utility functions, and other decision analysis tools and
methods are taught to undergraduate students in schools of business, health economics, and
public health, and are examples of operations research or management science methods.

Fig. Decision tree example

Fig. decision tree symbolls
 Session 21

Analysis And Mitigation Of Project Risks

Definition: Risk mitigation planning is the process of developing options and actions to enhance
opportunities and reduce threats to project objectives [1]. Risk mitigation implementation is the
process of executing risk mitigation actions. Risk mitigation progress monitoring includes
tracking identified risks, identifying new risks, and evaluating risk process effectiveness
throughout the project

Risk mitigation planning, implementation, and progress monitoring are depicted in Figure 1. As
part of an iterative process, the risk tracking tool is used to record the results of risk prioritization
analysis (step 3) that provides input to both risk mitigation (step 4) and risk impact assessment
(step 2).

Fig 1 Risk mitigation plan and symbolls

The risk mitigation step involves development of mitigation plans designed to manage,
eliminate, or reduce risk to an acceptable level. Once a plan is implemented, it is continually
monitored to assess its efficacy with the intent of revising the course-of-action if needed.

Risk mitigation handling options include:

 Assume/Accept: Acknowledge the existence of a particular risk, and make a deliberate

decision to accept it without engaging in special efforts to control it. Approval of project
or program leaders is required.
 Avoid: Adjust program requirements or constraints to eliminate or reduce the risk. This
adjustment could be accommodated by a change in funding, schedule, or technical
requirements.
 Control: Implement actions to minimize the impact or likelihood of the risk.
 Transfer: Reassign organizational accountability, responsibility, and authority to another
stakeholder willing to accept the risk.
 Watch/Monitor: Monitor the environment for changes that affect the nature and/or the
impact of the risk.

Each of these options requires developing a plan that is implemented and monitored for
effectiveness. More information on handling options is discussed under best practices and
lessons learned below.

From a systems engineering perspective, common methods of risk reduction or mitigation with
identified program risks include the following, listed in order of increasing seriousness of the
risk [4]:

1. Intensified technical and management reviews of the engineering process

2. Special oversight of designated component engineering
3. Special analysis and testing of critical design items
4. Rapid prototyping and test feedback
5. Consideration of relieving critical design requirements
6. Initiation of fallback parallel developments

When determining the method for risk mitigation, the MITRE SE can help the customer assess
the performance, schedule, and cost impacts of one mitigation strategy over another. For
something like "parallel" development mitigation, MITRE SEs could help the government
determine whether the cost could more than double, while time might not be extended by much
(e.g., double the cost for parallel effort, but also added cost for additional program office and
user engagement). For conducting rapid prototyping or changing operational requirements,
MITRE SEs can use knowledge in creating prototypes and using prototyping and experimenting
(see SE Guide article on Special Considerations for Conditions of Uncertainty: Prototyping and
Experimentation and the Requirements Engineering topic) for projecting the cost and time to
conduct a prototype to help mitigate particular risks (e.g., requirements). Implementing more
engineering reviews and special oversight and testing may require changes to contractual
agreements. MITRE systems engineers can help the government assess these (schedule and cost)
by helping determine the basis of estimates for additional contractor efforts and providing a
reality check for these estimates. MITRE's CASA [Center for Acquisition and Systems Analysis]
and the CCG [Center for Connected Government] Investment Management practice department
have experience and a knowledge base in many development activities across a wide spectrum of
methods and can help with realistic assessments of mitigation alternatives.
 Session 22
Value engineering

A systematic and organized approach to provide the necessary functions in a project at the
lowest cost. Value engineering promotes the substitution of materials and methods with less
expensive alternatives, without sacrificing functionality. It is focused solely on the functions of
various components and materials, rather than their physical attributes. Also called value
analysis.

Value:

Value is the price we pay for a product, process, material, or service required to perform a
specific function or service with the required quality and reliability. value is the least cost that
can accomplish an essential function or service with the required quality and reliability.

Value can be defined as the combination of quality, efficiency, price, and service which ensures
the ultimate economy and satisfaction of the purchaser.

We can express value in mathematical way, as

function (utility)
Value = cost

Thus value is the cost proportionate to the function. It is therefore clear that the value of the
product can be increased by:

1) Increasing the utility

2) Decreasing the cost for the same function
3) A large increase in utility with a small increase in cost function specifies
the purpose of the product or what the product does? What is its utility?
Etc

Value analysis:

Stated simply as” value analysis is an organized procedure for efficient identification of
unnecessary cost”.

It can also be defined as” the study of relationship of design, function and cost of any product,
material or service with the object of reducing its cost through modification of design or material
specification manufactured by a more efficient process , change in source of supply, or possible
elimination or incorporation in a related system”.
 SESSION 23
Difference between value engineering and value management:

The two terms- value analysis and value engineering are often used synonymously. Though the
philosophy underlying the two is same i.e the identification of unnecessary cost yet they are
different. The difference lies in the time at the stage and which technique is applied.

Value analysis is the application of a set of techniques to an existing product with a view to
improve its value. It is thus a remedial process.

Value engineering is the application of exactly the same set of techniques to a new product at the
design stage – project concept or preliminary design when no hardware exists”. It purpose is to
ensure that no bad features are added in the product at the design stage. Value engineering is thus
a preventive process.

Energy Resources:

We use many different energy sources to do work for us. Energy sources are classified into two
groups non renewable and renewable. In India most of our energy comes from non renewable
energy sources. Coal, petroleum, natural gas, propane, and uranium are non renewable energy
sources. They are used to make electricity, to heat our homes, to move our cars, and to
manufacture all kinds of products.

Renewable energy sources:

1) Biomass
2) Geothermal
3) Hydropower
4) Solar
5) Wind

Non renewable energy sources:

1) Coal
2) Natural gas
3) Petroleum
4) Propane
5) uranium
 Session 24
Energy Cost Escalation and Its Impact

The cost of electricity in Indiana and most mid-western states has been relatively stable for
generations. Fueled largely by the use of enormous quantities of locally mined, energy dense
coal, electricity costs in Indiana have traditionally been among the lowest in the nation. Against
this back drop disruptive forces have converged to challenge the electricity generation fuel mix
in Indiana, fundamentally altering the forward price of electricity. Indiana is in the beginning
stages of a dynamic energy environment which will result in significant electricity price
increases. No longer can building owners, project developers and businesses rely on the stable
prices which Indiana utilities have delivered in the past. The affordability of electricity will soon
become a major factor for all energy users but will have a disproportionate impact upon those
with fewer resources. On the near horizon, energy users will become acquainted with terms like
“Peak Shaving”, Demand Response, Distributed Generation and real-time pricing as electric
utilities struggle to meet demand while de-commissioning and upgrading substantial coal
generation assets. Demand side strategies will become commonplace as building designers and
operators struggle to mitigate the rapid rise in electricity costs. In this energy environment, it is
critical to recognize that we are now operating under different rules which require a proactive
response. Building owners must invest in upgrades and develop comprehensive energy
strategies to remain competitive and secure the bottom line. Developers must integrate energy
differentiators in their designs and Not for Profits must understand that their biggest annual fund
donor may be hiding in their energy budgets.
 Fig. Histogram of unit cost summery

World energy consumption

World energy consumption is the total energy used by all of human civilization. Typically
measured per year, it involves all energy harnessed from every energy source applied towards
humanity's endeavors across every single industrial and technological sector, across every
country. It does not include energy from food, and the extent to which direct biomass burning
has been accounted for is poorly documented. Being the power source metric of civilization,
World Energy Consumption has deep implications for humanity's social-economic-political
sphere.

Institutions such as the International Energy Agency (IEA), the U.S. Energy Information
Administration (EIA), and the European Environment Agency record and publish energy data
periodically. Improved data and understanding of World Energy Consumption may reveal
systemic trends and patterns, which could help frame current energy issues and encourage
movement towards collectively useful solutions.

The IEA estimates that, in 2013, total world energy consumption was 9,301 Mtoe , or 3.89 × 1020
joules, equal to an average power consumption of 12.3 terawatts.[3] From 2000–2012 coal was
the source of energy with the largest growth. The use of oil and natural gas also had considerable
growth, followed by hydro power and renewable energy. Renewable energy grew at a rate faster
than any other time in history during this period, which can possibly be explained by an increase
in international investment in renewable energy. The demand for nuclear energy decreased,
possibly due to the accidents at Chernobyl and Three Mile Island. [1][4]

In 2011, expenditures on energy totaled over 6 trillion USD, or about 10% of the world gross
domestic product (GDP). Europe spends close to one quarter of the world's energy expenditures,
North America close to 20%, and Japan 6%.
Fig . Energy consumption of conventional recourses.