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Mike Younger

Mike Younger

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Mike Younger

  1. 1. making the difference Contingency Drawdown methods By Mike Younger
  2. 2. Introduction to me 2 ■ I have been working in Oil and Gas Project Controls for almost 40 years mostly on the Contractors side ■ I set up and worked on the largest project, of its type, ever built, the Pearl GTL project that involved a number of very large Lump sum elements worldwide. I also assured the Project Controls Set-up on Gorgon, the largest ever LNG project ■ I am an EVM subject matter expert, presenting on this internationally which is why I really enjoy this conference every year ■ I have been with Turner and Townsend T&T nearly 4 years and last year I transferred to Texas from London and have already worked on two mega project Shell Pennsylvania and Shell Lake Charles LNG
  3. 3. 3 Agenda  What is Contingency and Contingency Drawdown  Contingency drawdown methods  My preferred method  The separation between risk registers and contingency  Summary  Questions
  4. 4. 4 Contingency Drawdown definition Oxford Dictionary – Contingency - A future event or circumstance which is possible but cannot be predicted with certainty Oxford Dictionary – Drawdown- An act of drawing on available funds or loan facilities ■ Which basically means, stuff you expect to happen based on experience but this is in itself in no way certain. Put another way, the method of reducing contingency in line with the reduced risks through the project, such that at the end there is nothing left ■ So put something away for that rainy day, but don’t hold on to it after the rain stops, this presentation is to help you decide when the sun has come out Note: Opportunities are positive negative risks and vice versa. For this presentation I’m assuming you know the methods of calculating Contingency, i.e. Quantitive Cost Risk Assessment QCRA or QSRA Schediule Risk analysis and how to create and use Risk registers.
  5. 5. 5 The Drawdown Curve  Surprisingly having a Drawdown curve is still state of the art for many organisations. it shows the rate of drawdown of contingency and shows at a glance the risk exposure over time.  This is a massive step up in Contingency Management but is still not a required element in Risk Management in most organisations.  This presentation will help explain why you need ome and how to get one
  6. 6. 6 Contingency Drawdown Methods • There are 6 recognised ways to do this So let’s look at these in more detail
  7. 7. 7 Run it down in line with forecast and scope increase  Every time something happens that changes a forecast use the contingency to cover this  This is the method used most often but has obvious shortfalls  The amount drawn down is not necessarily proportional to the remaining risks or allowed for in the Contingency  The total forecast never moves until the contingency is gone or the project finishes  Risks are not routinely readdressed nor is change control prominent  It is not predictable, so no curve can be created
  8. 8. 8 Split the contingency into phases and draw this down  This is the next step in maturity and still runs down contingency in line with forecast changes but;  Caps this at a cost per phase, e.g. Engineering 10%  Once the phase is finished the contingency can be released If you can stop the bleed from one phase to another  The amount drawn down is not necessarily proportional to the remaining risks or allowed for in the Contingency  No forecast movement until gone or over.  Risks are not routinely readdressed & the change control mechanism is ignored  It is not predictable so no curve can be generated, just perhaps a step
  9. 9. 9 Run it down in line with progress achieved  This method assumes the contingency drops in line with progress  As progress is achieved contingency is drawn down in line with this except for a percentage retention of contingency  This method assumes risk is propositional to progress and of course the progress reported is correct   It will not automatically address new risks or remove old ones or be led by Change Control  This method leaves a residue of unused contingency which could have been used elsewhere  It does however generate a curve for comparison purposes
  10. 10. 10 Plan to draw it down in line with a manual perception and key milestones  This involves looking at the key risks, the key milestone dates that match these and then manually creating the drawdown curve  This is usually carried out at staged workshops  Due to this being a workshop it is surprisingly the next step up in maturity even though it is largely manual, because it  Involves a periodic review of contingency  Potentially changes the forecast final cost  Includes the change process  Allows a contingency rundown curve to be drawn and a forecast made as to the remaining values
  11. 11. 11 Run it down by running QCRA in set periods by artificially advancing the schedule  This assumes the typical ranging and Monte Carlo type risk modelling has taken place using the budget  This will produce stand P value models  What can be done next is to theoretically advance the project 10% of its duration, review the risk ranges in a workshop (plus deleting those expired) to calculate new P values  Repeat this until you get to 100% and thus no contingency  Plot The result  Once you start you will need to re-run the model with ranges to keep the forecast evergreen  But beware this is the early curve and assumes we stick to the schedule
  12. 12. 12 Run it down by linking it to the risk register  This is the most mature method as it uses the Risk Register  it involves linking the Risk register of events to the contingency value generated by QCRA  To use this method, take the contingency generated and allocate it across the top risks on an estimated/prorated basis  Doing this split will help identify if the risk provision is enough  Decide the start and end date of these identified risk and spread the costs across these periods  Make sure new risks are addressed in the model  Plot the results as a rundown curve and continually reforecast
  13. 13. 13 The separation between Risk register and QCRA ■ It seems amazing 30 years on from the birth of real Risk management there is typically no link between the risk register and the QCRA ■ The risk register is normally a time intensive exercise to generate the top risks and then it is typically filed away as the QCRA takes front stage ■ The QCRA is carried out sometimes without this risk register being reviewed ■ Sometimes different teams will generate each one! So it is unsurprising that a consistent answer is not generated ■ There needs to be a link between these which is why I strongly recommend that contingency drawdown is driven by an updated Risk register and the value of contingency is reviewed or even recalculated and plotted on a regular basis
  14. 14. 14 Preferred/recommended approach ■ Create a Risk Register and keep it ever green recognise that the top risks will not always be the top risks ■ Create a QCRA based on P50 + risks and P90 – opportunities and decide a value in between as your contingency ■ Only drawdown the contingency that matches the event that took place ■ Plot this contingency drawdown on a monthly basis and compare it to the plan and take action if needed ■ Carry out QCRA’s on remaining scope on a regular basis don’t be afraid if this is more than is left, just make sure you understand it and allow for it! ■ Spread this remaining contingency across the remaining risks and time profile this ■ Replot the run down curve as a forecast
  15. 15. 15 Summary  Contingency and Risk Management is not a one off calculation it is ongoing  Risk registers do not belong in desks  Not all cost increases are covered by contingency  It is acceptable to have an overrun forecast and still have contingency in place  Know the plan for using contingency and use it when appropriate, remember it is more important to know the remaining risk than to know what’s has gone  Having a rundown plan can stop the race to take contingency and the opposite a sandbagging approach  Have an organisation that allows contingency to be given as well as taken
  16. 16. 16 Questions Mike Younger Director of Major Programs Turner & Townsend 10777 Westheimer, Suite 1160 Houston, TX 77042 t: +1:281-536-1064| www.turnerandtownsend.com

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  • AbdullahAlgobesy

    May. 1, 2020

Mike Younger

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