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Practical project risk assessment, presented by Simon White, 10th Oct 2016, APM North West branch conference

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Practical project risk assessment
Presented by Simon White
Monday 10th October 2016
APM North West branch and Risk SIG conference
Alderley Park, Macclesfield

Published in: Business
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Practical project risk assessment, presented by Simon White, 10th Oct 2016, APM North West branch conference

  1. 1. Practical project risk assessment Simon White APM North West branch & APM Risk Management SIG A world in which all projects succeed - but not without risk management 10th October 2016, Alderley Park Conference Centre
  2. 2. • Introduction • Project risk … – Assessment – Analysis – Awareness • Summary A g e n d a
  3. 3. Poll – your role and experience • What is your role? – Risk manager (specific “risk” role) – Project team member (engineer, analyst, …) – Project manager (project controls, PMO, support, …) – Other • Have you been in a risk workshop? – Yes / No • If yes, did you see any output from a QRA (e.g. a P90, or S- curve)? – Yes / No • If yes, did you believe it? – Yes / No
  4. 4. Key concepts • probability • expectation • three-point estimate • impact • exposure • contingency • mitigation • probability distribution • P10, P50, P90
  5. 5. Poll – key concepts • What do you mean by “mitigation”? – Plans put in place in advance to make it better – Avoiding it – Dealing with it when (or if) it happens • What do you mean by “contingency”? – The cost if it happens – The amount we set aside for risk – The amount we spend to mitigate risk • What do you mean by “fall-back”? – Dealing with it when (or if) it happens – The plan if the contingency fails – Plans put in place in advance to make it better
  6. 6. Introduction
  7. 7. Risk … • Assessment – Beliefs: what do we believe about the risk? • Analysis – Effects: what does it mean to the overall project? • Awareness – Actions: what should we do about it?
  8. 8. Expressing risk • Two popular ways of expressing risk: 1. Probability and impact (risk register) 2. Three-point estimate “Three-point estimate” VH Major scope change H DECC requires recycle M Delay to lift vessel arrival L SIMOPS issues L M H VH Probability Impact
  9. 9. Expressing risk • Never been done before • Challenging conditions • Uncertain regulations • Early phase • Been done before • Easy conditions • Established regulations • Mid-execution P10 P50 P90 Base P10 P50 P90 Base • “Cheaper but more risky” • “More expensive, less risky” X X
  10. 10. Assessment
  11. 11. The risk workshop • Valuable discussion: assumptions, inter-discipline issues, allows honesty • Structured approach, best practice • Engage project team, management and stakeholders • Skilled facilitation, ensuring contribution from all team members, keeping focus • Identify, discuss and qualify risks – Cause, risk, effect – Probability (H / M / L …) – Impact on schedule, cost and safety, production, operations (H / M / L …) • Capture mitigation options and fallback options – Effect of mitigation – Agree action owners and deadlines – Make decisions – is it worth mitigating? Probability Impact Score Major scope change M VH 25 SIMOPS issues H L 17 DECC requires recycle L H 15 Delay to lift vessel arrival L M 9 … …
  12. 12. The risk workshop • Risks can be ranked and summarised • Give focus on response / mitigation • Establish agreement • Demonstrate robustness • What are our top risks? • A useful live project document • Track response actions • Keep risk visible throughout planning and execution • But … • Quantitative risk assessment adds more value … VH Major scope change H DECC requires recycle M Delay to lift vessel arrival L SIMOPS issues L M H VH Probability Impact
  13. 13. The quantitative risk assessment • Base cost estimate (CBS) – Around 20-50 high-level cost elements – Allowances / contingency identified • Optionally: Base schedule (WBS) – Around 50-300 activities – Allowances / contingency identified – “Forward-driven” logic – Can use existing schedule, or create in a workshop • Any risks already identified
  14. 14. The quantitative risk assessment • Quantify significant risks – Probability (%) – Cost impact in £: P10, P50 and P90 (if it occurs) – Schedule impact in days: P10, P50 and P90 (if it occurs) • Associate the risks with the schedule activities (WBS) – E.g. “Delay to lift vessel arrival” will impact installation activities • Associate the risks with the cost elements (CBS) – E.g. “Delay to lift vessel arrival” will impact topsides cost (optional)
  15. 15. The quantitative risk assessment • May or may not happen (probability) • Deviation from base, if it happens (impact) “Impact” “Probability” “Impact” “Probability”
  16. 16. • Further quantitative assessments – Cost variance (-5% / +10% for jacket fabrication cost) – Schedule variance (-10% / +30% for engineering activities) – Variance accounts for: • Estimating uncertainty • Risks not specifically modelled • Deviation from base – Correlation (all fabrication costs are uncertain because of common causes) The quantitative risk assessment Base cost “Three-point estimate”
  17. 17. The quantitative risk assessment • Use the uniform or triangular distribution, or better Single value 1-point estimate More knowledge / less uncertainty Beta Pert (larger shape parameter, default shape parameter of 4) 3-point estimate Triangle / Trigen 3-point estimate Beta Pert (smaller shape parameter) 3-point estimate Uniform 2-point estimate Less knowledge / more uncertainty Credit: from Centrica Energy’s QRA training manual
  18. 18. Analysis
  19. 19. Quantitative risk analysis • The risk model shows the effect of the risk assessment, on the overall project Base estimate (MMUSD) Bulks 2.3 Fabrication 5.7 Transportation 1.9 Heavy lift vessel 1.6 Hook-up and commissioning 4.3 Project services 0.6 Total 16.4 The P90 is a "reasonably likely" worst case. Contingency at P90 = 6.6 “Exposure” “Probability distribution”
  20. 20. Example project risk analysis • Simple schedule – Activities, durations, logic – Costs (lump sums and day rates) – Risks, variance, associated with activities and costs • Risk analysis gives us – Probabilistic finish date – Probabilistic costs – Much more
  21. 21. Other analysis outputs • The total contingency can be shown (on average) against the individual costs
  22. 22. Other analysis outputs • The total contingency can be shown (on average) phased over time
  23. 23. Awareness
  24. 24. Awareness • Never been done before • Challenging conditions • Uncertain regulations • Early phase • Been done before • Easy conditions • Established regulations • Mid-execution P10 P50 P90 Base P10 P50 P90 Base • “Cheaper but more risky” • “More expensive, less risky” X X
  25. 25. Awareness Base (MMUSD) Bulks 2.3 Fabrication 5.7 Transportation 1.9 Heavy lift vessel 1.6 Hook-up and commissioning 4.3 Project services 0.6 Total 16.4 - % + % Base - % + % Base P10 P50 P90 Base Mitigate “Response / mitigation” X Base (MMUSD) Bulks 2.3 Fabrication 5.7 Transportation 1.9 Heavy lift vessel 1.6 Hook-up and commissioning 4.3 Project services 0.6 Total 16.4 - % + % Base - % + % Base P10 P50 P90 Base Mitigate X Base (MMUSD) Bulks 2.3 Fabrication 5.7 Transportation 1.9 Heavy lift vessel 1.6 Hook-up and commissioning 4.3 Project services 0.6 Total 16.4 - % + % Base - % + % Base Mitigate
  26. 26. Awareness • Given the risk as we have expressed it: – How valuable is response x? – How much overall contingency is likely needed? – Where is it likely needed? – And when? – What’s our biggest risk at P50? – At P90? – What contractual incentivisations are appropriate?
  27. 27. Contingency Credit: from Centrica Energy’s PACE guidelines “Contingency”
  28. 28. Contingency Credit: from Centrica Energy’s PACE guidelines
  29. 29. Contingency
  30. 30. Benefits of risk assessment • A valuable process – Challenge project teams and base estimates – Express uncertainty in the team’s base assumptions – Capture risks, assumptions, issues, and their consequences – Encourage open discussion amongst integrated team • Demonstrate awareness of risk – Agree and communicate the team’s view of the risk – Justify contingency and mitigation efforts – Allow challenges, discussion and negotiation – Set realistic stakeholder expectations • The risk assessment and analysis represents the perceived risk, and its logical consequences
  31. 31. Summary
  32. 32. Quantitative risk analysis • The risk model shows the effect of the assumptions on the overall project Base estimate (MMUSD) Bulks 2.3 Fabrication 5.7 Transportation 1.9 Heavy lift vessel 1.6 Hook-up and commissioning 4.3 Project services 0.6 Total 16.4 The P90 is a "reasonably likely" worst case. Contingency at P90 = 6.6
  33. 33. About Simon White • Over 20 years’ experience in risk management and risk analysis – Wide variety of industries and major projects – Three years as UK Risk Analyst for ConocoPhillips – Previously Senior Risk Management Consultant and trainer for Pertmaster, Primavera and Oracle – Risk analyst for current major oil / gas projects such as Cygnus, Clair Ridge and Jasmine, and a major government infrastructure programme • Recognised as one of the leading practitioners of integrated project schedule and cost risk management and analysis – Methods allow project risk models to be interrogated and understood by project teams and senior management – Designed and built commercial risk software: Predict!, Arrisca, and a contributing architect to Primavera Risk Analysis (Pertmaster) – Develops tools for more practical and valuable project and business risk management.
  34. 34. White Box by BOLD

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