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Integrated Portfolio Risk Management
Risk Management Implications of the Technip-FMC Merger
Zafer Aslan, PhD
Regional Risk Manager
2
Agenda
▪ Introduction
▪ Technip-FMC Merger
▪ Risk Management Implications of the Merger
▪ Challenges: Methods, Models, and Standards
▪ Opportunities: Leveraging Portfolio Diversification
▪ Even More challenges: Integrated Portfolio Risk Management
▪ Findings & Conclusions
3
The Merger
MERGER!
Genesis is a wholly owned TechnipFMC company but operates independently, providing clients with impartial, effective and value driven engineering solutions.
▪ Risk Management Support for TechnipFMC in North America is provided by Genesis’ Project Risk and Value Management (PRVM) group
▪ PRVM group specializes in advanced statistical analysis, probabilistic risk models, linear and nonlinear optimization algorithms, decision making studies, data analytics, machine learning, and value engineering (along with typical risk and safety studies such as HAZOPs, HAZIDs, HIRAs, SIL, LOPA, QRA, etc.)
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TechnipFMC’s Business
Subsea
• From concept to delivery
• Field architecture and integrated design
• Engineering, Procurement, Construction and Installation
• Subsea products: Trees, manifolds, controls, processing systems, umbilicals, and flowlines
• Subsea Services: Asset management, Well intervention, ROVs and manipulator systems
Onshore / Offshore
• LNG, Gas treatment, Petrochemicals & fertilizers, Refining & hydrogen, Mining & metals
• Fixed facilities: jackets, self-elevating platforms, GBS, and artificial islands
• Floating facilities: FPSO, semi-submersibles, Spar, TLP, and FLNG
• Services: Project management consultancy, process technologies
Surface Technologies
• Drilling, completion and production wellhead equipment, chokes, compact valves, manifolds, and controls.
• Advanced separation and flow-treatment systems
• Flow metering products and systems
• Treating iron, manifolds, and reciprocating pumps for stimulation and cementing
• Marine, truck, and railcar loading systems
Merger & Risk Management
Portfolio Diversification and Standardization
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Execution Score
Technical Score
Contractual Score
Contractual
Execution
General
Technical
Methods & Models
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Quadratic
Balances execution complexity with
major impact uncertainties.
Optimal for portfolio of similar sized
projects
Exponential
Focus is on identifying major risks and
near-showstoppers.
Optimal for portfolio of varying size
projects.
Scales & Measures
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Scales & Measures
8
Offshore Risk Distribution
1,276(-576)
576
pts544
pts
Onshore Risk Distribution
1,272(-544)
Subsea Risk Distribution
1,114(-162)
162
pts
SPS FMC Risk Distribution
(converted to Legacy TP Scale)
2117
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Matrix Standardization / Conversion
There needs to be a balance between:
• Standardization (to enable portfolio risk management)
• Flexibility of the process to take into account each BU’s specificities and constraints.
• The diversity in project size requires adaptability of risk assessment method.
• We utilize automation via scaling algorithms to maintain the necessary balance between standardization and flexibility.
Scaled Matrix Global Matrix
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Project
Ava
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Clie
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Ove
rall lim
it o
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hip
Pa
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erm
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Pe
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gu
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Sim
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Pre
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with
Clie
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Pre
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with
Pa
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with
ma
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of th
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Te
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Tim
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Typ
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Project 1 L M M L H L H L L M L L L L M L M M L M
Project 2 L H M L M L M L L H L M L L M H L M L M
Project 3 L H M L M L M L L H L M L L M H L M L M
Project 4 L L M L M L M L L M L L L M M L M M L M
Project 5 L M M M L L M L L H M L L M M L M L M M
Project 6 L H L L L L M L M H L L L L H H L L L L
Project 7 L H M L M L M L L H L M L L M H L M M M
Project 8 L H L L M L L L H H L L L M M H L M L M
Project 9 L H M L L L L L M L L L L M H L L L L L
Project 10 M H M H L M M M M M L L M M M M L M L M
▪ Analyzing the results of the standard RPET (Risk
Profile Evaluation Table) form across the portfolio
can reveal trends and allow for implementation of
more efficient mitigation efforts at the portfolio level.
▪ An analysis of recent tenders at the portfolio level
shows the risk profile of the projects that are / were
pursued and highlights the future risks that TPFMC
may face in the execution of projects.
High Risk Exposure areas for recent Tenders:
▪ Type of Contract
▪ Scope of Contract
▪ Client Credit Worthiness
▪ New Clients
▪ Time for Bid Preparation
Standard Screening for Tenders and Projects
Project
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Sim
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Pre
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with
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Pre
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with
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Pri
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with
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Te
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Typ
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Typ
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Project 1 L M M L H L H L L M L L L L M L M M L M
Project 2 L H M L M L M L L H L M L L M H L M L M
Project 3 L H M L M L M L L H L M L L M H L M L M
Project 4 L L M L M L M L L M L L L M M L M M L M
Project 5 L M M M L L M L L H M L L M M L M L M M
Project 6 L H L L L L M L M H L L L L H H L L L L
Project 7 L H M L M L M L L H L M L L M H L M M M
Project
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Clie
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Ove
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Pa
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Project 1 L M M L H L H L L M L L L L M L M M L M
Project 2 L H M L M L M L L H L M L L M H L M L M
Project 3 L H M L M L M L L H L M L L M H L M L M
Project 4 L L M L M L M L L M L L L M M L M M L M
Project 5 L M M M L L M L L H M L L M M L M L M M
Project 6 L H L L L L M L M H L L L L H H L L L L
Project
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Typ
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s
Project 1 L M M L H L H L L M L L L L M L M M L M
Project 2 L H M L M L M L L H L M L L M H L M L M
Project 3 L H M L M L M L L H L M L L M H L M L M
Project 4 L L M L M L M L L M L L L M M L M M L M
Project 5 L M M M L L M L L H M L L M M L M L M M
Project
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Clie
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Project 1 L M M L H L H L L M L L L L M L M M L M
Project 2 L H M L M L M L L H L M L L M H L M L M
Project 3 L H M L M L M L L H L M L L M H L M L M
Project 4 L L M L M L M L L M L L L M M L M M L M
Project
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Project 1 L M M L H L H L L M L L L L M L M M L M
Project 2 L H M L M L M L L H L M L L M H L M L M
Project 3 L H M L M L M L L H L M L L M H L M L M
Project
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Project 1 L M M L H L H L L M L L L L M L M M L M
Project 2 L H M L M L M L L H L M L L M H L M L M
Project
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Project 1 L M M L H L H L L M L L L L M L M M L M
Risk Clusters
11
Cluster Analysis of Risk Registers to Establish Benchmarks
▪ During project execution, a more advanced risk score is calculated for each project across all business units
▪ The Project Risk Score is based on the information and assessment contained in the Risk Register
ID Category Risk Events
Overa
ll Im
pact
Pro
babili
ty
Risk Rating
1Asset
Transport and
Installation
Risk 1 2 8 16
2Construction
and FabricationRisk 2 4 2 8
3 Client Risk 3 4 2 8
4Asset
Transport and
Installation
Risk 4 2 2 4
10 Client Risk 5 2 2 4
11 Environment Risk 6 2 2 4
678
Risk Register Heat Map Risk Score
12
▪ Cluster Analysis of the ranking distribution allows for establishing benchmarks.
▪ A new tender / project can be categorized as soon as the register is developed and tracked throughout the project lifecycle
Data Gathering
& Treatment
K-Mean
Cluster Analysis
Risk Score Distribution across
Company PortfolioBenchmarks based on
Company Portfolio
838
78th percentile
838
Cluster Analysis of Risk Registers to Establish Benchmarks
13
Relating Financial Performance and Risk Profile
▪ Analysis confirms that the perceived risk level during tendering and project execution highly correlates with variance in
financial performance for the legacy Technip Projects.
▪ Legacy FMC?
Q1 Q2
Project 1
Project 2
Project 3
Project 4
14
Tracking Financial Performance and Risk Profile
▪ The analysis shows a significant improvement in both risk
mitigation and creation of opportunities since July 2015.
▪ The difference in the shape of the Target GM distributions (2015,
2016, and 2017) is worth noting as it clearly shows the
implementation of successful risk management actions in the
project’s execution strategy.
▪ The Stdev of the new distribution is significantly less than the
older one indicating a relatively much less risk exposure and high
confidence.
P = 28%
P <5 %
Target Gross Margin
P = 42.4 %
15
Risk Monitoring at Project, BU, and Portfolio Level
Project Level
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1 2 3 4 5 6 7 8 9 10 11
Portfolio Trends
Portfolio
Subsea
Onshore
Offshore
BU Level Portfolio Level
16
Leveraging Portfolio Diversity
17
SURF
Projects
SPS
Projects
Onshore
Projects
Offshore
Projects
Integrated
Projects
Identifying and Leveraging Similarities
▪ Similarities between projects are expected
inside business units but they also exist
across businesses. Risk attributes such as:
Location, Client Profile, etc. create
correlation in the portfolio across business
units.
▪ Our algorithm quantifies the level of
similarity between project risk registers
based on their content.
▪ This allows us to leverage previous
experience from past or on-going projects.
Well documented risk descriptions (e.g.
causes), detailed mitigation / remediation
actions can add significant value to
execution of future projects.
18
Integrated Project Scope to Reduce Risk Exposure
▪ The above overlay chart compares the project cost distribution with and without Integration
▪ This analysis indicate an improvement of the project standard deviation (cost) by 22% and the potential project cost
reduction, with a P50 of ~ 10 % of the project cost
Integrated
Scopes
Risk Reduction &
Cost Savings
Independent
Scopes
19
Integrated Portfolio Management
20
Integrated (Subsea) Portfolio Management
The integrated model execution in a nutshell:
Opportunities:
▪ Increased control of the project execution from manufacturing to installation
▪ Reduced interfaces for seamless execution
▪ Increased flexibility during manufacturing and installation execution
▪ Improved Constructability and Installability
Risks:
▪ Additional scope risk exposure due to increased liability (equipment failure + installation failure)
▪ Increased complexity and interdependencies
▪ e.g. Component failure resulting in delayed installation (snowball effect)
21
Integrated Portfolio Management: Dynamic Network Approach
Installation ProjectsEquipment AssemblyComponent Supplies
PRVM team has developed a dynamic portfolio management framework relying on:
Optimization algorithms, Monte Carlo simulations, and powerful dynamic visualizations to help manage the integrated portfolio.
22
Project Backlog & What-if Scenarios
Scenario #1 Scenario #2 Scenario #3
Base Case Early Award Tender not awarded
Dynamic network framework allows for simulating potential backlog risks / opportunities to measure their impact on fleet
utilization, product line workload, component supply chain ,etc. Some example scenarios are:
▪ Timely Award (Base Scenario)
▪ Early award / postponing of Project
▪ Project Cancellation
What-if scenario simulations, execution risk analysis, or general stress analysis performed on the backlog allow for better
forecasting and better resource allocation.
23
Product Line Capacity
Scenario #1 : Base Case Scenario #2: Engineering Delays
Project As Planned Product Line Capacity Project Delayed Product Line Capacity
▪ The framework algorithm allows for simulating the workload variation based on project risk scenarios.
▪ The detection of potential workload stress areas is allowed by simulating a variety of pre-set or custom risk scenarios
for each project of the portfolio via Monte Carlo simulations.
▪ The integrated approach also helps to measure of the impact of mitigation actions at the project and portfolio level.
Per plan the project timing doesn’t induce stress areas on the Product Line In this scenario the project timing creates a peak above max capacity
24
Component Supply
▪ Similar simulations and forecasting algorithms are
applied at the component level to help assess the
workload stress on the capacity for that component
and to identify potential delivery risks at the product
line level based on supply from different locations.
▪ Smarter decision making for supply location, for
instance, is enabled by taking into account not only
cost and schedule information but also the risk level at
each location.
25
Tying it all together
Scenario #1 : Base Case
$$
$
• Smooth execution
• Vessel utilization optimized
• Project cost optimized
• Project 1 campaign is delayed by
availability of equipment
• Project 1 budget exceeded
• Project 2 missed target completion date
Scenario #2 : Delayed Execution Scenario #3 : Mitigated Scenario
• Manufacturing for Project 2 is
expedited to start Campaign A early
• Scope is transferred between vessels
to match availability
26
Conclusions
27
Conclusions and Findings
▪ Mergers are….difficult
▪ While addition of new business units and work scopes is great for risk management in terms of portfolio diversification;
▪ Harmonizing risk management processes (i.e. methods, models, standards) could be more challenging than originally
anticipated.
▪ Risk attitude/tolerance of each merging company should be studied by experts thoroughly before assuming/adopting a “one
size fits all” approach.
▪ Perceived risk of legacy FMC customers is different than legacy Technip customers
▪ It could be rather challenging to satisfy the risk management expectations (and acceptable risk exposure) of clients for
the newly offered integrated subsea solutions (e.g. warranties)
▪ With increased portfolio size/offerings, and interdependencies (e.g. integrated subsea projects); managing portfolio risks
become more complex and challenging due to potential snowball effects (e.g. late valve leading to delayed offshore spread).
▪ Advanced statistical risk analysis at the project, BU, and portfolio level should be continuously performed in conjunction with
implementation of robust monitoring and tracking systems to take full advantage of the well diversified portfolios that come
with successful mergers.
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Q&A