panel 4: managing the work: risk & change apegga - 2008

APEGGA - 2008CSC

Excellence In Risk Management

I would not say that the future is necessarily less predictable than the past. I think the past was not predictable when it started…Donald Rumsfeld

Panel 4: Managing the Work:

Risk & Change

APEGGA - 2008

Dave Evans, P. Geol., Sr. Partner,

CSC Project Management Services, Calgary

www.cscproject.com

APEGGA - 2008CSC


Risk Management and Dilbert

APEGGA - 2008CSC


The Organization and Risk Management

Governance

Strategic Planning Risk Management

‘Risk management, risk assessment, risk communication, risk register, risk intelligence, uncertainty, opportunity, change, change management, etc.’

APEGGA - 2008CSC


New Attitudes towards Risk Management

Old View Silo Management Focus on risk transfer Limited integration with

process Scope limited to

financial/hazard Unclear link to

corporate objectives Tactical Qualitative

New View Centralized Management Develop & understand risk

portfolios Create competitive

advantage Integration of risks into

plans & budgets Link risk management to

corporate objectives Strategic Quantitative

APEGGA - 2008CSC


Yin & Yang* of Risk Management

Yang (Hard Side)Risk OversightPolicies &

ProceduresRisk AssessmentsMeasures &

ReportingRisk Limits

(Appetite)Audit ProcessesSystems

Yin (Soft Side)Risk AwarenessPeopleSkillsIntegrityIncentivesCulture & ValuesTrust & RespectCommunicationReputation

*after 2000 eRisks

APEGGA - 2008CSC


Five Levels of Risk Management Maturity*

Level 1:Ad Hoc

Level 2:Initial

Level 3:Repeatable

Level 4:Managed

Level 5:Comprehensive

* Modified from PMI Risk Management Group, 2002

Success depends on the competencies and heroics of individuals

Risk awareness, but no precedents, structures or drive in place for consistent application.

(Qualitative, KT Analysis SWOT)

Risk Management has been implemented into routine business processes.

(Risk Register, Range Estimating, Real Options)

Risk Management Standard and defined processes used

across the organization(Quantitative Risk Analysis)

Risk Management is used to base both individual decisions and strategic planning on quantified values (Integrated, Strategic, Core Competency)

Where are you now?Where do you want to be?

APEGGA - 2008CSC


TraditionalProject

RiskAnalysis

Time

Cost Quality

+ =

OptimizedValue

Fit for Purpose

ContinuousImprovement

BreakthroughThinking

“Pick any Two”

Risk Analysis for Project Risk Management

=+

Risk analysis and risk management are applied to maximize project value by testing strategies to find the best or optimum value.

APEGGA - 2008CSC


Guiding Principles on the role of Risk Analysis in Decision-Making (ASME*)

No course of action, including taking no action, is risk free. All stakeholders should be identified and involved in process. The process must be open, transparent and rigorous. Assumptions, uncertainties and methods must be understood. Consistent methodologies should be applied throughout the

process. Uncertainties that cannot be readily quantified should not be

exempted. Risk assessment, management and communication should be

an integrated process. There should be complete access to data and information.

Adapted from AMSE (2002)

APEGGA - 2008CSC


Cold Eyes Review Team Involvement

Project Team Involvement

Operations Team Involvement

Risk Contractor Involvement

Timely Risk AnalysisEffective Risk Analysis will revisit and re-evaluate the risks on a Project and

throughout the Project Life Cycle. Each phase of the risk analysis may involve a different focus and a different mix of disciplines.

StrategicPlanning

ProjectDefinition

ProjectFinancing

Mid-Construction

ProjectStart Up

Year 1Full

Operations

ProjectExecution

Corporate Planning Involvement

StrategicTactical

APEGGA - 2008CSC


Uncertainty changes through the Project Life Cycle

Life Cycle Activity: Business Focus Key Uncertainties

Strategic Planning Environmental RegulationPolitical & Social Risk

Stakeholder Value / GovernanceAlternatives / Locations

Project Definition Balance of PortfolioProject Configuration

Technology AlternativesPolitical & Social RiskMarket Demand

Project Financing Project Return Execution Planning

Process Quality / Scope /Estimate of Potential Value

Mid Construction Risk Mitigation & RecoveryOn Stream Date

Quality of Execution, Schedule, Cost, Reworks

Project Execution Project Controls Risk Mitigation

Capital Cost, ScheduleTechnology, Scope

Pre- Start Up Commissioning & Start Up Sequencing

Schedule, Technology Performance, System Interference

Ongoing Operations Volumes, Rates, OPEX, Process Quality

Plant operability, Operating team performance, Regulatory Issues

Expansion/Closure Project Return, ConfigurationExecution Planning & Control, Liability

Cumulative Impacts, Market Demand, Environmental and Social Issues

APEGGA - 2008CSC


What are some of the Key Questions that a Risk Analysis should answer?

What are the key uncertainties?What are the potential impacts?How much will it cost?How confident are we in cost?How long will it take to complete?Where do we need contingency?What can I do about it?

APEGGA - 2008CSC


ProbabilityDistributions

Tornado Diagrams Step DiagramsInterview Issues Model and Test Options

Scheduled, Formal ReviewsUpdated Model Results(Probabilities, Tornados, Steps)Management Risk Reporting

Base Design & Operating Plans

Contingency Plans

Risk Monitoring

System

Project Targets Immediate RiskControl Measures

Risk Analysis

Risk Analysis is the centerpiece of a Risk Management Process

Key outputs from a comprehensive Risk Analysis

APEGGA - 2008CSC


The probability distribution illustrates the full range of project uncertainty and is used to set the project targets at appropriate confidence levels.

*Expected

Value

10/90 Range

CAPEX, Schedule, OPEX, etc.

90%

50%

10%

Note:1. Each point on the curve is a result from a single Monte Carlo trial. The expected value represents the average value of all the trials.

2. The slope of the 10/90 range representsthe uncertainty, the flatter the curve, the more uncertainty.

3. The curve below the expected value indicates upside opportunity, the portion above shows the downside risk.

ProbabilityProject Targets

P80 (?) Confidence Level

UpsideOpportunity

DownsideRisk

APEGGA - 2008CSC


-20000 -15000 -10000 -5000 0 5000 10000 15000

Labour Productivity - Multiplier 0.91 1.09

Labour Availability Delays - Weeks 3 15

Man-hours Estimating Variance 0.94 1.1

Organization Performance Excellent Poor

Congestion Productivity Impact - Multiplier 0.83 1.13

Weather Delays to MC - Weeks 0 4

Competing Projects Environment Depressed Heated

Area 103A Reworks, Extras & Scope Impacts - Multiplier 1 1.15

Materials Quantities Variance 0.96 1.12

Area 103A Permit Delays - Weeks 2 6

Electrical Materials Quantities Variance 0.9 1.17

Area 103B Reworks, Extras & Scope Impacts - Multiplier 0.9 1.1

Area 100 Reworks, Extras & Scope Impacts - Multiplier 0.93 1.08

Area 101B Reworks, Extras & Scope Impacts - Multiplier 1 1.12

Area 100 Labour Productivity - Multiplier 0.81 1.03

$k

Total Project Expenditures

The Tornado & Step Diagrams Identify the Areas that will be the most effective for Mitigating Cost & Schedule.

Contingency Planning

APEGGA - 2008CSC


15-Aug-07

1-Sep-07

15-Sep-07

1-Oct-07

15-Oct-07

1-Nov-07

15-Nov-07

01-Dec-07

15-Dec-07

01-Jan-08

AFE

App

rova

l

+6

Eng

inee

ring

to 6

0%

+13

Prel

imin

ary

Ven

dor

Dat

a

+7

Mod

ule

Stee

l Fab

rica

tion

0

Mod

ule

Pipe

Fa

bric

atio

n D

urat

ion

0

Rac

k/ P

roce

ss

Mod

ule

Ass

embl

y

-3

Las

t Pro

cess

Are

a M

odul

e O

n-si

te to

Con

stru

ctio

n C

ompl

ete

0

Eva

pora

tor

Uni

ts

0V

apou

r C

ompr

esso

rs

0

Site

Pre

p D

urat

ion

+1

Pilin

g

-8

Com

mis

sion

ing

Dur

atio

n

+14

Star

t-up

Dur

atio

n

-3

Con

stru

ctio

n D

urat

ion

+31

Mat

eria

ls D

eliv

ery

+5

Wea

ther

Del

ay

+5

Lab

our

Issu

es

+12

Lon

g L

eads

C

ompl

ete

to M

C

+14

Des

ign

defi

nitio

n C

hang

es

+5

Lab

our

Prod

uctiv

ity

+10

Rew

orks

+3Start Date

Base= 03-Sep-07

EV= 20-Dec-07

The Step Diagram demonstrates where the growth from the base estimate to the Expected Value occurs, and identifies key factors impacting the schedule (cost).

Immediate Risk Control Measures

APEGGA - 2008CSC


Planning Definition Execution Start Up

Abi

lity

to in

flu

ence

the

outc

omes

Full

None

Essential Risk Management

Closure

Early risk management and mitigation builds better valued projects

Cos

t of

Mit

igat

ion

Ste

ps

High

Low

APEGGA - 2008CSC


Common Characteristics of the Risk Intelligent Organization‘Taken from Managing the Unexpected’

Tracks small failures Resists oversimplification Remains sensitive to operations Maintains capabilities for resilience Takes advantage of shifting locations of expertise

panel 4: managing the work: risk & change apegga - 2008

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