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

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. • Introduction
• Project risk …
– Assessment
– Analysis
– Awareness
• Summary
A g e n d a

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. Key concepts
• probability
• expectation
• three-point estimate
• impact
• exposure
• contingency
• mitigation
• probability distribution
• P10, P50, P90

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. Introduction

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. 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. 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. Assessment

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. 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. 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. 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. The quantitative risk assessment
• May or may not happen (probability)
• Deviation from base, if it happens (impact)
“Impact”
“Probability”
“Impact”
“Probability”

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. 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. Analysis

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. 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. Other analysis outputs
• The total contingency can be shown (on average)
against the individual costs

22. Other analysis outputs
• The total contingency can be shown (on average)
phased over time

23. Awareness

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. 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. 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. Contingency
Credit: from Centrica Energy’s PACE guidelines
“Contingency”

28. Contingency
Credit: from Centrica Energy’s PACE guidelines

29. Contingency

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. Summary

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. 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. White Box by BOLD