Practical project risk assessment
Presented by Simon White
Monday 10th October 2016
APM North West branch and Risk SIG conference
Alderley Park, Macclesfield
Business Model Canvas (BMC)- A new venture concept
Practical project risk assessment, presented by Simon White, 10th Oct 2016, APM North West branch conference
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
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
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
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
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
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?
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
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.