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Risk Management

Discover, Measure and Report on the Opportunities and Risks Around Your Project Portfolio With Emerald's Risk Management Service Package

  • Risk Management is a process not a tool
  • The Oracle risk tool (Risk Analysis formely Pertmaster) facilitates part of the process
  • The process requires in depth knowledge of project processes
  • The process leaves no stone unturned & that can be uncomfortable
  • We turn those stones and take the heat – not you
  • Delivery of a report that has 3rd party credibility

The Problem

The whole field is often perceived as an unnecessary burden that has been imposed from the top down and brings no benefit. The immature and erroneous application of Opportunities & Risks Management by companies, that we frequently see, ensures that that is exactly what they get.

The scenario unfolds like this:

  • A requirement to pass a gate is to have a risk report
  • A spread sheet risk register has been compiled by circulating it to all stakeholders and contains a range of risks, from invasion by aliens to minor delays
  • At the 11th hour before the gate review risk software is purchased, or dusted off
  • A controls manager then tries to push the data into the software
  • Finally a scheduler is given the task of running it and producing a canned report
  • The requirement for the gate is ticked off.

No matter how much effort is put into planning and scheduling, projects rarely come in on time and on budget. A major study conducted by the Construction Owners Association of Alberta showed that very large capital projects in Alberta had an average 19% cost growth and 17% schedule growth (The Alberta Report - COAA Major Projects Benchmarking Study, February 2009).

The Challenge

Normal scheduling and estimating techniques use a single value for cost and schedule input (known as deterministic values) whereas in reality, everything has varying degrees of uncertainty. When disruptive events such as fire or work stoppages happen they have serious impacts on the project, but these events are rarely modeled in a deterministic plan.

Every risk will have a cost and schedule impact and cannot be managed without understanding the cumulative impact of all risks to the project. However, the likelihood of all the impacts occurring at the same time is extremely rare, so it is not just a matter of adding up the impacts of every risk. The critical path of the project rarely follows a fixed logic path but changes because of circumstances such as:

  • Bad weather
  • Delays
  • Failure to pass tests
  • External economic parameters

With all these variables, it is not surprising that the probability of achieving the deterministic project targets for dates and costs are usually less than 10%. For companies who have committed to major projects, this is unacceptable and puts them in a high risk financial position.

The Solution

The Solution is in the Process

The process is to identify and quantify uncertainties as well as to find both opportunities and risks; to exploit the opportunities and mitigate the risks. Our process delivers 80% of the value before the use of any risk tools. It requires in-depth experience, human relations skills and diplomacy.

Emerald's 13 Step Risk Analysis Process

  1. Interview planners one-on-one to both validate the project plan and determine ranges of uncertainty. In these interviews there is cross validation taking place between planners.

  2. Analyse the schedule both conceptually and technically.

  3. Interview schedulers to clarify questions arising from Step 2.

  4. The Company makes adjustments arising and agreed from previous steps.

    All the foregoing should be done as part of a quality assurance program regardless of the risk process. It rarely is. The foregoing delivers great value even without the following steps.

  5. A triage is conducted on any existing risk register based on probability, magnitude and impact. Owners of the higher ranked items are interviewed for validation and corresponding opportunities.

  6. After a detailed study of the revised schedule and plan, key ‘hands-on’ players are identified and interviewed one-on-one for uncertainty, opportunities and risk. This data is evaluated, weighted, cross validated and finally distilled into opportunities and risks to be modelled for quantification by next stage analysis. An audit trail to information sources is maintained throughout.

  7. Meetings are held with senior management to explore higher level opportunities and risks, and to review the findings. Many of the findings will be immediately acted upon and the schedule and plan adjusted so that those findings do not need to be carried forward.

    If these steps have all been followed then, typically 70% of the value has been delivered. The balance of the process is to quantify the impact of the remaining items on the key milestones for cost, resources and time. Then analyse the cost benefit of various mitigation strategies, choose the optimum strategy and adjust the plan and schedule to support it.

  8. Upload the financial, resource, expense, etc. plans into the schedule, if necessary, and then load uncertainties. Transfer this loaded schedule into the Oracle Risk tool.

  9. Upload and augment the data for opportunities and risk events into the Oracle Risk tool risk register so that a detailed control and audit trail can be maintained for all subsequent actions on them.

  10. Model the uncertainties, opportunities, & risks in the software using the range of techniques available, e.g. correlation, existence probability, branching logic, weather modelling, etc.

  11. Run, test and tune the output. Create the Stage 1 Report.

  12. Discuss with management and determine mitigation strategies available.

  13. Run iterations of mitigation strategies and produce the optimum solution. Create the Stage 2 Report.

The Benefits

A company whose project portfolio shows dramatic swings in time and money demonstrates lack of control. It is lack of control that spooks the shareholders because it reveals governance weakness. This process, when maintained reduces these fluctuations.

  • More effective use of funds by tailoring contingencies and allowances to match exposure.
  • Proof of due diligence by Executives for forward looking statements.
  • Third party control credibility.
  • Increased profitability by capturing of opportunities.
  • Avoidance or mitigation of risk losses.
  • Rapid and nimble response to changing conditions.

Emerald's Experience

Emerald has a long and broad experience dealing in large project risk analysis including:

  • The risk analysis of one of the largest CO2 collection project in the world, which involved collecting CO2through a trunk pipline gathering system and injecting it into depleted gas fields. There was significant new technology and geological uncertainties. Other notable features of this risk assessment were the following;
    • Regulatory NGO
    • Activist and landowner interventions
    • Political risks
  • A major new capital project incorporated into a plant during a turnaround. The mixing of cultures between capital projects and maintenance work was reflected in every aspect of the work and represented multiple threats. This analysis represented a challenge for diplomacy and human relations in the interview process.
  • A new separator and upgrader development. At the time of our risk analysis, engineering was peaking, infrastructure was being built and site clearing had commenced. A notable feature of this study was the extreme pressure on engineering and construction resources and galloping cost escalation. Mitigation actions included various labour incentives.
  • A new Steam Assisted Gravity Drainage (SAGD) plant. The engineering was at its height and piling is just starting. Our analysis was largely focused on the procurement and engineering processes that were intimately entwined and driving the construction process.
  • Analysis of the risks for a nuclear generation facility restart project. There were many risks associated with the availability and condition of equipment for this plant which was 40 years old at the time and the possibility of hidden defects.
  • A capital project that was running late and over budget where the owner and EPC disagreed about the best way to finish the project. Our analysis helped determine the most expedient path to the end of the project.

Other examples of our extensive risk analysis experience include the following projects:

  • Risk analysis of the likelihood of troubled projects completing on time and on budget
  • Risk Analysis for an Extraction Plant along with their Tailings Pond and Pipeline Network.
  • Risk Analysis of the transport of sulfur trains
  • Risk Analysis of the construction of an Ethanol plant
  • Risk Analysis of the treatment of tailings at an oil sands plant involving new technology to minimize environmental impact
  • Risk Analysis at an open cast mine that required the plant to be relocated.
  • Risk Analysis of the excavation under an existing, operating refining plant to reinforce foundations.

For more information, please review the Risk Management brochure.