Risk

Management

Agenda
Definition of Risk
Benefits
Process & Methodology
Qualitative & Quantitative Assessments
Interpretation of Results
Probabilistic Job Income Assessment

Questions / Discussion

What is Risk Management ?

Our Business World

External World
(Natural & Political-Economical Risks)

Sphere of influence
where some control
can be exercised
over risks

World of the
Organisation
World of
the Market
Place
(Market/Client Risks)

World
of the
Project/
Product

World of
Technology
(Technical/Product Risks)

From : Riskman Methodology - NCC Blackwell

Business Segments
Strategic & Business Planning
Portfolio Management
Investments
&
Development Decisions

Business Execution

Business Acquisition
Support
the IRC Process

Risk Management

Risk Based
Decision Making

Profitability Modelling

Definitions of Project Risk

An uncertain event or set of
circumstances that, should it occur, will
have an effect on the achievement of the
projects objectives
RISK has
Cause
Probability
Impact

RISK = Uncertainty + Constraint

Benefits of Project Risk Analysis &

Management (PRAM)
Increases Risk Awareness & Communication
Links the Technical & the Commercial Side of
Projects
Promotes Effective Common Management
Focus
Assists with Development of More Realistic
Project Targets
(Cost,

Schedule & Performance)

Benefits of Project Risk Analysis &

Management (PRAM) cont.
Enables Informed Decision Making
Establishes Contingencies Related to the Risks

Provides Early Warning System

Quantifies Risks and Opportunities

Risk Assessment Process

Qualitative Analysis - to understand the
issues involved & develop management
focus
Quantitative Analysis - to understand their
effect on the project & improve project
performance

Risk / Opportunity Assessment

Process
PROJECT
MANAGER

PLANNER

ESTIMATOR

FACILITATOR

CONSTRUCTION
MANAGER

ENGINEERING

INSTALLATION
MANAGER

Briefing by PM and Review of

Project History / Information

PURCHASING
COMMERCIAL

Brainstorming
Session

Risk Memos

Identification of
Risks / Opportunities

Interview
Key People

80/20
Identification of
Critical few

Risk / Opportunity
Mapping

Risk / Opportunity
Register

Quantitative
Analysis

Risk Summary
Ranking Matrix

Schedule / Estimate

Risk / Opportunity Assessment Deliverables

Comparative
Benchmarks

Report

Ongoing
Management

Relationship Between Qualitative &

Quantitative Assessments
QUALITATIVE

Establish Context
Identify Uncertainties
Analyse Opportunities/Risks
Define Impact/Probability
Identify & Implement Mitigation
Measures

QUANTITATIVE

Assess inherent Uncertainty (3 Point

Estimates)
Map Impact of identified Risks &
Opportunities
Benchmarks
Conduct Monte Carlo Simulations
Cost / Schedule Confidence Levels
Uncertainty Allowances
Schedule Criticality & Key Cost Drivers
Sensitivity Analysis
What-if Scenarios

Risk & Opportunity Ranking Matrix

Risk Register
Identifies Key Risk Issues
Classifies Risk Issues
Assigns Responsibility
Scores and Ranks Risks by:
Likelihood of Occurrence
Potential Impact
Addresses Risk Closure
Prevention
Mitigation of Impacts
Aids Quantification

Deterministic Vs Probabilistic
Simplistic View

Realistic View

Considerations

Money
Time
Resources
Opportunity

DETERMINISTIC:
SINGLE OUTCOME

Threat

PROBABILISTIC:
MANY OUTCOMES

Quantitative Risk: The Daily Drive

Question How long does it take you to drive to
work?
Answer: 40 minutes (Typically)

Question What is the shortest time you take to

drive to work?
Answer: 25 minutes (Good weather, school holidays)

Question What is the longest time you take to

drive to work?
Answer: 60 minutes (Bad weather, road works)

Quantitative Risk: The Daily Drive

The answers given demonstrate the uncertainty
associated with the activity:
40 minutes Deterministic, single value, no uncertainty
25 and 60 minutes ranges defining the limits of
uncertainty.

Now impose a constraint of arriving at the office

for an important meeting.
Our goal is to determine how much time to give
ourselves. Lets say we want an 80% confidence
level of arriving on time.

Quantitative Risk: The Daily Drive

Forecast: Journey time to work
180
160
140

80

120
100

60

80

40

60
40

20

20
0

0
25

40
Time (min)

47 minutes

60

Frequency%

Cumulative (%)

100

Probabilistic Spreads
Uncertainty

Min

Most
Likely

Opportunities

Risk & Opportunity

Register

Risks

Max

Risk Ranging
Cost Line Items

Default: +/- 10%

exceptions are
shaded

Engineering/PM

Deterministic
Cost

Opt

Most
Likely

Pess

Risk
Probabilistic
Multiplier
Cost

$
Project Management - Site
65,432,111
Project Management - Office & Other Services
12,345,678
Detail Engineering
33,333,333
Construction Management
incl
Commissioning
12,345,678
Start -Up & Performance Test
1,111,111
Final Documentation
111,111
Training of Company Personnel
2,222,222

0.95
0.90
0.95

1
1
1 - 1.3

1.20
1.15
1.50

1
1
1

65.43
12.35
33.33

0.90
0.95
0.90
0.90

1
1
1
1

1.15
1.25
1.10
1.10

1
1
1
1

12.35
1.11
0.11
2.22

Engineering Subtotal/PM

Default: +/- 10%

exceptions are shaded

Procurement

Diesel Generators
978200
Booster & Gas Lift / inj Compress. 22,570,400
Process Compressor
9,280,900
Oil Export Pumps
2,244,900
Water inj Pumps
4,986,000
Fire water pumps
1,776,400
Shell & Tube Exchangers
3,925,500
Separators
2,419,200
Chemical Inj System
3,596,300
Water treatment package
8,004,900
Equipment - Other
21,717,418
Telecomms s/c
6,722,085
BRC - Tankage s/c
23,784,100
Piping - Valves
38,375,469
60% chance of a 3 - 10%
increase on $220 M for
equipment and bulks.
50%: $150K - 600K
50%: $0 - 1M
70%: $0 - 3 - 6M

Risk Mapping

0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.90
0.85

1
1
1
1
1
1
1
1
1
1
1
1
1
1

1.10
1.10
1.10
1.10
1.10
1.10
1.10
1.10
1.10
1.15
1.10
1.15
1.15
1.12

0
0
0.00
0.00

0.00
0.00
0.00
0.00

1
1
1
1
1
1
1
1
1
1
1
1
1
1

Procurement Subtotal

C04 - Construction equipment availability - In

Country
M14 - Project Communications
M17 - Scope creep/growth

126.90
0.98
22.57
9.28
2.24
4.99
1.78
3.93
2.42
3.60
8.00
21.72
6.72
23.78
38.38

M15 - Cost and Change Control, pess: +5%

M15 - Cost and Change Control, pess: +5%
M15 - Cost and Change Control, pess: +2%

0.00
0.00
0.00
0.00

M04 - Market Conditions

P01 - Long Lead Items
P05 - Delays to Deliveries
P16 - Selection of Key Equipment Packages

150.38

Risk & Opportunity Mapping

Cost Estimate
Range
or Discrete Entry
ID
No.

Schedule Range
or Discrete Entry

Uncertainty Description

1. 1 Extended Reach / High Angle Drilling

- inadequate hole cleaning
leading to lost circulation and stuck pipe etc.
1. 5 Learning Curve
- increased efficiency of operational crew
- better knowledge of geology
- improved well design

1. 6 Multi-lateral Drilling

Category

Type

Potential for
Influence

- penalties tied to defined milestones

- DCU well schedule unachievable
1. 8 Major Loss Time Incident
- train wrecks / massive losses
leading to re-drilling, side-tracking etc.
Expected occurrence: 1 out of 15 wells

1. 9 Reservoir Uncertainty
- Geological data / Homogeneity
1.10 Directional Control of Drills
- especially in horizontal sections
1.11 Rig Contracting (3 rigs?)
- rig rates
- selection of rig type
1.12 Lack of Relevant Benchmarks
- especially for extended reach and multilateral
wells

Schedule
Score

Cost
Score

SCORE

Status

Risk Reduction Actions

Technical

Risk

Influence

Carey Naquin

12

Closed

Petrobras Sub-contractor risk

Performance

Opportunity

Control

Carey Naquin

12

Closed

Petrobras Sub-contractor risk

Technical

Risk

Influence

Carey Naquin / Ed
Wagner / Martyn
Ferguson

12

Closed

Petrobras Sub-contractor risk

Performance

Risk

Control

John Kirby / Bruce

Bricknell

12

Closed

Petrobras Sub-contractor risk

Technical

Risk

Influence

Carey Naquin / Ed
Wagner

10

Closed

Petrobras Sub-contractor risk

Technical

Risk

Nil

Carey Naquin

10

Closed

Petrobras Sub-contractor risk

Technical

Risk

Control

Carey Naquin

10

Closed

Petrobras Sub-contractor risk

Multiple

Risk

Control

Carey Naquin

Closed

Petrobras Sub-contractor risk

Commercial

Risk

Influence

Carey Naquin

10

Closed

Petrobras Sub-contractor risk

- new technology
- leading edge

1. 7 Tight Schedule

Accountable

Normal Business

Qualifications/
Exceptions Register

Inputs to Outputs

Garbage in - Garbage out..

Typical Cost S-Curve

Total Procurement Cost
2,000 Trials

Cumulative Chart

0 Outliers

1.000

P80: $194.2M - 18.7%

.750

.500

.250

P50: $176.2M - 7.7%

Base Cost $163.6M - P26

.000
121.12

150.78

180.45
$ Million

210.12

239.79

Tornado Diagram
TOTAL COST EXCLUDING CONTINGENCY
797

800

803

806

809

812

815

Total Engineering Man-hours

F01 - Carry-over to offshore

M19 - Market Conditions

KBR Furnished Equipment

M07 - Quantity Definition Risk / Design

HULL, LQs & Helideck

Total PMT & SS - Houston Man-hours

Financing Costs

Total Constr. Mgt DSME Man-hours

F08 - Integration Complexity

Opportunity
Risk

Typical Schedule S-Curve

%
100

90
7
80
6

70

60

P50 Oct. 02, 2004

50

40

30
2
20
1

10

Target Sept. 21, 2004

0
13
SEP
04

LATEST DATE
EXPECTED DATE
EARLIEST DATE
TARGET DATE

25
1
15
21

OCT 4
OCT 4
SEP 4
SEP 04

Plot Date
06DEC02
(c) Primavera Systems, Inc.

20
SEP
04

27
SEP
04

1SR2MPRJ.MC

4
OCT
04

11
OCT
04

Atlantic LNG/KBR
Cross Island Pipeline Project
Cln & Dry, Comm & Start-Up Pipeline
One Season Option

18
OCT
04

25
OCT
04

Sheet 1 of 1
Date

Revision

Checked

Approved

Criticality Diagram

Long Term
Risk assessment is not a tick in the box
Business Acquisition activity.
The management of uncertainties identified during
the B.A. phase is essential during Project Execution to
achieve success.

BUSINESS
ACQUISITION
Identification of Uncertainties
Determination of Confidence Levels
and Contingencies
Resource Planning
Schedule Criticality
Execution Strategy
Contract Exceptions

PROJECT
EXECUTION

Management of Uncertainties
Resource Allocation
Cost and Schedule Management
Contingency Management
New Opportunity / Risk Identification
Probabilistic Project Income
Assessment

Profitability Model
%
12

100

Forecast: Grand Total - Costs

11
90

2,000 Trials

Cumulativ e Chart

0 Outliers

10
80

1.000

2000
70

50

.750

60

.500

40

1000

4
30
3

.250

20

500

2
10

.000

0
211.33

217.42

223.51

229.61

8
NOV
04

235.70

LATEST DATE
EXPECTED DATE
EARLIEST DATE
TARGET DATE

US $ Million

6
DEC
04
9 MAY
5
31 JAN
5
14 NOV
4
1 DEC 04

Plot Date
29AUG00
(c) Primavera Systems, Inc.

Cost Risk Analysis Results

PROFITABILITY

CAP

MODEL

ARRANGEMENTS

7
FEB
05

7
MAR
05

RISAMPRJ.MC

4
APR
05

2
MAY
05

Sheet 1 of 1

ExxonMobil Development Company

Kizomba Project - Risk Schedule
1st Oil

Date

Revision

Checked

Approved

Schedule Risk Analysis Results

REVENUE

GAINSHARE / PAINSHARE

3
JAN
05

CALCULATION OF
LIQUIDATED DAMAGES

ADDITIONAL
INCOME OPPORTUNITIES,
REVENUE, COSTS &
SAVINGS

Job Income S-Curve

Forecast: Job Income
2,000 Trials

Reverse Cumulative

1.000

.750

.500

.250

.000
-7.50

-1.25

5.00

11.25

Certainty is 90.30% from 0.00 to +Infinity US $ Million

17.50

Last But Not Least.

We have carefully thought out all the angles.
We have done it a thousand times.
It comes naturally to us.
We know what we are doing, it is what we have
been trained to do our whole E & C Career.
Nothing could possibly go wrong, right ?

Think Again

Conclusion

Questions / Discussion ?
Contacts
Jochen Schneider
Kenneth Grajek