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RISK MANAGEMENT Project Services Division

RISK MANAGEMENT Project Services Division. Presentation By: Adam Malkhassian November, 2000. AACE INTERNATIONAL’S PROFESSIONAL PRACTICE GUIDE TO RISK. RISK MANAGEMENT DICTIONARY PUBLISHED OCTOBER 1995 & APRIL 2000. ALLOWANCES. CONTINGENCY ESCALATION DESIGN DEVELOPMENT CLIENT RESERVE

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RISK MANAGEMENT Project Services Division

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  1. RISK MANAGEMENTProject Services Division Presentation By: Adam Malkhassian November, 2000 Project Services Division

  2. AACE INTERNATIONAL’S PROFESSIONAL PRACTICE GUIDE TO RISK RISK MANAGEMENT DICTIONARY PUBLISHED OCTOBER 1995 & APRIL 2000 Project Services Division

  3. ALLOWANCES • CONTINGENCY • ESCALATION • DESIGN DEVELOPMENT • CLIENT RESERVE • RISK Project Services Division

  4. RISK = THREATS + OPPORTUNITIES Project Services Division

  5. DEFINITIONS • RISK MITIGATION Risk mitigation takes place primarily before contract award, and consists of the limitation or elimination of risk items by exclusions, sharing, insuring or by the use of appropriate legal documentation and financial instruments. • RISK CONTROL Risk control takes place primarily during the project execution phase and consists of the prompt identification and anticipation of risk items by rigorous scope, quality, cost and schedule control, by a comprehensive program of insurance, and by being constantly alert to the potential concerns, interests and behavior of third parties. Project Services Division

  6. RISK MANAGEMENT • RISK ASSESSMENT • RISK ANALYSIS • RISK MITIGATION • RISK CONTROL Project Services Division

  7. RISK ASSESSMENT • IDENTIFICATION OF UNCERTAINTIES • THREATS • OPPORTUNITIES NOTE: ALLOWANCES ARE ALSO SUBJECT TO ASSESSMENT Project Services Division

  8. RISK ANALYSIS • QUANTIFICATION • PROBABILITY OF OCCURRENCE • LOW • MEDIUM • HIGH • POTENTIAL IMPACT • LOW • MEDIUM • HIGH Project Services Division

  9. RISK MITIGATION (RESPONSE DEVELOPMENT) • DEVELOPMENT OF RISK MANAGEMENT PLAN • ELIMINATE OR REDUCE PROBABILITY OF A THREAT OCCURRING • ELIMINATE OR REDUCE IMPACT OF THREAT IF IT DOES OCCUR • ENSURE OR INCREASE PROBABILITY OF AN OPPORTUNITY OCCURRING • INCREASE THE IMPACT OF AN OPPORTUNITY IF IT DOES OCCUR Project Services Division

  10. RISK CONTROL • IMPLEMENTATION OF RISK MANAGEMENT PLAN • PREDEFINED ACTION PLAN • INSURANCE • ALLOWANCE • SCHEDULE • QUALITY • TRIGGER POINTS • MONITOR POINTS Project Services Division

  11. GUIDELINES FOR SUCCESSFUL RISK ANALYSIS • WELL-DOCUMENTED COST ESTIMATE • COSTS SHOULD REPRESENT MOST-LIKELY SCENARIO • COSTS MUST NOT CONTAIN HIDDEN CONTINGENCIES & ALLOWANCES • COST ESTIMATE MUST BE REVIEWED AND APPROVED BY PROJECT TEAM • RISK FACILITATOR • OVERVIEW AND GUIDELINES OF RISK ANALYSIS • RISK ANALYSIS • INTERPRETATION OF RESULTS Project Services Division

  12. RISK SOURCES • PROJECT SPECIFIC RISKS • TECHNICAL RISKS • COMMERCIAL RISKS • PROJECT RELATED RISKS • COUNTRY & LOCATION RISKS • CLIENT RISKS • SLI RISKS Project Services Division

  13. TECHNICAL RISKS • LEVEL OF ENGINEERING DESIGN • EFFICIENCY & PERFORMANCE • PROVEN / UNPROVEN TECHNOLOGY • EQUIPMENT CAPACITIES • SOIL CONDITIONS Project Services Division

  14. COMMERCIAL RISKS • SUPPLY & LABOUR PRICING • PRODUCTIVITY & AVAILABILITY • TRANSPORT • INSURANCE & BONDS • SCHEDULE RISKS • LEGAL CLAUSES Project Services Division

  15. COUNTRY & LOCATION RISKS • POLITICAL SITUATION • LAWS & REGULATIONS INCLUDING TAXES • ALL PERMITS & APPROVALS • UNIONS & WORKING CONDITIONS • WEATHER CONDITIONS • CORRUPTION & CRIMINAL ACTIVITIES Project Services Division

  16. CLIENT RISKS (TO SLI) • FINANCIAL STATUS • AUTHORITY • COMPETENCE OF PROJECT TEAM • PAYMENT POLICY • APPROVAL METHODOLOGY & TIMING Project Services Division

  17. SLI RISKS • TECHNICAL KNOW-HOW • AVAILABILITY OF (RIGHT) STAFF • PARTNERS • OTHER RESOURCES • LOCAL CONTACTS • SUPPLY POINTS • FINANCING SOURCES Project Services Division

  18. RISK MITIGATION • AVOIDANCE • LEGAL CLAUSES • INSURANCE • RISK ALLOWANCE • ACCEPTANCE Project Services Division

  19. CAUSE EFFECT RANKING PROBABILITY LOW - MEDIUM - HIGH IMPACT LOW - MEDIUM - HIGH RISK ANALYSIS Project Services Division

  20. PROBABILITY & CONFIDENCE LEVEL • PROBABILITY • A MEASURE OF HOW LIKELY A CONDITION OR EVENT IS TO OCCUR • RANGES FROM 0 TO 100 PERCENT CONFIDENCE LEVEL • PROBABILITY THAT RESULTS WILL BE EQUAL TO OR MORE FAVORABLE THAN THE AMOUNT ESTIMATED • PROBABILITY THAT RESULTS WILL BE EQUAL TO OR LESS FAVORABLE THAN THE AMOUNT ESTIMATED Project Services Division

  21. WORST CASE SCENARIO = ZERO PROFIT & ZERO LOSS CHOOSING THE “RIGHT” CONFIDENCE LEVEL GROSS MARGIN • OVERHEAD • RISK • PROFIT • OTHER ALLOWANCES • ESCALATION • CONTINGENCY Project Services Division

  22. $582 M $610 M Project Services Division

  23. RISK ANALYSIS (DISCRETE DISTRIBUTION) Project Services Division

  24. EFFECT OF RISK ANALYSIS ESTIMATE = $570 MILLION -15% +15% +$12.6M RISK ALLOWANCE REVISED ESTIMATE @ 50% = $582.6M Project Services Division

  25. RISK CAN BE POSITIVE OR NEGATIVE RECOMMENDATION • ANALYSIS VALID FOR ANY TYPE OF ESTIMATE / PROJECT • CARRIED OUT ON PARTIAL OR TOTAL PROJECT • DISCUSSION OF RISK ITEMS BETWEEN TEAM MEMBERS ESSENTIAL • PROJECT SPECIFIC & RELATED RISKS Project Services Division

  26. CONCLUSION • ASSESSMENT • ANALYSIS • MITIGATE • NOW Project Services Division

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