PRJ RMC 1 PDF

Project Risk Management Core
═════════════════════════════════════════════════════════════════════════
Project Risk Management

Core
T
Why Learn This?
H
IG
R
PY
Why Learn About Risk Management
Our challenge as project managers is to develop value adding

facilities in a world that is subject to ongoing turmoil
O
We must deal with:

• Volatility
C
• Uncertainty
• Complexity
• Ambiguity
_____________________________________________________________________________________________
© PetroSkills, LLC. All rights reserved. 1
═════════════════════════════════════════════════════════════════════════
Why Learn About Risk Management
Good risk management helps us meet these challenges:

 Identifying, assessing, responding to
and monitoring risks as a part of our
overall planning effort helps us know
where to focus our management effort
 Building robustness into our plans and

adding contingency in our cost estimates
and schedules allows us the flexibility to
T
respond to unexpected trends and events
H
 We must be agile in our work,
developing new solutions and work-
arounds in order to keep our projects
on the path to success
IG
R
PY
Why This Module Is Important
Project risk management is a poorly

O
understood, yet effective tool project

managers can employ to increase the
likelihood of project success
C
• When implemented correctly,

project risk management not only
boosts the probability of success,
but it also alleviates anxiety and
offers a higher degree of
predictability
• To implement risk management effectively, the following are needed:
• A balanced risk approach that is neither too risk averse or too risk tolerant
• The determination to follow a rigorous risk management process and not rest until
critical project risks are identified and addressed
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Module Composition
This module is composed of three

sections:
 Complexity, Uncertainty, and Risk
 The Risk Management Process
 Applications
T
H
IG
R
PY
We can never predict the future with certainty

O
Yet, we can apply a straight-forward risk

management process to identify uncertainties
in our projects and reduce their occurrence or
impact
C
If your risk management effort falls short:

• Your project could be hit with several surprises
that cause cost and schedule overruns
• As a project manager you will spend more time
fire-fighting instead of managing
• Your project and reputation could go down the
drain
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
 The best project managers employ a

risk-oriented decision-making process
 They take the project environment’s
volatility, uncertainty, complexity and
ambiguity into account when
developing plans and solving problems
 They identify key risks and make plans
to address them
 This module will give you the methods
and tools needed to:
T
• Give appropriate focus to project uncertainty and complexity
• Identify, assess, respond to, and monitor the key threats your project may face
H
• Build “room for success” in your project plans
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Learning Objectives
 VUCA is an acronym that stands for volatility, uncertainty, complexity and ambiguity.
Explain what these terms mean and give an example of each
 Explain what complexity is and describe what makes petroleum projects complex
 Describe how the complexity of a petroleum project can be portrayed and list the
characteristics that go into a project complexity profile
 Petroleum projects are uncertain because they are dynamic, have multiple feedback
processes, exhibit non-linear relationships and involve both hard and soft data.
Explain what each of these four terms mean and give an example of each
 Give a general definition of uncertainty and describe the three uncertainty types that
are found in petroleum projects
T
 Explain how being too risk averse or tolerant leads to an unbalanced approach to risk
management
H
 Identify the two concepts used to characterize risk and explain how they are used to
identify the more significant risks
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════

Core
T
Complexity, Uncertainty, and Risk
H
IG
R
PY
Complexity, Uncertainty & Risk -Topics
 A VUCA World
O
 Complexity & Uncertainty

 Human Aspects
C
 Risk Management Methodology
Image Source: Creative Commons
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
A VUCA World
VUCA
Volatility: unforeseeable and erratic change
Uncertainty: the lack of predictability
T
Complexity: interconnection of parts
H
Ambiguity: the haziness of reality
Yet, we must still manage our projects to produce
IG
value-added outcomes for our companies
R
PY
A VUCA World
O
C
VOLATILITY UNCERTAINTY
COMPLEXITY AMBIGUITY
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Large Project Development System

Full Funding Decision
Assess Phase Appraise Phase Select Phase Define Phase Execute Phase Startup, Test &
Operate
Approve Approve Approve Approve Approve Phase Approve
Appraisal Select Define Execute S&T Operate
Plan Plan Plan Plan Plan Plan
Appraisal Select Define Execute Operate

DSP DSP DSP DSP S & T DSP DSP
Select and Detailed Engr.,

Validate Identify Viable Increase Project Operating
Mature Procurement &
T
Opportunity Concepts Final Concept
Definition
Construction Facility
Represents key management Primary Principal

Decisions and serves to deliverable activity of a
H
delineate phases from a phase phase
The Large Project Development System was discussed in
the Onshore Field Development Programs and
Projects Core skill module IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Petroleum Projects are Complex
 Here’s why…
• Change occurs over time
• The key players interact strongly
• Actions feedback on themselves
• Effect is rarely proportional to cause
• Many actions are irreversible
• Capabilities change over time
• Characterized by trade-offs
T
H
IG
R
PY
Project Complexity
Project
O
Complexity
C
Structural
Uncertainty
Complexity
Uncertainty Uncertain Inter-

in data, processes Size: Number
dependence
definition and of elements
of elements
and plans methods
Interactions in
Structural
uncertain, complex
Complexity
ways: total is more
compounded by
than the sum of the
Uncertainty
parts
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Aspects of Complexity
Technical complexity refers to

Directional complexity refers to
challenges in project design and
challenges in determining a
technical details
project’s goals and objectives
Project
Complexity
T
Environmental complexity refers Structural complexity refers
to uncertain factors including to difficulty in managing
unexpected legislative changes, interconnected activities (e.g.,
H
environmental impacts, etc. engineering and construction)
IG
R
PY
Complexity Criteria
O
Criteria Description
Total Installed Cost The final cost of designing, procuring, fabricating and constructing a capital
project.
C
EPC Schedule The total duration of the detailed engineering, procurement and construction
substages of project execution
Degree of Difficulty The degree of difficulty is described in terms of technology use, equipment tie-ins,
and the sensitivity to introducing new technology
Construction Approach A construction approach that focuses on stick-building and multiple areas is much
more complex than an approach that use modular designs and involves only a few
areas
Contracting Strategy All contract types have their own, unique complexities. However, for purposes of
measuring overall project complexity, time & material contracts involve a more
hands-on approach from the project team and are considered more complex
Stakeholder Engagement As number and/or level of different stakeholder groups grows, the increased level
and degree of communication leads higher complexity
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Project Complexity Profile
Total EPC
Project Construction Contracting Stakeholder
Installed Schedule Degree of Difficulty
Complexity Approach Strategy Engagement
Cost Duration
First of a kind technology, Multiple T & M
Stakeholders can include
Complicated retrofits, and/or Multiple areas, and
Extreme >$500MM >36 months Board of Director and
Highly disputed site locations Stick built significant self
External Agencies
or routes perform
$200MM First kind of application, Multiple areas, Stakeholders can include
24 to 36 Blend of T & M
High to Retrofit, Controversial site Stick built with senior management and
months and Firm Price
$500MM location or routes some modules external agencies
Newer technology with 1-2 areas, or
Stakeholders limited to
$20MM to 12 to 24 limited operating data, Linear, Blend of Lump Sum/Firm
Moderate facility or department
$200MM months Multiple tie-ins to existing stick built and Price
level personnel only
assets, and/or greenfield site modular
T
Linear, or
Proven and reliable
Modular with
$100K to technology and application, Minimal number of
Low < 12 months small amount of Turnkey
$20MM Existing site and minimal tie- internal stakeholders
H
stick built
ins.
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Petroleum Projects Are Uncertain
 Are highly dynamic

 Have multiple feedback processes
Traditional tools deal with

combinatorial complexity for
projects with multiple parallel
and sequential activities
T
H
IG
R
PY

O

C
System dynamics (SD) is useful

for dealing with dynamic
complexity created by
interdependencies, feedbacks,
time delays and nonlinearities
in large scale projects
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════

 Have non-linear relationships
 Involve both hard and soft data
Hard data can be checked or

verified using laboratory
analysis, or through quality
T
control of specifications,
drawings, etc.
H
IG
R
PY

O

 Have non-linear relationships
C
 Involve both hard and soft data

Soft data is qualitative and may
be business process oriented.
Examples are managerial decision
making/rules, organizational
structures, and relationships, etc.
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Uncertainty
 Uncertainty - the inability to predict the outcome of parameters* or foresee

events that may impact the project
 Three uncertainty types:
• State – unpredictability of the state of the world, region, country, etc. as it
relates to the project
• Effect – lack of understanding of the cause-effect of relationships, e.g., given
X, then Y
• Response – lack of knowledge of response options and/or an inability to
predict likely consequences of a response choice.
T
H
*Typical project parameters include rate of return, profitability, capital cost, operating

IG
cost, schedule and production attainment
R
PY
Cost and Schedule Uncertainty
Most likely duration

and cost based on
O
A triangle skewed to
good estimating and Skewed
P50 the “high triangle
side”
scheduling practice, indicates time and
indicates time andcost
and efficient resource are are
more likelylikely
to to
cost more
C
utilization overrunthan
than underrun
underrun.
overrun
Given optimum Poor use of workforce

use of work force and resources, lots of
and resources, problems
Area = total probability
very few
P10 =100% P90
problems
Very good definition,
planning & Poor definition, planning &
execution; no execution, plus unexpected
surprises challenges.
Minimum Most Likely Maximum
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
The Human Side of Risk
People | Organizations | Project Culture | Communication
The success of project risk

management comes down to human
T
and organizational factors such as
understanding, motivation, attitude,
H
culture and experience

IG
R
PY

O
C
The tolerant tend to underrate risk,

while risk adverse see all the
obstacles and tend to overrate risk
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
We can start with presenting the

main risk assumptions and risk
T
assessments and then focus on the
important results
H
IG
R
PY
A Balanced Approach
O
Risk Tolerant Approach Risk Averse Approach
Balanced Risk Approach

Inadequate
Risk process is
resources for
C
burdensome
risk process
Ineffective risk Risk management

management Appropriate risk is not cost
Under-invest management matches effective Over-invest in
in risk corporate risk tolerance.
Threats risk
management Proactive response to
materialize. Resources used management
risks.
Opportunities are on low priority
Resources allocated
missed items
effectively.
Spending
Strengthen
resources on
risk process
“fire-fighting”
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Management
What Is Risk? Risk Management Focus The Risk Management

Process
T
H
Image Source: Creative Commons IG
R
PY
What Is Risk?
Risk = Probability & Consequence

O
 Probability = Chance of occurrence within a given period, typically one year

 Consequence = Measurable impact on a project’s objectives:
C
• Health, Safety, & the Environment

• Operability
• Cost
• Schedule Duration
• Reputation
 Threat or Opportunity
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Some Causes of Threats and Opportunities
Threats Opportunities
• Inadequate Front-End loading • Adequate FEL
(FEL) • Simple/Routine Project
• Highly Complex Project • Project Schedule is Product of
T
• Preset Aggressive Schedule Team
• New Team • Experienced Team
• Poor Communication • Good Communication
H
• High Regulatory Uncertainty • No New Technology
• Technological First • Aligned Partners
• Political Instability • Well Defined Agreements
Image Source: Creative Commons IG • Appropriate Contracts

R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Management Focus
Probability of Occurrence
High Low
Impact
Risk
High Hazard
Management
T
Low Expected Trivial
H
IG
R
PY
Risk Management Focus

O
Probability of Occurrence
C
High Low
Impact
Risk
High Hazard
Management For example, there is a
finite probability that an
aircraft might crash on one
Low Expected Trivial of our process facilities,
but very few facilities need
to be designed to
withstand that event
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Project Risk Management Process Steps
Risk Management Planning is

Plan the systematic process of
deciding how to approach,
plan, and execute risk
Identify management activities
Risks throughout the life of a
project. It is intended to
Assess maximize the beneficial
outcome of the opportunities
and minimize or eliminate the
T
Respond consequences of adverse risk
events.
H
Monitor
IG
R
PY
Risk Identification involves

Plan determining which risks
O
might affect the project

and documenting their
Identify
C
characteristics. It often
Risks occurs in a risk assessment
workshop organized by the
Assess project team.
Respond
Monitor
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Assessment is used to 1) rank

Plan risks and 2) to determine the
amount of contingency needed
for cost estimates and schedules.
Identify Both qualitative and
Risks quantitative risk assessment will
be addressed.
Assess
T
Respond
H
Monitor
IG
R
PY
Risk Response Planning is the

Plan process of developing options
O
and selecting the best actions

to enhance opportunities and
Identify
C
reduce threats to the project’s

Risks objectives. Parties are
assigned to take responsibility
Assess for each risk response. This
process ensures that each risk
requiring a response has an
Respond “owner”.
Monitor
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Monitoring tracks

Plan identified risks, monitors
residual risks, and
identifies new risks—
Identify ensuring the execution of
Risks risk plans, and evaluating
their effectiveness in
Assess reducing risk. Risk
Monitoring is an ongoing
process for the life of the
T
Respond project.
H
Monitor
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Key Learning Points
We live in a world that is subject to ongoing turmoil.

It’s a VUCA world that is characterized by volatility,
uncertainty, complexity and ambiguity.
The success of project risk management comes down
to human and organizational factors such as
understanding, motivation, attitude, culture and
experience.
Risk response plans detail what will be done to
minimize threats and maximize opportunities for the
project in the form of proactive or reactive responses.
To focus our effort on the most important risk areas,
T
we can develop a matrix which compares a
probability of occurrence of an event with its impact
H
on our project.
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Learning Objectives
 Explain how a risk management plan is developed for a project,

including the two major steps taken and the topics addressed in each
 Explain how project risks are identified and described
 Describe qualitative risk assessment, explain why it is used, and list the
steps followed
 Describe quantitative risk assessment, explain why it is used, and list the
steps followed
 Explain what risk response planning is and describe the actions that can
be taken to respond to potential threats and opportunities
T
 List the actions that are to be taken to effectively monitor risks as a
project goes through its development stages
H
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════

Core
T
Risk Management Process
H
IG
R
PY
The Risk Management Process -Topics
 Risk Planning
 Identify Risks
O
 Assess
 Respond
C
 Monitor
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Plan for Project Risk Management
 When you fail to plan, you’re planning to fail.

 Poor planning is at the root of many project failures.
 But while it’s easy to plan for positive outcomes, it’s
not always easy to plan for the worst.
 A project risk management plan is a document that
helps you identify, evaluate, and plan for potential
threats and opportunities that could come up during
your project.
T
H
IG Image Source: Creative Commons
R
PY
 Before the team begins to focus on the risks and

uncertainties a project will face, they must
O
understand the project in terms of objectives, scope,

schedule and estimate. Then they can:
• Determine the level of risk assessment needed.
C
• Incorporate risk management activities into the project

schedule.
• Make risk management an agenda item for regularly
scheduled project meetings.
• Communicate the importance of risk management to
the entire project team.
• Establish the expectation that risk will be managed,
documented and reported.
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
 Here are some helpful hints for risk management

planning:
• Risk assessment should begin early, but there must be
enough knowledge about the project to understand
what is being assessed.
• Allow time in the schedule for prep activities, this
includes review and QA/QC of project schedules and
cost estimates at appropriate times.
• Allow budget for risk assessment, risk management
and risk response activities.
• Report on status of Project Risk in regularly scheduled
project meetings.
T
H
R
PY
Scope the Effort Plan the Activities

O
• Identify risk management participants – The project sponsor, project manager, key
C
stakeholders, team discipline leads, and a risk analyst are always on the list.
• Establish development stage objectives – What does a successful risk management
effort for this project stage look like?
• Review corporate strategy & identify external risks – Undertake unlimited top-down
strategic view of corporate risks affecting his or her project, even if the larger
organization chooses to ignore such issues completely. An important reason for
undertaking a top-down risk appreciation of the project contacts is to determine
where the limits of the project managers responsibility for managing project
related risks lie.
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
• Select the appropriate risk management approach – Qualitative or quantitative?

• Make a resource estimate – Resource questions are likely to revolve around the
availability and quality of personnel, including the availability of key project
personnel and the availability of information processing facilities. Which tools
will be used for quantitative risk modeling should be determined. The need for
technical specialists or consultants should also be established.
T
• Agree on timing – Fitting a risk management process to available time and other
resources is central to this issue. Key milestones for risk management activities
H
should be established.

R
PY

O
• Identify barriers that may inhibit the effort – The risk management effort within a
C
project may fail or be ineffective because team members:

• Are not familiar with effective project risk management processes
• Come from very different cultures
• Come from competing organizations or departments
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Identification Steps
List
Describe
Classify
T
H
Characterize

R
PY
Risk Identification
 Effective, thorough risk identification demands

more than a “check the box” effort
O
 We cannot manage risk if we do not understand:

• Where the risk is coming from, in terms of what
detrimental effects might be experienced, and
C
the mechanisms underlying these effects

• What we might do about it, in proactive and
reactive response terms
• What might go wrong with response efforts,
that is, secondary risks
 Identifying risks involves the following tasks:
• Exhaustively searching for risks
• Classifying the risks, including aggregating and disaggregating as appropriate
• Documenting our findings on a risk register
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Identification: Tools & Techniques
 Documentation Reviews
• Peer level reviews of project
documentation, studies, reports,
preliminary plans, estimates and
schedules are a common and early
method to help identify risks that
may affect project objectives
 Information Gathering
• Brainstorming
• Lessons Learned
• Other methods
T
H
R
PY
Describing Risks
Risk Statement (Cause-Risk-Effect)

O
 Examples:
• Due to the new control system hardware requirement (cause), there is a risk of
unexpected system integration errors (risk), which would lead to additional time
C
delays and rework (effect)

• Due to supply chain disruptions from the COVID-19
pandemic (cause), there is a risk of late delivery
of the product transfer pumps (risk), which
would lead to delays and out-of-sequence
work (effect)
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Identification: Outputs
 An expected deliverable from Risk Identification

includes a preliminary “risk register” which
documents the following information:
• Identification # for each risk identified
• Date the risk was identified
• Stage of project development when risk was
identified
• Name of Risk (does the risk pose a threat or
present an opportunity?)
• Detailed Description of Risk Event, and Risk Type
• Potential Responses to Identified Risk
T
H
IG
R
PY
Risk Identification: Outputs

O
Risk ID Short Risk Risk

Cause Risk Effect Probability Consequences Severity Mitigation Plan Status Comments
No. Title Owner Status
Vendor will be May have to •Develop PO
Ima has developed
C
High unable to pay premium 5% premium terms to share

Vendor Medium contract language
worldwide deliver the to meet on pumps; one schedule delay
SP1-01 Shop (50% Medium Ima Hand Open and has
demand for projects pumps deadlines; month •Hire additional
Capacity chance) established a
pumps in time to meet project could schedule delay expediter to focus
expediting plan
the schedule be delayed on pumps
•Facts •Uncertainty •Cost •High (90%) •Estimator •Avoid Who is
•Requirments •Event •Schedule •Medium •Scheduler •Transfer best able
•Operability •Low (10%) •Ops Rep •Mitigate to
manage
the risk?
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Assessing Risks
vs.
T
H
Qualitative Quantitative
R
PY
Qualitative Risk Assessment
 Qualitative assessment is an assessment of risk

relating to the qualities and subjective elements
O
of the risk – those that cannot be quantified

accurately
 Techniques for qualitative risk assessment
C
include defining risk, the recording of risk details

and relationships, and the categorization and
prioritization of risk relative to each other
 Qualitative analysis:
• Provides a convenient and “user-friendly” way to
identify, describe and characterize project risks
• Utilizes relative degrees of probability and
consequence of each identified project risk event in
descriptive, non-numeric terms Qualitative
• Provides a prioritized list of risks to work on
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Project Risk Matrix
T
H
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Quantitative Risk Assessment (QRA)
 A quantitative risk assessment (QRA)

is normally conducted to generate a
range of outcomes for both the project
capital cost and the fully integrated
schedule duration. One of the
following techniques is often used:
• Monte Carlo
• Decision Tree
 Input to the QRA is:
• A project schedule appropriate for the
T
applicable stage
• The up-to-date risk register
• A copy of the high-level cost estimate
H
breakdown to support the quantitative
risk assessment Quantitative
R
PY
Quantitative Cost Risk Assessment (CRA) Steps
Determine program cost drivers

O
and associated risks

• Cost uncertainty of major cost From confidence level, determine Identify high-cost risk
items contingency dollars elements to be monitored
• Events from the risk register that
C
impact costs
Develop probability distributions Identify probability associated

to model uncertainty with the point estimate
• Typically done for each cost • The probability of the definitive
estimate line item estimate is usually less than the
average or P50 risked estimate
Perform uncertainty analysis

Account for correlation
typically with Monte Carlo
between cost elements
simulation
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
CRA: Simulation Output
T
H
IG
R
PY

O
Original
Estimate
C
Pessimistic (P90)
Optimistic (P10)
$28.8 million
$24.3 million
Average (P50)
$26.4 million
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
There is a 1 in 10
chance of coming
in at or below the
optimistic cost
There is a 50/50
chance of coming
in at or below the
average cost
There is a 9 in 10
chance of coming
T
in at or below the
pessimistic cost
H
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Schedule Risk Types
T
H
IG
R
PY
Schedule Risk Types
General duration Specific risk Network logic

O
uncertainty events risks

C
Sources: • Risk events from register • Network logic risks that

• Inaccurate or simplistic • Time Impact Analysis exist or are increased as
deterministic durations • An event delay is result of the activity
• Deterministic & incorporated for a relationships
probabilistic critical paths particular activity and • Often occur at network
different then the model is run to “hubs”
• Stacking of optimistic or see if it impacts the • Increased risk of delay if
pessimistic durations scheduled completion a single activity
• It is an effective form of controls multiple
what-if analysis subsequent work
activities
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Schedule Risk Analysis (SRA) Steps
Project Network Distributions Days

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Schedule
Days Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
T
Baseline Uncertainty Simulation Simulation
Schedule Output
H
IG
R
PY

Project Network
Project Network Distributions
O
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
C
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Schedule
Days Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Project Schedule
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Schedule Output
Baseline Schedule
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════

Distributions
Uniform
Distribution Triangular
Distribution Skewed
Triangular
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Distribution
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Schedule
Days Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
T
Schedule Output
H
IG Uncertainty
R
PY

Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

O
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
C
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Schedule
Days Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Schedule Output
Simulation
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Project Network Distributions Days

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project Schedule
Days Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
T
Schedule Output
H
IG Simulation Output
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Response
 Risk Response actions require effort

to develop and implement
 We must plan for expending this
effort following the results of our risk
assessment
 Actions in response to risks:
• Threats
• Opportunities
T
H
IG
R
PY
Responses to Threats
Actions in response to threats:

O
 Avoid - Action taken to ensure the

probability or impact of a threat is
eliminated
C
 Transfer - to allocate ownership for more

effective management of a threat
 Mitigate - to reduce the probability and/or
impact of a threat
 Accept - to document the acceptance of
the risk
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Responses to Opportunities
Opportunities:
 Exploit – to ensure the benefit of an
opportunity is realized
 Share – with other companies or
projects
 Enhance – increase probability or
positive impact
 Accept – take it as it is
T
H
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Monitoring
The process of tracking, updating, and evaluating the effectiveness of risk response plans
throughout the project lifecycle.
 Review project objectives, decisions, and assumptions
 Continuously review and update the risk register
 Define criterion evaluate the risk response plan effectiveness
 Update risk response plans
 Develop risk trend reports
 Communicate the status of risks to stakeholders
T
H
IG
R
PY
Risk Monitoring Responsibilities
• Approvals
Project
O
• Drive the RM process

Manager
• Communicate Results
C
Project • Identify risks

Team • Document actions
Member • Communicate effectiveness
Project • Prep & Update RMP

Controls • Schedule Activities
Manager • Ensure Quality Effort
• Implement Response Actions

Risk
• Identify new risks
Owner
• Report on Effectiveness
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Documentation & Communication
Control
Project Manager and Team
Track Identify
Sponsor and Decision Board Communicate
and
Document
Accountability
T
Plan Analyze
Control of Risks
H
IG
R
PY
Images for Communicating Risks
Risk Matrix
Risk Radar
O
C
Tornado Diagram Waterfall Diagram
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Matrix
Risk Radar
Monitoring and control is not complete unless

communication has occurred.
COMMUNICATION is the lynch-pin of effective
project management and risk
Tornado Diagram management
Waterfall Diagram
T
H
IG
R
PY
Risk Matrix
Risk Radar
O
Risk communication within and among the project

C
team needs to be timely, concise, complete, and

correct. The same goes for communication to
upper
Tornado management andWaterfall
Diagram executives
Diagram
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Risk Matrix
Risk Radar
Effectiveness of the risk response actions is to be

monitored and reported regularly, as indicated
previously, at our project meetings; adjustments
will be made as needed
Tornado Diagram Waterfall Diagram
T
H
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Key Learning Points
Qualitative risk assessments are used extensively in petroleum projects. These

qualitative approaches are used primarily to rank risks
A quantitative risk assessment (QRA) is normally conducted to generate a range
of outcomes for both the project capital cost and the fully integrated schedule
duration
Risk mitigation implies a reduction in the probability and/or impact of a risk, in
essence a threat, to an acceptable threshold
Risk communication within and among the project team needs to be timely,
concise, complete, and correct
T
H
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Learning Objectives
 Contrast and compare brownfield and greenfield projects and describe how each
has differing risks
 Describe what are the main features of the following categories of project risks
and give examples of each
• Internal
• Operations
• External
 Give examples of the types of health, safety and environmental risks that can
occur on a project and describe mitigation actions that are taken to eliminate
these risks
T
 List the types of service buyer and subcontractor risks a service seller (aka.
Contractor) can experience during tendering and while executing the work
H
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════

Core
T
Applications
H
IG
R
PY
Applications -Topics
 Brownfield Project Risks

O
 HSE Risks
 Service Seller Risks
C
• Tendering
• Execution
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Brownfield vs. Greenfield Projects
Brownfield Greenfield
• Existing Facility • New Facility
• Some site survey and soil data • Need for site survey and soil data
• Tie-ins: system shutdown • May not have tie-ins
T
• Environmental issues • May not have storage or
• Need work permits construction utilities
• Access may be constrained due to • Minimal work permits
H
equipment and facilities • Generally, no limits on site access
• Ongoing interface with operations • Interface with operations at
and maintenance commissioning & startup
Image Source: Creative Commons IG

R
PY
Brownfield Project Risks

O
Let’s look at a structure or hierarchy typical of

ones used for projects in the petroleum industry
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Brownfield Project Risks
Brownfield Project
Risks
Operating Facility
Internal Risks External Risks
Risks
T
Let’s explore these three categories
H
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Internal Project Risks
Internal risks are those that arise as a result of

interactions within the development
organization or are directly linked to activities
and deliverables that are completed as a project
moves through each subsequent development
T
stage or phase
H
IG
R
PY
Internal Project Risks

O
Project Health, Safety

Development
Stakeholders Management Scope of Work &
Stage Risks
& Team Environment
C
Sponsor Resource Technology Appraise

Hygiene
Level Selection
Select
Operations &
Maintenance
Competency Design
Accidents Define
& Skill Maturity
Service
Contractors
Execute
Project
Execution
Vendors & Development Spills
Plan Startup
Suppliers System
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Operating Facility Risks
Developing a project within an operating facility

poses a variety of risks. They can be categorized
as operations and maintenance interaction risks,
materials management risks, and turnaround,
shutdown, and outage risks
T
H
IG
R
PY
Operating Facility Risks

O
Operation &
Materials Turnaround,
Maintenance
Management Shutdown & Outages
Interactions
C
Priorities Receiving
TSO Schedule
Warehousing &
Permits
Storage
Project
Coordination
SIMOPS Logistics
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
External Risks
External Risks are typically not owned by the

project manager. They are owned by business unit
managers and executives who made the decision
to do business in a particular country or region
T
H
IG
R
PY
External Risks
O
Economic / Legal /
Political Social
Financial Regulatory
C
Markets Culture Taxes & Tariffs

Instability
Exchange
Languages Permits
Rates
Government
participation &
control National Changes in
Inflation
Content Regulations
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
HSE Risks
 Health
• Personal protection
• Hygiene
• Sanitation
 Safety
• Process Hazards
• Unsafe Work Practices
 Environment
• Spills
T
• Flora and Fauna
• Emissions
H
IG
R
PY
O
C
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Service Seller (Contractor) Risks
Let’s change hats and look at risks from the

perspective of the service seller or
contractors' perspective
T
H
IG
R
PY
Service Seller (Contractor) Risks

O
Winning the  Pre-Tender Risks

Contract  Tender Offer Risks
C
 Detailed Engineering
Executing the
Work
 Procurement
 Construction
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Winning the Contract: Risks
• Political risk, especially policy continuity

• Legal risk, being unfamiliar with the local laws and the legal
Pre-Tender Risks
system
• Incomplete information
• Inaccurate information
• Inadequate preliminary work
Tender Offer • The tender requirements are not clear
Risks • Shortage of basic information about design
T
• Errors in cost estimating
• Unfamiliar with the local taxes and fees
H
IG
R
PY
Executing the Work: Risks

O
Detailed Engineering
Risks from • Special or unusual requirements

C
Service Buyers • Onerous project standards

(Owners) • Absenteeism that impacts the progress of the project.
• Unfamiliar with project conditions

Sub-contractors • Subcontractors lack technical knowledge
• Poor HSE practices.
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Executing the Work: Risks
Procurement
• The types of equipment & materials approved for use are
Risks from
not available in the region
Service Buyers
• Preference of owners for certain suppliers leads to a
(Owners) shortage of materials and delays
• Poor relationships with vendors, often due to lack of

Subcontractors payment in the past
T
• Poor procurement abilities
H
IG
R
PY
Implementation Phase Risks

O
Construction
• Design modifications and changes
Risks from
C
• Differing work site conditions

Owners
• Delayed access to site
• Poor skill level

Subcontractor
• Differing languages; poor communication
Issues
• Inadequate HSE practices
_____________________________________________________________________________________________
═════════════════════════════════════════════════════════════════════════
Key Learning Points
The internal risks associated with a brownfield project are generally greater
than those for a greenfield project
The three primary categories of risks are internal risks, operating facility risks,
and external risks
The service seller’s risks continue once they begin to execute a contract. These
risks can come from both the service buyer (client) and subcontractors
Construction risks a contractor deals with often include design modifications
and changes, differing work site conditions, and delayed access to the work site
T
H
IG
R
PY
O
C
_____________________________________________________________________________________________

PRJ RMC 1 PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PRJ RMC 1 PDF

Uploaded by

Copyright:

Available Formats

Project Risk Management Core

Project Risk Management

Why Learn About Risk Management

Our challenge as project managers is to develop value adding

We must deal with:

Why Learn About Risk Management

Good risk management helps us meet these challenges:

 Building robustness into our plans and

Why This Module Is Important

Project risk management is a poorly

understood, yet effective tool project

• When implemented correctly,

This module is composed of three

Why This Module Is Important

We can never predict the future with certainty

Yet, we can apply a straight-forward risk

If your risk management effort falls short:

Why This Module Is Important

 The best project managers employ a

Project Risk Management

Complexity, Uncertainty & Risk -Topics

 Complexity & Uncertainty

 Risk Management Methodology

Image Source: Creative Commons

Large Project Development System

Appraisal Select Define Execute Operate

Select and Detailed Engr.,

Represents key management Primary Principal

Petroleum Projects are Complex

Uncertainty Uncertain Inter-

Technical complexity refers to

Project Complexity Profile

Petroleum Projects Are Uncertain

 Are highly dynamic

Traditional tools deal with

Petroleum Projects Are Uncertain

 Are highly dynamic

 Have multiple feedback processes

System dynamics (SD) is useful

Image Source: Creative Commons

Petroleum Projects Are Uncertain

 Are highly dynamic

Hard data can be checked or

Petroleum Projects Are Uncertain

 Are highly dynamic

 Have multiple feedback processes

 Involve both hard and soft data

Image Source: Creative Commons

 Uncertainty - the inability to predict the outcome of parameters* or foresee

Image Source: Creative Commons

Cost and Schedule Uncertainty

Most likely duration

Given optimum Poor use of workforce

Minimum Most Likely Maximum

The Human Side of Risk

People | Organizations | Project Culture | Communication

The success of project risk

Image Source: Creative Commons

The Human Side of Risk

People | Organizations | Project Culture | Communication

The tolerant tend to underrate risk,

Image Source: Creative Commons

The Human Side of Risk