November, 2000 Slide 1 Project Services Division RISK MANAGEMENT Project Services Division...
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Transcript of November, 2000 Slide 1 Project Services Division RISK MANAGEMENT Project Services Division...
November, 2000Slide 1
Project Services Division
RISK MANAGEMENTRISK MANAGEMENTProject Services DivisionProject Services Division
Presentation By: Adam MalkhassianPresentation By: Adam Malkhassian
November, 2000November, 2000
November, 2000Slide 2
Project Services Division
AACE INTERNATIONAL’S PROFESSIONAL AACE INTERNATIONAL’S PROFESSIONAL PRACTICE GUIDE TO RISKPRACTICE GUIDE TO RISK
RISK MANAGEMENT DICTIONARYRISK MANAGEMENT DICTIONARY
PUBLISHED PUBLISHED
OCTOBER 1995 & APRIL 2000OCTOBER 1995 & APRIL 2000
November, 2000Slide 3
Project Services Division
ALLOWANCESALLOWANCES
CONTINGENCYCONTINGENCY
ESCALATIONESCALATION
DESIGN DEVELOPMENTDESIGN DEVELOPMENT
CLIENT RESERVECLIENT RESERVE
RISKRISK
November, 2000Slide 4
Project Services Division
RISK = THREATS + OPPORTUNITIESRISK = THREATS + OPPORTUNITIES
November, 2000Slide 5
Project Services Division
RISK MITIGATIONRISK MITIGATION
Risk mitigation takes place primarily before contract award, and Risk mitigation takes place primarily before contract award, and consists of the limitation or elimination of risk items by consists of the limitation or elimination of risk items by exclusions, sharing, insuring or by the use of appropriate legal exclusions, sharing, insuring or by the use of appropriate legal documentation and financial instruments.documentation and financial instruments.
RISK CONTROLRISK CONTROL
Risk control takes place primarily during the project execution Risk control takes place primarily during the project execution phase and consists of the prompt identification and anticipation phase and consists of the prompt identification and anticipation of risk items by rigorous scope, quality, cost and schedule of risk items by rigorous scope, quality, cost and schedule control, by a comprehensive program of insurance, and by being control, by a comprehensive program of insurance, and by being constantly alert to the potential concerns, interests and behavior constantly alert to the potential concerns, interests and behavior of third parties.of third parties.
DEFINITIONSDEFINITIONS
November, 2000Slide 6
Project Services Division
RISK MANAGEMENTRISK MANAGEMENT
RISK ASSESSMENTRISK ASSESSMENT
RISK ANALYSISRISK ANALYSIS
RISK MITIGATIONRISK MITIGATION
RISK CONTROLRISK CONTROL
November, 2000Slide 7
Project Services Division
RISK ASSESSMENTRISK ASSESSMENT
IDENTIFICATION OF UNCERTAINTIESIDENTIFICATION OF UNCERTAINTIES
THREATSTHREATS
OPPORTUNITIESOPPORTUNITIES
NOTE: ALLOWANCES ARE ALSO SUBJECT TO ASSESSMENTNOTE: ALLOWANCES ARE ALSO SUBJECT TO ASSESSMENT
November, 2000Slide 8
Project Services Division
RISK ANALYSISRISK ANALYSIS
QUANTIFICATIONQUANTIFICATION
PROBABILITY OF OCCURRENCEPROBABILITY OF OCCURRENCE LOWLOW MEDIUMMEDIUM HIGHHIGH
POTENTIAL IMPACTPOTENTIAL IMPACT LOWLOW MEDIUM MEDIUM HIGHHIGH
November, 2000Slide 9
Project Services Division
RISK MITIGATION (RESPONSE DEVELOPMENTRISK MITIGATION (RESPONSE DEVELOPMENT))
DEVELOPMENT OF RISK MANAGEMENT PLANDEVELOPMENT OF RISK MANAGEMENT PLAN
ELIMINATE OR REDUCE PROBABILITY OF A THREAT ELIMINATE OR REDUCE PROBABILITY OF A THREAT OCCURRINGOCCURRING
ELIMINATE OR REDUCE IMPACT OF THREAT IF IT DOES ELIMINATE OR REDUCE IMPACT OF THREAT IF IT DOES OCCUROCCUR
ENSURE OR INCREASE PROBABILITY OF AN ENSURE OR INCREASE PROBABILITY OF AN OPPORTUNITY OCCURRINGOPPORTUNITY OCCURRING
INCREASE THE IMPACT OF AN OPPORTUNITY IF IT DOES INCREASE THE IMPACT OF AN OPPORTUNITY IF IT DOES OCCUROCCUR
November, 2000Slide 10
Project Services Division
RISK CONTROLRISK CONTROL
IMPLEMENTATION OF RISK MANAGEMENT PLANIMPLEMENTATION OF RISK MANAGEMENT PLAN
PREDEFINED ACTION PLANPREDEFINED ACTION PLAN INSURANCEINSURANCE ALLOWANCEALLOWANCE SCHEDULESCHEDULE QUALITYQUALITY
TRIGGER POINTSTRIGGER POINTS
MONITOR POINTSMONITOR POINTS
November, 2000Slide 11
Project Services Division
GUIDELINES FOR SUCCESSFUL RISK GUIDELINES FOR SUCCESSFUL RISK ANALYSISANALYSIS
WELL-DOCUMENTED COST ESTIMATEWELL-DOCUMENTED COST ESTIMATE COSTS SHOULD REPRESENT MOST-LIKELY SCENARIOCOSTS SHOULD REPRESENT MOST-LIKELY SCENARIO COSTS MUST NOT CONTAIN HIDDEN CONTINGENCIES COSTS MUST NOT CONTAIN HIDDEN CONTINGENCIES
& ALLOWANCES& ALLOWANCES COST ESTIMATE MUST BE REVIEWED AND APPROVED COST ESTIMATE MUST BE REVIEWED AND APPROVED
BY PROJECT TEAMBY PROJECT TEAM
RISK FACILITATORRISK FACILITATOR OVERVIEW AND GUIDELINES OF RISK ANALYSISOVERVIEW AND GUIDELINES OF RISK ANALYSIS RISK ANALYSISRISK ANALYSIS INTERPRETATION OF RESULTSINTERPRETATION OF RESULTS
November, 2000Slide 12
Project Services Division
RISK SOURCESRISK SOURCES
PROJECT SPECIFIC RISKSPROJECT SPECIFIC RISKS
TECHNICAL RISKSTECHNICAL RISKS
COMMERCIAL RISKSCOMMERCIAL RISKS
PROJECT RELATED RISKSPROJECT RELATED RISKS
COUNTRY & LOCATION RISKSCOUNTRY & LOCATION RISKS
CLIENT RISKSCLIENT RISKS
SLI RISKSSLI RISKS
November, 2000Slide 13
Project Services Division
TECHNICAL RISKSTECHNICAL RISKS
LEVEL OF ENGINEERING DESIGNLEVEL OF ENGINEERING DESIGN
EFFICIENCY & PERFORMANCE EFFICIENCY & PERFORMANCE
PROVEN / UNPROVEN TECHNOLOGYPROVEN / UNPROVEN TECHNOLOGY
EQUIPMENT CAPACITIESEQUIPMENT CAPACITIES
SOIL CONDITIONSSOIL CONDITIONS
November, 2000Slide 14
Project Services Division
COMMERCIAL RISKSCOMMERCIAL RISKS
SUPPLY & LABOUR PRICINGSUPPLY & LABOUR PRICING
PRODUCTIVITY & AVAILABILITYPRODUCTIVITY & AVAILABILITY
TRANSPORTTRANSPORT
INSURANCE & BONDSINSURANCE & BONDS
SCHEDULE RISKSSCHEDULE RISKS
LEGAL CLAUSESLEGAL CLAUSES
November, 2000Slide 15
Project Services Division
COUNTRY & LOCATION RISKSCOUNTRY & LOCATION RISKS
POLITICAL SITUATIONPOLITICAL SITUATION
LAWS & REGULATIONS INCLUDING TAXESLAWS & REGULATIONS INCLUDING TAXES
ALL PERMITS & APPROVALS ALL PERMITS & APPROVALS
UNIONS & WORKING CONDITIONSUNIONS & WORKING CONDITIONS
WEATHER CONDITIONSWEATHER CONDITIONS
CORRUPTION & CRIMINAL ACTIVITIESCORRUPTION & CRIMINAL ACTIVITIES
November, 2000Slide 16
Project Services Division
CLIENT RISKS (TO SLI)CLIENT RISKS (TO SLI)
FINANCIAL STATUSFINANCIAL STATUS
AUTHORITYAUTHORITY
COMPETENCE OF PROJECT TEAMCOMPETENCE OF PROJECT TEAM
PAYMENT POLICYPAYMENT POLICY
APPROVAL METHODOLOGY & TIMINGAPPROVAL METHODOLOGY & TIMING
November, 2000Slide 17
Project Services Division
SLI RISKSSLI RISKS
TECHNICAL KNOW-HOWTECHNICAL KNOW-HOW
AVAILABILITY OF (RIGHT) STAFFAVAILABILITY OF (RIGHT) STAFF
PARTNERSPARTNERS
OTHER RESOURCESOTHER RESOURCES LOCAL CONTACTSLOCAL CONTACTS SUPPLY POINTSSUPPLY POINTS FINANCING SOURCESFINANCING SOURCES
November, 2000Slide 18
Project Services Division
RISK MITIGATIONRISK MITIGATION
AVOIDANCEAVOIDANCE
LEGAL CLAUSESLEGAL CLAUSES
INSURANCEINSURANCE
RISK ALLOWANCERISK ALLOWANCE
ACCEPTANCEACCEPTANCE
November, 2000Slide 19
Project Services Division
RISK ANALYSISRISK ANALYSIS
CAUSECAUSE
EFFECTEFFECT
RANKINGRANKING
PROBABILITYPROBABILITY LOW - MEDIUM - HIGHLOW - MEDIUM - HIGH
IMPACT IMPACT LOW - MEDIUM - HIGHLOW - MEDIUM - HIGH
November, 2000Slide 20
Project Services Division
PROBABILITY & CONFIDENCE LEVELPROBABILITY & CONFIDENCE LEVEL
PROBABILITYPROBABILITY A MEASURE OF HOW LIKELY A CONDITION OR EVENT A MEASURE OF HOW LIKELY A CONDITION OR EVENT
IS TO OCCUR IS TO OCCUR RANGES FROM 0 TO 100 PERCENTRANGES FROM 0 TO 100 PERCENT
CONFIDENCE LEVELCONFIDENCE LEVEL PROBABILITY THAT RESULTS WILL BE EQUAL TO OR PROBABILITY THAT RESULTS WILL BE EQUAL TO OR
MORE FAVORABLE THAN THE AMOUNT ESTIMATEDMORE FAVORABLE THAN THE AMOUNT ESTIMATED PROBABILITY THAT RESULTS WILL BE EQUAL TO OR PROBABILITY THAT RESULTS WILL BE EQUAL TO OR
LESS FAVORABLE THAN THE AMOUNT ESTIMATEDLESS FAVORABLE THAN THE AMOUNT ESTIMATED
November, 2000Slide 21
Project Services Division
CHOOSING THE “RIGHT” CONFIDENCE LEVELCHOOSING THE “RIGHT” CONFIDENCE LEVEL
GROSS MARGINGROSS MARGIN OVERHEADOVERHEAD RISKRISK PROFITPROFIT
OTHER ALLOWANCESOTHER ALLOWANCES
ESCALATIONESCALATION
CONTINGENCYCONTINGENCY
WORST CASE SCENARIO = ZERO PROFIT & ZERO LOSSWORST CASE SCENARIO = ZERO PROFIT & ZERO LOSS
November, 2000Slide 22
Project Services Division
Distribution for TOTAL ESTIMATEDVALUE / TRIANGULAR/B62
Prob ofValue <=
X-axisValue
Values in Millions
0.000
0.200
0.400
0.600
0.800
1.000
530 540 550 560 570 580 590 600 610 620 630 640
$610 M$582 M
November, 2000Slide 23
Project Services Division
RISK ANALYSIS (DISCRETE DISTRIBUTION)RISK ANALYSIS (DISCRETE DISTRIBUTION)
Distribution for TOTAL ESTIMATEDVALUE / TRIANGULAR/B62
PR
OB
AB
ILIT
Y
Values in Millions
0.000
0.025
0.050
0.074
0.099
0.124
530 540 550 560 570 580 590 600 610 620 630 640
November, 2000Slide 24
Project Services Division
EFFECT OF RISK ANALYSISEFFECT OF RISK ANALYSIS
ESTIMATEESTIMATE= $570 MILLION= $570 MILLION
-15%-15% +15%+15%
RISK RISK ALLOWANCEALLOWANCE
++$12.6M$12.6M
REVISED ESTIMATE @ 50% = $582.6MREVISED ESTIMATE @ 50% = $582.6M
November, 2000Slide 25
Project Services Division
RECOMMENDATIONRECOMMENDATION
ANALYSIS VALID FOR ANY TYPE OF ESTIMATE / ANALYSIS VALID FOR ANY TYPE OF ESTIMATE /
PROJECTPROJECT
CARRIED OUT ON PARTIAL OR TOTAL PROJECT CARRIED OUT ON PARTIAL OR TOTAL PROJECT
DISCUSSION OF RISK ITEMS BETWEEN TEAM DISCUSSION OF RISK ITEMS BETWEEN TEAM
MEMBERS ESSENTIALMEMBERS ESSENTIAL
PROJECT SPECIFIC & RELATED RISKSPROJECT SPECIFIC & RELATED RISKS
RISK CAN BE POSITIVE OR NEGATIVERISK CAN BE POSITIVE OR NEGATIVE