(Risk Managment P Stollsteiner IFP 20110518 1 [Mode de Compatibilité])

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EP 21388_a_A_ppt_01 - Risk management

RISK MANAGEMENT

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EP 21388_a_A_ppt_01 - Risk management 2

Definition

What is a risk?

� An uncertain event or condition that, should it occur, has a

positive or negative effect on the project’s objectives. (PMBOK 4th

Edition)

� To qualify an event as a risk it must:

• Be in the future,

• Be uncertain,

• Generate an impact, positive or negative.

� An event which has already occurred or which will certainly occur isnot a risk but a problem. However if it the occurrence is certain butthe impact uncertain it can be treated as a risk.

An event which has a positive effect on the project is anopportunity

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Introduction

Why should we manage the risks?

� Because most of the projects end up with a delay

� Because most of the projects end up with cost overruns

� Because management is anticipation

� Because to manage a project is mainly to deal with uncertainties.

� Because risk Management means also help for making decision,

with scenario study.

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Introduction

What are the objectives of risk analysis?

� To minimize the consequences of adverse events and maximize the

results of positive events

� To implement action plans reducing the risk’s probability and / or

impact

� To assist project management for decision taking

� To assess the risks impact on schedule and budget

� To evaluate provisions necessary to compensate the risks

occurrence

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Unknows / Risks

Known :

-Contract

-Basic data

-Project conrol

reference tools

Lev

el o

f ri

sk

Progress

Basic design Conceptual Fabrication Installation

Start

FinishThe knowledge increases

The risks decrease

The level and the nature of the risks evoluate with the progress of the project.

Commissioning

Introduction

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2 – Identify risks

6 – Monitor and Control Risks

5 – Plan Risk Responses

3 – Perform Qualitative analysis

Score risks

Rank risks

Define action plans

Validate data

Create model

4 –Perform Quantitative analysis

Results :Confidence level for time and costDuration sensitivityCriticality indexCruciality (Sensitivity x Criticality)

Manage

1- Plan Risk Management

Note: Quantitative analysis is reserved To complex and large projects

Introduction –Risk management processes

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Div. - Référence document 7

Plan Risk

Management

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• How to proceed ?

• Who should be involved in (Risk team, risk owners) ?

• When risk management activities should be performed ?

• How frequently they should be?

Why a risk management plan? To decide

Plan Risk Management– to fix the context

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Schedule

Performance

Cost

May the project have

other objectives ?

Plan Risk Management– Project objectives

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Project

The contractor’s

objectives

The owner’s

objectives

To keep the cost of the

investment

To transfer efficiently to the

operator

To meet the performance

Etc.

To maintain contractor’s profit

To maintain the relations with

the client

Sécurity

Etc.

Plan Risk Management– Project objectives

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AREAS Phases Objectives Risk types

Project Management Basic Engineering Schedule Organisation

Project control Call for Tenders Cost Resources

Pipeline Detailed Engineering Performance Technology, technical

Platform Procurement Revenue, NPV Schedule

Logistics Construction Safety (HSE) Cost

Operation Commissioning Local Content Procurement

Transport Innovation Logistics, transport

Installation Testing

Hook-up & Commissioning Interfaces

Start-up Operations Quality

Operations, production

Environment; physical, political,

legal, economic, local content

A number of frameworks should be used to examine all areas of

the project from different perspectives:

Plan Risk Management - Risk categories

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The probability of

occurrence

Define levels and criteriaExample : 4 levels (as recommended by Total standards)

Note: A risk with a probability higher than 80% is no more a risk, but a fact,

And should be handled in the project execution plan.

Level Criteria Factor

Very Unlikely <5 % 1 Has occurred rarely on similar projects

Unlikely 5 % to 30 % 2 Has occurred on similar projects

Possible 30 % to 60 % 4 Has occurred several times on similar projects

Probable > 60% 8 Has occurred very often on similar projects

Plan Risk Management – Fix the range of probability

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The impacts

Define the criteria's (project objectives) Example :

Finish date Cost

Define the levels for each criteriaExample :

Other possible criterias :

Keep the client

Ensure safety

Garanty profit

etc.

Level Criteria: Time Factor

Low < 1 week 1

Medium 1w to 1 month 3

High 1 month to 3

months

5

Very high > 3 months 7

Level Criteria: cost Factor

Low < 500 kUS$ 1

Medium 0,5 to 1,5 MUS$ 3

High 1,5 to 7 MUS$ 5

Very high > 7 MUS$ 7

Plan Risk Management – Fix the range of impact

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The risk score

Probablity factor x Highest impact factor

Alternatively, the mean impact factor could be used instead of the highest

Risk title Probability Impacts Risk score

Time Cost HSE

A 2 5 1 5 10

B 2 5 7 14

C 4 3 1 7 28

D 1 7 3 7

E 8 7 5 56

Plan Risk Management – The Risk score

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Define the limits of three score familiesExample :

Apply the categories in the register

Score family 1: Score >24 highly critical risks

Score family 2: 24 >= Score > 6 moderate risks

Score familiy 3: Score <= 6 low criticality risks

Probability Weight factor 1 3 5 7

Probable >60% 8 8 24 40 56Possible 30 to 60 % 4 4 12 20 28Unlikely 5 to 30 % 2 2 6 10 14

Very Unlikely < 5% 1 1 3 5 7

Risk title Probability Impacts Risk score

Time Cost HSE

A 2 5 1 5 10

B 2 5 7 14

C 4 3 1 7 28

D 1 5 3 5

E 8 7 5 56

Plan Risk Management – Define score categories

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High score : Action plan neededMedium score : Action plan suggestedLow score : Evolution to be monitored

Reaction

ManagementAnticipation

Pro

ba

bil

ity

of

ocu

ren

ce

Level of impact

Low High

Low

To prevent and correct

Advance action

And correction

To prevent

Advance action

required

To correct

Action according

level of impact

Monitoring

Plan Risk Management – Define strategies

• Strategies may be: Reduce (Mitigate), Transfer (Insurance,

subcontracting), Avoid, Accept

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Identify Risks

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• Identify and record a long list of threats and opportunities for

the project and by work package.

• Make sure all risks are in the cause-risk-effect format

• Understand the risks

• Capture other information to be used later:

• Potential risk owner

• Triggers

• Potential risk response strategies

The objectives of the Identify Risks process are:

Identify risks – Objectives

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Risk identification

Lessons learned

from similar projects

Scope baseline

Activity cost and

duration estimates

Project Schedule

Project objectives

Contractor risk register

Identify risks – Inputs

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1

2

3

4

5

6

7

8

Risks registerPrompt list

Risk notes

Brainstorming

Expert interviews

Cause and effect

diagrams

Identify risks – Tools

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WPActivityRisk type

Source (Name/Dept)

Cause Risk Title Effect

PhaseObjective

Trigger Potential Risk Owner

Identify at least 3 risks, each of you, using the risk notes.

WP: Work package or project area

Trigger: Early warning that the risk will occur

Identify risks – Tools Risk notes

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Prompt lists

1. Technology & Engineering2. Project Execution3. Construction4. Project Schedule5. Costs6. Contractual

REF. YES NO TECHNOLOGY & ENGINEERING

1.01 Is the technology well proven

1.02 Has the COMPANY built a plant using this technology

1.03 Are there any novel features in the plant design

1.04 Are we sure all process systems/units are covered by the PFDs/PIDs

1.05Are we sure all utility/offsite units are covered by the PFDs/PIDs

1.06 Have we identified all effluent streams

1.07 Have we confirmed all effluents streams are treated/ disposed of satisfactorilly

Identify risks– Tools

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1. Technology & Engineering2. Project Execution3. Construction4. Project Schedule5. Costs6. Contractual

REF. YES NO PROJECT EXECUTION

2.01 Is the workscope within the contract clear

2.02 Is there a clear order of precedence of project scope/specification documents

2.03 Are interfaces between OWNER and CONTRACTOR workscopes clear

2.04 Are interfaces with other intervening parties clear

2.05 Have OWNER and CONTRACTOR successfull past experience

2.06 Is the CONTRACTOR familiar with the OWNER procedures

2.07 Are the OWNER procedures onerous for a LSTK contract


Prompt lists

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Some hints

� Identify the cause and consequence for each risk

This will help when finding action plans

� Identify an owner for each risk

He will be in charge of updating the status and coordinating the action plans

� Make sure the level of detail is coherent through out the risk register.

� Make sure every identified risk is an event

� Wording must be accurate and validated by the owner

� Record every risks in one register together with support information

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Different Register’s tool may be used:

Custom made tools: Spread sheet, Data base

Dedicated applications: Oracle Risk Analysis, Active Risk Manager from Strategic

Thought, Predict from Risk Decisions


RiskID Status Type RBS Area Title Description Cause Consequence

073 Proposed ThreatTechnical.HS

E

WP2 Pipe

Installation

human incident during contruction (handling incident, diving incident, ...)

human incident during construction ( diving incident, ...)

High current in sea at siteLow visibility in sea at siteExposition to sea state

LTI, Fatalities

086 Proposed ThreatContractual

Contracting

commercial offers exceeding pre project estimation


Project difficultiesRe biddingProject cancellation

017 Proposed ThreatExternal.Wea

ther

WP2 Pipe

Installation

Standby due to weather condiitons worse than estimated


weather condiitons worse than estimatedDelayCost of standby

071 Proposed ThreatTechnical.Installation

WP2 Pipe

Installation

shore approach not technically feasible or not feasible as per CPY requirements


Combination of : Soil MeteoceanAvailable means

Relax CPY requirements or change pipeline routes


WP2 Pipe

Installation

Failure of trenching contractor to bury pipeFailure of trenching contractor to bury pipe

Poor performance of trenching contractorPipeline potentially unstable and exposed to stone blasting (4" pipe particularly)


EHSE

Fire on board on installation barge or spread vessel


Extinguishing system failurePersonnel not trainedFire detection failure

Injuries and vessel damageDealy (Mob of new vessels)Repairs to be done

038 Proposed Threat

External.Loca

l content

Government affairs

New Request of local content New Request of local content New government regulation Delay on project

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Perform qualitative

analysis

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• Subjectively evaluate the probability and impact of each risk

• Create a shorter list of risks by determining the top or critical

risks

• Help making a go/no-go decision (Final Investment Decision)

The objectives of the Qualitative analysis process are:

Perform qualitative analysis– Objectives

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• Assumptions testing

“We suppose the weather will be fine”

• Data quality assessment

Amount and reliability of data available about the risk

• Probability and impact scales

Provided by the risk management plan

• Determining Risk ranking within the project by calculating the

risk score

The activities of the Qualitative analysis process are:

Perform qualitative analysis– Activities

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Date :

Rev. :

Risk Owner : Jack

AREA : INSTALLATION6

Risk ID : R001 Statut : Proposed28

Title :

Description :

Causes :

Consequences :

Impacts : PRODUCTION : 3 COST : Probability :

DELIVERY HSE : Planning :

Probability : 2 Criticality : 6 Cost :

Mitigation action Responsible Status Planned Date Actual Date

1 - Ted Proposed

2 - Patrick Proposed

3 - Proposed

4 - Proposed

Impacts : PRODUCTION : COST : Probability :

DELIVERY: REVENUE : Planning :

Probability : Criticality : 3 Cost :

Notes :

Action 2

Risk 1

Pre-Mitigationqualitative quantitative

Action

Action 1

Risk Sheet

RBS :

BORGAS INC

BORGAS 2011 PROJECT

Perform qualitative analysis– Risk sheet

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The risk score is the product of the probability by its impact. If there are several impacts (cost, schedule, performance), we choose the maximum impact.

Risk title Probability Risk score

Time Cost HSE

A 2 5 1 5 10

B 2 5 7 14

C 4 3 1 7 28

D 1 5 3 5

E 8 7 5 56

Impacts

Perform qualitative analysis– Calculate risk score

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RiskID Status Type RBS Area Title Proba

bilitySchedule

Cost Hygien/Safety

Environment

Image

score Risk Owner


E

WP2 Pipe

Installation


H L VL VH L H 28 HSE Manager


Contracting


H H VH N N VH 28Project Control

Manager


ther

WP2 Pipe

Installation


H L H H N N 20 Pipe WPM


WP2 Pipe

Installation


H H H N N N 20 Pipe WPM


WP2 Pipe

Installation

Failure of trenching contractor to bury pipe H L L H L N 20 Pipe WPM


EHSE


L L VL VH L L 14 HSE Manager

038 Proposed Threat

External.Loca

l content

Government affairs

New Request of local content L VH L N N N 14Project

Manager

Pre-Mitigated index

• For each risk, a Risk owner is appointed

• The different risks are ranked according to their risk score

Perform qualitative analysis– Risk owner

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Plan Risk Responses

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• Determine what can be done to reduce the overall risk of the

project by decreasing the probability and impact of threats

and increasing the probability and impact of opportunities.

• The activities with the highest risk score

• The most common causes if risk

The objectives of the Risk Response analysis process are:

It will concern:

It will be done according to the risk response strategy defined

in the Risk Management Plan

Plan risk responses – Objectives

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Avoid TransferReduce

Reduce

probability

Reduce

impact

Facing a risk

Transferring a risk is often partial

Delete causeand consequence

Risk acceptedby the project

Action plan

1 person responsible1 target date1 follow up indicator1 evaluation of potential incidence on the risk

1 Action =

Accept

Included in project perimeterAllocate provisions

Plan Risk Responses – Strategies for risks

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Exploit ShareEnhance

Increase

probability

Increase

impact

Facing an opportunity

Retain part of opportunities

Increase the opportunity by making the cause more probable

Increase the value of the opportunity

Action plan

1 person responsible1 target date1 follow up indicator1 evaluation of potential incidence on the opportunity

1 Action =

Accept

Include in project perimeterAllocate provisions

Plan Risk Responses – Strategies for opportunities

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Process Summary (Mitigation strategy)

Identify Risks Risk Scoring Risk Sorting

Create

action plans New scoring

Plan Risk Responses – Target Risk Score

RiskID Status Type RBS Area Title Proba

bilitySchedule

Cost Hygien/Safety

Environment

Image

score Probability

Schedule

Cost Hygien/Safety

Environment

Image

score Risk Owner


E

WP2 Pipe

Installation


H L VL VH L H 28 L L L VH L L 14 HSE Manager


Contracting


H H VH N N VH 28 H H VH N N VH 28Project Control

Manager


ther

WP2 Pipe

Installation


H L H H N N 20 L L L VL N N 6 Pipe WPM


WP2 Pipe

Installation


H H H N N N 20 L L L N N N 6 Pipe WPM


WP2 Pipe

Installation

Failure of trenching contractor to bury pipe H L L H L N 20 H L H H L N 20 Pipe WPM


EHSE


L L VL VH L L 14 VL L VL H L L 5 HSE Manager

038 Proposed Threat

External.Loca

l content

Government affairs

New Request of local content L VH L N N N 14 L H L N N N 10Project

Manager

Pre-Mitigated index Post-Mitigated index

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Mitigation plans Status / Owner / Date

1 - 01/10/2008

2 -

3 -

4 -

5 -

6 -

7-

8 -

Probability target: VL Impact: Cost MMFirst oil Schedule M

Criticality Target: 4 Ramp up Schedule M

Notes:

Action

Perform audit on critcal elements requiring alternative source of supply

Plan Risk Responses – Risk Sheet

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• Contingency plan: a plan developed in anticipation of the

occurrence of a risk, to be executed only if specific,

predetermined trigger conditions arise.

The early warning of the risk occurrence is called the trigger

• Fallback plan: a reaction to a risk that has occurred and the

primary response (contingency plan) proves to be inadequate.

Plan Risk Responses – Contingency and fallback Plans

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Monitor and Control

Risks

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• Implement the risk response plans

• Manage the contingency and management reserves

• Control the project risk

• Perform additional risk identification

• Re-estimate the project

• Create “Lessons learned”

The objectives of the Monitor and Control Risks process are

Monitor and Control Risks – Objectives

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0

4

8

12

16

20

24

28

Oct 06 Dec 06 Feb 06 Apr 07 June 07 Aug 07 Oct 07 Dec 07 Feb 08 Apr 08 Jun 08 Aug 08

Ave

rage

crit

icity

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

Ris

ks O

pene

d /

Miti

gatin

g ac

tions

Quantity of Risks Opened in the register Number of mitigating actions

Project average criticality Project residual criticality (target)

Indicators: Number of opened Risks, of mitigating actions, project

criticality

Monitor and Control Risks – Indicators

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Risks distribution

0

5

10

15

20

25

30

Package1

Package2

Package3

Package4

Package5

Package6

Qua

ntity

of r

isks High crit icality - Immediate

act ions required

M edium crit icality - Act ionsrequired

Low crit icality - To be monitored

Indicators: Risk repartition by criticality

Qualitative analysis

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Perform Quantitative Analysis

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• Make more informed decisions about the amount of risk

• Watch the effect of the combination of all risks together

• Determine the probability of achieving cost and schedule

objectives on the project.

• Give an evaluation of the potential gap between objectives

and most probable figures (P80)

The objectives of the Quantitative Analysis process are:

Perform Quantitative analysis – Objectives

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• Expected Monetary Value is the probability weighted average of all

possible outcomes and is calculated as

EMV = P x I

Perform Quantitative analysis – Expected Monetary Va lue

Quantitative Risk Analysis Form

Risk Activity Probability Cost

Impact

EMV of the

Cost

Risk moved into Plan

Risk Response

14 B 30% $60.000 $18.000 Yes

13 C 50% $40.000 $20.000 Yes

21 B 25% $10.000 $2.500 No

6 E 15% ($30.000) ($4.500) Yes

15 A 15% ($90.000) ($13.500) Yes

Total Expected Monetary Value $22.500

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• A reserve is an amount of time and/or cost added to the

project to account for risks.

• Contingency reserve: to deal with known unknowns, i.e., the

identified residual risks that remain after risk response

planning. (Provision pour Risques)

• Management reserve: to deal with unknown unknowns, i.e.,

risks that have not been identified.

• A method to calculate the reserve is to use the calculated EMV

of the project, then to add a percentage of the project cost as

a management reserve. (Provision pour Aléas)

Perform Quantitative analysis – Reserves

There are different kinds of reserve: Contingency reserves and management reserve

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Perform quantitative analysis – Schedule analysis - P rinciple

• The project schedule is used as a model to forecast project

outcomes.

• Model outputs may be:

Output Milestones dates (Project or WP finish date)

Project duration

Project or work package cost

• Model inputs may be:

Task duration

Input milestones dates

Resources cost

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Schedule quantitative analysis – Create a model

The accuracy of the model makes the pertinence of the result

� Good level of detail (Detail only for the risky parts)

� Links on every tasks (No open-ended tasks, no constraints)

� Pertinent links between tasks (No negative lags)

� Risks and uncertainties properly simulated

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Each task duration may

have a 3-point estimate.

The delay risk impact will

be added to the task

duration, giving the risk

impacted task duration.

Schedule Quantitative analysis – Create a model

Project DetailProbability

%PxI

Nb of

risks

MinMost

likelyMax

Pipe Detailed Eng

R1

R2

Pipe Procurement

Pipe Transportation

R3

Nearshore pipe installation

R4

R5

R6

R7

Barge Mobilization

R8

R9

Staff & Tools mobilization

Offshore pipe installation

Steel procurement

Platform Detailed Eng

Platform construction

Platform installation

Platform commissionoing

Total - 0

Risk Cost Impact (kUS$)

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Example using Oracle Risk Analysis software

Min duration

Mean duration

Max duration.

Distribution

% of occurence

Quantitative analysis – Create a model

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Determine the shape of uncertainty spreading

Tâche - +

Triangular : Minimum and maximum

durations are not likely to be met. The

intermediate duration is the most

probable

Uniform : Every duration are equally

likely to happen

Beta : The minimum and maximum

durations have a certain probability to

happen

The shape is selected according to the characteristic of the uncertainty

Quantitative analysis – Create a model

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33

45

27

42

38

20

1 3 7 13 21 28 34 39 43 46

2 4 8 14 22

12

5

6

9 15

10 16

29 35

30 36

40 44

41

3724 31

23

2511 17

47

48

32

2618

19

10 jours

9 jours

14 jours

17 jours

10 jours

Min Probable Max

Etc.

During each iteration, for each task, a duration is randomly

selected within the shape of the duration profile

Quantitative analysis – The Monte Carlo method

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� The number of iteration is in the range of a thousand

� For each iteration corresponds a specific set of durations

� Hence :

• A range of end dates

• A series of different critical paths

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Level of confidence:

A range of end date with their relevant probability of occurrence


26/12/2013 05/04/2014 14/07/2014

Distribution (start of interval)

0

100

200

300

400

Hits

0% 05/10/2013

5% 15/10/2013

10% 19/10/2013

15% 24/10/2013

20% 29/10/2013

25% 01/11/2013

30% 06/11/2013

35% 10/11/2013

40% 15/11/2013

45% 20/11/2013

50% 25/11/2013

55% 01/12/2013

60% 06/12/2013

65% 12/12/2013

70% 18/12/2013

75% 27/12/2013

80% 05/01/2014

85% 18/01/2014

90% 04/02/2014

95% 25/02/2014

100% 11/07/2014

Cum

ulat

ive

Fre

quen

cy

(Pre-mitigated) 000092 - Ready for drilling : Finish Date

The deterministic date

for ‘Ready for Drilling’

(without risks) is

5/10/2013.

The 80% probable Finish

date is 5/01/2014.

Why the deterministic

date is so little probable?

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The level of sensibility:

Level of contribution of a task to the overall duration


0%

6%

6%

15%

17%

19%

20%

21%

35%

53% 000098 - Offshore Pipeline installation (24" & 4"MEG) + c

000090 - Installation: jacket + deck

000096 - Barge mobilization

0340 - Construction: deck (hyp: x t) 2

000095 - Sealine Detailed engineering

0350 - Platform Detailed engineering 3

000091 - Hook-up and commissioning



0390 - Pipeline procurement

(Pre-mitigated)Schedule Sensitivity Index: " 000092 - Ready for drilling" - All tasks

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The level of criticity:

The proportion of iterations when the task is on the critical path


91%

91%

91%

91%

100%

100%

100%

100%

100%

100% 000092 - Ready for drilling

000101 - Drilling for 1st oil

000102 - Drilling for ramp-up

000103 - Drilling remaining

000105 - RFSU

0300 - Drilling done

000099 - Overall Pressure Testing

000106 - Onshore Basic Engineering

000116 - Onshore Detailed Engineering

000126 - Onshore Construction

(Pre-mitigated)Criticality Index

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0%

2%

2%

12%

12%

12%

12%

15%

36%

37% 000098 - Offshore Pipeline installation (24" & 4"MEG) + c

000090 - Installation: jacket + deck

000091 - Hook-up and commissioning

000095 - Sealine Detailed engineering


0340 - Construction: deck (hyp: x t) 2

000096 - Barge mobilization



0410 - Pipeline concrete coating

(Pre-mitigated)Duration Cruciality: " 000092 - Ready for drilling" - All tasks


The level of crutiality:

Combination of sensibility with criticity

It is on the high crutiality task

that it is more efficient to act


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Similar approach can be

applied to cost risks with

the cost items replacing

the tasks.

Quantitative analysis - Cost

Project DetailProbability

%PxI

Nb of

risks

MinMost

likelyMax

Pipe Detailed Eng

R1

R2

Pipe Procurement

Pipe Transportation

R3

Nearshore pipe installation

R4

R5

R6

R7

Barge Mobilization

R8

R9

Staff & Tools mobilization

Offshore pipe installation

Steel procurement

Platform Detailed Eng

Platform construction

Platform installation

Platform commissionoing

Total - 0

Risk Cost Impact (kUS$)

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� Similarly to the schedule analysis, each iteration will combine a

different set of cost for each budget line

� Hence :

• The overall cost can differ as a result: …

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The level of confidence: An evaluation of the contingencies needed to cover the potential cost overrun


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The level of sensibility:

Level of contribution of each

cost item to the overall cost


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Organize and manage the Risk analysis

� Implement a methodology as stated in the Risk Management PlanName a responsible (Risk manager)

Open a budget for the analysis

Define the timing of the risk meetings

Define strategies to be applied

Select a tool for Qualitative and/or Quantitative Risk Analysis

� Insure follow up of action plans

� Update the register with relevant risks identified by thecontractor.

� Update regularly the Quantitative Risk Analysis and theassociated reserves.

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Organize and manage the analysis

The main sources of project stakeholders resistance to the risk

management process are:

� Reluctances on justifying and detailing the responsibilities

� Spirit of fatality for future difficulties

� Feeling of loss of power

� Feeling of admitting the weakness

� Reluctances on deciding on corrective actions

Documents

(Risk Managment P Stollsteiner IFP 20110518 1 [Mode de Compatibilité])