Risk Management in project

Prepared and presented by

Mads Hembre, discipline advisor

Risk Management

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Content

• Our Values

• Risk Picture StatoilHydro

• Risk Management in StatoilHydro

• Tools Risk Management

• Risk and Quality Management

• Risk Management Process

• Risk module

– Input

– Use

– Output

• Why Risk Managment

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- threats and opportunities !

We in StatoilHydro – Our Values

• Courageous

• Open

CourageousOur values:

• Hands-on

• Caring

• Be imaginative, ambitious and stimulate new ideas

• Use foresight, and identify opportunities and challenges

• Challenge accepted truths and enter unfamiliar territory

• Make clear demands on each other and push for constructive change

• Understand and manage risk

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Risk picture - StatoilHydro Market risk Described in:

o Strategic market risk FR08

o Tactical market risk FR08

o Credit risk FR08

Operational risk

o technical risk FR02, FR03, FR06

o project risk FR05

o reservoir risk FR01

o health, safety, security and the environment (HSE)

FR10

o administrative risks FR09, FR14, FR15, FR16.

o Country risk FR08

o Reputational risk FR08

o Code of conduct FR18

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Definitions

Risk:

Any uncertainty that, if it occurs, would affect one or more objectives. Risk is the product of probability and consequence.

Threat:

Any uncertainty that, if it occurs,

would affect one or more objectives negatively

Opportunity:

Any uncertainty that, if it occurs,

would affect one or more objectives positively

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Risk Management – CVP-Process

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Risk Management (ref.FR05)

• Risk Management shall be used actively throughout the project development:

• Prior to DG 1, management of risks shall be established and maintained as a continuous management process throughout the project development process.

• Risk management shall be an integrated part of the management of a project, where all project units shall contribute actively in the process.

• Requirements for Risk management shall be included in contracts and purchase orders.

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Risk Management

Risk Analysis

Probability simulation based on:

- UM Top 10 List

- Economic planning assumptions

• Cost estimate

• Schedule estimate

• Total value chain

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Risk Management

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1. Identification

2. Assessment

3. Response Action

4. Response Control

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Tools – Risk Management

Quality Management

Risk actions and quality control activities/PIMSWEB

Project Subprojects Contracts

Risk Identification Risk Action

Quality System

Audit

Contract/discipline

Examination

Assignment Notify Prepare Execute Report

Observations

Close-outFollow up

Risk Areas

Risk Assessment Risk Control

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2. Assessment

• Risk are ranked over dimensions: probability of occurrence, potential consequences, manageability of outcome

• Specify cash impact

• Project core teams review sub-groups main risks and define Project Top 10 List

• Raise Red flags when critical exposures identified

1. Identification

• Identify risks during functional brainstorming sessions

• Conduct analysis through total value chain for full project lifecycle

• Encourage and facilitate cross-learning trough similar projects

• Nominate RM coordinator to ensure QA and secure use of PIMS Web

4. Response Control

• Define and clearly communicate UM process so all projects are aligned with corporate requirements, regulations and integrate public expectations

• Reporting system allows leadership to be aware of main uncertainties and enable control of work quality

• Third party knowledge is leveraged to develop Statoil expertise

3. Response Action

• Define for each top 10 Risk mitigating actions & back-up plans

• Track response action in by responsible person or by action deadline

• RM coordinator reports progress to core team and ensure compliance with process

• Functional experts control quality of RA during CAR’s

Risk Management - Process

RM – Process

Risk areas

• Country / Politcal

• HSE, fraud and corruption

• Market / Contractual

• People / Organization  

• Project execution / Operation  

• Reserve base   

• Strategic / Financial  

• Technology / Technical

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 Project

CostProject

SCHEDULE HSE SCOPE QUALITY Reputation

Minimal (C1) <5 MNOK < 1 week

Minor Injuries,

Minor Damages,

No Pollution None None

Small (C2)

5-25 MNOK 1-2 weeks

Injuries, Damages,

Minor Pollution

Minor effects on capacity/regularity

Local negative talk. Minor local

Serious (C3)

25-50 MNOK 2-4 weeks

Accidents, Damages, Pollutions

Effects on capacity/regularity

Minor negative media coverage, some drop in share price. Warning about

orders*) from the authorities. Major Local

Very serious

(C4) >50 MNOK >4 weeks

Serious Accidents,

Serious Damages,

Serious Pollution

Major effects on capacity/regularity

Serious negative media coverage, severe drop in share price. Orders from the

authorities. International

Consequences

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Probability

  Probability

Unlikely (P1) < 5%

Less likely (P2) 5 - 20%

Likely (P3) 20 - 50%

Very likely (P4) > 50%

Reports

ActionsActions

Overview system

SQL-server

RiskActions

Online

update•Lists

•Combined

•Graphics

•Statistic•Excel

•HTML

•PDF

Input

Output

Reminder

e-mail

QM-module

My PIMS

Online update

• Record by record (risks-actions)

• List (risks)

• Action list (actions)

Record by record

List

Action list

Identification

Assessments

Actions

Action - dialog box

Links/Attachments

Reports

• Lists – record by record

• Combined – Risk and action records together

• Graphics – graphical elements in report

• Statistic – frequency of use

Report examples (all types)Risk List

My Pims

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Why Risk Management ?

Approach

Action The action aims to reduce:

1 Eliminate Underground cable

Build local power plant

Probability

2 Reduce risk, pursue opportunity

Increase gate

Plant small plants

Duplicate lines

Reduced growth

Probability

3 Transfer Insurance

Contract with other

Consequences

4 Accept and prepare Extra power supply

Indicator light

Consequences

5 Ignore No action

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CAPEX Risk analysis

Estimate

Technical allowance

Facts ”Scope of work”

Experience

Frame agreement prices

Market growth

PhaseUncertainty

Uncertainties execution

Concept

Identified elements managable

Identified elements not manageable

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• A value chain includes all the variables that affect the cash flow

• Each Risk in the value chain is described with a probabilitydistribution and linked to the economical model

• Dependencies between variables are taken into account

• Risk in project economy is calculated through Monte-Carlosimulations

Risk Analysis - RiskMS

Risk Analysis on the value chain

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Model based on SIAM

Monte Carlo Simulation

Assessment

Risk Assessment

Risk Analysis

Model development

Dependencies

Distributions

Project scope

NPV Range and distribution

P(10), P(E) and P(90)

Sensitivities

Analysis Output Report

Expected NPV

Cumulative Chart

Certainty is 80,00% from 555,23 to 1 191,03

Mean = 872,37,000

,250

,500

,750

1,000

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125,2

250,5

375,7

501

381,94 661,26 940,59 1 219,91 1 499,24

501 Trials 495 Displayed

Forecast: NPV 8% (SIAM)

0,75

0,64

0,00

0,69

0

0,83

0,00

0

0

7,13

1,32

1,51

0,69

1,41

2,0

1,19

1,36

3,0

4,2

15,33

Downside

Upside

Higher Value Chain Focus

VALUE

CHAIN

ANALYS I S

Drilling Risk

Reservoir Risk

CAPEX Risk

OPEX Risk

Transportation Risk

Market Risk

Other Risk

Tax/fiscal Risk

IDENTIFIED

UNC. ELEMENTS

RISK

R E G I S T E R

Risk Analysis - RiskMS

Risk Analysis – RiskMS

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Remember…

“the essence of project management is risk management”