risk management in engineering projects€¦ · school of engineering risk management in...

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School of Engineering Project Management

School of Engineering

Risk Management in Engineering Projects

[email protected]

School of Engineering Risk Management

I work in Construction.... ... My experience is in safety risk

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Seriously... n  Why has this joiner

done this? n  Is he aware of the

hazards? n  Can the hazard be

removed? n  Who is responsible

for removing hazard? n  Apart from the

separate issues of Respect for People why has risk management failed?

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Introduction

n  Hazards & their Risks are always present n  Within some industries the consequences of physical risks can

be significant (e.g.Piper Alpha) n  In other types of project the risk may not be physical but may

be equally as devastating −  Exceptional inflation? −  Supplier collapse? −  Design mistakes?

n  This lecture will: q  Define risk concepts q  Introduce the Risk Management Procedure q  Consider a Case Study


Small Physical Hazards

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School of Engineering Risk Management Risk Management in Engineering Projects – a Dynamic Approach

Large Physical Hazards - Piper Alpha (before & after)


Large Consequences: Hatfield, Ladbroke Grove, Potters Bar & Greyrigg Rail Accidents

Hatfield, 17 October 2000, 4 killed

Ladbroke Grove, 5 October 1999, 31 killed

Grayrigg, 23 February 2007, 1 killed

Potters Bar, 10 May 2002, 7 killed

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Non-physical hazards

n  Inflation n  Reduction in supplies n  Cultural

misunderstandings n  Corruption n  Interest rate changes n  Market condition

changes n  Changes in labour

supply

n  Skills shortage n  Design changes n  Changes in legislation n  Security threats n  Political changes/

instability n  Demand changes n  Public opinion n  … n  …


Some Definitions

Harm “Physical injury or damage to health, property or the

environment” BS8444: Part 3: 1996

n  Harm may be, for example: q  Employee injury or death q  Financial effects q  Environmental accident

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Definitions cont.

Hazard A source of potential harm or a situation with potential for harm in

terms of human injury, damage to property, damage to the environment, or combination thereof q  Examples may be:

n  Poor environmental management n  Abnormal inflation n  Abnormal weather conditions n  Falls from heights n  Collapse of excavations n  Dropped objects


Definitions cont.

Risk The combination of the probability of an abnormal

event or failure and the consequence(s) of that event or failure to a system’s operators, users or its environment q  Risk always involves two aspects:

n  Probability of a hazard taking place, and n  The severity of the harm that occurs

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Definitions cont.

Risk Management The systematic application of management policies,

procedures and practises to the tasks of identifying, analysing, evaluating, responding and monitoring risk

n  Five stages:

Baker, Ponniah, Smith, 1999 Survey of Risk Management in Major UK Companies, Journal of Professional Issues in Engineering Education & Practice,


Risk Identification

n  The stage where all potential hazards in a project are identified

n  To me the most important part of any risk management process

n  Because non-identified hazards cannot have their risk assessed

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Risk Identification

n  Possible methods of identification q  Individual Consultation q  Group discussions q  HAZOP

n  HAZard and OPerability studies n  Formal questioning of processes, e.g design


Risk Estimation

n  Potential hazards have been identified n  Now need to assess:

q  Probability of occurrence q  Severity if occurs

n  Can be done in two main ways: q  Qualitatively

n  in a linguistic manner n  usually done first; high probability/severity cases then

may be examined: q  Quantitatively

n  in a numerical manner

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BS8444-3: 1996 – Estimation methods


BS8444-3: 1996 – Additional estimation methods

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Risk Evaluation

n  3rd part of Risk Assessment n  Need to combine the severity and probability of the

identified hazards n  Allows tolerability decisions to be made n  Can be done using a risk matrix:

Category of Occurence

Frequency of

OccurenceConsequences

/ year Catastrophic Major Severe MinorFrequent >1 H H H IProbable 1 to 10-1 H H I LOccasional 10-1 to 10-2 H H L LRemote 10-2 to 10-4 H H L LImprobable 10-4 to 10-6 H I L TIncredible < 10-6 I I T T


Risk Evaluation – BS8444-3: 1996

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Risk Response

n  If risks are identified as being intolerable how can these be dealt with?

n  There are four main methods of responding to such risks:

1.  Risk Avoidance 2.  Risk Transfer 3.  Risk Retention 4.  Risk Reduction

n  International standards and other textbooks offer the least guidance on this stage

n  Because responses must be designed to fit the situation


Risk Response

1. Risk Avoidance n  Managing or developing a situation in which

the identified hazards do not occur, e.g: q  not proceeding with aproject q  tendering at a very high bid q  placing conditions on a bid q  changing design q  choosing different currency q  ... ?

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Risk Response cont

2. Risk Transfer n  Via Subcontractors/third-parties

q  a third party undertakes the high risk portion of the work and the responsibility that goes with it

q  This method should also reduce the risk: the subcontractor should be in a position to manage & reduce the probability & severity of the risk

n  Via Insurance q  A pre-determined insurance premium is often better than

unexpected costs due to risk


Risk Response cont

3. Risk Retention n  Some risks may be better managed internally n  High frequency/low severity or very low frequency/high severity

risks may be best retained 4. Risk Reduction n  The most usual way in which to manage common risks is to

reduce either the severity, the chance of occurrence or both. E.g: q  early warning systems q  improved maintenance q  physical mitigations

n  Easier for physical risks to be reduced, or at least those for which we may have control

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Risk Response cont

n  The choice of method used to respond to risk will largely depend on company policy

n  Using the risk matrix model, a typical project scenario may be:

Category of Occurence Consequences

Catastrophic Major Severe Minor

Frequent Transfer Transfer Retain AvoidProbable Reduce Transfer Retain Avoid

Occasional Reduce Transfer Transfer Retain

Remote Reduce Transfer Transfer RetainImprobable Avoid Transfer Transfer Retain

Incredible Avoid Transfer Transfer Retain

EXAMPLE ONLY


Risk Monitoring

n  Risk situation will continue to change throughout the life of the project q  New hazards

will become present

q  Existing hazards will stop or change

Remove mitigations

NO Does

existing hazard

still exist?

Has the probability

of occurrence increased?

(Re)Assess Risk

Has the severity

of occurrence increased?

Have new hazards arisen?

Do nothing Do nothing

YES

YES

YES

NO NO

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Video

n  Spiral to disaster, BBC


Since then…

n  Lord Cullen chaired a public enquiry q  (He went on to chair two further Public

Enquiries – Dunblane & Ladbroke Grove) n  Industry has learnt that risks need to

be continually monitored n  The offshore industry has spent more

than £5 Billion since 1988 on improving offshore safety

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School of Engineering Risk Management Risk Management in Engineering Projects – a Dynamic Approach

Piper Alpha – Risk Management?

n  A series of individual occurrences n  As with most offshore projects, hazards were usually

unlikely but have very severe consequences if they occur n  Risk Evaluation should have concluded these risks

intolerable and prompted appropriate Risk Responses n  Also, as the events unfolded, some of these hazards

moved from improbable to probable n  The RM in place was thus unable to cope; the disaster

ensued


Piper Alpha Chain

2 Gas pumps, ‘Pump A’ being serviced

‘Pump B’ fails

Operators don’t know Pump A not operational and try to start it

Gas release, explosion

Explosion takes out fire walls, communications links and affects control room

Risk Management in Engineering Projects – a Dynamic Approach

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Piper Alpha Chain Continued

With control room abandoned no announcements or evacuation ordered

Lack of communications led to oil being pumped from sister rigs, back-pressure fueling Piper’s fire

Fire eventually ruptured a 1.4m diameter gas pipeline then, 30 mins later, a second such pipeline

In the space of 2½ hours the rig destroyed, 167 killed

Risk Management in Engineering Projects – a Dynamic Approach


Control room affected by gas explosion

n  Probability before: q  High

n  Probability after events started: q  High

n  Severity: q  High

n  Risk: q  Very high

n  Response? q  Relocate control room (lowers

Probability)

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Gas pump ‘B’ failing while ‘A’ out of service

n  Probability before: q  Low

n  Probability after events started: q  Low

n  Severity: q  Very High


n  Response? q  “Retain” whilst maintaining PTW

system


Bringing pump ‘A’ online whilst out of service

n  Probability before: q  Should be very low

n  Probability after events started: q  Medium (a consequence of

previous risk) n  Severity:

q  Extremely High n  Risk:

q  Very high n  Response?

q  Improve and maintain PTW system

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Explosion taking out fire walls between areas

n  Probability before: q  Exceptionally low

n  Probability after events started: q  Medium

n  Severity: q  Exceptionally high


n  Response? q  Install blast walls as

advised


Emergency procedures collapsing

n  Probability before: q  Should be low

n  Probability after events started: q  High

n  Severity: q  Very high


n  Response? q  Improve training

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Explosion taking out comms links

n  Probability before: q  Medium

n  Probability after events started: q  Medium (no change)

n  Severity: q  High

n  Risk: q  High

n  Response? q  Relocate control room and redesign

comms links q  This risk has severe knock on effects

to other situations…


Adjoining rigs continue pumping

n  Probability before: q  Low

n  Probability after events started: q  Medium (comms links not

working) n  Severity:

q  Very high n  Risk:

q  Extremely high n  Response?

q  Improve procedures and training

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Operator delaying vital decisions

n  Probability before: q  High

n  Probability after events started: q  High (comms links not working)

n  Severity: q  Low (normally) q  Very high (in this case)

n  Risk: q  Extremely high

n  Response? q  Improve procedures. q  Give operators complete authority

for difficult decisions


Gas pipelines fracturing

n  Probability before: q  Medium

n  Probability after events started: q  High – due to oil fire

n  Severity: q  Exceptionally high

n  Risk: q  Extremely high

n  Response? q  Stregthen – as

recommended

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Piper Alpha – Dynamic Risks Summary

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