(3) Project Risk Management in Project Lifecycle Phases 080415 3.48PM

Project Risk Management in Project Life Cycle/Phases

Addressing risk through Procurement

Where Project Risk Management should begin?

Engineering is most critical

Getting the most out of Construction


Where Project Risk Management is begin?




Project Risk Management activities at Asset Owner’s level

Select Define Execute Operate

Commercial and technical concept is pinned down. Feasibility is proven by the end

Identify

RM: Preliminary Risk Identification activities

Several Conceptual options are outlined, One is selected for further development

RM: Support decision making; Decision tree Analysis

Detail study on implementation plan; define cost estimate, schedule Obtain Approval

RM: Develop RM Plan. Refine strategies Developed reserved/contingency for cost and schedule

Implemented the approve project and completed

RM: Developed Monitoring & Control Plan

Project completed and move into operation during lifetime & decommissioned

RM: Risk Register Close!

At Asset Owner’s level, Risk Management influence is high at “Identify” stage;

Identify Select Define Execute Operate

SmallLow

INFL

UEN

CE

CON

TRAC

T C

UM

U LA T

IVE

SPE

ND

Major Influence Rapidly Decreasing Influence Low Influence Zero Influence

High

Descending Trend

Contractors - Service Providers

Project Risk Management influence at Contractor @ Services Provider level …

Execute

Proposal Award for Project execution

CompletedInitiate Planning Executing

Operate

• Risk Identification, Assessment & Response plan

• Risk need to be identified as many as possible. The larger the nos. of risk, the smaller the “Unknown Unknown”

• Develop first project contingency

• Risk Register to be refine and detailed further

• Develop Risk Management Plan that focuses on implementation of Mitigation efforts , detailed project contingency

• Monitor the implementation, control, reporting & Closing

Project Risk Management influence . The trend is descending

In many cases, Project Manager is absent at proposal stage!

Monitoring

Controlling

Identify

Proposal Award

CompletedInitiate Planning Execution

Select Define Execute Execute

Focus of risk management from Strategic Asset Management down towards completion of the project

• High Level of risks identified

• Goal: To improve the value versus risk profile of the proposed asset Development

• Assessed at broader perspectives Including impacts to strategic, economic, Environment, society

• Specify Project Risk Governance and standard procedures

Assessed at project perspectives; Cost, Schedule, Quality , Safety etc.

Monitoring

Controlling

Project Risk Management influence . The trend is descending






Engineering Design is the first and most critical, of the execution of a project …

ENGINEERING

Buyer purchase all equipment and materials based on “Material

Requisition” prepared by Engineer

Engineer’s design the facilities, produce the list, specifications and datasheets of all equipment and materials based on Basis Of Designs

Construction Manager to install all equipment's

purchased by Procurement

• Functional requirements• Client expectations.• Design codes

“They write a music, you guys sing the song…and dance”

Expect many interdependencies between all parties.

ENGINEERING

CLIENT

VENDOR

• Study documents such as P&IDs, Calculation notes etc.

• Interface documents showing all connections at the supply battery limits,

• Documents required at the construction site, preservation procedures, list of components, commissioning/start up operations and etc.

Document submission

Approval / comments

Document submission

Comments

• Project Management Team (Project Manager, Engineering Manager) are responsible for managing integration;

• requires timely inputs from all parties to not delay design development.

It is the most critical, typically due to the following factors that lead to risk

ENGINEERING

VENDOR

Validation/Review Cycle Time (General Uncertainty)

Design MaturityLevel of Project Novelty (General Uncertainty)

Right Resources

Including new geography and /or new technology

Adding new requirements

Scope changes

Standards / Specification Changes

Multilayer level of approvals. 21 working days as generally conditioned in the contract seems no longer practical.

“Right” defines experiences, skill sets and qualities.

Adding more resources just exacerbated the problems – longer learning curve - demotivated .

History had proven the case of Engineering related risk is high …

Source: http://www.subseaiq.com/data/PrintProject.aspx?project_id=1247&AspxAutoDetectCookieSupport=1

Facility Name: Gumusut-Kakap Floating Production Unit

Contract Award: Jan 2008 – March 2009

Schedule to come on stream : 2010

Early production: 2012 - using interim evacuation system tied into the FPSO nearby KIKEH field (FPU was not even 100% completed that time)

The project was delayed due to “DESIGN ISSUES” with the production facility and laying the new subsea export pipeline






Upon finalization of Work Package development, there procurement kicks in……

• Integration with vendors start here!

1. Define requirement2. Research the market 3. Check track record 4. Invite tenders5. Evaluate tenders6. Select suppliers 7. negotiate contractual terms

• Each work package will subject to project contracting strategy of the procurement

Package Specific Risk

External Risk

Bidder Specific Risk

• In general, there 3 type of procurement risks need to be assessed in parallel of the procurement selection process.

Sources of Procurement Risk – Package Specific

• What type of contract should be proposed and why? (Cost Plus? Fixed Price?)

• What interfaces should be managed due to selected size, scope and schedule? (communication channel? Stakeholder engagement analysis?)

• What should be the optimal size , scope, schedule of the package? (Sequence of work? Scope decomposition?)

• If applicable, how should technical novelty be handled? (technological risk?)

• Are there un-usual safety hazards and how should they be managed? (LTI record? HSE Procedures?)

• Its estimated at US$4 Billions

• Production is projected at between 500 million cubic feed/day (MMcfd) – 750 MMcfd

• Key component: CPP topsides module that contains the carbon dioxide or acid gas removal unit, which is required to handle the field’s sour gas.

- The following questions should be addressed -

Sources of Procurement Risk – External

Client: ESSO HIGHLANDS LIMITED (incorporated in PNG), • JV between ExxonMobil (41.6%), Oil Search Ltd. (34.1%), Santos (17.7%), Nippon Oil Exploration (1.8%), AGL (3.6%), EDA Oil and MRDC (1.2%).

Key elements of the project construction logistics plan are as follows: Materials and equipment - enter at the port of Lae and be transported by road from Lae to Hides via

the Northern Logistics Route.

Security is a critical factor as locals don’t take to well with foreigners in their tribal territory.

• Various construction permits needed and custom regulation

• Logistic Issues (Transportation mode: Air freight etc.?)

• Possibility of blockage of delivery routes and /or sites (by local communities/NGO?)

-The “external” is not just about weather conditions or features of climates-

Sources of Procurement Risk – Bidder Specific

Bidder’s core competencies versus package size, scope and schedule

Availability of required skills and history of labor relations

Workload forecast

Quality Assurance/Quality Control, technical capabilities, management efficiency, risk management, financial and etc.

Previous experiences with a bidder (positive or negative).

-Consider the following factors -

Each type of contracts has own risk attributes.

• Minimize the risk of price changes.

• However, a contractor is likely to reduce a scope of work or change delivery

schedules to minimize the impact of overspends

• Work best for off-the-shelf products where technical risk is low.

• Useful where the technical scope is uncertain & risks unknown

• Need a greater visibility of the contractor’s detailed cost, changes and methods

As per survey done by Accenture – High Performance in Procurement Risk Management (2010).

• PRM main effort here is focus on reducing dependency by tapping a wider swathe of suppliers

• Often out of control. PRM suggest anticipating prices increases during tender development.

• While execution, re-visiting escalation clauses in the contract may appropriate.

• Establish close relationship between both parties for quality assurance and control management efforts.

• Adopt “Cost of Quality” methodologies to assessed impact on cost






Engaging and Communicating with stakeholders should be the main focuses

• Each party mush have done stakeholder analysis and should have been established prior 1st steel cut or commencement of the construction activities.

• “Never too late” paraphrase is applied at any time, but in during the construction, it has price!

OwnerProject ManagerIn-house staffs

Specialists/Consultants

Design ProfessionalEngineering Team Leader

Engineering disciplinesDesign sub consultants

ConstructorConstruction Manager

Subcontractors / Fabricators

Suppliers/Vendors

• Any potential changes must be anticipated and well communicated to the other parties. Late changes is expensive and miss communication has zero validity to justify claim.

Line o

f Auth

ority

(defined

by contr

act)

Line of communication

Construction has unique problems – How should you handle these?

• The construction is a custom rather than routine

• If anything goes wrong, the non-conforming work is very difficult to rectify and remedial action is sometimes not possible. Any activity has to be done right from the onset

• the non-conforming work is very difficult to rectify and remedial action is sometimes not possible.

• Most of the projects or their individual work phase are of relatively short duration. As such, the workforce must be assemble and maintained, cannot be shaken out or restructured before the project or work phase completed.

• Operations are out door, exposed to numerous weather conditions and interruptions

• The construction often needs highly skilled craftsmen rather than unskilled workers as it involves of various installation and integration of various equipment's, materials or other components

• Construction project work against the defined scope, schedules and budget to achieve the specified result.

• Performance of construction projects can be evaluated only after it is completed and put into use/operation.

Typical project risk during construction stage, overview from project perspective

Space constraint.(General Uncertainty)

Soil failure (Risk Event)

Unauthorized change (Risk Event)

Specification non compliance(General Uncertainty)

Safety & Quality Issues.(General Uncertainty)

Productivity.(General Uncertainty)

Weather.(Risk Event)

• How the success or lack of it is monitored?

• What are warning signals?

• How will they be recognized in time for corrective action?

• What early indications will be there if serious engineering problems are imminent?

The rig then need to mobilize for a job, which the second order however is still in 3 months time.

While unutilized, who should bear the rig waiting cost?

The infil drilling works at Bokor b complete ahead of schedule

Control of Construction is all that matters.

• “Cost of Quality” should help assessed the construction cost i.e. Internal failure cost : Cost associated with defects found before partial handover (scrap, re-work, troubleshooting)External failure cost: include cost of damaging reputation, loss of opportunities, recalls, unplanned field repair)Appraisal cost: The cost incurred to determine the degree of conformance to quality requirements (lab testing, calibration)Prevention cost: Quality Planning, design review, constructability review

Constructability = “prevent is better than cure” – is it just a compliance to contract condition?

It is beneficially applied to reduce the time and cost of construction, among others:

• Planning the flow of components to their assembly site

• Providing adequate facilities and equipment for assembly.

• Avoiding of excessively tight tolerances; provision for flexibility and adjustment in connections.

• Selection of structural systems that will utilize skills and trades on a relatively continuous and uniform basis.

• Avoidance of intermittent peaks in the demand for the labor force

• Avoidance of procedures that are overly sensitive to weather conditions

• Selection of construction methods which are appropriate to the specific structure

• Concurrent fabrication of major components in the most favorable location and conditions

• Subdivision into as large components and modules as is possible for fabrication and assembly

Constructability is used during construction project planning and it involves methods to optimize the design in consideration of the effective performance of construction activities. Alternate materials, unique construction sequencing (i.e. activity logic), and construction technologies are key considerations. AACE Total Cost Management Framework, 1st Edition,2012

Any Questions?