Project Risk Black Swansecrisponsor.org/presentations/lo17-23 - Adrian Clements... · 2019. 2. 16. · Project Risk Black Swans Adrian Clements General Manager Operational Risk Management

Project Risk Black Swans

Adrian Clements

General Manager Operational Risk Management

BSc (Hons) Chem Eng, CFIRM, SMAIChE, MIIRSM

[email protected]

+352 4792 2314

Overview

• We are looking to opportunities

• We have some risks

• But cant capture the opportunities due to unknown unknowns

• Its not new

• Change the way to see…

• …With support from you

Copyright © ArcelorMittal 6/23/2017 1

2Copyright © ArcelorMittal 23/06/2017

The opportunities

3

• Memory foam

• Freeze-dried food

• Firefighting equipment

• Emergency "space blankets",

• Dustbusters

• Cochlear implants

• Speedo's LZR Racer swimsuits.

• Gigapixel Images

• LED’s

• Sensors Enable Plants to Text Message Farmers

• Artificial limbs

• Invisible braces-Invisible braces are a type of transparent

ceramics called translucent polycrystalline alumina (TPA).

• Scratch-resistant lenses

• Water purification

• NASA claims that there are over 1650 other spin-offs in the

fields of computer technology, environment and agriculture,

health and medicine, public safety, transportation, recreation,

and industrial productivity.

Copyright © ArcelorMittal 23/06/2017

Whats the difference between Risk and

Opportunity?

Risk Management Opportunity Management


The opportunity process -

similar to the project management process


So how to capture

opportunities? How to make the

opportunity work?×

What is moving/driving projects forward?

And making them fail!

Elemental drivers• Shareholders

• Short term but should be long term• Market

• CFO

• Positive• Over confidence• Cognitive Bias

• Solving short term problems with no

long term view

• Flexible• Dynamic

• Short term but operated long term

• Reduce• Control• Fund

• Short term

• Start now• Fast results

• Reduce hot or cold test

• Short term

The world today

UnknownUnknowns

Risks

Unknowns

ExpectationsDemographic

Dynamics

Speed of Change

Dynamics

Unknowns

Misalignment

Objectives

KPI’s

•Funding

•Customers

•Laws

•Specification

•Knowledge loss

•Experience driven by “Cheap”

•Language and meaning

•Cost

•Timing

•Excessive stakeholder involvement

•Default settings

•Project leadership

•Multi use of funds

•Contingency risk

•Packages

Is it all new?

Lets take ArcelorMittal as an example


• Multiple projects

• Internal and external project management

• Multiple countries

• Similar suppliers

• Same issues

Country risks

HR skill sets

Critical set points

P&ID’s

Supply chain issues

Process Control

Interface management

P&ID’s

Supply chain issues

Political Risk

Visa implementation

Startup / shutdown

Supply chain issues

Process Control

Procedures

Hazops

Lessons learnt

Package interface

Set Points

Interface alignment

Creep

?

Between 2007 and 2016, IAC & CEO Office approved/reapproved 1372 projects for a total amount of $35.2b

Overview 2007-2016

11(Projects approved includes phases of a project that were approved by IAC)

Strictly Confidential

5,339

640

6,078

1,199

41

6,781

40

1,561

7,878

2,711 2,926

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

ACIS AMDS BRAZIL China CORPORATE FCE HSC LCE Mining NAFTA USA

FA amount approved by segment (period 2007-2016, in M$)

On average 150 projects per year and $4 bn

Project dynamics are basically the same


The boundaries

change

Who is the owner of the project?

Market expectation

of value creation

Market expectation

of value creation

• Quarterly results

CFO is face to the marketCFO is face

to the market

• Are the finances under control

• financial strength for dividends

• Effective use of capital

KPIKPI• Reduced cost

• Fast

• Customer oriented

ImageImage


Front end loading

Front end loading

• Take time to do it right

Long termLong term

• Is the machine flexible

• Will operating costs be minimal

KPIKPI• As per

spec

OwnerOwner• Site

operator

Financial view Operational view

No alignment – different KPI’s

Communication breakdown

Where is Risk Management?

Risk Universe Value Drivers


Risk management ensures Value creation in one area does not destroy value in another

Its not new


Lessons Learnt

…. Or not


The changing world of risk and opportunity….

…..and how much do we want to take


A Business model to handle the dynamics

• Innovation

– Growing EBITDA

– Stainability of growth

– New products /markets

• Value creation

– EBITDA volatility stabilization

– Incident reduction

– Investment portfolio

• Quality

– Stability

– Resilience

– Efficiency

• Management

– A

– B

– C

• Business Process

– X

– Y

– Z

KPI’s


Changing the viewpoint


INSIGHT

INFORMATION

Reversing the mind:From the future to the past

Past

What happened?

(reporting)

Present

What is happening now? (real times

updates)

Future

What will happen ? (extrapolation)

• Managing in the “fix it” : culture of engineers

Future

What is the best/worst that can happen?

(prediction, simulation)

Present

What is the next best action?

(recommendation)

Past

How and Why did it happen?

(Rex , experimental design)

• Managing in the proactive: culture of entrepreneurs


The value of Risk Management:

The life of PI


Performance & Risk:

Management of a Performance Indicator

3 business processes to improve performance :

1. Process stabilization / reliability

2. Continuous Improvement / Capex Investment (Value plan)

3. Risk Management – through vulnerability22Copyright © ArcelorMittal 23/06/2017

performance bridge

concept:An heavy industry Ebitda is generated

by important drivers not in control of

Management as input prices,

exchange rate or partially selling

prices ….

…. The role of Management is to

create task of projects (Value Plan) on

top of “business as usual” (stability)

on the drivers they could have an

impact on …..

….. However Management manage

what they know ignoring of course

what they do not know …

…. Unplanned events (incidents)

happen, negatively impacting the

overall profitability …

…. Therefore Management has to do

RM extending their knowledge

beyond the actual reality to a

probabilistic view on what could

happen, in order to mitigate Ebitda

losses

Value Plan and Risk ManagementOperational Performance Bridge /project Performance Bridge

130 131

599

-

-

80

-

-

--

1

210 -

48 7

155

128

FY12Actual (*)

2013 Nonrecurrent

FY13Normalized

Margin Steel Operationallosses

Usage/Performance

Fixedcosts

ValuePlan

Stock variation/Others

FY13Actual

Real Operational Performance

1: Unplanned events1: Unplanned events

XX

2: process stability2: process stability3: Value plan : business

opportunities

3: Value plan : business

opportunities

0

10

20

30

40

50

60

70

80

Process

stabilization

(reliability/)

Value Plan

Operational Risk

Management

OPERATIONAL PERFORMANCE BRIDGE

23

Copyright © ArcelorMittal 23/06/2017

Can you help?


Lets help each other

Some common issues to discuss

Information• Optimal use of packages

– Managing interface

• Clarity of default settings

• Understanding of contingency risk

• Where do we/you need to improve?

• When should an exit strategy be

discussed– Go/no-go

• Your lessons learnt– Not only the good projects

• When is closed really closed?

Risks• Loss of Knowledge

• Loss of Experience

• Risk Dynamics fast and faster

• Variance – increasing volatility– Stress test the project to see viability

• Global Risk Adverseness– Ie willingness to take no risk


What is the framework we

need to work together?


Documents

Project Risk Black Swansecrisponsor.org/presentations/lo17-23 - Adrian Clements... · 2019. 2. 16. · Project Risk Black Swans Adrian Clements General Manager Operational Risk Management