High-level risk assessment

APM Risk Conference, 25 Jan 2018

Simon White, Risk Consultant

High-level risk assessment

• Risk assessment

• Some examples

– Example 1: £4bn, 6 years

– Example 2: £5bn, 5 years

– Example 3: £50m, 1.5 years

– Example 4: £50m, 1 years

– Example 5: £50m, 0.5 years

• Level of detail

• Logic / complexity

• Correlation

RISK ASSESSMENT

Ways to assess risk

• Techniques to help assessment

Credit: from Centrica Energy’s PACE guidelines.

Quantitative risk assessment

• Never been done before

• Challenging conditions

• Uncertain regulations

• Early phase

• Been done before

• Easy conditions

• Established regulations

• Mid-execution

P10P50

P90

Base

P10P50

P90

Base

• “Cheaper but

more risky”

• “More expensive,

less risky”

Quantitative risk assessment

• Given the risk as we have expressed it:

– How much overall contingency is likely needed?

– Where is it likely needed?

– And when?

– What’s our biggest risk at P50?

– At P90?

– What contractual incentivisations are appropriate?

– How valuable is response x?

EXAMPLES

Example 1

• ~£4bn, ~6 years

• Challenges:

– Extreme weather

– Very heavy single lift

– Two-week installation season

each year

Example 1

• ~20 cost lines

• Each cost split:

– Time-dependent part

– Non-time-dependent part

Example 1

• ~50 activities

• Lag tasks

• “Carryover” logic

Example 2

• >£1bn, ~5 years

• ~900 activities.

Example 2

• Rolling up risk

– We heavily rolled up the offshore hookup work.

– Mid-execution, when the hookup work had more detail, we used

the summary curve of the detailed hookup progress data, to

inform the risk assessments on our high-level bars.

Example 3

• ~£50m, ~18 months

• 1,600 activities

• Challenges:

– Inconsistent level of detail

– Planned in hours, not days

– Unrealistic logic

– Two distinct projects in P6, with duplicated

common activities

Example 3

• Many constrained dates

Example 3

High level of detail

Example 3

• Master execution schedule had 1,600 activities.

• We managed to prune it down to 900, by:

– Removing activities in the past

– Dissolving milestones

– Rolling up sequential work

Example 4

• ~£50m, ~1 year

• 500 activities

• Challenges:

– Planned in hours, not days

– Schedule logic quality

• We “rolled up” to 112 activities

• 40 cost lines

Example 4

• Rolling up by hand

Example 4

• Rolling up by hand

Example 5

• ~£50m, ~6 months

• 400 activities

Example 5

• Semi-qualitative scoring

TYPEIMPACT

LEVELDEFINITION

1Green

(low)

High Confidence of achieveving within 5 days of

Forecast Milestone

2Amber

(medium)

Confidence level with in 6 to 25 days delay to

Forecast Milestone

3Red

(high)> 25 days delay to Milestone

1Green

(low)Less than 25% probability

2Amber

(medium)Between 25% and 75% probabiilty

3Red

(high)More than 75% probabilityP

RO

BA

BIL

ITY

CRITICALITY

SC

HE

DU

LE

Example 5

• Risk against external dates

Example 5

• Schedule confidences for individual sections

LOGIC / COMPLEXITY

Logic challenges

• Too much schedule detail

• Finish-driven logic

• Different calendars

• Too much cost detail

• Too much risk detail

Logic solutions

• “Roll up” activities and logic

– Use leads / lags

• Use forward-driven logic

– Use “stretching” (aka “non-contiguous scheduling”)

• Simplify calendars

– Aim for none at all, except windows / seasons

• “Roll up” costs

– Spread over hammocks

• Try and simplify risks

– Combine risks, focus on significant risks

Uncorrelated risk impacts

• Overall probability vs individual probabilities

– Individual probability 𝑝:

– Where:

• 𝑃 is the overall probability

• 𝑛 is the number of impacts

𝑝 = 1− 1− 𝑃 1𝑛

Uncorrelated risk impacts

• Example: Risk of equipment delay

– Impacts three procurement activities

– Impacts are uncorrelated

– Overall probability is 60%

Risk with uncorrelated impacts

Overall

probability

Number of

impacts

Chance of at

least one

impact

Chance of

no impacts

Chance of

not each

impact

Chance of

each impact Notes

001 Equipment delay 60% 3 60.0% 40.0% 73.7% 26.3% Probability was assessed as overall chance

… …

Distribution shapes

• Use the uniform distribution, or better

Single value 1-point estimateMore knowledge /

less uncertainty

Beta Pert(larger shape parameter,

default shape parameter of 4)

3-point estimate

Triangle / Trigen 3-point estimate

Beta Pert(smaller shape parameter)

3-point estimate

Uniform 2-point estimateLess knowledge /

more uncertainty

Credit: from Centrica Energy’s QRA training manual

LEVEL OF DETAIL

Level of detail

• As examples

• Top down vs bottom up

• Consistency

• Correlation

CORRELATION

Correlation and level of detail

Correlation and level of detail

• Roll a die

Correlation and level of detail

• Roll 2 dice

• Roll 3 dice

Correlation and level of detail

• and more …

Correlation and level of detail

P90 = 98 would be 135

SUMMARY

High-level risk assessment

• Summary

– Keep perspective

– Keep high level

– Balance correctness and manageability

• Big project with …

– … a few big activities, a few big costs

– … lots of activities, lots of costs

• Care with words!

– “High-level assessment” vs “high level of detail”

– “Bring forward” vs “go forwards”

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