Best Practices - Risk Management

Pharmaceutical Industry

Date: 30 Nov, 2011

Risk Management

• Qualitative Risk Management

• Quantitative Risk Management

Schedule

Cost

Case Study: WTC Vehicle Security Center

Overview

Typical Project Challenges:

Multi national project team

Five major stakeholders on project: AE, CM, Procurement, Commissioning, Qualification/Owner

Risk of each party executing work-product in a vacuum

Most often teams working together for first time

Extreme schedule pressure

Heavy use of new technologies

Limited talent pool

Independent Project Analysis (IPA) Study

Study on best practices related to project controls

completed in 2000

0 = No People / Practices

8 = People & Best Practices

So what do we do?

Interactive Planning Session (PARKEN) • Conducted during BOD to align team

• Team includes: Engineer, Contractor, Municipality and Owner

Quarterly project schedule risk analysis • Conducted with entire project team

• Ongoing quality assessment of schedule

Monthly analysis of integrated schedule (Vestas) • Changes since last period

• Changes since baseline

• Quality of forecasting

• Resource analysis (bottlenecks, density analysis etc.)

Typically performed through a workshop or interview setting

Need representation from all aspects of the project: sponsor, development, engineering, procurement, construction, operations, legal, environmental, etc.

Use various brainstorming techniques to gather risks and assess the qualitative impact to project

Qualitative Risk Management

Detailed Risk Tracking Qualitative Risk Management

Risk Matrix

T08c

T08b

T08T07c

T07b

T07T06c

T06b

T06T05c

T05b

T05T04c

T04b T04

T03cT03b

T03

T02c

T02b

T02

T01c

T01b

T01

H07c

H07b

H07

H06c

H06b

H06

H05c

H05b

H05

H04c

H04b

H04

H03c

H03b

H03

H02c

H02b

H02

H01c

H01b

H01

E11c

E11b E11 E10cE10b E10

E09c

E09bE09

E08c

E08b

E08

E07c

E07b

E07

E06c

E06b E06

E05c

E05bE05

E04c

E04b

E04E03c

E03b

E03

E02c E02bE02

E01cE01bE01

C01

C01b

C01c

C02C02b

C02c

C03 C03bC03cC04

C04b

C04c

C05

C05b

C05c

C06

C06b

C06c

C07

C07b

C07cC08

C08b

C08cC09

C09b

C09c

C10

C10b

C10c

C11

C11b

C11c

C12

C12bC12c

C13C13b

C13c

Impact

Pro

ba

bil

ity

High Medium Low Low Medium High

Opportunities Risks

Low

Mediu

mH

igh

Overall

Kategorisering af risici

Løbende registrering af risici muliggør analyse og udvikling af den samlede risiko portefølje over tid

Kategorisering muliggør grafisk præsentation af risikobilledet

Qualitative Management

Quantitative Risk Analysis Statistical modeling of cost and schedule, using Monte Carlo

analysis

This presentation focuses on Schedule Risk Analysis

6 step process for completing analysis

Effort conducted every 3-6 months

Involves external risk analyst

t = $

Step 1: Review / Prepare

ID Task Owner / Client Owner Rep A/E Construction / CM

1 Status as of: 7/27/10

2 Project Title

3 Project Scope

4 Project Location

5 Project Manager Rod McKenna

Art Gohrey/John

Perrigue Bill Bula / Joe Fazio Dick Hahn

6 Organization / Affiliate PRD WWERE

Johnsrud,

Flad/KlingStubbins Skanska

7 Size of Facility

8 Cost

CAR1 (RC1 & ERB): $182M

Current F'Cst: $171M RC1 & ERB: $30M

RC1 & ERB: $6.4M /

Site&MP: $675K Constr Cost: $100M

9 Current Project Funding: Going to CAR 2 sep-09

10 Contract Method Cost NTE GMA

11 Project Status / Phase (BOD, DD, Constr)

Design: 98%

CA: ongoing

10% complete - Foundations in

Vertical Cnstr in 6wks

12 Building Enclosed Q1 2008

13 Mechanical Completion Oct-08

14 Commissioning Completion Q1 2009

15 Qualification Completion NA

16 Status of long lead equipment Elevators, boilers, AHUs, BAS (not delivered yet)

17 Procurement of Subs % 95%

18 Procurement of Equip % ?? 95%

19 Expediting % ?? 95%

20 Commissioning by ?? Skanska

21 Qualification by NA

22

Comments

23 Risks

Co

ntr

act

Sta

tus

Gen

era

lC

ost

Sch

ed

ule

New construction, 4 floor lab building, chemistry biolab, office

Parking Lot, Site development, utility relo, McKeen road work, Hardscape

Large employee move coordination. Moves from Exton, PA and Cranberry, PA. Cranberry Site: decommission existing fume hoods

(by facility group). HAZMAT, cleanup etc. Minor FFE component

Springhouse Research Center 1

Spring House, PA

SF: 150K - New construction

Switchgear, MCCs - PO placed, On schedule

Integrated Project Schedule Central component for ensuring realistic project management

By no means a given

Requires coordinated development and management effort

Yields significant risk reduction

Becomes centerpiece for risk analysis

By mandating it, you are already well down the path of risk

management

YOU CANNOT MANAGE RISK WITHOUT AN INTEGRATED

SCHEDULE

Typical project schedule scenario

BOD - Verification

Engineering

Commissioning

Verification

Construction

Start Production

Engineering ScheduleCompl.

Engineering

Construction ScheduleComplete

Construction

Commissioning / QualificationComplete

C/Q

Isolated Schedules only reflect local criticalities

BOD - Verification

Engineering

Commissioning

Verification

Construction

Start Production

Engineering ScheduleCompl.

Engineering

Construction ScheduleComplete

Construction

Commissioning / QualificationComplete

C/Q

Integrated project schedule scenario

Integrated Schedule Exposes true project critical path

Critical Path

Done Done Done

Start End

Critical Path

Activity Ranging Background

10 10

10 10

10 10

t

Day 100

10 10

10 10

10 10

10 10

10 10

10 10

7 / 10 / 20

Optimistic Duration: 7

Most Likely Duration: 10

Pessimistic Duration: 20

Activity Ranging Background

9 11

12 12

11 10

Day 109

9 11

12 9

16 15

19

10 11

9 12

21

t

The Risk Software

cycles through 1000

Iterations and

develops a list of end

dates

Activity Ranging Background

9 11

12 12

11 10

Day 116

9 11

12 9

10 11

9 12

8 7

9 11

The Risk Software

cycles through 1000

Iterations and

develops a list of end

dates

t

Activity Ranging Background

21/Jun/09 11/Jul/09 31/Jul/09 20/Aug/09 09/Sep/09 29/Sep/09 19/Oct/09 08/Nov/09 28/Nov/09 18/Dec/09 07/Jan/10

Distribution (start of interval)

0

10

20

30

40

50

60

70

80

90

100

Hit

s

0% 17/Jun/09

5% 29/Jul/09

10% 07/Aug/09

15% 13/Aug/09

20% 20/Aug/09

25% 25/Aug/09

30% 28/Aug/09

35% 02/Sep/09

40% 04/Sep/09

45% 10/Sep/09

50% 16/Sep/09

55% 21/Sep/09

60% 24/Sep/09

65% 30/Sep/09

70% 02/Oct/09

75% 08/Oct/09

80% 15/Oct/09

85% 23/Oct/09

90% 30/Oct/09

95% 11/Nov/09

100% 08/Jan/10

Cu

mu

lati

ve F

req

uen

cy

Entire Plan : Finish Date

Schedule Contingency Identification

Expected (~P50)

Schedule

Contingency

Deterministic End date: 30-Jun-09

Probabilistic P50 End date: 16-Sep-09

CPM

Date

50%

Date

General

Contingency is established, based on the stage of the project

Statistical Ranging Results

Ad, Bid, Award C-2

97%

97%

75% Ad, Bid, Award

2%

Steel

Project Complete

Cntr-3

Requirements

Security Equip.

Procure Steel

Excavate

2%

3%

100%

76%

2%

25%

Concrete

75%

22%

Deutsche Bank Demo

Secondary Critical Path

Primary Critical Path

Note: The percentages

listed above each task

denotes the number of

times, where the activity

was critical.

100%

MEP Space

100% C-5 Design

1%

Procure Security Eq

Open Ramp

100%

0 %

Fit-out, M/E/P

100% C-3 Design

Contract 2

Contract 3

Contract 5

25%

Slurry Walls/Secant Piles

8-9M

Cost Risk Analysis

26

Risk Analysis Timeline

Week 1Preparation

3) Team WorkshopRisk ID SessionRisk Ranging

4) Present PreliminaryResults

5) IssueFinalReport

Week 2Production

Week 3Delivery

1) Conference CallJ&J PM & Proj Controls

2) Conference CallAffiliate StakeholdersReceive Preparatory Documents

We are here

7/7/08 7/14/08 7/21/08

27

Summary Estimate Model

No. Cost Item Min Max

7/24/06 Final

Costs

Estimate % Comments

1 Building Construction 91% 125% 2.737.943 23,2%

2 Equipment (Process, Building & Lab) 94% 112% 6.027.286 51,1%

3 Land Improvements/Site Development 100% 100% 0 0,0%

4 NCS (Voice, Data & A/V) 100% 100% 0 0,0%

Sub-Total Direct Costs 93% 116% 8.765.229 74,3%

5 Engineering 71% 140% 525.914 4,5%

6 Commissioning 90% 130% 122.713 1,0%

7 Qualification - IQ, OQ, PQ-Utilities 95% 129% 346.783 2,9%

Sub-Total Indirect Costs 82% 135% 995.410 8,4%

8 Process Validation to Consistency 95% 130% 986.800 8,4%

9 Business Information Systems 100% 100% 0 0,0%

10 Start-Up Costs 100% 100% 0 0,0%

11 Temporary Facilities 100% 100% 0 0,0%

12 Affiliate Staff 95% 120% 50.000 0,4%

13 Project Management Services 98% 110% 130.260 1,1%

14 Furniture, Fixtures & Equipment 100% 100% 0 0,0%

15 Real Estate Costs 100% 100% 0 0,0%

16 Other Costs 95% 113% 108.059 0,9%

17 Phase 0 100% 100% 0 0,0%

18 Drug Device Design 100% 100% 0 0,0%

19 Tech Transfer 94% 124% 477.000 4,0%

Sub-Total Owner Costs 94% 124% 1.752.122 14,8%

Costs without Contingency or Escalation 11.512.761

20 Escalation 95% 120% 290.662 2,5%

Sub-Total Other Costs 99% 105% 290.662 2,5%

Total Ranged Cost 11.803.424 100,0%

21 Contingency 100% 100% 876.000 7,4% Summary Risk Results'!D13

Total Project Cost 93% 118% 12.679.424

28

Summary Estimate Model

29

Cost Distribution

11,765,000

11,927,000

12,067,000

12,165,000

12,267,000

12,341,000

12,404,000

12,457,000

12,546,000

12,706,000

12,775,000

12,853,000

12,934,000

13,027,000

13,150,000

13,286,000

13,397,000

13,594,00014,369,272

11,064,000

12,625,000

Base Estimate

$12,404,572

Base + Escallation,

$11,803,424

Base+Escal.+Cont.,

$12,625,424

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

11,000,000 11,500,000 12,000,000 12,500,000 13,000,000 13,500,000 14,000,000 14,500,000

Escallation:

369,893

2.9%

Contingency:

792,000

7.6%

Base Estimate

~ P-2.4%

P-50

Cost Distribution

Risk Milestones

$0

$200

$400

$600

$800

$1,000

$1,200

50% PE

June 2007

100% PE

October 2007

100% Advanced PE

May 2008

Risk Assessment Milestone

To

tal P

roje

ct C

ost

(US

$Mill

ion

s)

Additional Contingency Costs Above the Mean Contingency for P90

Mean Contigency Costs

Base Costs w/o Contingency

M ean

$ 757.9

M

Base Costs

$607.8M

Base Costs

$492.4M

Mean

$863MMean

$714.2M

P90 $959.2M

P90 786.7M

P90 $835.4M

Base Costs

$561.7M

Target Budget

$599MTarget Budget

$599M

Risk Model Distribution

General benefits of risk management:

Hard Benefits

Improved budgets and schedules

Increased chances of a successful project

Contingency visibility

Contributes to historic data

Objective comparison of alternatives

Allocates risk to best ‘Owner’

Soft Benefits

Improves communication

Common understanding

Helps staff to be ‘Risk Aware’

Focuses PM on important issues

Facilitates knowledge based risk-taking

Risk Analysis effort over project lifecycle

t= -2m: Start Process

-Preparation

-Identify Stakeholders

-Orientation of team

-Dev. Summary Schedule

t=0: Perform Risk Session

-All day ranging session

-Break-out teams

-Create Risk register

-Perform Analysis

-Issue Exec summary report

-Issue recommendations

t = + 3m: Quarterly Follow-up

-Follow-Up on recommendations

-Report back on schedule performance

t = + 6m: Formal Risk analysis

-Review current schedule

-Develop Summary Schedule

-Repeat Process

Should continue throughout project lifecycle

Properly orchestrated project controls should drive the business, not report what happened

Tom Kowalyk, Global director, project controls Johnson & Johnson Pharmaceutical

Owner Key Performance Indicators

KPIs • Schedule performance against baseline

• Cost control against GMA budget

• Estimate growth through engineering phase

• Critical equipment delivery time

• Commissioning / Qualification starts & completions

• Measure use of BEPs, PEPs, Project Controls processes

• Measure performance of Risk Analysis

Dashboard • Red-Light / Green-Light Schedule & Cost indicators

• Executive level overview

Trailing / Leading Indicators

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Q3-

07

Q4-

07

Q1-

08

Q2-

08

Q3-

08

Q4-

08

Q1-

09

Q2-

09

Q3-

09

Q4-

09

Q1-

10

Q2-

10

Q3-

10

Q4-

10

Q1-

11

Q2-

11

Q3-

11

Q4-

11

Q1-

12

Q2-

12

Qu

art

erl

y C

os

t

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

Cu

mu

lati

ve

Co

stQuarterly Budget

Quarterly Actual Cost

Quarterly Forecast

Cumulative Budget

Cumulative Forecast

Cumulative Actual Cost

Ground Water Project

Total

DD

Legend: Really really easy Not really really easy

KPI BOD Detailed Design Construction / Commissioning

Commissioning docs/ Qualification

Primary Cost

Project Budget / Actual / Forecast Cost

Performance / variance against budget / forecast

Committed cost

Schedule

Critical path analysis

Performance against baseline (percent complete)

Analysis of earned value

Risk evaluation (Quarterly)

Secondary Engineering Performance

Procurement status

Schedule integrity

Estimate integrity

Quality of project tracking by AE/CM

Engineering Performance

Bid package tracking

Critical Bid Packages

Construction Performance

Critical Bid Packages

Vendor Document turnover

CTP development

ETOP development

Document production rates

Comm. Qual. performance

System turnover tracking

Detailed matrix for Qualification performance

Commissioning / Qualification

Construction / Commissioning

Construction Documents / Construction

BOD

Engineering

Commissioning

Qualification

Y-2 Y-3 Y-4 Y-5Y-1

Construction

KPI BOD Detailed Design Construction / Commissioning

Commissioning docs/ Qualification

Primary Cost

Project Budget / Actual / Forecast Cost

Performance / variance against budget / forecast

Committed cost

Schedule

Critical path analysis

Performance against baseline (percent complete)

Analysis of earned value

Risk evaluation (Quarterly)

Secondary Engineering Performance

Procurement status

Schedule integrity

Estimate integrity

Quality of project tracking by AE/CM

Engineering Performance

Bid package tracking

Critical Bid Packages

Construction Performance

Critical Bid Packages

Vendor Document turnover

CTP development

ETOP development

Document production rates

Comm. Qual. performance

System turnover tracking

Detailed matrix for Qualification performance

Commissioning / Qualification

Construction / Commissioning

Construction Documents / Construction

BOD

Engineering

Commissioning

Qualification

Y-2 Y-3 Y-4 Y-5Y-1

Construction

KPI BOD Detailed Design Construction / Commissioning

Commissioning docs/ Qualification

Primary Cost

Project Budget / Actual / Forecast Cost

Performance / variance against budget / forecast

Committed cost

Schedule

Critical path analysis

Performance against baseline (percent complete)

Analysis of earned value

Risk evaluation (Quarterly)

Secondary Engineering Performance

Procurement status

Schedule integrity

Estimate integrity

Quality of project tracking by AE/CM

Engineering Performance

Bid package tracking

Critical Bid Packages

Construction Performance

Critical Bid Packages

Vendor Document turnover

CTP development

ETOP development

Document production rates

Comm. Qual. performance

System turnover tracking

Detailed matrix for Qualification performance

Commissioning / Qualification

Construction / Commissioning

Construction Documents / Construction

BOD

Engineering

Commissioning

Qualification

Y-2 Y-3 Y-4 Y-5Y-1

Construction

KPI BOD Detailed Design Construction / Commissioning

Commissioning docs/ Qualification

Primary Cost

Project Budget / Actual / Forecast Cost

Performance / variance against budget / forecast

Committed cost

Schedule

Critical path analysis

Performance against baseline (percent complete)

Analysis of earned value

Risk evaluation (Quarterly)

Secondary Engineering Performance

Procurement status

Schedule integrity

Estimate integrity

Quality of project tracking by AE/CM

Engineering Performance

Bid package tracking

Critical Bid Packages

Construction Performance

Critical Bid Packages

Vendor Document turnover

CTP development

ETOP development

Document production rates

Comm. Qual. performance

System turnover tracking

Detailed matrix for Qualification performance

Commissioning / Qualification

Construction / Commissioning

Construction Documents / Construction

BOD

Engineering

Commissioning

Qualification

Y-2 Y-3 Y-4 Y-5Y-1

Construction

In Closing

Risk Management reduces schedule delays and cost overruns

Exposing true critical issues

Ensuring common understanding of project goals

Establishes framework for proactive management

Risk Management makes sence!

“Its not the strongest species that survive, nor the most intelligent

but those most adaptive to change.”

Charles Darwin:

Thank You!

Peter Luke

B.Sc, PMP

Head of department

Owner Rep Services / Bygherrerådgivning

Thanks!