How to identify and evaluate risks
having an impact on timely completion
of a project- using @RISK
István Fekete Dr.
Palisade Risk Conference London, June 11th, 2013
SzigmaSzerviz Ltd.
Founded in 2006
►First Hungarian company
engaged in integrated risk
management
►References (example):
►Paks Nuclear Power Plant
►Hungarian State Railways
Co.
►Hungarian Telecom Co.
►Richter Gedeon
Pharmaceutical Co.
►Central-European Investment
Bank
►
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Szigma Integrisk®
►
Szigma Integrisk® consists of the following modules/models:
► Strategic planning module
► Annual planning module
► Module of planning and executing projects
► Operational risk analysis
►
Areas of application of Szigma Integrisk® (example)
► Forming the optimal price strategy
► Supporting internal audit activity
► Fluctuation risk management
► Multi project risk management
► Feasibility study (risk evaluation)
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Basic definitions
►
Risk factor: Future event, activity or missing of an activity, that
has
a
positive
or
negative
impact
on
the
strategic/organizational goals
►
Risk factors have two main parameters: probability of
occurrence and impact on strategic goals.
►
Risk management: Systematically structured process, which
aims to create and execute risk management plan based on
identifying and evaluating potential risk factors.
►
Risk controlling: Continuous monitoring of risk management
plan, and early identification of new risks.
4
Main steps of risk management
Identify
risks
Monitor &
review
Risk
response
Evaluate
risk
factors
Select
critical
risks
5
Risk types
►
Strategic risks (risks affecting long term strategic goals)
►
Financial risks (credit risk, liquidity risk, interest rate risk, currency
risk etc.)
►
Operational risks (risks affecting process execution)
►
Project risks (risks affecting execution of project activities – special
mixture of the previous three types)
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Paks Nuclear Power Plant
Four VVER-440/V-213 type reactor units
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Planned outages
►
►
►
Refueling outage: for refueling, corrective maintenance, and
maintenance according to the preventive maintenance program (~26
days/year)
Service outage: for refueling, maintenance, plant modifications, and
periodical inspections and tests (~57 days/year)
Aspects of risk analysis:
Strategic issue
Outage Project plan
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Main aim and preconditions
The main aim of our task to identify any potential risk causing
production outages, and model their impact on revenues and profit via
the production plan.
Identifying the risks of the regularly repeated outage projects (original
duration 26 days);
►
Creating analytical model in order to support decision-making;
►
Measuring and mitigating the impact of critical risks on revenues and
profit;
►
Preconditions:
► We accepted the accuracy level of the typically used project plan
for the refueling outage
► We did not examine the possibilities of development of the
outage planning
►
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Main steps
1. Preparing main repair project plan for the risk analysis simplified
plan with 14 activities
2. Assigning risk factors to project activities: cc. 10-12 risk factors for each
activity
3. Evaluation of identified factors with scenario analysis
4. Selecting critical factors for each activity based on the risk analysis
results: 9 critical risks (after consolidation)
5. Defining risk management responses for the critical risks
6. Running Monte-Carlo simulation using the values coming from the
scenario analysis
7. Generating macro: expressing risk analysis impact on the production
plan, revenue and profit plan
10
Original project plan
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Main steps (2)
1. Preparing main repair project plan for the risk analysis simplified plan with
14 activities
2. Assigning risk factors to project activities: cc. 10-12 risk factors for
each activity
3. Evaluation of identified factors with scenario analysis
4. Selecting critical factors for each activity based on the risk analysis
results: 9 critical risks (after consolidation)
5. Defining risk management responses for the critical risks
6. Running Monte-Carlo simulation using the values coming from the
scenario analysis
7. Generating macro: expressing risk analysis impact on the production
plan, revenue and profit plan
12
Main steps (3)
1. Preparing main repair project plan for the risk analysis simplified plan with
14 activities
2. Assigning risk factors to project activities: cc. 10-12 risk factors for each
activity
3. Evaluation of identified factors with scenario analysis
4. Selecting critical factors for each activity based on the risk analysis
results: 9 critical risks (after consolidation)
5. Defining risk management responses for the critical risks
6. Running Monte-Carlo simulation using the values coming from the
scenario analysis
7. Generating macro: expressing risk analysis impact on the production
plan, revenue and profit plan
13
Main steps (4)
1. Preparing main repair project plan for the risk analysis simplified plan with
14 activities
2. Assigning risk factors to project activities: cc. 10-12 risk factors for each
activity
3. Evaluation of identified factors with scenario analysis
4. Selecting critical factors for each activity based on the risk analysis
results: 9 critical risks (after consolidation)
5. Defining risk management responses for the critical risks
6. Running Monte-Carlo simulation using the values coming from the
scenario analysis
7. Generating macro: expressing risk analysis impact on the production
plan, revenue and profit plan
14
Main steps (5)
1. Preparing main repair project plan for the risk analysis simplified plan with
14 activities
2. Assigning risk factors to project activities: cc. 10-12 risk factors for each
activity
3. Evaluation of identified factors with scenario analysis
4. Selecting critical factors for each activity based on the risk analysis
results: 9 critical risks (after consolidation)
5. Defining risk management responses for the critical risks
6. Running Monte-Carlo simulation using the values coming from the
scenario analysis
7. Generating macro: expressing risk analysis impact on the production
plan, revenue and profit plan
15
Example
►
►
►
Activity: Tests after maintenance of reactor and safety systems
(Original duration: 6 days)
Number of risk factors: 4
Risk factor 1: Due to malfunction or other unexpected incident,
additional measures have to be taken. Execution might take a long
time.
► Scenario 1: No unexpected event
► Probability: 0.2
► Impact: 0 days
► Scenario 2: Maximum 1-day delay because of not planned event
► Probability: 0.6
► Impact: 0.5 day
► Scenario 3: According to the experiences in the past 12 years,
longer delay might occur, e.g. during 132 bar test pressure
► Probability: 0.2
► Impact: 1 day
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Example/2
Expected value of deviation (compared to original
duration) = 0.2 x 0 + 0.6 x 0.5 + 0.2 x 1 = 0.5 day delay
►Standard deviation = (0.2 x 02 + 0.6 x 0.52 + 0.2 x 12)1/2 =
0.59
►Threshold values:
►
►
►
Expected value of deviation > 10%
Relative deviation > 50%
Critical? Yes
►Risk response: Implementing Maintenance Effectiveness
Monitoring System
►Responsible unit: System Engineering Department
►Deadline: 30 Jun 2011
►
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Main steps (6)
1. Preparing main repair project plan for the risk analysis simplified plan with
14 activities
2. Assigning risk factors to project activities: cc. 10-12 risk factors for each
activity
3. Evaluation of identified factors with scenario analysis
4. Selecting critical factors for each activity based on the risk analysis
results: 9 critical risks (after consolidation)
5. Defining risk management responses for the critical risks
6. Running Monte-Carlo simulation using the values coming from the
scenario analysis
7. Generating macro: expressing risk analysis impact on the production
plan, revenue and profit plan
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Input data for Monte-Carlo simulation
Activity
Original
duration
Expected value Standard
of duration deviation
Trunc.
min
Trunc. max
Shutdown
4
4,05
0,26
3,9
4,5
Maintenance of the 1th safety system
6
6,07
1,4
5,8
8,5
Maintenance of the 2nd safety system
5
5,07
0,7
4,7
7,5
Maintenance of the 3rd safety system
6
6,07
1,46
5,7
8,5
Test of safety systems under voltage
1
1,5
0,32
1
2
Disassembly of reactor
5
5,06
0,46
4,5
7
Refueling
5
5,05
0,17
5
6
Assembly of reactor
5
6,4
0,94
5,5
8
Tests after maintenance of reactors and safety system
6
6,1
1,26
6
10
Maintenance before loop-changing
5
5,87
1,42
4,8
7,5
Maintenance after loop-changing
5
5,87
1,42
4,8
7,5
Other primary circuit maintenance
10
11,75
3,18
9,6
12,15
Other secondary circuit maintenance
11
12,12
1,95
10,6
15
Other tests after maintenance
6
8
1,26
6
10
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Probability distribution curve of
whole project’s duration
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Tornado-diagram
►
►
Tornado diagram – critical
activities (the risks of those
activities are mostly
responsible for the project
delay)
It is worth mainly to manage
the risks of the critical
activities in order not to
exceed 26 days
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Modified project plan
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Main steps (7)
1. Preparing main repair project plan for the risk analysis simplified plan with
14 activities
2. Assigning risk factors to project activities: cc. 10-12 risk factors for each
activity
3. Evaluation of identified factors with scenario analysis
4. Selecting critical factors for each activity based on the risk analysis
results: 9 critical risks (after consolidation)
5. Defining risk management responses for the critical risks
6. Running Monte-Carlo simulation using the values coming from the
scenario analysis
7. Generating macro: expressing risk analysis impact on the
production plan, revenue and profit plan
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Macro (example)
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Essence of the model
Unit outage
duration
(scheduled)
26 days
Electric energy
output (GWh)
14,328
Unit outage duration
(Expected value after
risk analysis) 29.2
days,
Nuclear fuel
(M HUF) 13,025
Electric energy
output (GWh)
14,190
Water reserve use
charges (M HUF)
5,223
Electric energy
production revenue
(M HUF) 161,692
Replacement
energy purchase
(M HUF) 0
Profit before tax
(M HUF)
24,981
Nuclear fuel
(M HUF) 12,898
Water reserve use
charges (M HUF)
5,172
Electric energy
production revenue
(M HUF) 160,140
Replacement
energy purchase
(M HUF) 0
Profit before tax
(M HUF)
23,606
If case of 3-4 days delay, the profit before tax will
decrease by approximately HUF 1.4 Bn (€ 5M)
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Learning objectives
►
Learn how to explore the factors having critical impact on
deadline and profitability of long term and high value
projects
►
Identify ways to express the impact of these factors on
revenue or profit
►
Understand how to generate clear and precise input for
risk management action plans to avoid the risks or
minimize their impact
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Thank you for your kind attention!
istvan.fekete@szigmaszerviz.hu
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