© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.
© 2012 The Williams Companies, Inc. All rights reserved.
20 April – 15 July 2010
Macondo Prospect, Gulf of Mexico
Deepwater Horizon Drilling Rig
11 Fatalities / $40 billion estimated economic loss
Largest accidental marine
oil spill in history
© 2013 The Williams Companies, Inc. All rights reserved.
Risk Management Imperative
“The Chief Counsel‘s team finds that BP and Transocean did not have
adequate procedures in place to properly account for risk…”
“The companies involved at Macondo failed to rigorously analyze the risks
created by key decisions or to develop plans for mitigating those risks.”
Chief Counsel’s Report, National
Commission on the BP Deepwater Horizon
Oil Spill and Offshore Drilling, 2011.
© 2012 The Williams Companies, Inc. All rights reserved.
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Implementation Disappointments
Expectations:
> Quick, efficient implementation
> Improved estimate accuracy
> Smoother project execution
> Overall execution risk reduction
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Realities:
> “Program of the Month”
> “Black Box Magic”
> Onerous and time consuming
> False sense of precision
© 2013 The Williams Companies, Inc. All rights reserved.
Implementing Risk Assessment Process on
Major Engineering and Construction Projects
Yaroslav Kovalenko
Williams Company
June 12, 2014
© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.
Discussion Topics
> Organizational mindset around risk assessment and management
> Demystifying Monte Carlo Analysis
> Internal and external risk-based communication
> Implementation Philosophy
© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.
New Organization Mindset
Fred Pace’s Vision
Note: Fred Pace is the Senior Vice President of Engineering and Construction at Williams Company.
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© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.
Single Point Estimate
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P50 Cost Target
P50
Estimate at completion (EAC)
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In-service date (ISD)
P50 Cost and Schedule Target
P50
P50
Estimate at completion (EAC)
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P50
ISD contingency
Base Estimate
EAC contingency
In-service date (ISD)
Contingency
P50
Estimate at completion (EAC)
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Management Reserve
Management reserve
(MR)
P50
ISD contingency
Base Estimate
EAC contingency
In-service date (ISD)
P90
P50
Estimate at completion (EAC)
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P90
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One-Williams Process
PROCESS
ACTIVITIES
DELIVERABLES
Risk Management
Planning
1.
2.
Define risk management requirements
Develop a Risk Management Plan
Risk
Identification
1.
2.
Identify risks and document causes and effects
Assign risk ownership
Risk
Assessment
1.
2.
3.
Perform qualitative risk assessment (Pre-Mitigation)
Perform qualitative risk assessment (Post-Mitigation)
Perform quantitative risk assessment (Monte Carlo)
Risk Response
Planning
1.
2.
3.
Select risk response strategies
Develop risk mitigation and/or contingency plans
Assign risk mitigation action items
Risk
Monitoring & Control
1.
2.
3.
Follow up on mitigation action items
Periodically review risks
Report risk status and mitigation progress
Risk Management
Reports
Lessons
Learned
1.
2.
3.
Perform project close-out review
Document lessons learned
Collect benchmarking data
Lessons Learned
Log
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Risk Management
Plan
Risk
Register
Risk Assessment
Reports
Risk Mitigation
Plans
© 2013 The Williams Companies, Inc. All rights reserved.
Project Life Cycle Integration
Cost RA
Schedule RA
Not required
Not required
G0 Discover
Required
May be required*
G1
Select
Required
Required**
G2
Identify key risks and ensure that they are
Objectives manageable or acceptable. Select an option with
the best risk / reward profile.
High-level Risk Register
Deliverables
Factored estimate
Estimate Level conditioned for major
project risks.
Upd. Risk Register
High-level Monte Carlo
High-level estimate
and Monte Carlo
Analysis.
Required
Required**
Define
G3
Deliver
G4 Integrate
Ensure readiness for
managing risks in
execution.
Ensure that key risks
are being managed .
Ensure that lessons
learned are captured.
Upd. Risk Register
Detailed Monte Carlo
Risk Management Plan
Upd. Risk Register
Updated Monte Carlo
Risk Mgmt. Reports
Final Risk Register
Lessons Learned
Benchmarking Data
Detailed estimate and
Monte Carlo Analysis.
Revised estimate and
Monte Carlo Analysis.
Actual data for
benchmarking.
G5
Risk Assessment Notes:
* Required if requested by the Decision Maker
** May be waived for Major Projects
© 2012 The Williams Companies, Inc. All rights reserved.
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Demystifying Monte Carlo Analysis
ML
Min
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Max
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What's in the "Black Box"?
Probability theory is able to predict with uncanny precision the overall outcome
of processes made up out of a large number of individual happenings, each of
which in itself is unpredictable.
© 2012 The Williams Companies, Inc. All rights reserved.
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Risk Assessment Scope
Cost
Uncertainty
Confidence Level
Uncertainty
Event Driven
Risks
Scope
Changes
Commercial
Risks
ML
Min
Probability
x
Impact
Max
- Market Conditions
- Data Quality
- Line Item Ranges
- Uncertain Events
- Potential Cost Impact
- Risk Register Items
Operational
Risks
“Black Swans”
Capital Cost Risk Assessment Scope
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Modeling Uncertainty and Risks
Weather Delays Example
Uncertainty
Risks
- Continuous ranges
- Market conditions / quality of estimate
- Binary events
- Items on Risk Register
70%
+
30%
x
No Yes
6 Days
10 Days
Best Case Base Allowance
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16 Days
Worst Case
7
14
30 % Chance of 7 to 14 Days
Tropical Storm Risk Event
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Monte Carlo Analysis Explained
Base
Estimate
+
Confidence Level
Uncertainty
+
Event Driven
Risks
$xx
$xx
$xx
$xx
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Probability
Curves
Probability
x
Impact
ML
Min
=
Max
+
+
P10
P50
P90
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Allowances vs. Uncertainty vs. Risks
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Risk-Based Communication
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Common Risk Management Language
P90(C)
P90(E)
P90 Mgmt. Reserve
P50(C)
P50(E)
P50 Contingency
Base Cost
0
Cost Risk Assessment Summary
*Base Estimate
Value
$ MM
% of
Base Cost
450
100%
P50 Confidence Level Contingency*
14
3%
P50 Event Driven Contingency**
30
6%
494
109%
P90 Confidence Level Management Reserve***
16
4%
P90 Event Driven Management Reserve****
20
5%
530
118%
P50 Cost Estimate
P90 Cost Estimate
Notes:
**** P50 CL Contingency = P50(C) – Base
**** P50 ED Contingency = P50(E)
**** P90 CL MR = P90(C) – P50(C)
**** P90 ED MR = P90(E) – P50(E)
* Base estimate includes allowances
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Contracts and Risk Allocation
Williams
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GS-1 Project
HESS & Chevron
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Final Thoughts
on Process Implementation
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The End Game
Improve project performance and predictability
through proactive identification, assessment and management
of opportunities and threats throughout the Project Life Cycle.
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Implementation Philosophy
Able to…
Want to…
Employee
Competency
Motivation
Company
Process
Culture
Note: model based on guidelines and recommendations following Macondo incident investigation.
© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.
Progress Measurement
Measure:
• Lack of RM
process
• Unknown risk
posture for the
organization
Exit Criteria:
‰ Define RM
definitions &
objectives
State:
• Processes not
integrated,
unpredictable,
poorly
controlled;
reactive
• Some tools,
procedures exist
but most
projects do their
own way;
Measure:
• Lack of risk ID
(unidentified
risks still
become
problems, etc.)
• Unverifiable risk
posture for the
org
Exit Criteria:
‰ Define RM
process for the
org to follow
© 2012 The Williams Companies, Inc. All rights reserved.
Level 2 – Foundation
State:
• Process
characterized for
projects and often
reactive
• Basic tools,
procedures exist &
shared among few
projects; lack org
support
Measure:
• Lack of full org
engagement
• Improved risk ID but
still lacking insight
into risk posture for
the org
Exit Criteria:
‰ Provide education
and awareness on
the RM
Requirements &
Processes
‰ Provide training to
risk practitioners
and teams
‰ Aid in implementing
RM into projects
(priority)
Level 3 – Structured
(Defined & Repeatable)
State:
• Formalized standard
RM process built-in
and followed
• Tools, procedures
available
• Teams are trained
Measure:
• RM mechanism exists
• PMs regularly
meeting with their
teams to perform
active RM & discuss
risks
• Dedicated RM / RM
resources in projects
• Regular risk reporting
at all levels
Exit Criteria:
‰ % of projects onboard &
demonstrating their
utilization of the
process
‰ Process consistently
used across
enterprise
‰ RM Plans created for
Projects
Level 4 –
Integrated
State:
• Process
utilized,
measured and
controlled
• Active Sr. Mgmt
support exists
• Enterprise has
established a
risk-aware
culture, not
risk-adverse
Measure:
• Proactive RM
• Good & usable
metrics in place
• Trend data
used in RM
Exit Criteria:
Optimizing: Continuing to Improve
State:
• Non-existent
process
• Org not aware
of any RM
process,
assistance, or
tools
Level 1 – Ad Hoc
Level 5 –
Best In Class
Level 0 –
Non-Existent
‰ Meet Level 4
measures
© 2013 The Williams Companies, Inc. All rights reserved.
Risk Management Organization
Project Excellence
Organization
VP of Project Excellence
Director of PLC
RM Process Owner
Project Development
Organization
Project Execution
Organization
FEED Leaders
Risk Specialists
PC Managers
Risk Coordinators
© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.
Summary
> Organizational mindset around risk assessment and management
– Acknowledgment of risks and uncertainties
– Clearly defined process
– Project Life Cycle Integration
> Demystifying Monte Carlo Analysis
– What’s in the “Black Box”?
– Allowances, Uncertainty, and Risks
> Internal and external risk-based communication
– Common language for PD, PE and Commercial teams
– Basis for contract negotiations and risk allocation
> Implementation Philosophy
– Process, competency, motivation and culture
– Progress Measurement
– Risk Management Organization
© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.
© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.
Gulfstar One FPS
Tubular Bells Field, Gulf of Mexico
Executed by Williams!
© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.
Questions?
© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.
Yaroslav Kovalenko
Williams Company
yaroslav.kovalenko@williams.com
© 2012 The Williams Companies, Inc. All rights reserved.
© 2013 The Williams Companies, Inc. All rights reserved.