Risk Management in Large Capital

Projects - Lessons learned

Risk management - proactive projects for profitability

Bucharest - May 23rd, 2013

Ovidiu Bradin
Content

1. Risk and Opportunity

2. Known and Unknown

3. Risk Management Culture

2 Risk Management in Large Capital Projects - Lessons learned

Petrom - the leading oil and gas player in SEE

3 Risk Management in Large Capital Projects - Lessons learned

Petrom - the leading oil and gas player in SEE

4 Risk Management in Large Capital Projects - Lessons learned

Petrom aims to invest ~ EUR 1 bn p.a. on average *

*assuming an investment-friendly environment

5 Risk Management in Large Capital Projects - Lessons learned

Risk and Opportunity

ISO GUIDE 73:2009 - Risk management Vocabulary

(in allignment with ISO STANDARD 31000:2009)

1.Terms relating to risk

1.1. Risk = effect of uncertainty on objectives

NOTE 1
An effect is a deviation from the expected POSITIVE and/or NEGATIVE.

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Risk and Opportunity

Response to RISK with :

NEGATIVE IMPACT ( THREAT )
Avoid: ammend project plan to bypass
that path
Transfer: assign the risk to another team Transfer: assign the risk to a dedicated
that can mitigate the risk
Reduce: take action to reduce risk
likelihood and/or impact
Assume: keep the risk with no further
action other than to watch for a change
POSITIVE IMPACT ( OPPORTUNITY )
Capture: incorporate the opportunity into
project deliverables and align plan
accordingly
team to exploit the opportunity
Enhance: take action to increase risk
likelihood and/or impact
Ignore: keep the opportunity with no
further action other than to watch for a
change

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Risk and Opportunity
OPPORTUNITY Response
Capture: incorporate the opportunity into
project deliverables and align plan
accordingly
Transfer: assign the risk to a dedicated
team to exploit the opportunity
Enhance: take action to increase risk
likelihood and/or impact
Ignore: keep the opportunity with no
further action other than to watch for a
change
8 Risk Management in Large Capital Projects - Lessons learned
Example
Accelerate Schedule
Initiate New Project ( Subproject )
Allocate more resources
Kodak: Inventors of digital camera in
1975; another 1,000 digital-imaging
patents almost all digital cameras rely
on; filed for bankruptcy protection in
January 2012
 Known and Unknown
Known knowns: issues that can
Known unknowns: impact the project and can be
issues that can impact identified and quantified to some
the project and can be degree for likelihood of
identified, but cannot be
Known occurrence and consequences
Knowns
quantified for likelihood
of occurrence and
consequences
Known
Unknowns

Unknown
Unknowns

Unknown unknowns: issues that can

impact the project, but cannot be
identified and quantified to any degree

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Known and Unknown

Known knowns:
Initial assumptions
Standard requirements

Known unknowns:
Weather impact
Bid procedeeings
Rising costs due to inflation

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Known and Unknown

? Unknown unknowns:

Ignore subject to Management Reserve

Include allowance:
Cost Risk Analysis
Schedule Risk Analysis

Source: Yuri Raydugin, Risk Services & Solutions Inc.,Calgary, Alberta, Canada

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Risk Management Culture

culture
Pronunciation: kl-chr
Function: noun

3 : improvement of the mind, tastes, and manners through careful training

Source: www.wordcentral.com

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Risk Management Culture
High Risk Low Risk
Communication

Transparency Tolerance

Level of Insight

Confidence

Acknowledgement Challenge

Openness

Level of care
Responsiveness
Speed of response

Cooperation
Respect
Adherence to rules

Source: Taking control of organizational risk culture, Mckinsey&Company, 2010

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 Risk Management Culture

Space shuttle Challenger was destroyed 73

seconds after take-off on January 28, 1986
because of flawed O-ring. He failed to close
one hinge, which allows the outside air
pressure in the gas. cause the external tank
for liquid hydrogen spill that caused a big
explosion.

NASA managers had known contractor Morton Thiokol's design of the SRBs
contained a potentially catastrophic flaw in the O-rings since 1977, but failed to
address it properly. They also disregarded warnings from engineers about the
dangers of launching posed by the low temperatures of that morning and had
failed in adequately reporting these technical concerns to their superiors.

14 Risk Management in Large Capital Projects - Lessons learned

Thank You!