Risk Management in Large Capital

Projects - Lessons learned

“Risk management - proactive projects for profitability”

Bucharest - May 23rd, 2013

Ovidiu Bradin

2 Risk Management in Large Capital Projects - Lessons learned

Content

1. Risk and Opportunity

2. Known and Unknown

3. Risk Management Culture

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 - the leading oil and gas player in SEE

5 Risk Management in Large Capital Projects - Lessons learned

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

*assuming an investment-friendly environment

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Risk and Opportunity

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.

ISO GUIDE 73:2009 - Risk management — Vocabulary

(in allignment with ISO STANDARD 31000:2009)

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Risk and Opportunity

Response to RISK with :

NEGATIVE IMPACT ( THREAT ) POSITIVE IMPACT ( OPPORTUNITY )

Avoid: ammend project plan to bypass

that path

Capture: incorporate the opportunity into

project deliverables and align plan

accordingly

Transfer: assign the risk to another team

that can mitigate the risk

Transfer: assign the risk to a dedicated

team to exploit the opportunity

Reduce: take action to reduce risk

likelihood and/or impact

Enhance: take action to increase risk

likelihood and/or impact

Assume: keep the risk with no further

action other than to watch for a change

Ignore: keep the opportunity with no

further action other than to watch for a

change

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Risk and Opportunity

OPPORTUNITY Response Example

Capture: incorporate the opportunity into

project deliverables and align plan

accordingly

Accelerate Schedule

Transfer: assign the risk to a dedicated

team to exploit the opportunity

Initiate New Project ( Subproject )

Enhance: take action to increase risk

likelihood and/or impact

Allocate more resources

Ignore: keep the opportunity with no

further action other than to watch for a

change

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

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Known and Unknown

Unknown Unknowns

Known Unknowns

Known Knowns

Unknown unknowns: issues that can

impact the project, but cannot be

identified and quantified to any degree

Known knowns: issues that can

impact the project and can be

identified and quantified to some

degree for likelihood of

occurrence and consequences

Known unknowns:

issues that can impact

the project and can be

identified, but cannot be

quantified for likelihood

of occurrence and

consequences

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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

cul·ture

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

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

Communication

Tolerance

Level of Insight

Confidence

Challenge

Openness

Level of care

Speed of response

Cooperation

Adherence to rules

High Risk Low Risk

Transparency

Acknowledgement

Responsiveness

Respect

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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.

Thank You!