How to identify and evaluate risks having an impact on timely completion of a project- István Fekete Dr. - PDF

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How to identify and evaluate risks having an impact on timely completion of a project- István Fekete Dr. Palisade Risk Conference London, June 11th, 2013 SzigmaSzerviz Ltd. Founded in 2006

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How to identify and evaluate risks having an impact on timely completion of a project- 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 2 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) 3 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 Evaluate risk factors Risk response 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) 6 Paks Nuclear Power Plant Four VVER-440/V-213 type reactor units 7 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 8 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 9 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 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 11 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 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 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 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 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 16 Example/2 Expected value of deviation (compared to original duration) = 0.2 x x x 1 = 0.5 day delay Standard deviation = (0.2 x x x 1 2 ) 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 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 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 18 Input data for Monte-Carlo simulation Activity Original duration Expected value of duration Standard 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, Disassembly of reactor 5 5,06 0,46 4,5 7 Refueling 5 5,05 0, Assembly of reactor 5 6,4 0,94 5,5 8 Tests after maintenance of reactors and safety system 6 6,1 1, 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, Probability distribution curve of whole project s duration 20 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 21 Modified project plan 22 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 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 23 Macro (example) 24 Essence of the model Unit outage duration (scheduled) 26 days Unit outage duration (Expected value after risk analysis) 29.2 days, Electric energy output (GWh) 14,328 Nuclear fuel (M HUF) 13,025 Electric energy output (GWh) 14,190 Nuclear fuel (M HUF) 12,898 Water reserve use charges (M HUF) 5,223 Water reserve use charges (M HUF) 5,172 Electric energy production revenue (M HUF) 161,692 Replacement energy purchase (M HUF) 0 Electric energy production revenue (M HUF) 160,140 Replacement energy purchase (M HUF) 0 Profit before tax (M HUF) 24,981 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) 25 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 26 Thank you for your kind attention! 27
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