Arthur Davidson
What some turnaround managers are calling "risk management" is almost like calling an ice cube a glacier. When risk management is done well, it is much more than guessing what may go wrong and trying to figure out how to prevent it. It is a comprehensive process -- not cradle to grave, but rather grave to cradle. Hopefully, the process started where the last turnaround ended: with the assimilation of thorough lessons-learned data. Without a review of historical encumbrances, an exercise in risk management is largely a lost opportunity.
Several factors commonly impact the effectiveness of risk management programs:
- The impact of limited data. Risk workshops should include subject matter expertise from every relevant discipline among contractors, consultants, vendors and site personnel. Historical data should be carefully reviewed and given high priority.
- The impact of late scope development. When scope is added late in the process, naturally there is less opportunity for risk identification and mitigation, potentially making the work less safe and more costly.
- The impact of weak scope definition. When the scope of a work activity is unclear, the risks, by default, are undefined.
- The impact of focusing on negative risk. Not only should risk be minimized, but it is equally important that opportunity be incentivized. Just as some factors can negatively affect success, other factors can positively affect success. What if most activities on the critical path proceed better than expected? The team must be positioned to take full advantage of these potential savings.
- The impact of low risk tolerance. Would it not be ideal to eliminate all risk? Almost anything can be mitigated, but not everything should be mitigated. Managers must calculate the cost-to-benefit ratio and determine whether certain mitigations are economically feasible.
For risk management to be most effective, managers must begin by assigning overall risk globally to the entire project, determining the complexity level of the turnaround based on such factors as the experience of the team, the size of the event, the ratio of capital work, the amount of new technology and the time span between turnarounds. They enforce the concept of challenging the inclusion of scope rather than the exclusion of scope, based on the probability of an incident occurring and the impact of the occurrence.
Using historical data and broad expertise, they revisit the planned durations and costs of activities, challenging the assumption on which they are based and replacing single-point estimates with more accurate three-point ranges, consisting of "most likely," "best case" and "worst case" estimates. This often reveals whether the plans are too pessimistic and have hidden contingency or are too optimistic and not likely to succeed. Monte Carlo simulations are run to determine how many times various activities appear on the critical path and the probability of completing the project on schedule and on budget. When risk workshops are conducted by insiders who have an interest in the process, it may leave the door open for suspicions of mixed motives or conflicts of interest.
Finally, managers must remember sometimes mitigations are not only ineffective but can also create negative unintended consequences. To the dismay of health professionals, mitigating health risk by encouraging gym membership yields surprising results: Many people who join a gym often gain additional weight because they feel they can now eat more freely and just exercise the extra calories away, resulting in a net decline in overall health. If the potential for injuries is mitigated through incentive programs and results in fewer reports of near-misses and injuries, how does one know if there actually were fewer incidents or if the decline was due to an unintended consequence such as more cover-ups? If brilliant mitigations are upstaged by unintended consequences, one can go from being a wonder to a blunder in under a blink!
For more information, contact Mike Bischoff at (281) 461-9340, email sales@onpoint-us.com or visit www.Onpoint-us.com.
