Panel 4: Managing the Work: Risk & Change APEGGA - 2008

1. Panel 4: Managing the Work: Risk & Change APEGGA - 2008 I would not say that the future is necessarily less predictable than the past. I think the past was not predictable when it started…Donald Rumsfeld Dave Evans, P. Geol., Sr. Partner, CSC Project Management Services, Calgary www.cscproject.com

2. Risk Management and Dilbert

3. The Organization and Risk Management Governance Strategic Planning Risk Management ‘Risk management, risk assessment, risk communication, risk register, risk intelligence, uncertainty, opportunity, change, change management, etc.’

4. Old View Silo Management Focus on risk transfer Limited integration with process Scope limited to financial/hazard Unclear link to corporate objectives Tactical Qualitative New Attitudes towards Risk Management • New View • Centralized Management • Develop & understand risk portfolios • Create competitive advantage • Integration of risks into plans & budgets • Link risk management to corporate objectives • Strategic • Quantitative

5. Yang (Hard Side) Risk Oversight Policies & Procedures Risk Assessments Measures & Reporting Risk Limits (Appetite) Audit Processes Systems Yin & Yang* of Risk Management • Yin (Soft Side) • Risk Awareness • People • Skills • Integrity • Incentives • Culture & Values • Trust & Respect • Communication • Reputation *after 2000 eRisks

6. Five Levels of Risk Management Maturity* Risk Management is used to base both individual decisions and strategic planning on quantified values (Integrated, Strategic, Core Competency) Level 5: Comprehensive Risk Management Standard and defined processes used across the organization (Quantitative Risk Analysis) Level 4: Managed Where are you now? Where do you want to be? Level 3: Repeatable Risk Management has been implemented into routine business processes. (Risk Register, Range Estimating, Real Options) Level 2: Initial Risk awareness, but no precedents, structures or drive in place for consistent application. (Qualitative, KT Analysis SWOT) Level 1: Ad Hoc Success depends on the competencies and heroics of individuals * Modified from PMI Risk Management Group, 2002

7. Fit for Purpose Continuous Improvement Breakthrough Thinking Risk Analysis for Project Risk Management Traditional Project + Risk Analysis Optimized Value = Time + = Cost Quality “Pick any Two” Risk analysis and risk management are applied to maximize project value by testing strategies to find the best or optimum value.

8. No course of action, including taking no action, is risk free. All stakeholders should be identified and involved in process. The process must be open, transparent and rigorous. Assumptions, uncertainties and methods must be understood. Consistent methodologies should be applied throughout the process. Uncertainties that cannot be readily quantified should not be exempted. Risk assessment, management and communication should be an integrated process. There should be complete access to data and information. Guiding Principles on the role of Risk Analysis in Decision-Making (ASME*) Adapted from AMSE (2002)

9. Project Team Involvement Risk Contractor Involvement Tactical Strategic Timely Risk Analysis Effective Risk Analysis will revisit and re-evaluate the risks on a Project and throughout the Project Life Cycle. Each phase of the risk analysis may involve a different focus and a different mix of disciplines. Strategic Planning Project Definition Project Financing Project Execution Mid- Construction Project Start Up Year 1 Full Operations Corporate Planning Involvement Operations Team Involvement Cold Eyes Review Team Involvement

10. Strategic Planning Environmental Regulation Political & Social Risk Stakeholder Value / Governance Alternatives / Locations Project Definition Technology Alternatives Political & Social Risk Market Demand Balance of Portfolio Project Configuration Project Financing Project Return Execution Planning Process Quality / Scope / Estimate of Potential Value Project Execution Capital Cost, Schedule Technology, Scope Project Controls Risk Mitigation Ongoing Operations Plant operability, Operating team performance, Regulatory Issues Volumes, Rates, OPEX, Process Quality Expansion/Closure Cumulative Impacts, Market Demand, Environmental and Social Issues Project Return, Configuration Execution Planning & Control, Liability Uncertainty changes through the Project Life Cycle Life Cycle Activity: Business Focus Key Uncertainties Mid Construction Quality of Execution, Schedule, Cost, Reworks Risk Mitigation & Recovery On Stream Date Pre- Start Up Schedule, Technology Performance, System Interference Commissioning & Start Up Sequencing

11. What are some of the Key Questions that a Risk Analysis should answer? • What are the key uncertainties? • What are the potential impacts? • How much will it cost? • How confident are we in cost? • How long will it take to complete? • Where do we need contingency? • What can I do about it?

12. Risk Analysis is the centerpiece of a Risk Management Process Base Design & Operating Plans Scheduled, Formal Reviews Updated Model Results (Probabilities, Tornados, Steps) Management Risk Reporting Risk Analysis Risk Monitoring System Tornado Diagrams Step Diagrams Interview Issues Probability Distributions Model and Test Options Project Targets Immediate Risk Control Measures Contingency Plans Key outputs from a comprehensive Risk Analysis

13. Expected Value * Project Targets The probability distribution illustrates the full range of project uncertainty and is used to set the project targets at appropriate confidence levels. Note: 1. Each point on the curve is a result from a single Monte Carlo trial. The expected value represents the average value of all the trials. 2. The slope of the 10/90 range represents the uncertainty, the flatter the curve, the more uncertainty. 3. The curve below the expected value indicates upside opportunity, the portion above shows the downside risk. 90% Confidence Level P80 (?) 50% Probability Downside Risk Upside Opportunity 10% 10/90 Range CAPEX, Schedule, OPEX, etc.

14. -20000 -15000 -10000 -5000 0 5000 10000 15000 Contingency Planning The Tornado & Step Diagrams Identify the Areas that will be the most effective for Mitigating Cost & Schedule. Total Project Expenditures $k Labour Productivity - Multiplier 0.91 1.09 Labour Availability Delays - Weeks 3 15 Man-hours Estimating Variance 0.94 1.1 Organization Performance Excellent Poor Congestion Productivity Impact - Multiplier 0.83 1.13 Weather Delays to MC - Weeks 0 4 Competing Projects Environment Depressed Heated Area 103A Reworks, Extras & Scope Impacts - Multiplier 1 1.15 Materials Quantities Variance 0.96 1.12 Area 103A Permit Delays - Weeks 2 6 Electrical Materials Quantities Variance 0.9 1.17 Area 103B Reworks, Extras & Scope Impacts - Multiplier 0.9 1.1 Area 100 Reworks, Extras & Scope Impacts - Multiplier 0.93 1.08 Area 101B Reworks, Extras & Scope Impacts - Multiplier 1 1.12 Area 100 Labour Productivity - Multiplier 0.81 1.03

15. Immediate Risk Control Measures The Step Diagram demonstrates where the growth from the base estimate to the Expected Value occurs, and identifies key factors impacting the schedule (cost). Start Date 01-Jan-08 +3 +10 15-Dec-07 +5 +14 01-Dec-07 Base= 03-Sep-07 +12 15-Nov-07 +5 +5 +31 1-Nov-07 EV= 20-Dec-07 15-Oct-07 +14 +7 0 0 1-Oct-07 +1 0 0 +13 -3 -3 0 15-Sep-07 +6 -8 1-Sep-07 15-Aug-07 Piling Reworks Long Leads Complete to MC Labour Issues AFE Approval Weather Delay Rack/ Process Module Assembly Start-up Duration Evaporator Units Module Pipe Fabrication Duration Site Prep Duration Materials Delivery Labour Productivity Engineering to 60% Last Process Area Module On-site to Construction Complete Vapour Compressors Construction Duration Commissioning Duration Design definition Changes Module Steel Fabrication Preliminary Vendor Data

16. Full None Essential Risk Management High Cost of Mitigation Steps Ability to influence the outcomes Low Planning Definition Execution Start Up Closure Early risk management and mitigation builds better valued projects

17. Tracks small failures Resists oversimplification Remains sensitive to operations Maintains capabilities for resilience Takes advantage of shifting locations of expertise Common Characteristics of the Risk Intelligent Organization‘Taken from Managing the Unexpected’