Jale CairneyDeep Water Wind Farm Seminar

24th September 2013London

Risk Management of Deep Water OWF Projects

Renewable Energy

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Risk Management of Deep Water OWF Projects

Project Organisation & effective project management

Change order management, project controls, contract management, insurance

Project risk management to deliver projects on time and within budget

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What is Project Risk

In broad terms project risk is• Cost increase

• Late delivery

• Incidents and accidents

• Environmental impact

• Stakeholder disapproval and conflict

• Performance failure during operations– The potential for the newly built asset to be unable to function as

planned at the outset of the project

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Why Risk Management

Risk management is a crucial part of project management particularly for mega projects It helps to handle risk affecting• Project expectations

– Economic and financial expectations

– Schedule targets

– HSE targets

– Quality targets

– Performance delivery as forecast

• Stakeholders expectations• Contractual expectations

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Why Risk Management

Risk management helps to deal with risks by • Mitigating or eliminating• Avoiding• Transferring• Retaining

Risk Control

Risk Financing

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What is Project Risk Management

Risk management is a process of identifying, describing, handling the risks, and managing all remaining risks to ensure that a project is completed on schedule, within budget, and without accidents

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Typical risks are

• Non-recourse financing risk

• Market risk

• FX rate risks

• Political risk

• Social risk

• Technology risks

• Corporate risk

• JV risk

• Catastrophic loss risk

Identifying Key Risk Areas in Projects

• Cost risk

• Schedule risk

• H&S risks

• Environmental risk

• Reputation risk

• Legal risk

• Contractual risk

• Regulatory risk

• Performance risk

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Cost RiskCost Risk• Increases in prices of materials & cost of labour

• Design faults

• Civil work requirements

• Component manufacturing faults

• Assembly errors

• Errors derived from the construction process such as environmental disasters, accidents, breaches of law, contractual flaws

• Scope changes

• Feature creep

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Schedule Risk

Schedule Risk• Inadequate scheduling at FEED stage

• Materials & labour shortages

• Design & manufacturing fault rectification

• Scope changes

• Delays from deficient project management such as environmental disasters, accidents, breaches of law, contractual flaws

• Design and construction not consistent with consents and permits

• Other unanticipated events

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Performance Risk

Performance • Design changes

• Manufacturing changes

• Optimistic forecasts for yield assessments

• Inaccurate cost estimates

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Main Challenges for ProjectsDelays can have direct negative impact on the calculation of internal rate of return and net present value of the project because of the extended payback periodContingency assessment may be inadequate in the investment budget, if risk based methodology not used• Estimating cost risk, schedule risk, CAPEX risk, poor performance

risk/OPEX risk, contractual risks, liability risk

Convincing the banks of the reliability of their investment in the lending process when PPP/PFI is involvedMinimising risks while capitalising the opportunities in the life cycle of a project

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Project Organisation

Set up functional and integrated project team together

Avoid silos in team set-up and activities

Make sure that the team members • Understand non-technical aspects of the project as well as the technical

aspects

• Consider the impact of their activities on other packages and overall project in terms of performance, HSE, cost and schedule

• Avoid being too confident in their assumptions

• Utilise useful project management tools

• Communicate and cooperate

• See the big picture

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Project Organisation Samples - 1

Board

Project Leader

Procurements Finance / Insurance

HR IT

Project Controls

Interface Management

Construction Manager

Foundation Package OSP Package Cable Package WTG Package Vessel

Package

Quality HSE

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Project Organisation Samples - 2

Project Director

Project Support Management

Leader

Procurement / Contract

Management

Project Controls

HR / IT

Finance / Insurance

Construction Management

Leader

Onshore Works

Offshore Works

Vessel Package

OSP / Cable Package

Foundation Package

WTG Package

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Risk tolerance• Insurance deductible

• Contractual agreements

• Liquidated damages

• Risk transfer

• Contracting strategy

Cascading information• How much of that info is shared

• All is it kept at the corporate level

Importance of Knowing the Risk Profile

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Link between Key Support Functions - 1

Procurement / Contract

Management

Project Management

Packages

HSE Management

Change Order

Management

Quality Management

Finance / Insurance

Risk Management

Project Controls

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Use risk management process to link activities of project management packages and support functions

This facilitates• A natural gate keeping process

• Circulation of information on time

• Better forecast for cost, schedule and performance

• Better functioning teams

• Better interface management

• Better decision making

• Overall efficient project management

Link between Key Functions - 2

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Project Risk ManagementImplement a risk management process to support an effective risk management across all functions of an OWF project Prepare risk management PEP, procedures, guidelines, risk registers and any other relevant documentsConduct risk assessment workshops, quantitative risk analysis and produce comprehensive quantitative risk analyses reports periodically Creates risk registers for project to include

– FEED risks (eng, geotech, geophysical, vessel, cable routes, consents etc.)

– Cost and Schedule risk, HSE risks, Performance risk

– Procurement risk (contractor selection, supply chain management etc)

Ensure that risk management team liaises with all project functions, contractors and support functionsUse and integrate the outcome of the risk management practices into every day project decision making process

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Simplified Risk Management ProcessMake risk management part of the project execution plan

Identify risks early for all packages in the project

Record project risks in risk register

Communicate risks to the project team members

Consider not only threats but also opportunities

Assign risk ownership

Prioritise risks

Analyse risks qualitatively and quantitatively

Plan and implement risk handling

Manage residual risks

Monitor risks and implement continuous risk management until the end of the project

Carry out retrospective risk review at the end of the project

Communicate and record all lessons learned

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Risk Reporting

The main purpose of risk management is to improve the management decision making process by providing timely and relevant informationThere are many common issues across projects but each project is unique and needs project specific reportsReports demonstrate to stakeholders that there is a risk management process in place and the risk and uncertainty are managedReports help project managers identify and prioritise risk, determine the effectiveness of risk handling plansReports help the management to determine the draw down from bank or treasury

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An OWF project can gain competitive advantage through active risk management

It demonstrates to • Lenders• Joint venture partners • Directors • Auditors • Shareholders and stakeholders that the project is risk

managed

It may lead to significant• Cost savings• Delay reduction• Better HSE results• Reduced loss of production

Risk Management & Competitive Advantage - 1

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Risk Management & Competitive Advantage - 2Accurate determination of contingency budget

Improved budget control & financial management

Better estimated cash draw-down requirements

Risk aware culture - planning for the unexpected

Reduction of risk through early identification and resolution

Legal compliance

Environmental compliance

Reduced legal costs

Less accidents

Improved reputation

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Risk Management thorough the Project

Sustained SafetyWe have led the way for safety in the workplace for decades by providing training, developing and managing HSE protocols.

Managed RiskWe provide dependable risk analysis throughout a project life cycle that enables owners and manufacturers to optimize their assets.

Optimized IntegrityWe provide due diligence on projects; we are unrivaled in the verification and quality assurance fronts.

Achieved  Performance