How to Complement Statistical Quantitative Risk Analysis with Scenarios Approaches

Quantitative risk analysis on large complex projects is often performed using statistical tools based on Monte Carlo approaches, applied for cost and schedule. These approaches can be supplemented by scenario analysis, in which a number of risk and opportunity factors are combined in scenarios of different probabilities of occurrence. Reviewing the consistency of the outcomes of the two techniques will increase the resilience of the risk analysis result. In our new White Paper 2024-01 ‘How to Complement Statistical Quantitative Risk Analysis with Scenarios Approaches’, we examine how scenario analysis can be deployed and how to use its results.

Both scenario analysis and statistical risk analysis are the result of a modelling of the project. A model is a representation of an item that is simplified and generally geared towards a specific purpose. Therefore, the outcomes of those processes are various models of the project, that can be tested and updated using the models’ key parameters and assumptions. The combination of a variety of models based on different sets of mechanisms and assumptions generally allows to better understand reality, as seen from multiple angles. This is the approach proposed.

Since the two techniques model the project according to different approaches, the important issue is to check the consistency of the outcomes for similar class of probability. Consistency between the results provided by statistical analysis and scenario analysis will improve confidence in the risk analysis results, while inconsistencies will raise questions to be resolved. In particular, non-linear effects such as ‘cliff effects’ (small variations of parameters leading to substantial changes of the outcome in terms of cost or schedule) or an accumulation of consequential impacts can be much easier identified and modelled in the scenario approach. They will generally not be identified in Monte Carlo analysis, possibly leading to a greater spread of outcomes for the scenarios.

Combining diverse types of risk modelling is useful to improve confidence in contingency. Scenario-based models are useful complements to the usual Monte Carlo approaches and allow to identify specific non-linear effects that may be difficult to apprehend otherwise. Ensuring consistency between the various types of models provides further analysis on possible impacts of risks and opportunities and therefore will enhance the reliability of the quantitative risk process, and thus this approach to combine different types of models is highly recommended. Discover more in our new White Paper 2024-01 ‘How to Complement Statistical Quantitative Risk Analysis with Scenarios Approaches’.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2024-01_scenario_vs_statistical_v0.pdf

Share

How to Pivot during the Execution Phase of a Large Complex Industrial Project

While this situation should be avoided by a proper project definition phase, it is sometimes necessary to substantially pivot and change course during the execution of a project. This implies significantly changing the project objectives and/or execution strategy. This situation necessarily creates substantial disruption. Based on our experience, our new White Paper 2023-12 ‘How to Pivot during the Execution Phase of a Large Complex Industrial Project’ describes good practices should this situation happen.

For owners, this can happen due to a number of events:

  • significant regulatory changes (or more generally, changes to stakeholder requirements),
  • changes in the facility product fit to the market, requiring a change to the product,
  • unexpected changes to the main feedstock,
  • unexpected difficulties in an innovative section of the facility,
  • default of major contributor or contractor that is difficult to substitute.

For contractors, most such issues will be managed through a renegotiation of the contract with the owners. However, in some cases, EPC contractors can experience a need to pivot when the project execution strategy envisaged is not possible, e.g. due to the lack of availability of a difficult-to-substitute construction resource, requiring a substantial change of strategy.

Because those situations necessarily create significant disruption, additional costs and duration, they should be avoided as much as possible by a thorough and in-depth project development and preparation phase. Those situations are however more likely to happen on innovative projects, or very long projects (spanning more than a couple of years) due to project environment changes.

We first recommend to take time to clearly define the revised project. This requires the mobilisation a small task force to go through a scoping and feasibility phase before being able to commit to the pivoted project. This re-definition phase of the pivoted project will also allow to understand fully the direct and indirect consequences of the pivot. To minimise disruption to ongoing activities, this task force should remain discrete and not communicate its work to the rest of the project.

Significantly pivoting an industrial project during its execution must be avoided, but when it happens, specific measures must be taken to address the situation. The objective is to develop a sufficiently mature definition of the new project and its execution plan while not disturbing the rest of the project. This requires a separate taskforce to be setup and managed, producing a sufficient level of definition, and a clear transition and change plan for the moment where the pivoted project will be revealed to all contributors. Failure to maintain confidentiality, to achieve a sufficient level of maturity for the pivoted project or to address change management properly, will have strong negative impacts on the project. Discover more in our new White Paper 2023-12 ‘How to Pivot during the Execution Phase of a Large Complex Industrial Project’

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-12_how_to_pivot_project_in_execution_v0.pdf

Share

How to Improve the Management of Large Numbers of Punch Points and Design Open Points in Large Complex Projects

During the later phases of industrial projects, design Open Points can be identified during detailed design or fabrication design that require treatment to ensure the overall consistency of the facility design. Punch Points are also identified during commissioning and pre-hand-over that generally need to be rectified prior to hand-over or startup. The traditional management approach is to use registers, some prioritisation and assign points for action within the project team. When such open and punch points are numerous, other alternative approaches can be used that are more effective. In our new White Paper 2023-10 ‘How to Improve the Management of Large Numbers of Punch Points and Design Open Points’ we address how the management of such large registers of open or punch points can be done differently.

To manage the sometimes thousands or tens of thousands of Open Points and Punch Points generated continuously on large industrial projects, the conventional approach is to open and manage a register and manage each item individually.

Good practices in the traditional approach also include assignment of a priority and/or criticality level to the Open or Punch points.

Faced with a large register of Open or Punch Points, the tendency will generally be to address the easiest to resolve first, which makes it important to have, if possible, statistics that account for the closure effort so as not to be overly optimistic on the closure rates. Thus, generally the harder points remain for closure for quite a longer time; they also often need a multi-disciplinary approach. This does not make sense if the number of open points is very large.

The management of large quantities of Punch Points and Open Points on large industrial projects can become very tedious and cause significant delays in the commissioning and start-up of the facility. Traditional approaches using registers and individual assignment of Punch or Open Points to contributors have strong limitations when they become very numerous. It is then much more effective to create a limited number of projects with dedicated and accountable personnel dealing with certain types of Open or Punch Points to accelerate resolution, identify and address root causes, thereby diminishing the future number of Open or Punch Points. Discover more in our new White Paper 2023-10 ‘How to Improve the Management of Large Numbers of Punch Points and Design Open Points’.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-10_treatment_OP_tickets_v0.pdf

Share

Why an Independent Facilitator is Important When Setting up Integrated Extended Enterprise Teams for Complex Infrastructure Projects

To address the complexity of major industrial projects, collaborative extended enterprise setups or even contractual alliances are implemented. They often fail to deliver the expected value or performance. We have found that a number of precautions including the involvement of a neutral third party from the onset are useful success factors. Our new White Paper 2023-09 ‘the Importance of an Independent Facilitator When Setting up Integrated Extended Enterprise Teams for Complex Infrastructure Projects’ details this particular approach to extended enterprise setups.

Large industrial projects, and particularly innovative, first-of-a-kind projects that also show a high level of equipment density, involve a number of specialist contractors in a very intertwined manner. Design and then execution requires a very high level of collaboration. This is even more the case if numerous iteration loops are needed during design, and if multi-disciplinary coordination is needed for erection.

Various opportunities can be identified to improve collaboration effectiveness, which are listed in the White Paper.

Responding to the complexity-challenge of large industrial projects is a major success factor. Various collaborative setups have been tested but have shown limitations.

We are convinced that a key to success is the involvement of a neutral facilitator from the onset. This is definitely a trend in contract management with independent engineers or dispute boards being called upon in FIDIC and NEC contract forms.

The neutral party needs to be mobilised from the start of the project and follow it up to be effective. It will allow to address issues before they fester and even before they become claims. It can raise concerns at the governance / steering committee level.

Based on our experience and track record, the intervention of a neutral party to facilitate and assure collaboration during the project is an essential success factor that is increasingly promoted in construction contract management and needs to be used with more frequency. This should be deployed more often and from the setup of the project. Discover more in our new White Paper 2023-09 ‘the Importance of an Independent Facilitator When Setting up Integrated Extended Enterprise Teams for Complex Infrastructure Projects’.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-09_setting_up_integrated_collaborative_v0.pdf

Share

How to conduct Project risk management for Series of Industrial Projects

Some contractors or owners must manage a portfolio of identical or similar projects, and need to account for a series effect between successive projects. Portfolio performance thus depends on each project performance and the actual measured series effect which impacts both cost and schedule. Our new White Paper 2023-08 ‘How to conduct Project risk management for Series of Industrial Projects’ addresses how to specifically structure the risk analysis of those portfolios of projects.

Series of complex projects such as the construction of a series of approximately identical ships, infrastructure or power plants constitutes a portfolio of projects. Its overall performance is heavily defined by the series effect (learning curve and volume effect), whereby significant performance improvement factors both in terms of cost and schedule apply to those projects following the first prototype. This in turn significantly improves the overall economic performance of the series.

For projects performed as part of a series of projects, risk and opportunity management needs to be performed at the portfolio level. It involves different categories of risk: local circumstances, effective series effect, and industrialisation to support the portfolio. This framework can be deployed effectively to assess risk and opportunities of those series of project, where the expected benefits in terms of series effect gain can be very substantial up to the order of 30-40% efficiency improvements. Discover more in our new White Paper 2023-08 ‘How to conduct Project risk management for Series of Industrial Projects’.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-08_series_projet_portfolio_risk_management_v0.pdf

Share

Dealing with extra-long duration industrial projects: PVD new presentation

We had the opportunity to be speaker at PC Expo in London in November 2023 and were requested to present our thoughts about dealing with extra-long duration industrial projects, including a nuclear industry case study. This presentation deals particularly about project control aspects and covers as well more generally the specifics of very long projects.

Very long projects are defined as projects which execution phase lasts more than 4-5 years. They are particularly frequent in nuclear and defence projects. This creates additional complexity and risks, as well as additional effort to be spent to counter obsolescence, implement preservation, deal with personnel career evolution and turn-over etc. Because of the significant direct and indirect impact of duration on such projects, we recommend to nominate a senior position within the project to deal with all those issues. Extra money and contingency also needs to be considered in the initial estimate for those issues.

In terms of project control, we recommend to split the project into phases of 2-3 years duration where the project configuration can be stable and allow all contributors to reach maximum productivity. Then, transition phases allow to reconfigure the project and restart another stable phase where the main project driver is well identified. Examples of possible phasings are shown for nuclear projects.

Read our latest presentation to understand better the specifics of very long projects!

If you cannot use the links above, just paste the following link in your browser: https://fr.slideshare.net/ProjectValueDelivery/dealing-with-extra-long-duration-megaprojects

Share

How to Deal With Systemic Risks beyond Project Responsibility

Many large projects can be impacted by risks and opportunities which are beyond the control of the project or organisation, and which can be systemic (e.g. like climate change, global economics) or that can be quite unknown. The situation gets worse the longer the project is, or for owners that must consider the full infrastructure lifecycle over decades. How to account for those risks and opportunities as part of the project risk analysis is not always straightforward. In our new White Paper 2023-07 ‘How to Deal with Systemic Risks Beyond Project Remit’, we expose a method which allows for due consideration of those risks and opportunities.

Systemic risks require a specific treatment. Their occurrence is independent of the project or organisation management and only their consequences can be addressed.

Systemic risks affect the entire economic and social environment of the project. They generally have multiple consequences on many project aspects and are not quite under the control of the organisation. Examples include interest rates variations, currency foreign exchange fluctuations, inflation, raw material and equipment price changes, climate change, general economic growth (or recession), social unrest etc.
As project-driven organisations are generally not in the gambling business, the risk and opportunity process aims at protecting the project and the business as much as possible from such risks. Because those risks cannot be addressed by a direct action from the project or the organisation, the only possible protection is by managing the consequences of their occurrence.

The best strategies are to avoid or transfer those risks, followed by internal hedging through diversification. Their evaluation will require specific techniques; they are generally assessed at the organisational or portfolio level, and prospective scenario-based analysis will be more effective than more traditional probability based techniques. Contractors and owners will generally have distinct strategies due to quite different involvement timeframes and strength of their balance sheet. Still, there is always residual risk in any business venture and the residual exposure must generally be publicised for investors to understand the risks they take.

Discover more on this topic in our new White Paper 2023-07 ‘How to Deal with Systemic Risks Beyond Project Remit’.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-07_systemic_risks_v0.pdf

Share

Review of the book ‘How Big Things Get Done’ by Bent Flyvbjerg and Dan Gardner

How big things get done‘ by Bent Flyvbjerg and Dan Gardner is an interesting new book intending to explain to the general public the challenges of projects in general, and large projects in particular. It draws of course on the extensive academic body of work of Bent Flyvbjerg (professor at Oxford and quite invested in many aspects of large public projects regulation and administration), which is based on a unique database of large projects built over the years.

An attractive aspect of the book is its opening to other projects that are not industrial or infrastructure, like for example, Pixar movie production projects as a template for project definition phases, to detect good practices that could be used more widely.

A points is made about the generally dismal record of large projects, and particularly the need to take sufficient time to plan, but be quite expeditive in execution. This is summarised under the principle “plan slowly, act fast” which is a motto used through out the book. The risks associated with long execution phases cannot be understated in terms of changes to the project environment and they play a big role in the challenges of long winded projects such as nuclear industry or other infrastructure for which the construction phase is long.

The authors also reinforce the need to be very clear about the purpose and objectives of the project, and keep them in mind at any time. Also, an excellent point is made that proposed projects can always be compared with other projects in their class, and that although always unique in certain aspects, all projects can be benchmarks to improve the quality of the estimate. The authors observe that in too many cases initial estimates are way too optimistic because of this lack of benchmarking.

Finally, a point is made, and reinforced through statistical analysis of a wide database of projects, that modular projects where smaller modules can be reproduced to scale (such as typically in solar and wind projects) are more successful and avoid excessive deviations from the expected performance (long tail effects).

All in all, an easy-to-read book that can be widely recommended and introduction to those decision-makers that get involved in large projects without experience in the subjet, as well as an entertaining and inspiring read for project practitioners.

Share

Key steps for an Owner Acquiring a Project in Late Development Phase

Larger owners quite often acquire major projects from junior developers at various development stages, including potentially close to Final Investment Decision. Of course, such a transaction requires a substantial due diligence, as well as some precautions to fully understand the remaining risks associated with the venture. In our new White Paper [2023-06] ‘Key steps for an Owner Acquiring a Project in Late Development Phase’, based on our experience we expose some of the major precautions that need to be considered from the project management perspective.

173602091

Taking over a project in the middle of its development phase is a sensitive issue and certain project management key aspects must be particularly evaluated by the new owner during its due diligence. The execution strategy may need to be updated as well as the risk analysis to account for the impact of the new owner circumstances on the project. Many owners also underestimate the impact of the actual transition of the organisation as a result from the transaction, which will necessarily have an impact on the overall project schedule.

The White Paper states some general issues and focuses on several specific topics:

  • project maturity: technical maturity, site knowledge and regulatory aspects, project preparedness
  • aspects related to the business case such as estimating uncertainties, contingency, operating costs estimates
  • integration of the project organisation in the overall owner organisation

Read our new White Paper [2023-06] ‘Key steps for an Owner Acquiring a Project in Late Development Phase’ to understand better the attention areas if as an owner you consider acquiring an industrial project in development phase.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-06_owner_project_takeover__v1.pdf

Share

From Contractor to Owner Support Roles: How to Deal with a Very Different Role as a Contractor

Contractors sometimes take the role of owner support, i.e. providing an owner organisation with competent resources and possibly processes and systems to oversee a major industrial project and other contractors. This type of service actually involves quite a different mindset and setup compared to a normal contractor posture. Our new White Paper [2022-05] ‘From Contractor to Owner Support Roles: how to deal with a very different role’, building on PVD experience supporting organisations in this transition, exposes what needs to be changed in that case.

Owner support contractors are essential contributors to industrial projects when owner project management organisations are not well developed. A number of precautions must be taken when choosing such owner support teams, to avoid untoward conflicts of interest between the owner support role and other roles on the project and to ensure that they adopt an owner mindset rather than a contractor mindset.

While basic technical competencies are similar, it takes time to change the mindset of contractors’ team members to become part of an owner support team, and this needs to be identified and anticipated through proper change management. If an organisation provides both owner support and execution contracting services, we recommend that those activities be performed in two separate business units because the business and success drivers are different.

In any case, as a matter of good practice, the owner in any case needs to keep or develop sufficient capabilities in-house to supervise its interests in the project, and in particular to supervise the owner support contractor itself.

Read our new White Paper [2022-05] ‘From Contractor to Owner Support Roles: how to deal with a very different role’ to understand better the differences in position between the two roles and how to ensure that a proper owner support posture is taken.

If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2023-05_contractor_to_owner_assist_v1.pdf

Share