Professional Documents
Culture Documents
January 2016
Agenda
Introductions
Challenges of Large Capital Projects
Building a Risk Intelligent Enterprise – Best Practices
Appendix – Monte Carlo Simulation Example
John is a Specialist Master in the Capital Projects Consulting practice in the Philadelphia office of Deloitte
Advisory.
He is a registered professional engineer and certified cost professional with over 20 years of dispute
resolution, project advisory, and risk experience spanning a wide range of domestic and international
engineering and construction projects. He has significant experience in construction disputes, estimations,
project management, risk assessments, project controls, procurement, construction cost assessments, on-
site claims management, and construction field experience. Furthermore, he has been involved in the
John Stone, PE, CCP construction, as well as construction disputes, audits and risk assessments, of industrial and power plants for
projects in Canada, Central Europe, the Caribbean, Brazil, the Middle East, and the United States. John has
Deloitte Advisory also been a subject matter expert and assisted internal audit teams in numerous construction cost
1700 Market Street assessments, fraud investigations, control, and risk assessments for a number of domestic and international
Philadelphia, PA 19103 clients.
Telephone: 215-316-6559
E-mail: jostone@deloitte.com
Root causes of many breakdowns are within the owner’s control Owner Pays
• Inadequate risk planning and monitoring
• Cost overruns
• Lack of clear governance structure and accountability
• Schedule delays
• Poorly developed project team
• Insufficient resources • Unplanned scope changes
Risk Oversight
Makes risks more visible to management, stakeholders, and the Board of Directors so that management decisions can be evaluated and
challenged.
Projects mitigate company risks and are therefore, also included in the ERM tool.
.• Monthly reporting: An overall project risk indicator (red, yellow, or green) shall be
reported monthly. The risk indicators will be determined based on the severity of the
risks measured in terms of the potential impact (in a dollar equivalent) from the project
risk register.
The Risk Management process is directed toward achieving the following goals:
• Streamline and standardize the identification, analysis and mitigation of significant risks to program success
• Identify risks with the greatest potential to impact project cost, schedule and performance criteria
• Allocate resources efficiently and in a cost-effective manner to mitigate the highest priority risks early in the planning process
• Promote risk management as an ongoing project control imperative that focuses on defining the project risk profile as it evolves throughout
performance
Monte Carlo Analyses
Risk Identification Risk Assessment Risk Response Monitor & Control Power Plant
Entire Plan : Cost
400 100% $8,683,522,034
($962,052,941)
95% $7,937,315,289
85% $7,554,296,679
75% $7,370,132,426
Cumulative Frequency
250
60% $7,097,040,514
Hits
200 50% $6,952,468,916
40% $6,803,472,242
150
30% $6,672,388,872
20% $6,495,000,369
10% $6,261,980,162
5% $6,105,079,791
Risk Information Form
Initiator Identification Category Summary Description - Root Causes L:1-5 Cost Schedule Other I:1-5 Score Level (4 T's) Action Plan Owner Due Date Cost Likelihood Impact Score Level Signed Off Cost Schedule
Risk Category Resources (Who is doing the work) Potential Impact
Resources
Most Likely Impact Score Improve training and
EX001 Active John Doe 8-Sep-08 (Who is doing Skilled Trades Labor Availability Medium 2.2 8 Insignificant Moderate 9 Of Concern Mitigate John Doe 20-Sep-08 $0 Medium Minor 6 Of Concern 0 $ 1.2 3.0
Cost ($ millions) $2.2 Moderate recruiting.
the work)
Schedule (days) 8 Moderate
EX002
Risk Name Skilled Trades Labor Availability Other (Quality, Customer Satisfaction, etc.) Insignificant
EX003
EX004
Risk Symptoms Lack of available skilled labor is resulting increased labor Maximum Potential Impact Moderate
costs and may impact productivity. EX005
EX006
EX007
EX008
EX009
EX010
EX011
EX012
Initial Risk Score (= Likelihood x Impact) 9 EX013
Initial Risk Level Of Concern EX014
EX015
EX016
EX017
EX018
Avoidance
• Risk re-assessment
• Risk audits
Transference • Variance and trend analysis
• Status meetings
Mitigation
Acceptance
Board of Directors Board of Directors Board of Directors Board of Directors Decision Approval Committee Owners Committee
Critical Decision Approval Board of Directors
Sustaining Capital Sustaining Capital Sustaining Capital Sustaining Capital Committee Sustaining Capital
Owners Committee Critical Decision Approval Critical Decision Approval Critical Decision Approval Board ofCapital
Sustaining Directors Sustaining Capital Critical Decision Approval
Committee Committee Committee
Critical Decision Approval Critical Decision Approval Committee
Committee Committee Owners Committee
CD-0 Template CD-1 Template CD-2 Template CD-3 Template CD-4 Template CD -5 Template
Package
CD-6 Template
Synchronization PMP (Initial) PMP (Updated ) by Discipline PMP (Final) Transition/Closeout Plan (Initial) Final Operational Acceptance Project Completion Report
Matrix/Decision Support Project Charter (Initial) Performance Baseline Commissioning Plan (Initial) Commission Plan (Final) Close of AFE
Certificate of Substantial
CD
Phase gate review Value Management/Engineering Report Operability and Safety (Hazop) Review
Independent Peer Review (IPR) Independent Peer Review (IPR) Recommendation
Recommendation (If required) (If required)
60% Model Reviews (Large/Mega projects)
P&ID Review
Key
• Risk uncertainty
‒ Inherent uncertainty
• Risk events
‒ Event may or may not occur (unknown site conditions)
‒ External to cost items and schedule tasks
‒ May impact several cost items or the duration of one or more tasks within a schedule
‒ Modeled using two inputs: Probability of Existence and Impact
Quantitative cost estimate analysis provides the means to quantify and Power Plant
evaluate cost estimate confidence Entire Plan : Cost
400 100% $8,683,522,034
($962,052,941)
95% $7,937,315,289
90% $7,709,429,450
350
85% $7,554,296,679
80% $7,457,053,309
70% $7,280,051,031
65% $7,190,807,304
Cumulative Frequency
250
60% $7,097,040,514
55% $7,020,041,206
Hits
200 50% $6,952,468,916
45% $6,875,964,783
40% $6,803,472,242
150
35% $6,740,349,254
30% $6,672,388,872
20% $6,495,000,369
15% $6,377,182,307
50
10% $6,261,980,162
5% $6,105,079,791
0 0% $5,460,309,058
$6,000,000,000 $8,000,000,000
Distribution (start of interval)
Evaluated component costs likely to have the greatest impact on overall project cost and develop mitigation strategies to proactively address risks
• The tornado chart depicts the impact of high risk cost items in relation to the overall cost
Evaluate probable critical path, assess controlling tasks, and identify any potential logic flaws
• The criticality chart depicts the percentage of time each task appears on the critical path during the simulation analysis
Permits
Engineering Labor Productivity Cost Controls
Regulatory Approvals
Labor Availability
Long-Lead Items Site Staffing Material & Equipment
Governance Structure
Public Relations
Project Drivers Project completion by • Engage scheduling engineer to test baseline • Contractor maintains master project schedule
20XX schedule, monitor weekly updates, and • Owner to monitor Contractor performance
conduct trend and forecast analyses against schedule
• Drive management decisions based on
• Owner seeking approval for project controls
progress positions
Permits Identify all permit needs, • Comprehensive master permit list • Contractor has permit risk
timely commence • Division of Responsibility • Schedule reflects permit requirements
application process, and
complete engineering • Monitor on master schedule • Weekly progress meetings with permitting
and engineering teams
Regulatory Obtain CPCN in each state Drive approval process through public relations • Communications plan in place
Approvals or resort to NIETC process and communications efforts • Public relations firm retained
• External Affairs retains local consultants
ROW/Land Conduct acquisition • Integrate with procurement and construction • Acquisition plans are in process and will be
Acquisition activities in timely and part of Execution Plan
• Secure material staging areas early
sequential manner, and • Condemnation may be used when CPCN
with adequate funding • Develop system for commitment & transfer of
issued
controls funds
• Funding process and controls under
development
Labor • Quantity and quality of • Labor plan to identify alternate sources of craft • Contractor to conduct craft labor survey and
Availability craft labor labor develop project labor plan
• Overtime and • Incentives for retaining supervisory and • Engineering divided among several firms
productivity engineering staff • Contractor has commitment of contractor with
• Management and sufficient resources
engineering resources • Owner compensation package designed to
retain staff
Governance Designed to drive sound Routine assessment of Owner and Contractor Three control points include Contractor as CM,
Structure management decisions compliance with systems and processes project oversight team (including project
and support prudency controls), and Steering Committees (contractual
reviews and internal).
Public Effect of public opinion on Monitor organized activity • PR firm has been engaged
Relations regulatory approvals, Develop focused media and PR campaigns • Communications plan in place
ROW/land acquisition and
Conduct training • Various training has been completed
route selection, and
construction schedule
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