Risk management is the identification, assessment & control of risks that relate to an activity.
Risks exist in every activity that is undertaken and can be categorised as either threats (negative) or opportunities (positive).
Effective risk management enhances the opportunities & reduces the impact of threats , to maximise the chance of success.
There are various methods and approaches for risk management but all follow the same basic steps as shown below
Risk Management Methodology
Prism Energy employs a variety of methods and approaches depending on each activity these include but are not limited to risk registers, risk bowties, cost and schedule risk analysis & decision tree analysis.
Risk bowties are a visual method of identifying and managing risk.
In this method risk is managed in the traditional approach of mitigating threats but an additional step is taken to identify the consequences of a risk being materialised. A typical risk bowtie is shown in the following diagram:
The centre of the diagram is known as the top event and is the outcome that we do not want to occur.
To the left of the top event is a list of threats that could cause it to occur and a series of barriers that are put in place to prevent the threat materialising.
To the right of the diagram is a list of consequences that could arise from the top event occuring. Barriers are included to try and prevent the consequence happening.
Bowties are ideally suited for a number of activities including projects, asset safety case documents & stand alone activities.
The method produces excellent results due to it’s systematic approach and visualisation.
Schedule risk analysis (SRA)
Schedule risk analysis is a simple yet effective technique for mapping activity risks to the a baseline schedule.
The process enables the management team for the activity to understand the potential impact of uncertainty to a project duration.
Each line item of the baseline schedule has a duration range applied to it to define a minimum, maximum & most likley duration.
Once this stage is complete a Monte Carlo analysis is undertaken on the whole schedule, which generates a range of outcomes of dates for key points in the schedule.
The most commonly generated are the P10 (10% probability), P50 (50% probability) & P90 (90% probability) for the project end date.
The software also generates a tornado chart that lists the main drivers/threats that affect the duration of the schedule.
Understanding uncertainty and drivers allows management teams to accurately set budgets & targets and also to focus resources on the key threats.
Cost Risk Analysis (CRA)
Cost Risk analysis is a similar technique to the SRA but but maps activity risks to baseline estimates.
The process is identical in that a range, in this case cost, is applied to each item in an estimate.
The outcome from the Monte Carlo generates P10, P50 & P90 costs for the overall estimate and also a tornado chart of the key drivers.
The CRA is a powerful tool for creating budgets that are risk based and therefore more likley to be met.
Decision trees are a support tool that generate tree-like graphs of decisions to help determine outcomes for activities.
Decision Tree Diagram
It is a powerful brainstorming method to help identify a strategy most likely to achieve a goal and gives a record of why decisions were taken.