MRO Magazine

An examination of risk management in plant shutdowns


Industry

December 14, 2001
By PEM Magazine

All projects include some element of risk. It’s natural to be optimistic that you will overcome any unplanned event during the execution of a project. It’s also normal to be anxious that all things that can go wrong will go wrong. The old adage, "optimism blinds — pessimism paralyzes" applies very well to projects. Project risk management strives to achieve a balance between optimism and pessimism by confronting potential risks during the project planning phase.

The Project Management Institute (PMI) defines risk management as a "subset of project management with four basic components":

  • Risk identification;
  • Risk quantification;
  • Risk response development;
  • Risk control.


Risk identification

A process should be set up to identify the risks that exist with a project. The development of a list of risk situations is a good team exercise. Often, the insights of one member will stimulate the thinking of others. The following items can be explored to stimulate discussion and flesh out hidden risk.

– Staffing assumptions — Some important activities may depend on the attendance of essential personnel. Identify people who will be indispensable during project execution because of their special skills or knowledge. Next, determine whether or not the project can proceed without these people. Also consider the potential for work stoppages or slowdowns.

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– Estimate risks — Identify time and cost estimates that were developed with minimal information.
– Procurement problems — Any deliveries expected during the project execution should be reviewed for potential delays or even cancellation. Items from sole source suppliers represent the highest risk.
– Project files — Review previous project results. Even shutdowns performed in a different area can provide some insight into potential problems.
– Commercial data — Review trade articles for insight into some problems that others have encountered. The American Society of Professional Estimators has published articles on shutdowns and major modifications performed in industry.
– Project team knowledge — Query the project team. Team member recollections of previous projects are useful, although less reliable than documented results.
– Possible weather conditions — Major storms, or just rain and snow, can affect the schedule of a project or shutdown.
– Nature of the project — Sometimes the magnitude of internal damage is an unknown. Corrosion, abrasion, or wear may be higher than expected. A similar risk exists when primary activities of a project will be performed for the first time. Application of new technologies or methods falls into this category.

Risk quantification
The list developed from the risk identification process will most likely exceed the capability to mitigate all potential problems. The items on the list must be quantified to temper any response plan. Two questions should be asked of the project team for each item on the list.

Is the probability that this risk will be encountered high or low?

Would an occurrence of the event significantly lengthen the project?

The table below can be used to weight your reaction to these two questions.

The yes-yes quadrant
The risk situations that fall into the Yes-Yes quadrant are too high to be ignored. Necessary steps and associated costs to minimize the risk should be built into the project plan.

The no-no quadrant
The risk situations that fall into the No-No quadrant should be ignored. The potential of occurrence is minimal and even if the situation develops, the impact on the project schedule is negligible.

The yes-no and no-yes quadrants
The remaining two quadrants are economic issues. An assessment will have to be made of the cost to mitigate the risk situation to quantify these situations. If the cost were minimal, including the solution into the project plans would be good insurance.

Risk response development
Responses to potential risk events fall into three categories:

  • Avoidance — Eliminate the possibility of an occurrence.
  • Mitigation — Reduce the monetary expense of the occurrence.
  • Acceptance — Live with the consequences of an occurrence.

Avoidance of problems usually costs money and can extend the project duration. For example, the use of a backhoe to dig a trench may damage buried piping. Consider paying the extra money and take the extra time to hand dig the trench.

Mitigation is the same as taking out insurance against the problem. For example, the simple act of opening or testing a component can damage it. An A-C high potential test of electrical cable can destroy the cable if it is in poor, but still operable condition. Plans should be madein advance to replace any cable that fails due to this test.

Acceptance of a problem means living with the extra downtime and higher project execution costs. This is reasonable if the cost to mitigate the problem is about the same as the cost of the occurrence.

Risk control
Executing the risk management plan will obviously begin when an identified risk event occurs. However, even the most thorough review of potential events cannot identify all risks, so a plan of action may have to be implemented on the fly. This plan must include the cycle of identification, quantification, and response. The key is in data collection:

  • Determine the information contained in the data that team members are reporting.
  • Don’t play hunches. Get the facts, then act accordingly. Delegate but monitor action steps to reduce the effects of the event.


Michael V. Brown is part of the Milford, CT-based New Standard Institute. Founded in 1991, New Standard Institute provides maintenance management consulting and technical training services to industrial clients. For more information, visit www.newstandardinstitute.com.