Risk Analysis As A Project Management Tool
Authors: Allardyce B. , Pottinger G.M. 
Published: March 2010

Methodologies established for quantification and application of risk management for the Arctic Pilot Project are explained. Several conventional risk analyses were completed separately for the major components of the project during the four-year project development phase. These were then integrated with information from other large energy projects into a risk analysis study which quantified risk through use of the project rate of return on equity investment as a risk index.

Risk centres were identified which corresponded to the project management structure of the project and recommendations were made during the development phase to reduce the risk associated with detailed design, construction and operation of the project based on the results of this study.

The methodology was developed whereby project risk and sensitivity are established and defined via the projectmanagement structure and utilized as a project management tool early in the project's life. This aids the project manager in the planning and allocation of resources by giving him enough lead time to correctly make decisions on issues of long-term importance, prior to their having a negative economic impact on the project. It is postulated that the same methodology could be extrapolated to development of Canadian East Coast energy reserves, as the development of these reserves will require projects of similar magnitude and complexity.

Introduction

During the development phase of the Arctic Pilot Project, it became evident that the treatment of risk, both technical and economic, would be a significant part of the over-all project management function. Decisions regarding not only optimal project development, but safe and efficient operation after start-up would be made based on the perceived risk involved in the decision making process.

The very nature of the Arctic Pilot Project conjures up visions of uncertainty; the first major development in the harsh climates of Canada's Northern Archipelago, the first year-round regularly scheduled ship transits through much of the Northwest Passage, complicated logistics involving tow-in of large barge-mounted process and storage units, pipeline construction in permafrost; every aspect of the project involved uncertainty of a greater degree than that normally associated with an energy project of a similar scale.

The project also exhibited a wide diversity in the degree of technical challenge facing designers, constructors and operators of the field gathering systems, gas plant, pipeline, LNG plant and icebreaking LNG carriers.

In order for project management to deal effectively with the risk associated with such a large and technically complex project, a methodology had to be established which would effectively quantify the total risk associated with all components of the project. While the methodology established for the Arctic Pilot Project was, for all intents and purposes, project specific, it could easily be extrapolated to other energy development projects of a similar complexity.

Today's development activities in Canada's frontier are being focused with increasing intensity on the development of the Grand Banks oil and associated gas reserves. Development of these reserves will also involve dealing successfully withnew technology and harsh environmental conditions.