Integrated Cost and Schedule Risk Analysis Eases Consequences of Project Delays

_ This article, written by JPT Technology Editor Chris Carpenter, contains highlights of paper SPE 221836, “Better Predictions, Better Outcomes: How Integrated Cost and Schedule Risk Analysis Reduces Costly Consequences of Project Delays,” by Christopher Britton, SPE, OMV. The paper has not been peer reviewed. _ The success of any major capital project within the upstream sector is ultimately determined by the difference between revenue gained from selling the product to the market vs. the associated expenditure to design, build, and operate the field development project. The complete paper provides insight into existing tools, methodologies, and processes that can help any capital project or organization improve their predictability of outcomes while effectively mitigating risks and exploiting opportunities. Objective The ultimate purpose of performing an integrated cost and schedule risk analysis (iCSRA) is to maximize predictability while minimizing unexpected late surprises. The process highlights key risk and uncertainty drivers, ensuring that resources are allocated to the most critical and effective risk-mitigation measures, thereby maximizing the project’s chance of success. The iCSRA process also can help optimize contracting strategies by determining which party is best-suited to manage specific risks and whether contractual risk-sharing mechanisms should be implemented for uncontrollable market forces. Theory and Definitions The application of iCSRA should be tailored to both the project’s characteristics and its maturation stage. The Concept Select phase typically is the first time iCSRA is applied. At this early stage, the iCSRA model should be high-level, with single activities for major components such as jacket or topside module construction. Uncertainty ranges should be based on benchmarked analog projects using historical costs adjusted for market indices. The goal of the Concept Select phase is to identify the optimal viable concept, comparing the range of outcomes for each case. An organization’s risk culture also should be considered when preparing for an iCSRA. Some companies invest heavily in effective project risk management, employing professional risk managers and sophisticated databases. Others view risk management as a mere formality to appease partner demands. The iCSRA analyst must assess the validity and integrity of the risk register. Bias and Noise. A skilled iCSRA workshop facilitator recognizes bias and noise and helps bring an independent and impartial perspective to discussions. It is highly recommended that the workshop facilitator and iCSRA analyst (perhaps the same individual) are not members of the project team. There are many types of bias with which to contend, some not as obvious as, for example, optimism bias. A short list of biases that can adversely affect and distort an iCSRA includes the following: - Anchoring bias—The first thing judged influences all successive judgements - Availability heuristic—Overly influenced by what springs most quickly to mind - Confirmation bias—Looking for ways to justify existing beliefs - In-group bias—Unfairly disregarding those who do not belong to your group