RISK MANAGEMENT DECISION SUPPORT TOOL DEVELOPMENT

“Construction Risk Manager”

User: Drilling Platform Construction Project Manager
Project Authorization: Platform Construction Division Manager
Technical Qualifier: Corporate IT, Corporate Risk Management

Before:

Situation: The design and construction of modern offshore drilling platforms is an incredibly complicated task. Working with the customer, the prime contractor must consolidate operational objectives within the context of the physical environment in which the platform will operate, develop and validate a myriad of interlocking design components, identify and sequence the phases of construction, and contract for and manage a variety of specialty sub-contractors in the actual construction process.

Desired Outcome: In order to properly manage all the phases of the project, the prime contractor will develop a very sophisticated set of plans and specifications for the components of the platform, along with detailed project plans for the activities, materials and personnel required for each step in its construction. Cost and time estimates for the entire project are developed and closely monitored during the construction to assure that quality and cost estimates are being followed, and that the proper sequence of activities is being observed.

Interfering Factors: Because of the long lead times associated with the acquisition of materials and sub-components, and multi-year construction schedules for the platform, many factors in the original orchestration of activities, materials and personnel are subject to change during the construction process. General economic conditions, international politics, international currency exchange rate variations, customer objectives and requirements, technological and best practice improvements, quality, quantity and timing variation in the development of sub-components and variations in skill and availability of personnel may all have an effect on the original plan. The prime contractor is constantly challenged to accurately assess the impact of a stream of changes to the overall plan for construction, and to modify the plans going forward to accommodate the changes.

Economic Consequences: Because of the interlocking network of technical and project management factors affected by changes to the original design, it is difficult to assess the exact impact on the project of a given change order and, consequently, difficult to assess the impact of the changes on the overall cost/timing of the project. Moreover, the difficulty of assessing the net impact of the entire stream of changes over time suffers from a “multiplier effect” in which the compounded impact of all of the changes may have an even greater impact on the project than anticipated by assessment of the individual changes. This leads to underestimated cost assessments on the part of the prime contractor, confusion and concern on the part of the customer, who will have relied on the estimates in their original decision to authorize the changes in the first place, and contractual difficulties relating to cost and time overruns in the completion of the project.

After:

New Approach: A valuable extension to the sophisticated project management, PERT and CPM techniques currently employed by the prime contractor to manage the project can be achieved by employing new modeling techniques within the context of modern computer processing capabilities. Construction Risk Manager is a decision support tool which assesses the net increase of cost and risk of a stream of changes to the project, giving the project management team better information on which to base their recommendations to the customer and their estimates of the cost and impact of changes to the project over time.

Enabling Factors: Accessing the prime contractors information systems through integrated data architecture of the critical components in project planning and execution, Construction Risk Manager iterates in a cumulative assessment of the stream of change requests presented to the project over time. Using state of the art modeling techniques derived from the study of natural systems, Construction Risk Manager is able to model not only the potential impact of a single change, but to highlight potential consequences of the cumulative effect of the entire stream of changes.

Economic Rewards: Armed with the results of the model, project managers are in a better position to assess the impact of a change request on the part of the customer, to advise them on the cost of the change, and the potential risk incurred to the projects schedule by its adoption. More importantly, as the project progresses, the model will provide a measure of the net consequences to cost and risk of the current set of adopted changes, and the increased impact of additional changes, which may dramatically change their economic viability. This capability will give all concerned better information with which to make decisions about changes to the project, will improve the level of detail with which the prime contractor can communicate with the customer, will increase the confidence of the customer in the prime contractors ability to assess and manage the project, and protect the prime contractors economics throughout the project.