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Applications of Project Risk Management Assignment
Question: Conduct a literature review research project.
Topic - Applications of project risk management in oil and gas projects.
Solution:
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Analysis
Oil and gas projects are known to be risky and include a range of stakeholders. These projects work on a tight budget as well as stringent schedules and it is extremely important to apply project risk management practices to achieve desired performance levels.
When it comes to oil and gas projects, there are certain risks predetermined and common to all and are addressed on the basic level. There are political risks associated with industrial projects and these risks evolve especially during refinement or extraction or drilling activities. On the other hand, the major risks that affect the project lifecycle are supply and demand risks and operational risks. Right from skilled labour to essential materials to carry out with the operations, there are always risks associated.
For majority of the operational risks, project managers prefer to implement failure mode and effect analysis (FMEA) and hazard and operability analysis (HAZAOP). In the rare cases, what if checklist is prepared (Mohebbi and Bislemi, 2012). In all these methods, it turns out to be essential to list out the factors that can lead to a specific risk and solution to mitigate the risk. The mitigation and control happen from a resource based view as resources can help the organizations to gain competitive advantage and also act quickly towards a risk.
It is observed in majority of the projects that risk identification happens regularly in the form of brainstorming, scenario analysis, checklists and focus group discussions. The risks are also categorized as hard vs soft or controllable vs non controllable. Managing risk begins with a project charter that contains scope, deliverables and objectives. For every deliverable, risks are identified and stakeholders are engaged to mitigate them. The subsequent step of managing risk is to prioritize and create a risk tracking template. This template can be used to monitor the progress and the feasibility level at a given instant.
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Plant project:
Libya:
It is appropriate to study the applications of project risk management in particular to the oil and gas project handled by National Oil Corporation (NOC) of Libya (Elhoush, 2017). The employees of NOC highlighted that they brainstorm and list the risks in a risk matrix but there are no structured frameworks. The reason for the absence of framework and implementation of simple risk management technique is due to application in vague situation. Further, the resources are not completely aware of varied project risk management tools and techniques available to mitigate the risks. This could be the reason for unmanageability when risks develop.
Not training the resources can also lead to operational problems that would increase the wages and costs and lead to labour strikes when the necessary arrangements are made. Elhoush and Kulatunga (2017) have also reported that inadequate documentation is yet another reason for oil and gas projects to face huge risks. Right from the project definition, it is essential to document every step and update the costs incurred. Also, change orders need to be carefully filled and filed by the organization. The reality is such projects deal with uneducated workforce on a larger scale and most of them work on daily wages.
Oil and gas industry is extremely crucial and labour-intensive. In the absence of a structured project management system, even experienced organizations like NOC of Libya face risks of varied degrees. In general, the risk management process begins with identification and proceeds to assessment, classification, prevention and control. Thuyet et al (2007) conducted risk management technique study for projects of oil and gas industry in Vietnam. It is observed that the project heads begin with ranking top ten risks that they might encounter during the project lifecycle. Bureaucratic government system, poor design, long time for approval, labour incompetence and improper tendering are posed as risks. For the projects to turn out successful, the project executives identify solutions in prior and implement so that they are all set for new risks in terms of budget and schedule.
Qatar:
In such cases, contracts do not come into picture and they work for the day. Similarly, they tend to discontinue the association without any information leaving the organization at stake. This field is capital intensive and let us take the implementation of a plant in Qatar (Elhoush, 2017). To implement a processing plant that convert gas to the liquid, the estimated cost was 5 billion dollars but the financial and operational overheads have resulted in spending about 19 billion dollars. Hence, this sudden hike in the capital costs can be tricky and risky too.
The discussed points are key parameters that lead to risks and oil and gas companies should analyse them on top priority.
Pipe projects:
Vietnam:
Petro Vietnam is a leading oil and gas firm based out of Vietnam that has reported varied risks at different points of time. Majority of the risks have indicated the absence of a good rapport with the government and improper labour management system. Restricting the authority to project manager to mitigate risks is the first problem source that needs to be sorted.
Studying the sources of risk and the impacts caused, it is evident that there are political, economic and resource related problems. Mohebbi and Bislimi (2012) have offered detailed descriptions on how risks encountered during implementation of Bidboland II gas treating plant were handled effectively. During the implementation of this project, the project managers observed that it is never possible to complete a project in this industry within the budget and this implies the need to predict the risk sources that can cause financial overheads well in advance.
Conducting project risk management right at the tendering phase will never be fruitful. The primary reason is the possibility for the evolution of geo-political issues at unknown time. For instance, oil and gas projects in Iran always pose geo-political risks and demand better contracting and mutual understanding between the organizations. With limited infrastructure and human resource capabilities, such projects will need project managers to perform an activity based risk assessment followed by mitigation.
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Findings
There are common risks that an organization will face in this industry and the findings of this plant implementation process state that there are a few things that organization should carry out before implementation:
- Study the accessibility of the land
- Inspect construction in stages
- Keep the cost changes accessible to all
- Study the progress of the project in both qualitative and quantitative aspects
- Use fixed price method while signing the contract
- Make sure every stakeholder is committed during each phase of the project
- Train the staffs and establish a legal association
- Prepare for backups (in terms of human resources and costs)
A project manager is liable to establish a risk feasibility package for every risk identified. PMBOK (project management) practices are widely used to handle different phases of the project until the deployment and it is the sole responsibility of organizations to keep the involved parties updated about the progress. There are also other methodologies like Cooper and Prince2 that can be applied to these projects but it is mandatory to think of each risk from the management, implementation and resource levels instead of just the project level.
In the previous section, we have identified Libyan oil and gas projects are huge in volumes but unskilled labour and inappropriate internal standards pose serious threats/ risks to the organization and these can easily be mitigated.
The project risks will have to be identified and categorized as domestic contractor risks, client's risks, consortium risks, supervisor/ managing contractor risks and foreign contract risks based on the stakeholders. Under each of these categories, there are separate risks and a competent project manager can be encouraged to head the requirement. It is equally important to categorize project risks based on phases, common factors, engineering disciplines, materials, physical activities and human resources.
When we narrow down the risks further, it is easier to establish solutions for all the risks. Major oil and gas projects like the one in Vietnam face problems due to lack of initial clarity and ambiguity in the list of inputs and outputs. Structured documentation can increase the project success rate.
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Conclusion
Places like UAE have a lot of oil and gas projects and organizations in such regions tend to be equipped and well aware of the risks. Eventually, they get prepared when they are about to face them. On the other hand, similar projects in places like Iran, Africa and Libya where uneducated resource population is high tend to pose huge risks and require effective contracting capabilities.
Project risk management is undoubtedly applied in all the projects so as to achieve the outcomes as per the plan. Since oil and gas industry is unpredictable and can impose a lot of overheads, it is essential for project managers to apply WBS, RBS and risk matrices to eliminate quantitative risks and also pick resources carefully so that they do not result in subjective deviations of the project.
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