XXX PROJECT

COST RISK ANALYSIS WORKSHOP

Location
date
Probability / Likelihood

1 2 3 4 5
Very Low Low Medium High Very High
0 - 5% 5 - 20% 20 - 50% 50 - 80% 80 - 100%

Impact:
5 10 15 20 25 5
100% 1463
200

95% 1294

90% 1254
180
4 8 85% 1233
12 16 20 4
80% 1215
160

75% 1203

140
3 6 70% 1191
9 12 15 3
65% 1181

60% 1173
120

Cumulative Frequency
H1190 - Engineering/Manufacturing MOBO/Caisson - All 44%
55% 1166

2 4 6 8 10 2

Hits
50% 1154
100
H1760 - Engineering/Manufacture of ALM 30%
45% 1147

80 40% 1140 MOBO/Caisson - First One For Delivery

A2360 - Engineering/Manufacturing 24%

35% 1132

60
1 2 3
H1034 - Engineering/Manufacture Xtree Systems #1through #11 - All
30% 1124 4 5 22% 1
25% 1117
A2350 - Engineering/Manufacture Xtree Systems - First One Ready far Delivery 13%

40 20% 1105

15% 1096 N1415 - SCM Design & Manufacture 10%

20 10% 1082

N1412 - 2nd thru 17th SCM deliveries 7%

5% 1064

Key Partner for Successful Project Outcomes

0 0% 1008
1100 1200 1300 1400 T1912 - Receive SBM C&S responses to CTRs 6%
Distribution (start of interval)

F1004 - Final Flow Assurance Strategy Report Out 4%

A1870 - Issue Draft Report (IPA) 4%

Facilitator
Job Title

Copyright of Shell P&T 01/01/2024 1

SAFETY BRIEFING / SAFETY MOMENT

 Fire Exits ……? Fire alarm testing scheduled for ?

 Emergency Response Procedures
 We are all responsible for safety.

Copyright of Shell P&T 01/01/2024 2

AGENDA

 Safety Moment

 Overview Presentation (Facilitator – 20 min)

 Cost Overview & Key Assumptions (Estimating Personnel – 15 min)

 3 Point Estimate Exercise

 Agree Cost Risk Ranges & Identify Correlations between cost line items

 Cost Risk Mapping

 Review of Risk Register to agree discrete risk assumptions to be
modelled, agree risks to be excluded from the analysis and to identify
any missing risks.

Copyright of Shell P&T Cost Risk Analysis 01/01/2024 3

CHALLENGES & WAY FORWARD

 Ensure all important risks affecting Cost are identified

 “Low” Risks compounded could have major impacts

 Avoid double dipping

 Way Forward:

 Ranges & Discrete Risk Assumptions will be included in the model

 Translate schedule risk results into Cost Risk assumption for the cost
risk model (Level of Effort)
 Review of 1st pass results – by… ?
 Refinement of assumptions if necessary
 Sensitivity / Scenario Analyses if necessary

Copyright of Shell P&T Cost Risk Analysis 01/01/2024 4

RISK MANAGEMENT / ASSESSMENT PROCESS

 Qualitative Analysis - to understand the risks &

opportunities involved & to develop management focus
 Quantitative Analysis - to understand their effect on the
project & improve project performance
 Cost Risk Analysis - to evaluate the contingency required
to arrive at a P50 (P90) estimate
 The result is a range of possible costs outcomes, with a probability for each $ value
 A Tornado Chart indicating the main drivers affecting the results

 Schedule Risk Analysis

Copyright of Shell P&T August 2011 5

 QUANTITATIVE RISK ASSESSMENT PROCESS
Risk Identification Risk Register Agree Uncertainty Mapping Distributions
Ranges

Brainstorming • Triangular
• Personnel from Including
Optimism and Risk Register to • Uniform
Risk ranking • Schedule
Key Disciplines Pessimism around • Discrete
• Structured based on • Cost Estimate
deterministic values • Other
• Prompt Lists Probability/Impact

More certain information being continually received

Simulations Output Reviews Sensitivity / Scenario Analysis

As many
Schedule: PRA • Modelling Logic Based on review Modify Assumptions/ iterations
Cost: @RISK • Result P10; P50; P90
• S-Curves
findings; current Distributions to as required
• Spread Validity info and Understand
• Tornado Charts • Key Drivers benchmarks Sensitivities

Copyright of Shell P&T August 2011 6

 DETERMINISTIC VS PROBABILISTIC

Deterministic
 Method having an outcome that is
based on single values for each
parameter (input).
SINGLE
OUTCOME

Probabilistic
 Method used to generate a full range
of possible outcomes that is based on
uncertainty ranges and discrete risk
assumptions.
MANY
OUTCOMES

Copyright of Shell P&T

MANIFESTATION OF UNCERTAINTY AND RISK

Uncertainty (or Risk & Opportunity) can manifest itself in one of two
ways:
 Uncertain Performance which is reflected in a range of possible
outcomes depending on several considerations, e.g. Productivity, scope,
price etc.
 Uncertain Events which have alternative outcomes, pass or failure of a
test as an example.

X% Risk Occurs
%

Y% Does not Occur

EXCELLENT POOR
Uncertain Duration Risk Event
Copyright of Shell P&T
 RISK RANGES AND RISK MAPPING

Deterministic Opt / Most Pess /

Description
Determine Uncertainty Cost P10 Likely P90
Ranges / PMT 5,800,000 0.95 1.00 1.30
Engineering 4,300,000 0.95 1.00 1.30
Benchmarking
Certification 500,000 0.90 1.00 1.50
etc.

Cost Estimate Range Schedule Range

or Discrete Entry or Discrete Entry

Risk / Opportunity
Mapping

Issues Register – Assumptions /

Action Plan Exceptions
Register

Copyright of Shell P&T Cost Risk Analysis 01/01/2024 9

 TYPES OF UNCERTAINTY DISTRIBUTIONS

R 1 .2 8 : C ontinge nc y c a s ing R 1 .8 : M a jor Los s Tim e Inc ide nt (not c ov e R 3 .1 : U nc e r ta in W e ll Loc a tions

 Triangular:
0.00 1.50 3.00 4.50 6.00 0.00 1.50 3.00 4.50 6.00 0.00 200.00 400.00 600.00 800.00

Equal Opportunity More Opportunity Threat -

and Threat than Threat No Opportunity
R 3 .1 3 : E x is ting Fa c ilitie s

 Uniform:

1,000.00 1,500.00 2,000.00 2,500.00 3,000.00

Number of Days
40.000

 Discrete: 30.000

20.000

10.000

.000
2.00 2.75 3.50 4.25 5.00

Copyright of Shell P&T Schedule Risk Analysis 01/01/2024 10

 CORRELATION
 Measures the degree of association between 2 (or more) risk variables
and introduces a dependency between the correlated variables.

80 % %

 Positive:
Activity Duration

80 %
%

Activity Duration

 Negative:
%

20%
Activity Duration

Copyright of Shell P&T August 2011 11

3 POINT COST ESTIMATES

OPTIMISTIC MOST LIKELY PESSIMISTIC

(MODE)

MOST LIKELY: That value which, if the opportunity existed to repeat

the activity, would occur most frequently (excluding the
occurrence of risk)
(Normal constraints on resources and reasonable
allowance for technical problems).

OPTIMISTIC: Maximum sensible use of resources and minimum

technical problems.
(No more than a 10% chance of doing better)

PESSIMISTIC: Worse case envisaged barring disasters given minimum

resources and considerable technical problems.
(No more than a 10% chance of doing worse)
Copyright of Shell P&T Schedule Risk Analysis 01/01/2024 12
COST RISK RANGES - CONSIDERATIONS
 Cost Line Items are assumed to be the Most Likely Values (exceptions are
possible)
 Optimistic & Pessimistic input parameters are (to be used as a guide)

 P10 / P90
 But consider P0 / P90 where applicable or
 Agree minimum Range Delta between Optimistic & Pessimistic (to be used as a
guide) to counter the tendency to underestimate the uncertainty ranges
 Suggestion (pre FID): 30 – 35 basis points, e.g. –5% / +30%
 Consider the 3 general sources of Uncertainty for each line item when making
the assessment
 Scope / quantity
 Productivity (excluding cost of schedule delay as the result of the schedule risk
analysis be included in the cost risk analysis separately)
 Price as well as Benchmarks !!!
Copyright of Shell P&T Cost Risk Analysis 01/01/2024 13
 COST UNKNOWN-UNKNOWNS

Identify Select Define Execute

>30 New Technology / Location 12% 9% 6% 3%
Risk Score
TECOP

20-30 Relatively New 8% 6% 4% 2%

10-20 Standard 4% 3% 2% 1%

 Example Flagship Project: TECOP score of 33.5

 As per CSRA procedure, 6% of cost / schedule should be used to cover

the impact of unknown-unknowns pre-FID.
 For cost, it was agreed to include the following discrete risk assumption:

0 – 6% – 12% (P0/ML/P90) of base estimate

Copyright of Shell P&T August 2011 14

Copyright of Shell P&T Cost Risk Analysis 01/01/2024 15
 DISTRIBUTION EXAMPLE 95-100-130 (P10/P90)

 Minimum: 85.6
 P50: 109
 Maximum: 146.9
 23.5% chance of values
being less than 100

Copyright of Shell P&T Cost Risk Analysis 01/01/2024 16

 DISTRIBUTION EXAMPLE 95-100-130 (P0/P90)

 Minimum: 95
 P50: 113.3
 Maximum: 145
 10% chance of values
being less than 100

Copyright of Shell P&T Cost Risk Analysis 01/01/2024 17

 3 POINT ESTIMATES - EXERCISE

For the Answer, change font color from White to Black in the "Answer" Column
Minimum Most Likely Maximum Group Score Answer
The original cost estimate of the
1 Sydney Opera House was $7 m. $102 m
What was the final cost?
The original cost estimate of the
2 Channel Tunnel was £ 6.1 bln. What £11 bln
was the final cost?
The original cost estimate of the
3 Denver International Airport was $2 $4.8 bln
bln. What was the final cost?
The original cost estimate of the
Scottish Parliament Building was
4 £414 million
between £10 - £40 million. What
was the final cost?
How many tulip bulbs were planted
5 in Keukenhof gardens in 2003 (mill) 7 million

What is the total land area of the

6 33,883 sq km
Netherlands? (sq km)

Copyright of Shell P&T Footer Month 2010 18

 Q&A

Copyright of Shell P&T Cost Risk Analysis 01/01/2024 19

OVERVIEW OF CSRA PROCESS

Copyright of Shell P&T Footer Month 2010 21