May 2009

The Risk Management: Adding value to your organisation workshop in Brisbane last year has been followed up with another in Sydney in March this year. Attendees were from a diverse group of companies and future workshops have now been scheduled for Brisbane in September and Auckland in October. Please refer to the RiskTools website for more details and online booking.

News

We have facilitated a significant number of risk workshops this year, many of which have pushed the boundaries when considering risks in a contracting environment. The workshops have included:

·         An increasing focus on quantifying the cost of carrying risks (contingency). This work has helped to underscore that a number of businesses have processes which may give rise to misleading results.

·         An increased focus on risk workshops where “relationship” type contract arrangements were in use. Many of these were based on risk allocation rather than risks being carried by those best able to carry a particular risk. There were also issues arising from impact analysis being based on absolute rather than relative values.

·         Undertaking risk workshops to identify the most appropriate procurement strategy.

·         Developing tendering strategies that focus on risk optimisation rather than risk allocation.

If you would like assistance on how (as a principal) to compile a contract so as to optimise risk or (as a contractor) on how to improve your response to a tender then please contact us at support@risktools.com.au.

Case Study

We have recently been fortunate to work with Ansaldo STS assisting with the development of its risk management processes.

·         Adopting the same workshop processes for each project

·         Using a tailored framework (Risk Breakdown Structure – RBS) for all of the projects

·         Comparing risks and risk profiles across projects

·         Assessment of a suitable contingency allowance using RiskValuer when tendering

·         Rolling up risks at a programme/portfolio level

·         Enabling consistency in reports both locally and to their international head office

We welcome the opportunity to bring similar benefits to your business.

Technical

The assessment of contingency is an area where processes are evolving. There is a growing acceptance that taking the likelihood of a risk occurring and multiplying this by a worst case value (which many were doing) is too conservative as well as being fundamentally flawed (the worst case by definition will not occur for all risks). To overcome this, RiskOrganizer has an in-built toolset called RiskValuer. The process to assess contingency comprises:

·         Identifying qualitative risks that have a direct cost impact

·         Assessing probability and a range of cost values

·         Undertaking a Monte Carlo simulation

·         Identifying those risks that have the same impact that can only occur once (eg liquidated damages)

·         Adjusting risks where the impact is duplicated (selecting the highest probability and giving a zero values to the others)

·         Integrating the contingency with the allowance made for the estimate.

This is a straightforward and relatively quick process that gives a substantially improved way of assessing contingency.

To find out more about how RiskTools can help you in assessing contingency please contact us at support@risktools.com.au