Risk Management: Will COVID-19 Contribute to Increased Awareness and Effectiveness?
by Brett Schroeder, AP-Networks – Managing Director
Originally posted on LinkedIn here.
The COVID-19 pandemic has resulted in major uncertainties for both capital projects and turnarounds in the energy and downstream industries. Projects and turnarounds are being halted, deferred, or reduced in scope in profoundly altered circumstances. The crisis might also have the effect of contributing to a heightened awareness of the need for effective risk management. “Risk Manager is Suddenly a Hot Job” was the recent headline from a Bloomberg Businessweek article that highlighted how the pandemic has thrust risk management into the spotlight after years of little visibility.
The energy and downstream industries have been using risk management techniques for several decades now, but the track record on effective risk management is mixed. I am using the term “risk management” to encompass the systemic process of identifying, scoring (assessing probability and impact), and developing response plans. Here at AP-Networks, our work with Industry has shown that only about 20% of project/turnaround teams fully implement an effective risk management process. That is, they not only identify and score risks, but develop response plans and monitor their effectiveness.
The rate of project and turnaround failure in terms of cost and schedule overruns over the last decade is high. The AP-Networks Capital Project and Turnaround Databases show that only about one third of projects and turnarounds are successful in meeting their budget and schedule within +/-10%, and more than a quarter can be viewed as train wrecks with a cost and/or schedule overrun greater than 30%. These “train wrecks” typically had some form of risk management in place, but this had limited or no impact on the outcome.
Why isn’t risk management working better? Some of it relates to gaps in understanding of what constitutes effective risk management. However, I believe that most of it can be attributed to leadership. The perceived value of risk management is not always apparent, and the time investment required to embed a process is deemed too great. The value of risk management is obtained in the development and follow-through on response plans. Avoiding or mitigating threats is hard to measure, and hence the benefits of proactively managing risk are under-reported.
Ultimately, risk management is the responsibility of every team member. All too often, managing risks is perceived as a secondary activity by leadership and delegated to staff who lack the authority or relationships to ensure that risks are being effectively evaluated and managed. The net effect is that risk management within these teams is lacking rigor and is not central to the daily management of either the project or turnaround.
The sudden change in circumstances wrought by the COVID-19 pandemic could potentially have a lasting impact on attitudes and mindsets. Based on our discussions here at AP-Networks with various organizations, it’s clear that the long-range economic and planning assumptions that underpinned so many projects and turnarounds are no longer valid. There is more uncertainty about everything, and a resulting need to better deal with potential issues and emerging threats before they become a crisis. An agile and effective risk management system can allow organizations to better identify and understand risks (both threats and opportunities), respond quickly to new issues, and escalate problems for faster response times.
Over the last decade, AP-Networks has worked with hundreds of project and turnaround teams to help embed risk management using our PYXIS™ tool. Risk management tools are no substitute for leadership and a pro-active organizational culture that is zealous about managing risk. However, they can help by providing a common framework, platform, and structure so that the high-impact risks are always visible. We recently integrated PYXIS into our digital platforms (Turnaround Network, Capital Project Network, and Upstream Network) to make risk management more accessible to the hundreds of organizations now using our work process deployment tool, NaviTrack™.
Contact us today to learn how we can help strengthen risk management at your organization.