back-to-back approach to risk management
DESCRIPTION
The standard approach of back-to-back in large Oil&Gas contracts is the right one? No, it's not, because each risk must be managed by the most competent party and not transferred to a supplier by defaultTRANSCRIPT
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Limassol, 7 september 2014
Back-to-back approach toRisk Management
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What’s the purpose of back-to-back ?
Cover our back!
Minimize our possible losses!
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How do we get there?
Back-to-back typically means transferring the uncertainties we “generate”, as clients,
with our project to our contractor(s).
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How do we get there?
Negotiation time: P75 12 months
Average project execution: P75 18 months
A completely different market situation
30 months, up to 48
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Allocate
Identify
Evaluate
Assign
The efficient approach
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Allocate
Effective risk analysis
A client needs to understand who can best manage the uncertainty and allocate such
responsibility to that party
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Allocate
Effective risk analysis
Analysis by client: high likelihood of inability to assess uncertainty associated with contractor’s scope
Analysis by bidder: based upon client’s tender document balaced with desire/need to win the bid
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Allocate
Effective risk analysis
Winning contractor should re-perform risk analysis taking into account that bid was won
Analysis by bidder: based upon client’s tender document balaced with desire/need to win the bid
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Allocate
Identify
Effective risk analysis
Different contractual arrangementsgive rise to different sources of uncertainty.
Correct identification of stakeholders with ability and willingness to own risk is crucial.
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Effective risk analysis
Payment terms shall be different depending on the owner of the source of uncertainty.
Allocate
Identify
Evaluate
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Effective risk analysis
Issues that cannot be controlled/managed at the project level should not be part of the risk management plan.
Allocate
Identify
Evaluate
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Risk attitude is different among individuals and the same is true for organizations.
AssignAllocate
Identify
Evaluate
Assign
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AssignAllocate
Identify
Evaluate
Assign
(Hillson, Murray-Webster 2007)
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AssignAllocate
Identify
Evaluate
Assign
When was the last time you measuredthe risk attitude of your top management
and of your overall organization ?
(Hillson, Murray-Webster 2007)
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AssignAllocate
Identify
Evaluate
Assign
And what aboutthe risk attitude of your suppliers?
(Hillson, Murray-Webster 2007)
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Back-to-back shall become the enabler to have the uncertainties outside our control
managed to our benefit in the same way we would do if we were in charge
AssignAllocate
Identify
Evaluate
Assign
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Risk ownership
Risk shall by owned by the
Party More CompetentAbout the uncertainty
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Win-win
I’ll cover your back and you’ll cover mine© Copyright WeRISK 2014