Look the other way and hope for the best? Not a good idea when managing large shutdown projects where there is always a risk of something going wrong. Huge budgets and potential profit are on the line. Only professional risk management can help identify, avoid and – where that isn’t possible – actively rectify project risks early on.
Text: Christian Raschke
The year: 2006. The place: San Marino Grand Prix in Imola, Italy. Chief mechanic Alistair Gibson signals too early to Jenson Button that he can leave his second pit stop; the team only barely escapes a catastrophe. Button stepped on the gas even though the fuel nozzle was still attached to the car. The pipe ripped open and liters of gasoline spilled across the pit. One of the mechanics was soaked head to toe in fuel. Nick Fryer, the team’s CEO, later confirmed to the press that the situation had been extremely serious. A single spark could have caused the fuel to explode. Fortunately a number of colleagues with fire extinguishers quickly arrived on the scene.
So what does this have to do with risk management in turnarounds? Like refueling and tire changes in the pit lane, plant shutdowns in the chemicals and primary industry are also prepared in meticulous detail. Here too, various sections and areas of responsibility have to be perfectly coordinated. In racing, around 20 mechanics take mere seconds to change four tires, refuel the car, readjust the chassis and aerodynamics, and clean the driver’s visor; between 500 and 4,000 people might spend several weeks working on a turnaround. But one thing is true in both cases: that window of time between stopping and getting going again is the key to winning – or losing if something goes wrong.
“If your next project has no risks, then don’t bother,” said Tom DeMarco and Timothy Lister over 10 years ago in their risk management guide “Waltzing with Bears”. But it seems that their message has yet to reach the majority of corporate decision makers. Gibson wanted to send his driver back out as quickly as possible. If the team had taken their time, then 11it’s likely nothing would have happened. Of course, he who dares, wins. And he also doesn’t lose precious time.
The same is true for managers who are under extreme pressure to realize a project in 30 days instead of a comfortable 40. Still, the chance to earn ten days’ worth of money means that most will take the risk. As on the racetrack, a good stop can make the difference between victory and defeat, so on site can a good turnaround convert huge losses into profits worth millions. Management’s top priority should therefore be to avoid any and all problems and delays and/or coun-ter them in advance.
“The fact that there is risk management in turnaround projects is a recognized standard,” Frank-Uwe Hess admits. Nevertheless, in his ex-perience as Co-CEO of T.A. Cook, the actions taken are often far too lax and too static. “Working with risks is a double-edged sword,” he says. Often a risk register is produced before a project kicks off. This register lists anything and everything that could threaten the success of the turnaround, such as bad weather, insufficiently qualified personnel, unexpected repairs, missing materials or the absence of key personnel.
Preventive measures are defined accordingly in order to prevent these risks from occurring, possibly supplemented by countermeasures in case they happen anyway. And that’s that: the register is hidden away in a drawer, at least until a problem actually arises. The register gives everyone a false sense of security, thinking that they have considered absolutely every eventuality. Ignoring risks this way is all too human. The risk manager is often also the shutdown manager. Their main concern is that the turnaround is a success, and they are more than happy to trust in the motto “so far, so good.”
Risk management costs time and money after all and even in the best cases, most managers think that effort is in vain. “As a result, only very few are adequately prepared for their project getting into difficulties,” says Mr. Hess. A professional approach thus has to go much, much further and empower shutdown managers to take preemptive action. The goal must be not to “manage away” risks, but rather to be consciously aware of them, keep an eye on them and not just initiate countermeasures or preventive measures.
“Risk managers have the thankless task of putting pressure on pain points,” says Mr. Hess, describing what he and his colleagues bring to consulting projects. A risk is classed as anything that could potentially threaten a shutdown and/or its targets for quality, costs, duration as well as the environment, safety and health. The challenge is to identify the said risk. “We are seeing companies focus more intensively on risk management,” says Gert Müller, Senior Manager at T.A. Cook, who analyzes shutdown projects and helps with preparation and follow-up, “but many hazards are simply not recognized as risks.”
The differentiation between hazard and risk is essential to a progressive approach. A hazard is latent and only becomes a risk when it directly impacts on the project. One of the simplest examples of this is the weather. Subtropical regions are at risk from days of rain so heavy that it stops people from working, either in part or completely. This rain only becomes a project risk if management neglects to take premeasures, such as providing temporary roofing, or has planned the shutdown period with no buffers.Taken all together, this means that risk management has to start well before the shutdown, at the same time as it is being planned.
“A comprehensive risk register is the ideal starting point,” says Mr. Müller. In practice, companies often produce this list using lessons learned in previous turnarounds. And that is a good foundation, but with one major flaw in that any potential problems that by chance did not occur in the past are basically ignored and not taken into consideration. “In the worst cases,” says Mr. Hess, “the risk register is recreated from scratch before every project.” Not only does that lead to more work, it is also extremely error-prone since there is no standardization of any kind.
T.A. Cook, for example, encourages its clients to first develop a non-project-specific TAR standard risk register. Depending on the customer’s industry, the register should cover between 100 and 150 potential hazards, such as the late delivery of materials or outstanding permits. It must also include more banal items, such as an insufficient number of parking spots or swing gates in cases where 3,000 workers have to get onto the site during a shutdown rather than the usual 300. “The hazards are always the same; whether they evolve into risks depends on the circumstances at the time,” says Mr. Müller. “Are they relevant for my project or not?
”What remains is a condensed, project-specific list of risks divided into nine hazard areas: scope, organization, management, work planning, capex involvement, scheduling, purchasing and sourcing, environment, safety, health and quality, and execution. “The most popular tool for managing identified risks is the risk matrix,” Mr. Müller explains. For example, the matrix uses two axes – one for probability of occurrence and one for impact – to map the risk of a contractor turning up with low-skilled personnel. As a preventive measure, the contractor is usually given instruction and has to provide certificates as evidence of their qualifications. But according to Mr. Müller, “that’s not enough. It is no help at all if you can predict an issue but have no plan B in place.”
The “bow tie” model used by the Senior Manager and his colleagues is unlike conventional approaches in that it documents preventive countermeasures alongside the usual risks and their consequences. These so-called “barriers” can stop a risk from occurring. If a risk nonetheless occurs, then the bow tie model also outlines contingency plans in the form of potential countermeasures (plan B). The term “bow tie” refers to the way in which hazards, risks and effects are visualized.
“The risk is placed in the center, with hazards and barriers to the left and impact and contingency measures to the right, so that it looks like a bow,” says Mr. Müller. Typical barriers include putting weather proofing and temporary tents in place so that workers can still do their jobs in poor weather conditions, or having another contractor on standby that can immediately jump in on critical tasks and help out if the original provider is too slow. Right up until the dress rehearsal: “A trial run is a simulation of a full working day during a shutdown.
From the bus journey to the plant, through safety orientation, typical activities and material transport, to acceptance and documentation,” explains Dirk Träger. At 51 years old, Mr. Träger is CEO of the T/ANGO Turnaround Management Group, a company specializing in turnaround/shutdown management that mainly delivers project management services. “It might cost some money, but the findings we obtain can be used to overcome challenges during the actual shut-down, and that makes up for the cost many times over.”
Mr. Müller adds that it is often relatively simple, ordinary measures that go wrong, “which makes contingency measures even more important.” If the worker trained to operate a freight elevator is off sick, then it can bring an entire subproject to a halt. Without a qualified operator, no materials can be transported to the construction site unless, of course, management has had the foresight to train addi-tional personnel beyond their usual duties to be able to take over in an emergency. Although minor issues such as these can be managed relatively easily, it is the overarching impact of all project risks, such as additional costs or delays, that is far more difficult to capture.
Can the plant be restarted on schedule? Will the project stay on budget? Are contractors delivering the needed quality? Project managers are unable to give serious answers to these frequently asked questions, say the experts: “It is impossible to know the answers to questions about future events. ”Nevertheless, these questions can be a useful risk indicator when managers start asking counter-questions. “What can I learn about the things I don’t know?” Can the scope be frozen as planned? The honest answer to this question would have to be “I don’t know.”
What shutdown managers can actually find out is the ratio of scope remaining versus time remaining. Another common question might involve the share of qualified inhouse and less qualified external personnel provided by contractors, or the progress of construction and approvals for a capex project to be integrated. Anyone who takes risk management seriously will therefore define some kind of early warning system instead of merely stowing the risk register in a drawer.
These people continuously monitor KPIs to check how the probabilities of risks occurring change over time. “18 months before the start of a turnaround, it is not a major issue if the ratio of planned scope and remaining time do not align 100 percent,” says Mr. Müller. “I still have time to react and recruit additional planners.” If the problem is not addressed until seven months beforehand then it will be that much more difficult to respond.
BOW TIE MODEL
Whether to respond, and how, is also a question of trade-offs. In their book “Waltzing with Bears”, DeMarco and Lister describe two events drawn from everyday life. Any sensible driver will step on the brake if they see a ball roll into the street. True, a rolling ball does not necessarily indicate that a child is about to run in front of your car, but most people would prefer to be safe than sorry. The same cannot be said of people watching the weather report before taking a weekend trip to the beach.
Even if the five-day forecast shows early signs of rain, very few people will cancel their trip at that point, preferring to wait and watch for a few days. T.A. Cook supports companies in documenting and identifying the impact of risks using its proprietary Excel management tool. For all risks listed in the bow tie model, either the experts or the customer give an assessment of the corresponding risk exposure or potential hazard. “This assessment is structure-based and expressed as precisely as possible,” Mr. Müller explains. Take the example of accurate scope creation.
A development status is assigned from 1) On schedule to 5) Deviates strongly from schedule; there is no initial list available. “This is how we ensure that the assessment is as accurate as possible,” he says. After all, an accurate assessment is absolutely essential for a mathematical model to quantify the risk impact in terms of quality, safety, costs and duration – down to the last euro for the latter two points. “It’s true that this can only ever be a snapshot, since risks are constantly evolving throughout the entire preparation phase,” says Mr. Müller, “but that in itself is an enormous help when taking concrete decisions.” T.A. Cook calls this process “dynamic risk management.”
Anyone who talks to the Board in terms of euros and cents is more likely to be heard – and can also eradicate the preconception that risk management costs a lot and achieves little. Data-driven analysis using the dy-namic bow tie model clearly demonstrates that good risk management is less of a cost factor and more of a tool for proactive and successful shutdown management. “I have to know that I am in control of risks to be able to conscious-ly take them and capture opportunities,” Mr. Müller concludes. It worked for Jenson Button and his former Honda team. Just two and a half months later the British driver celebrated his first ever Formula 1 victory at the Hungarian GP.