Risk Connectivity A new method for understanding and analysing risk - - PowerPoint PPT Presentation
Risk Connectivity A new method for understanding and analysing risk Its a connected world Connectivity is fundamental to the ways things work. Because its a connected world, risks are also connected. Small failures can lead to bigger
Connectivity is fundamental to the ways things work. Because it’s a connected world, risks are also connected. Small failures can lead to bigger ones:
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
The traditional approach:
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
By understanding the connection between risks we can answer questions such like
This allows us to plan our strategy and decide which risk should be the focus of our risk management efforts
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Connectivity diagram based
node, illustrating strengths of connections and which nodes are most connected.
a b c d e f a 184 222 177 216 231 b 184 45 123 128 200 c 222 45 129 121 203 d 177 123 129 46 83 e 216 128 121 46 83 f 231 200 203 83 83
184
X y
Metals Summit London 2012
Physical proximity is not the only way to look at connectivity. Amazon uses customer data to identify similarities of interest.
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Establishing which risks have which characteristics
Extract from Ramp report data (ICE 2005) Project issues
Investment stage risks / Categories
a) Lack of definition b) Technical innovation c) Lack of leadership d)Technical incompetence e) Lack of commitment f) Poor planning and control g) Inadequate resourcing h) Inadequate legal i) Inadequate progress j) Labour relations k) Human error
Loss of intellectual property rights
1
Claims for infringement of intellectual property rights
1 1
Non compliant design (failure to meet specified standards)
1 1 1 1 1
Design based on inadequate site investigation data
1 1 1 1 1
Professional negligence
1 1 1 1 1 1
Failure to agree development framework with sponsor
1 1 1 1
Failure to resolve conflicts of interest within promoting consortium
1 1 1 1
Contractual terms and conditions worse than expected
1
Failure to obtain approval/consents
1 1
Long delay before approval granted
1
Unforeseen modifications to project
1 1
Cost of obtaining approval higher than expected
1
Capital not available due to withdrawal by key organisations
1 1 1
Refinancing not available or terms worse than expected
1 1 1
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Categories
Political/Social
Business Economic Project Natural Financial
Investment Stage / risk event Based on RAMP booklet data
a) Government b) Public opinion c) Environmental change d) Legislation e) Wars, terrorism, riots f) Poor public relations g) Crime a) Demand failure b) Competition c) Premature obsolescence d) Safety standards a) Cost inflation/interest rates b) Currency fluctuations c) Extreme economic conditions a) Lack of definition b) Technical innovation c) Lack of leadership d) Lack of technical competence e) Lack of commitment f) Poor planning and control g) Inadequate resourcing
h) Inadequate legal framework i) Inadequate progress on project j) Labour relations k) Human error or incompetence a) Bad weather b) Earthquake/volcanic eruption c) Fire or explosion d) Adverse ground conditions a) Inadequate financial margins b) Unbalanced sharing of risk loss of intellectual property rights
1 1claims for infringement of intellectual property rights
1 1design based on inadequate site investigation data
1 1 1 1 1professional negligence
1 1 1 1 1 1 1failure to agree development framework with sponsor
1 1 1 1 1 1contractual terms and conditions worse than expected
1 1 1failure to obtain approval/consents
1 1 1 1long delay before approval granted
1 1 1 1unforeseen modifications to project
1 1 1 1 1cost of obtaining approval higher than expe
1 1 1 1capital requirements increased by inflation
1 1 1capital not available due to market conditions
1capital not available due to poor market perceptions
capital not available due to withdrawal of support by key organisations
1 1 1 1 1 1 1refinancing not available or terms worse than expected
1 1 1 1 1 1 1default due to insufficient project revenue
1 1 1 1default due to external factors
1 1 1 1 1inability to obtain land, access right, wayleaves
1compensation costs higher than expected
1 1 1 1delays due to force majeure
1 1 1 1 1 1 1cost over-runs
1 1 1 1 1 1 1 1 1 1 1 1Connection to other risks with the same characteristics
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Categories
Political/Social
Business Economic Project Natural Financial
Investment Stage / risk event Based
a) Government b) Public opinion c) Environmental change d) Legislation e) Wars, terrorism, riots f) Poor public relations g) Crime a) Demand failure b) Competition c) Premature obsolescence d) Safety standards a) Cost inflation/interest rates b) Currency fluctuations c) Extreme economic conditions a) Lack of definition b) Technical innovation c) Lack of leadership d) Lack of technical competence e) Lack of commitment f) Poor planning and control g) Inadequate resourcing of project h) Inadequate legal framework i) Inadequate progress on project j) Labour relations k) Human error or incompetence a) Bad weather b) Earthquake/volcanic eruption c) Fire or explosion d) Adverse ground conditions a) Inadequate financial margins b) Unbalanced sharing of risk
delays due to force majeure
1 1 1 1 1 1 1delays due to other causes
1 1 1 1 1 1 1 1 1Comparing a pair of risks: of 14 marked characteristics, 2 are shared – numbers 5 and 24. Connectivity between all risks can now be determined.
Program outputs – connectivity maps and clusters; identification of small, highly connected risks; priorities for action.
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk connectivity does not replace traditional risk analysis but is an additional tool. The new program: Illustrates connections between risks (within single registers, product groups or group functions, or across the business as a whole) Identifies small but highly connected risks that might otherwise be
Identifies clusters of risks and strengths of connections Provides insight into how risks might unfold, how quickly, and how widespread the impact might be Improves the quality and value of risk data and helps to inform and focus risk-management activities.
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Metals Summit London 2012
John Summers
BSc, MSc, CEng, MIRM, MIMMM
Chief Risk Advisor Rio Tinto PLC
www.riotinto.com john.summers@riotinto.com Mob: 07711 100595
20
31 October – 3 November 2011
Finance Senior Leadership Conference 2011: Broadening our capabilities
Neil Allan
BSc, MBA, CEng, MICE, SIRM
Managing Director
www.systemicconsult.com Mob: +44 (0)7739897698 Fellow & Founder University of Bristol and Bath Systems Centre
Carpenter House Broad Quay Bath