Riskex and Major Capital Projects: Smoothing the Uncertainties through a Project's Life Cycle

As spending on major capital projects increases, so too does the potential for cost and schedule overruns, net present value (NPV) erosion, and negative investor and stakeholder reaction. A recent study on oil and gas megaprojects reported that 64% of projects are facing cost overruns and 74% are facing schedule overruns. With such robust planning processes in place, the industry is left wondering why these overruns are trending upward. Such a trend indicates that companies are failing to consider a major component of the oil and gas project life cycle: the quantification of risk expenditure (RiskEx). Monetizing risk holistically throughout a major capital project’s life cycle helps oil and gas companies quantify what is typically not included in capital and operational expenditure estimates. Incorporating RiskEx into project life cycles adds additional value to the projects by preempting any potentially high risk components that would have otherwise not been discovered.

Specific topics will include:

• A method to identify, assess, and financially quantify risks and associated mitigations that could affect major capital project development, such as regulatory, geopolitical, contractor-related factors, human capital, technical, etc.
• How to establish RiskEx into project economics to better understand how, when, and why plans may be affected
• How to use existing techniques to visualize risks that could result in project overruns
• The benefits of using RiskEx at various stages of projects
• An example using RiskEx to demonstrate the impact on project economics, which resulted in a drastic change on project decisions