Risk Management, the Right Way

You probably haven’t thought much about it, but each of us applies or is affected by a variety of risk-based assessment methods every day.

We decide where and how to invest savings for our kid’s college education. A traffic light turns yellow and we decide to brake or accelerate. Our health and life insurance premiums are based on an underwriter’s assessment of the risk our current health and lifestyle pose. Before surgery our doctor explains the risks. TV commercials for any number of medicines identify the benefits and side effects. We diversify our retirement investments to minimize the impact of global events.

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While each industry has evolved its own risk-based assessment methods, all have a common theme. Identify the potential risk event, quantify the consequences, establish the event likelihood, and when possible take action to mitigate the risk.

The benefits associated with risk management is well documented and receiving more and more credibility with each passing day.

For example, in 2001 the U.S. Food and Drug Administration (FDA) began encouraging the life science industry to apply risk-based assessments in determining if new processes and/or technologies can be used to safely produce health care products.

Or consider that for more than two decades, process industry safety experts have been applying risk-based assessments to determine the appropriate level of protection that a safety-instrumented system (SIS) must achieve.

While the rest of the world seems to be relying more and more on risk management, few projects include a formal risk management plan, which is unfortunate because managing risk is what project management is all about.

Among the outmoded thinking that prevents using risk-based assessments as part of project management are:

• It is not part of our organization's culture.



• As soon as you start to think about all the potential risks, the number and variety become overwhelming.



• Risk management requires too much effort. ("Besides, we always include contingency money!")

Changing such perceptions takes time accompanied by celebrated successful projects. A really good first step to change such outmoded thinking is to apply risk management techniques when selecting a project management organization.

Where to begin

Each and every risk assessment model requires identifying the risks or harmful events.

To a process safety expert, too much temperature or too little pressure may represent a safety risk. For each identified risk, these experts seek to answer two questions: “What’s the likelihood the risk will actually occur?” and “What will be the likely consequences?”

Once these questions are answered, the safety experts working in conjunction with process, mechanical, and instrumentation experts, redesign the process or add other forms of protection to reduce the likelihood and/or mitigate the consequences.

The same is true with project management. Certainly an experienced project manager is important, but automation projects are successful because the entire project team – the project manager, engineers, technicians, systems, product support, management commitment, financial resources, and more – performs in harmony.

That’s what’s being referred to when we talk about project management organizations. The presence or absence of all these elements is what determines the quality, depth and suitability of a project management organization.

Certainly organizations exist with really talented lead engineers who are also capable project managers, and for some projects that may be all that’s needed. However, without a risk assessment, users won’t know which project management organization is most experienced and best equipped to mitigate identified project risks.

Meeting that challenge requires users begin by identifying and documenting obvious project risks (events) and then quantifying the likelihood and consequences associated with each of those risks before beginning the project management organization search.

Consider P&IDs (Piping and Instrumentation Diagrams) and detailed process descriptions as two typical project scope items. The risk of not completing these standard inputs for an automation vendor is determined by the likelihood that they are approved for construction by a certain date, and the consequences if they are not. Thus the risk, likelihood and consequences associated with P&IDs and process descriptions is understood, and the information provides for valuable dialogue with candidate project management organizations.

Logistics may also represent an automation system project risk. For example, what if the automation system is to be engineered in the U.S., integrated and tested in Asia, and installed in the Middle East? Such a situation definitely represents a logistical risk that users and candidate project management organizations must discuss.

These are but two examples of possibly hundreds of automation project risks. Eliminating or at least mitigating project risks requires identifying and documenting as many risks as possible before the project launch date. Not only will such an exercise help minimize project risk; it will also serve as a valuable means of evaluating candidate project management organizations.

After automation project risks are identified, quantified, and documented, users are ready to begin evaluating candidate project management organizations.

Basic project essentials

If asked, we’d all agree there are some things that are essential to every project regardless of project type. If asked to recite what these basic project essentials are, the list would include such things as scheduling, cost containment, scope management and reporting.

As you begin interviewing and evaluating project management organizations you’ll want to understand how each addresses, manages and reports these basic project essentials. While each candidate organization will have a compelling story to share, what you’re seeking is an organization that fits into or can adapt to how your company executes projects. This becomes especially important when the automation project is a sub-project of a larger project and everything is feeding into an overall project schedule.

You’ll also want to examine each candidate’s additional basic project essentials including its tools, techniques and methodologies.

Though the following is not an exhaustive list, it illustrates the breadth of project essentials users should hear and learn about when interviewing candidate project management organizations.

• Common project execution framework – Look for organizations with a standardized framework that describes how the project is organized, reported, etc. Ensure, by asking probing questions, that this framework is used by all project managers and project engineers. Best-in-class project management organizations establish this framework as part of their ISO 9001 certification process. Ask to examine the documentation and certifications. Be sure this is a “living” framework and not something that’s been collecting dust on a shelf for the past few years.



• Continuous improvement process – Look for organizations that use a formalized continuous improvement process that includes defining, analyzing, implementing, and controlling project execution improvements. Ask the candidate companies what “lessons were learned” on the past few projects and find out how those lessons have been incorporated in the project execution framework.



• Quality control methodology – Measuring quality in “people-dominant” business activities, such as project manager or engineering lead, is subjective, elusive and frequently avoided. However, progressive companies find ways to measure the quality of people-dominant activities. Seek project management organizations that use a quantified methodology to measure a host of project deliverables, including people as well as “things.” Explore the variety of metrics that are used to track project quality, how often those metrics are updated, and how they will be reported for your project.



• Industry specific standards and regulatory requirements – Look for organizations with thorough knowledge and a well-documented approach to complying with local, regional, national and international regulatory requirements such as OSHA 1910 process safety management; FDA installation, operational and procedural validation; GAMP (Good Automation Manufacturing Practices); EPA; IEC-61508 and -61511 process safety; etc. You know what standards and regulations are most important and applicable to your project. Ask probing questions of key project personnel that likely will be involved with your project to determine the depth of their standards and regulatory knowledge.



• Experienced, dedicated project management – Look for an organization that is trained and measured on their project management abilities and performance. You’re seeking one that understands not only many of the technical nuances of specific automation system entities, but also understands the commercial issues and has established relationships with and access to various divisions and alliance partners. Ask to review the resumes and recently completed training records of key project personnel that may be working on your project. Use what you’ve learned about the organization’s project execution framework, continuous improvement and quality process to interview the people you’ll likely be working with. Interview them as if you’re going to hire them – because you are.

We’ve all heard the “project from hell” horror stories and while these are often humorous to listen to, those who “lived” them didn’t see anything humorous about them at the time.

Doing your homework and examining a candidate organization’s basic project essentials is an excellent beginning to avoid having your own “project from hell” story to tell.

When you’ve completed the evaluation of candidate organization’s basic project essentials, it’s likely some won’t make your short list. For those that do, the next step is to examine what each remaining candidate organization has to offer in the way of advanced project offerings.

Advanced project offerings

Earlier we explained that a project management organization includes the project manager, engineers, technicians, systems, product support, management commitment, financial resources, and more. As you begin to examine the tools, techniques, and methodologies offered by the different candidate project management organizations, several advanced offerings will be engineering oriented while others are best described as being business-related.

Advanced business related project offerings include:

• Guaranteed results – Depending on a number of variables (e.g., technology, culture, logistics, etc.) some companies will guarantee that what they design and install will achieve defined results. Just be sure that the company you are evaluating has the ability to follow through on any guarantees, and that you have read the fine print.

Resource depth – You know what’s driving the project from a corporate perspective; how likely is it that your management will throw more money at the project in order to shorten the schedule and/or increase the scope? If that’s even a remote possibility, you’ll want to understand the depth and quality of resources the candidate organization is able to muster on short notice.

Turnkey responsibility – You may not be intending for the candidate organization to take responsibility for all field instrumentation, analyzers and controls valves, but you never know how responsibilities and staff assignments within your company might change. It certainly wouldn’t hurt to know the breadth of control and instrumentation capabilities and the application experience candidate organizations have available.

Certainly other business-related project offerings exist, and just because a candidate project management organization doesn’t mention the specific one or two you’re seeking doesn’t mean they don’t know how to provide it. Ask and you may be pleasantly surprised.

Though there is no formal definition of what constitutes an advanced project tool, technique or methodology, a few in the area of engineering that come to mind include:

• Library of pre-tested and fully-documented software modules – Developing reusable, modular software is a pretty common practice today, so if you ask if a candidate organization has or use these, the answer will always be “yes.” You’re going to live with the application software for a long time. What you really want to know is if their existing library of modules is applicable to your process, project and other business requirements. Spend time learning the reusable software module architecture they are offering. Try to determine if the architecture makes sense for how your company supports application software. Ask to see a documented application package. Does the documentation include detailed test procedures? Will the test procedures and results help to minimize future validation effort for the project? Be sure to ask how other clients have leveraged the software modules for this purpose.



• Advanced process control expertise – Increasingly, automation system manufacturers are including fuzzy logic, neural networks, Model Predictive Control (MPC), and other advanced control algorithms as standard function blocks. Do you know how to determine if your application would benefit from any of these? If any of these are used, will your company be able to support them long-term? Seek organizations that have proven experience developing and applying advanced process control algorithms using the very same tool set that is being included in your system.



• Fieldbus design and implementation expertise – There’s a right and wrong way to do just about everything. If you’re new to or just thinking about using fieldbus technologies, you will need engineering assistance. And just because this is a form of digital networking, don’t think that a solution engineered by IT is the answer. For that matter, don’t believe that just because someone’s knowledgeable about the engineering and installation nuances of one fieldbus technology makes them knowledgeable about all fieldbus technologies. Once a digital fieldbus is installed, you’re going to live with it for a very long time. Get it right and you’ll love the results. Get it wrong and it’ll keep you awake at night – literally. Seek organizations with experience in engineering and installing multiple fieldbus technologies.



• Automation system hardware – Ordering and shipping automation system hardware and software to the project engineering location is costly and risky. Costs include having to order and pay for the system well before it’s needed at its final destination. There’s also the unexpected cost of insuring the system while it’s at the project engineering location and/or in transit. Risks include damaged or lost components as well as failure to install important system upgrades. Look for organizations that have their own system hardware. Better yet, look for automation systems that can simulate controller and I/O functions in a standard personal computer.
  
  By decoupling application software development from the system hardware, you should be able to receive the latest hardware, at the right time, and most importantly application software development and testing may be done in parallel to hardware testing and installation on site.



• Software license – Most automation system manufacturers use some form of software licensing to manage the automation systems capabilities and size. While this helps manage costs – you buy only as much automation system as you need – often you don’t know how much you need until the project is well under way. If you must ship the automation system to the project engineering location, you’ll have to make a “best guess” of how large a software license to purchase. Guess wrong and you may face delays and certainly will incur additional costs obtaining the new license. Look for project management organizations that have their own hardware and “unlimited” software licensing capability. Not only does this delay purchasing hardware until the site’s ready to receive and install it, but you end up buying the correct size and capability software license the first time.

Certainly this list could be expanded, but you get the idea.

In order for an automation project to have a better than 50/50 chance of success, the basic project essentials described above must be in place. After that, the projects probability of success increases with the addition of project appropriate advanced project offerings.

When stated like that, it seems that ensuring project success is fairly easy to achieve. The problem is no two automation projects are exactly alike. Even “sister plants” that are said to be “exactly” alike, or at least “really quite similar,” never are exactly alike and probably aren’t all that similar. This introduces additional project risks that are most likely to be mitigated by ensuring the basic project essentials are firmly in place and are appropriately augmented with a mix of advanced project offerings. And that’s best achieved through the application of risk management techniques we’ve been discussing.

It’s the diligence you apply to the risk-based assessments that will help decide if a project management organizations basic essentials and advanced project offerings are really well suited to mitigate identified project risks.

So let’s recap: The potential for automation project success greatly increases when users:

1. Identify, quantify, and document project risks prior to setting out to find an appropriate project management organization.



2. Ensure the basic project essentials of candidate organizations are in place and mesh well with other project disciplines and how your company executes projects.



3. Examine, evaluate, and add appropriate advanced project engineering and business related offerings.



4. Interview those persons in a candidate organization as though they’re about to be hired, because that’s exactly what’s about to happen.

Just as you wouldn’t invest your kid’s college fund or your retirement nest egg in a mutual fund without first examining the fund's investment risks and potentials – including the fund manager’s philosophy and track record – you shouldn’t invest your company’s money in a process automation project without first ensuring the project manager, engineers, technicians, systems and product support are experienced and well suited for your specific project. You must also make sure the management commitment and financial resources to support the project are solid and will be available for the life of your system.

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About the Authors

John Nita is a senior principal engineer with Emerson Process Management. Over his 10-year career, he has held positions in process engineering, project management, and plant technical and operations management.

Luiz Correa is a project manager with Emerson Process Management. During his 15 years with Emerson, he has held positions in custom hardware engineering, application software engineering, project engineering and project management.