Part of a Special Section covering the Nuclear Construction Summit USA 2009, October 26-27 – Washington DC
The Nuclear Construction Summit, USA 2009 was attended by professionals who finance, plan and develop next nuclear projects. Professionals delivered information that will form blueprints for successful financing and construction risk assessment and management at every phase of the construction cycle. From government and regulatory bodies to operator insight and in-depth contractor experience.
- Presented by Christopher Dann Partner and Director, Energy and Environment –
The attached pdf presentation from the NCS meeting details Strategic Decisions Group - SDG Approach: New Nuclear Strategy and Risk Management
A comprehensive, rigorous approach to strategic decision making and risk management is critical to the nuclear renaissance.
For nearly 30 years, SDG has been supporting energy clients in evaluating the value and risk of investments in nuclear power.
• We have been actively engaged with nuclear industry and societal decisions in the US and globally, supporting investor/owners, suppliers, and regulators.
• SDG is developing the strategy and risk management programs for several new nuclear plant developments in the US as well as abroad.
• SDG Experience - Nuclear Strategy and Risk Management
• SDG has performed the economic analyses for over half the major nuclear PWR steam generator decisions in North America.
• We have conducted hundreds of evaluations of some of the world’s largest capital investments and megaprojects.
• We have extensive knowledge of the US energy markets and the commercial, political, and regulatory context for nuclear power.
Demonstrating a comprehensive risk analysis and mitigation strategy is critical for nuclear developers for securing financing, political and regulatory support.
• Successful execution of these projects will require a robust decision making process that explicitly incorporates risk and uncertainty, considers alternatives and engages and aligns all of the stakeholders
• Risk management is central to this process and must go beyond traditional “weighting and rating” (e.g. heat maps) methodologies SDG Experience - Nuclear Strategy and Risk Management
•We have identified several “traps” that traditional risk management can exacerbate:
• Failure to incorporate pervasive risk and the interrelationships among key risk factors – especially between schedule risks and cost risks
• Failure to challenge the data and remove biases in risk assessments
• Over-reliance on detailed data and analytical methodology at the expense of the big picture
SDG has been successfully employing our decision-analytic approach to large capital project risk analysis and management for nearly 30 years.
What goes wrong with large capital projects?
• Insufficient advance planning and analysis
– Underinvesting in the "set-up" pre-construction period and taking short-cuts in planning and preparation
– Advance planning and procurement to deal with supply chain/manufacturing capacity constraints as well as labor shortages
– Inadequate understanding of the critical risks to cost and schedule and insufficient risk mitigation strategy development
• Not completing advanced detailed design engineering
• Not building a unified owner/contractor team: effective coordination and alignment of incentives among members of the consortium: OEM, developer, contractors and subcontractors
– Ineffective change order management/administration
• Organizational bottlenecks on fast track projects:
– Concurrent scheduling of interdependent tasks causes supervision and coordination information processing backlogs
– This “hidden work” can trigger delays, cost overruns and quality meltdowns
• Governance failures on large projects:
– Contracts—no matter how complex—are not adequate to allocate all material risks among project stakeholders over an extended planning, design, construction and operation period.
– Contracts must be augmented with governance mechanisms that can smoothly and legitimately realign costs and benefits for all key
stakeholders over time, as project context changes in ways that could not have been predicted.
What makes the problem complex?
Three primary dimensions:
Organizational: Alignment and commitment to an answer
• Values, desires, and motivations
• Fundamentally different frames and beliefs
• Group dynamics
• Habits and personalities
Content: Trustworthy inputs and insight
• Data overload or lack of data
• Constantly evolving information
• Many alternatives or none
• Biases
• Access to subject matter expertise
Analytical: The right logic to get the answer
• High uncertainty
• Complex dynamics and interrelationships
• Many independent drivers
• Consistency in risk assessment
• Organization structure
How do you capture the opportunities and manage the risks of large complex projects?
1. Robust decision making process
2. Integrated analysis of cost, schedule and economics
3. Identifying optimal contract structures
4. Building downstream flexibility
5. Organizational simulation
6. Robust governance
A decision making process that engages diverse stakeholders and fosters alignment around project execution and risk management is essential.
An integrated simulation of the cost, schedule and economics of a project is required to quantify risks and evaluate execution alternatives.
Our approach identifies key risk drivers and builds probability distributions over cost, schedule and economics.
Probabilistic analysis of the critical path is required to understand and mitigate the most important schedule risks.
It is critical to account for interrelationships among key risk factors, especially between schedule risks and cost risks.
We develop and evaluate the impact and trade-offs of alternative risk mitigation strategies.
The analysis can be used to determine what drives the difference between alternative project execution strategies.
Allocating risk effectively between different scope areas is critical to optimizing contract structure.
In SDG’s experience, the most significant commercial terms can mitigate over a third of the risk around project cost.
Downstream flexibility is an important source of value in project evaluation.
Recognize downstream decisions and exit ramps
Build flexibility into execution plans to mitigate risk or capture opportunity
Assess option value and understand the value of information
SDG is a strategy consulting firm dedicated to helping
clients create and deliver maximum shareholder and
stakeholder value.
• Diverse client experience — in virtually every industry sector, including
more than one-third of the world’s 100 largest companies (as measured
by market capitalization)
• What it takes to meet client goals — capability to manage risk and
uncertainty, creativity, analytical excellence, business knowledge,
integrity, teamwork, and dedication to client service
• A collaborative approach — work with clients on project teams to
transfer principles and processes for ongoing success
• Broad reach —Offices in North America, Middle East and India
SDG was founded in 1981 in Menlo Park as a spin-off from SRI (Stanford
Research International) by partners with close ties to Stanford University’s
schools of engineering and business.
SDG’s Energy & Environment practice has been at the leading edge of many of the critical strategic challenges facing the energy industry.
• Generation Portfolio & Asset Strategy – Support owners of the largest generation fleets to make decisions on asset investments, acquisitions, divestitures, retrofitting,
and to address uncertainties arising from market volatilities, fuel risks, environmental and other regulatory changes.
• Enterprise Risk Management – Support many leading companies in energy and other industries in assessing the value and risk inherent in their businesses and in
devising strategies for increasing value and minimizing risk in their portfolios.
• Nuclear Renaissance – SDG has been at the forefront of the nuclear renaissance and is supporting several developers of new nuclear plants in developing strategy and risk management for these massive investments.
• Energy System of the Future – Evaluate the potential market prospects and impact of emerging technologies and changing market needs on the energy system of the
future.
• Renewable Energy – We work with manufacturers, developers and utilities in addressing strategic challenges in this highly uncertain market.
SDG’s Energy and Environment practice’s clients represent more than 75% of the total electricity generated in the US.
Click here for the complete Strategic Decisions Group - SDG Approach: New Nuclear Strategy and Risk Management