Risk Connectivity A new method for understanding and analysing risk
It’s a connected world 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: • US East Coast black out 2003 • Banking crisis 2008 Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
The traditional way of looking at risks • Categorise risks according to likelihood x impact • Focus efforts on the most serious single risks Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
A different way of looking at risks The traditional approach: • Categorise risks according to likelihood x impact • Focus efforts on the most serious single risks Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
A different way of looking at risks How connected are the risks Categorise risks according to likelihood x impact x connectivity Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Connectivity a fundamental system property D A E B F C By understanding the connection between risks we can answer questions such like If risk A occurs does it make risk D and E more or less likely? If risk B occurs what affect it has on Risk D, E & F? This allows us to plan our strategy and decide which risk should be the focus of our risk management efforts Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Connections between individual risks Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Screen shot – clusters of risks Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
The small, highly-connected risk Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Risks prioritised for connectivity Risk = Likelihood (L) x Impact (I) x Connectivity(K) Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Establishing connectivity in terms of distance a b c d e f a 0 184 222 177 216 231 184 b 184 0 45 123 128 200 c 222 45 0 129 121 203 y d 177 123 129 0 46 83 e 216 128 121 46 0 83 f 231 200 203 83 83 0 X Connectivity diagram based on physical distance between node, illustrating strengths of connections and which nodes are most connected. Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Establishing connectivity in terms of data Physical proximity is not the only way to look at connectivity. Amazon uses customer data to identify similarities of interest. Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Deducing the connectivity of risk data Establishing which risks have which characteristics Extract from Ramp report data (ICE 2005) Project issues 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 Investment stage risks / Categories Loss of intellectual property rights 0 0 0 0 0 0 0 1 0 0 0 Claims for infringement of intellectual property rights 0 0 0 0 0 0 0 1 0 0 1 Non compliant design (failure to meet specified standards) 1 0 0 1 0 1 1 0 0 0 1 Design based on inadequate site investigation data 1 0 0 1 0 1 1 0 0 0 1 Professional negligence 1 0 0 1 0 1 1 1 0 0 1 Failure to agree development framework with sponsor 1 0 1 0 1 0 0 1 0 0 0 Failure to resolve conflicts of interest within promoting consortium 1 0 1 0 1 0 0 1 0 0 0 Contractual terms and conditions worse than expected 0 0 0 0 0 0 0 1 0 0 0 Failure to obtain approval/consents 0 0 1 0 1 0 0 0 0 0 0 Long delay before approval granted 0 0 0 0 0 0 0 0 0 0 1 Unforeseen modifications to project 0 0 0 0 0 1 0 0 0 0 1 Cost of obtaining approval higher than expected 0 0 0 0 0 1 0 0 0 0 0 Capital not available due to withdrawal by key organisations 0 0 1 0 1 0 0 0 1 0 0 Refinancing not available or terms worse than expected 0 0 1 0 1 0 0 0 1 0 0 Metals Summit London 2012 Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan
Identifying risks with shared characteristics Categories Business Economic Project Natural Financial Political/Social 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 rates a) Cost inflation/interest b) Currency fluctuations conditions c) Extreme economic a) Lack of definition b) Technical innovation c) Lack of leadership competence d) Lack of technical e) Lack of commitment control f) Poor planning and of project g) Inadequate resourcing framework h) Inadequate legal project i) Inadequate progress on j) Labour relations incompetence k) Human error or a) Bad weather eruption b) Earthquake/volcanic c) Fire or explosion conditions d) Adverse ground margins a) Inadequate financial risk b) Unbalanced sharing of Investment Stage / risk event Based on RAMP booklet data loss of intellectual property rights 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 claims for infringement of intellectual property rights 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 1 0 0 0 0 0 0 design based on inadequate site investigation data 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 1 0 1 1 0 0 0 1 0 0 0 0 0 0 professional negligence 0 0 0 0 0 0 1 0 0 0 0 0 0 0 1 0 0 1 0 1 1 1 0 0 1 0 0 0 0 0 0 failure to agree development framework with sponsor 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 0 1 0 0 1 0 0 0 0 0 0 0 1 1 contractual terms and conditions worse than expected 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 1 1 failure to obtain approval/consents 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 0 0 0 0 0 0 0 0 0 0 0 0 long delay before approval granted 1 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 unforeseen modifications to project 0 1 0 0 0 0 0 0 0 0 0 1 1 0 0 0 0 0 0 1 0 0 0 0 1 0 0 0 0 0 0 cost of obtaining approval higher than expe 1 1 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 capital requirements increased by inflation 0 0 0 0 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 capital not available due to market conditions 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 capital not available due to poor market perceptions of project 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 capital not available due to withdrawal of support by key organisations 0 0 0 0 0 1 0 0 1 0 0 0 0 0 0 0 1 0 1 0 0 0 1 0 0 0 0 0 0 1 1 refinancing not available or terms worse than expected 0 0 0 0 0 1 0 0 1 0 0 0 0 1 0 0 1 0 1 0 0 0 1 0 0 0 0 0 0 1 0 default due to insufficient project revenue 0 0 0 0 0 0 0 1 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 default due to external factors 0 0 1 0 1 0 1 0 1 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 inability to obtain land, access right, wayleaves 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 compensation costs higher than expected 1 1 0 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 delays due to force majeure 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 1 1 1 1 0 cost over-runs 0 0 0 0 0 0 0 0 0 0 1 1 0 0 0 1 0 0 1 1 1 0 0 1 1 1 1 1 1 0 0 Connection to other risks with the same characteristics Risk Connectivity John Summers, Jai Mahadeshwar and Neil Allan Metals Summit London 2012
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