back-to-back approach to risk management
DESCRIPTION
The standard approach of back-to-back in large Oil&Gas contracts is the right one? No, it's not, because each risk must be managed by the most competent party and not transferred to a supplier by defaultTRANSCRIPT
Limassol, 7 september 2014
Back-to-back approach toRisk Management
What’s the purpose of back-to-back ?
Cover our back!
Minimize our possible losses!
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How do we get there?
Back-to-back typically means transferring the uncertainties we “generate”, as clients,
with our project to our contractor(s).
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How do we get there?
Negotiation time: P75 12 months
Average project execution: P75 18 months
A completely different market situation
30 months, up to 48
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The efficient approach
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Allocate
Effective risk analysis
A client needs to understand who can best manage the uncertainty and allocate such
responsibility to that party
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Allocate
Effective risk analysis
Analysis by client: high likelihood of inability to assess uncertainty associated with contractor’s scope
Analysis by bidder: based upon client’s tender document balaced with desire/need to win the bid
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Effective risk analysis
Winning contractor should re-perform risk analysis taking into account that bid was won
Analysis by bidder: based upon client’s tender document balaced with desire/need to win the bid
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Identify
Effective risk analysis
Different contractual arrangementsgive rise to different sources of uncertainty.
Correct identification of stakeholders with ability and willingness to own risk is crucial.
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Effective risk analysis
Payment terms shall be different depending on the owner of the source of uncertainty.
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Effective risk analysis
Issues that cannot be controlled/managed at the project level should not be part of the risk management plan.
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Risk attitude is different among individuals and the same is true for organizations.
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AssignAllocate
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(Hillson, Murray-Webster 2007)
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When was the last time you measuredthe risk attitude of your top management
and of your overall organization ?
(Hillson, Murray-Webster 2007)
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And what aboutthe risk attitude of your suppliers?
(Hillson, Murray-Webster 2007)
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Back-to-back shall become the enabler to have the uncertainties outside our control
managed to our benefit in the same way we would do if we were in charge
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Risk ownership
Risk shall by owned by the
Party More CompetentAbout the uncertainty
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Win-win
I’ll cover your back and you’ll cover mine© Copyright WeRISK 2014