Three cases where quantitative risk assessment was paramount

Three cases where quantitative risk assessment was paramount

Oct 19th, 2022

Oftentimes we hear people objecting to quantitative risk assessments (QRA). Thus today we show three cases where quantitative risk assessment was paramount.

Now, do not get mistaken, those are not the only cases where QRA is useful. However, they are particularly significant.

Risk review of a mining mega project

New projects are always exciting. Therefore their promoters oftentimes get emotionally attached to them to the point of forgetting that they may be exposed to significant risks. The use of codes and “proven solutions” is oftentimes seen as a warranty for success and reliability. Unfortunately equally code-compliant projects and designs may have completely different risk exposures. Furthermore, a perfectly code-compliant project may generate intolerable risks.

Furthermore, the habit of using NPV as a alternative discriminant reinforces the prior point, as the evaluation “forgets” an explicit consideration of annualized risks.

A client called us in to perform a risk review for a  mega project. The designers had performed a risk assessment of their own design, a no/no from a ethical and conflict of interest point of view. They had focused on the tailings dams and other major mining features and used a FMEA.

We did a screening level QRA on the access road, diversions, creek protection and power. We looked at “present conditions” and potential climate change scenario. The aggregated risks from these elements was a multiple of the annualized risk we evaluated for the tailings dam. Even by using stronger design criteria the risks remained intolerable.

We told the client to run away from that project. They are still our clients today.

Now, try doing that and be able to defend it with FMEA!

Cost estimate quantitative risk assessment

We just spoke about costs and NPV. Thus, it is quite logical to tell another case story. This one relates to a complex power-generation refurbishment project, in the billions of dollars, just to give an idea. Our client was the construction company. They were negotiating their contract. The owner of the operation to refurbish wanted a fixed price. Thus, the question our client asked was: what contingency should we use?

We performed a risk assessment on their cost estimate.

  • What could delay their work?
  • Which logistic challenges could they face? And finally,
  • What could be the potential cost variation of materials, equipment, labor, etc?

For each item in the cost estimate we evaluated probability of occurrence and cost impact. Thus, at the end we had an aggregated risk. After comparing this to the client tolerance for cost variation we arrived to a contingency estimate.

For that particular project the evaluated contingency was 35%, well in line with PMI PMBOK Guide | Project Management Institute (pmi.org).

So, try to do that with a qualitative approach!

Egress risks and buffer stock sizing

Many mining operations rely on specialized or generic railroad or highways to egress and to get their concentrate or products to commercial wharves. Various clients have asked us:

  • What could be the business interruption of the egress route under natural and/or man-made hazardous conditions?
  • Can you evaluate a distribution and hence the business interruption we should insure for? And finally,
  • Can you risk-size the buffer stocks at the wharves that would shelter us from the intolerable risks and reduce our annualized exposure to xM$?

One can answer these questions if one performs a QRA on the egress route. That is exactly what we did each time we had a similar question. Thus our clients obtained risk-informed decisions on their insurance and the size of their buffer stocks.

Now, try to do that we a FMEA or a qualitative approach!

Closing remarks on three cases where quantitative risk assessment was paramount.

As mentioned earlier, the cases we described above represent the tip of the iceberg of the use of quantitative risk assessments in mining and industrial projects.

Our readers know from prior blogposts and our books and papers that each time a client requests a portfolio prioritization or an alternative comparison a QRA is the best solution we can offer.

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Category: Consequences, Mitigations, Optimum Risk Estimates, Risk analysis, Risk management

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