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Risk Exposure for Saudi Arabia Nuclear Power Plant (NPP) Project

image credit: Saudi Arabia Skyline (image from google)

by Mark Gino Aliperio

Introduction

By nature, any project can be filled with uncertainties that can significantly impact its endeavor. In the current status quo, due to poor economic conditions and tough competitions, organizations must face various risks at a time. Although, the extent of these risks may vary, but risks in general affect the productivity of any given project. To achieve success in a project, best practices must be adopted in every aspect of it. Without any exception, as one of the best practices, Project Risk Management is the only way to remain safe from adverse effects of project risks and to deliver sustainable benefits.

In addition, Project Planning is needed for a successful project delivery and it is a key component to be considered before project execution commences. Some unplanned events are usually associated with the project delivery, and these events are characterized by their effects to the project and their attributes either positively or negatively. This kind of events are termed as Risk Event which is a future uncertain discrete occurrence that has an impact on a project activity or outcome. The uncertainty that a risk event will occur is described by a probability from 1% to 99%. The impact can be on any project attribute or project outcome such as schedule, cost, safety, quality, etc. Risks with negative impact or adverse effects are termed downside risk, or threats. On the other hand, risk with positive impacts or desirable effects are termed upside risk, or opportunities.

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Risk, defined as a potential event that may or may not occur, has three (3) components: a root cause; a probability of occurrence that the root cause will affect the project; and an impact or consequence of that root cause on the project. Understanding and managing risk is important because project outcomes are not guaranteed. To have control over the project outcomes risk must be understood and actively managed. Risk implies uncertainty in the future and effective management must alter these uncertainties to the advantage of the project.

In this project, risks from different categories are identified and evaluated. The broad categories ranges from financial, political, external, to technical, legal, and environmental factors that are found in the whole project life cycle. The case considered in the risk identification is a construction of a two-unit Advanced Power Reactor (APR-1400), to be executed by Korea Electric Power Company (KEPCO), in Saudi Arabia. The Risk Management Process follows the guidelines 3 of the Project Management Institute’s (PMI) Project Management Body of Knowledge (PMBOK). Also, a Project Risk Management Guide of Saudi Aramco is referenced to understand the nature of risks in Saudi Arabia. Saudi Aramco is also a world leader in delivering energy.

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Risk items are described by its state of being vulnerable or exposed. Risk Exposure is defined as risk probability multiplied to its corresponding impact. It is a means of comparing risks to determine which have the greatest threat or opportunity to the project, and which risks should receive the most management. In this project, risk exposures are utilized as basis on which of the risk items is the most critical or the key factor on the NPP project in Saudi Arabia. It is also emphasized that the allocation of risk probability and impact are not only based on comprehensive literature review, but also from the experience and lessons learned from the Barakah Nuclear Power Plant project in the United Arab Emirates (UAE), noting that UAE and Saudi Arabia are neighboring countries with very similar environment. Quantitative Risk Analysis are usually performed using a project management software. In this project, @RISK Software is utilized to perform such analysis where outputs include sensitivity of risks. Lastly, the results of this project provide early insights for risk mitigation plan and/or decision making whether the project to be pursued is viable or not, not only saving significant efforts and resources, but also protects the credibility of an implementing agency.

Methodology

The mechanism employed in this project is based on the risk process as defined in the Project Management Institutes’ (PMI) Project Management Body of Knowledge (PMBOK), which describes a series of steps that are cyclic and continuously applied at each stage in the Project Life Cycle. The six-step process are defined as (1) Risk Management Planning; (2) Risk Identification; (3) Qualitative Risk Analysis; (4) Quantitative Risk Analysis; (5) Risk Response Planning; and (6) Risk Monitoring and Control, as illustrated in the figure below.

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Each of the six (6) steps is completed in each phase of the project and each step has a defined process and a defined outcome. As the scope of this project, steps one (1) to four (4) are employed to identify the risk exposure of an NPP project in Saudi Arabia, as described in the proceeding chapters. The results of this four-step process will then be used as baseline for the remaining steps which are Risk Response Planning and Risk Monitoring and Control.

As an initial step, Risk Management Planning is performed by developing and documenting organized, comprehensive, and interactive strategies for identifying and understanding risks. This is achieved by articulating the fundamental objectives of the project and the risk management requirements, which would then result to a Project Risk Management Plan which is a document that communicates to all stakeholders the approach and process for managing risk on the project. Simulation activities and comprehensive literature review are conducted to collect the following essential information:

  • • Specific risk events (such as risk assessment)
  • • Level of detail required that matched the project needs
  • • Roles & Responsibilities
  • • Risk Tolerance
  • • Reporting requirements

The information captured in this process will be utilized to communicate stakeholders how risks were assessed, what risk thresholds and tolerances were defined, and what risk information will be required. This provides a guideline to the implementation of later steps in the process.

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Risks are captured in the Risk Identification step which is most effective when done in the early stage of the project because the cost of managing the risk is lower as there are more possible ways to address the risk. The figure above suggests that risk identification is therefore recommended to commence when the planning phase of the Saudi NPP project occurs. Risks are identified through various techniques including brainstorming, comprehensive literature analysis, Lessons Learned, and reviews from previous NPP projects over the years.

Risk Breakdown Structure (RBS) defined as a hierarchical categorization of sources of risk and is used in the process of risk identification. At this stage, RBS is beneficial as the process of categorizing enables the risk to be better understood, thus enabling a risk owner to be identified, a root cause to be determined, and a project phase to be determined.

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Qualitative Risk Analysis is the step whereby each risk is analyzed based on the probability of its occurrence and its potential impact on the project. Impact is assessed in many areas such as schedule, cost, safety, and quality. Both Impact and Probability are assessed on a five (5) level scale from very low to very high. This process normalizes risks between different areas so they can be further analyzed side-by-side. Having assessed each risk for the probability of its occurrence and impact on project objectives, each risk is then plotted on a heat map as shown in the figure below. The risks that fall in the red areas are considered ‘hot’ or critical risks and these become the highest priority for risk management.

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In addition, risk tolerance is defined so that different risks can be qualitatively assessed based on the probability the risk will occur and the impact the risk has on the project. Each type of risk including schedule, cost, etc, uses the same ranking to normalize the risks. Each risk is then plotted on a heat map based on the probability and impact. Those risks that plot in the red are the ‘hot’ or critical risks and these need to be managed before all others.

Having collected detailed risk information from the previous steps, Quantitative Analysis then proceeds. Project Risk Management software – @RISK by Palisade specifically, is used to accomplish this step. Techniques include Sensitivity Analysis, Simulation and Decision Trees. The analysis provides information such as degree of confidence, milestones sensitivity, and main risk drivers to name a few. This process allowed the project to understand the degree of impact from a particular risk, and to determine which risks drive the project.

Results and Discussions

NPP Project Risk Management provide the Risk Breakdown Structure (RBS). Based on the RBS, this project picked 20 risks that if changed, would have the greatest impact on the Saudi Arabia NPP Project. The Risk Registers refers to International Project Risk Assessment (IPRA) for baseline, while the probability & impact matrix for likelihood of occurrence and relative impact are based on the previous section. The figure below presents the Risk Register of the 20 risk items for the Saudi Arabia NPP Project. It is assumed in this case that a two-unit APR1400 NPP System is to be constructed.

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The figure above presents the Risk Matrix of the chosen 20 risk items in the Saudi Arabia NPP Projects. Five (5) risk items are considered as Critical Risks; 10 risk items are Major Risks; and five (5) risk items as Minor Risks.

The purpose of this project is to provide early insights for decision making whether an NPP Project in Saudi Arabia is to be pursued. Monte Carlo simulation can be executed to determine cost overrun and terms of percentage to reduce the impact of risk events. In addition, a correspondence report published in 2017 summarizes the construction overrun data for 180 nuclear power plant projects. It is assumed that all 67 risks on Risk Breakdown Structure has the same values in cost risk impact, so the maximum, minimum, and median value from correspondence report was divided into the 67 risks items. Table V The figure below presents such value for the 20 chosen risk items.

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Based on 50,000 iterations, the figure above shows the simulation results of probability distribution graph for the 20 chosen risk items. The simulation using @RISK software shows that the Mean Cost Overrun for the Saudi Arabia NPP Project is approximately US $177.6 M. On the other hand, the Maximum Cost Overrun is US $320 M while the Minimum Cost Overrun is US $77.8 M.

In order to reduce the impact of risks, a sensitivity analysis is conducted to detect the most key cost overrun elements affecting the Saudi Arabia NPP Project to aid the mitigation approach. The bars in the figure above show the risk which contribute the most overrun on the project. As shown below, Design Change is the most contributing factor to the project cost overrun. It is then followed by Regulatory Environment an Intervene and Control of Government risk items.

Conclusion and Recommendation

In this project, risks from different categories are identified and evaluated in the case of an NPP project to be pursued in Saudi Arabia. The reactor type is APR1400 of KEPCO. The probability and impact of risks are categorized in a five-scale level. The Risk Breakdown Structure (RBS) presents 67 risk items under 10 categories. Of those, 20 risks under 9 categories are identified and evaluated. Probability and Impact are allocated on the 20 risk items through comprehensive literature reviews and KEPCO’s NPP experience in UAE. Five of those risks are classified as Critical Risks; 10 as Major Risks; while five as Moderate Risks, as presented in the Risk Matrix. In addition, Quantitative Risk Analysis shows that based on 50,000 iterations using @RISK, the Mean Cost Overrun for the Saudi Arabia NPP Project is approximately US $177.6 M, while the Maximum Cost Overrun is US $320 M and the Minimum Cost Overrun is US $77.8 M. It is also shown in the sensitivity analysis that the Design Change risk item is the key factor that contributes the most to the cost overrun. It is then followed by the risk of the Regulatory Environment.

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The results of this project can provide project teams and project stakeholders with an overview of the Risk Management Process, so they understand how, when and by whom Risk Management is performed within the project. It also shows the sources of risk from different factors, and shows the visibility of risks through risk exposures calculation. Moreover, this project contributes to the whole Project Management Plan and administer useful insights to the next part of the process which are Risk Response Planning and Risk Monitoring and Control. The results of this project can also provide early insights for decision making whether the project to be pursued is viable or not, and prevent unwanted events to happen saving significant effort and resources. After all, effective and efficient Risk Management increases the chances of project success up to a great extent.

This work was been submitted as an entry to the Project Challenge Expo of KEPCO International Nuclear Graduate School held on November 2018 at KINGS Auditorium, South Korea.

Mark Gino Aliperio's picture

Thank Mark Gino for the Post!

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