We often hear objections to quantitative risk assessments (QRA). Thus, today, we show three cases where QRA was paramount. These 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 often get attached to them to the point of forgetting that they may be exposed to significant risks. The use of codes and “proven solutions” is often seen as a warranty for success and reliability. Unfortunately, projects and designs may be equally code-compliant but have completely different risk exposures. Furthermore, a perfectly code-compliant project may generate intolerable risks.
Additionally, the habit of using net present value as an alternative discriminant reinforces the prior point, as the evaluation omits 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, which is not ideal from an ethical and conflict of interest point of view. They had focused on the tailings dams and other major mining features and used failure modes and effects analysis (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. The aggregated risks from these elements were 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 not to proceed with that project. They are still our clients today.
This is an example of a case where FMEA would not be sufficient.
Cost Estimate Quantitative Risk Assessment
We just spoke about costs and net present value. 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. Our client was the construction company who were negotiating their contract. The owner of the operation 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, considering the following questions:
- What could delay their work?
- Which logistic challenges could they face?
- What could be the potential cost variation of materials, equipment, labor, etc.?
For each item in the cost estimate, we evaluated the probability of occurrence and cost impact. At the end, we had an aggregated risk. After comparing this to the client tolerance for cost variation, we reached a contingency estimate.
For that particular project, the evaluated contingency was 35%, well in line with Project Management Institute’s Project Management Body of Knowledge definitions.
This is an example of a case where a qualitative approach would not be sufficient.
Egress Risks and Buffer Stock Sizing
Many mining operations rely on specialized or generic railroad or highways to egress and to move 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 manmade hazardous conditions?
- Can you evaluate a distribution and hence the business interruption we should insure for?
- Can you risk-size the buffer stocks at the wharves that would shelter us from the intolerable risks and reduce our annualized exposure to a specified amount?
One can answer these questions if one performs a QRA on the egress route, which is exactly what we did. Thus, our clients were able to make risk-informed decisions on their insurance and the size of their buffer stocks.
This is an example of a case where a FMEA or qualitative approach would not be sufficient.
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 QRAs in mining and industrial projects.
Our readers know from our books, papers and prior blogposts that each time a client requests a portfolio prioritization or an alternative comparison, a QRA is the best solution we can offer.
