RISK MANAGEMENT PROGRAM AND PROJECT MANAGEMENT APPLICATION OCTOBER 6, 2006 Presented by Don Devieane, CGA, Manager Risk Management Program.

RISK MANAGEMENT PROGRAM RISK MANAGEMENT PROGRAM

AND AND

PROJECT MANAGEMENT APPLICATIONPROJECT MANAGEMENT APPLICATION

OCTOBER 6, 2006OCTOBER 6, 2006

Presented byPresented byDon Devieane, CGA, ManagerDon Devieane, CGA, ManagerRisk Management ProgramRisk Management Program

OVERVIEWOVERVIEW(RISK MANAGEMENT PROGRAM)(RISK MANAGEMENT PROGRAM)

OVERVIEWOVERVIEW(RISK MANAGEMENT PROGRAM)(RISK MANAGEMENT PROGRAM)

Program HistoryProgram History Framework ComponentsFramework Components Risk CategoriesRisk Categories Risk AssessmentRisk Assessment Measurement CriteriaMeasurement Criteria Corporate Risk MapCorporate Risk Map

OVERVIEWOVERVIEW(PROJECT MANAGEMENT APPLICATION)(PROJECT MANAGEMENT APPLICATION)

Project JustificationProject Justification Project Risk IdentificationProject Risk Identification Risk Assessment (Measurement)Risk Assessment (Measurement) Risk TreatmentRisk Treatment Residual RiskResidual Risk Reporting and MonitoringReporting and Monitoring

COMPANY PROFILECOMPANY PROFILE(MANITOBA HYDRO)(MANITOBA HYDRO)

Provincial Crown CorporationProvincial Crown Corporation 510,000 electric 258,000 gas customers510,000 electric 258,000 gas customers 98% of electricity hydroelectric98% of electricity hydroelectric 14 hydroelectric G.S.14 hydroelectric G.S. Provide 100 communities with N.G.Provide 100 communities with N.G. 8,700 kilometers of pipeline8,700 kilometers of pipeline Capital assets exceed $11 billionCapital assets exceed $11 billion Approximately $2.4 billion in revenueApproximately $2.4 billion in revenue Approximately 6,000 employeesApproximately 6,000 employees

COMPANY PROFILECOMPANY PROFILE(MANITOBA HYDRO)(MANITOBA HYDRO)

Major EventsMajor Events

Grand Rapids G.S.Grand Rapids G.S.

Bi Pole Bi Pole

DroughtDrought

StonewallStonewall

COMPANY PROFILECOMPANY PROFILE(MANITOBA HYDRO)(MANITOBA HYDRO)

RISK MANAGEMENT PROGRAMRISK MANAGEMENT PROGRAM(PROGRAM HISTORY)(PROGRAM HISTORY)

Started in 1999 Started in 1999 - CRMSC established in 2002- CRMSC established in 2002- First CRM report in 2003- First CRM report in 2003- Policy and guidelines issued 2004- Policy and guidelines issued 2004- Internal web site 2006- Internal web site 2006

ReasonsReasons- Business Failures - Business Failures - Market Changes- Market Changes- Pressure from outside (best practice)- Pressure from outside (best practice)

RISK MANAGEMENT PROGRAMRISK MANAGEMENT PROGRAM(PROGRAM HISTORY)(PROGRAM HISTORY)

Purpose Purpose - Identify risks - Identify risks - Mitigate negative occurrences- Mitigate negative occurrences- Take advantage of opportunities- Take advantage of opportunities

Benefits Benefits - Simple- Simple- Systematic- Systematic

- Proactive- Proactive- Integrated- Integrated

RISK MANAGEMENT PROGRAMRISK MANAGEMENT PROGRAM(FRAMEWORK COMPONENTS)(FRAMEWORK COMPONENTS)

Mission / Mandate / ProjectMission / Mandate / Project Risk IdentificationRisk Identification Potential ImpactPotential Impact Risk TreatmentRisk Treatment Residual RiskResidual Risk Reporting and Monitoring Reporting and Monitoring

RISK MANAGEMENT PROGRAMRISK MANAGEMENT PROGRAM(FRAMEWORK COMPONENTS)(FRAMEWORK COMPONENTS)

CROSS FUNCTIONAL FORUMGUIDE AND MONITORLINK TO AREAS OF RESP.PARTICIPATION / LEADERSHIP

RESIDUAL RISK ASSESSMENTRISK TOLERANCE

DETERMINE LIKELIHOOD

CHAMPIONRISK PHILOSOPHYRISK COMMITTEEAPPROVALS

MISSION / MANDATE

EXECUTIVEEXECUTIVE

CORPORATE RISK MANAGEMENTCORPORATE RISK MANAGEMENTSTEERING COMMITTEESTEERING COMMITTEE

RISK MANAGEMENT PROCESS (LINE MANAGEMENT)RISK MANAGEMENT PROCESS (LINE MANAGEMENT)

RISK TREATMENT

MONITOR

AND

REPORT

RISK IDENTIFICATION(THREATS TO ACHIEVE)

POTENTIAL IMPACT(PRE RISK TREATMENT)

DETERMINE CONSEQUENCE

ADDITIONAL ACTIONREQUIRED

RESOURCEFACILITATETRAIN COORDINATE

CRM DEPARTMENTCRM DEPARTMENT

RISK MANAGEMENT PROGRAMRISK MANAGEMENT PROGRAM(RISK CATEGORIES)(RISK CATEGORIES)

Market Market FinancialFinancial EnvironmentalEnvironmental InfrastructureInfrastructure HumanHuman Business / Business / OperationalOperational

ReputationReputation Governance / Governance /

Regulatory / LegalRegulatory / Legal Aboriginal Aboriginal Alternative Alternative

TechnologyTechnology StrategicStrategic

MAIN CATEGORIES MAIN CATEGORIES

RISK MANAGEMENT PROGRAMRISK MANAGEMENT PROGRAM(RISK CATEGORIES)(RISK CATEGORIES)

Exchange Exchange Interest RatesInterest Rates CreditCredit InflationInflation Gas Price Gas Price

VolatilityVolatility Gas Derivative Gas Derivative

InstrumentsInstruments

SUB CATEGORIES (FINANCIAL)SUB CATEGORIES (FINANCIAL)

Capital Structure Capital Structure

Shortage Shortage Pricing / Fuel Pricing / Fuel PricePrice

Power Hedging Power Hedging Instruments Instruments

RISK MANAGEMENT PROGRAMRISK MANAGEMENT PROGRAM(RISK ASSESSMENT)(RISK ASSESSMENT)

““You don’t want the decimal point you You don’t want the decimal point you want the order of magnitude”want the order of magnitude”

Each risk impact is assessed in terms Each risk impact is assessed in terms of:of:

ConsequenceConsequence

LikelihoodLikelihood Consistent across the entire corporationConsistent across the entire corporation Worst case scenario Worst case scenario

RISK MANAGEMENT PROGRAMRISK MANAGEMENT PROGRAM(RISK ASSESSMENT)(RISK ASSESSMENT)

Consequence rated: Consequence rated:

- As high, medium or low - As high, medium or low

- Either financial, safety, reliability, - Either financial, safety, reliability,

environment or customer valueenvironment or customer value

- Financial - Financial

LowLow $0 - $50 million$0 - $50 million

MediumMedium $50 - $150 million$50 - $150 million

HighHigh > $150 million> $150 million

RISK MANAGEMENT PROGRAMRISK MANAGEMENT PROGRAM(RISK ASSESSMENT)(RISK ASSESSMENT)

Likelihood rated: Likelihood rated:

- As high, medium or low - As high, medium or low

- Low, not likely to occur within 10 years- Low, not likely to occur within 10 years

Medium,Medium, likely to occur within 5 - 10 yearslikely to occur within 5 - 10 years

High, likely to occur within 1 -10 yearsHigh, likely to occur within 1 -10 years

RISK MANAGEMENT RISK MANAGEMENT PROGRAMPROGRAM

(CORPORATE RISK MAP)(CORPORATE RISK MAP) A.1.1

A.1.1A.1.1A.1.1 A.2.5 A.2.7 B.7

C.2

D.5

G.1 H.4

Low Medium High

LIKELIHOOD

CONSEQUENCE

Low

Medium

High C.3

D.1D.3

E.1 E.3 F.2

H.1

H.2 H.3

H.5 J.1 K.1

A.2.1 B.8

D.2

E.2

I.1I.2

C.1

A.2.3 B.1 B.3

B.6 D.4 D.6

A.2.4

A.2.6

A.2.2 B.4 B.5

F.1

B.2

A.1.2

B.9

C.4D.1.1

D.7

Water Supply DroughtWater Supply Drought

UneconomicUneconomic LoadsLoads

Power Hedging Power Hedging InstrumentsInstruments

PROJECT APPLICATIONPROJECT APPLICATION

PROJECT APPLICATIONPROJECT APPLICATION(PROJECT JUSTIFICATION)(PROJECT JUSTIFICATION)

Support for the project has already been justified Support for the project has already been justified - Reliability- Reliability- Safety- Safety- Opportunity - Opportunity

The best solution has been identified through business The best solution has been identified through business case analysiscase analysis

Environmental concerns are resolvedEnvironmental concerns are resolved Prioritize initiatives and opportunities Prioritize initiatives and opportunities

PROJECT APPLICATIONPROJECT APPLICATION(PROJECT JUSTIFICATION)(PROJECT JUSTIFICATION)

Well documented cost estimateWell documented cost estimate

- Costs should be representative of most - Costs should be representative of most likely scenariolikely scenario

- Costs must not contain hidden - Costs must not contain hidden contingencies and allowancescontingencies and allowances

PROJECT APPLICATIONPROJECT APPLICATION(PROJECT JUSTIFICATION)(PROJECT JUSTIFICATION)

-30

-20

-10

0

10

20

30

-2 -1 0 1 2

PROJECT APPLICATIONPROJECT APPLICATION(RISK IDENTIFICATION)(RISK IDENTIFICATION)

Risk can be defined as what can cause variability in possible Risk can be defined as what can cause variability in possible outcomes. outcomes.

Cost / delay / deliverable (performance)Cost / delay / deliverable (performance) Brainstorming Brainstorming HistoryHistory Corporate risk categories/subcategoriesCorporate risk categories/subcategories

PROJECT APPLICATIONPROJECT APPLICATION(RISK IDENTIFICATION)(RISK IDENTIFICATION)

Listing of possible risksListing of possible risks Proper and detailed analysis can stream line the effort requiredProper and detailed analysis can stream line the effort required Properly developed forms and support information will ensure Properly developed forms and support information will ensure

consistencyconsistency

PROJECT APPLICATIONPROJECT APPLICATION(RISK IDENTIFICATION)(RISK IDENTIFICATION)

Risk identificationRisk identification

- Business Operational (Supply Chain)- Business Operational (Supply Chain)

- Legal (Licensing, Property) - Legal (Licensing, Property)

- Environmental (Weather, Land)- Environmental (Weather, Land)

- Human (Availability, Skilled)- Human (Availability, Skilled)

- Financial (Exchange, Inflation,)- Financial (Exchange, Inflation,)

PROJECT APPLICATIONPROJECT APPLICATION(RISK ASSESSMENT)(RISK ASSESSMENT)

Business operational (supply chain)Business operational (supply chain) - Having the - Having the rightright material available when its material available when its

requiredrequired (Level of engineering design, - proven / unproven (Level of engineering design, - proven / unproven

technology)technology) - What are the costs associated with:- What are the costs associated with:

- 1 month- 1 month- 2 month- 2 month- 6 month - 6 month

- What is the likelihood of this occurring (probability)- What is the likelihood of this occurring (probability)

A.1.1A.1.1

A.1.1

Low Medium High

LIKELIHOOD

CONSEQUENC

E

Low

Mediu

mHigh

A.1

A.1

A.1

PROJECT APPLICATIONPROJECT APPLICATION(RISK ASSESSMENT)(RISK ASSESSMENT)

6 Month

2 Month

1 Month

Supply Chain

Note : Can be done for each material item

A.1.1A.1.1

A.1.1

A.3 A.2

Low Medium High

LIKELIHOOD

CONSEQUENC

E

Low

Mediu

mHigh

C.3

D.3

E.1F.2

D.2

E.2C.1

A.1 B.1 B.3

A.3

F.1 B.2

PROJECT APPLICATIONPROJECT APPLICATION(RISK ASSESSMENT)(RISK ASSESSMENT)

PROJECT APPLICATIONPROJECT APPLICATION(RISK TREATMENT)(RISK TREATMENT)

RISK MITIGATIONRISK MITIGATION

- Elimination of risk by exclusion, sharing, insuring or- Elimination of risk by exclusion, sharing, insuring or

by the use of appropriate legal documentation and by the use of appropriate legal documentation and

financial documents. Risk allowance and financial documents. Risk allowance and

acceptance.acceptance.

- Identify what can be done to manage and mitigate - Identify what can be done to manage and mitigate

the potential for cost overruns or delays. the potential for cost overruns or delays.

- Adjust risk impact assessment for reduction due to- Adjust risk impact assessment for reduction due to

risk treatment efforts (revise risk map)risk treatment efforts (revise risk map)

PROJECT APPLICATIONPROJECT APPLICATION(RISK TREATMENT)(RISK TREATMENT)

Business operational (Supply Chain)Business operational (Supply Chain)

- Scheduling - Scheduling

- Supplier ( Foreign / Local )- Supplier ( Foreign / Local )

- Transportation- Transportation

- Penalties (Legal Clauses / Performance - Penalties (Legal Clauses / Performance

Bond) Bond)

- Surplus - Surplus

A.1.1A.1.1

A.1.1

A.3 A.2

Low Medium High

LIKELIHOOD

CONSEQUENC

E

Low

Mediu

mHigh

C.3

D.3

E.1F.2

D.2

E.2C.1

A.1

B.1 B.3

A.3

F.1 B.2

PROJECT APPLICATIONPROJECT APPLICATION(RISK TREATMENT)(RISK TREATMENT)

A.1.1A.1.1

A.1.1

A.2

Low Medium High

LIKELIHOOD

CONSEQUENC

E

Low

Mediu

mHigh

C.3

D.3

E.1F.2

D.2

E.2

C.1

A.3 B.1 B.3

A.1 F.1 B.2

PROJECT APPLICATIONPROJECT APPLICATION(RESIDUAL RISK)(RESIDUAL RISK)

A.3

A.1.1A.1.1

A.1.1

A.3 A.2

Low Medium High

LIKELIHOOD

CONSEQUENC

E

Low

Mediu

mHigh

C.3

D.3

E.1F.2

D.2

E.2

C.1

A.3 B.1 B.3

A.1 F.1 B.2

PROJECT APPLICATIONPROJECT APPLICATION(RESIDUAL RISK)(RESIDUAL RISK)

C.3 E.2

C.1

F.2 E.1

A.3 B.1 B.3

A.1F.1 B.2

C.3 E.2

C.1

F.2 E.1

A.3 B.1 B.3

A.1 F.1 B.2

PROJECT APPLICATIONPROJECT APPLICATION(REPORTING AND MONITORING)(REPORTING AND MONITORING)

RISK CONTROLRISK CONTROL

Takes place during project execution and Takes place during project execution and consists of a rigorous control of scope, quality, consists of a rigorous control of scope, quality, cost and schedule and being constantly alert cost and schedule and being constantly alert of potential concerns. of potential concerns.

PROJECT APPLICATIONPROJECT APPLICATION(REPORTING AND MONITORING)(REPORTING AND MONITORING)

Establishment of tolerancesEstablishment of tolerances Defined as the allowable or permissible variation from a standardDefined as the allowable or permissible variation from a standard Actions are taken when the risk exceeds its allowable tolerance Actions are taken when the risk exceeds its allowable tolerance Low, zero or limited variabilityLow, zero or limited variability Medium, some variability is acceptedMedium, some variability is accepted High, significant variability is accepted High, significant variability is accepted

PROJECT APPLICATIONPROJECT APPLICATION(REPORTING AND MONITORING)(REPORTING AND MONITORING)

Monitor PointsMonitor Points Trigger PointsTrigger Points On Site InspectionOn Site Inspection Dispute Resolution Mechanism Dispute Resolution Mechanism Who Needs to Know and When (Predetermined) Who Needs to Know and When (Predetermined)

PROJECT APPLICATIONPROJECT APPLICATION(REPORTING AND MONITORING)(REPORTING AND MONITORING)

QUESTI0NSQUESTI0NS