Santiago June 5 09
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- Pages: 33
Riskope International SA © 2009 www.riskope.com
1
Mining operations face many hazards.
By quantifying risks we can better allocate mitigative funds in a clear and transparent way, evaluate projects, make better decisions. Riskope International SA © 2009 www.riskope.com
2
Riskope International SA © 2009 www.riskope.com
3
Riskope International SA © 2009 www.riskope.com
4
Riskope International SA © 2009 www.riskope.com
5
Examples of tolerability curves.
Riskope International SA © 2009 www.riskope.com
6
Downside risks can be Green=tolerable Yellow=attention Red=intolerable compared to Tolerability Curves Probability of Occurence
Green=tolerable
Yellow=attention
5
1
Red=intolerable
87
0.1 0.01
0.02
0.001 0.0001 0.00001
0.001
143
50
0.000001 0.01
0.1
1
10
100
Riskope International SA © 2009 Cost of Consequences (in MUS$) www.riskope.com
1000
7
Riskope International SA © 2009 www.riskope.com
8
This is a list of hazards the client’s Risk Manager identified. For confidentiality reasons, we cannot disclose their exact names. Imagine, fires, explosions, transportation mishaps, etc. WPI SMMF CFoTD FB PC GMPoE RE
TSF BC FiSEO C&PLS FitCD E PWF
Riskope International SA © 2009 www.riskope.com
9
Riskope International SA © 2009 www.riskope.com
10
Riskope International SA © 2009 www.riskope.com
11
Bar graph for the Intolerable portion of the scenarios
* A mathematical model is used
Of the 14 initial scenarios, seven are above tolerability, but only three are top attention priority. Riskope International SA © 2009 www.riskope.com
12
Scenarios will be prioritized by their intolerable part of risk. Thus a clear roadmap becomes available. Transparent decision can be taken leading to a rational and sustainable RM/ERM. Riskope International SA © 2009 www.riskope.com
13
Riskope International SA © 2009 www.riskope.com
14
Terrorism risks are dealt in the same manner. (the hazard already exist but the probability changes because of terrorism!)
Riskope International SA © 2009 www.riskope.com
15
3 phases and a total of five steps in the life of a project/alternative:
Design/Implementation/Construction Infrastructure (setting the bases…) Superstructure (implementing…) Life/Service Service (using, developing, …) Maintenance (repairing, adapting…) Disposal/demolition (ending, releasing…)
Each step has its own hazards and related risks… Riskope International SA © 2009 www.riskope.com
16
There are many parameters to a “good” decision • Expected returns and effects…are abundant • Feasibility…is proven • Sustainability…is accomplished • Scalability…is well graded • Redundancy…is sufficient • Reclaim/disposing…is easy and economic
Generally a decision will require a compromise among them Riskope International SA © 2009 www.riskope.com
17
Each parameter contributes to the risks of an alternative from cradle to grave.
Riskope International SA © 2009 www.riskope.com
18
Riskope International SA © 2009 www.riskope.com
19
Case Study Long term pumping v.s. encapsulation of a very large leaching underground toxic waste storage.
Riskope International SA © 2009 www.riskope.com
20
The “financial parameters” and risks linked to maintaining the Status Quo can be summarized as follows (in Million $, noted M):
There is p=90% that a 5M capital investment will be necessary on the treatment plant (ONLY at START) The energy cost (diesel for the power plant) has a yearly chance of p=30% to multiply by two the current pumping costs (C=2*3.6M/yr) Because of climate changes there is a yearly chance of p=15% that the cost of pumping may triple (C= 3*3.6M/yr). The data of the alternative Status Quo are displayed in the next slide, directly taken from the screen of the CDA application.
Riskope International SA © 2009 www.riskope.com
21
Case title Life duration(Years) Construction budget
Status Quo
Copyright Riskope International SA, 2004* www.riskope.com
40 8.5
Email: [email protected] [email protected] Skype: droboni or cesar.oboni
Construction analysis cost risk
min Construction Environmental Soundness
max
average stdev Prob/year
3
4
3.6
0.13
4.5
5.5
5
0.17
90.00%
Usable life analysis cost
min Running Costs
max 3
average stdev 4
3.6
0.13
External risks analysis proper to the alternative min
max
average stdev Prob/year
Energy Price
6
8
7.2
0.27
30.00%
Climate Changes
9
12
10.8
0.4
15.00%
Riskope International SA © 2009 www.riskope.com
22
The “financial parameters” and risks linked to building and maintaining the Rehabilitation can be summarized as follows (in Million $, noted M):
There is a probability of 10 % that after spending the initial 120M another 120M is necessary to finish the project. The energy cost (diesel for the power plant) has a yearly chance of p=30% to multiply by two the current pumping costs (C=2*0.3M/yr). Because of climate changes the is a yearly chance of p=5% that the cost of pumping may become “normal” (i.e. The encaptulation is not working) (C= 3.6M/yr) The data of the alternative Rehabilitation are displayed in Figure 6, directly taken from the screen of the CDA application we are using. Riskope International SA © 2009 www.riskope.com
23
Case title
Rehabilitation
Copyright Riskope International SA, 2004* www.riskope.com
Life duration(Years) Construction budget
40 120
Email: [email protected] [email protected] Skype: droboni or cesar.oboni
Construction analysis cost risk
min
max
average
stdev
Construction
80
110
100
3.33
Environmental Soundness
80
110
100
3.33
Prob/year
10.00%
Usable life analysis cost
min Running Costs
max
0.25
average
0.35
stdev
0.3
0.02
External risks analysis proper to the alternative min
max
average
stdev
Prob/year
Energy Price
0.5
0.7
0.6
0.03
30.00%
Climate Changes
3
4
3.6
0.13
5.00%
Riskope International SA © 2009 www.riskope.com
24
The “financial parameters” and risks linked to building and maintaining the Failed Rehabilitation can be summarized as follows (in Million $, noted M):
There is a probability of 10 % that after spending the initial 120M another 120M is necessary to finish the project. The energy cost (diesel for the power plant) has a yearly chance of p=30% to multiply by two the current pumping costs (C=2*3.6M/yr) Because of climate changes the is a yearly chance of p=15% that the cost of pumping may triple (C= 3*3.6M/yr) The data of the Failed Rehabilitation case are displayed in Figure 7, directly taken from the screen of the CDA application we are using.
Riskope International SA © 2009 www.riskope.com
25
Case title Life duration(Years) Construction budget
Failed Rehabilitation
Copyright Riskope International SA, 2004* www.riskope.com
40 120
Email: [email protected] [email protected] Skype: droboni or cesar.oboni
Construction analysis cost risk
min
max
average
stdev
Construction
80
110
100
3.33
Environmental Soundness
80
110
100
3.33
Prob/year
10.00%
Usable life analysis cost
min Running Costs
max 3
average 4
stdev
3.6
0.13
External risks analysis proper to the alternative min
max
average
stdev
Prob/year
Energy Price
6
8
7.2
0.27
30.00%
Climate Changes
9
12
10.8
0.4
15.00%
Riskope International SA © 2009 www.riskope.com
26
Traditional NPV analysis: Rehabilitation:120M$ construction, then 0.3M$/yr, 40 years life span NPV: 123.23M$ Status Quo: 3.6M$/yr, 40 years life span NPV 42.33M$
Riskope International SA © 2009 www.riskope.com
27
Lets see how the CDA/ESM reacts at the 40 years time horizon for the 2 alternatives Status Quo, Rehabilitation, and the Failed Rehabilitation case. Figure 8 shows for each, min, max, average of the cumulative cost at fourty years. 450.00 400.00
Rehabilitation Status Quo
500.00 350.00
450.00 400.00
Failing Rehabilitation
300.00
350.00
250.00
300.00 200.00
250.00 200.00 150.00 100.00 50.00 0.00
Rehabilitation Status Quo Failing Rehabilitation
150.00 100.00 50.00 0.00
Riskope International SA © 2009 www.riskope.com
28
Sensitivity of the 2 alternatives to a variation of the probability of raising costs of energy to the level used in this analysis. Probability 75%
450.00
400.00
350.00
300.00
250.00
Probability 0%
Probability 5%
Probability 10%
Probability 20%
Probability 30%
Probability 40%
Probability 50%
200.00
150.00
100.00
50.00
0.00
For all probabilities of energy cost increase the Rehabilitation (yellow bar) is more costs efficient than the Status Quo (blue bar), once all the three considered risks are included. If the probablities that the costs of energy might be triple or more is considered, for any value of it, the Status Quo alternative is less appealing than Rehabilitation.
Riskope International SA © 2009 www.riskope.com
29
The tool used to avoid these NPV pitfalls is called CDA/ESM™ and is used to compare alternatives in financial terms, including: Life’s cycle balance encompassing internal and external risks over a
selected duration, Project implementation and demobilization costs and risks.
The approaches described above have been successfully applied to: Rope v.s. road transportation Surface v.s. underground solutions Water treatments alternatives Transportation networks Go/nogo decisions
Riskope International SA © 2009 www.riskope.com
30
Tools exist and do work Experience is eloquent We all prefer to succeed rather than fail. Thinking and fixing before it happens is way cheaper than fixing afterwards Thanks to specific techniques each decision can be supported by transparent and rational evaluations ERM will not eliminate losses but reduce them and allow for quicker rebound Riskope International SA © 2009 www.riskope.com
31
What can we accomplish? By using a transparent and sound quantitative approach we can: Scientifically select the most significant risks, Draw attention to the objective highest exposures (filtering emotional perceptions), and Prioritize them to allow reasonable mitigation in a very focused way.
We clearly enhance the ability to prioritize risks for a rational and sustainable development. Riskope International SA © 2009 www.riskope.com
32
BUT, more importantly Create the basis to avoid a slide into a crisis, by proactively controlling the situation.
Riskope International SA © 2009 www.riskope.com
33
1
Mining operations face many hazards.
By quantifying risks we can better allocate mitigative funds in a clear and transparent way, evaluate projects, make better decisions. Riskope International SA © 2009 www.riskope.com
2
Riskope International SA © 2009 www.riskope.com
3
Riskope International SA © 2009 www.riskope.com
4
Riskope International SA © 2009 www.riskope.com
5
Examples of tolerability curves.
Riskope International SA © 2009 www.riskope.com
6
Downside risks can be Green=tolerable Yellow=attention Red=intolerable compared to Tolerability Curves Probability of Occurence
Green=tolerable
Yellow=attention
5
1
Red=intolerable
87
0.1 0.01
0.02
0.001 0.0001 0.00001
0.001
143
50
0.000001 0.01
0.1
1
10
100
Riskope International SA © 2009 Cost of Consequences (in MUS$) www.riskope.com
1000
7
Riskope International SA © 2009 www.riskope.com
8
This is a list of hazards the client’s Risk Manager identified. For confidentiality reasons, we cannot disclose their exact names. Imagine, fires, explosions, transportation mishaps, etc. WPI SMMF CFoTD FB PC GMPoE RE
TSF BC FiSEO C&PLS FitCD E PWF
Riskope International SA © 2009 www.riskope.com
9
Riskope International SA © 2009 www.riskope.com
10
Riskope International SA © 2009 www.riskope.com
11
Bar graph for the Intolerable portion of the scenarios
* A mathematical model is used
Of the 14 initial scenarios, seven are above tolerability, but only three are top attention priority. Riskope International SA © 2009 www.riskope.com
12
Scenarios will be prioritized by their intolerable part of risk. Thus a clear roadmap becomes available. Transparent decision can be taken leading to a rational and sustainable RM/ERM. Riskope International SA © 2009 www.riskope.com
13
Riskope International SA © 2009 www.riskope.com
14
Terrorism risks are dealt in the same manner. (the hazard already exist but the probability changes because of terrorism!)
Riskope International SA © 2009 www.riskope.com
15
3 phases and a total of five steps in the life of a project/alternative:
Design/Implementation/Construction Infrastructure (setting the bases…) Superstructure (implementing…) Life/Service Service (using, developing, …) Maintenance (repairing, adapting…) Disposal/demolition (ending, releasing…)
Each step has its own hazards and related risks… Riskope International SA © 2009 www.riskope.com
16
There are many parameters to a “good” decision • Expected returns and effects…are abundant • Feasibility…is proven • Sustainability…is accomplished • Scalability…is well graded • Redundancy…is sufficient • Reclaim/disposing…is easy and economic
Generally a decision will require a compromise among them Riskope International SA © 2009 www.riskope.com
17
Each parameter contributes to the risks of an alternative from cradle to grave.
Riskope International SA © 2009 www.riskope.com
18
Riskope International SA © 2009 www.riskope.com
19
Case Study Long term pumping v.s. encapsulation of a very large leaching underground toxic waste storage.
Riskope International SA © 2009 www.riskope.com
20
The “financial parameters” and risks linked to maintaining the Status Quo can be summarized as follows (in Million $, noted M):
There is p=90% that a 5M capital investment will be necessary on the treatment plant (ONLY at START) The energy cost (diesel for the power plant) has a yearly chance of p=30% to multiply by two the current pumping costs (C=2*3.6M/yr) Because of climate changes there is a yearly chance of p=15% that the cost of pumping may triple (C= 3*3.6M/yr). The data of the alternative Status Quo are displayed in the next slide, directly taken from the screen of the CDA application.
Riskope International SA © 2009 www.riskope.com
21
Case title Life duration(Years) Construction budget
Status Quo
Copyright Riskope International SA, 2004* www.riskope.com
40 8.5
Email: [email protected] [email protected] Skype: droboni or cesar.oboni
Construction analysis cost risk
min Construction Environmental Soundness
max
average stdev Prob/year
3
4
3.6
0.13
4.5
5.5
5
0.17
90.00%
Usable life analysis cost
min Running Costs
max 3
average stdev 4
3.6
0.13
External risks analysis proper to the alternative min
max
average stdev Prob/year
Energy Price
6
8
7.2
0.27
30.00%
Climate Changes
9
12
10.8
0.4
15.00%
Riskope International SA © 2009 www.riskope.com
22
The “financial parameters” and risks linked to building and maintaining the Rehabilitation can be summarized as follows (in Million $, noted M):
There is a probability of 10 % that after spending the initial 120M another 120M is necessary to finish the project. The energy cost (diesel for the power plant) has a yearly chance of p=30% to multiply by two the current pumping costs (C=2*0.3M/yr). Because of climate changes the is a yearly chance of p=5% that the cost of pumping may become “normal” (i.e. The encaptulation is not working) (C= 3.6M/yr) The data of the alternative Rehabilitation are displayed in Figure 6, directly taken from the screen of the CDA application we are using. Riskope International SA © 2009 www.riskope.com
23
Case title
Rehabilitation
Copyright Riskope International SA, 2004* www.riskope.com
Life duration(Years) Construction budget
40 120
Email: [email protected] [email protected] Skype: droboni or cesar.oboni
Construction analysis cost risk
min
max
average
stdev
Construction
80
110
100
3.33
Environmental Soundness
80
110
100
3.33
Prob/year
10.00%
Usable life analysis cost
min Running Costs
max
0.25
average
0.35
stdev
0.3
0.02
External risks analysis proper to the alternative min
max
average
stdev
Prob/year
Energy Price
0.5
0.7
0.6
0.03
30.00%
Climate Changes
3
4
3.6
0.13
5.00%
Riskope International SA © 2009 www.riskope.com
24
The “financial parameters” and risks linked to building and maintaining the Failed Rehabilitation can be summarized as follows (in Million $, noted M):
There is a probability of 10 % that after spending the initial 120M another 120M is necessary to finish the project. The energy cost (diesel for the power plant) has a yearly chance of p=30% to multiply by two the current pumping costs (C=2*3.6M/yr) Because of climate changes the is a yearly chance of p=15% that the cost of pumping may triple (C= 3*3.6M/yr) The data of the Failed Rehabilitation case are displayed in Figure 7, directly taken from the screen of the CDA application we are using.
Riskope International SA © 2009 www.riskope.com
25
Case title Life duration(Years) Construction budget
Failed Rehabilitation
Copyright Riskope International SA, 2004* www.riskope.com
40 120
Email: [email protected] [email protected] Skype: droboni or cesar.oboni
Construction analysis cost risk
min
max
average
stdev
Construction
80
110
100
3.33
Environmental Soundness
80
110
100
3.33
Prob/year
10.00%
Usable life analysis cost
min Running Costs
max 3
average 4
stdev
3.6
0.13
External risks analysis proper to the alternative min
max
average
stdev
Prob/year
Energy Price
6
8
7.2
0.27
30.00%
Climate Changes
9
12
10.8
0.4
15.00%
Riskope International SA © 2009 www.riskope.com
26
Traditional NPV analysis: Rehabilitation:120M$ construction, then 0.3M$/yr, 40 years life span NPV: 123.23M$ Status Quo: 3.6M$/yr, 40 years life span NPV 42.33M$
Riskope International SA © 2009 www.riskope.com
27
Lets see how the CDA/ESM reacts at the 40 years time horizon for the 2 alternatives Status Quo, Rehabilitation, and the Failed Rehabilitation case. Figure 8 shows for each, min, max, average of the cumulative cost at fourty years. 450.00 400.00
Rehabilitation Status Quo
500.00 350.00
450.00 400.00
Failing Rehabilitation
300.00
350.00
250.00
300.00 200.00
250.00 200.00 150.00 100.00 50.00 0.00
Rehabilitation Status Quo Failing Rehabilitation
150.00 100.00 50.00 0.00
Riskope International SA © 2009 www.riskope.com
28
Sensitivity of the 2 alternatives to a variation of the probability of raising costs of energy to the level used in this analysis. Probability 75%
450.00
400.00
350.00
300.00
250.00
Probability 0%
Probability 5%
Probability 10%
Probability 20%
Probability 30%
Probability 40%
Probability 50%
200.00
150.00
100.00
50.00
0.00
For all probabilities of energy cost increase the Rehabilitation (yellow bar) is more costs efficient than the Status Quo (blue bar), once all the three considered risks are included. If the probablities that the costs of energy might be triple or more is considered, for any value of it, the Status Quo alternative is less appealing than Rehabilitation.
Riskope International SA © 2009 www.riskope.com
29
The tool used to avoid these NPV pitfalls is called CDA/ESM™ and is used to compare alternatives in financial terms, including: Life’s cycle balance encompassing internal and external risks over a
selected duration, Project implementation and demobilization costs and risks.
The approaches described above have been successfully applied to: Rope v.s. road transportation Surface v.s. underground solutions Water treatments alternatives Transportation networks Go/nogo decisions
Riskope International SA © 2009 www.riskope.com
30
Tools exist and do work Experience is eloquent We all prefer to succeed rather than fail. Thinking and fixing before it happens is way cheaper than fixing afterwards Thanks to specific techniques each decision can be supported by transparent and rational evaluations ERM will not eliminate losses but reduce them and allow for quicker rebound Riskope International SA © 2009 www.riskope.com
31
What can we accomplish? By using a transparent and sound quantitative approach we can: Scientifically select the most significant risks, Draw attention to the objective highest exposures (filtering emotional perceptions), and Prioritize them to allow reasonable mitigation in a very focused way.
We clearly enhance the ability to prioritize risks for a rational and sustainable development. Riskope International SA © 2009 www.riskope.com
32
BUT, more importantly Create the basis to avoid a slide into a crisis, by proactively controlling the situation.
Riskope International SA © 2009 www.riskope.com
33
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