Risk Management Oil and Gas 2

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Table 4-9: Risk ranking for Nigerian oil and gas construction projects

RankRiskCode Risk factors RI

1 R12.15 Security threats from neighboring residents 0.5621

2 R12.5 Incompetence of project team members 0.!2

R12.6 "oor designs 0.#5

$ R12.# %ate interna& appro'a&s from c&ients 0.2(#$

5 R12.( "oor and inade)uate tendering 0.2!11

6 R12.1$ Inade)uate project organi*ation structure 0.2#$$

# R12.10 Changes in design 0.2$5!

! R12.11 Inade)uate budgeting and poor project p&anning 0.2#!

( R12.1 "oor project feasibi&ity studies 0.22#!

10 R12. Inefficient and poor performance of constructors 0.2125

11 R12.1# Reduced )ua&ity in procured materia&s 0.20(!

12 R12.1!

"oor coordination amongst sub+contractors and

contractors 0.1(65

1 R12.1 ,amage to -ork by third party 0.1#6$

1$ R12.!

ureaucratic project and go'ernment appro'a&

procedures 0.1665

15 R12.12,ifferences in practices bet-een &oca& and foreign

contractors 0.16!

16 R12.2 /n'ironmenta& protection pressure of other groups 0.15(2

1# R12.$ "oor re&ationship -ith go'ernment bodies 0.1$52


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1! R12.16 %ate pro'ision or de&i'ery of materia&s 0.1$52

1( R12.20 orking conditions deferring from contract specification 0.1112

20 R12.1( %ack of eperience in design and construction 0.10!6

comprehensi'e &ist of the ranked risks as deduced from a combination of in+depth

te&ephone inter'ie-s and )uestionnaire sur'ey is sho-n in the tab&e abo'e. 3he t-enty 420

risks are sorted according&y in ascending order of their o'era&& impact on oi& and gas

projects in 7igeria. 3he top ten risks -i&& then be ana&y*ed further to determine their

features characteristics and causes8 so that ade)uate strategies can be proposed to mitigate

the risks.

4.4.3 The analysis of the top ten risks in Nigerian oil and gas construction projects:

In &ine -ith the objecti'es of the study the top ten major risks in 7igerian oi& and gas

projects -i&& be ana&y*ed thorough&y. In order to ana&y*e these top ten major risks8 the mean

of occurrence and the mean of impact degree for each indi'idua& risk identified by the

respondents -here determined. 3his can be seen as sho-n in tab&e $+10 as fo&&o-s9

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Table 4-1: Top ten risks statistics for Nigerian oil and gas construction projects

Rank

Risk

code Risk :actors

;ean of


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1# R12.$

"oor re&ationship -ith go'ernment

bodies 0.2# 0..$( 0.1$52

1! R12.16 %ate pro'ision or de&i'ery of materia&s 0.2 0.$06# 0.1$52

1( R12.20orking conditions deferring from

contract specification 0.2 0.1 0.1112

20 R12.1(%ack of eperience in design and

construction 0.25 0.2( 0.10!6

:rom tab&e $+10 abo'e it can be deduced that =security threats from neighboring residents>

risk take up the first position -ith a risk+inde score 40.5621 to become the risk -ith the

highest risk score+inde. 3his is an eterna& risk and has both the highest mean of impact

degree 40.#6 and the highest mean of occurrence fre)uency 40.#. It imp&ies that oi& and

projects in 7igeria are high&y prone to this major risk. It -as gathered from the conducted

inter'ie-s that the main causes of this risk -ere disturbances from the &oca& residents and

mi&itants in the 7iger ,e&ta region in the form of assau&t and kidnapping of oi& and gas

companies emp&oyees8 'anda&i*ing of oi& and gas pipe&ines8 and sabotage 4fire and

ep&osion of oi& and gas faci&ities. It -as a&so gathered that due to &ack of compensation

payment -hich -as supposed to be paid to the poor rura& d-e&&ers of these oi& rich regions

for the compu&sory ac)uisition of their &ands for oi& and gas ep&oration8 a&-ays generates

crisis in the area. 4 -ith a

risk+inde score 40.!28 =poor designs> -ith a risk+inde score 40.#58 =&ate interna&

appro'a&s from c&ients> -ith a risk+inde score 40.2(#$8 and =poor and inade)uate

tendering> -ith a risk+inde score 40.2!11. :rom the second do-n to the tenth 42nd to

10th ranking risks are a&& interna& risks.

ithin this &imits -ere risks -hich a&so occupied high positions in the risk ranking and

-ere associated -ith the management acti'ities of the c&ient. 3hey are as fo&&o-s9=Incompetence of project team members> as the 2nd8 =&ate interna& appro'a&s from c&ients> as

the $th8 =inade)uate project organi*ation structure> as the 6 th8 =inade)uate budgeting and

poor project p&anning> as the !thand =improper project feasibi&ity studies> as the ( th. 3he

fact that these management associated risks ha'e high ranking signifies that c&ients and

emp&oyers in 7igerian oi& and gas construction projects are fai&ing in their duties of

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directing8 moti'ating emp&oyees8 organi*ing8 contro&&ing8 and p&anning oi& and gas projects.

:rom the inter'ie-s conducted it -as re'ea&ed that the reason for these &apses accrue to

&ack of a defined system in projects> structure and incompetent -orkers being used on

projects. 3hus it can be inferred that8 in order to manage these risks there shou&d be a

focus on impro'ing c&ients> management ski&&s abi&ities and kno-&edge as -e&& asemp&oyees capabi&ities.

It is -orth noting that t-o risks -hich had high risk ranking8 and found their p&aces as the

rd and #th in the top ten risk ranking -ere associated -ith the designs. 3hey are9 =poor

designs> -ith a risk+inde score 40.#58 and =changes in design> -ith a risk+inde score

40.2$5!. ="oor designs> risk a&though occupied the o'era&& third position had the second

highest mean of impact degree 40.65. 3his is because design -orks -hich are done at

the ear&y stages of oi& and gas projects ha'e a 'ery huge impact on the tota& outcome of

projects. &itt&e f&a- in a design can cause enormous changes in the construction phase and

in a&&ocating resources8 thus reducing )ua&ity and causing cost and time o'erruns on

projects. 43huyet et a&. 200#

=Changes in design> risk is common in oi& and gas projects and the ear&ier it occurs the

&esser it has impact on the tota& project outcome. It usua&&y occurs in the construction phase

of 7igerian oi& and gas projects. 3his risk had 0.$! as the mean of impact degree and this

imp&ies that changes in design in 7igerian oi& and gas projects ha'e a medium effect or

impact on the o'era&& project outcome. :rom the inter'ie-s it -as gathered that this risk is

usua&&y caused by changes in design specifications scope changes and poor )ua&ity designs.

3o curb these risks design standards are put in p&ace to enab&e regu&ators c&ients and

contractors to reach a mutua& understanding about the -ay to carry out designs. 4Sne&&

200!

="oor and inade)uate tendering> risk had the ranking position as 5th8 -ith a risk+inde score

40.2!11 mean of impact degree 40.526# and mean of occurrence fre)uency 40.5. 3his

means that this risk has a se'ere impact on project outcomes. :rom the inter'ie-s it -as

re'ea&ed that risks associated -ith tendering in oi& and gas projects in 7igeria are attributed

to poor contractor se&ection by c&ients. Incompetent and unre&iab&e contractors end up

-inning bids due to inade)uacies in the e'a&uation processes and se&ection criteria -hich

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&acked =due processes>. 3hus contractors are appointed by pub&ic and pri'ate sector c&ients>

not on merit but based on -hom they kno-. 4 -ith a risk+inde score

40.21258 mean of impact degree 40.$#8 and mean of occurrence fre)uency 40.$2. 3his

risk -as identified to be a 'ery sensiti'e risk that needs to be addressed in 7igerian oi& and

gas industry. C&ients> projects often end up suffering from o'erruns in cost de&ays in time

poor )ua&ity ser'ices and decreased producti'ity due to poor performance on the contractor

side. In+depth inter'ie-s re'ea&ed that &ack of sufficient e)uipments and techno&ogy8

appropriate eperience8 financia& capabi&ity8 trained emp&oyees8 a'ai&ab&e resources8 good

)ua&ity construction methods8 and efficient management ski&&s8 -ere the causes of

contractors poor performance on projects. esides 7igeria oi& and gas projects -hich are

usua&&y &arge and comp&e re)uiring huge capita& in'estment modern techno&ogies and

e'er changing up to date construction methods8 attracts mu&tinationa& companies.

Conse)uent&y conf&icts that impede project successes are often generated due to the

differences in techno&ogy kno- ho- bet-een the emp&oyees of mu&tinationa& and

indigenous companies.

4.! Risk response strategies for "itigating the "ajor risks

In the pre'ious section the top ten major risks in 7igerian oi& and gas projects -ere

identified -ith their fre)uency of occurrence and degree of impact. In &ine -ith the

objecti'es of the study and due to the time constraints and &imits of the research8 )ua&itati'e

method of research -as used 'ia te&ephone inter'ie-s -ith eperienced personne& of the

7igerian oi& and gas industry8 to find out the characteristics and causes as -e&& as to

propose efficient strategies to effecti'e&y mitigate on&y the fi'e major risks on the risk

ranking de'e&oped from the )uantitati'e ana&ysis because of the se'ere impacts they ha'e

on oi& and gas projects in 7igeria. 3his section -i&& focus on ana&y*ing each indi'idua& risk

thorough&y.

4.!.1 #ecurity threats fro" neighboring residents $R1%.1!&

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3he risks accruing to security threats from neighboring residents on 7igerian oi& and gas

projects are enormous. 3hese are eterna& risks that inhibit the achie'ement of a project>s

cost time and )ua&ity objecti'es. It -as gathered from the conducted inter'ie-s that the

agitating youths and mi&itants acti'ities on oi& and gas fie&ds in the form of assau&t and

kidnapping of oi& and gas companies emp&oyees 4/-eje 200#8 'anda&i*ing of oi& and gaspipe&ines8 and sabotage 4fire and ep&osion of oi& and gas faci&ities. It -as a&so gathered

that due to &ack of compensation payment -hich -as supposed to be paid to the poor rura&

d-e&&ers of these oi& rich regions for the compu&sory ac)uisition of their &ands for oi& and

gas ep&oration8 a&-ays generates crisis in the area. 4


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1. /ffecti'e team-ork shou&d be enhanced 'ia staff training to update them -ith the

ne- techno&ogies and industry ski&&s.

2. ?ood staffing by effecti'e&y matching project team members to the right projects

-here they can function efficient&y to achie'e optimum producti'ity.

4.!.3 (oor designs $1%.)&

3he risks of poor designs by contractors in 7igerian oi& and gas projects are enormous and

usua&&y cause the non+achie'ement of projects> cost time and )ua&ity objecti'es. ho

absorbs the etra cost of incomp&ete or unc&ear scopes and specifications ambiguous design

and designers> incompetence@ 3his )uestion usua&&y causes a &ot of conf&ict bet-een c&ients

and contractors. In 7igeria indigenous companies ha'e &itt&e eperience in design of oi&

and gas faci&ities thus there eists a dominance of foreign mu&tinationa& companies that

ha'e more eperience but sti&& run into design difficu&ties due to the comp&e nature of the

designs in the industry.

In this &ight the respondents to the inter'ie- that -ere carried out proposed se'era&

strategies -hich inc&ude 43huyet 200#9

1. Indigenous companies partnering -ith the mu&tinationa&s to impro'e cost

effecti'eness8 efficiency8 )ua&ity of products and ser'ices8 transparency and transfer

of techno&ogy &ong term commitment and enhanced opportunity for inno'ation.

2. Contractor se&ection to be based on eperience and pre'ious performance so that

competent and eperienced manpo-er -i&& be carrying out design -orks efficient&y.

. Asing concurrent engineering to impro'e constructabi&ity and time sa'ings.

$. ,esign standards put in p&ace to enab&e regu&ators c&ients and contractors to ha'e a

mutua& understanding about the -ay to carry out designs. 4Sne&& 200!

4.!.4 *ate internal appro+als fro" clients $1%.,&

3his is an interna& project risk that usua&&y originates in c&ients organi*ation. 3he inter'ie-

respondents re'ea&ed that this risk emanates on 7igerian oi& and gas projects due to

managers &acking the authority to so&'e prob&ems and &ack of emp&oyee commitment.

"roject managers are usua&&y faced -ith the prob&em of s&o- responses from the top

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management to pressing project issues e.g. a&&ocating resources. 3his &eads to time and at

times &ead to cost o'erruns on projects. 43huyet 200!

In this &ight the respondents to the inter'ie- that -ere carried out proposed the fo&&o-ing

strategies9

1. Asing 3B; 43ota& Bua&ity ;anagement practices for enhancing the in'o&'ement

of a&& project emp&oyees to share in the project 'ision and goa&s.

2. /mpo-ering project managers -ith appro'a&s authority so as to make on time and

faster decisions -hich enhances inno'ation and successfu& de&i'ery of projects.

4.!.! (oor and inadeuate tendering $1%.9&

3he risk accruing to poor and inade)uate tendering usua&&y can de'iate a project from

meeting up -ith its objecti'es.


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4.) #u""ary

3he )uantitati'e and )ua&itati'e approaches -ere used to assess the major risks that

emanate in 7igerian oi& and gas construction projects. 3he findings from resu&ts from the

background information of the )uestionnaire sur'ey re'ea&s that risk management practices

in 7igeria oi& and gas industry in'o&'es peop&e -ith high industry eperience8 educated8and most&y carry out projects in both upstream and do-nstream sector. ;ost of the

organi*ations ha'e eperience in oi& and gas acti'ities because they ha'e been in eistence

&ong enough in the industry8 -ith ade)uate staff strength.

3he second part the )uestionnaire re'ea&ed that a&& organi*ations in 7igerian oi& and gas

industry maintain a risk management system as -e&& as store identified risks in a risk

management database either as hard copies or e&ectronic copies in computer hard dri'es

compact discs and f&oppy dri'es.

3he top ten major risks that emanate on oi& and gas construction projects both in the

upstream and do-nstream oi& and gas sectors are9

5.2 Security threats from neighboring residents

6.2 Incompetence of project team members

#.2 "oor designs

!.2 %ate interna& appro'a&s from c&ients

(.2 "oor and inade)uate tendering

10.2 Inade)uate project organi*ation structure

11.2 Changes in design

12.2 Inade)uate budgeting and poor project p&anning

1.2 Improper project feasibi&ity studies

1$.2 Inefficient and poor performance of constructors

Bua&itati'e method -as used 'ia in+depth te&ephone inter'ie-s8 to further ana&y*e the top

fi'e major risks due to their high mean of impact degree and high risk inde score

thorough&y. 3he causes and characteristics of the top fi'e major risks8 as -e&& as mitigating

strategies -ere de'e&oped to curb the top fi'e major risks that emanate on 7igerian oi& and

gas projects.

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hapter !: onclusion and reco""endations

%.1 onclusion:

In recent times the concept of risk management is an essentia& process that cannot be

neg&ected in the management of projects in de'e&oped countries. 7e'erthe&ess the practice

is sti&& ne- during the imp&ementation of projects in de'e&oping countries8 -hich inc&udes

7igeria.


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of occurrence and the degree of impact of the major sources of risks that emanate in oi& and

gas construction projects in 7igeria.

3he resu&ts of the research 'ia the risk scores of the major risks re'ea&ed that the top ten

major risks in oi& and gas construction projects in 7igeria -ere9

1. Security threats from neighboring residents

2. Incompetence of project team members

. "oor designs

$. %ate interna& appro'a&s from c&ients

5. "oor and inade)uate tendering

6. Inade)uate project organi*ation structure

#. Changes in design

!. Inade)uate budgeting and poor project p&anning

(. Improper project feasibi&ity studies

10. Inefficient and poor performance of constructors

!.% Reco""endations

:or the successfu& de&i'ery of projects it is essentia& that a thorough eamination of the

major risks affecting a project is eamined. In the )uest to de'e&op strategies to effecti'e&y

mitigate the identified major risks8 &iterature and in+depth inter'ie-s -ere carried out in the

research and -ere used to proffer appropriate practica& strategies -hich -here proposed for

the top fi'e most ranked major risks in oi& and gas construction projects in 7igeria. 3he

research proposed recommendations to effecti'e&y mitigate the top+fi'e major risks as

fo&&o-s9

1. 3he compu&sory &and use act shou&d be amended so that ade)uate compensation feesshou&d be paid to the o-ners of the ac)uired &ands by oi& and gas companies or the

federa& go'ernment.

2. Corporate socia& responsibi&ity 4CSR shou&d be enforced by the federa& go'ernment

so as to increase the de'e&opment of these oi& rich communities by oi& and gas

companies.

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. 3he federa& go'ernment of 7igeria shou&d seek to enforce stringent &a-s on -aste

disposa&s so as to stop the oi& spi&&ages from acti'ities from oi& and gas construction

acti'ities.

$. 3he %7? production shou&d be introduced fu&&y so as stop the f&aring of gases

-hich cause harm to human anima&s and the entire eco&ogica& en'ironment in the7iger ,e&ta region.

5. /ffecti'e team-ork shou&d be enhanced 'ia staff training to update them -ith the

ne- techno&ogies and industry ski&&s.

6. ?ood staffing by effecti'e&y matching project team members to the right projects

-here they can function efficient&y to achie'e optimum producti'ity.

#. Indigenous companies partnering -ith the mu&tinationa&s to impro'e cost

effecti'eness8 efficiency8 )ua&ity of products and ser'ices8 transparency and transfer

of techno&ogy &ong term commitment and enhanced opportunity for inno'ation.

!. Contractor se&ection to be based on eperience and pre'ious performance so that

competent and eperienced manpo-er -i&& be carrying out design -orks efficient&y.

(. Asing concurrent engineering to impro'e constructabi&ity and time sa'ings.

10. ,esign standards put in p&ace to enab&e regu&ators c&ients and contractors to ha'e a

mutua& understanding about the -ay to carry out designs.

11. Asing 3B; 43ota& Bua&ity ;anagement practices for enhancing the in'o&'ement

of a&& project emp&oyees to share in the project 'ision and goa&s.

12. /mpo-ering project managers -ith appro'a&s authority so as to make on time and

faster decisions -hich enhances inno'ation and successfu& de&i'ery of projects.

1. 3he techni)ue ;C,; 4;u&tip&e criteria decision making shou&d be fre)uent&y

used for e'a&uating contractors.

1$. C&ients increasing &ega& enforcement of co&&usion by impro'ing the detection of

bidders during pre)ua&ification and fina& stages of e'a&uation.

15. C&ients shou&d be using se&ecti'e tendering by in'iting on&y credib&e and

professiona& contractors

!.3 *i"itations of research

ith regards to the gap in distance bet-een the author and the target popu&ation8 and the

inf&eib&e time schedu&e re)uired for comp&eting the research the choice of te&ephone

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inter'ie-s and the use of an e&ectronic )uestionnaire -as the most suitab&e media for data

co&&ection for the research. o-e'er it -as recogni*ed that the representation of the entire

target popu&ation may not be repudiated from the respondents 'ie-s because8 not a&& the

operators in the upstream and do-nstream sector of the 7igerian oi& and gas industry may

ha'e access to internet to faci&itate the data co&&ection process. 7e'erthe&ess the samp&esti&& continues to be a 'a&id and dependab&e information source since most of the corporate

pub&ic and pri'ate sector oi& and gas organi*ations in 7igeria ha'e internet access.

!.4 Reco""endations for future research

a'ing undertaken the research on risk management in oi& and gas construction projects in

7igeria8 opportunities are open for future research to be aimed at using the ascertained

major sources of risks and recommended strategies proposed in the research dissertation8

for de'e&oping a practica& risk management mode& for future use by c&ients in'estors

researchers and a&& stakeho&ders that ha'e interest in the 7igerian oi& and gas industry.

1$


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Documents

Risk Management Oil and Gas 2