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The Recovery Plan Project Case – Risk Quantification Methods

Sujeeva S. Ranasinghe

Colorado State University Global Campus

PJM530: Contracts, Procurement, and Risk Management

Dr. Arnetra Arrington

October 22, 2023

The Recovery Plan Project Case – Risk Quantification Methods

Overview

Eskom’s dedicated Risk Management Committee (RMC) has analyzed the risks of power

interruptions due to a shortfall of supply and increasing electricity demand and have created a Recovery

Plan (van Wyk et. al., 2008).

As part of their risk analysis, the RMC employed Financial Risk Analysis, Quantitative and Qualitative

methods. In all methods, the RMC considered internal, external, organizational, and technical risks in

their analysis.

Per the PMBOK, Qualitative Risk Analysis is the process of assessing and ranking risks based on the

likelihood of occurrence, impact, and other qualitative attributes. Common qualitative scales might use

terms such as “low”, “medium” or “high” based on likelihood and impact.

Low risks have a low probability of occurrence and low impact, often requiring minimal attention.

Medium risks have a moderate probability of occurrence and impact and can be addressed with

proactive monitoring and mitigation. High risks have both high probability of occurrence and a high

impact on the program; and once identified at any stage of the project, it must be monitored

continuously to address it proactively and aggressively.

Quantitative Risk is accomplished by using quantitative data and statistical analysis estimating the

probability of occurrence to assign numerical values to each risk factor and quantifying the impact. This

is accomplished by using quantitative data such as rainfall, predicted load forecasts, and peak load, and

estimating the probability of occurrence to evaluate each risk and quantify the impact.
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Qualitative Analysis

Qualitative analysis was used to assign probability of occurrence and associated impacts to events

that will add risk meeting the power supply requirements of the Western Cape. The RMC utilized

lessons learned from previous, albeit less serious events as well as the proficiency and experience of the

Recovery Plan team. The qualitative analysis also took into consideration if Eskom, the City of Cape

Town or both would be accountable for particular risks.

First, the RMC created an assessment matrix and assigned the probability of these events

happening, rating them from one (1) representing that an adverse event will not occur to ten (10)

representing that an adverse event will definitely occur. Then, the RMC assigned the impact of each

adverse event. On one end of the spectrum, an impact of one (1) meant that the event is negligible and

on the other, an impact of ten (10) meant that the event would be catastrophic.

Priority was given to all risks that could impact the main project objectives, those being restoration

of the power supply or the reduction of electrical demand. Among the risks with both the highest

probability and impact was the dependency of standby plant and equipment. Therefore, Eskom can

concentrate their efforts to ensure that these plants and equipment be maintained at the highest level.

Eleven (11) of the twenty-three (23) risks identified were High impact having moderate or low

probability of occurrence; two (2) risks designated as Very High had a low probability of occurrence.

It is interesting that staff shortages and burn-out were qualified as High Probability but Moderate

Impact. Based on past experiences, Eskom may have assumed they can use less staff to maintain the

power supply. Another risk, the Potential commissioning delays in the recovery of Unit 1 was Low

Probability and High Impact, even though the case study indicated that based on past records, delays in

unit start-up following an outage are quite common. A such it could be argued that some risks that

should be both High Probability and High Impact have not been properly assessed.
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Risk Assessment and Quantification

The Risk Assessment process extensively reviewed past events to determine the risks of supplying

the Western Cape the required 4250 Mega Watts of daily power supply during the winter season.

Twenty-three (23) risks were identified and ranked qualitatively based on probability and impact as

described in the section above.

Quantitative Risk analysis was performed in tandem and took in to account the load forecast, power

supply output and predicted rainfall. Based on this analysis, the ESKOM Recovery Team was able to

compile various risk scenarios. These scenarios were then used to determine the expected amount of

load shedding or controlled blackouts. Finally, the Financial Risk analysis revealed that the economic

impact of the power outages was more than 500 million Rand (approximately $68 Million at the time of

the analysis).

The risk analysis identified some key lessons learnt including acknowledging that the Western Cape

is vulnerable to power supply issues and that the mitigation plan should always be in place. Further, it

was recognized that streamlining the communication process with the public and government was

critical.

The risk analysis identified certain shortcomings, primarily a weak relationship between Eskom and

the City of Cape Town. Also identified was the lack of an integrated Recovery Plan between the different

stakeholders as well as risks not being categorized per Eskom standards which lead to an ad hoc

mitigation plan. Additional shortcomings from the quantification methods use were identified. For

example, the analysis was only as good as the data that was used.
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References

Graves, R. (2000). Qualitative risk assessment. PM Network, 14(10), 61–66.

Jordan, A. (2013). Risk Management for Project Driven Organizations: A Strategic Guide to Portfolio,

Program and PMO Success. J. Ross Publishing

Project Management body of knowledge. (2021). In P. M. Institute, Project Management body of

knowledge. Newton Square: Project Management Institute.

Riaan van Wyk, Paul Bowen, Akintola Akintoye, 2008. Project risk management practice: The case of a

South African utility company. International Journal of Project Management, Volume 26, Issue 2

Wilson, R. (2015). Mastering Risk and Procurement in Project Management: A Guide to Planning,

Controlling, and Resolving Unexpected Problems. FT Press.