Petroleum and Petrochemical Leader Sinopec uses @RISK to Evaluate Projects Valued over US$100million
- Industry: Oil/Gas/Energy
- Product(s): @RISK
- Application: Evaluate petroleum and petrochemical projects valued over US 100m
Sinopec Engineering Group in Beijing uses @RISK to conduct risk quantification analysis and evaluation for major projects valued at over US$100 million, to help make decisions in bidding, investment, and merger activities.
@RISK has become indispensable for major projects (projects above US$100 million, or RMB 700 million if from the perspective of the investment amount).Jin Feng, Project Risk Manager, Sinopec Engineering Group
Integrated Engineering Services for Petroleum and Petrochemical Enterprise Sinopec
Headquartered in Beijing, Sinopec Engineering (Group) Co., Ltd (SEG) provides integrated engineering services for super-large petroleum and petrochemical enterprise Sinopec. SEG uses @RISK to conduct risk quantification analysis and evaluation for major projects valued at over US$100 million, to help make decisions in bidding, investment, and merger activities.
Read the Sinopec case study in Chinese: 石油石化行业领导者中石化使用@RISK评估亿美金级以上的重大项目
Sinopec Conducts Risk Quantification Analysis and Evaluation of Major Projects using @RISK Software
SEG is the exclusive body operating the refining division of Sinopec, and a leading engineering company in oil refining, petrochemicals, and new coal chemicals in China.
As a large multinational company with a worldwide reputation for excellence in the petrochemical industry, Sinopec often encounters large projects worth up to US$10bn. Such projects not only have enormous risks in the process, but also have long construction periods that may be 5 to 6 years from commencement to completion in normal conditions. During this period, risks are manifold and scenarios unpredictable, making risk analysis essential.
Jin Feng, Project Risk Manager at SEG, has responsibility for risk quantification, the mathematical model of risks, and related topics. He learned about @RISK during his postgraduate studies, and started to use it from the early days of his career.
At Sinopec, he uses @RISK frequently. Jin Feng described @RISK as a calculator that can output results when functions are input, and is very suitable for practical, real-world situations. @RISK is spoken of among risk evaluation engineers as the product of choice.
Sinopec uses @RISK to Make Decisions for Important Projects
Jin Feng said that it was originally very hard to analyze these large scale models, but he was able to enhance the models by using @RISK as well as his practical experience.
Taking the refinery bidding as a case, after a project’s main risks are identified, they are substituted with probability distribution functions. When conducting the risk evaluation, apart from the external risks, the uncertainty of the estimation of project expenses is also considered. Combining the uncertainty with the estimated risks, the analysts were able to calculate the future risk reserves of the whole project. The principal of this pressure test is the same as that of the pressure test in bank loaning. Namely, supposing the risk occurs, how many additional expenses or losses will be incurred?
It is very convenient to use @RISK for the calculation in this regard to see what the probability of an important risk is, and the likelihood that losses will be incurred on the project if the risk occurs. This makes Sinopec aware of the risks of the whole project and puts an emphasis on inspecting and monitoring these important variables to ensure the smooth running of the project.
Another example from Sinopec relates to investment and merger projects. Generally speaking, we may think that the biggest risk for an oil company is the price fluctuation of crude oil, but there are other factors. After building the investment model in @RISK, Sinopec found that oil price risk is not the most important risk – other risks such as contract risk should also be considered.
Popularity of @RISK for Risk and Decision Analysis among Industry Peers
The popularity of @RISK has grown rapidly at Sinopec, particularly in departments related to foreign-oriented investment engineering construction. @RISK has become indispensable for major projects (projects above US$100 million, or RMB 700 million if from the perspective of the investment amount). Jin Feng reports that in addition to Sinopec, other large transnational companies such as China Minmetals Corporation are also loyal users of @RISK.
@RISK has multiple functions, and is one component of the DecisionTools Suite of software. The DecisionTools Suite is comprised of software relating to simulation, mathematical analysis and prediction, decision trees, mathematical optimization, genetic algorithm, statistical analysis, neural networks and other smart algorithms, covering almost all frequent methods of applied mathematics, giving users the ability to solve complex problems without having to use a number of different programs. These features are of particular use in the petroleum, petrochemical, and energy industries.
Jin Feng appreciates that Palisade holds many seminars to discuss how to use @RISK, and provides excellent customer service and aftercare to help customers get the most out of the product.