Cost Risk Assessments Planning for Project or Program Uncertainty with Confidence Brian Bombardier, PE

Transcription

1 Cost Risk Assessments Planning for Project or Program Uncertainty with Confidence Brian Bombardier, PE HDR, Inc., all rights reserved.

2 Addressing Cost and Schedule Questions Usual Questions Analysis Needs How much will it cost? How long will it take? Why does it cost that much? Why does it take that long? Risk Identification Qualitative and Quantitative Risk Analysis Value Engineering & Mitigation Strategies Risk Monitoring & Control 2

3 Project Cost 3

4 Traditional Estimate Vs. Risk Based Estimate Fixed Contingency % Utility Stakeholder Construction Project Deterministic Estimate Design Project Base Cost Environmental Funding ROW 4

5 Risk Management Process Step 1: Cost Risk Assessment Base cost and schedule review, identification and quantification of cost and schedule risks Financial Planning and Programming Step 2: Risk Response Development of risk response strategies and alternative solutions (Value Engineering) Decision Support Step 3: Monitor and Control Continuous risk tracking, monitoring and reporting Risk Allocation 5

6 Cost Risk Assessment Process 6

7 Base Cost Review Review base cost estimate Items with 100% chance of certainty of occurrence Remove all contingency and escalation items o Contingency will be replaced by events risk o Escalation will be reapplied in the risk analysis model Assign preliminary uncertainty ranges for quantity and unit price around key items prior to the workshop. Outcomes from the base cost review will be reviewed and finalized during the workshop. Unit Price Uncertainty Quantity Uncertainty 7

8 Base Schedule Backbone Activity B Start Activity A Activity D Activity C $ } End For Each Task 8

9 Base Schedule Backbone 9

10 Consensus-Based Workshops Structured Workshops to Build Consensus Among Various Stakeholders Engagement of Internal and External Subject-Matter Experts Sessions by Functional Assignment to: o Identify Risks o Quantify Risks o Discuss Risk Response and Mitigation Strategies 10

11 Identifying Event and Scope Risks Items with less than 100% certainty of occurrence Focus on issues that could matter Describe the event properly How likely is it to occur? What are the potential impacts (cost/schedule)? If the event occurs what are the impacts o on the low end? o on the upper end? o most likely? Is the event dependent on, or correlated with other events? 11

12 Monte Carlo Analysis: A class of computational algorithms that rely on repeated random sampling to compute or iterate the project cost or schedule many times using input values selected at random from the probability distributions of possible costs or durations, to calculate a distribution of possible total project cost or completion dates. SOURCE: PMBOK Third Edition What is Monte Carlo? Or Production Chevrolet Body style 2-door coup 12

13 How the Monte Carlo Modeling Works Monte Carlo Simulation o Base cost and uncertainties o Cost Event/Scope Risks o Schedule Event/Scope Risk Quantities Project Schedule Risks Event and Scope Risk Environmental Permitting Right of Way Utilities Civil Design Hydrology Geotechnical Structures Materials Making the black box transparent Prices Project Cost Risks Contracting Schedule Construction Maintenance Operations Base Cost Risk Funding Market Conditions Management & Stakeholders 13

14 Baseline Risk Assessment Results 14

15 Impact Risk Management Risk Assessment s aim is to assess potential impact of various scope, event, and budget risks on the project s cost and schedule. Risk Management s aim is to identify mitigation strategies to reduce both the likelihood of a threat event occurrence and the potential effect if it occurs AND to identify strategies to increase the both the likelihood of an opportunity event occurrence and the potential benefits if it occurs INITIAL RISK MANAGED RISK Probability of Occurrence 15

16 From the tornado diagrams we will define response strategies (how to respond to the risk) o Include how will be communicated in the contract documents Risk Response These will assist the design team on how to respond to risks as the project progresses 16

17 Developing Risk Response Strategies Threats Risk Factors that Increase Cost or Schedule Avoid: Change the project scope to eliminate the impact of a risk. Opportunities Risk Factors that Reduce Cost or Schedule Exploit: To make a proactive decision to take action to show that an opportunity is realized. Transfer: Move a risk to another party who is more capable at handling the risk (such as the developer or insurance company). Share: Assigning ownership of the opportunity to a third-party who is best able to capture the benefit for the project. Mitigate: The project team may seek to lessen the impact of a specific risk item, which may involve the consumption of additional time and/or money. Mitigation usually requires positive action and has a cost. Enhance: Take action to increase the probability and/or impact of the opportunity for the benefit of the project; seeking to facilitate or strengthen the cause of the opportunity, and proactively targeting and reinforcing its trigger conditions. Accept: To take no action when a response may be too costly to be effective or when the risks are uncontrollable and no practical action may be taken to specifically address it. In active acceptance, the project team sets up a contingency reserve fund to account for the residual expected value of the remaining risks. 17

18 Analysis of Results Savings $7.07M Total: $

19 CRAVE Cost Risk Analysis + Value Engineering Innovative and Unique Process that Assists with project delivery 19

20 What is CRAVE? Engineered response strategies Inputs: o Risks Threats Avoid or Mitigate Opportunities Exploit or Enhance Outputs: o Risk Management Plan o Value Engineering Recommendations 20

21 CRAVE Proven Results Has won multiple awards for improved project and program delivery process 21

22 Risk Management System for Programs Tool to proactively manage risk in the delivery of a program of projects Allows for the capture and storage of risk data for both pre-response and post-response scenarios Visual displays of risk impact versus risk likelihood demonstrate the risks relative impact to budget and schedule Generates reports for individual Projects and for entire Programs 22

23 Project Risk Profile Summary Report 23

24 Risk Reporting and Monitoring Risk Identification and Quantification Risk Response Strategies Risk Monitoring and Control 24

25 Recent MAG Program Results $87.5M Program Savings Realized with potential for another $19.2M 25

26 Sample CRA Transit Projects Toronto Transit Light rail and stations ($100M) Central Ohio Transit Authority Bus Rapid Transit Stops & Park and Rides ($25M) City of Sacramento - Downtown/Natomas/Airport (DNA) Light Rail Extension ($150M) LA Metro SCRIP Grand Central Station Improvements ($1.5B) MetroLink - Perris Valley Line Passenger Rail Enhancements ($80M) City of Hercules - Intermodal Transit Center ($60M) Sound Transit - South Link Light Rail Extension ($200M) Olympia Transit - Patterson Maintenance Facility & Transit Center ($25M) Houston Metro - Burnett Transit Center & El Dorado Park and Ride ($10M) 26

27 Contractors don t take risks, they price them! Source: 27

28 Questions? Brian Bombardier, PE