NCHRP 8-60 Risk Analysis Tools and Management Practices to Control Transportation Project Costs...
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Transcript of NCHRP 8-60 Risk Analysis Tools and Management Practices to Control Transportation Project Costs...
NCHRP 8-60Risk Analysis Tools and
Management Practices to Control Transportation Project Costs
Keith R. Molenaar, PhDStuart D. Anderson, PhD, PE
Transportation Estimators AssociationAnnual Conference
Saratoga Springs, New YorkOctober 4, 2008
Cost or Duration
Pro
bab
ility
Cost or Duration
Pro
bab
ility
Continuous Distribution:Normal
Continuous Distribution:Lognormal
Cost or Duration
Pro
bab
ility
Continuous Distribution:Triangular
Cost or Duration
Pro
bab
ility
Discrete Distributions
Distribution for Total Project Costs(Current $)
Mean = 499.57
5% 90% 5%
437.98 566.93
0.000
0.005
0.010
0.015
0.020
400 500 600 700
NCHRP 8-60Research Team
Keith R. MolenaarUniversity of ColoradoPrincipal Investigator
James DiekmannUniversity of Colorado
Co-principal Investigator
Cliff SchexnayderArizona State UniversityConsulting Investigator
Stuart AndersonTexas Trans. Institute
Co-principal Investigator
Ted FerragutTDC Partners, Inc.
Implementation Leader
Agenda
• Objective
• Motivation
• Process
• Methods and Tools
• Implementation
• Conclusions
Research Objective
To develop a comprehensive guidebook on risk-related analysis tools and management practices for estimating and controlling transportation project costs
Background
Risk StrategyIdentify risks, quantify their impact on cost, and take actions to mitigate the impact of risks as the project scope is developed.
Published Project Risk ManagementPolicy or Procedures47 of 52 State Agencies
Yes9%
No91%
Published Definition for Contingency48 of 52 State Agencies
Yes19%
No81%
Cost Estimate at Any Phase
Total Project Estimate = Base + Contingency
Risk-related analysis tools and management practices
Basic Framework
Assess/Analyze
Allocate
Monitor and
ControlIdentify
MitigateandPlan
Risk Management
Process
Scalable for Project Complexity
Adaptable to Project Development Phases
Risk Definitions and Tools
• Risk Identification
• Risk Assessment and Analysis
• Risk Mitigation and Planning
• Risk Communication
In a Nutshell:Risk Identification
Identification, categorization and
documentation of comprehensive, non-
overlapping set of:
– “risks” (potential problems)
– “opportunities” (potential improvements)
Events that might occur, which could change
project cost or schedule
Risk Identification - Tools
• Brainstorming
• Scenario planning
• Expert interviews
• Delphi methods
• Influence or risk diagramming
• Risk checklists
• Red flag lists
Risk Identification - Checklists
DOE
ACEC/AGC
Caltrans
WSDOT
Washington State Department of Transportation
In a Nutshell:Risk Assessment and Analysis
Process of adequately describing, assessing and analyzing the risks
– Risk frequency
– Risk severity
Results in a set of ranked risks or quantified risks for inclusion in risk register
• Qualitative Assessment Tools– Probability-Impact Matrices
• Quantitative Assessment Tools– Expected Value Methods
– Three-Point Estimate Methods
– First Order Second Moment Methods
– Monte Carlo Simulation Methods
Risk Assessment and Analysis - Tools
Probability-Impact Matrices
Near CertaintyE
Highly LikelyD
LikelyC
UnlikelyB
RemoteA
Likelihood Level
Near CertaintyE
Highly LikelyD
LikelyC
UnlikelyB
RemoteA
Likelihood Level
>10%
7-10%
5-7%
<5%
Minimal or no impact
Costand/or
Can’t achieve key team or major program milestone
Major slip in key milestone or critical path impacted
Minor slip in key milestones; not able to meet need date
Additional resources required; able to meet
Minimal or no impact
Schedule
e
d
c
b
a
Level
>10%
7-10%
5-7%
<5%
Minimal or no impact
Costand/or
Can’t achieve key team or major program milestone
Major slip in key milestone or critical path impacted
Minor slip in key milestones; not able to meet need date
Additional resources required; able to meet
Minimal or no impact
Schedule
e
d
c
b
a
Level
A
B
C
D
E
a
L
L
L
L
M
b
L
L
L
M
M
c
L
L
M
M
H
ed
ML
MM
HM
HH
HH
A
B
C
D
E
a
L
L
L
L
M
b
L
L
L
M
M
c
L
L
M
M
H
ed
ML
MM
HM
HH
HH
ASSESSMENT GUIDE RISK ASSESSMENT
High (Red)
Unacceptable. Major disruption likely. Different approach required. Priority management attention required
Moderate (Yellow)
Some disruption. Different approach may be required. Additional management attention may be need
Low (Green)
Minimum impact. Minimum oversight needed to ensure risk remains low
Lik
eli
ho
od
Consequence
Three Point Estimate ToolsP
rob
abil
ity
C o s t
M o s t P ro b a b le C o s t (m )
L o w e s t P o ss ib le C o s t (o )
H ig h e s t C re d ib le C o s t (p )
A v e ra g e C o s t ( a lw a ys > m )
The average cost of the item is (o+4m+p)/6
Monte Carlo Simulation Models
cost
schedule
Activity A
Activity C
Activity B
Start End
4.4 4.6 4.8 5.0 5.2 5.4 5.6
1234567891011121314151617181920212223242526272829303132333435363738394041424344454647484950
Iteration
80% of the values are equal or less than 5.2
Monte Carlo Simulation Models
Risk Analysis ProcessRisk Assessment to Identify Contingency
Most LikelyEstimate
Contingency
Ranking of Risks…
79.6
78.8
68.2
67.0
41.2
36.4
32.8
29.2
29.2
23.4
20.0
18.0
15.0
14.0
13.0
10.8
10.8
10.0
7.5
7.2
6.2
5.0
5.0
5.0
3.7
3.0
642.1
0 100 200 300 400 500 600
Total Mean Cost Risk
C3. Labor shortage or material procurement issues during construction
S4.1. Other additional scope required - Bangerter
C1.2. Market conditions at time of bid
D25. Uncertainty in pavement design
C13. Additional overhead costs resulting from delays (pre-construction and construction)
D23. MVC designated as a lifeline facility
R2. Additional cost due to accelerating development within the proposed corridor
Identified Minor Risks (aggregate)
Unidentified Risks (aggregate)
S1. Uncertainty in transit component
C11. Damage to adjacent properties or facilities due to construction activity
E5. Challenge to ROD
D16. Uncertainty in required ground improvement (excluding surcharging)
S3. Additional mitigation required
S2. Additional aesthetic treatment / elements required
D18. Uncertainty in required noise walls
D2. Change alignment near ATK
D15. Other uncertainty in earthwork
C4. Difficult ground conditions during construction
R4. Other issues acquiring ROW
D12. Cannot re-use as much material as assumed
D8.1. Uncertainty in TS&L for other bridge structures - additional bridges
U8. Mt. Timpanogas - water treatment plant
S4.2. Other additional scope required - other
R1. Relocate Hillside Elementary
D14. Uncertainty in embankment consolidation
Risk Event
Contribution to Total Mean Risk (Additional Cost in 2007 $M)
0 10 20 30 40 50 60 70 80 90 100
Contribution to Total Mean Risk (% of Total)
Similar for Opportunities
Xxx
…
79.6
78.8
68.2
67.0
41.2
36.4
32.8
29.2
29.2
23.4
20.0
18.0
15.0
14.0
13.0
10.8
10.8
10.0
7.5
7.2
6.2
5.0
5.0
5.0
3.7
3.0
642.1
0 100 200 300 400 500 600
Total Mean Cost Risk
C3. Labor shortage or material procurement issues during construction
S4.1. Other additional scope required - Bangerter
C1.2. Market conditions at time of bid
D25. Uncertainty in pavement design
C13. Additional overhead costs resulting from delays (pre-construction and construction)
D23. MVC designated as a lifeline facility
R2. Additional cost due to accelerating development within the proposed corridor
Identified Minor Risks (aggregate)
Unidentified Risks (aggregate)
S1. Uncertainty in transit component
C11. Damage to adjacent properties or facilities due to construction activity
E5. Challenge to ROD
D16. Uncertainty in required ground improvement (excluding surcharging)
S3. Additional mitigation required
S2. Additional aesthetic treatment / elements required
D18. Uncertainty in required noise walls
D2. Change alignment near ATK
D15. Other uncertainty in earthwork
C4. Difficult ground conditions during construction
R4. Other issues acquiring ROW
D12. Cannot re-use as much material as assumed
D8.1. Uncertainty in TS&L for other bridge structures - additional bridges
U8. Mt. Timpanogas - water treatment plant
S4.2. Other additional scope required - other
R1. Relocate Hillside Elementary
D14. Uncertainty in embankment consolidation
Risk Event
Contribution to Total Mean Risk (Additional Cost in 2007 $M)
0 10 20 30 40 50 60 70 80 90 100
Contribution to Total Mean Risk (% of Total)
Similar for Opportunities
Xxx
In a Nutshell:Risk Mitigation and Planning
Risk Mitigation and Planning
• Assigning responsibility/ownership for
risks
• Developing plans to address risks
Assess/Analyze
Allocate
Monitor and
ControlIdentify
Mitigate and Plan
RiskManagement
Process
Risk Mitigation and Planning - Tools
• Red Flag Lists
• Risk Registers
• Risk Management Plans
• Risk Information Systems
Status ID #Date Identified Project Phase
Functional Assignment Threat/Opportunity Event SMART Column Risk Trigger Type Probability Impact
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
VH
H X
M
L
VL
VL L M H VH
VH
H
M
L
VL
VL L M H VH
VH
H
M
L
VL
VL L M H VH
Pri
ori
ty
1
PID
Impact
Pro
ba
bili
ty
Identification Qualitative Analysis
PROJECT RISK MANAGEMENT PLAN
High
Impact
Risk Matrix(12)
Pro
ba
bili
ty
Risk is occuring if the Revised Noise Study indicates the additional wall height is warranted.
Residents will want a higher soundwall than needed to mitigate noise.
The height of the proposed soundwall is 2 meters. Residents who live next to the freeway have expressed a desire for a 5 meter high wall.
Schedule
Cost
HighActive 3c
8/7/2002
Environmental Analysis
Pro
ba
bili
ty
Impact
Risk Registers
Type Probability ImpactProbability
(%)
Impact ($ or days)
Effect ($ or days) Strategy
Response Actions including advantages and disadvantages
Affected WBS Tasks
Responsibilty (Task Manager)
Status Interval or Milestone Check
Date, Status and Review Comments
(9) (10) (11) (14) (15) =(13)x(14) (16) (17) (18) (19) (20) (21)
VH
H X
M
L
VL
VL L M H VH
VH
H
M
L
VL
VL L M H VH
VH
H
M
L
VL
VL L M H VH
Impact
Pro
ba
bili
ty
Joe Envr. Manager
Monitoring and ControlResponse StrategyQualitative Analysis
PROJECT RISK MANAGEMENT PLAN
High
Earmark $70,000 in the 6-page estimate for this risk. Add in an additional 250 hours in WBS 165 for an additional noise study to analyze 5 meter high wall at this location.
WBS 165 Perform Environmental
Studies and Prepare Draft Environmental
Document (DED)
Mitigation70% 100,000 70,000 Two Months
Impact
O P T I O N A L Quantitative Analysis
(13)Risk Matrix
(12)
Pro
ba
bili
ty
Schedule
Cost
High
Pro
ba
bili
ty
Impact
Risk Registers
RiskCommunicationTools
RiskCommunicationTools
Project Description: The I-74 corridor provides a vital link between Iowa and Illinois, and an important gateway to the Quad Cities region. Growing population and employment over the past several decades has led to increasing traffic volumes. The current configuration of roadways and bridges along I-74 does not provide consistent travel times along this major transportation corridor. Traffic incidents and maintenance activities on the narrow Mississippi River bridges impede traffic flow. Therefore, improvements to the I-74 corridor are needed to enhance the movement of persons and goods between Iowa and Illinois, and serve the transportation needs for continued economic development in the Quad Cities region.
For the Full Build Alternative, Baseline Funding Scenario, in year-of-expenditure YOE) dollars:
90% likelihood cost < $1.35 Billion 50% likelihood cost < $1.08 Billion 10% likelihood cost < $875 Million
Cost Range:
0%10%20%30%40%50%60%70%80%90%
100%
60
0
70
0
80
0
90
0
1,0
00
1,1
00
1,2
00
1,3
00
1,4
00
1,5
00
1,6
00
1,7
00
1,8
00
1,9
00
2,0
00
2,1
00
2,2
00
Overall Project Cost (YOE $M)
Cu
mu
lati
ve
Pro
ba
bili
ty
or
Pe
rce
nti
le
Full Build, Baseline FundingFull Build, Funding Scenario 2Phased Full Build
Project Components and Benefits: I-74 would be reconstructed and widened
to six lanes (three lanes in each direction) from south of the 23rd Avenue interchange in Illinois to the U.S. 6 interchange in Iowa.
I-74 would be realigned in the vicinity of
the Mississippi River, and the existing Mississippi River bridge will be replaced with basket-handle configuration, and match the proposed roadway improvements.
Existing interchanges at 23rd Avenue, 7th Avenue, River Drive, State Street/Grant Street, Kimberly Road, Middle Road, U.S. 6 (Spruce Hills Road/Kimberly Road), and 53rd Street would be improved to update the design and enhance access to adjacent communities.
For the Full Build Alternative, Baseline Funding Scenario: 90% likelihood Completion before May 2023 50% likelihood Completion before Dec 2022 10% likelihood completion before Aug 2022
Completion Date Range:
0%10%20%30%40%50%60%70%80%90%
100%
De
c 2
02
1Ju
n 2
02
2D
ec
20
22
Jun
20
23
De
c 2
02
3Ju
n 2
02
4D
ec
20
24
Jun
20
25
De
c 2
02
5Ju
n 2
02
6D
ec
20
26
Jun
20
27
De
c 2
02
7Ju
n 2
02
8D
ec
20
28
Jun
20
29
De
c 2
02
9Ju
n 2
03
0D
ec
20
30
Jun
20
31
De
c 2
03
1Ju
n 2
03
2
Overall Project Completion Date
Cu
mu
lati
ve
Pro
ba
bili
ty o
r P
erc
en
tile
Full Build, Baseline FundingFull Build, Funding Scenario 2Phased Full Build
Note: For any given funding scenario, range in completion dates is constrained by funding availability
K ey Assumptions: The estimated cost range above includes uncertainty in the annual construction-cost inflation rate, and assumes several discrete funding scenarios.
Project Risks and Opportunities:
The main project risk is timing of full funding for the project. As shown by comparing the curves above, uncertainty in the timing of funding creates a large range in project completion dates and cost. For example, the 90th percentile cost could range over $380 million (mostly due to increased inflation costs) and the 90th percentile completion date could range over 7 ½ years.
Construction sequencing and phasing is preliminary at this stage of project development. The Full Build alternative could potentially be accelerated by up to 24 months with an increase in direct cost of about $10 million. However, an accelerated schedule could save indirect (overhead) costs and reduce inflation costs significantly.
Numerous design and right-of-way issues that need to be resolved as the project design is finalized. These could add to the project cost.
Level of Project Design:
July 2007 Low Medium High
Implementation
• A Complexity-Based Solution– Type I – Risk Identification and
Contingency Percentage
– Type II – Qualitative Risk Analysis and Identified Contingency Items
– Type III – Quantitative Risk Analysis and Contingency Management
Estimate ContingencyActions to Perform
Type II Risk Analysis
1. Red Flag Items or Rank risks (PxI matrix)
2. Choose % contingency from allowable range
Maryland Sliding-Scale Contingency
0-25%Final Design
25-35%Programming and Preliminary Design
35-40%Planning
ContingencyProject Phase
Type I - ExampleOhio DOT Design Completion Contingency
Guidelines for Cost Estimating of Major Projects
Estimate ContingencyActions to Perform
Type II Risk Analysis
1. Rank risks (PxI matrix)
2. Estimate Expected Value for top 20% of risks
3. Choose % contingency from allowable range
4. Use additional contingency if warranted by the top risks
Estimate ContingencyActions to Perform
Type III Risk Analysis
1. Rank risks (PxI matrix)
2. Develop a risk-based cost and schedule model
3. Choose appropriate contingency
Agenda
Objective
Motivation
Process
Methods and Tools
Implementation
• Conclusions
Conclusions
The simplest representations often work best
While the analysis may be supported by a complex, rigorous, and probabilistically-sophisticated model, it is of little value if it is overly complicated in their representation
http://www.fhwa.dot.gov/programadmin/contracts/cmetg.cfm
ConclusionsOther Related Initiatives
• FHWA Expert Task Group– Guide to Risk Assessment and Allocation– “Train-the-Trainer” Workshops
• NHI Course on Risk Management
• NCHRP SHRPII R-09 Guide for the Process of Managing Risk on Rapid Renewal Projects
Question, Answers and Discussion!
Thank You!
Study Help
• Examine Sliding Scale Contingency• Use Delphi Technique• Capture expert opinion• Series of questions using an Excel
Spreadsheet• Assess contingency ranges for different
project complexities and stages in project development
• Requesting your help!