Risk Management for Construction

1. Risk Management for Construction Dr. Robert A. Perkins, PE Civil and Environmental Engineering University of Alaska Fairbanks

2. Class 2 • Construction and Risks • Work Breakdown Structure • Estimating and Risks

4. General Risk Allocation, Fisk

7. Contracting Strategy • Contract type • Lump sum, cost reimbursable • Procurement method • Sole source, prequalification, public bid • Project Delivery System • Design-bid-build • Design-build • CMAR

9. Design Build for Public Owner • Start with “Design criteria” • “Bridging Design” • Contractor submits preliminary design • 35% • Changes • Sure • Less than DBB • Probably

10. DB faster, see next Quality about the same Cost? Changes Are they different? Literature varies, some indicated DB had more changes and they cost more DB vs. DBB

12. Projects Analyzed

13. Cost growth and changes for DB versus DBB projects

14. Owner’s project manager’s point of view • Controllable changes • design errors • lack of site access (perhaps due to permitting problems) • deficiencies in owner-furnished materials or equipment. • Uncontrollable changes • changes requested by the using group • differing site conditions

15. A comparison of the number and costs of changes for each of three change types

16. Conclusions re D-B • Certainly are design-related changes • Much less than DBB • More user-requested changes in D-B • Worthwhile to examine these as a source of cost growth distinct from design errors

17. What the hell is CMAR? • Owner employs the A/E. • CM is selected based on qualifications • The CM provides “preconstruction services:” evaluating costs, estimating, providing value analysis, scheduling, and constructability advice • Owner and CM negotiate a price • “Guaranteed Maximum Price” (GMP)

18. CMAR = nirvana • Preferred by public owners of complex projects • Used exclusively by higher education • Minnesota • Arizona • Often by Texas • Why? • Control the A/E details • QBS • Complex scheduling issues • Avoids disasters • Cheaper?

19. Culture Change • Owner, A/E, CM and Subs are separate economic entities • Clear roles in DBB • Good fences make good neighbors? • Poll • Employer-type • Number of Public CMAR contracts

20. CMAR Problems for Public Projects • Hire CM shortly after A/E • Subs expertise • Scope and budget tension • Teamwork and partnering • Design Errors • Design Constraints

21. When is delayed hiring a severe impact? • Most A/Es and Subs feel it becomes severe if not done before 35% • Most Owners and CMs don’t feel it is sever until the 65% • Opinion?

22. Disagree Agree

25. A/Es don’t believe CMs have specialty experience in house and are comfortable with negotiating with subs early. • Owners want to show that they are bringing in the best price.

27. Tension Regarding Scope and Budget • CM wants to cut scope and budget to reduce risk • Has an incentive to bring in high estimates • Owner wants all the scope possible out of the budget • A/E does not want design changes

31. Regarding S-B Tension • Yes, indeed • Partnering is often a benefit • Independent estimator may not reduce tension • Forcing estimate agreement may increase tension • Is tension bad?

33. Other Conclusions • CM fees • With more experience, fewer wanted CM fees in the proposal • Owners did not believe there were fewer design errors in CMAR, while all other parties did. • CM and subs felt there could be more fast-tracking done, Owners and A/E felt there was enough • All were comfortable have the CM self-perform some of the work.

34. Estimating and Risks • Many risks are evaluated by considering variation in estimates • We will spend some time on estimating • Owner’s • Contractor’s • Change Order

35. Project stages and WBS • Estimate type will vary with project stage • Uncertainty/risk associated with an estimate will vary with stage and type • Owners and contractors often estimate differently

36. WBS • The tasks needed to complete the project • Tie WBS to risks

37. High Level WBS • Planning • Pre-design • Design • Procurement • Construction • M&O

38. Mid-level Pre-design • Survey • Soils • ROW • Environmental • Public • Other

39. More Detail - Soils • Review Records • Schedule Drilling • Drill • Analysis • Report

40. Finer Detail - Drill • Costs • Labor • Equipment • Subcontract • Schedule • Permits and approvals • Section A • Section B • Section C

41. And more • Labor • Bare • Benefits • Vacation • Supervision

42. Nomenclature - sometimes • Program • Project • Phase • Task • Sub-task • Work Packages • Etc.

43. Project Selection Estimates • Usually based on conceptual design • Estimate of costs • Estimate of benefits

44. Cost Estimating • Economic analysis is future based. • Costs and benefits in the future require estimating. • Estimated costs are not known with certainty. • The more accurate the estimate, the more reliable the decision.

45. General Types of Estimates • Rough - gut level, inaccurate -30% to +60%. AKA rough order of magnitude ROM • Semi detailed - based on historical records, reasonably sophisticated and accurate -15% to +20%. • Detailed - based on detailed specifications and cost models accuracy -3% to +5%.

46. Estimates and Risk • Purpose/Type • Planning • Owner’s Costs • Percentage vs. size • Design Stages • 10, 35, 65, 95% • Contractor’s Bid • Change Order • Contractor • Owner

47. Estimating Models US CPI

48. Power Sizing • Scales known costs for smaller or larger item • For motors, 5-20 HP, X=0.69 • Bridges

49. Learning Curve • Time required to complete a repetitive task decreases with number of tasks completed • Often, when output doubles, the time required decreases by a fixed percentage • Say 85%, 0.85 • Standard tables or historical for industry

50. Tn = time for nth unit • T1 = time for first unit • n = number of units produced • R = log learning rate/log 2