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Managing Risks in the Project Pipeline Minimizing the Impacts of Highway Funding Uncertainties. Larry Redd , P.E. Tim McDowell, WYDOT, P.E. Larry Redd LLC. Uncertainties Can Ruin Your Asset Management Plans. Unplanned Outcomes Actual Revenue? Missed deliveries Holding Costs
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Managing Risks in the Project PipelineMinimizing the Impacts of Highway Funding Uncertainties Larry Redd, P.E. Tim McDowell, WYDOT, P.E. Larry Redd LLC
Uncertainties Can Ruin Your Asset Management Plans • Unplanned Outcomes • Actual Revenue? • Missed deliveries • Holding Costs • Obsolete projects • “Hurry-up” projects • Low performance • Best Laid Plans • Optimized project selection • Intended performance benefits • Assumed revenue by year STIP— ”Project Pipeline” Project Deliveries Project Programming 2017+ 2017 2016 2015 2014 2013 2012 • Pipeline Uncertainties • Scope growth and project cost • Labor and Materials price volatility • Environmental or ROW issues • Unplanned political priorities • Construction cost inflation • Uncertain or variable revenue Larry Redd, P.E. 970-219-4732 larryredd@earthlink.net Larry Redd LLC
Non-Optimum Project Pipeline Costs Costs of “Being Too Lean”-- -Loss of Stimulus Funds, Block Grants, Special Legislative Funds -”Hurry-up” design and devel. costs -Non-optimum advanced const. Holding Costs – -“PE 10 yr Limit List” $Millions at risk, and $Billions in projects may not get done -Lost permit costs -ROW and EA costs -Development costs -Obsolete projects -Redesign costs Costs “Optimum” Range Amount of Projects “On-the-Shelf” Ready to Go
Objectives • Identify cost elements (holding and hurry-up costs) and uncertainty factors to reduce or trade off or mitigate. • Identify controllable factors to optimize (examples) – • How to operate the pipeline (loading, project mix, draining, etc.) • Cost factors to reduce (holding, hurry up) • Reduce time delays in getting projects onto the shelf • Bottom line – Determine how to deliver intended projects, with expected performance, on time; in the midst of uncertain and/or variable funding • Not “Business as usual…” – Instead, using low impact solutions/methods to manage risks and uncertainties
Uncertainty Factors • Scope growth • Political priorities • Material price volatility • Labor costs • Other construction cost escalation • Legal issues • Environmental or regulatory issues • Right-of-way issues • Funding issues
Observations and Conclusions • Latest results verify that total Project Pipeline losses can be about 3% per year or more (off-nominal cost assumptions). • A 3 percent savings is representative based on the findings of the analysis. This would amount to a total savings of $90 million,for example, for a budget of 3 billion dollars over a 10-year period. • Multiple methods have been shown to be effective in cutting these losses: • Using (accurate) forward projections of available revenue, or reducing design times in the pipeline (especially for 3R4R projects) • Reducing the values of the factors of Hurry Up and Holding Costs • The “Critical Project Method” of stabilizing the flow of major projects has proven effective. Don’t delay the largest and more complex projects.