NCHRP 8-60 Risk Analysis Tools and Management Practices to Control Transportation Project Costs

1. NCHRP 8-60Risk Analysis Tools andManagement Practices to Control Transportation Project Costs Keith R. Molenaar, PhD Stuart D. Anderson, PhD, PE Transportation Estimators Association Annual Conference Saratoga Springs, New York October 4, 2008

2. NCHRP 8-60Research Team

3. Agenda • Objective • Motivation • Process • Methods and Tools • Implementation • Conclusions

4. Research Objective To develop a comprehensive guidebook on risk-related analysis tools and management practices for estimating and controlling transportation project costs

5. Background Risk StrategyIdentify risks, quantify their impact on cost, and take actions to mitigate the impact of risks as the project scope is developed.

8. Risk-related analysis tools and management practices Cost Estimate at Any Phase Total Project Estimate = Base + Contingency

9. Identify Monitor and Control Risk Management Process Assess/Analyze Allocate MitigateandPlan Basic Framework Scalable for Project Complexity Adaptable to Project Development Phases

10. Risk Definitions and Tools • Risk Identification • Risk Assessment and Analysis • Risk Mitigation and Planning • Risk Communication

11. 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

12. Risk Identification - Tools • Brainstorming • Scenario planning • Expert interviews • Delphi methods • Influence or risk diagramming • Risk checklists • Red flag lists

13. Risk Identification - Checklists DOE Caltrans ACEC/AGC WSDOT

14. 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

15. Risk Assessment and Analysis - Tools • 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

16. Probability-Impact Matrices

17. Three Point Estimate Tools The average cost of the item is (o+4m+p)/6

18. Activity B Activity A End cost Start Activity C schedule Monte Carlo Simulation Models

19. 80% of the values are equal or less than 5.2 Monte Carlo Simulation Models 21 1 2 3 4 5 6 22 8 9 10 7 12 11 19 18 17 20 15 14 13 16 37 24 23 47 49 25 26 27 28 29 30 31 48 33 34 35 32 36 46 50 44 43 45 41 40 39 38 42 Iteration 4.4 4.6 4.8 5.0 5.2 5.4 5.6

20. Risk Analysis Process Risk Assessment to Identify Contingency Most Likely Estimate Contingency

21. Ranking of Risks

22. In a Nutshell:Risk Mitigation and Planning Risk Mitigation and Planning • Assigning responsibility/ownership for risks • Developing plans to address risks

23. Risk Mitigation and Planning - Tools • Red Flag Lists • Risk Registers • Risk Management Plans • Risk Information Systems

24. Risk Registers

25. Risk Registers

26. RiskCommunicationTools

27. RiskCommunicationTools

28. 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

29. Maryland Sliding-Scale Contingency Project Phase Contingency Planning 35-40% Programming and Preliminary Design 25-35% Final Design 0-25% Estimate ContingencyActions to Perform Type II Risk Analysis • Red Flag Items or Rank risks (PxI matrix) • Choose % contingency from allowable range

30. Type I - Example Ohio DOT Design Completion ContingencyGuidelines for Cost Estimating of Major Projects

31. 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

32. 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

33. Agenda • Objective • Motivation • Process • Methods and Tools • Implementation • Conclusions

34. 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

35. 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

36. Question, Answers and Discussion! Thank You!

37. 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!