Guidebook for Risk Analysis Tools and Management Practices to Control Transportation Project Costs Keith R. Molenaar, PhD Stuart D. Anderson, PhD, PE Transportation Estimators Association Annual Conference Omaha, Nebraska September 24, 2009

Agenda Objective Background Risk Management Overview Guidebook Conclusions

NCHRP Project 8-60 Research Objective To develop a comprehensive guidebook on risk-related analysis tools and management practices for estimating and controlling transportation project costs

Agenda Objective Background Risk Management Overview Guidebook Conclusions

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

Agenda Objective Background Risk Management Overview Guidebook Conclusions

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

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

Project Types based on Complexity Non-Complex Moderately Complex Most Complex  Maintenance betterment projects  Overlay projects, simple widening without right-of-way (or very minimum right-of- way take) little or no utility coordination  Non-complex enhancement projects without new bridges (e.g. bike trails)  3R and 4R projects which do not add capacity  Minor roadway relocations  Certain complex (non-trail enhancements) projects  Slides, subsidence  New highway; major relocations  New interchanges  Capacity adding/major widening  Major reconstruction (4R; 3R with multi-phase traffic control)  Congestion Management Studies are required

Typical Project Development Phases

Risk Management and Cost Estimation and Cost Management

Risk Definitions Risk Identification Risk Assessment and Analysis Risk Mitigation and Planning Risk Allocation Risk Monitoring and Control

Risk Definition An uncertain event or condition that, if it occurs, has a negative or positive effect on a projects objectives

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

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

In a Nutshell: Risk Mitigation and Planning Determine risk response strategy Assign responsibility/ownership for risks Develop plans to address risks

In a Nutshell: Risk Allocation Assigning risks to party best able to manage risk Align risks with project objectives Share risk appropriately Contract is the vehicle for risk allocation

In a Nutshell: Risk Monitoring and Control Systematically track identified risks Identify any new risks Effectively manage contingency reserve Capture lessons learned

Agenda Objective Background Risk Management Overview Guidebook Conclusions

Guidebook Chapters Introduction Project Cost Estimation and Management Risk Management Overview Guidebook Framework Guide to the Planning Phase Guide to the Programming Phase Guide to the Design Phase Implementation Path Forward Tool Appendix

Guidebook Structure Chapter 5 – Guide to Planning Phase Chapter 6 – Guide to Programming Phase Chapter 7 – Guide to Design Phase Level of Complexity  Minor  Moderately Complex  Major Tool Appendix

Risk Management Focus within the Project Development Phases Chapter 5 – Guide to Planning Phase Chapter 6 – Guide to Programming Phase Chapter 7 – Guide to Design Phase

Chapter Structure Inputs – the information required for the risk management step; Tools – a mapping of appropriate tools that are included in the Tool Appendix; Project Complexity – ties tools to level of project complexity Tips – advice for implementing the risk management step and the use of risk management tools; and Outputs – the information that will be produced from the risk management step.

Tools D1 Delivery and Procurement Method D1.1 Contract Packaging D1.2 Delivery Decision Support I2 Identification of Risks I2.1 Red Flag Items I2.2 Not Used I2.3 Risk Checklists I2.4 Assumption Analysis I2.5 Expert Interviews I2.6 Crawford Slip Method I2.7 SWOT Analysis R3 Risk Analysis R1.1 Recognition of Complexity R3.1 Risk Management Plan R3.2 Contingency Percentage R3.3 Contingency Identified R3.4 Estimate Ranges – Three-Point Estimates R3.5 Estimate Ranges – Monte Carlo Analysis R3.6 Risk Workshops R3.7 Risk Priority Ranking R3.8 Probability X Impact Matrix (P X I) R3.9 Risk Comparison Table R3.10 Risk Map R3.11 Risk Breakdown Structure R3.12 Risk Register R3.13 Risk Management Information System R3.14 Self Modeling Worksheet

Tool Appendix What is the tool? Why is the tool used? What does the tool do or create? When should the tool be used? How should the tool be used? What are examples or applications of the tool? What tips will lead to successful use of the tool? Where can the user find more information to support development of a specific tool?

Risk Steps in Programming (a.k.a Scoping or Definition) Risk Identification Guidebook Illustration Inputs Tips Outputs Tools Project Complexity

Risk Identification Key Inputs Project Scope Base Estimate Package

Risk Identification Tools Based on Complexity Tool Minor Moderately Complex Major I2.1 Red Flag Items●● I2.3 Risk Checklists ●●● I2.4 Assumption Analysis ●●● I2.5 Expert Interviews ●● I2.6 Crawford Slip ●● I2.7 SWOT Analysis ●● R3.1 Risk Management Plan ●● R3.6 Risk Workshop ● R3.11 Risk Breakdown Structure ● R3.12 Risk Register ●●●

Risk Identification Tips Creative brainstorming process Include assumptions, estimate basis uncertainties List should be comprehensive and non- overlapping Use risk checklists after identifying risk Categorize risks

Risk Identification Key Outputs List of Risks

Risk Identification Key Outputs Start of Risk Register

Agenda Objective Background Risk Management Overview Guidebook Conclusions

Employ all steps in the risk management process Communicate uncertainty in project estimates through ranges and/or explicit contingency amounts Tie risks to cost ranges and contingencies as a means of explaining cost uncertainty to all stakeholders Develop risk management plans and assign responsibility for resolving each risk Monitor project threats and opportunities as a means of resolving project contingency

8-60 Research Products Guidebook and Research Report Guidebook –Reviewed by Panel –Minor changes only –Likely will be published Research Report –Reviewed by Panel –Contains Case Studies –Formal publication uncertain but Panel liked the detailed case studies (likely a webdoc) Could end up as a combine publication similar to the ROW Cost Estimation and Cost Management Report 625 When – mid to late next year based experience with NCHRP

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