NCHRP 8-60 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 Saratoga Springs, New York October 4, 2008

NCHRP 8-60 Research Team

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

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

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

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

Three Point Estimate Tools 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

Iteration 80% of the values are equal or less than 5.2 Monte Carlo Simulation Models

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

Ranking of Risks

In a Nutshell: Risk Mitigation and Planning Risk Mitigation and Planning Assigning responsibility/ownership for risks Developing plans to address risks Risk Management Process

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

Risk Registers

Risk Communication Tools

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 Contingency Actions 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 Contingency Project Phase

Type I - Example Ohio DOT Design Completion Contingency Guidelines for Cost Estimating of Major Projects

Estimate Contingency Actions 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 Contingency Actions 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

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

Conclusions Other 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!