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102 top-ranked risks. Calculate the expected value by multiplying Resources the product of the impact should the risk occur by the prob- Caltrans Office of Statewide Project Management Improvement (2007). ability of the occurrence (e.g., $1,000,000 0.50 = $500,000). Project Risk Management Handbook: Threats and Opportunities, Use additional contingency if warranted by the expected 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca. value analysis. gov/hq/projmgmt/guidance_prmhb.htm. Washington State Department of Transportation (2008). A Policy for Cost Risk Assessment http://www.wsdot.wa.gov/NR/rdonlyres/ Example EF230F3B-1FC1-4A2A-9FC9-B66CF0300E1E/0/PolicyforCostRisk Assessment20050805.pdf (Viewed June 1, 2008). The Cost Estimating Validation Procedure (CEVP) developed by the WSDOT is a peer-level review on the scope, schedule, and cost estimate for transportation projects through- R3.4 Estimate Ranges-- out the state of Washington. The objective of the CEVP Three-Point Estimates process is to evaluate the quality and completeness, including Expressing a cost estimate in terms of an estimate range anticipated uncertainty and variability, of the projected cost transparently communicates the uncertainty associated with an and schedule. estimate. The generation of a range can be as simple as applying The outcomes of the CEVP process include the following: a historic plus-minus factor to estimated cost (i.e., -10 percent to +20 percent). Alternatively, an estimate range may be gener- An estimate validation statement in the form of a CEVP ated through sophisticated probabilistic models or simply as a Project Summary Sheet that more accurately represents the three-point estimate ranging from an optimistic amount to a project cost ranges and the uncertainty involved. pessimistic amount and a most likely amount in between. Findings and recommendations that allow WSDOT proj- ect teams and senior management to better understand the basis, content, and variability of cost estimates. What is it? Identification and characterization of the high-risk project A project cost estimate is a prediction of the quantities, cost, elements, which will enable project teams to address ap- and/or price of resources required by the scope of an activity or propriate mitigation strategies. project. As a prediction, an estimate must address risks and un- The Caltrans Risk Management Handbook calls for a certainties. Consequently, engineers realize that any estimate quantitative assessment of project risk items representing the can lead to a potential range of final costs. When appropriate, highest degree of exposure. This quantification is important the estimate itself can be expressed as a cost range. Communi- for adjusting/updating the contingency amount to be in- cation of the estimate as a range is simply a statement of proj- cluded in the project estimate (Caltrans 2007, www.dot.ca.gov/ ect cost variability. hq/projmgmt/documents/prmhb/project_risk_management_ handbook.pdf). Why use it? Communicating the uncertainty involved in an estimate Tips helps to ensure that decisions based upon the estimate are ap- To successfully confront the effects of project risk, risk analy- propriate considering its precision. Estimate ranges better sis must be applied with a broad view of risk; concentration on convey the uncertain nature of project costs, particularly in the technical risks can lead to oversights in other project dimen- the conceptual phase of project development and even dur- sions. The analysis should consider local authority/agency im- ing later project development phases. pacts, industry and market risks, elements of political uncer- Currently, most project cost estimates are conveyed in tainty, and public and/or permit approval processes that might terms of a single point value. The use of a point estimate early impact timing. in the project development process can lead to a false sense of Scope changes must also be considered from a broad per- precision and accuracy as even the best engineers cannot pre- spective. Identification of risk goes beyond the internal "proj- dict all future events that can and will impact a project's cost. ect risks," such as pile driving depth, and includes exogenous Through use of an estimate range, the agency can convey the factors, such as market conditions, business environment, certainty and uncertainty inherent in the project and educate global construction activities/demand, macroeconomic envi- the stakeholders about cost variability. This is also helpful ronment, and weather. Namely, any major uncertainties that within the agency to demonstrate the certainty and uncer- might influence the primary project outcomes of cost, sched- tainty about the project to other personnel who may not be ule, or quality should be included. intimately familiar with the project.