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73 Transportation (Mn/DOT) to aid in implementing risk man- Once risk policies are determined and approved, risk pro- agement. An example portion of this policy is: cedures can be developed. This guidebook can serve as the basis for customizing the risk management process to fit an Total project cost estimates for each of the project develop- agency's culture and level of expertise. Future implementa- ment phases will include an analysis of uncertainty and risk, and tion should address how this manual might be enhanced and associated contingency estimates. (Anderson et al. 2008) improved over time. A second general policy statement that focuses on manag- ing risk and contingency also developed by Mn/DOT is illus- 8.3.3 Develop Education and Training trated in the following statement: It is very likely that agency personnel will need to gain an A process will be implemented for removing contingencies as understanding of risk management in general and then train- project scope becomes better defined and risk management steps ing on how to apply risk management process steps. Man- are taken (contingency resolution). (Anderson et al. 2008) agers and engineers at all phases of project development should be educated on the meaning of risk management, why Example guidelines to implement these general policy state- risk management is important, and how risk management ments are: adds value in terms of controlling program and project costs. Education is required at all levels; however, the details of ed- Uncertainty, risk and associated contingencies will be ac- ucating agency personnel may vary depending on the per- knowledged early for all projects in the project development son's role in program and project management. Thus, train- process, starting with the planning phase, and updated in sub- ing courses can include content that ranges from high level sequent phases. Risks that are beyond project-related risks and contingency risk management concepts to the details of applying risk (e.g., revenue over estimation, unanticipated events or condi- management during a specific project phase using the steps tions) will be considered in a program contingency. and appropriate tools. With the exception of the Letting Phase cost estimate, where Since the risk management process is used in conjunc- project contingency is zeroed out, contingency will not be incor- tion with other processes, training materials can be devel- porated in individual line item costs; instead, contingency will be oped for incorporation into a cost estimating or cost man- maintained in a separate category. As more is known about the project, the amount of estimated contingency and the Base Esti- agement course or within a project management course. mate would change (contingency resolution). (Anderson et al. More detailed training on risk management can then be 2008) achieved through a standalone course wherein detailed ap- plications of the steps and tools can be the focus of such a These guidelines are a final step that Mn/DOT employed course. to set a program context for implementing risk management Depending on the expertise and knowledge of the agency including contingency issues. in risk management, consultants in this area may be re- Policy formulation related to risk and contingency must quired to help develop training materials and then conduct support the Risk Strategy and the vision for risk management the training courses until such time that the agency has gained as articulated in the action plan prepared at the organiza- sufficient expertise in risk management. In many states, tional level. The policies must provide guidance for imple- consultants prepare project estimates and also manage menting risk management practices at the project level through project cost. As such, there is a need to train consultant en- the use of risk management steps and tools. gineers in the risk management process. This is especially Agencies should also consider policies relating to the use of necessary when the agency has its own approach to risk range estimates to express risks and uncertainty. The FHWA management. allows ranges in long-range plans prepared during the plan- ning phase. Further, cost estimates for other phases can be 8.4 Step Three Implementation shown as cost ranges based on probabilities of overrun. How- of Tools: Project Change ever, this approach would require the agency to establish a pol- icy for budgeting purposes in which a single number is in- The third level of implementation involves the applica- cluded in an intermediate plan (say six to 10 years) and the tion of tools at the project level. Tools should be developed STIP. The policy might direct that the project cost be budgeted and evaluated on a trial basis before they become agency at an 80 or 90 percent probability of underrun. Careful consid- standard practice as dictated by policy and through proce- eration should be given to the selection of the specified percent dure manuals. Many of the tools described in Appendix A for all projects, before creating an agency policy around this have been used on projects, but not necessarily in the agency percentage. environment.