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76 CHAPTER 9 Path Forward 9.1 Industry Problem long-range transportation planning, priority programming, and preconstruction stages of the project development process. Project cost escalation is a serious problem facing SHAs. In the initial effort of this Guidebook, the research team The failure to deliver individual projects and programs within conducted a survey of current SHA risk management prac- established budgets has a detrimental effect on later programs tices. It was revealed that while risk is indeed inherent in every and causes a loss of faith in the agency's ability to wisely use capital transportation project, the survey found that only the public's money. Highway design and construction proj- three of the 48 state agencies responding to the survey had ects can be extremely complex and are often fraught with formal, published project risk management policies or proce- uncertainty. However, engineers, project managers, and cost dures. Additionally, the survey found that only eight of the estimators often overlook or fail to recognize project uncer- 48 responding agencies have a formal published definition of tainty early in the project development process. As a result contingency. Without a formal definition for contingency, they do not communicate uncertainty and its effect to the stake- agencies have a difficult time consistently calculating contin- holders. A comprehensive risk management approach can help gencies appropriate to project conditions. Therefore, this project teams identify, assess, mitigate, and control project Guidebook is imperative to support SHA efforts to control risks. Among the benefits of a comprehensive risk manage- project cost escalation. ment approach is the ability to generate range estimates early Given the current state of practice, the research team in the project development process and to establish justifiable employed an approach to developing the Guidebook that contingencies that can be resolved throughout the design and included a critical review of the literature; in-depth case stud- construction process. This Guidebook presents a systematic ies with leading agencies, both inside and outside of the trans- process to apply risk analysis tools and management practices portation sector; and a thorough industry validation of the to aid SHA management in controlling project cost growth. work. The research team gathered and annotated more than The Guidebook addresses risk identification, assessment, 80 papers and reports on risk and risk management. In analysis, mitigation, allocation, and tracking and control in a reviewing these articles and reports, the research team iden- manner that is systematically integrated into the organizational tified important research terms and sought risk management structure and culture of SHAs. methods and tools to assist in cost estimating, estimating contingency, or risk management related to cost control. Fol- lowing the literature review, the team closely analyzed eight 9.2 Guidebook Development in-depth case studies. The case studies were with the Caltrans The Guidebook was developed as an extension to NCHRP agency, the Caltrans San Francisco-Oakland Bay Bridge proj- Report 574: Guidance for Cost Estimation and Management for ect, WSDOT, the US DOE, the FHWA, the FTA, the New Highway Projects During Planning, Programming, and Precon- York Metropolitan Transit Agency, and the Ohio DOT. The struction. That research presented a strategic approach to cost research team used the knowledge gained from industry sur- estimating and cost estimate management. However, the veys, the literature review, and the case studies to develop the research team and the NCHRP research panel members iden- initial Guidebook. The Guidebook was then tested with the tified the need for more detailed tools and management prac- WSDOT, Mn/DOT, and the Colorado DOT and reviewed by tices in the area of risk analysis and risk management practices. the NCHRP Panel. The resulting Guidebook is founded on These needs were recognized as particularly crucial for the industry practice and was validated through industry review.