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TRANSPORTAT ION RESEARCH BOARD WASHINGTON, D.C. 2010 www.TRB.org N A T I O N A L C O O P E R A T I V E H I G H W A Y R E S E A R C H P R O G R A M NCHRP REPORT 658 Subscriber Categories Administration and Management â¢ Construction â¢ Design â¢ Environment â¢ Highways â¢ Planning and Forecasting Guidebook on Risk Analysis Tools and Management Practices to Control Transportation Project Costs Keith Molenaar UNIVERSITY OF COLORADO Boulder, CO Stuart Anderson TEXAS TRANSPORTATION INSTITUTE College Station, TX A N D Cliff Schexnayder DEL E. WEBB SCHOOL OF CONSTRUCTION ARIZONA STATE UNIVERSITY Tempe, AZ Research sponsored by the American Association of State Highway and Transportation Officials in cooperation with the Federal Highway Administration
NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM Systematic, well-designed research provides the most effective approach to the solution of many problems facing highway administrators and engineers. Often, highway problems are of local interest and can best be studied by highway departments individually or in cooperation with their state universities and others. However, the accelerating growth of highway transportation develops increasingly complex problems of wide interest to highway authorities. These problems are best studied through a coordinated program of cooperative research. In recognition of these needs, the highway administrators of the American Association of State Highway and Transportation Officials initiated in 1962 an objective national highway research program employing modern scientific techniques. This program is supported on a continuing basis by funds from participating member states of the Association and it receives the full cooperation and support of the Federal Highway Administration, United States Department of Transportation. The Transportation Research Board of the National Academies was requested by the Association to administer the research program because of the Boardâs recognized objectivity and understanding of modern research practices. The Board is uniquely suited for this purpose as it maintains an extensive committee structure from which authorities on any highway transportation subject may be drawn; it possesses avenues of communications and cooperation with federal, state and local governmental agencies, universities, and industry; its relationship to the National Research Council is an insurance of objectivity; it maintains a full-time research correlation staff of specialists in highway transportation matters to bring the findings of research directly to those who are in a position to use them. The program is developed on the basis of research needs identified by chief administrators of the highway and transportation departments and by committees of AASHTO. Each year, specific areas of research needs to be included in the program are proposed to the National Research Council and the Board by the American Association of State Highway and Transportation Officials. Research projects to fulfill these needs are defined by the Board, and qualified research agencies are selected from those that have submitted proposals. Administration and surveillance of research contracts are the responsibilities of the National Research Council and the Transportation Research Board. The needs for highway research are many, and the National Cooperative Highway Research Program can make significant contributions to the solution of highway transportation problems of mutual concern to many responsible groups. The program, however, is intended to complement rather than to substitute for or duplicate other highway research programs. Published reports of the NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM are available from: Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet at: http://www.national-academies.org/trb/bookstore Printed in the United States of America NCHRP REPORT 658 Project 08-60 ISSN 0077-5614 ISBN 978-0-309-15476-5 Library of Congress Control Number 2010928846 Â© 2010 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FMCSA, FTA, or Transit Development Corporation endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. NOTICE The project that is the subject of this report was a part of the National Cooperative Highway Research Program, conducted by the Transportation Research Board with the approval of the Governing Board of the National Research Council. The members of the technical panel selected to monitor this project and to review this report were chosen for their special competencies and with regard for appropriate balance. The report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the Governing Board of the National Research Council. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board, the National Research Council, or the program sponsors. The Transportation Research Board of the National Academies, the National Research Council, and the sponsors of the National Cooperative Highway Research Program do not endorse products or manufacturers. Trade or manufacturersâ names appear herein solely because they are considered essential to the object of the report.
CRP STAFF FOR NCHRP REPORT 658 Christopher W. Jenks, Director, Cooperative Research Programs Crawford F. Jencks, Deputy Director, Cooperative Research Programs Lori L. Sundstrom, Senior Program Officer Megan A. Chamberlain, Senior Program Assistant Eileen P. Delaney, Director of Publications Margaret B. Hagood, Editor NCHRP PROJECT 08-60 PANEL Field of Transportation PlanningâArea of Forecasting Robert E. âBuzzâ Paaswell, City College of New York, New York, NY (Chair) Timothy A. Henkel, Minnesota DOT, St. Paul, MN Terry L. Berends, Washington State DOT, Wenatchee, WA Daryl James Greer, Versailles, KY Dennis A. Randolph, Calhoun County (MI) Road Commission, Marshall, MI Jennifer S. Shane, Iowa State University, Ames, IA Robert Stuard, Texas DOT, Austin, TX Jon Tapping, California DOT, Sacramento, CA Steven F. Wilson, Michael Baker, Jr., Inc., Moon Township, PA Robin K. Smith, FHWA Liaison Martine A. Micozzi, TRB Liaison C O O P E R A T I V E R E S E A R C H P R O G R A M S
This guidebook provides guidance to state departments of transportation for using spe- cific, practical, and risk-related management practices and analysis tools for managing and controlling transportation project costs. Containing a toolbox for agencies to use in select- ing the appropriate strategies, methods and tools to apply in meeting their cost-estimation and cost-control objectives, this guidebook should be of immediate use to practitioners that are accountable for the accuracy and reliability of cost estimates during planning, priority programming and preconstruction. Identifying, analyzing, and managing the risk of project-cost escalation are fundamental challenges facing the transportation industry. NCHRP Report 574: Guidance for Cost Esti- mation and Management for Highway Projects During Planning, Programming, and Precon- struction focused on the issue of cost escalation and developed a guidebook on highway cost- estimation management and tools aimed at achieving greater consistency and accuracy in long-range transportation planning, priority programming, and preconstruction estimates. Building on NCHRP Report 574, NCHRP Report 625: Procedures Guide for Right-of-Way Cost Estimation and Cost Management details practical and effective approaches for devel- oping right-of-way (ROW) cost estimates and for then tracking and managing ROW cost during all phases of project development from planning through final design. Again build- ing on NCHRP Report 574, NCHRP Report 658 provides an in-depth treatment of specific risk-related management practices and analysis tools. Under NCHRP Project 08-60, the University of Colorado was asked to develop a com- prehensive guidebook on risk-related analysis tools and management practices for estimat- ing and controlling transportation project costs. Specifically, the guidebook addresses (1) the inconsistent application of contingency to risk management and cost estimation, (2) the lack of uniformity in methods of documenting and tracking risk within a comprehensive cost-control strategy or program, (3) insufficient procedures for determining timing of risk management within various phases of project development, the need for matching appro- priate tools to different project scales, (4) insufficient organizational structure, (5) organi- zational commitment, performance measurement, and accountability within transporta- tion agencies, (6) policy and political issues, and (7) the regulatory environment. To meet the project objectives, the research team (1) conducted a comprehensive litera- ture review, (2) reviewed current practice in defining and categorizing risk, and in assessing the degree of uncertainty in transportation project-cost estimation, (3) reviewed a range of well-established risk analysis tools and management practices, and (4) prepared a series of case studies that demonstrate effective application of risk-analysis tools and management practices. The contractorâs project final report that contains documentation of the research teamsâ conduct of the research is available on the TRB project web site. F O R E W O R D By Lori L. Sundstrom Staff Officer Transportation Research Board
C O N T E N T S 1 Summary 1 Risk Management Framework 2 Keys to Success 3 Chapter 1 Introduction 3 1.1 Introduction 3 1.1.1 Cost Escalation and Cost Containment 4 1.1.2 Guidebook Concepts 5 1.2 Guidebook Development 5 1.3 Guidebook Organization 6 1.4 Guidebook Use 6 1.4.1 Organizational Implementation 6 1.4.2 Programmatic Implementation 6 1.4.3 Project Implementation 6 1.5 Limitations of the Guidebook 6 1.6 Summary 7 Chapter 2 Project Cost Estimation and Management 7 2.1 Introduction 7 2.2 Transportation Project Development Phases 7 2.3 Cost Estimating and Cost Management Definitions 8 2.3.1 Cost Estimating Terms 9 2.3.2 Cost Management Terms 9 2.4 Timeline of Cost Estimating and Cost Management 10 2.4.1 Planning Phase 10 2.4.2 Programming Phase 10 2.4.3 Preliminary Design Phase 11 2.4.4 Final Design Phase 11 2.5 Cost Estimating Process 11 2.6 Cost Management Process 12 2.7 Project Complexity and Impact on Estimation and Risk Management Process 14 2.8 A Strategic Approach 14 2.8.1 Inconsistent Application of Contingencies 14 2.8.2 Risk Strategy 15 2.9 Management Support for Estimating and Cost Management Practices 15 2.10 Summary 16 Chapter 3 Risk Management Overview 16 3.1 Introduction 17 3.2 Risk Management in Support of Cost Estimating and Cost Management 21 3.3 Risk Management Definitions 22 3.3.1 Risk Analysis Terms
22 3.4 Risk Management Framework 23 3.4.1 Risk Identification 25 3.4.2 Risk Assessment 26 3.4.3 Risk Analysis 30 3.4.4 Risk Mitigation and Planning 32 3.4.5 Risk Allocation 34 3.4.6 Risk Monitoring and Control 36 3.5 Risk Management Policies and Performance Measures 36 3.5.1 Policies 36 3.5.2 Performance Measures 39 3.6 Summary 40 Chapter 4 Guidebook Framework 40 4.1 Introduction 40 4.2 Guidebook Structure and Layout 42 4.3 Appendix A 42 4.4 Summary 44 Chapter 5 Guide to the Planning Phase 44 5.1 Introduction 44 5.1.1 Planning Phase Overview 44 5.1.2 Planning Phase Risk Management Emphasis 45 5.2 Planning Phase Risk Identification 45 5.2.1 Planning Phase Risk Identification Inputs 45 5.2.2 Planning Phase Risk Identification Tools 45 5.2.3 Planning Phase Risk Identification Outputs 46 5.2.4 Planning Phase Risk Identification Relationship to Project Complexity 46 5.2.5 Planning Phase Risk Identification Tips 46 5.3 Planning Phase Risk Assessment and Analysis 46 5.3.1 Planning Phase Risk Assessment and Analysis Inputs 47 5.3.2 Planning Phase Risk Assessment and Analysis Tools 47 5.3.3 Planning Phase Risk Assessment and Analysis Outputs 47 5.3.4 Planning Phase Risk Assessment and Analysis Relationship to Project Complexity 47 5.3.5 Planning Phase Risk Assessment and Analysis Tips 48 5.4 Planning Phase Risk Mitigation and Planning 48 5.4.1 Planning Phase Risk Mitigation and Planning Inputs 48 5.4.2 Planning Phase Risk Mitigation and Planning Tools 48 5.4.3 Planning Phase Risk Mitigation and Planning Outputs 48 5.4.4 Planning Phase Risk Mitigation and Planning Relationship to Project Complexity 49 5.4.5 Planning Phase Risk Mitigation and Planning Tips 49 5.5 Planning Phase Risk Allocation 49 5.5.1 Planning Phase Risk Allocation Inputs 49 5.5.2 Planning Phase Risk Allocation Tools 49 5.5.3 Planning Phase Risk Allocation Outputs 49 5.5.4 Planning Phase Risk Allocation Relationship to Project Complexity 49 5.5.5 Planning Phase Risk Allocation Tips
49 5.6 Planning Phase Risk Monitoring and Control 50 5.6.1 Risk Monitoring and Control Inputs 50 5.6.2 Planning Phase Risk Monitoring and Control Tools 50 5.6.3 Planning Phase Risk Monitoring and Control Outputs 50 5.6.4 Planning Phase Risk Monitoring and Control Relationship to Project Complexity 50 5.6.5 Planning Phase Risk Monitoring and Control Tips 50 5.7 Conclusions 51 Chapter 6 Guide to the Programming Phase 51 6.1 Introduction 51 6.1.1 Programming Phase Overview 51 6.1.2 Programming Phase Risk Management Emphasis 52 6.2 Programming Phase Risk Identification 52 6.2.1 Programming Phase Risk Identification Inputs 52 6.2.2 Programming Phase Risk Identification Tools 53 6.2.3 Programming Phase Risk Identification Outputs 53 6.2.4 Programming Phase Risk Identification Relationship to Project Complexity 53 6.2.5 Programming Phase Risk Identification Tips 54 6.3 Programming Phase Risk Assessment and Analysis 54 6.3.1 Programming Phase Risk Assessment and Analysis Inputs 54 6.3.2 Programming Phase Risk Assessment and Analysis Tools 55 6.3.3 Programming Phase Risk Assessment and Analysis Outputs 55 6.3.4 Programming Phase Risk Assessment and Analysis Relationship to Project Complexity 55 6.3.5 Programming Phase Risk Assessment and Analysis Tips 56 6.4 Programming Phase Risk Mitigation and Planning 56 6.4.1 Programming Phase Risk Mitigation and Planning Inputs 56 6.4.2 Programming Phase Risk Mitigation and Planning Tools 57 6.4.3 Programming Phase Risk Mitigation and Planning Outputs 57 6.4.4 Programming Phase Risk Mitigation and Planning Relationship to Project Complexity 57 6.4.5 Programming Phase Risk Mitigation and Planning Tips 57 6.5 Programming Phase Risk Allocation 57 6.5.1 Programming Phase Risk Allocation Inputs 58 6.5.2 Programming Phase Risk Allocation Tools 58 6.5.3 Programming Phase Risk Allocation Outputs 58 6.5.4 Programming Phase Risk Allocation Relationship to Project Complexity 58 6.5.5 Programming Phase Risk Allocation Tips 58 6.6 Programming Phase Risk Monitoring and Control 58 6.6.1 Risk Monitoring and Control Inputs 58 6.6.2 Programming Phase Risk Monitoring and Control Tools 58 6.6.3 Programming Phase Risk Monitoring and Control Outputs 59 6.6.4 Programming Phase Risk Monitoring and Control Relationship to Project Complexity 59 6.6.5 Programming Phase Risk Monitoring and Control Tips 59 6.7 Conclusions
60 Chapter 7 Guide to the Design Phase 60 7.1 Introduction 60 7.1.1 Design Phase Overview 60 7.1.2 Design Phase Risk Management Emphasis 61 7.2 Design Phase Risk Identification 61 7.2.1 Design Phase Risk Identification Inputs 62 7.2.2 Design Phase Risk Identification Tools 62 7.2.3 Design Phase Risk Identification Outputs 62 7.2.4 Design Phase Risk Identification Relationship to Project Complexity 63 7.2.5 Design Phase Risk Identification Tips 63 7.3 Design Phase Risk Assessment and Analysis 63 7.3.1 Design Phase Risk Assessment and Analysis Inputs 64 7.3.2 Design Phase Risk Assessment and Analysis Tools 64 7.3.3 Design Phase Risk Assessment and Analysis Outputs 64 7.3.4 Design Phase Risk Assessment and Analysis Relationship to Project Complexity 65 7.3.5 Design Phase Risk Assessment and Analysis Tips 65 7.4 Design Phase Risk Mitigation and Planning 65 7.4.1 Design Phase Risk Mitigation and Planning Inputs 66 7.4.2 Design Phase Risk Mitigation and Planning Tools 66 7.4.3 Design Phase Risk Mitigation and Planning Outputs 66 7.4.4 Design Phase Risk Mitigation and Planning Relationship to Project Complexity 67 7.4.5 Design Phase Risk Mitigation and Planning Tips 67 7.5 Design Phase Risk Allocation 67 7.5.1 Design Phase Risk Allocation Inputs 67 7.5.2 Design Phase Risk Allocation Tools 68 7.5.3 Design Phase Risk Allocation Outputs 68 7.5.4 Design Phase Risk Allocation Relationship to Project Complexity 68 7.5.5 Design Phase Risk Allocation Tips 68 7.6 Design Phase Risk Monitoring and Control 68 7.6.1 Risk Monitoring and Control Inputs 68 7.6.2 Design Phase Risk Monitoring and Control Tools 69 7.6.3 Design Phase Risk Monitoring and Control Outputs 69 7.6.4 Design Phase Risk Monitoring and Control Relationship to Project Complexity 69 7.6.5 Design Phase Risk Monitoring and Control Tips 69 7.7 Conclusions 70 Chapter 8 Implementation 70 8.1 Introduction 70 8.2 Step One â Implementation of Risk Strategy: Organizational Change 70 8.2.1 Establish Steering Committee 71 8.2.2 Develop Action Plan 71 8.2.3 Determine Organizational Structure for Risk Management 72 8.3 Step Two â Implementation of Methods: Programmatic Change 72 8.3.1 Assess Current Practice 72 8.3.2 Determine Policies and Procedures 73 8.3.3 Develop Education and Training
73 8.4 Step Three â Implementation of Tools: Project Change 74 8.4.1 Assess Current Practice 74 8.4.2 Test New Tools 74 8.4.3 Customize Tools to Fit Agency 74 8.5 Step Four â Integrating the System: A Strategic Plan 75 8.6 Summary 76 Chapter 9 Path Forward 76 9.1 Industry Problem 76 9.2 Guidebook Development 77 9.3 The Risk Management Framework 77 9.4 Challenges and Keys to Success 79 References 80 Appendix A Tools 80 D1.1 Contract Packaging 82 D1.2 Delivery Decision Support 85 I2.1 Red Flag Items 86 I2.2 Not Used 86 I2.3 Risk Checklists 90 I2.4 Assumption Analysis 91 I2.5 Expert Interviews 91 I2.6 Crawford Slip Method 92 I2.7 SWOT Analysis 94 R1.1 Recognition of Complexity 94 R3.1 Risk Management Plan 96 R3.2 ContingencyâPercentage 101 R3.3 ContingencyâIdentified 102 R3.4 Estimate Ranges â Three-Point Estimates 103 R3.5 Estimate Ranges â Monte Carlo Analysis 106 R3.6 Risk Workshops 107 R3.7 Risk Priority Ranking 109 R3.8 Probability Ã Impact Matrix (P Ã I) 110 R3.9 Risk Comparison Table 111 R3.10 Risk Map 113 R3.11 Risk Breakdown Structure 113 R3.12 Risk Register 117 R3.13 Risk Management Information System 117 R3.14 Self Modeling Worksheet