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80 D1.1 Contract Packaging On December 13, 2001, Maryland DOT opened bids for the Woodrow Wilson Bridge superstructure contract. A sin- gle bid, 75 percent higher than the engineerâs estimate for the contract, was received. In reviewing the situation, it became clear that market forces had a substantial impact on the bid prices, a much greater impact than anticipated by the project planners and estimators. The manner in which work is pack- aged into individual contracts affects contract prices and must be accounted for when estimating project cost. State high- way agencies should seek to package projects in such a way that there is effective management of cost, schedule, and risk. Heeding the recommendations of an independent review committee, Maryland DOT repackaged the contract into three contracts and rebid the project approximately a year later. The first rebid contract came in 11 percent over the estimate, but there were five bidders and it was a workable bid, and the other two contracts both came in below the estimates, one by 28 percent and the other by 25 percent. Contract packaging is important for maintaining competition and receiving competitive bids. What is it? In packaging contracts, there must be a weighing between economy (usually measured as competition) and work effi- ciency. Based on thoughtful analysis and consideration of a pro- gram or projectâs physical work elements and on the market conditions existing at the work location, contract packages that minimize the total cost of construction are developed. Contract packaging, which is based on such forethought, requires inter- action between estimators, the project development team, and the state highway agency personnel responsible for managing project construction as the estimator and construction manage- ment personnel will be able to call attention to packaging affects on project cost. Why use it? Project size (contract dollar), equipment requirements, physical features, and the responsibilities (i.e., risk) imposed on the contractor are all critical factors impacting the bid price of work. There are opportunities to reduce contract cost by conscientiously considering the contract package in re- spect to these factors. At the same time, estimators must con- sider the impacts of contract packaging when developing the project estimate. A Caltrans study on the impact of competition on final bid results found a clear and undeniable relationship between the number of bids received and the contact low bid compared with the engineerâs estimate. Strategies that increase competi- tion (i.e., the number of bidders per project) will lower project cost. Contract packaging is particularly important in the case of large aggregate dollar value work and work of a specialized nature. The geographical location of a contract or work sites is an additional factor that should be considered. Any factor that affects the number of bidders that can be expected on a project should be evaluated. Caltrans found that the relationship between the average number of bidders and the bid price changes based on project dollar size, as shown in Table D1.1.1. This table makes it clear that even for small dollar jobs, it is important to consider the effects of competition. What does it do? Contract packaging affects project cost; therefore, knowl- edge of such impacts can result in contracting packages structured to achieve the work at lower cost. By structuring contracts to facilitate maximum participation by the con- tracting community, state highway agencies can often lower bid prices. Increasing competition also leads to the continued potential for long-term savings by maintaining a viable base of competition. A P P E N D I X A Tools
When to use it? Contract packaging decisions should be made in the pro- gramming phase or very early in the design phase. The con- tract packaging approach should be known when the baseline estimate is created. In some instances, contract packaging de- cisions will be made later in the design phase due to a change in scope or realization of a major risk. However, this should be avoided as it will often cause design rework and a delay in project letting. How to use it? Contract packaging decisions should be made with infor- mation from all team members. Cost estimating is a key in the decision. A thorough understanding of the design con- straints and opportunities is also necessary to make logical contract packaging decisions. An understanding of market conditions (e.g., number and type of contractors available, etc.) is also an important input into making the contract pack- aging decisions. Example A review of the Maryland SHA estimate compared to the single bid for the Woodrow Wilson Bridge superstructure contract found: â¢ There were only a small number of contractors with the ability to undertake a project of such magnitude. â¢ There were several other major bride projects being bid concurrently with the Woodrow Wilson project. â¢ The size of the project necessitated that joint-venture teams be formed, further reducing the competition. The work was repackaged into three contracts. The first contract was successfully bid with five contractors com- peting. The second contract had six bidders and came in 28 percent below the Engineerâs Estimate. The third con- tract had four bidders and was 25 percent below the Engi- neerâs Estimate. Tips SHAs should consider the following when packaging contracts: â¢ Coordination with adjacent contracts. â¢ Traffic control limitations. â¢ Accomplishment of utility relocation activities before the prime contract (advance utility relocation). â¢ Accomplishment of hazardous remediation work as a separate contract in advance of the prime contract â¢ Large-dollar contracts (such contracts can limit competition because contractors are not able to obtain bonding. In the case of mega-dollar projects, there is a limit to the risk that the bonding community is willing to assume. To protect themselves, the bonding companies join together to write large bonds. This practice further limits the availability of a contractor to obtain a bond.) During the design phase of project development, thought should be given to the strategic separation of projects within a corridor, allowing for efficient use of earthwork (balancing cut and fill requirements). In respect to all these consideration there must be a balance between the cost of administration for multiple contracts and the potential benefits from having multiple contracts. Resources While the Caltrans report is specific to conditions in that state, it provides a good indication how competition impacts project cost (see Impact of Competition on Final Bid Results for Transportation Related Construction Project, Nov. 15, 2001, Caltrans, Division of Engineering Services). Maryland DOT (MDOT) information on the Woodrow Wilson Bridge contract packaging can be found at www.mdot. state.md.us/News/2003/May2003/Wilson%20Bridge 81 Table D1.1.1. Relationship bid price to estimate considering project size (Caltrans study). Project Size, $ Ave. No. Bids Percent over PS&E if only one bid Expected reduction by increasing the ave. by one biddder Less than 1 Mil. 5.2 +17% -2.3% 1 to 5 Mil. 5.3 +5% -2.0% 5 to 10 Mil. 5.0 +5% -2.1% Greater than 10 Mil. 5.7 +3% -1.8% PS&E = plans, specifications, and estimates
D1.2 Delivery Decision Support The selection of a project delivery system can affect both cost-estimating practices and cost-estimating management. The design-bid-build delivery system approach, in which unit price construction contracts are awarded to the lowest bid- der, is the traditional system for U.S. highway projects and used in the majority of highway projects today. However, the traditional project delivery system has received criticisms stemming from long delivery times, excessive cost growth, and litigious relationships. Continuing to face increasing de- mands of the traveling public with declining staffs, federal, state and local agencies are employing alternative project de- livery, procurement and contracting methods to improve the efficiency and effectiveness of public sector project delivery. What is it? Project delivery decision support is a tool that assists SHAs in the choice alternative project delivery systems. It should provide a clear understanding of the advantages and dis- advantages of alternative delivery systems so that SHAs can make informed decisions about the most effective choice for the available alternatives to meet the specific project goals. Sample of alternatives in use by SHAs at the time that this document was published includes: Project Delivery Systems â¢ Construction Management at Risk â¢ Design-Build (and variations â Operate-Maintain, -Warranty) â¢ Indefinite Quantity/Indefinite Delivery â¢ Job Order Contracting â¢ Public-Private Partnerships Procurement Systems â¢ Cost + Time Bidding (A+B) â¢ Multi-parameter Bidding (A+B+C) â¢ Best-Value Procurement â¢ Alternate Designs â¢ Alternate Bids â¢ Additive Alternates â¢ Negotiated or Qualifications-Based Selection (for construction) Contracting and Payment Systems â¢ Lane Rental â¢ Incentive/Disincentive Payments â¢ Warranty Contracting â¢ Lump Sum Payment Methods When selecting alternative project delivery systems, SHA personnel should consider issues such as risk allocation, legal implications, statutory restrictions, and administrative issues. The decision to use an alternative delivery method invariably involves a tradeoff between cost and some other factor such as time, user delays, or quality. Delivery decision tools can help to make this tradeoff decision. Why use it? The choice of project delivery system often hinges on a projectâs cost or time constraints, and estimators must under- stand how to estimate the cost tradeoffs involved in the deci- sion to use an alternative delivery system. For example, the design-build project delivery system can be used to award a lump-sum contract for both design and construction of a project much earlier in the project development process than the traditional design-bid-build method. This early award of- fers a high potential for project delivery-time savings and, in essence, fixes a projectâs cost earlier in the project develop- ment process than the traditional process. When design- build is selected, different approaches must be taken for cost estimating and cost management. Cost estimating will in- volve the use of more rigorous conceptual estimating tools because designs will not be complete and quantities will not be known at the time of project award. Cost estimate man- agement will require different change management proce- dures because the design-builder develops the design under a lump sum contract. What does it do? Given a set of unique project goals, project delivery deci- sion support provides an understanding of why an alternative delivery method might be appropriate for a project. It pro- vides guidance for cost estimating practices and cost estimat- ing management. When to use it? Project delivery decisions should be made as early as pos- sible in the project development process to optimize their impact. Decisions for the overall project delivery system (i.e., design-build, public-private partnership, etc.) should prefer- ably be made during the Programming Phase or shortly thereafter. In cases of large projects, the decision may be made as early as the Planning Phase. Decisions regarding in- novative procurement methods, such as best-value or quali- fications-based procurements, should be made in the Pro- gramming Phase or very early in the Design Phase. Other less significant procurement and contracting decisions (i.e., A+B bidding, additive alternates, lane rental, etc.) can be made sometime in the Design Phase. 82
How to use it? Project delivery decisions should be made with information from all team members. Cost estimating is a key in the deci- sion. A thorough understanding of the design constraints and opportunities is also necessary to make logical contract pack- aging decisions. An understanding of market conditions (e.g., number and type of contractors available, etc.) is also an im- portant input into making the contract packaging decisions. Example There are numerous examples of project delivery decision tools. Five national examples are provided here, but numer- ous states have developed decision support tools as well. Utah State University Innovative Contracting Website The FHWA sponsored the development of an innovative contracting website to provide decision support for innovative contracting methods. A screen clip of the website is provided in Figure D1.2.1. The Utah State Universityâs Innovative Contract- ing website includes information concerning various construc- tion contracting techniques such as design-build, warranties, cost-plus-time bidding, lane rental, job order contracting, and many other non-traditional contracting techniques. State DOT work plans and evaluation reports from FHWAâs Special Exper- imental Project No. 14, âInnovative Contracting,â are provided. The site also features a best practices guide and a decision tree for selecting the appropriate contracting technique. NHI Alternative Contracting Course (Course No. 134058) The FHWAâs National Highway Institute (NHI) developed a course on âAlternative Contractingâ (Course No. 134058), and it is now available. A short description of the course is listed below and more information on the course availability can be found on the NHI website at http://www.nhi.fhwa.dot.gov/. Course Objective The estimated 2-day training course will teach participants how to select the appropriate projects for alternative project delivery strategies, choose the correct alternative contract provisions, and recognize the legal and programmatic impli- cations associated with these techniques. The course design is to be flexible, allowing the requesting agency to customize the presentation for increased emphasis on topics of interest to the agency. 83 Figure D1.2.1. Utah State University Innovative Contracting website http://www.ic.usu.edu.
The target audience includes personnel working in contract administration, project development and design, and the management of highway construction, including contribution of information in contract provisions. Upon completion of the course, participants will be able to: â¢ Identify alternative project delivery, procurement, and contract management methods for highway construction; â¢ Identify objectives for the use of alternative project deliv- ery, procurement, and contract management methods; â¢ Differentiate among traditional design-bid-build and alternative project delivery, procurement, and contract management methods based on relative advantages and risks; â¢ Define how project risks are reallocated using various project delivery, procurement, and contract management methods; â¢ Select appropriate alternative contracting methods for use with a given project or select appropriate projects for use with a given alternative contracting method or methods; and â¢ Identify contract requirements appropriate for alternative contracting methods. AASHTO Primer on Contracting for the 21st Century The Primer on Contracting for the 21st Century is an updated version of the Primer on Contracting 2000 (1997). The new Primer describes various contracting and contract administra- tion techniques that are currently being used by contracting agencies in their transportation programs and provides contacts within these agencies for use in obtaining additional informa- tion. This report was prepared by the Contract Administration Task Force of the AASHTO Highway Subcommittee on Con- struction. The document can be found in the references section of the AASHTO Subcommittee on Constructionâs website http://construction.transportation.org. NCHRP 10-49 Improved Contracting Methods for Highway Construction Projects The project reviewed relevant domestic and foreign litera- ture; surveyed the construction industry; identified and evalu- ated contracting practices with consideration to compatibility with the low-bid system, impact on SHA resources, product quality, and risk allocation; and developed guidelines for three nontraditional contracting methods: warrant, multi-parameter, and best value. The agencyâs final report that contains the find- ings of the literature review, discussions of current use, and analysis of survey results has been distributed to all state high- way agencies. The guidelines for nontraditional contracting methods have been published as NCHRP Report 451: Guidelines for Warranty, Multi-Parameter, and Best Value Contracting. http://www4.trb.org/trb/crp.nsf/All+Projects/NCHRP+10-49 NCHRP 10-61 - Best Value Procurement Methods for Highway Construction NCHRP Project 10-61 provides decision support for best- value procurement of U.S. highway construction. The result- ing report outlines a comprehensive process that state trans- portation agencies can use to create best-value methods in their individual states. The research effort investigated best- value concepts currently in use in the construction industry, evaluated their relative effectiveness, and recommended a best-value system or systems that may be used in conjunction with a traditional design-bid-build delivery system for high- way construction. The research products include: â¢ A common definition and a conceptual framework for the use of best-value procurement methods for highway con- struction projects. â¢ A best-value procurement system that allows for flexibility in the choice of parameters and award methods. â¢ An implementation plan that includes a project screening system for selecting candidate projects, and a step-by-step process for selecting appropriate parameters, criteria, and award algorithms. â¢ Recommendations regarding models to use for legislation and procurement regulations. â¢ A compendium of case studies for best-value procurement in the highway construction industry. â¢ A training tool to assist agencies with implementation. The results of NCHRP 10-61 have been published as NCHRP Report 561: Best-Value Procurement Methods for Highway Construction Contracts. http://www4.trb.org/trb/crp.nsf/All+ Projects/NCHRP+10-61 Tips Choose delivery methods that better align goals and allocate risk properly. The U.S. highway industry must evolve from the traditional âone size fits allâ project delivery method. A re- newed focus should be given to alternative delivery methods that promote early industry involvement and life cycle design solutions to maximize the entire project teamâs input into meet- ing customer needs. Resources AASHTO Subcommittee on Constructionâs Website â see References for Primer on Contracting for the 21st Century http://construction. transportation.org. 84
Anderson, S.D., and Russell, J.S. (2001). Report No. 451: Guidelines for Warranty, Multi-Parameter and Best-Value Contracting. TRB, National Research Council, Washington, DC. Federal Highway Administrationâs National Highway Institute http:// www.nhi.fhwa.dot.gov/ National Cooperative Highway Research Program, Project 10-49 Web- site http://www4.trb.org/trb/crp.nsf/All+Projects/NCHRP+10-49 National Cooperative Highway Research Program, Project 10-61 Web- site http://www4.trb.org/trb/crp.nsf/All+Projects/NCHRP+10-61 Scott, S., Molenaar, K.R., Gransberg, D.D., and Smith, N. (2006). Report No. 561: Best-Value Procurement Methods for Highway Construction Contracts. Transportation Research Board of the National Academies, Washington, DC. Utah State University, Technology Transfer (T2) Center, Innovative Contracting Website http://www.ic.usu.edu I2.1 Red Flag Items A red flag item list is perhaps the simplest risk identification and risk management tool. It is created at the earliest stages of project development and maintained as a checklist during project development. The list helps estimators to better under- stand the required contingency for a project and helps man- agers control scope growth more effectively throughout the project development process. Not all projects will require a comprehensive and quantitative risk management process. A red flag item list can be used in a streamlined qualitative risk management process. What is it? A red flag item list is a technique used to identify risks and focus attention on critical items with respect to critical cost and schedule impacts to the estimate. Issues and items that can potentially impact project cost or schedule in a significant way are identified in a list or red flagged, and the list is kept current as the project progresses through development. Why use it? By listing items that potentially can impact a projectâs cost or schedule, and by keeping the list current, the project team has a better perspective for setting proper contingencies and controlling cost escalation. Occasionally, items that are con- sidered a risk are mentioned during the Planning phase of project development but soon forgotten. The red flag item list facilitates communication between estimators and designers concerning these impacting items. By maintaining a running list, these items will not disappear from consideration and then later cause problems. What does it do? At the earliest stages of project development, an agency de- velops a list of impacting items, based primarily on engineer- ing judgment or historical records of problems. The red flag- ging of these items may not involve any formal qualitative or quantitative risk analysis of the factors, but it keeps the team mindful of their existence. The list reminds the team to de- vote attention to risk issues as the design progresses so that they can be removed from contingency and placed in the base estimate or reduce the overall project cost as appropriate. When to use it? The red flag item list should be compiled during the earli- est stages of project development. The list should then be up- dated at each major milestone or as new items are identified. The list will be most useful if it is maintained and updated throughout the project development process. How to use it? Red flag item lists should be developed by different mem- bers of the team in collaboration. The list should be shared by Designers and Estimators. Example Figure I2.1-1 provides an example from the Ohio DOT:301.6 Red Flags Tips The list of red flag items should be developed in an interdis- ciplinary team environment. This activity works well during the Scoping Process. Consider brainstorming sessions with representatives from multiple discipline areas. In addition to Scoping Documents or lists of standard items, individuals 85 Red flags, including environmental and engineering issues, are locations of concern within the study area. Red flags do not necessarily identify locations that must be avoided, but rather, identify locations that will entail additional study, coordination, design, right-of-way, or construction cost. Locations that must be avoided are referred to as âfatal flaws.â The Project Manager should ensure consultation with the appropriate specialists to determine the level of concern for each red flag item. Both environmental and design red flags are identified on the red flag summary. Figure I2.1-1. Ohio DOT Red Flag example.
should use their own knowledge of the project and consult with others who have significant knowledge of the project or its environment. Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Management Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca. gov/hq/projmgmt/guidance_prmhb.htm. Curran, Michael W. (1998). Professional Practice Guide 2: Risk Association for the Advancement of Cost Engineering International. FHWA (2004). Major Project Program Cost Estimating Guidance. Grey, S. (1995). Practical Risk Assessment for Project Managers. John Wiley and Sons, Chichester, England. Molenaar, K. R. (2005). âProgrammatic Cost Risk Analysis for Highway Mega-Projects,â Journal of Construction Engineering and Manage- ment, Vol. 131, No. 3. NCHRP (2005). NCHRP Project 20-7/172 Final Report, Recommended AASHTO Design-Build Procurement Guide, Washington, DC. I2.2 Not Used This tool is not used, but the numbering remains for consis- tency with NCHRP Report 574 Guidance for Cost Estimation and Management for Highway Projects During Planning, Programming, and Preconstruction. I2.3 Risk Checklists Risk checklists are a tool for risk identification that can be used at the earliest stages of risk identification to learn from past projects and past team member experience. The list helps estimators to better understand the required contingency and helps managers to more effectively control scope growth throughout the project development process. The use of a risk checklist is the final step of risk identification to ensure that common project risks are not overlooked. What is it? Risk checklists are a historic list of risks identified or real- ized on past projects. Risk checklists are meant to be shared between estimators and discipline groups. Why use it? The risk checklists capture corporate knowledge within a state highway agency and ensure that common risks are not overlooked in the estimating or risk management process. Risk checklists are simple to maintain if the agency has a cen- tral estimating or risk management sections. Risk checklists also can be maintained by individual estimators or project managers. What does it do? Risk checklists serve as a final step in the risk identification process to ensure that common risks are not overlooked. When to use it? Risk checklists should be used only after the team has sought to identified risks on its own (e.g., through an examination of scope and estimating assumptions, brainstorming of issues and concerns, or the creation of a red flag list). Risk checklists should not be used as the first step in risk identification because they may not contain important project-specific risks. If a proj- ect team relies too heavily on a risk checklist, it could easily overlook project-specific risks, and the risks may not be phased correctly for the unique aspects of the project. How to use it? A risk checklist should be reviewed at the start of a project and potentially several more times throughout the project. The list should be reviewed by a project team, and the risks that may have impacts should be documented and added to the risk register and possibly marked for quantitative analysis. Example Caltrans has a sample list of risks in its Project Risk Manage- ment Handbook. This sample list of risks can be used as the basis for creating a list of red flag items for an individual proj- ect or by an agency to create its own risk checklist. Caltranâs list is quite comprehensive, and any single projectâs list of risks should not include all of these elements. Caltrans Sample Risk List (Caltrans 2007) Technical Risks â¢ Design incomplete â¢ Right of Way analysis in error â¢ Environmental analysis incomplete or in error â¢ Unexpected geotechnical issues â¢ Change requests because of errors â¢ Inaccurate assumptions on technical issues in planning stage â¢ Surveys late and/or surveys in error â¢ Materials/geotechnical/foundation in error â¢ Structural designs incomplete or in error â¢ Hazardous waste site analysis incomplete or in error â¢ Need for design exceptions â¢ Consultant design not up to Department standards â¢ Context sensitive solutions â¢ Fact sheet requirements (exceptions to standards) 86
External Risks â¢ Landowners unwilling to sell â¢ Priorities change on existing program â¢ Inconsistent cost, time, scope, and quality objectives â¢ Local communities pose objections â¢ Funding changes for fiscal year â¢ Political factors change â¢ Stakeholders request late changes â¢ New stakeholders emerge and demand new work â¢ Influential stakeholders request additional needs to serve their own commercial purposes â¢ Threat of lawsuits â¢ Stakeholders choose time and/or cost over quality Environmental Risks â¢ Permits or agency actions delayed or take longer than expected â¢ New information required for permits â¢ Environmental regulations change â¢ Water quality regulation changes â¢ Reviewing agency requires higher-level review than assumed â¢ Lack of specialized staff (biology, anthropology, archeol- ogy, etc.) â¢ Historic site, endangered species, wetlands present â¢ EIS required â¢ Controversy on environmental grounds expected â¢ Environmental analysis on new alignments is required â¢ Formal NEPA/404 consultation is required â¢ Formal Section 7 consultation is required â¢ Section 106 issues expected â¢ Project in an area of high sensitivity for paleontology â¢ Section 4(f) resources affected â¢ Project in the coastal zone â¢ Project on a scenic highway â¢ Project near a wild and scenic river â¢ Project in a floodplain or a regulatory floodway â¢ Project does not conform to the state implementation plan for air quality at the program and plan level â¢ Water quality issues â¢ Negative community impacts expected â¢ Hazardous waste preliminary site investigation required â¢ Growth inducement issues â¢ Cumulative impact issues â¢ Pressure to compress the environmental schedule Organizational Risks â¢ inexperienced staff assigned â¢ losing critical staff at crucial point of the project â¢ insufficient time to plan â¢ unanticipated project manger workload â¢ internal âred tapeâ causes delay getting approvals, decisions â¢ functional units not available, overloaded â¢ lack of understanding of complex internal funding pro- cedures â¢ not enough time to plan â¢ priorities change on existing program â¢ new priority project inserted into program â¢ inconsistent cost, time, scope and quality objectives Project Management Risks â¢ Project purpose and need is poorly defined â¢ Project scope definition is poor or incomplete â¢ Project scope, schedule, objectives, cost, and deliverables are not clearly defined or understood â¢ No control over staff priorities â¢ Too many projects â¢ Consultant or contractor delays â¢ Estimating and/or scheduling errors â¢ Unplanned work that must be accommodated â¢ Communication breakdown with project team â¢ Pressure to deliver project on an accelerated schedule â¢ Lack of coordination/communication â¢ Lack of upper management support â¢ Change in key staffing throughout the project â¢ Inexperienced workforce/inadequate staff/resource avail- ability â¢ Local agency issues â¢ Public awareness/support â¢ Agreements Right-of-Way Risks â¢ Utility relocation may not happen in time â¢ Freeway agreements â¢ Railroad involvement â¢ Objections to Right-of-Way appraisal takes more time and/or money Construction Risks â¢ Inaccurate contract time estimates â¢ Permit work windows â¢ Utility â¢ Surveys â¢ Buried man-made objects/unidentified hazardous waste Regulatory Risks â¢ Water quality regulations change â¢ New permits or new information required â¢ Reviewing agency requires higher-level review than assumed Sample Risk Checklist from the Minnesota DOT: No. of lanes â¢ Traffic volumes â¢ Level of Service (LOS) analysis 87
â¢ Lane continuity â¢ High-occupancy vehicle, single-occupancy vehicle, etc. â¢ Policies, purpose, and need Access â¢ Functional classification of roadways â¢ Traffic volumes â¢ Traffic movements â¢ Traffic forecasts â¢ Right-of-way impacts â¢ Environmental issues â¢ Existing interchange/conditions â¢ Municipal land use planning â¢ Design speed/engineering standards â¢ Access category â¢ Bike/pedestrian â¢ Crash data Horizontal â¢ Right-of-way impacts â¢ Environmental issues â¢ Soils â¢ Utilities â¢ Existing conditions â¢ Topography â¢ Pavement condition â¢ Staging/detour â¢ Municipal community planning â¢ Design speed â¢ Enforcement issues â¢ Engineering standards â¢ Park and ride â¢ HOV/transit elements Vertical â¢ Design speed/engineering standards â¢ Soils â rock, muck, water â¢ Utilities â¢ Topography â¢ Bridges â¢ Municipal community planning â¢ Noise â¢ Adjacent land use â¢ Drainage â¢ Airports Bridge â¢ Cross section â mainline â¢ Cross section â cross street â¢ Profiles â¢ Skew â¢ Type selection â¢ Aesthetics â¢ Bike/Pedestrian trails â¢ Airport location â¢ Lighting and signing â¢ Soils/Foundations â¢ Waterway analysis â¢ Bridge clearance (overlays) â¢ Utilities â¢ Staging/detour â¢ Bridge approach costs â¢ Temps and shoefly Retaining walls â¢ Type â¢ Cross sections â¢ Aesthetics â¢ Drainage â¢ Right-of-way impacts â¢ Utilities â¢ Soils/foundations Traffic â¢ Design speed â¢ Functional classification â¢ Roadway type â¢ Access locations â¢ Traffic movements â¢ Traffic volumes â¢ LOS analysis â¢ Signal warrant analysis â¢ Crash data â¢ Safety systems â¢ Lighting warrants â¢ Signing â¢ Striping determination â¢ Airports â¢ Foundation analysis Water Resources Engineering (WRE) â¢ Alignments â¢ Profiles â¢ Cross sections â¢ Drainage areas â¢ Existing conditions â¢ Impervious areas â¢ Banking â¢ Waterway analysis â¢ DNR â¢ Corps â¢ Watersheds/WCA/BWSR â¢ NPDES/PCA/MS4 â¢ City/county coordination 88
â¢ Right of way impacts â¢ Soils â¢ Drinking water areas â¢ Airports â¢ Ponding Pavement â¢ Soils â¢ Cross sections â¢ Traffic volumes â¢ Vehicle classification â¢ Profiles â¢ Water table â¢ Drainage â¢ Pavement selection â¢ Shoulder use â¢ Traffic staging/control â¢ Dynamic shoulders â¢ Transit shoulders â¢ Pavement condition Utilities â¢ As-builts (Mn/DOT and city) â¢ Surveys â¢ Gopher 1 â¢ Aerial photography â¢ Right-of-way (R/W) maps â¢ Plats â¢ Site plans â¢ Coordinate with city/county â¢ Permits â¢ Alignments â¢ Profiles â¢ Cross sections â¢ Drainage elements â¢ Retaining walls â¢ Noise walls â¢ Bridges â¢ Construction staging Railroad â¢ Aerial photos â¢ Alignments â¢ Profiles â¢ Cross sections â¢ Drainage â¢ Retaining walls â¢ Noise walls â¢ Bridges â¢ R/W maps â¢ Plats â¢ Railroad office coordination â¢ Construction staging Earthwork â¢ Alignments â¢ Profiles â¢ Soil borings â¢ Intersections â¢ Drainage elements â¢ Subsurface drains â¢ Foundation analysis â¢ Contaminated soils â remediation Noise walls â¢ Alignments â¢ Profiles â¢ Land use maps â¢ Traffic volumes â¢ LOS â¢ Traffic classifications â¢ Utilities â¢ R/W impacts â¢ Municipal consent â¢ Historic property review â¢ Drainage elements â¢ Airports â¢ Aesthetics â¢ Wall type â¢ Foundation analysis Maintenance â¢ Maintenance elements/issues â¢ Drain tile â¢ Anti-icing â¢ HOV bypass â¢ Snow storage â¢ Snow control Transportation Management System â¢ Traffic Management System (TMS), Intelligent Trans- portation System (ITS), Intelligent Vehicle Highway Sys- tem (IVHS) elements Construction â¢ Innovative construction services â¢ Detours â¢ Staking â¢ Extraordinary enforcement â¢ Extraordinary public relations â¢ Seasonal impacts â¢ Vibration and noise Surveys â¢ Survey 89
Tips This method is only useful when the project team members think about every item on the list as a jumping off point for fur- ther risks analysis. Each item must be thought about in detail to ensure that the risk is truly a project risk. The thought process should be documented in order to build on this in future dis- cussions of the risks. Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Management Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca. gov/hq/projmgmt/guidance_prmhb.htm. Molenaar, K. R. (2005). âProgrammatic Cost Risk Analysis for Highway Mega-Projects,â Journal of Construction Engineering and Manage- ment, Vol. 131, No. 3. I2.4 Assumption Analysis During the course of developing a design or creating an es- timate, many assumptions must be made. This is particularly true in the early phases of project development. Assumptions can carry risks. An analysis of each assumption for its possi- ble impacts on cost and schedule can be essential to creating an accurate project estimate. What is it? Assumption analysis is taking a close look at the assump- tions in the cost and schedule estimates, documenting these assumptions as potential risks, and analyzing each assump- tion. Each assumption should be examined for validity, accu- racy, consistency, completeness, and context. If uncertainties in these assumptions are identified, then risks should be devel- oped surrounding these uncertainties. Why use it? In most cases, assumptions possess substantial risks. The documentation of these assumptions and the potential items that may cause these assumptions to change will assist in the risk identification process. What does it do? Documenting assumptions and their associated risks can help to identify the consequences of assumptions buried within the cost or schedule estimates. The team can identify these risks and even generate additional uncertainties that may stem from assumptions. When to use it? Use assumption analysis during the risk identification process. Risk identification can occur at a set time or anytime the project development team makes an assumption that can significantly impact the project cost or schedule estimates. While ideally these assumptions should be analyzed as soon as the assumptions are identified, it is more efficient to make the analysis during the risk analysis process after a number of assumptions have been collected and documented. This will allow a larger group to participate in the analysis and also may lead to better brainstorming of potential risks stemming from those assumptions. How to use it? Assumption analysis should be used to bring assumptions to the attention of a larger group in order to analyze each as- sumption and identify the potential risks that results from the assumption. Moreover, assumption analysis can be used as a way to brainstorm additional risks. Example The following is a list of assumptions that may generate po- tential risks, taken from the WSDOT âBasis of Estimateâ doc- ument (Washington State DOT 2008). â¢ Construction funding will occur all at once â¢ Will need to replace bridge SR###/Bridge No. â¢ Stormwater retrofit of ###### â¢ Environmental regulations donât change â¢ Todayâs dollars, unknown inflation rate and energy cost â¢ Midpoint of construction will not change â¢ Undeveloped properties remain undeveloped. At this time there are no known proposed developments on the prop- erties, although some of the properties are for sale. â¢ There are good soils â¢ Captured major bid items â¢ Traffic control cost based on past experience and region philosophy doesnât change â¢ Right of way is not needed to relocate the gas line Tips Identification of assumptions can come from many sources. Planners and designers often document assumptions in their designs before they complete their full technical analyses. When compiling conceptual estimates without significant design information, estimators often document assumptions regarding project scope or costs. Be certain to review these documented assumptions. 90
However, many assumptions often go undocumented and can only be found through direct discussions with project team members (e.g., planners, designers, estimators, etc.). When identifying risks, be certain to contact the team mem- bers directly and ask if they make assumptions in their plans, designs, or estimates that might result in cost or schedule in- creases if the assumptions prove to be incorrect. Resources National Highway Institute (2006). Risk Management Instructor Guide, NHI Course 134065, National Highway Institute, Washing- ton, DC. Washington State DOT (2008). Basis of Estimate http://www.wsdot.wa.gov/NR/rdonlyres/76111703-D435-4CB7- A965-1297F7F00599/24275/BasisofEstimateFormAug2006rev.doc (Viewed June 1, 2008). I2.5 Expert Interviews Expert interviews serve to provide the project team and risk analysts with additional input from expert sources. Using their insights and expertise, experts may identify risks that are not apparent to the project team. They also can assist with subsequent risk assessments. What is it? Expert interviews are simply the solicitation of expert opinions. Interview questions are generally open ended, and the discussion can cover all areas that the expert may be knowledgeable about. Documentation of the discussion is important, as the discussion may reveal a number of differ- ent risks, and the expert may provide information beyond the identification of the risk, such as probability and impact. The WSDOT has important guidelines (Washington State 2008) they follow when selecting a subject matter expert: Subject matter experts (SMEs) are people who are qualified in their fields to make reasonable subjective assessments on project costs and schedules without bias; subject matter experts provide relevant technical, management, and political insight to the proj- ect and critically examine the project estimate to validate cost and quantity components. Subject matter experts use their real- world construction, risk analysis, and cost estimating knowledge to identify and quantify uncertainties. Subject matter experts must not have personal agendas and must be willing to work as part of a team. Subject matter experts can be internal or external and can be local or national. Why use it? Expert interviews provide additional and informed minds to aid in generating a comprehensive list of risks. Experts pro- vide knowledge and experience in specific fields that may not be available to the project team. What does it do? The expert interviews provide well developed and in- formed consideration of risks. The interviews provide for a way to begin describing, whether qualitatively or quantita- tively, the probability and impact of risks. When to use it? Subject matter experts should be brought in early in the process, but generally not until sufficient scope has been defined to warrant their expert opinions. Experts can be utilized during risk identification, risk assessment, planning, or any other point where the project team would appreciate additional opinions. How to use it? During the expert interviews allow the expert to speak freely and try to draw as much information for documentation as possible. It is best if the experts remain on-call to clarify risks that have been identified earlier or to help identify new risks. Tips While reviewing the expert interview documentation, make sure not to include any of the teamâs own biases. Let the infor- mation speak for itself, and if necessary, talk to the expert about his or her opinion and clarify any confusion. Resources National Highway Institute (2006). Risk Management Instructor Guide, NHI Course 134065, National Highway Institute, Washington, DC. Washington State DOT (2008). A Policy for Cost Risk Assessment, http://www.wsdot.wa.gov/Projects/ProjectMgmt/RiskAssessment (Viewed June 1, 2008). I2.6 Crawford Slip Method The Crawford Slip method allows for individuals to identify risks in a group setting without influence from other team members. The method can be helpful for eliciting risks from an entiregroupwithout one group member dominating. However, it can provide an overwhelming number of risks to analyze. What is it? The Crawford Slip is a rapid, independent brainstorm- ing session. A facilitator begins by introducing the process 91
to the team members. For 10 minutes, each participant writes down one risk each minute. After each minute, the current risk is set aside and each member starts a new one. This forces each participant to write down one, and only one, risk during each minute. At the end of the ten minutes, the facilitator collects all of the risks. The facilita- tor later collates and organizes the risks, eliminating dupli- cates. This can be done by the facilitator alone or in a group setting. Why use it? The Crawford Slip solicits each participantâs opinion of project risks independently. The benefit of this is that each mind is working independently to identify risks, rather than being guided by the opinion of the group. What does it do? The Crawford Slip can generate a large number of poten- tial risks. With a group of 10 participants, within 10 minutes the group will have generated 100 risks, excluding duplicates. This creates a significant amount of information for the facil- itator to sift through to identify risks. When to use it? Use the Crawford Slip method when the project team needs to generate risks in a short period of time. The process will create a large number of risks, but it may not be as thor- ough as some of the other risk identification tools. The risks identified in this process can later be examined in more detail to identify further potential risks. How to use it? Use the Crawford Slip as a starting point for risk identifi- cation. The results of the Crawford Slip can be presented to the group afterward to clarify the intention of the risk identi- fiers, as well as to evaluate each risk as a group. Tips Since the Crawford Slip method generates a large number of risks, allow for time to collate like risks. This can be done independently by the facilitator or it can be done in a group setting. Do not rely solely on the Crawford Slip for risk identifica- tion. While it is a powerful tool, it cannot be comprehensive of risks on the project because of the nature in which risks are identified. Resources National Highway Institute (2006). Risk Management Instructor Guide, NHI Course 134065, National Highway Institute, Washington, DC. I2.7 SWOT Analysis SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The tool is often used for strategic planning pur- poses, but it is helpful in risk identification. The tool is used to solicit potential risks (threats or opportunities) that a proj- ect may need to face. What is it? SWOT analysis is a listing of all strengths, weaknesses, op- portunities, and threats as identified by the project team or a panel of professionals. The process can be viewed as brain- storming within each of the categories. Each factor is exam- ined in turn and all discussion is documented. The final step is to use the identified strengths, weaknesses, opportunities, and threats to identify risks within the project. Why do we use it? The SWOT analysis generates a great deal of information. This can be useful in coming up with risks that would not necessarily be identified in traditional brainstorming. The process can also examine internal and external risks sepa- rately. This can be useful in establishing a risk breakdown structure. What does it do? SWOT analysis, when used with other risk identification techniques, provides a comprehensive picture of potential risks. The tool identifies risks with potential, as well as the greatest source for threats or opportunities (internal or exter- nal). This can be used for more effective risk planning. When to use it? SWOT analysis should be used early in risk identification. The SWOT analysis can be used to begin brainstorming, but can also be used to supplement existing risk identification. How to use it? SWOT analysis is used as a part of risk planning, but the items identified in the SWOT analysis can be used as discus- sion points for possible risks. 92
Example 93 Sample SWOT Analysis from American Association of Motor Vehicle Administrators: AMERICAN ASSOCIATION OF MOTOR VEHICLE ADMINISTRATORS Strategic Plan for 2006 â 2009 THE ENVIRONMENTAL CONTEXT: SWOT Analysis Strengths: 1. AAMVA has represented the motor vehicle community since 1933, is a recognized national authority, is a dynamic, progressive association and has an enhanced public profile. 2. The association provides the mechanism for uniformity, policies, procedures, best practices, training and model laws for its membership. 3. The associationâs members and staff are experts in motor vehicle, driver licensing administration and enforcement issues which are essential in developing standards. 4. We have committed and active volunteers. 5. AAMVA offers several methods for information exchange and has a secure private network that connects all U.S./Canada jurisdictions. 6. AAMVA has a positive and respected image on Capitol Hill and among its member jurisdictions and federal and law enforcement partners. 7. The Association and its jurisdictional and associate members continue to build a strong alliance through grassroots efforts with state and Federal legislators and key Federal agencies such as Department of Transportation, Department of Justice and Department of Homeland Security 8. AAMVA has strong leadership at the staff and Board of Director levels. 9. AAMVA is a well-managed and fiscally sound organization. 10. AAMVA Headquarters projects a positive image of the association. 11. AAMVA is a flexible and dynamic organization. 12. AAMVAâs associate members offer solutions to improve our business processes. Weaknesses: 1. Many jurisdictions delay implementation of AAMVA standards, programs and systems. 2. Outside factors and limited resources impact delivery of programs and services 3. The association is dependent upon a small, diminishing, volunteer workforce. 4. Many AAMVA members have limited access to and influence upon governors, state legislators, the National Governorâs Association (NGA), the National Conference of State Legislatures (NCSL) and members of Congress. 5. There is a lack of participation in voluntary programs that are funded with federal dollars. 6. AAMVA is too dependent upon CDLIS revenue. 7. Associate membersâ interests sometimes conflict with AAMVAâs. 8. Politics Opportunities: 1. The constant, urgent and increasing demand for secure identification presents AAMVA -- through its members â an opportunity to take an active role to address these issues. 2. There is a growing need for training on AAMVA-related programs for members and non- members. 3. There is a need for international standards and uniformity within jurisdictions. 4. AAMVA can work with the groups and agencies that produce other identification documents in order to achieve a secure North American identification system. 5. Use of AAMVAâs name recognition to promote products, services and new memberships resulting in increased revenue. 6. Recent natural disasters provide public awareness on the necessity of tracking vehicle history information through NMVTIS and exchanging motor vehicle records between states. 7. There is an opportunity to analyze and understand jurisdictional issues related to the implementation of AAMVA standards, programs and systems and provide solutions. 8. The new committee structure creates new opportunities to increase volunteerism and committee deliverables. 9. REAL ID creates an opportunity to implement an all-driver pointer system to enhance highway safety and administrative efficiency. 10. Build and maintain relationships with other associations/organizations to promote the membershipâs interests. Threats: 1. Stock market fluctuations result in uncertain returns on AAMVAâs long-term investments. 2. Increased demands on AAMVA (i.e. single-issue focus) can overextend resources that can result in revenue and commitment losses needed for other issues. 3. Loss of member and jurisdiction commitment and/or funds could weaken the association. 4. Absence of federal funding for the implementation of NMVTIS is threatening AAMVAâs financial stability and/or credibility. 5. Lawsuits/litigation arising out of IRP/other activities could adversely affect the associationâs fiscal soundness and insurability. 6. Power grid failures, SPAM and computer viruses, if they become more prevalent, could impact on the delivery of AAMVA services (CDLIS, Clearinghouse, on-line communication, etc.). 7. AAMVAâs reputation can be adversely impacted by missteps. 8. Lack of a complete disaster recovery plan. 9. Ability to recruit qualified technical staff. 10. There has been a steady reduction in customer support from AAMVAâs network services provider. Figure I2.7-1. SWOT analysis example.
94 Resources National Highway Institute (2006). Risk Management Instructor Guide, NHI Course 134065, National Highway Institute, Washington, DC. R1.1 Recognition of Complexity Project complexity significantly influences the methods and tools an estimator uses to prepare and manage project cost estimates. Project complexity also can be used to identify proper risk management techniques. Mn/DOT is using this tool to create a standard definition for project complexity in order to communicate the issue to project team members and stakeholders. What is it? Recognition of complexity, through a formal definition, results in a classification of project complexity that can be applied to all projects. The tool use three definitions for project complexity: 1) minor projects; 2) moderately complex projects; and 3) major projects. These complexity definitions drive the choice of many other tools. For example, the Level I through Level III risk analysis correlate directly to the three levels of project complexity. Complexity definitions can include a definition of project type (such as new or reconstruction), project setting (rural or urban), project location, available level of design detail, and other factors. The goal is to explicitly define project complex- ity through the use of this classification system. Why do we use it? Providing a standard definition of project complexity pro- motes transparent communication of a projectâs characteristics. The complexity classification can be used to assist in selecting appropriate estimating methods and tools or to invoke specific cost estimating management or risk management procedures. It helps to ensure that projects of varying complexity levels are subject to appropriate reviews and attention. This allows for a common language for communication regarding project complexity. What does it do? This tool defines complexity based on specific criteria. The definitions help classify projects according to their level of complexity, which in turn helps to identify the appropriate strategies, methods, and tools for cost estimating, cost man- agement, and risk management. When to use it? A projectâs level of complexity must be established early in the project development process and revisited as design devel- ops or if any major changes in scope are realized. Understand- ing project complexity is a key element of the approach for preparing estimates during all phases of project development. How to use it? Refer to the Tables R1.1.1 through R1.1.3. First, review the project using Table R1.1.1 for minor projects. If the project meets all of these criteria, it can be considered minor. If the project exceeds one or more criteria, it cannot be considered minor and should be reviewed next using Table R1.1.2 for moderately complex projects. If the project meets all of these criteria, it can be considered moderately complex. If the proj- ect exceeds one or more criteria, it should be considered major. Table R1.1.3 can be reviewed to verify that the project should be classified as major. Tips Early in the project development process, use the complex- ity definitions to establish a projectâs level of complexity. The assigned complexity serves as a basis to select the methods and tools for project cost estimating and cost management. Reassess project complexity at key milestones. If the project becomes more or less complex as it proceeds through devel- opment, the definitions can be used ensure that appropriate resources are employed. Examples Mn/DOT will be using a set of complexity definitions developed by the Pennsylvania Department of Transportation (PADOT) and cited in NCHRP Report 574: Guidance for Cost Estimation and Management for Highway Projects During Plan- ning, Programming, and Preconstruction. Tables R1.1.1 through R1.1.3 should be used for defining project complexity. Resources PennDOT has established a system to define the level of complexity. See PennDOTâs Design Manual: Part 1A: Transportation Engineering Procedures, Publication 10A, available from PennDOT. R3.1 Risk Management Plan A formal risk management plan is a detailed plan of action for the management of risk. Risk management planning in- volves the thoughtful development, implementation, and monitoring of appropriate risk response strategies. It is the process to develop and document an organized, comprehen- sive, and interactive risk management strategy; determine the methods to be used to execute a risk management strategy; and plan for adequate resources.
The risk management plan may be specific in some areas and general in others. The key to this tool is its scalability. Every project should have a formal risk management plan, but the level of detail varies with the project complexity. What is it? The formal risk management plan is a document that gives a summary of the project and outlines the different steps of the risk management process and how the agency is approaching them. The risk management plan employed will vary based on the complexity of the project, but most projects should include an outline similar to the following: 1. Introduction 2. Summary 3. Definitions 4. Organization and roles 5. Risk management strategy and approach 6. Risk identification 7. Risk assessment and analysis 8. Risk mitigation and planning 9. Risk allocation 10. Risk monitoring and control Why use it? A risk management plan is a formal document that ex- plains how an agency manages risk. It provides guidance and requirements, and serves as a communication tool for those who wish to be informed of a projectâs risk management ap- proach. The plan formalizes the ideas presented during the risk management process and may clarify some of the assump- tions the project team has regarding the risk management process. What does it do? The risk management plan provides specific guidance for the project team members in all steps of the risk management process. The risk management plan documents the processes to use throughout the project for identifying, assessing, and managing risk. When to use it? The formal plan should be developed during the Planning and Scoping Process and updated during subsequent project development phases. 95 Noncomplex (MINOR) Projects Roadway â¢ Maintenance betterment projects â¢ Overlay projects, simple widening without right-of-way (or very minimum right-of-way take) little or no utility coordination â¢ Noncomplex enhancement projects without new bridges (e.g. bike trails) Traffic Control â¢ Single traffic control/management projects â¢ Non-ITS but minor safety improvements Structures â¢ Bridge resurfacing or repairs that do not require re-analysis of bridge capacity â¢ Pipes, box culverts or minor culvert replacements where design can be picked directly from design manual or standards or using simple software where detailed interpretation is not necessary â¢ Sign structures for which the design can be picked up directly from either the standards or using design computer software â¢ Noise walls or retaining walls for which the design can be picked up directly from either the standards or using design computer software Right-of-Way â¢ Involve minor right-of-way acquisitions with no displacements, maintain existing access control Utilities â¢ Minimal, if any Environmental â¢ Categorical Exclusion (Level 1A or 1B) â¢ Minimum interaction with environmental and permitting agencies â¢ Do not involve cultural resources, hazardous waste, Section 4(f) evaluations or substantial flood plain encroachments Stakeholders â¢ No public controversy Table R1.1.1. Noncomplex (minor) project attributes (NCHRP Report 574 and PennDOT).
How to use it? The risk management plan is developed early in the proj- ect by collaboration with as many members of the team as possible. It should be consulted and revised throughout the project development process to guide the project through to completion. Example Caltrans has developed a strong risk management plan template (Figure R3.1-1) that it uses on its projects to define how the risk management process will be carried out. This template follows (Figure R3.1-1) and is available at: http://www.dot.ca.gov/hq/projmgmt/documents/prmhb/risk _management_plan_template_sample_20070502.doc. Tips Use a risk management plan on every project no matter the size. The detail included in the plan can be minimized, but the value that the formalized plan provides is important for suc- cessful risk management. Resources http://www.dot.ca.gov/hq/projmgmt/documents/prmhb/risk_ management_plan_template_sample_20070502.doc. Guide to Risk Assessment and Allocation for Highway Construction Management, October 2006. R3.2 ContingencyâPercentage On noncomplex projects utilizing a Level I risk analysis, add a contingency as a percentage of the base estimate to ar- rive at the Total Project Cost Estimate. While estimators must include a contingency with each estimate, noncomplex proj- ects do not warrant a detailed risk analysis and contingency development. However, estimators should clearly document the contingency percentage. Base the documentation on his- toric ranges of contingency and a list of risks for the particu- lar project. As the project proceeds with development, the 96 Moderately Complex Projects Roadway â¢ 3R and 4R projects that do not add capacity â¢ Minor roadway relocations â¢ Certain complex (nontrail enhancements) projects â¢ Slides, subsidence Traffic Control â¢ Non-ITS but major safety improvements â¢ Interconnected traffic control/management projects Structures â¢ Noncomplex (straight geometry with minimal skew; designs using AASHTO description factors; minimal seismic analysis; footings on rock or conventional piles and abutments) bridge replacements with minor (<610m [2,000 ft]) roadway approach work. â¢ Bridge rehabilitation that requires re-analysis of bridge capacity. â¢ Bridge mounted signs. â¢ Tie back walls. â¢ Noise walls. â¢ Proprietary/nonproprietary walls. Right-of-Way â¢ Right-of-way plans needed with less than 20 moderate to significant claims and very few relocations or displacements Utilities â¢ Some utility relocations, most of it prior to construction, but no major utility relocations Environmental â¢ Categorical Exclusion Level 2 or mitigated Environmental Assessment projects. â¢ Cultural resources (e.g., historical, archeological, etc.). â¢ Wetland mitigation â¢ Water and air pollution mitigation â¢ Endangered species Stakeholders â¢ Involvement of public and public officials is moderate due to noncontroversial project type â¢ General communication about project progress is required Table R1.1.2. Moderately complex project attributes (NCHRP Report 574 and PennDOT).
estimated contingency percentage reduces because the level of uncertainly associated with the project also reduces. If ex- traordinary conditions exist that call for higher contingencies than what historically has been used, document the basis and rationale in the estimate. What is it? Recognizing that cost estimation is inherently difficult be- cause estimators are trying to predict the future, it is prudent to provide contingency in all estimates, particularly planning, programming and preliminary design estimates. The contin- gency amount can be set as a percentage of the projectâs base cost estimate with the percentage being established by analy- sis of historical cost experience from past projects. Why use it? At any stage in the development of a project, cost esti- mates will be composed of three components for which there are differing amounts of information: 1) known and quan- tifiable costs; 2) known but not quantified costs; and 3) costs that are unknown and therefore cannot be quantified in ad- vance. The base estimate includes the known and quantifi- able costs. The contingency percentage is intended to include both the known but not quantified and the unknown costs. What does it do? A contingency percentage in an estimate is meant to provide funds for cost growth resulting from necessary but 97 Most Complex (MAJOR) Projects Roadway â¢ New highways; major relocations â¢ New interchanges â¢ Capacity adding/major widening â¢ Major reconstruction (4R; 3R with multi-phase traffic control) â¢ Congestion Management Studies are required Traffic Control â¢ Multi-phased traffic control for highway or bridge construction that would mandate CPM during construction â¢ Major ITS (electronic surveillance, linkages) corridor project Structures â¢ Replacement, new or rehabilitation of: - Unusual (nonconventional like segmental, cable stayed, major arches or trusses, steel box girders, movable bridges, etc.) - Complex [sharp skewed (less than 70 degree) superstructure, nonconventional piers or abutments, horizontally curved girders, three dimensional structural analysis, nonconventional piles or caisson foundations, complex seismic analysis, etc.] - Major (bridge cost of $5 million or more, federal definition) - Unusual formations (e.g., caissons, uncommon piles, mines, etc.) Right-of-Way â¢ Right-of-way plans are needed and numerous relocations of residences or displacement of commercial and/or industrial properties are required. A few to over 20 property owners are involved. Major involvement of environmental clean-up. Before and after analysis Utilities â¢ Major utility (transmission lines, substations) relocations or heavy multi-utility coordination is involved Environmental â¢ Environmental Impact Studies are required or complex Environmental Assessment without mitigated finding of no significant impact â¢ Studies of multiple alternatives â¢ Continued public and elected officials involvement in analyzing and selecting alternates â¢ Other agencies (e.g., FHWA, Corps of Engineers, etc.) are heavily involved to protect air; water; games; fish, threatened and endangered species; cultural resources (historical, archaeological, parks, wetlands, etc), etc. Stakeholders â¢ Controversial (lack of consensus) and high profile projects (e.g., fast track design/construction, high public impact, high interaction of elected officials, etc.) â¢ Major coordination among numerous stakeholders is required Table R1.1.3. Highly Complex (major) Project Attributes (Adapted from NCHRP Report 574 and PennDOT).
98 Risk Management Plan District____EA_______________ County________Route:_________PM________ Purpose This document describes how Risk Management will be structured and performed on this project. The risk management plan includes methodology, roles and responsibilities, budgeting, timing, risk categories, definitions of risk probability and impact, probability and impact matrix, reporting formats, and tracking. The Caltrans Project Risk Management Handbook will be utilized as primary reference and guideline. Approved By: ____________________________ ________________ Project Manager Date Roles and Responsibilities Project Manager responsibilities include: â¢ Incorporate the resources and time required to execute the Risk Management Plan in the project budget and schedule â¢ Develop, distribute and implement this Risk Management Plan â¢ Develop and update the Risk Register with the support of the Project Team and incorporate it into the work plan â¢ Coordinate with the risk owners to monitor risks and implement risk response strategies Project Manager Support or Risk Officer responsibilities include: â¢ Support the Project Manager in developing and updating the Risk Management Plan and the Risk Register â¢ Maintain updates to the Risk Management Plan and the Risk Register â¢ Maintain a list of risk and response strategies of all the projects in the district â¢ Update the Sample Risk List and the lessons learned database (http://pd.dot.ca.gov/pm/PMPI/LessonsLearned/index.asp) Project Team responsibilities include: â¢ Identify the risk and describe it â¢ Assess the probability that a risk will occur and specify the criteria used to assess the probability â¢ Assess the impact of risks on project cost, time, scope, and quality objectives, and specify the criteria used to assess the impact â¢ Help identify the risk owners and assist in developing the risk response strategies (Project Team members may be assigned as âRisk Ownerâ) â¢ Perform the risk response steps assigned â¢ Assist the PM in activities associated with Risk Monitoring and Control Risk Owner responsibilities include: â¢ Develop and/or update the assigned risk response strategy â¢ Monitor the risk assigned and inform PM of any threats or opportunities to the project. This includes monitoring the risk trigger and informing the PM, if the risk becomes a real event. Figure R3.1-1. Caltrans risk management plan template.
99 Risk Register The Risk Register documents the identified risks, the assessment of their root causes, areas of the project affected (WBS elements), the analysis of their likelihood of occurring and impact if they occur and the criteria used to make those assessments and the overall risk rating of each identified risk by objective (e.g. cost, time, scope and quality). (Appendix D, Project Risk Management Handbook). Importantly, it includes the risk triggers, response strategies for high priority risks, and the assigned risk owner who will monitor the risk. Risk Identification Methods Used The risk breakdown structure (Appendix B, Project Risk Management Handbook) and Sample Risk List. (Appendix C, Project Risk Management Handbook) will be used as reference tools to help identify and categorize risks. Risk Analysis Methods Used Qualitative Risk Analysis attempts to rank the risks into high, medium and low risk categories based on their probability of occurring and impact on an objective. (The objective with the most impact, at a minimum). This project will will not use qualitative risk analysis This project will will not use District RM Web tool Quantitative Risk Analysis attempts to estimate the risk that the project and its phases will finish within objectives taking into account all identified and quantified risks, estimates the contingency needed for cost and schedule and identifies the best decisions using decision tree analysis. (See Project Risk Management Handbook for additional information and when to use Quantitative Risk Analysis). This project will will not use quantitative cost risk analysis This project will will not use quantitative schedule risk analysis This project will will not use decision tree analysis This project will will not use other quantitative methods Period of Risk Management Meetings and Full Review of Project Risk Meetings for the purpose of discussing and making decisions on Project risk will be held: Weekly ________ Bi-Weekly _________ Monthly __________Other____________ The risk management identification, analysis and response planning process shall occur during project initiation document (PID). A full review and update of risk register will occur at the beginning of each subsequent phase of the project. Budget Allocated for Risk Management Staff allocated and assigned for risk management activities include: PMSU Chief @ Hrs Risk Officer @ Hrs PM @ Hrs Environmental @ Hrs Design @ Hrs R/W @ Hrs DES/Structure @ Hrs Const. @ Hrs Traffic Operations @ Hrs Maintenance @ Hrs @ Hrs Total: Hrs ___Hrs. Ã $ __ /Hr = A total of $ is allocated for Risk Management on this project. Figure R3.1-1. (Continued).
unforeseeable items, such as project scope changes, under- estimation of real project costs, or errors in projecting the rate of inflation. Increases in the prices for construction services due to inflation are not to be considered covered by the contingency amount. Inflation should be handled by applying an appropriate inflation rate to the calculated project cost. However, some agencies include a contin- gency for errors in calculating the rate of inflation, which can be included in the contingency percentage. When to use it? The contingency percentage added to an estimate is a valid means of reflecting the uncertainties that remain in the project as design progresses. Include a contingency percent- age in every project estimate from the earliest planning stage of project development to the final PS&E; however, as shown in Figure R3.3-2 and Table R3.3.1, the magnitude of the contingency decreases as the scope is defined and the design progresses. How to use it? Contingency percentage is the most prevalent approach that project teams use when resources for more sophisticated risk and contingency analysis are limited or unavailable. In its simplest form, a reference table or graph is provided to the project teams for estimating contingency as a percentage of the base estimate. Based on the projectâs level of design com- pletion or other factors such as development milestones, the estimator or the project manager determines the correspon- ding contingency percentage to include in the cost estimate. Example Figure R3.3-2 and Table R3.3.1 illustrate the contingency percentages used by the Ohio and California state DOTs, respectively. Tips When using a contingency percentage, two steps are needed to make the process work effectively: 1) Define the purpose of the contingency amount carefully. Estimators and management must understand that the 100 Figure R3.3-2. Ohio DOT design completion contingency guidelines for cost estimating of major projects. Table R3.3.1. Caltrans contingency percentages. Adapted from Chapter 20 of the Caltrans Project Development Procedures Manual (available online at http://www.dot.ca.gov/hq/oppd/pdpm/pdpmn.htm).
contingency is intended to account for specific unfore- seen, unexpected, unidentified, or undefined costs. The project risks that cause the occurrence of these costs must be delineated in the state highway agencyâs estimation manual with the percentages. 2) Establish contingency percentages on actual experience (i.e., historical data). It is important for both estimators and management to know the level of accuracy achieved with the prescribed contingency. Resources FHWA (2004). âContingency Fund Management for Major Projects.â www.fhwa.dot.gov/programadmin/mega/contingency.htm. FHWA (2004). âMajor Project Program Cost Estimating Guidance.â www.fhwa.dot.gov/programadmin/mega/cefinal.htm. Caltrans Project Development Procedures Manual, Chapter 20 www.dot. ca.gov/hq/oppd/pdpm/pdpmn.htm. Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Management Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca. gov/hq/projmgmt/guidance_prmhb.htm. Caltrans (1998). State Administrative Manual, Chapter 6000, Section 6854: CONSTRUCTION. http://sam.dgs.ca.gov/TOC/6000/6854.htm. Ohio DOT (2007). Ohio Procedure for Budget Estimating. www.dot. state.oh.us/contract/estimating/default.htm. U.S. Army Corps of Engineers. âMilitary Program-Specific Informationâ REF8011G,â http://bp.usace.army.mil/robo/projects/pmbp_manual/ PMBP_Manual/REF8011G.htm. Uppal, Kul B. (Ed.) (2005). Professional Practice Guide #8: Contingency (CD), Association for the Advancement of Cost Engineering Inter- national(AACEI). www.aacei.org/technical/ppg.shtml. R3.3 ContingencyâIdentified On moderately complex projects utilizing a Level II risk analysis, add a contingency based on identified line items to the base estimate to arrive at the Total Project Cost Estimate. This tool should start with the percentage contingency (Tool R3.2) and then add any additional identified contingency items to arrive at the final contingency. The estimator must use his or her judgment to determine if these identified con- tingency items can be captured within the standard percent- age contingency or if they provide justification for the spe- cific project contingency to exceed the standard percentage contingency. What is it? This tool creates a process whereby the contingency amount included in an estimate is set on the basis of identified risks and the probability of their occurrence. This contingency-identified tool should ideally be used in conjunction with a comprehen- sive risk management process. When used in conjunction with a qualitative risk assessment or expected values for the risk items, the contingency is set using the cost estimatorâs judg- ment with the information generated from the risk identifica- tion and analysis process and in accordance with SHA policy. The specific identified contingency items can then be used for contingency management and resolution throughout the proj- ect development process. In other words, as the risks are real- ized or resolved, the identified contingency amount can be added to the base estimate or removed from the Total Project Cost Estimate, respectively. Why use it? The identification of project risks gives the estimator a much firmer basis for developing a reliable contingency amount than the typical top-down assignment of a percent- age based on the estimated direct cost of the project. Addi- tionally it provides a sound contingency resolution process to manage the total project cost. What does it do? Because risks are specifically delineated as a project is de- veloped, specific strategies can be implemented to mitigate, transfer, or avoid significant risks. In addition, with the risks identified and quantified, control and tracking procedures can be implemented to monitor risk items on an ongoing basis. When to use it? The tool should be employed early and risks tracked throughout the project development process. Projects of an unusual or complex nature require a more in-depth evaluation of potential risks and their contributions to es- timated cost. The opportunities to expand the identifica- tion and quantification of risks should be pursued as de- sign progresses and more is known about potential risk factors. How to use it? Identified contingency can be used as an overarching prin- ciple of contingency estimation. At every stage of the project, risks must be identified and contingency extracted. This ex- traction leads to greater understanding of the cost and proj- ect uncertainty. When choosing the appropriate contingency percentage in a Type II risk analysis, consult the range of contingency from the percentage contingency tool and then review the top 20 per- cent of the prioritized risks to ensure that the contingency is adequate. Use an expected value estimate for estimating the 101
top-ranked risks. Calculate the expected value by multiplying the product of the impact should the risk occur by the prob- ability of the occurrence (e.g., $1,000,000 Ã 0.50 = $500,000). Use additional contingency if warranted by the expected value analysis. Example The Cost Estimating Validation Procedure (CEVPÂ®) developed by the WSDOT is a peer-level review on the scope, schedule, and cost estimate for transportation projects through- out the state of Washington. The objective of the CEVP process is to evaluate the quality and completeness, including anticipated uncertainty and variability, of the projected cost and schedule. The outcomes of the CEVP process include the following: â¢ An estimate validation statement in the form of a CEVP Project Summary Sheet that more accurately represents the project cost ranges and the uncertainty involved. â¢ Findings and recommendations that allow WSDOT proj- ect teams and senior management to better understand the basis, content, and variability of cost estimates. â¢ Identification and characterization of the high-risk project elements, which will enable project teams to address ap- propriate mitigation strategies. The Caltrans Risk Management Handbook calls for a quantitative assessment of project risk items representing the highest degree of exposure. This quantification is important for adjusting/updating the contingency amount to be in- cluded in the project estimate (Caltrans 2007, www.dot.ca.gov/ hq/projmgmt/documents/prmhb/project_risk_management_ handbook.pdf). Tips To successfully confront the effects of project risk, risk analy- sis must be applied with a broad view of risk; concentration on the technical risks can lead to oversights in other project dimen- sions. The analysis should consider local authority/agency im- pacts, industry and market risks, elements of political uncer- tainty, and public and/or permit approval processes that might impact timing. Scope changes must also be considered from a broad per- spective. Identification of risk goes beyond the internal âproj- ect risks,â such as pile driving depth, and includes exogenous factors, such as market conditions, business environment, global construction activities/demand, macroeconomic envi- ronment, and weather. Namely, any major uncertainties that might influence the primary project outcomes of cost, sched- ule, or quality should be included. Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Management Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca. 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/ EF230F3B-1FC1-4A2A-9FC9-B66CF0300E1E/0/PolicyforCostRisk Assessment20050805.pdf (Viewed June 1, 2008). R3.4 Estimate Rangesâ Three-Point Estimates Expressing a cost estimate in terms of an estimate range transparently communicates the uncertainty associated with an estimate. The generation of a range can be as simple as applying a historic plus-minus factor to estimated cost (i.e., -10 percent to +20 percent). Alternatively, an estimate range may be gener- ated through sophisticated probabilistic models or simply as a three-point estimate ranging from an optimistic amount to a pessimistic amount and a most likely amount in between. What is it? A project cost estimate is a prediction of the quantities, cost, and/or price of resources required by the scope of an activity or project. As a prediction, an estimate must address risks and un- certainties. Consequently, engineers realize that any estimate can lead to a potential range of final costs. When appropriate, the estimate itself can be expressed as a cost range. Communi- cation of the estimate as a range is simply a statement of proj- ect cost variability. Why use it? Communicating the uncertainty involved in an estimate helps to ensure that decisions based upon the estimate are ap- propriate considering its precision. Estimate ranges better convey the uncertain nature of project costs, particularly in the conceptual phase of project development and even dur- ing later project development phases. Currently, most project cost estimates are conveyed in terms of a single point value. The use of a point estimate early in the project development process can lead to a false sense of precision and accuracy as even the best engineers cannot pre- dict all future events that can and will impact a projectâs cost. Through use of an estimate range, the agency can convey the certainty and uncertainty inherent in the project and educate the stakeholders about cost variability. This is also helpful within the agency to demonstrate the certainty and uncer- tainty about the project to other personnel who may not be intimately familiar with the project. 102
What does it do? The communication of a range of values representing the possible array of ultimate project costs creates a better under- standing of estimate precision. The optimistic and pessimistic values at the ends of the range do not necessarily represent the very least or the very most that the project will cost, but typ- ically the most probable range of project costs. The size of the range will be determined by the identified uncertainties. The interpretation and use of the range depends on how aggres- sive the agency is with the results. When to use it? Ranges may be considered throughout project develop- ment, but should be utilized on projects in earlier stages of development to communicate the level of knowns and un- knowns (risks) about the project. How to use it? Federal planning regulations indicate that a three-point es- timate or cost ranges/cost bands in the outer years of the met- ropolitan transportation plan are acceptable. Therefore, sin- gle point estimates should be avoided before sufficient detail about the project is known, when it is unrealistic to prepare a reasonably accurate single-point estimate. A three-point esti- mate is prepared at any point during this period by estimat- ing the lowest possible, the most likely, and the highest prob- able cost estimate based on a combination of available project data and informed judgment. Example Caltrans uses three-point estimates for some elements of project costs and is planning to make wider use of this technique (Figure R3.4-1). Although the math may appear complex at first glance, it is easy to implement with a simple spreadsheet. The three point estimating process uses these steps: â¢ Have subject matter experts develop three estimates for each item of work: â An optimistic estimate (o): the lowest credible cost assum- ing that everything goes right. â A most-likely estimate (m): the expertâs best guess of the cost. â A pessimistic estimate (p): the highest credible cost, as- suming that virtually everything goes wrong. â¢ The average cost of the item is (o+4m+p)/6. The average is always greater than the most likely estimate. This is be- cause there is a finite lowest-possible cost. Even in the most optimistic situation, the work package will have a cost that is greater than zero. At the other end of the scale, there is no highest-possible cost. It is always possible to spend more money. Tips While estimate ranges transparently convey the uncer- tainty involved in a project, they can be misunderstood. The range theoretically shows the highest probable cost for a proj- ect. If people focus on the high end of the range, the project can be slowed or stopped. The range should be used as part of a comprehensive risk management plan. If the risks and uncertainties that are driving the range can be understood, they can likely be mitigated and the project can be completed at the lowest possible cost. Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Management Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca. gov/hq/projmgmt/guidance_prmhb.htm. R3.5 Estimate Rangesâ Monte Carlo Analysis Expressing a cost estimate in terms of an estimate range transparently communicates the uncertainty associated with an estimate. Monte Carlo analysis is part of a sophisticated probabilistic model process that can be used to generate a range estimate through simulation methods. The use of Monte Carlo analysis is typically facilitated by experts in this field who work closely with estimators, project team members, and subject matter experts. 103 Pr ob ab ili ty Cost Most Probable Cost (m) Lowest Possible Cost (o) Highest Credible Cost (p) Average Cost (always >m) Figure R3.4-1. Caltrans three-point estimate to generate estimate range.
What is it? Monte Carlo analysis is a computerized probabilistic simu- lation modeling technique that uses random number genera- tors to draw samples from probability distributions. Monte Carlo analysis uses repetitive trials to generate overall probabil- ity distributions for project cost or schedule. It relies upon mul- tiple inputs of probabilities for risk events and for uncertainty in cost and duration of line items. A trial consists of the simula- tion engine selecting a value for each of the line items based on their probabilities and generating a final estimate based on that trial. This process is repeated many times (usually several thou- sand) to generate a distribution for the total cost or schedule. Why use it? Monte Carlo analysis has many advantages. It can determine risk effects for cost and schedule models that are too complex for common analytical methods. The output of a Monte Carlo simulation can provide a graphical distribution of project cost or schedule. This distribution can be used to generate an esti- mate range. It also can be used to calculate a contingency. Monte Carlo analysis can explicitly incorporate the risk knowl- edge and judgment of the estimators, project team, and subject matter experts for both cost and schedule risk events. The tech- nique can reveal, through sensitivity analysis, the impact of specific risk events on the project cost and schedule. What does it do? The tool allows the project team to visualize the uncertainty relating to the total project cost and schedule. Monte Carlo analysis can be used to determine project cost and schedule ranges and the most likely values for each. Figure R3.5-1 shows typical probability outputs from a Monte Carlo analysis. The histogram is useful for understanding the mean and dispersion of the results. The cumulative chart is useful for determining project budgets and contingency values at specific levels of cer- tainty or confidence. In addition to graphically conveying in- formation, Monte Carlo analyses produce numerical values for common statistical parameters, such as the mean, standard de- viation, distribution range, and skewness. When to use it? Monte Carlo analysis is applied on complex projects and is used as the basis for a Type III risk analysis. The tool requires that the project team be familiar with all project risks and be able to quantitatively describe the risks. Application of Monte Carlo analysis requires knowledge and training for successful implementation. Input to Monte Carlo analysis requires the user to know and specify probability distribution information, mean, standard deviation, and distribution shape. While com- plex and requiring significant modeling experience, Monte Carlo analyses are the most common tool for quantitative risk analysis because they provide detailed, illustrative information about risk impacts on the project cost and schedule. How to use it? Monte Carlo analysis can be used to generate a number of different decision-making tools for the project team. In order to produce these tools, the input must be assessed to accu- rately model project risks. Each risk can be given a different 104 Distribution for Total Project Costs (Current $) Mean = 499.57 5% 90% 5% 437.98 566.93 0.000 0.005 0.010 0.015 0.020 400 500 600 700 Cumulative Total Project Costs (Current $) Mean = 499.57 5% 90% 5% 437.98 566.93 0.00 0.25 0.50 0.75 1.00 400 500 600 700 Figure R3.5-1. Typical Monte Carlo output for total costs.
risk profile indicating where the most likely and least likely values are. Among these different distributions are Triangular, Uniform, Normal, BetaPert, BetaPert modified, LogNormal, Discrete, Trigen, and any custom-defined distribution. In addition to the total cost ranges shown in Figure R3.5-1, an additional output of a Monte Carlo analysis is a tornado diagram. The tornado diagram is a graphic depiction of a sen- sitivity analysis. The tornado diagram can be used to show which risks will have the greatest positive or negative effect on project cost and schedule. Figure R3.5-2 indicates the corre- lation that project risks have to the total project schedule. The risks with the longest bars have the largest impact on the over- all cost or schedule variability. Several commercial software packages exist to help teams run Monte Carlo analyses. As well as software that integrates within existing spreadsheet programs, spreadsheet macros can be developed to produce simple Monte Carlo analyses. For example, the WSDOT has developed its own Monte Carlo analysis package in Microsoft Excel using macros. Ad- ditionally, some stand-alone software exists to generate cost and schedule Monte Carlo simulations. The most common stand-alone software is âPertmaster.â Example WSDOT has developed a risk-based approach to cost esti- mating in CEVP. CEVP is used to convey project cost through estimate ranges. Figure R3.5-3 provides an example of how CEVP is used to convey an estimate range. The project rep- resented has a 10 percent chance of being completed for $651 million or less, while there is a 90 percent chance that the project will cost $693 million or less. However, there is a chance 105 Figure R3.5-2. Example tornado diagram output from a Monte Carlo analysis. Pr ob ab ilit y Distribution for Cost to Completion (2002 $ million) 64 0 65 0 66 0 67 0 68 0 69 0 70 0 71 0 72 0 0.02 0.04 0.06 0.08 0.10 0.12 0.14 10% Cost $651 Mean Cost $668 90% Cost $693 Figure R3.5-3. Example of an estimate range.
that the project will cost as little as $640 million and as much as $720 million. Tips Monte Carlo analysis can provide insights into complex projects that might not be apparent through conventional es- timating and scheduling techniques. It can provide cost and schedule ranges with graphical outputs. It also can provide in- sights into which risks have the greatest influence on these ranges. All too often, however, the output is used only for go/no-go decisions or a one-time generation of a baseline cost. Estimators and project managers should leverage this infor- mation in a holistic risk management process. The results can be better project performance interims of cost, time, and uti- lization of resources, but only if it is used to help actively man- age the project development process and control project costs. Monte Carlo analyses should only be conducted or facili- tated by trained professionals. It is important to understand that the output of the model is only as accurate as the as- sumptions used to generate the output and the ability of the model to represent the actual project. Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Management Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot. ca.gov/hq/projmgmt/guidance_prmhb.htm. Federal Transit Authority (2004). Risk Assessment Methodologies and Procedures. Report for the Federal Transit Administration, Project Management Oversight under Contract No. DTFT60-98-D-41013, Washington, D.C. Federal Highway Administration (2004). Major Project Program Cost Estimating Guidance, Federal Highway Administration, Washing- ton, D.C. Molenaar, K.R. (2005). âProgrammatic Cost Risk Analysis for Highway Mega-Projects,â ASCE Journal of Construction Engineering and Management, 131(3), 343-353. Project Management Institute (2004). A Guide to Project Management Body of Knowledge (PMBOK Guide), The Project Management In- stitute, Newton Square, PA. Washington State Department of Transportation (2008). CEVP and Cost Risk Assessment (CRA) website. http://www.wsdot.wa.gov/ Projects/ProjectMgmt/RiskAssessment/ (Viewed June 1, 2008). R3.6 Risk Workshops Risk workshops are formal meetings where estimators, project team members, subject matter experts, and risk analy- sis facilitators work together to identify and analyze project risks. Project stakeholders also can be invited to identify risks, if appropriate. The workshops can focus on either qualitative or quantitative risk analysis techniques. Qualitative analyses typically identify and rank risks. Quantitative analyses typi- cally identify risks, quantify uncertainty in project perform- ance (e.g., for generating ranges for total project cost and schedule), and quantify the significance of each risk (e.g., for subsequent risk management cost-benefit analysis). What is it? These workshops are conducted to identify and rank proj- ect risks (or quantify uncertainty in the case of a quantitative analysis). They can involve a variety of estimators, project team members, project stakeholders, discipline experts, and risk analysis facilitators. Why use it? A comprehensive risk analysis requires the elicitation of risks from all project team members, as well as other stake- holders that can potentially influence the project. A focused workshop works well to assemble all those who can influence the project with the goal of identifying risks and helping the project team understand and plan for project uncertainty. What does it do? The products of risk workshops vary depending upon the complexity of the project being studied, the current phase in the project development process, and time available for the workshop. Common products are listed below from least to most complex: â¢ A listing of project risks with complete descriptions; â¢ A quantification of risk for both probability and impact; â¢ A range of project cost and schedule to support contin- gency estimates; â¢ Initial risk mitigation plans; and â¢ Preliminary risk register and risk management plan. In addition to these products, risk workshops generally help to align project team membersâ understanding of project risks and focus resources in the areas that are most affected. When to use it? Risk workshops are valuable in each project development phase. In the earliest phases, they benefit risk identification, and in the latest stages they benefit risk management. When used, the workshops must be conducted well in advance of fi- nalizing the cost estimate because project managers and cost estimators need sufficient time to incorporate the findings into the project plans and estimates. Risk workshops involv- ing expert facilitators are typically required for large or com- plex projects that meet one or more of the following criteria: 106
â¢ Project is unique or unusual and has no historical basis of estimate. â¢ Project has a high degree of local impacts or political interest. â¢ Project has multiple solutions that meet the stated intent in the planning report, with potentially significant differ- ence in the scope or cost or risk for each alternative. â¢ Project is complex and may include any or all of the following: â Few alignment or bypass sections, â Capacity improvements that widen an existing highway, â Multiple permanent structures, â Interchanges on multilane facilities, â Difficulty in acquiring material, â Major traffic control activities, â Schedule that spans many years, â Major reconstruction, â Extensive or expensive environmental or geotechnical scope, and/or â Numerous right-of-way and/or utility issues. â¢ Project is estimated to cost more than X percent of the dis- trict program budget. How to use it? To be effective, risk workshops must be conducted only after adequate preparation, which includes preparation of an agenda and objectives for the workshop. Figure R3.6-1 illus- trates how WSDOT uses this tool. Example The WSDOT addresses risk issues in its project cost esti- mation process by conducting risk workshops. This work- shop approach to risk management was first implemented in 2002 as CEVP. The CEVP workshop is a collaborative ef- fort where project teams, engineers, risk managers, and subject matter experts from private firms come together with WSDOT engineers to scrutinize transportation proj- ects and relevant project information that would help in evaluating the cost and schedule estimates. They brain- storm and contribute to the effort of identifying and assess- ing the risks on a project. The first series of CEVPÂ® work- shops were conducted on 12 mega projects in 2003. The CEVP was scaled down in 2003 to a less intense version known as the cost risk assessment (CRA), with procedures similar to the CEVP. Figure R3.6-1 illustrates how WSDOT uses this tool. Tips Workshop pre-planning and proper facilitation are keys to success. The workshops generally begin with a presenta- tion of the project background and issues. This presentation should be concise so that workshop participants can move on to the workshop objectives. Risk identification and quantifi- cation are typically the primary objectives of the workshops. Without proper facilitation, participants can deviate from these objectives to risk mitigation, value engineering, or issue solving rather than identifying and quantifying them for later mitigation efforts. Resources Washington State Department of Transportation (2008). CEVP and Cost Risk Assessment (CRA) website. http://www.wsdot.wa.gov/ Projects/ProjectMgmt/RiskAssessment/ (Viewed June 1, 2008). R3.7 Risk Priority Ranking Risk prioritization is an important step in the risk manage- ment process. The proper ranking of risks will help the team focus resources on the risks most needing analysis, planning, and mitigation. What is it? Through the use of qualitative or quantitative risk analysis, or through the use of estimatorâs judgment, risks are priori- tized or ranked. The criterion used to prioritization is often a perception of the potential impact to project objectives. Other criteria for prioritization may depend on the agency and spe- cific project objectives. Why do we use it? We use the prioritization of risks to best use the re- sources available for analysis, planning and mitigation. The risks that pose a greater threat to project objectives are most likely the ones in greatest need of qualitative and quantita- tive analysis. Since limited resources are available for analy- sis, the risks with the highest probability and greatest impact (positive or negative) should be prioritized to be analyzed. These principles apply when looking at mitigation strate- gies as well. By prioritizing risks, the greatest potential for the best use of funds and resources can be available for mitigation. What does it do? Prioritization helps the estimating and design teams focus their energy on high priority risks. The risk allows for effective communication between the design team and the estimating team as to the items with the highest risk impact. 107
108 Cost Risk Assessment/Cost Estimate Validation Process Â® Post Workshop ActivitiesWorkshop Pre Workshop Activities 9 PROJECT TEAM Conducts a quick and thorough review of the Draft Report and promptly sends comments to CREM who works with COST RISK LEADS to bring Draft to Final. The FINAL REPORT is usually ready within 2 weeks of receiving comments on the Draft. 6 PROJECT TEAM Invites Region/HQ & other participants as identified in Prep Session to participate in Workshop. 2 CREM OFFICE Contacts appropriate consultant(s) (Risk Elicitor, Cost Lead) to coordinate schedule for Prep Session and Workshop; and Prepares and sends consultant Task Orders to PROJECT TEAM for Concurrence and prepares and distributes Prep Session Agenda to participants. 5 CREM OFFICE Invites independent external subject matter experts and HQ specialty groups identified in Prep Session to participate in Workshop. and Prepares Workshop Agenda then sends to all parties. 1 PROJECT TEAM PROJECT TEAM CONFIRMS With Region Program Mgmt Office Project Title is Correct PIN(s) are correct WIN(s) are correct Mileposts are correct and the WOA is setup Completes CRA/CEVP Request Form and sends to Region Coordinatorâs who forwards to the CREM Office. (Form available on the CREM web site.) NOTE PROJECT TEAM provides: Meeting venue; preferably with internet connection. Visual Aids such as: Aerial Photos Project Exhibits Story Boards Plan Sheets R/W Sheets Etc. Project Info such as: Cost Estimate (in Excel Spreadsheet) Environmental Documents R/W Parcels Information R/W Cost Estimate Other pertinent information 7 PROJECT TEAM Hosts Workshop CREM and Region Coordinators DIRECT WORKSHOP 12 PROJECT TEAM RISK MONITORING AND CONTROL Track identified risks, monitor residual risks, identify new risks, execute risk response plans, and evaluate effectiveness throughout the project life cycle and maintains Risk Mgmt. Plan Spreadsheet. 10 CONSULTANTS Prepare the workshop results, notes, and FINAL REPORT and provides to CREM who delivers to PROJECT TEAM. 3 PROJECT TEAM Prepares project information; invites REGION, HQ and other participants involved with the project and Hosts Prep Session 11 CREM OFFICE Closes file, approves invoices for payment as they arrive. 4 CREM and Risk Leads DIRECT PREP SESSION Workshop Lead Prepares Action Items Risk Lead Prepares Flow Chart & Notes for Review & Comment. 8 COST RISK LEADS Prepare workshop results, notes, and DRAFT REPORT and sends to CREM OFFICE who forwards to Project Team for review and comment. The DRAFT REPORT is usually completed within 2 weeks after all information has been provided by the project team. Figure R3.6-1. Example of WSDOT cost risk analysis/cost estimating validation process workshop.
When to use it? Risk priority ranking should be employed prior to per- forming analysis, planning for risks or developing mitigation strategies. How to use it? Use prioritization as a team exercise to rank risks. This can employ the use of other tools such as the probability and im- pact (PxI) matrix or risk map. Tips Choose the appropriate risk ranking tool for the complex- ity of the project and the point in project development. Do not choose overly complicated risk ranking tools for non- complex projects. If the goal of a ranking exercise is only to help narrow the list of potential risks in a red flag list, a sim- ple discussion among team members may suffice. If the goal is to allocate scarce resources, a PxI matrix approach may be more applicable. If the goal is to rank risks for contingency management and resolution, a Monte Carlo analysis may be warranted. Resources National Highway Institute (2006). Risk Management Instructor Guide, NHI Course 134065, National Highway Institute, Washington, DC. R3.8 Probability Impact Matrix (P I) A P Ã I matrix is used for qualitative analysis of risks on a project. It is formed by combining each riskâs probability of occurrence (frequency) with its impact (severity) on project objectives to rank risks or determine the level of priority to be assigned to that risk on the project (e.g., high, medium, low, etc.). These assessments can be used as a first step in a quan- titative analysis. What is it? The P Ã I matrix is formed using each project riskâs prob- ability and its corresponding impact. These matrices can take many forms, but a simple illustration is shown in Figure 3.8-1. For each of the project objectives, the combinations could fall into one of these three categories: â¢ RED: Indicates that the activity is high risk. High risk events are so classified either because they have a high like- lihood of occurrence coupled with, at least, a moderate im- pact, or they have a high impact with, at least, moderate likelihood. In either case, specific directed management ac- tion is warranted to reduce the probability of occurrence or reduce the riskâs negative impact. â¢ YELLOW: Indicates that the activity is moderate risk. Mod- erate risk events are either high likelihood/low consequence events, or they are low likelihood/high consequence events. An individual high likelihood/low consequence event by it- self would have little impact on project cost or schedule out- comes. However, most projects contain a myriad of such risks (material prices, schedule durations, installation rates, etc.); the combined effect of numerous high likelihood/low consequence risks can significantly alter project outcomes. Commonly, risk management procedures accommodate these high likelihood/low consequence risks by determining their combined effect and developing cost and/or schedule contingency allowances to manage their influence. Low likelihood/high consequence events, on the other hand, usually warrant individualized attention and management. At a minimum, low likelihood/high consequence events should be periodically monitored for changes in either their probability of occurrence or in their potential impacts. Some events with very large, albeit unlikely, impacts may be actively managed to mitigate the negative consequences should the unlikely event occur. â¢ GREEN: Indicates that the activity is low risk. Risks that are characterized as low risk can usually be disregarded and elim- inated from further assessment. As risk is periodically re- assessed in the future, these low risks are resolved with min- imal effort, retained, or elevated to a higher risk category. The assessment guide in Figure R3.8-2 illustrates the key elements of a probability and impact analysis. Why use it? Each risk is likely to have a different probability of occur- rence and a corresponding impact on the project. Therefore, the project team members need to consider the interaction between the probability and the impact when evaluating the risks. The PxI matrix facilitates such evaluation. What does it do? The P Ã I matrix helps a project team rank the myriad of project risks so that the project manager can direct the ma- jority of the available resources to the high and medium im- pact items. When to use it? A P Ã I matrix can be used when evaluating project risks in any phase of the project. It is typically used in conjunction 109
with the risk register. The P Ã I matrix can be used as the sole tool for ranking risks in a qualitative analysis. In a quantitative risk analysis, the P Ã I matrix can be used for an initial assess- ment of risks before a more precise measure of probability and impact is made for probabilistic calculations. How to use it? The estimator, project team member, or appropriate sub- ject matter expert uses his or her professional judgment to determine the probability of occurrence and the corresponding likely impact for each risk. This is typically done using adjectives (e.g., high, medium, low, etc.) rather than direct probabilities (e.g., 10 percent, 25 percent, etc.) or impacts (e.g., $1 million, 3 months, etc.). The adjectives correspond to color coding for graphical presentation. This information is used to prioritize the risks so that the project team can effectively allocate the resources to the risks that have the highest potential to adversely affect the project. Example Figure R3.8-1 shows a sample P Ã I matrix with brief descriptions for the various combinations of probabilities of occurrence and impact. This example was taken from the Caltrans Risk Management Handbook. Figure R3.8-2 shows a color-coded assessment guide that project teams can use for rank-ordering project risks. This ex- ample is taken from the U.S. Department of Energy. Tips The P Ã I matrix is most effective when used to prioritize the limited resources at a project teamâs disposal. A key re- quirement of successful use of this tool is the involvement of subject matter experts who can provide informed judgments about the probabilities of occurrence and the likely impact based on past experience, as well as data, when available. Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Management Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot. ca.gov/hq/projmgmt/guidance_prmhb.htm. U.S. Department of Energy (2003). Project Management Practices: Risk Management. U.S. Department of Energy, Office of Management, Budget and Evaluation, Office of Engineering and Construction Management, Washington, D.C. R3.9 Risk Comparison Table The risk comparison table is a powerful tool to specifically prioritize a number of risks, in order, based on their poten- tial impact. What is it? The risk comparison table is a method to compare risks, side-by-side against one another. The comparison is generated by each member of the project team. Risks are compared side by side and the team votes on the risk that they think should have priority between the two. This process is repeated for comparisons among all of the project risks (A and B, A and C, A and D, B and C . . . etc). Why use it? We use the risk comparison table method for much the same reasons we use risk prioritization. The prioritization of risks allows resources to be allocated and spent on the most 110 Note: TBPOC stands for the Toll Bridge Program Oversight Committee Figure R3.8-1. Sample P I matrix.
deserving risks. The resources include those expended for analysis and mitigation efforts. What does it do? The risk comparison table provides a direct comparison of risks for prioritization purposes. The end result is a scruti- nized list of risks in order of their potential impact to project objectives. When to use it? Risk comparisons should be used before risk analysis or mitigation is performed. How to use it? We use the risk comparison table by assembling the proj- ect team, and asking the group to discuss two risks at a time. After discussion of the risks, the team votes which risk they believe should be prioritized higher. The votes are then recorded and the group moves onto the next comparison. Tips By shortening the list of risks to compare, the process can be much less time intensive. Risks should be included that are judged by the group to have the highest impact, or as the FTA suggests, risks that have the most current importance. Example Figure R3.9-1 shows a risk comparison table method used by FTA to prioritize risks. Resources National Highway Institute (2006). Risk Management Instructor Guide, NHI Course 134065, National Highway Institute, Wash- ington, D.C. R3.10 Risk Map The risk map is an important communication tool because it visualizes the probability and impact of risks in a project or program. The risk map also can be used to reveal risk priori- tization strategies. What is it? A risk map is simply a chart like the one shown in Figure 3.10-1 that summarizes the likelihood and impact of all risks 111 Near Certainty E Highly Likely D Likely C Unlikely B Remote A Likelihood Level >10% 7-10% 5-7% <5% Minimal or no impact Cost and/or Canât achieve key team or major program milestone Major slip in key milestone or critical path impacted Minor slip in key milestones; not able to meet need date Additional resources required; able to meet Minimal or no impact Schedule e d c b a Level a L L L L M L L L M M L L M M H M L M M H M H H H H A B C D E b c e d ASSESSMENT GUIDE RI SK A SSESSMENT High (Red) Unacceptable. Major disruption likely. Different approach required. Priority management attention required Moderate (Yellow) Some disruption. Different approach may be required. Additional management attention may be needed Low (Green) Minimum impact. Minimum oversight needed to ensure risk remains low Li ke lih oo d Consequence Figure R3.8-2. Definition of impact and probability levels.
(or the highest ranking risks) within an organization or on a specific project. Why use it? The risk map puts all of the risks in one place in an easy-to- read and understand format. The risks can be conveyed quickly and more intuitively than with a standard risk register. What does it do? The map conveys the highest and lowest likelihood of im- pact to the team and others. When to use it? The risk map is employed after risk analysis has been com- pleted. It can then be used as a communication tool or as a tool for risk planning. How to use it? The risk map should use the data from either the quantita- tive or qualitative risk analysis to âplotâ each risk on the map. Alternately, the risk map can be used without previously per- forming risk analysis by placing the risks based on estimatorsâ judgment or project team judgment. Tips If using the risk map without performing risk analysis, the process should follow steps outlined in the guide for produc- ing unbiased results. Example Figure 3.10-2 is an image taken from FHWA Risk Manage- ment Instructor Guide that shows the use of the tool for indi- 112 Figure R3.9-1. Risk comparison table. Figure 3.10-1. Risk map example. Figure 3.10-2. Risk map with response strategy effectiveness illustrated.
cating response strategies. The arrow indicates where the risk was previously ranked and how the mitigation strategy moved the risk to have lower likelihood or impact. Resources National Highway Institute (2006). Risk Management Instructor Guide, NHI Course 134065, National Highway Institute, Wash- ington, D.C. R3.11 Risk Breakdown Structure A Risk Breakdown Structure (RBS) is conceptually similar to a Work Breakdown Structure, used to illustrate interrelation- ships between manageable components of a larger project or program. What is it? A risk breakdown structure is an extension of a risk regis- ter that is typically used to document, evaluate, and allocate risks. It is used to illustrate the interrelationships between risks pertaining to different aspects of a project. Why use it? For a comprehensive and consistent understanding of proj- ect risks across the project team and among project stakehold- ers when appropriate, âa picture is worth a thousand words.â Although specifications and contracts address most risks, a risk breakdown structure can be very effective in preparing project team members to successfully mitigate or resolve risks as the project moves forward. What does it do? A risk breakdown structure shows the relationships be- tween project components that may be difficult to explain using only words. When to use it? A risk breakdown structure is appropriate for use on proj- ects with scope in all or most elements of the total project cost, or on complex projects. The risk breakdown structure is used to facilitate risk identification, and assist in the other steps of the risk management process. How to use it? We use the risk breakdown structure to help categorize risks. The use of an RBS helps us handle risks systematically, rather than individually. Similar risks, as classified by their RBS can utilize similar management strategies. Tips Ensure that the risk breakdown structure reflects the most useful categorizations for the project team. A common prin- ciple is that the categorization should focus on risk cause rather than risk effect. It is helpful to try and standardize the risk breakdown structure across several projects, or through- out the agency. This can aid in the use of other tools that rely on a historical database of risks. Example Figures R3.11-1 and R3.11-2 show example risk breakdown structures. Figure R3.11-1 is a DOE example of a hazardous waste remediation risk breakdown structure. Figure 3.11-2 is a Caltrans example for a generic program risk breakdown structure. R3.12 Risk Register A risk register is a tool that project teams can use to address and document project risks throughout project development. The risk register should be maintained as part of the project file that also includes information related to the cost estimate. 113 Quality Cost Schedule Project Risk Nuclear Electrical Mechanical Technical Risk Reorganization Procedure Change Management Change Internal Risk Political Funding Regulatory External Risk Project Name Figure R3.11-1. DOE sample risk breakdown structure.
What is it? The risk register is a living document throughout project development that describes all identified risks, causes, prob- ability of occurrence, impact(s) on project/agency objectives, team responses, individual(s) assigned to monitor the evolu- tion and the resolution of each risk, and current status. It is a comprehensive listing of risks and the manner in which they are being addressed as part of the holistic risk management process. It is generally organized in the form of a spreadsheet so that it can be easily categorized and updated throughout the project development process. Why use it? A new project team is formed for every project and dis- banded when the project is complete. Although not desirable, project team members sometimes change, and the project it- self experiences changes over the course of the project. Com- munication between project team members about the proj- ect objectives, costs, risks, etc., is key. The risk register serves the purpose of communicating project risks and helping the team members understand the status of the risks as a project moves from inception to completion. What does it do? The risk register documents the identified risks, the assess- ment of their root causes, the areas of the project affected (e.g., work breakdown structure elements), the analysis of their likelihood of occurring, their impact should they occur, the criteria used to make those assessments, and the overall risk rating of each identified risk by objective (e.g., cost, time, scope, and quality). It includes the risk triggers, the response strategies for high-priority risks, and the assigned risk owner who will monitor the risk. When to use it? A risk register should be prepared in conjunction with the first published cost and schedule estimate of a project. There- after, a full review and update of the risk register should be undertaken at the beginning of each subsequent phase of the project and during each phase as deemed necessary by the project team or the project approving authority. How to use it? A risk register is best used as a living document through- out project development to record the evolution of project risks. There is no prescription for how extensive a project teamâs risk register should be. Based on the example, the project team needs to decide upon the most beneficial use of the risk register, with the objective of minimizing the risk impact. Example Figure 3.12-1 shows an example risk register from the Cal- trans Project Risk Management Handbook. Caltrans project teams use this tool per the formal guidance at http://www. dot.ca.gov/hq/projmgmt/guidance_prmhb.htm. 114 Figure R3.11-2. Caltrans sample risk breakdown structure.
Project Name: Project Manager: Co - Rte - PM: Telephone: I T E M ID # Status Threat / Opport-unity Category Date Risk Identified Risk Discription Root Causes Primary Objective Overall Risk Rating (a) (b) (c) (d) (e) (f) (g) (h) i) Probablility 4=High (40-59%) Impact 8 =High Probablility Impact Probablility Impact Probablility Impact DIST- EA 06-12345 4 1 06-12345-01 Active 3 2 TIMECONThreat Root Cause(s)03/26/07 Risk Description High Figure 3.12-1. Sample risk register (Caltrans). (continued on next page)
Risks sorted by Date Created: Cost/Time Impact Value Risk Owner Risk Trigger Strategy Response Actions w/ Pros & Cons Adjusted Cost/Time Impact Value WBS Item (j) (k) (l) (m) (n) (o) (p) Adjusted Cost/Time Impact Value 165 PERFORM ENVIRONMENTAL STUDIES AND PREPARE DRAFT ENVIRONMENTAL DOCUMENT dditional WBS Response Actions Risk Owner (545) 454-5454 (212) 121-2121 Risk Owner@dot.ca.gov AVOIDRisk Trigger(s)Cost/Time Impact Value Figure 3.12-1. (Continued).
117 Tips A risk register is an important part of the project file for all projects, regardless of size or type. The level of detail in the risk register can vary depending upon the project size, and complexity. Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Management Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca. gov/hq/projmgmt/guidance_prmhb.htm. Washington State Department of Transportation (2008). CEVP and Cost Risk Assessment (CRA) website. http://www.wsdot.wa.gov/Projects/ ProjectMgmt/RiskAssessment/ (Viewed June 1, 2008). Project Management Institute (2004). A Guide to Project Management Body of Knowledge (PMBOK Guide), The Project Management In- stitute, Newton Square, PA. R3.13 Risk Management Information System Throughout the planning, scoping, and design phases of project development, identified project risks need to be doc- umented and the list kept up to date, because risks evolve throughout project development. A Risk Management Infor- mation System (RMIS) helps a project team document the risks as they are identified. What is it? RMIS is a web-based interactive data management system that tracks risks and risk-related information at various stages of the cost estimating process. It serves as a database of all the project risks and is used especially during risk identification and documentation of risks. It is also used to generate standard re- ports such as the top 20 risks by cost; top 20 risks by delay; top five risks by project, qualitative analysis, and quantitative analy- sis; and custom reports such as new or retired risk entities. Why use it? Regardless of the tools used for analyzing risks and estimat- ing contingency, project teams need an effective mechanism to monitor the risks and communicate their effects on con- tingency. Such a mechanism is needed because risk and con- tingency are inter-related, and they constantly evolve as the project progresses. What does it do? RMIS provides the project team the mechanism to period- ically evaluate and retire the risks that have been addressed already and keep the risk register up to date. When to use it? RMIS can be most effective when used starting with the first published estimate, usually in the planning phase, all the way through the completion of the design phase. The system can potentially be used for risk allocation at the time of con- tract award and then passed on to the contractor for use dur- ing project execution. How to use it? RMIS requires significant information technology pre- work for effective use. When such a system is developed and in place, project team members can use it to create and main- tain a risk register that individual team members can access and use for decision support. Tips RMIS is a sophisticated computer-based tool that in essence is a risk register, but with automated forms and reports for risk management. If the project team is working in an agency that does not already have an RMIS, then the project team should proceed with using a risk register (which is a separate tool that is described elsewhere in this guide). Example Figures 3.13-1 and 3.13-2 show the example of the RMIS used in the Caltrans. R3.14 Self Modeling Worksheet The WSDOT utilizes a detailed spreadsheet to list, quantify, and analyze risks. The self modeling worksheet is required on project between $10 and $25 million. What is it? The WSDOT self modeling worksheet uses the process of Monte Carlo simulations to take listed uncertainties and gen- erate distributions of probable project cost and schedule. Why use it? The worksheet can be used in place of schedule risk analy- sis software. The spreadsheet can be seen as less complex than schedule risk analysis software, and therefore easier for proj- ect teams to use. What does it do? The worksheet takes a three point estimate for each risk (threat or opportunity) and provides a distribution of the project cost and schedule based on the risk information.
When to use it? The tool can be used as a risk register, as well as a risk analy- sis tool. Thus, the tool can be used during identification, assess- ment, analysis, planning, and control. The tool also includes a way to retire risks after they no longer pose a threat to project objectives. How to use it? The worksheet is used by entering data into the assigned cells and running the simulation. The output of the simula- tion is generated in charts on subsequent tabs. The informa- tion in these charts can be used to convey project risk and uncertainty. Tips While the tool is immense, it can be customized to fit the needs of the department utilizing it. Someone with a back- ground in writing code could manipulate the spreadsheet to address specific needs. Example A copy of the WSDOT self modeling worksheet is avail- able at http://www.wsdot.wa.gov/Projects/ProjectMgmt/Risk Assessment/Information.htm Resources WSDOT website, including the self modeling worksheet and âRead Me Firstâ support file. 118 Figure 3.13-1. Risk management information system.
119 Figure 3.13-2. Risk data in the risk management information system.