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40 4.1 Introduction This chapter describes the Guidebook framework used to present information contained in Chapters 5, 6, and 7. Each chapter covers a different phase of the project development processâplanning, programming, and design (both pre- liminary and final design). Each of these phases has its own unique challenges related to achieving the objectives of the five project risk management steps. Risk management ap- proaches vary depending on the phase of project develop- ment and on a projectâs complexity. These approaches vary because different tools and management practices are re- quired when implementing the risk management process within a project context. Although there is overlap and redundancy in the information presented, the overlap and redundancy is necessary to effectively implement risk management in the context of project complexity and the phase within which the project finds itself. The structure and format of Chapters 5, 6, and 7 is the same; however, the content varies depending on the project phase, the proj- ect information and data available, and the purpose of risk management and cost control as applied during that phase. 4.2 Guidebook Structure and Layout Chapters 5, 6, and 7 focus on the application of the funda- mental concepts presented in Chapters 1, 2, and 3. These chapters provide guidance to risk management implementa- tion during each phase. The goal of this structure is to help planners, designers, estimators, and project managers quickly locate the tools they need to implement risk management. The structure follows a hierarchical layout of project devel- opment phase, risk management step, and project complex- ity as shown in Figure 4.1. Note that Chapter 7 combines the preliminary design and final design phases described in Chapter 2. These phases were combined to minimize redundancy and also due to the fact that the risk management approach does not vary substan- tially from the preliminary to final design phases. Figure 4.2 illustrates how the risk management process focus changes throughout the phases. In the planning phase, the process fo- cuses on risk identification with some initial assessment and planning activities. In the programming phase, when the baseline estimate is often set, the process focuses on contin- ued identification, analysis and detailed planning. The risk management process is completely implemented in the de- sign phase. The subtle differences in risk management be- tween the preliminary and final design phases are explained in Chapter 7. These changes in the risk management process across the phases are discussed in Chapters 5, 6, and 7. These changes also are summarized in Table 3.2. Within each chapter, the application of each step of the risk management process is explained. It is the premise of this Guidebook that all projects, regardless of project size and proj- ect complexity, require some form of risk management plan- ning. The framework of risk management remains the same, but the tools and level of effort vary with the project complex- ity. Each risk management step is described for each level of project complexity with the following structure: â¢ Inputsâthe information required for the risk manage- ment step; â¢ Toolsâa mapping of appropriate tools that are included in the Appendix A; â¢ Outputsâthe information that will be produced from the risk management step; â¢ Complexityârelationship to project complexity; and â¢ Tipsâadvice for implementing the risk management step and the use of risk management tools. C H A P T E R 4 Guidebook Framework
41 Figure 4.1. Guidebook structure. Chapter 5 â Guide to the Planning Phase Chapter 6 â Guide to the Programming Phase Chapter 7 â Guide to the Design Phase Risk Management ProcessAllocate Monitor and Control Identify Assess/ Analyze Mitigate and Plan Level of Complexity â¢ Minor â¢ Moderately Complex â¢ Major Appendix A Chapter 5 â Guide to the Planning Phase Risk Management ProcessAllocate Monitor and Control Monitor and Control Identify Assess/ Analyze Mitigate and Plan Chapter 6 âGuide to the Programming Phase Risk Management ProcessAllocate Identify Assess/ Analyze Assess/ Analyze Mitigate and Plan Mitigate and Plan Chapter 7 â Guide to the Design Phase Risk Management Process Allocate Monitor and Control Identify Figure 4.2. Risk management focus within the project development phases.
42 4.3 Appendix A Appendix A describes all the tools referenced for each step in Chapters 5, 6, and 7. The common informational structure for describing each tool is the following: â¢ What is the tool? â¢ Why is the tool used? â¢ What does the tool do or create? â¢ When should the tool be used? â¢ How should the tool be used? â¢ What are examples or applications of the tool? â¢ What tips will lead to successful use of the tool? â¢ Where can the user find more information to support de- velopment of a specific tool? Table 4.1 summarizes these tools with the risk step and phase in which they apply. The description of project com- plexity is addressed within each chapter. Note that the tools are numbered to correspond with NCHRP Report 574: Guidance for Cost Estimation and Man- agement for Highway Projects During Planning, Programming, and Preconstruction. 4.4 Summary This Guidebook applies a common framework in Chap- ters 5, 6, and 7 to describe how the risk management steps change throughout the project development phases and how they are impacted by project complexity. It provides a map to applying the tools presented in the Appendix A. Table 4.1. Risk tool summary. Risk Management Step Phases Tool Description Id en tif y A ss es s & A na ly ze M iti ga te & Pl an A llo ca te M on ito r & C on tr ol Pl an ni ng Sc op in g D es ig n D1 Delivery and Procurement Method D1.1 Contract Packaging The manner in which work is subdivided into individual contracts. Contract packaging affects contract prices and must be accounted for when estimating project cost. D1.2 Delivery Decision Support The project delivery method involves the organization of the project team members, the procurement method, and the contract payment terms. The selection of a project delivery system can affect both risk allocation and project costs. I2 Identification of Risk I2.1 Red Flag Items A technique to identify risks and focus attention on critical items with respect to cost and schedule impacts. Risks of greatest concern are âred flaggedâ for monitoring throughout the project. I2.2 Not Used I2.3 Risk Checklists The use of a historical list of project risks from experience or specific past projects that is used to aid in the risk identification process. I2.4 Assumption Analysis The process of reviewing all assumptions for uncertainty that could generate risks. I2.5 Expert Interview s Speaking with experts in order to generate risks and/or assess risk probability/impact. I2.6 Crawford Slip Method A group risk identification technique. Useful in generating a large number of risks in a short amount of time. I2.7 SWOT Analysis Strengths, Weaknesses, Opportunities, & Threats. A risk identification technique used to help generate risks and place them into categories. R1 Recognition of Project Complexity R1.1 Recognition of Complexity The tool used to assign a project complexity level. This is based on predetermined criteria, and assigned based on project characteristics (new or reconstruction, urban or rural, etc.). (continued on next page)
Table 4.1. (Continued). 43 Risk Management Step Phases Tool Description Id en tif y A ss es s & A na ly ze M iti ga te & Pl an A llo ca te M on ito r & C on tr ol Pl an ni ng Sc op in g D es ig n R3.8 Probability x Impact Matrix (P x I) Qualitative analysis tool to provide a ranking of risks based on probability and impact. It is a powerful visual tool to convey risk ranking. R3.9 Risk Comparison Table Analysis tool to compare all risks to each other to determine prioritization and importance. R3.10 Risk Map A tool that places all risks graphically on a probability and impact (P x I) matrix to show relative probability and impact of different costs. Can also show how mitigation changes the probability and impact of each risk. R3.11 Risk Breakdown Structure A formal coding of risks that can supplement the risk register and explore the relationships of different risks to each other. It can be helpful for an agency when organizing similar risks across multiple projects. R3.12 Risk Register A risk management tool that lists risks in a given project and provides summary information that can include the risk description, probability, impact, ranking, ownership, and other important information. R3.13 Risk Management Information System A data management system that tracks risks and risk related information throughout the project development process. R3.14 Self Modeling Worksheet A spreadsheet tool developed to model risk and uncertainty given basic project parameters. Based on Monte Carlo simulation. Allows for more customization than commercial software. R3 Risk Analysis R3.1 Risk Management Plan Project-specific document that comprehensively describes the philosophy and approach to risk management. R3.2 Contingency â Percentag e The process of estimating contingency based on a percent of the project. The percentage is typically based on policy, similar projects, or estimator judgment. R3.3 Contingency â Identified The process of estimating contingency on the basis of identified risks and the probability of their occurrence. R3.4 Estimate Ranges â Three Point Estimates A technique for generating range estimates by estimating an optimistic, most- likely, and pessimistic estimate. R3.5 Estimate Ranges â Monte Carlo Analysis A risk analysis modeling method that uses repeated trials computing probabilistic outcomes of various risk events or uncertainties. The technique is used for both cost and schedule. R3.6 Risk Workshops Workshops that are conducted to identify and quantify the uncertainty involved in projects. Risk mitigation and planning are also often addressed. R3.7 Risk Priority Ranking Using qualitative or quantitative analysis methods to rank risks. This often results in a dynamic âTop Tenâ list to track risks with the highest potential im pact at any given project development phase.