Guide for the Process of Managing Risk on Rapid Renewal Projects (2012)

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121 In the past, many transportation projects have performed poorly (e.g., in terms of ul- timate cost and schedule to completion), often because of unexpected problems as de- scribed in Chapter 1. This might be amplified for rapid renewal projects as described in Chapter 3, which are intended to accelerate schedule and minimize disruption through construction, while not adversely affecting either cost through construction or post- construction longevity. However, by definition, these rapid renewal methods are typi- cally innovative with limited past experience from which to learn, and might be more susceptible to not performing as expected. This guide presents a formal risk management process (see Chapter 2) to better understand and to actually optimize project performance specifically for rapid renewal projects, especially by anticipating and planning for potential problems (“risks”). This process, which is a significant expansion of a previously developed risk management process for non–rapid-renewal projects (for which the expanded process is also appli- cable), consists of a well-defined series of steps (Figure 11.1), each of which has been described in appropriate detail, including possible variations, in this guide. Sufficient information is also provided in this guide to ensure compatibility and consistency among the various steps, and to ultimately ensure adequate accuracy and defensibility of results (where “adequacy” depends on how the results will be used), as efficiently as possible. The steps that follow are sequential and in some cases iterative: Step 1. Structuring (Chapter 4). Define the base project scenario (including the rele- vant project performance measures of cost, schedule, and disruption through construc- tion, and postconstruction longevity, and trade-offs among them), against which risk and opportunity can subsequently be identified and assessed, and eventually managed. 11 CONCLUSIONS

122 GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS Step 2. Risk Identification (Chapter 5). Identify a comprehensive and non overlapping set of risks and opportunities (i.e., scenarios that might occur, changing the base project performance). In addition to brainstorming and then analysis of risks, lists of common risks have been developed that can be checked to ensure completeness (Appendix B). Document the set of risks and opportunities in risk register at the start of the project. Step 3. Risk Assessment (Chapter 6). Assess the severity of each of the risks and opportunities in the risk register and then prioritize them on that basis. Generally this is done by (a) subjectively assessing the relevant risk factors (i.e., impacts if the scenario occurs and the probability of the scenario occurring), either qualitatively (e.g., high versus low, when these descriptors are quantitatively defined by ranges of values) or quantitatively (mean values or, for quantitative risk analysis, full probability distri- butions); and then (b) analytically combining the risk factors to determine changes in project performance measures and thereby severity. Document the risk-factor assess- ments in the project risk register. Step 4. Risk Analysis (Chapter 7). Analytically combine the base and risk factors to determine the project performance measures (e.g., ultimate project escalated cost) as well as changes in those measures (e.g., combined using trade-offs as a measure of severity) associated with each risk. This can include quantification of the uncertainty in those performance measures, as a function of subjectively assessed uncertainties in (and correlations among) the base and risk factors. This requires specialized skills to be conducted appropriately. Step 5. Risk Management Planning (Chapter 8). Identify and evaluate possible ways to proactively reduce risks, focusing on those that are most severe. Evaluate each possible action in terms of its cost-effectiveness, considering changes in both base (e.g., additional cost) and risk (e.g., reduced probability) factors, and select those that are cost-effective. Consider reanalyzing the project performance measures for this risk reduction program, including quantification of uncertainty, based on which Figure 11.1. Iterative risk management process. 4 2014.01.07 R09 01 Guide Exec Sum_final for composition.docx Figure ES.1. Iterative risk management process. Ad quate direction is also provided to h lp ensure successful implementation of the risk management process described herein, which requires adequate planning and resources, especially qualified facilitators and experts. A course also has been developed to train department of transportation (DOT) staff to successfully implement this guide, focusing on training DOT facilitators to (a) implement the risk management process directly on relatively simple rapid renewal (as well as non–rapid renewal) projects and (b) supervise the evaluation of more complex projects and perform quantitative risk analysis. To help these facilitators, in addition to this training course (which includes annotated PowerPoint slides and application to a hypothetical project), an overview presentation of the process and forms for documenting inputs (which are also available electronically in a Microsoft Excel workbook template that automates the necessary analyses) have been developed for relatively simple projects. The template and related training materials are available online at www.trb.org/Main/Blurbs.168369.aspx. Project Scope/Strategy/ Conditions Structuring Risk Identification Risk Assessment Risk Analysis Risk Management Planning Risk Management Implementation

123 GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS appropriate budgets and milestones can be established (e.g., to achieve a specified level of confidence). As part of these budgets and millstones, establish contingencies (in the form of additional funds and schedule float, as well as recovery plans) and procedures to control their use. Document this in the risk management plan. Step 6. Risk Management Implementation (Chapter 9). Implement the risk man- agement plan as the project proceeds, including (a) monitoring the status of risk reduc- tion activities and changes in risk (whether due to risk reduction or simply changes in project development, conditions, and information); and (b) monitoring budget and milestone, especially with respect to contingencies. This might involve periodic updates (iterate previous steps 1–5) at regular intervals or at major milestones or changes. For example, contingencies might be reduced as engineering reports or designs are com- pleted and risks are avoided or reduced. This guide also provides adequate information to help ensure successful imple- mentation of the risk management process described in this guide, which requires adequate planning and resources, especially qualified facilitators and experts (Chap- ter 10). As part of this, a 2-day Simplified Risk Management Training course has been developed to train DOT staff to successfully implement this guide, focusing on training DOT facilitators to (a) implement the risk management process directly on relatively simple rapid renewal (as well as non–rapid renewal) projects; and (b) supervise the evaluation of more complex projects and/or quantitative risk analysis. In addition to this training course [which includes annotated slides and application to a hypothetical project (Appendix D)], to help these facilitators, an overview of the process and forms for documenting inputs (which are also available electronically in a Microsoft Excel workbook template that also automates the necessary analyses) have been developed for relatively simple rapid renewal (as well as non–rapid renewal) projects (see Appen- dix C). The benefits of the risk management process described in this guide primarily include improved project performance as well as better understanding and clarity of the project and its range of possible performance. Moreover, it does this defensibly and efficiently. In fact, if done correctly (according to the guidance presented here), the investment (e.g., in training, workshops, and documentation) will be small relative to the benefits of improved project performance, plus the more intangible benefits of bet- ter project understanding and ability to defend significant project decisions. However, the risk management process described in this guide currently has some limitations, which must be carefully managed and communicated: • DOT Commitment. A formal risk management process, in which potential project problems and uncertainties are acknowledged up front, is — A different way of dealing with such potential problems, and such changes are often difficult to implement within a DOT; and — Incompatible with some current DOT cultures, which (although generally con- servative and risk averse) tend to ignore risks, either because they are optimistic or because they are afraid such acknowledgment will affect project approvals.

124 GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS A lack of DOT commitment often leads to inadequate resources and, as discussed below, poor results, which in turn can be used to justify that lack of commitment. • Accuracy and defensibility. For accuracy, — Comprehensive and nonoverlapping sets are needed for risks and opportunities, as well as for base cost, schedule, and disruption, and for potential risk man- agement actions. However, this is typically difficult to achieve, especially for innovative project delivery methods where experience might be limited. — Adequate assessments of the various base and risk factors (including changes in those factors associated with risk reduction actions) are needed. However, this typically is difficult to achieve, because the unique nature of individual projects creates general lack of definitive information on risks. Subjective assessments, which involve interpretations of all available information and are thus subject to various types of biases, are generally required. — Adequate models of project performance are needed. However, this typically is difficult to achieve, especially to quantify the uncertainty in (and sensitivity of) those project performance measures, because of their complex nature. Too much approximation, or possibly even errors, which might not be recognized because of model complexity, can cause misleading results. Similarly, the above must not only be accurate enough, but must also be defensible enough, for the purpose. This in turn requires clear and reasonable, as well as ade- quately documented, logic and basis, especially regarding subjective assessments and models. • Efficiency. A formal risk management process on a project can take significant effort, analogous to a VE study in both its initial conduct and subsequent imple- mentation. It must be adequately planned, resourced, and facilitated to provide adequate accuracy and defensibility as efficiently as possible. However, if poorly planned, resourced, or facilitated, it might take a lot of unnecessary effort to achieve the required level of accuracy or defensibility. For example: — Some resources or information might not be available when needed, so that the process is delayed while they are gathered, or some resources might not be needed during part of the process, but they have not been released; — The model and assessments might be defined in too much detail (“lost in the weeds” and bogged down) or in not enough detail, necessitating a redo; and — Assessments, models, or documentation might be incomplete (or even errone- ous), necessitating a redo. Additional work may be necessary in the future to reduce the above identified limi- tations of the risk management process described in this guide. In particular: • Publication and distribution of this guide, accompanied by training at various levels of detail and pilot applications, will help explain why, what, when, and how such a formal risk management process should be conducted. This should help

125 GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS change the DOT culture and develop DOT commitment, as well as foster adequate accuracy and defensibility in an efficient manner. • Detailed training of DOT facilitators and planners, including quality control and pilot applications, will help ensure adequate accuracy and defensibility, as well as efficiency, of the application of the process on particular projects. • Analysis of the results of many applications of the process (case studies) will — Demonstrate feasibility and value of the process, where value might simply be a qualitative evaluation by the project manager, to further DOT commitment; — Even before projects are complete, enhance the checklist of risks and potential risk reduction actions, as well as the assessment of the risk factors and of risk reduction factors, improving accuracy and defensibility; and — After projects are complete, help to validate the process, which in turn will result in better defensibility and furthering DOT commitment. • Further development of the following elements of the risk management process will enhance accuracy and defensibility, as well as efficiency, which in turn will further DOT commitment: — Databases regarding input assessments (from many applications); — Improved and more accessible (less complicated) risk models, especially to eval- uate more complicated projects or to conduct full uncertainty analysis; and — Better documentation formats (especially of forms, and ultimately of the risk register and risk management plan). It is anticipated that this additional work will eventually proceed, resulting in an improved risk management process and thus even better project performance. Hence, the following additional work is recommended: • The guide (and tools). The benefit of the research will be in the form of improved project performance (regarding cost, schedule, disruption, and longevity) but only if the guide (and tools) is appropriately applied by DOTs to their projects. How- ever, before organizing and then training a DOT to conduct risk management (which is discussed separately below), DOTs must first be convinced of the ben- efits of risk management. This can best be done by making DOTs aware of the process (i.e., wide exposure) and clearly demonstrating its value (e.g., through case studies). Hence, in addition to “marketing” (exposure is needed in multi- ple ways, that is, in the form of papers or brochures, presentations or webinars, and users’ conference), case studies should be collected and evaluated, and new appli cations encouraged (e.g., through cost sharing or subsidies) and documented as case studies. To demonstrate the benefits of implementing the guide, specific metrics (e.g., total and average project cost savings) should be developed and re- ported. Also, the guide and tools should be “fixed” (as needed) and improved (as appropriate).

126 GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS • Training. Training is needed to implement the guide. Such training needs to be at different levels (from developing full capability to only familiarity), depending on needs, and should to be available in different ways or formats (live versus recorded, on-site vs. remote, National Highway Institute (NHI) versus non-NHI format, lec- ture versus application), some of which (e.g., recorded, remote, NHI) would need development first. In addition to marketing (emphasizing cost- effectiveness of risk management), such training can be encouraged in various ways, for example, by cost sharing or subsidies and by offering continuing education units.