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Suggested Citation:"1 INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2012. Guide for the Process of Managing Risk on Rapid Renewal Projects. Washington, DC: The National Academies Press. doi: 10.17226/22665.
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Suggested Citation:"1 INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2012. Guide for the Process of Managing Risk on Rapid Renewal Projects. Washington, DC: The National Academies Press. doi: 10.17226/22665.
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Suggested Citation:"1 INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2012. Guide for the Process of Managing Risk on Rapid Renewal Projects. Washington, DC: The National Academies Press. doi: 10.17226/22665.
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Suggested Citation:"1 INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2012. Guide for the Process of Managing Risk on Rapid Renewal Projects. Washington, DC: The National Academies Press. doi: 10.17226/22665.
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Suggested Citation:"1 INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2012. Guide for the Process of Managing Risk on Rapid Renewal Projects. Washington, DC: The National Academies Press. doi: 10.17226/22665.
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Suggested Citation:"1 INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2012. Guide for the Process of Managing Risk on Rapid Renewal Projects. Washington, DC: The National Academies Press. doi: 10.17226/22665.
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Suggested Citation:"1 INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2012. Guide for the Process of Managing Risk on Rapid Renewal Projects. Washington, DC: The National Academies Press. doi: 10.17226/22665.
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4THE PROBLEM The planning, design, construction, and subsequent operation of highway projects are complex and fraught with uncertainty. The result is that many highway projects have exceeded initial cost estimates and expected completion dates, as well as experienced other undesirable consequences, such as greater-than-expected disruption and poor longevity. As one example, the cost for the “Big Dig” (Central Artery/Tunnel Project in Boston) went from an estimate (for the environmental impact statement decision) of $2.6 billion in 1983 to $14.6 billion by 2001 (see Figure 1.1). Albeit extreme, the exam- ple of the Big Dig is not uncommon. A study of 167 roadway projects over the last 70 years shows that most such projects are initially underestimated by an average of about 20%. There is a wide range of such underestimates, with some even being signifi- cantly overestimated (see Figure 1.2). Such poor predictions of project performance can have various undesirable consequences; for example, • Underestimating costs can result in having to find additional funds (which might come from other projects), reducing project scope (and thus project benefits), project delays while being resolved, or decisions to reduce quality (and thus longevity). Conversely, overestimating cost can lead to “starving” other worth- while projects and to unnecessary work and features. • Underestimating schedule can result in extended overheads and higher inflation (and thus additional costs), and might result in additional disruption as well as delay in realizing project benefits. • Underestimating disruption can result in public dissatisfaction, which in turn can lead to project delays while being resolved and additional costs for mitigation. 1 INTRODUCTION

5GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS • Underestimating longevity can result in additional costs for and disruption of opera tions and maintenance and for replacement, which might be needed sooner than planned. 2 2014.01.08 R09 02 Guide Chapter 1_final for composition.docx  Underestimating disruption can result in public dissatisfaction, which in turn can lead to project delays while being resolved and additional costs for mitigation.  Underestimating longevity can result in additional costs for and disruption of operations and maintenance and for replacement, which might be needed sooner than planned. All of the above, in turn, can lead to poor project decisions and affect the department of transportation’s (DOT’s) credibility, especially with the public. The loss of credibility and public confidence can make it difficult to obtain approval and funding for future critical infrastructure projects. [Insert Figure 1.1] [caption] Figure 1.1. History of “Big Dig” cost estimate (Edwards 2003). [Figure 1.2 here] Figure 1.1. History of “Big Dig” cost estimate (Edwards 2003). Figure 1.2. Statistics of past cost underestimates for 167 road projects (Flyvbjerg et al. 2002).

6GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS All of the above, in turn, can lead to poor project decisions and affect the department of transportation’s (DOT’s) credibility, especially with the public. The loss of cred- ibility and public confidence can make it difficult to obtain approval and funding for future critical infrastructure projects. Poor predictions of performance are attributable, at least in part, to the generally significant uncertainty in the factors that will determine project performance, espe- cially unforeseen changes or problems that arise as the project develops. For example, many major scope and design decisions must be made during planning, which can significantly affect performance, and subsequent changes might be dictated by exter- nal stakeholders such as regulatory agencies and public groups. As another example, the conditions under which the project will be developed might change significantly over time (e.g., market pricing) or simply turn out to be different than expected (e.g., ground conditions). It is also conceivable that, in some cases, performance could even be intentionally underestimated to get project approval and commitment, after which it is difficult to stop a project, even though the underestimate eventually becomes obvi- ous and the associated consequences noted above are realized. The traditional approach to estimating project performance, which has often led to such poor predictions and subsequent problems, has generally consisted of a “deterministic” (single-value) approach, in which a particular scenario (scope, strat- egy, design, and conditions), with specific factor values and other assumptions that are intended to be appropriately conservative, is defined. Clearly, however, many other scenarios (with different factor values and thus different performance) are possible, but the likelihood of these other possible outcomes is not assessed and the actual level of conservatism in the deterministic approach is not evaluated. In some cases, the sensitivity of performance to the various project assumptions might be determined, but typically in an ad hoc way, either by judgment or by analysis, to guide further investigation and assessment of the important assumptions, as well as to guide project changes (e.g., via value engineering studies) and potential problem resolution (e.g., via risk management), with the general intent of optimizing project performance. How- ever, because this typically is not done in a formal fashion and not quantified, such optimization cannot be ensured and, in fact, as shown in Figure 1.2, typically has not been successful. Rapid renewal projects, which by their nature tend to be innovative, create com- plexities above and beyond traditional projects (TRB 2009). Hence, the uncertain- ties in project assumptions and performance might be even greater for rapid renewal projects, possibly leading to even poorer predictions and suboptimization of their per- formance via the traditional approach. This guide focuses on rapid renewal projects. However, because non–rapid renewal projects are generally similar but less complex, this guide is generally applicable to non–rapid renewal projects as well. Some project issues are programmatic (affecting all projects within a particular program of individual projects, for example, delays in program funding), agencywide (affecting all of the agency’s projects, for example, agency resource limitations), or even nationwide (affecting all projects, for example, general inflation). These effects,

7GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS and how they can best be managed, generally will vary as the number of affected projects increases. However, this guide focuses on individual project-level risks, which include the larger-scale risks as well. THE SOLUTION The best approach for effectively dealing with the problems identified above is an appropriate formal (as opposed to ad hoc) risk management process. Risk manage- ment processes are new to the rapid renewal context, but several associations (e.g., Project Management Institute and Association for the Advancement of Cost Engineer- ing) and governmental agencies (e.g., U.S. Department of Energy, Federal Highway Administration, and Federal Transit Administration) have employed risk management processes on various projects and programs. A similar process has been developed for FHWA in the Guide to Risk Assessment and Allocation for Highway Construc- tion Management (Molenaar et al. 2006). The Risk Guidelines (Figure 1.3) are imple- mented through training workshops developed by Golder Associates (2008a), although not specifically for rapid renewal projects. This existing and accepted process has simply been expanded in this guide and extended to rapid renewal projects. An appropriate formal risk management approach is primarily intended to optimize project performance. However, it also needs to be efficient and defensible, as well as adequate (as opposed to perfect), in achieving this objective. It also must be compatible with the DOT orga- nization and its projects. The process generally consists of the following two basic sequential and iterative steps: Step 1: Diagnosis. Identify all significant potential problems and opportunities that could affect project performance, and adequately assess their current severity (either relative or absolute), in terms of their potential impacts and likelihood of occurrence. Such problems and opportunities are relative to an assumed base scenario, which must first be defined and then adequately documented in a project-specific risk register. This might include an analysis of ultimate project performance with quantification of uncertainty in that performance. Step 2: Treatment. Identify feasible ways to manage those potential problems: (a) individually, with an adequate evaluation of their cost-effectiveness (in terms of reduction in severity, including more negative severity for opportunities); and (b) col- lectively, the appropriate contingencies (both cost and schedule allowances, as well as future project flexibility as needed). Adequately document such plans in a project- specific risk management plan, which must be successfully implemented, including monitoring, updates (rediagnosis), and decision making throughout project develop- ment and contract management. Figure 1.3. Cover of the FHWA’s risk guidelines document (Molenaar et al. 2006). 5 2014.01.08 R09 02 Guide Chapter 1_final for composition.docx <H1>The Solution The best approach for effectively dealing with the problems identified above is an appropriate formal (as opposed to ad hoc) risk management process. Risk management processes are new to the rapid renewal context, but several associations (e.g., Project Management Institute and Association for the Advancement of Cost Engineering) and governmental agencies (e.g., U.S. Department of Energy, Federal Highway Administration, and Federal Transit Administration) have employed risk management processes on various projects and programs. A similar process has been developed for FHWA in the Guide to Risk Assessment and Allocation for Highway Construction Management (Molenaar et al. 2006). The Risk Guidelines (Figure 1.3) are implemented through training workshops developed by Golder Associates (2008a), although not specifically for rapid renewal projects. This existing and accepted process has simply been ex anded in this guid and extended to rapid renewal projects. [Insert Figure 1.3] [caption] Figure 1.3. Cover of the FHWA’s risk guidelines document (Molenaar et al. 2006).

8GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS Note that formal risk management is similar to value engineering (VE), in that the primary objective is to optimize project performance, although risk management focuses on reducing risks (both individually and collectively) whereas VE focuses on optimizing opportunities. Because of this similar objective and a reliance on expert judgment, risk management is sometimes combined with VE, so that the severe risks are first identified and then translated into the opportunities to be evaluated during the VE process. Hence, a formal risk management process should optimize project performance through a plan to cost-effectively reduce risks, and in the process will help to develop better clarity and understanding of the project and its possible performance. In fact, the range in possible future project performance can actually be determined (through quantitative analysis), and effective strategies for dealing with that performance (e.g., budgeting at the 80% confidence level) can be developed early in the project to ensure project success. The business case for including risk management as a standard project man- agement component of major capital projects is unambiguous—the ability to better understand potential risks and how to manage them yields benefits far in excess of the costs of adopting risk management practices. This approach is widely considered to be state of the art. Perhaps the most compelling argument for pursuing risk manage- ment as a standard practice for rapid renewal projects is that the best agencies and organizations worldwide are doing it, and with great success. Golder Associates have previously developed a similar (but more limited) formal risk management process for FHWA and have also helped to develop parts of a similar (but again more lim- ited) formal risk management process for the Washington DOT, which has successfully applied it to hundreds of their projects, as well as for the Florida DOT, Utah DOT, Nevada DOT, and Ontario (Canada) Ministry of Transportation. Various portions of the process also have been used successfully by Golder Associates on many other projects for various highway agencies [e.g., U.S. DOT/FHWA, California Depart- ment of Transportation (Caltrans), Colorado DOT, Virginia DOT, Wisconsin DOT, Kentucky DOT, Pennsylvania Turnpike Authority, King County (Washington) DOT, Seattle DOT, Hong Kong Highway Department] and rail/transit agencies [e.g., U.S. DOT/FTA, Metropolitan Transportation Authority (MTA, New York), Peninsula Cor- ridor Joint Powers Board (Caltrain, San Francisco), Transbay (San Francisco), SunRail (Orlando), Washington Metropolitan Area Transit Authority (WMATA, Dulles), FasTracks ( Denver), Evergreen Line (Vancouver, BC)], as well as for non transportation projects. However, although basically similar processes (or parts of that process, albeit often greatly simplified) have been used in the industry to evaluate numerous other projects, the process has often been misused, producing misleading results and perhaps thereby leading to poor decisions.

9GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS THE GUIDE The primary objective of this guide is to adequately but concisely describe an appro- priate method for risk management on rapid renewal projects and provide adequate guidance on implementation. The method should result in optimizing project perfor- mance, achieving an appropriate balance of accuracy, defensibility, schedule of results, and resource utilization (allowing the DOT to do as much as it can independently), consistent with DOT and project conditions and requirements. Secondarily, for wider application, the method should be applicable to non–rapid renewal as well as to rapid renewal projects, and for easier acceptance, the method should be simply an extension of previously existing successful and accepted methods. To achieve the above objectives, this guide focuses on the “why” and “what”; the “how” is covered in more detail in separate companion training and implementation materials. The guide is organized as follows: • Chapter 2 (Risk Management Process) provides an overview of the process, including an iterative set of steps. • Chapter 3 (Context for Rapid Renewal) describes the unique features of rapid renewal projects in that risk management process, supported by Appendix A (Inventory of Rapid Renewal Strategies and Methods) and Appendix D (Hypothetical Rapid Renewal Case Study). • Chapters 4–9 provide details of each step in the risk management process, supported by an example application in Appendix D: — Chapter 4 (Structuring a Project for Risk Man- agement) describes how to construct the base sce- nario against which risks and opportunities can be identified, assessed, and eventually managed; — Chapter 5 (Risk Identification) describes how to start a risk register and is supported by Appendix B (Rapid Renewal Risk Cat- egories and Risk Management Action Categories); — Chapter 6 (Risk Assessment) is about completing the risk register, including assess ing risk severity and thereby prioritizing the risks; — Chapter 7 (Risk Analysis) describes how to analytically combine the base and risk factors to predict project performance, which can be used to establish appro priate budgets and milestones (including contingencies), as well as to better guide subsequent risk management planning; — Chapter 8 (Risk Management Planning) describes how to identify and evaluate possible ways to proactively reduce risks and is supported by Appendix B and Appendix E (Risk Management Plan); Each technical section (Chapters 2–10) is sub- divided into the following subsections: 1. Introduction, providing objectives and philosophy and concepts (plus insert for “in a nutshell”); 2. Process, providing methods and guid- ance [plus, where applicable, inserts for input or analysis forms and template (Appendix C) and an illustrative example (Appendix D), which is carried through- out]; and 3. Conclusions

10 GUIDE FOR THE PROCESS OF MANAGING RISK ON RAPID RENEWAL PROJECTS — Chapter 9 (Implementing the Risk Management Plan) includes monitoring, up- dating, and decision making and is supported by Appendix E. • Chapter 10 (Implementing This Guide) includes planning and resources, and is supported by Appendix C (Simplified Risk Management Overview, Forms, Tem- plate, and Template User’s Guide) and the Simplified Risk Management Training designed specifically for DOT facilitators to evaluate (to a limited extent) relatively simple projects or supervise more complex evaluations or the evaluation of more complex projects. • Chapter 11 (Conclusions) recaps the process and describes its limitations. • Glossary and References follow. CONCLUSIONS In the past, many transportation projects have performed poorly, for example, in ul- timate cost and schedule to completion, often because of unexpected problems. This might be amplified for rapid renewal projects, which are intended to accelerate sched- ule and minimize disruption through construction, without adversely affecting either costs through construction or postconstruction longevity. By definition, these rapid renewal methods typically are innovative with little past experience from which to learn and possibly more susceptible to poor performance. A formal risk management process is needed to better understand and to actually optimize project performance specifically for rapid renewal projects, especially by antici- pating and planning for potential problems (risks) and potential improvements (oppor- tunities). This process, which is a significant expansion of a previously developed risk management process for non–rapid-renewal projects, consists of a well-defined series of steps, each of which is described in appropriate detail, including possible variations. Suf- ficient guidance is also provided herein to ensure compatibility and consistency among the various steps, and ultimately to ensure adequate accuracy and defensibility of results (where adequacy depends on how the results will be used), as efficiently as possible. This guidance includes a separate 2-day training course (with annotated slides), especially for DOT risk management facilitators, and 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) for relatively simple rapid renewal (as well as non–rapid renewal) projects. The template and related training materials are available online at www.trb.org/Main/Blurbs.168369.aspx. The primary benefits of the risk management process described in this guide 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 performed according to the guidance presented herein, the invest- ment (e.g., in training, workshops, and documentation) will be small relative to the benefits of improved project performance, plus the more intangible benefits of better project understanding and the ability to defend significant project decisions.

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TRB’s second Strategic Highway Research Program (SHRP 2) S2-R09-RW-2: Guide for the Process of Managing Risk on Rapid Renewal Projects describes a formal and structured risk management approach specifically for rapid renewal design and construction projects that is designed to help adequately and efficiently anticipate, evaluate, and address unexpected problems or “risks” before they occur.

In addition to the report, the project developed three electronic tools to assist with successfully implementing the guide:

• The rapid renewal risk management planning template will assist users with working through the overall risk management process.

• The hypothetical project using risk management planning template employs sample data to help provide an example to users about how to use the rapid renewal risk management template

• The user’s guide for risk management planning template will provide further instructions to users who use the rapid renewal risk management template

Renewal Project R09 also produced a PowerPoint presentation on risk management planning.

Disclaimer: This software is offered as is, without warranty or promise of support of any kind either expressed or implied. Under no circumstance will the National Academy of Sciences or the Transportation Research Board (collectively "TRB") be liable for any loss or damage caused by the installation or operation of this product. TRB makes no representation or warranty of any kind, expressed or implied, in fact or in law, including without limitation, the warranty of merchantability or the warranty of fitness for a particular purpose, and shall not in any case be liable for any consequential or special damages.

Errata: When this prepublication was released on February 14, 2013, the PDF did not include the appendices to the report. As of February 27, 2013, that error has been corrected.

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