Risk Based Contingency Estimating Jay Drye, WSDOT November 2005 Contingencies • Set up to cover Unforeseen Conditions – – – – Additional Work Quantity Overruns Risks that materialize Dispute Resolution.
Download ReportTranscript Risk Based Contingency Estimating Jay Drye, WSDOT November 2005 Contingencies • Set up to cover Unforeseen Conditions – – – – Additional Work Quantity Overruns Risks that materialize Dispute Resolution.
Slide 1
Risk Based
Contingency Estimating
Jay Drye, WSDOT
November 2005
Slide 2
Contingencies
• Set up to cover Unforeseen Conditions
–
–
–
–
Additional Work
Quantity Overruns
Risks that materialize
Dispute Resolution
Slide 3
Contingency Estimating
• WSDOT Historically
– Previously 5%
– Currently 4% based on audit
• Programmatic
– Large Projects utilizing CEVP®
Slide 4
Problem
• Large Projects
– Percentage may not be adequate
– No way to balance a program
• Unique Projects
• How does % relate to risk
Slide 5
Risk Management
– Risk Management is a systematic
approach for making informed
decisions while minimizing adverse
impacts to project scope, cost, and
schedule.
– Risk Management Focuses on
identifying risks and managing their
outcomes.
Slide 6
What do we do with RM info?
• The design risk management process
identifies, analyzes, assigns and reduces
risk where appropriate.
• Includes minimizing the consequences of
adverse events.
• What about the remaining risk and
consequences carried into Construction?
Slide 7
Quantitative Risk Analysis
• Aims to analyze numerically the
probability of each risk and consequences
on project objectives.
• Inputs: CEVP or CRA results
Alternatively Simplified Register
• Output: Qualitative Risk Based
Contingency
Slide 8
Evaluate Uncertainty
11 12 1
10
2
9
3
8
4
7 6 5
Uncertainty in
Total Project Cost
and Duration
_
Event
X
Activity A
Activity B
$
End
Start
Activity C
T
11 12 1
10
2
9
3
8
4
7 6 5
Uncertainty in Activity “Base” Costs
_
Event
Y
Uncertainty in Activity “Base” Durations
Risk Events (likelihood of occurrence, and likelihood for cost and duration
changes if the event occurs)
Slide 9
Limitations of Simplified Register
• Lower Accuracy for:
– Low number of Risks
– High Probability Risks
• Relies on Probabilistic Data
• Not Statistically Correct
• Not Recommended for Opportunities
Slide 10
Risk Register
Risk
Probability
Max.
Cost
Impact
Risk
Value
Unsuitable
Excavation
25%
$300k
$75k
Utility DelaysImpacts
30%
$100k
$30k
Quantity Overruns
20%
$150K
$30k
Risk Event
Risk Contingency
$135k
Slide 11
Risk Based Contingencies
•
•
•
•
•
Quantify the risk
Better documentation
Better programming = meeting commitments
Reduce crisis management
Higher confidence priorities in construction
administration
• Better Monitoring
Slide 12
Risk Monitoring and Control
• Update as project develops
• Use in Change Order Process
• Manage Risks to reduce financial
impacts
Slide 13
Tips for Success!
• Consider all team input in the
development of Risk Management
and Risk Register.
• Be realistic about values and risks
• Monitor efforts to reduce risks
Risk Based
Contingency Estimating
Jay Drye, WSDOT
November 2005
Slide 2
Contingencies
• Set up to cover Unforeseen Conditions
–
–
–
–
Additional Work
Quantity Overruns
Risks that materialize
Dispute Resolution
Slide 3
Contingency Estimating
• WSDOT Historically
– Previously 5%
– Currently 4% based on audit
• Programmatic
– Large Projects utilizing CEVP®
Slide 4
Problem
• Large Projects
– Percentage may not be adequate
– No way to balance a program
• Unique Projects
• How does % relate to risk
Slide 5
Risk Management
– Risk Management is a systematic
approach for making informed
decisions while minimizing adverse
impacts to project scope, cost, and
schedule.
– Risk Management Focuses on
identifying risks and managing their
outcomes.
Slide 6
What do we do with RM info?
• The design risk management process
identifies, analyzes, assigns and reduces
risk where appropriate.
• Includes minimizing the consequences of
adverse events.
• What about the remaining risk and
consequences carried into Construction?
Slide 7
Quantitative Risk Analysis
• Aims to analyze numerically the
probability of each risk and consequences
on project objectives.
• Inputs: CEVP or CRA results
Alternatively Simplified Register
• Output: Qualitative Risk Based
Contingency
Slide 8
Evaluate Uncertainty
11 12 1
10
2
9
3
8
4
7 6 5
Uncertainty in
Total Project Cost
and Duration
_
Event
X
Activity A
Activity B
$
End
Start
Activity C
T
11 12 1
10
2
9
3
8
4
7 6 5
Uncertainty in Activity “Base” Costs
_
Event
Y
Uncertainty in Activity “Base” Durations
Risk Events (likelihood of occurrence, and likelihood for cost and duration
changes if the event occurs)
Slide 9
Limitations of Simplified Register
• Lower Accuracy for:
– Low number of Risks
– High Probability Risks
• Relies on Probabilistic Data
• Not Statistically Correct
• Not Recommended for Opportunities
Slide 10
Risk Register
Risk
Probability
Max.
Cost
Impact
Risk
Value
Unsuitable
Excavation
25%
$300k
$75k
Utility DelaysImpacts
30%
$100k
$30k
Quantity Overruns
20%
$150K
$30k
Risk Event
Risk Contingency
$135k
Slide 11
Risk Based Contingencies
•
•
•
•
•
Quantify the risk
Better documentation
Better programming = meeting commitments
Reduce crisis management
Higher confidence priorities in construction
administration
• Better Monitoring
Slide 12
Risk Monitoring and Control
• Update as project develops
• Use in Change Order Process
• Manage Risks to reduce financial
impacts
Slide 13
Tips for Success!
• Consider all team input in the
development of Risk Management
and Risk Register.
• Be realistic about values and risks
• Monitor efforts to reduce risks