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This presentation was delivered by Jeremy Harrison at a recent APM Risk SIG event entitled Communicating risk across the project portfolio. Further information including slides from other presenters can be viewed here http://www.apm.org.uk/news/communicating-risk-across-project-portfolio
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Where did it go ‘wrong’?
Jeremy Harrison
Date 04.07.13 2
The journey – directions
• The story
• Accounting for humans
• You know more than you think you do!
• Long term planning
• What can we do differently?
Date 04.07.13 3
The birth and growth of an airport
Date 04.07.13 4
The story…
• …opened 25 November 1999 by the Queen…..
18 months late!
… there by hangs a tale…
Date 04.07.13 5
The station
Date 04.07.13 6
Summary
• Lack of clarity of project objectives, critical success factors and definition
• Allowed ‘key stakeholders’ to dictate terms; failed to understand their vested interests
• Lack of appreciation of the complexity of aspects of the deal – eg. land purchase
• Conventional risk management was applied, however it did not highlight the significant risks or stop the problems
• Fixed end date – ie fixed Queen opening date, before completed all necessary deals
• Be realistic not optimistic!
Date 04.07.13 7
Project Costs..
• Original budget and business case - £12M– Inherited from the airport operator
– Railways persuaded to take on and advised it was a well developed scheme
– Land and access deals optimistically explained to be further on than actually the case
• Outcome– final cost £29M
– Gold plated car park
Date 04.07.13 8
So what happened?
• Risks not identified?
• Problem not understood or project scope not clear?
• Identify risks but don’t understand them and fail to react appropriately?
• Distracted by too many risks – inability to prioritise?
Answer – one, some or all of the above
Date 04.07.13 9
Not the only one!
Date 04.07.13 11
Optimism Bias
67% on average
Underestimation of the costof Enhancement projects
Or 40% of the Final Cost was ‘unexpected’ at the beginning
Date 04.07.13 12
Optimism Bias – what is it?
• Defined as
– the measure of the extent to which actual project costs (capital and operating) and duration (time from business case to benefit delivery and time from contract award to benefit delivery) exceed those estimated ( for a defined functional output). It is also a measure of the degree by which the benefits delivery by the project fall short of the benefits estimated.
• In short - a way of adding an ‘amount’ for all those things not thought of or analysed early on in the project life.
Date 04.07.13 13
OB - What is happening?Cost as finally determinedCost
Time – GRIP stages
4/51/2
Optimism Bias
7/8
Predicted AFC (during life cycle)
Initial Cost Estimate
Authority Value
Date 04.07.13 14
DfT present values
GRIP Stage 1 3 5Uplift OB value 66% 40% 6%
Department for TransportTransport Analysis Guidance (TAG)Unit 3.5.9The Estimation and Treatment of Scheme Costs
Date 04.07.13 15
Conclusion• Despite improving project management processes – the average
underestimation of project costs continues to be between 50- 60%.
• This is an empirically derived ‘average’ value therefore direct application to a single project will be ‘wrong’
• The appropriate application is to portfolios when looking at overall funding
• This is an ‘allowance’ for unidentified risks in the early stage of project development – therefore improving earlier project risk work reduces the uplift required
• Optimism Bias uplift covers all risks relating to a desired functional output where as estimating uncertainty is around the identified construction deliverable
Date 04.07.13 16
A principles approach
1 2 3 4 5 6 7 8
Output Definition Pre-Feasibility Option SelectionSingle Option Development Detailed Design
Construction, Test and
CommissionScheme
Handback Project Close Out
TrackRisks Risks Risks Risks Risks Risks Risks Risks
Signalling & Telecoms
Risks Risks Risks Risks Risks Risks Risks Risks
CivilsRisks Risks Risks Risks Risks Risks Risks Risks
Electrification & Plant
Risks Risks Risks Risks Risks Risks Risks Risks
EnhancementsRisks Risks Risks Risks Risks Risks Risks Risks
EstatesRisks Risks Risks Risks Risks Risks Risks Risks
Major ProjectsRisks Risks Risks Risks Risks Risks Risks Risks
Engineering Risks Risks Risks Risks Risks Risks Risks Risks
GRIP Lifecycle Stage
Ass
et
Impact – Cost, Schedule, Outputs, Safety
1 Define objectives
2 Identify risks
3 Analyse risks
4 Evaluate risks
5 Risk treatment
6 Monitor, review,
communicate and manage
Risk Regis ter
Impact
Uncertainty
Exposure
Contingency
Date 04.07.13 17
Stakeholders
Risk Management Principles
Threats/OpportunitiesRISK
Stakeholders
Objectives
© Jeremy Harrison
Date 04.07.13 18
The building blocksUncertainty
that matters – the FUTURE
VISION : RISK
CreativityKnowledge
sharing/Lessons Learned
Value add
© Jeremy Harrison
Date 04.07.13 19
Risk Management Approach
GRIP Stage
Risk Approach
0 and 1 60% uplift applied to the Point Estimate to cover Optimism Bias, Estimating Uncertainty and Risk Exposure
2 3 point estimate is made of Estimating Uncertainty and Risk Exposure
3 Quantitative risk register of threats and opportunities assessed for probability and impact, covering both Estimating Uncertainty and Risk Exposure
Min ML Max
Date 00.00.00 Presentation title to go here 2020
Portfolio Effect Savings
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2
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3
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n
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1
Individual Projects
CP5 Portfolio
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England & Wales
Scotland
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Correlation
Programme Risks
Portfolio Impacts Funding Route Totals
Date 04.07.13 21
What questions should we be asking?
• What question, if asked to day, would have the most impact on the situation?
• What is most important to you here and now? And what makes it so?
• What are the priorities? What are the criteria for deciding this?
• What are you not thinking of?
• What are you pretending not to know?
Art of Powerful Questions – open and penetrating to the issues
Date 04.07.13 22
Personal reflections
• Never too early to think ‘risk’ – uncertainties that matter!
• You know more than you think you do. What are you doing to tap into that?
• You are as good as your weakest link – where is it?
• The time line is always longer than you think
• We are what we ‘need’ to be – optimistic or pessimistic