PROJECT RISK MANAGEMENT: CONTEXT, TOOLS AND REAL …pmsymposium.umd.edu/pm2018/wp-content/uploads/sites/6/2018/01/Mintz__Khadka.pdfevent on the project –Prioritize risks based on

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Mairav Mintz, PE, CCMSagar Khadka, DRMP, FAACE

2018 Project Management SymposiumFriday, May 11, 20189:45am to 10:15am

PROJECT RISK MANAGEMENT: CONTEXT, TOOLS AND REAL WORLD APPLICATIONS

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Project Risk Management: Perspective– Construction Projects: On Time within Budget?– Industry Trend: Current Practice of Risk Management

Project Risk Management: Practical Tools for Any Project– Risk Management Overview– Schedule Risk Analysis– Cost Risk Analysis– Integrated Cost-Schedule Risk Analysis (ICSRA)

Real World Example– GAO Mandated ICSRA: Multi-Phase, Historic Renovation

Outline

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• In a study of 258 transportation infrastructure projects*– Completed between 1927 and 1998– On five continents– In 20 countries– $90 Billion in (1995 prices)

• Cost overruns were prevalent –– 9 out of 10 projects– Affected projects in all 20 countries

• In MBP’s own research from a review of over 2,500 schedules –– No instance of cost >100% and time <100%– Cost overruns correlate with schedule delays

*Bent Flyvbjerg, Mette Skamris Holm, and Søren BuhlJournal of the American Planning Association,

Vol. 68, No. 3, Summer 2002

Project Risk Management: PerspectiveConstruction Projects: On Time within Budget?

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• In a 2017 Dodge Data & Analytics Study** -– Data gathered from over 500 respondents– Owners, general contractors, trade contractors– Examined 25 different risk factors and 10 different risk evaluation and

mitigation approaches• 75% of respondents reported experiencing a dispute or claim in

the last five years– For transportation projects, that number was over 80%

• Dodge reported that the construction industry has seen a shift from recession to higher levels of activity, but the risk landscape has just changed, not declined

**“Managing Risk in the Construction Industry”Dodge Data & Analytics SmartMarket Report, 2017

Project Risk Management: Perspective

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• GAO is responsible for assisting Congress in the oversight of federal agencies including their stewardship of public funds

• GAO has established best practice guides– GAO Cost Estimating and Assessment Guide - Best

Practices for Developing and Managing Capital Program Costs, GAO-09-3SP, March 2009

– GAO Schedule Assessment Guide – Best Practices for Project Schedules, GAO-16-89G, December 2015

• GAO mandates that project budget and duration consider risks and uncertainty

• GAO mandates agencies incorporate and implement a rigorous risk management program

Industry Trend: Current Practice of Risk Management

Project Risk Management: Perspective

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Tools

Schedule Risk Analysis Cost Risk Analysis

Integrated Cost-Schedule Risk Analysis

Tools

Contract Documents, Plans & Specs

Risk Management

• Bonds, Insurance & Warranties• Safety & Accident Prevention• Dispute Resolution Provisions• Scope Creep, Force Majeure• Default, Professional Liability ….

• Incomplete Design• Defective Plans & Specification• Inadequate Site Investigation• Unrealistic Schedule, Budget• Unforeseen conditions ….

Traditional Risk Management Project Risk Management

Risk Management Overview

Risk Register & On-going Project Risk Management

Known and Insurable Known and Unknown

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Project Risk Management Model

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An active and forward looking tool to:

– Identify foreseeable risk events

– Analyze the potential impact of each risk event on the project

– Prioritize risks based on the severity of impact through the use of a Risk Matrix and Risk Register

– Create problem solving strategies to mitigate risk impacts

– Keep an eye on each risk until it has been averted, mitigated or resolved

Project risk management is a continuous effort

Project Risk Management

Risk Matrix and Project Risk Register

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Will my project complete on

time?Tools



Project Risks


Risk Register & Ongoing Project Risk Management

Schedule Risk Analysis

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MobilizationDemolition

Excavation

Concrete StructureInterior/MEP/Cx/Accreditation

Demobilization

Permit

NTP

ProjectCompletion

Conceptual Project Schedule

In quantitative risk analysis “Risk and Uncertainty” are applied to the CPM schedule activities to assess their impact on project schedule


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(Inherent variability in activity duration, cost estimates)

35 Days (most likely)

30 Days (min) 45 Days (max)

Schedule Risk Analysis - Uncertainty

15%

10%

0%

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(External factors that affect estimates, duration)

Risk Driver as Threat pushes cost, schedule duration



Schedule Risk Analysis – Uncertainty & Risks

15%

10%

0%

13

15%

10%

0%

(External factors that affect estimates, duration)

Risk Driver as Opportunity improves cost, schedule duration



Schedule Risk Analysis - Opportunity

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MobDemolition

Excavation

Concrete StructureInterior/MEP/Cx/Accreditation Demob

PermitNTP

ProjectCompletion

Conceptual Project Schedule

NTPPermit

MobDemolition

Concrete StructureInterior/MEP/Cx/Accreditation

Conceptual Project Schedule(with uncertainty and risks)Risk: Unforeseen conditions, rock,

ExcavationRisk: batching plant, excessive heat, steel delivery, skilled laborRisk: difficulty

getting permit

Risk: difficulty getting workers screened


Demob

ProjectCompletion

Risk: Availability of MEP trade

Project Delay

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2016-05-01 2016-06-20 2016-08-09 2016-09-28

Distribution (start of interval)

0

100

200

300

400

500

600

700

800

Hits

0% 2016-05-13

5% 2016-06-20

10% 2016-06-25

15% 2016-06-29

20% 2016-07-02

25% 2016-07-05

30% 2016-07-08

35% 2016-07-11

40% 2016-07-13

45% 2016-07-15

50% 2016-07-18

55% 2016-07-20

60% 2016-07-22

65% 2016-07-25

70% 2016-07-28

75% 2016-07-30

80% 2016-08-03

85% 2016-08-06

90% 2016-08-12

95% 2016-08-19

100% 2016-10-11

Cum

ulat

ive

Freq

uenc

y

Schedule Risk AnalysisEntire Plan : Finish Date

Schedule Time Contingency

(P80) or 80% Confidence

Deterministic Date

Schedule Risk Analysis and Time Contingency


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Will my project complete

within budget?Tools




Project Risks


Cost Risk Analysis

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Will my project complete

within budget and on time?

Tools



Project Risks




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Schedule Time Contingency


Deterministic Date

Why perform an integrated cost-schedule risk analysis?

Cost Contingency

Deterministic Cost



– Cost risk analysis calculates a cost contingency but does not account for the cost impact associated with schedule overrun

– Schedule risk analysis calculates a time contingency but does not consider the cost overrun associated with schedule slippage

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Process OverviewProject Execution Plan (Baseline Schedule, Plans and Specs)

Cost-Loaded CPM Summary Schedule

Individual Risk Interviews

Pre-Mitigated Risk Modeling and Analysis

Pre-Mitigated Risk Results

Group Risk Mitigation Workshop

Draft Risk Results

Post-Mitigated Risk Modeling and Analysis

Finalize Schedule

Evaluation of Cost-Loaded CPM Schedule against

GAO’s Ten Best Practices

Mitigated Risk Data

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• Characteristics of Integrated Cost-Schedule Risk Analysis– Utilizes a cost-loaded CPM schedule, which includes:

• Direct costs

• Time dependent costs

– Excludes estimated contingencies

– Risk driver method considers:• Uncertainty

• External risks

• Results of this Analysis– Quantifies the impact of schedule slippage on project cost

– Identifies the top schedule and cost risk drivers

– Can develop risk mitigation strategies for top risks


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– Complete building interior and exterior restoration including infrastructure

– Removal/replacement of building’s top floor– Five-phase, 10-year construction effort– Fully occupied building; VIP occupants– Secured access– Urban setting with no laydown areas– Situated in a residential neighborhood– Historic renovation– $750 million budget– Intractable completion dates for each phase

Case Study: GAO Mandated ICS Risk Analysis

Multi-Phase Historic Renovation

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UNIQUE PHASING CONSIDERATIONS

Jan 2015 Jan 2017 Jan 2019 Jan 2021 Jan 2023 Jan 2025

Pre-Phase 1

Mov

e

Pre-Phase 2 Pre-Phase 3 Pre-Phase 4

Phase 0 Phase 1 Phase 2 Phase 3 Phase 4

• Completion Date: December 2024• Project Total Budget: $752.7 million

Mov

e

Mov

e

Mov

e

Mov

e

Mov

e

Mov

e

Mov

e



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UNIQUE PHASING CONSIDERATIONS

Failure to complete a phase on time would result in missing a move cycle and an immediate two year delay

Jan 2017 Jan 2019 Jan 2021

Dec 1st

Phase 1 Move-In

Dec 1st

2 Year Delay

Phase 2

Pre-Phase 2 Move-Out Pre-Phase 3Move-Out

Move-In



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Results with risk from pre-mitigated simulation, at the 80th percentile:• Projected to miss move cycle for all of Phases 1 - 4• Projected finish date of 2035, 11 years beyond the required completion date• Cost, with inflation including contingency, rises to $1 billion, $250 million above

budget

Jan 2017 Jan 2019 Jan 2021Dec 1st

Phase 1 Move-In

Dec 1st

2 Years Delay

Phase 2

Pre-Phase 2 Move-Out Pre-Phase 3Move-Out

Move-In

Case Study: GAO Mandated ICS Risk Analysis Multi-Phase Historic Renovation

Results from the initial Cost-Schedule Risk Analysis - prior to the risk mitigation workshop - were not acceptable

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Project Team worked hard during the Risk Mitigation Workshops:• Reviewed Risk Parameters

• Probability• Duration Impact Parameters• Cost Impact Parameters

• Developed Mitigation Strategies• Agree on Mitigation Strategies• Make commitments• Create Action Items (for follow through)

• Revised Risk Parameters based on the Mitigation Strategies Selected• Probability• Duration Impact Parameters• Cost Impact Parameters


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Three risk mitigation workshops were required before arriving at mitigations that achieved project objectives:

• In lieu of acceleration to gain back time, the Project Team elected to proceed with an early start process to allow for:– Early bid package buyout– Early start of key submittals– Early start of long lead item procurement

• This achieved the necessary schedule objectives• Also, the cost savings associated with the early start scenario vs mandated

acceleration was significant


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Multiple tools are available to manage project risk:– Will my project finish on time? Consider schedule risk

analysis– Will my project stay within budget? Consider cost risk

analysis– How will risk and uncertainty impact my project’s cost

and schedule objectives? Consider integrated cost-schedule risk analysis

– How do I keep my project on track? Consider a risk matrix and risk register as part of a regular risk management program• Plan, identify, analyze, monitor, and mitigate risks• Prioritize and allocate resources where they are needed most

Recap