Michael Rouse National Lead, Deloitte (Australia) - speaking at Seismics and the City 2014

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Michael Rouse National Lead, Deloitte (Australia) - speaking at Seismics and the City 2014 Building Collaboration Major Capital Project Management To ensure best practice contractor management and cost savings what is the role of the external advisory in project execution and construction management?

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  • 1. The road to hell is paved with the souls of those with good intentions; External advisory tools to monitor, maintain and recover capital project execution. A presentation by Michael Rouse, Deloittes Australia and New Zealand Capital Projects Lead

2. The road to heaven is the scariest road in China Traveller to Tianmenshan, in the Hunan province of China along the Big Gate Road or Road to Heaven. 3. We like to think of ourselves as rational creatures. We watch our backs, weigh the odds, pack an umbrella. But both neuroscience and social science suggest that we are more optimistic than realistic. On average, we expect things to turn out better than they wind up being. People hugely underestimate their chances of getting divorced, losing their job or being diagnosed with cancer; expect their children to be extraordinarily gifted; envision themselves achieving more than their peers; and overestimate their likely life span (sometimes by 20 years or more). Tali Sharot, The Optimism Bias Remarriage is the triumph of hope over experience. Samuel Johnson 1760 4. At the same time as many more and much larger infrastructure projects are being proposed and built around the world, it is becoming clear that many such projects have strikingly poor performance records in terms of economy, environment and public support. Bent Flvyberg, Professor of Major Programme Management at Oxford University's Sad Business School and the founding Director of the University's BT Centre for Major Programme Management 5. 1 Error (Technical) Technical problems are the most common type of inaccuracy in forecasts and may be reduced by developing better forecasting models, better data and more experienced forecasters 2 Optimism Bias (Psychological) Psychological factors revolve around optimism bias, the demonstrated, systematic tendency for project appraisers to be overly optimistic about project costs, duration and benets (outputs and receipts/income). It is the systematic tendency to view things in an overly positive light. 3 Strategic Bias (Political-economic) Political-economic aspects refer to project planners and promoters deliberately and strategically overestimating benefits and underestimating costs in order to increase the likelihood of a project gaining approval and funding. 2.1 Knee-Jerk Bias Make fast and intuitive decisions when slow and deliberate decisions are necessary. 2.2 Occams Razor Bias Assume the most obvious decision is the best decision. 2.3 Silo Effect Use too narrow an approach in making a decision. 2.4 Confirmation Bias Focus on information that affirms your beliefs and assumptions. 2.5 Inertia Bias Think, feel, and act in ways that are familiar, comfortable, predictable, and controllable. 2.6 Myopia Bias See and interpret the world through the narrow lens of your own experiences, baggage, beliefs, and assumptions. 2.7 Shock-and-Awe Bias Belief that our intellectual firepower alone is enough to make complex decisions. 3.1 Homecoming Queen/King Bias Act in ways that will increase our acceptance, liking, and popularity. 3.2 Force Field Bias Think, feel, and act in ways that reduce a perceived threat, anxiety, or fear. 2.8 Overconfidence Effect Excessive confidence in our beliefs, knowledge, and abilities. 6. Reference Class Forecasting for a particular project requires the following three steps: 1. Identification of a relevant reference class of past, similar projects. The class must be broad enough to be statistically meaningful, but narrow enough to be truly comparable with the specific project. 2. Establishing a probability distribution for the selected reference class. This requires access to credible, empirical data for a sufficient number of projects within the reference class to make statistically meaningful conclusions. 3. Comparing the specific project with the reference class distribution, in order to establish the most likely outcome for the specific project. Reference Class Forecasting: Science and Government Respond 7. Black Swan Events f(Risk)=Impact*Pr(Occurrence) Pr(Occurrence)0 Impact Pr(Risk)0 8. Victorian Desalination Plant 150GLper year capacity Original Capital Cost $2.9b Final Construction Cost $4.0b plus $1b in dispute Original completion Date: December 2011 Actual Completion Date: Dec 2012 First 3 years operating output: 0GL 9. f(Risk)=Impact*Pr(Occurrence) Risk Identification Risk Impact Risk Probability Risk Prioritisation Measurement Audit Mitigation Add new risks 10. Earned Value Management (EVM) ANSI EIA 748-A standard AS 4817-2003 and AS 4817-2006. What is EVM? EVM is an integrated management control system for assessing, understanding and quantifying what a contractor or field activity is achieving with program dollars. Integrates technical, cost, schedule, with risk management, Allows objective assessment and quantification of current project performance, and Helps predict future performance based on trends. EVM provides project management with objective, accurate and timely data for effective decision making. 11. Questions