Guidebook on Risk Analysis Tools and Management Practices to Control Transportation Project Costs (2010) / Chapter Skim
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Pages 16-39
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From page 16... ...
The fundamental tenants of risk allocation include allocating risks to the party that is best able to manage them, allocating risks in alignment with project goals, and allocating risks to promote team alignment with customer-oriented performance goals.
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From page 17... ...
Table 3.2 shows the estimate classification system as it corresponds to the project development phases described in this Guidebook. Planning estimates are based upon the lowest Project Phase Planning Programming Design Typical Risks Fatal or significant environmental economic impacts Funding uncertainty Uncertain political and public support Competing interests and competing projects Changes in design requirements Costs of environmental compliance Right of way acquisition delays Technical uncertainties Funding uncertainty Changes in design requirements Market conditions, permit requirement changes Expected Outcomes Better understanding of environmental, engineering, and construction issues facing each project alternative Order of magnitude risk costs and possible total cost range for each option List of major project risks Reasonable estimate of risk costs, and probable total project costs and duration Long list of risk mitigation strategies Preliminary risk manage ment plan, focused on design and constructability risks Preliminary risk allocation planning Prioritization of risks based on impacts to total project cost and duration Costs / benefits of risk mitigation and risk allocation strategies Risk management and allocation plan Risk Management ProcessAllocate Monitor and Control Identify Assess/ Analyze Mitigate and Plan Figure 3.1.
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. 2 Stochastic estimates combine traditional estimating methods for known items and quantities with risk analysis techniques to estimate uncertain items, uncertain quantities, and risk events.
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Pr oje ct Co st Project Development Process Planning Final Design Cost Range More Threats Realized Fewer Opportunities Realized High end of possible Total Project Cost Estimate Low end possible Total Project Cost Estimate Programming Design Figure 3.3. Need for estimate contingency.
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project should be communicated through a range. Planning Phase estimates contain the most uncertainty of any estimate 20 Pr oje ct Co st Project Development Process Planning Design Final Design Cost Range Programming Contingency Base Estimate Contingency Base Estimate Contingency Base Estimate Base Estimate Baseline Estimate & Engineer's Estimate Figure 3.4.
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As depicted in the cost estimate column at the Planning Phase (see Figure 3.5) , the contingency can be very large.
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All of the steps associated with managing risks: risk identification, risk assessment, risk analysis (qualitative or quantitative) , risk planning, risk allocation, and risk monitoring control.
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This document, however, will treat 23 Risk Management Step Planning Programming Design Risk Identification Identification of highest level risks to project scope and feasibility Complete and nonoverlapping identification of risks for baseline project estimate Appraisal of identified risks Identification of new risks as design progresses Risk Assessment/ Analysis Initial ranking of risks Order of magnitude risk costs and total cost range Qualitative analysis/ ranking of risks on minor projects Detailed quantitative risk analysis on major projects Contingency for baseline cost estimate Updating of qualitative or quantitative risk analyses Updating/resolution of contingency Risk Mitigation and Planning Initial development of red flag list, risk register or formal risk management plan Finalization of risk register or risk management plan Tradeoff analysis for mitigation options Completion of risk management plan Continued tradeoff analysis for risk mitigation options Risk Allocation Initial analysis or selection of project delivery method Trade-off analysis for risk allocation (e.g., contract provisions for time, payment, delay, etc)
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From page 24... ...
The identification process will vary depending upon the nature of the project and the risk management skills of the team members, but most identification processes begin with an examination of issues and concerns created by the project development team. These issues and concerns can be derived from an examination of the project description, work breakdown structure, cost estimate, design and construction schedule, procurement plan, or general risk checklists.
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From page 25... ...
An application of a risk assessment on a minor resurfacing project can yield a prioritized list of red flag items that should be monitored over the course of a projects development, design, and construction. An application of a risk assessment on a major highway corridor project can yield the basis for a detailed probabilistic cost estimate, and a comprehensive risk management plan will be discussed later in this document.
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3.4.3 Risk Analysis 3.4.3.1 Objectives of Risk Analysis Typically, a project's qualitative risk assessment will recognize some risks whose occurrence is so likely or whose consequences are so serious that further quantitative analysis is warranted. A key purpose of quantitative risk analysis is to combine the effects of the various identified and assessed risk events into an overall project risk estimate.
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At a computational level there are two considerations about quantitative risk analysis methods. First, for a given method, what input data is required to perform the risk analysis?
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. 3.4.3.5 Risk Analysis Methods The selection of a risk analysis method requires an analysis of what input risk measures are available and which types of risk output measures are desired.
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They have the ability to reveal, through sensitivity analysis, the impact of specific risk events on the project cost and schedule. However, Monte Carlo methods require knowledge and training for successful implementation.
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Risk mitigation and planning efforts may require that agencies set policies, procedures, goals, and responsibility standards. Formalizing risk mitigation and planning throughout an agency will establish a risk culture that should result in better cost management from planning through construction.
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3.4.4.4 Risk Planning Documentation Each risk plan should be documented, but the level of documentation detail will vary with the unique attributes of each project. Major projects or projects with high levels of uncertainty will benefit from having detailed and formal risk management plans that record all aspects of risk identification, risk assessment, risk analysis, risk planning, risk allocation, and risk information systems, documentation, and reports.
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Red flag item lists, risk registers, and formal risk management plans provide flexibility in risk management documentation. 3.4.4.5 Risk Planning Summary Risk mitigation and planning utilizes the information from the risk identification, assessment, and analysis processes to formulate response strategies for key risks.
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For instance, if the public needs a project completed sooner than would be achievable under traditional contracting and risk allocation methods, the agency may be forced to ask the contractor to assume more risk for timely or expedited completion and the agency must be willing to compensate the contractor for assuming this risk. Allocating risks in alignment with project objectives begins with a clear understanding of the project objectives by the agency and clear communication of these objectives to the contracting, consulting, or design community.
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Risk monitoring and updating occurs after the risk mitigation and planning processes. It precedes the risk allocation process in the planning phase, but is performed in conjunction with allocation during programming and design phases.
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. Status Functional Assignment Risk Trigger Assessment (Qualitative or Quantitative)
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The establishment of a management indicator system that provides accurate, timely, and relevant risk information in a clear, easily understood manner is key to risk monitoring. Early in the planning phase of the process, the team should identify specific indicators to be monitored and information to be collected, compiled, and reported.
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37 Figure 3.14. Washington State DOT cost and risk status report.
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POLICY. It is the policy and practice of EM to conduct its operations in a manner that promotes overall risk planning including the assessment (identification and analysis of)
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Each of the risk management steps is discussed in detail, including risk identification, risk assessment, risk analysis, risk mitigation and planning, risk allocation, and risk monitoring and control. The chapter concludes with a brief discussion of policies and performance measures relating to risk management.
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