Guidebook on Risk Analysis Tools and Management Practices to Control Transportation Project Costs (2010) / Chapter Skim
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Pages 7-15
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From page 7... ...
As a standard practice SHAs often provide some form of contingency in their cost estimates by allocating predetermined percentages of project cost as contingency or by performing some level of qualitative or quantitative risk assessment to determine risk impact on project cost and to thereby establish a contingency amount. This guidebook focuses on risk management practices and risk analysis tools to better estimate and control project cost.
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Estimating. A risk analysis technology that combines Monte Carlo sampling, a focus on the few key variables, and heuristics (rules-of-thumb)
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Project Management. The process of organizing, planning, scheduling, directing, controlling, monitoring, and evaluating activities to ensure that stated project objectives are achieved.
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A risk management plan is prepared and used for managing risks throughout the project. The established contingency amount is typically lower than that used in the planning phase.
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Risk registers are updated and the changes due to the resulting impacts are reflected in the overall contingency, which is then used to update earlier estimates. Management uses estimate updates to evaluate scope changes and other issues that affect project cost.
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The impact of changes must be evaluated and estimates reviewed. In relation to the risk management process shown in Figure 1.1, the steps in Table 2.3 align with risk mitigation and planning, risk allocation, and monitoring and controlling risks.
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13 Cost Estimate Management Step Description Obtain appropriate approvals Obtain management authorization to proceed by • review of current project scope and estimate basis; • securing of approvals from appropriate management levels; • approval of current estimate, including any changes from previous estimate; and • release of estimate for its intended purpose and use. Determine estimate communication approach Communication approach is dependent upon the stakeholder who is receiving the information, but should consider • mechanism for communicating the cost estimate for its intended purpose; • level of uncertainty to be communicated in the estimate given the information upon which it is based, and; • mechanism to communicate estimate to external parties.
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From page 14... ...
Each factor presents a challenge to every agency seeking to produce accurate project cost estimates and to manage costs. While every cause will not create problems on every project, the only way to consistently mitigate all of the causes is to use a strategic approach to cost estimation, risk analysis, and cost management.
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From page 15... ...
of probable cost. In the case of state highway agency project estimates, any one cost number represents only one result based on multiple assumptions.
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