c:\documents and settings\ckampschulte\desktop\in sync risk range analysis
DESCRIPTION
TRANSCRIPT
The most comprehensive Oracle applications & technology content under one roof
Capital ProjectsRisk Development and Management
Christiane KampschulteParsons Brinckerhoff
16th August 2010 2:30-3:15pm
Introduction
• The presentation addresses Risk management in terms of quantitative Risk Management not qualitative scoring methods.
• The presentation compares two projects.
• To validate the effectiveness of Risk Management statistically we require more examples and case studies.
• None of the Project are as per “Best Practice” which is dealt with at the end.
Introduction
• There are a number of uncertainties in every project that have a potential to affect the outcome.
• Commonly, the provision for these uncertainties is taken care of by adding a percentage of costs as contingency to the cost estimate and adding a time contingency at the end of the longest path.
Introduction
The paper compares 2 similar projects and:
• Highlights the importance of calculating and documenting a meaningful cost and schedule contingency.
• Illustrates the benefits of project cost and time estimate range reviews.
CASE STUDY A :
Mining Infrastructure Project
in Western Australia
CASE STUDIES
Rail Construction TD-Graph
-20
10
40
70
100
130
160
190
220
250
6-Ap
r-07
1-Ju
n-07
27-J
ul-0
7
21-S
ep-0
7
16-N
ov-0
7
11-J
an-0
8
7-M
ar-0
8
2-M
ay-0
8
27-J
un-0
8
Chai
nage
(km
)
Capping Tracklaying Bridges Commissioning ActivitiesTarget Track Actual Track Layed Hand Lay2
Bridge 1
Bridge 2
Bridge 4
Bridge 3
Bridge 5
Bridge 7
Bridge 6
Hand layed Cloud Break
TargetNo Later then
date
Actual Track
LayedHand layed Loop
PORT
COMMISSIONING &
Stockpiling
Bridge 8
• Cost and time estimates were based on information given by Engineering Design Team.
• The project started with a single point cost and time estimate.
• The single point estimate resulted in a contingency linked to the time and cost estimate. This was a fixed percentage added to the cost estimate and a fixed number of days added to the project programme.
Case A
• Execution phase risk management workshops were conducted at regular intervals but inputs were taken from a Safety perspective and risk were not quantified.
• The contractors were required to submit a time scaled detailed network program, hours spent and forecasts.
• No alliance partner's forecast showed schedule or cost overrun. Schedule updates always showed a date within the required dates.
Case A
• Variations were approved while the cost value did not surpass the project single point estimate.
• No other number than the original estimate was ever communicated for time and cost.
Case A
• The project was being built in a Cyclone prone area and was under a high cyclone danger zone. A cyclone hit the area and one of the 3 worker accommodation camps a was damaged.
Case A
• This incident triggered the intensive review of the project’s time estimate and cost estimate with focus on the assumptions made for calculating the contingency.
• The finding were that the scope hat deviated from the initial estimate.
• The assumptions made for the calculation of time and cost contingency were not treaceable so couldn’t not be evaluated for their adequateness.
Case A
CASE STUDY B :
Coal Terminal Project
in New South Wales
• A Range Analysis Workshop (RAW) was held to identify and quantify all risks and uncertainties that could cause a deviation to the estimate.
• Particular attention was paid to the facilitation of this workshop where project participants were encouraged to come up with extreme outcomes of the uncertainties.
Case B
Examples for risk sources considered in the RAW were:• Availability of area or facility, staff availability and major
equipment.
• Uncertainty over productivity level on the project.
• Adverse environmental conditions
• Specific risks identified for the project that have the potential to impact the project like geotechnical conditions, Industrial Relations, Quality.
Case B – Risk sources
• For awarded contracts, capital cost sources that were considered were
– uncertainty associated with variations that have been submitted, – uncertainty with forecast variation and – uncertainty associated with emerging trends.
Case B - Risk sources
Capital cost inputs that were considered for un-awarded contracts typically included
– variations in project scope that were being developed at that stage, – variations in unit rates considering the time lag between feasibility study
and project execution, – variations in quantities-both materials and work hours which are impacted
by the stage of the design process and – risk events specific to the project.
Case B - Risk sources
• The schedule risk profile was developed through a summary risk schedule developed from the project schedule that captured the key milestones and the associated near critical activities.
• Duration ranges were developed for these activities in a facilitated workshop. These ranges were defined by the minimum case, maximum case, P10, P90 scenarios and probability of achieving or improving the task duration.
• The ranges were then used to develop a probability distribution for the activity. Correlations between the ranged schedule activities were also included.
Case B – Schedule range analysis
Case B – Schedule range analysisKey Drivers of the Project completion milestone
8%
9%
9%
9%
12%
16%
16%
17%
26%
38%DS80 - Civil Works - Dump Station
W110 - Marine Piling Works
SM10 - Dumpstation Structural Mechanical
EL40 - Precommission Wharf Area
SL40 - Load Commission Ship Loader
W70 - Fab/ Erection Main Structural Works in SEP 1
EL50 - Commission Coal Inbound
EL10 - Install Electrical Services Dumpstation
EL30 - Install Electrical Services - Wharf Area
OB10 - Wharf Civil Works, Structural and Buffer Bin
Project Complete Milestone - Schedule Sensitivity Index
• Awarded contracts – models cost uncertainty due to variations.• Un-awarded contracts – modeled uncertainty associated with the
estimate of these contracts.• Owners – models uncertainty associated with owner’s costs.• Project Risks – models the risks that have been identified.• Project Scope – models potential scope changes for the project.• Schedule – models the time variable uncertainty associated with
schedule duration risk.
Case B – CAPEX range analysis
Case B - CAPEX Range analysis
Schedule range analysis
Cost range analysis
RiskModel
Input risk events & responses – risk register
Input estimate risk ranges & correlations for key elements Minimum Most Likely Maximum
Min Max
ML
Input Schedule risk events & responses
Key Capital Risk Drivers At WBS Level
Equipment
Bulk Materials
Freight
Owner's Costs
EPCM Cost
Labour
ONESTEEL - Whyalla ProjectsTotal Project Capital Risk profile
8 8.5 9 9.5 10 10.5 11 11.5 12 12.5 13 13.5 14
Capital cost ($M)
Base Estimate$9.65M
Mean or Expected Cost = $10.82MP5 = $9.65MP95 = $12M-10.8% 11%
P75 = $11.3M
Contingency @ Mean = $1.17M
WBS Risk 699,158$
Project Risk 266,761$
Schedule risk 201,667$
Contingency @Mean 1,167,586$
Contingency @ Mean Break-up
Contingency @ P75 = $1.65M
RiskModel
Input risk events & responses – risk register
Input estimate risk ranges & correlations for key elements Minimum Most Likely Maximum
Min Max
ML
Input Schedule risk events & responsesRisk
ModelRisk
Model
Input risk events & responses – risk register
Input estimate risk ranges & correlations for key elements Minimum Most Likely Maximum
Min Max
ML
Input Schedule risk events & responses
Input risk events & responses – risk register
Input estimate risk ranges & correlations for key elements Minimum Most Likely Maximum
Input estimate risk ranges & correlations for key elements Minimum Most Likely Maximum
Min Max
ML
Input Schedule risk events & responses
Key Capital Risk Drivers At WBS Level
Equipment
Bulk Materials
Freight
Owner's Costs
EPCM Cost
Labour
ONESTEEL - Whyalla ProjectsTotal Project Capital Risk profile
8 8.5 9 9.5 10 10.5 11 11.5 12 12.5 13 13.5 14
Capital cost ($M)
Base Estimate$9.65M
Mean or Expected Cost = $10.82MP5 = $9.65MP95 = $12M-10.8% 11%
P75 = $11.3M
Contingency @ Mean = $1.17M
WBS Risk 699,158$
Project Risk 266,761$
Schedule risk 201,667$
Contingency @Mean 1,167,586$
Contingency @ Mean Break-up
Contingency @ P75 = $1.65M
Case B - Risk model
Capital Cost
P95P5Mean
Key Capital risk drivers
CASE A CASE B
Expectation on a single project end date Provides a range of dates with quantified probability
Identifies the Critical Path Identifies important areas of the project which might not necessarily be the critical path
Developing a schedule and working to it Developing live Project Execution Plans
Risk Management not integrated with schedule and budget
Integrated Risk Management with time and cost estimate
The schedule and cost estimate are looked into separately.
The risk management process integrates the schedule, cost and the risk register.
Fear of providing surprising “bad news” to the top management
Providing a range of estimates to the top management to avoid surprises.
Differences
• One definition of an estimate is that it is the expected value of
a complex equation of probabilistic elements, each subject to random variation within defined ranges. Ref: Larry R.Dysert, CCE. Skills and Knowledge of Cost
Engineering. 5th Edition Revised p 9.21, AACE International, 2007
• The outputs are only as good as their inputs
What do the cases illustrate?
Integrated cost-schedule risk analysis
The purpose of this is to estimate the appropriate level of cost contingency reserve on projects and also to include the impact of schedule risk on cost risk.
Best Practice (as per AACE recommendation)
• Start with a “good” logic driven schedule (summary schedule)• Assign cost loaded resources to the activities in the schedule• Take a risk driven approach. Use the “Risk Register”.• Collect good risk data from facilitated workshop or one to one
interview with stakeholders or project participants. • Derive contingency reserve of time and cost, prioritize the
risks and mitigating them in steps.
Best Practice
1. Risks are identified during a qualitative risk analysis of the project. This leads to a list of prioritized risks which are characterized by their probability and impact ranges.
2. A best practice project schedule which is resource loaded.
3. The “Neat Estimate” (an estimate without contingency) assigned to the activities in the schedule.
Best Practice - Inputs
From the inputs, a risk model would be created in a readily available software like “Primavera Risk Analysis V8” (Pertmaster) ready to run a number of iterations simulating the project
Risk # 01 – P50% Factors
0.95,1.05,1.15
Activity A Activity B
Best Practice - Model
Outputs
21-Dec-12 05-May-14
Distribution (start of interval)
0
100
200
300
400
500
600
700
Hit
s
0% 19-Dec-12
5% 27-Apr-13
10% 25-May-13
15% 13-Jun-13
20% 03-Jul-13
25% 18-Jul-13
30% 01-Aug-13
35% 14-Aug-13
40% 28-Aug-13
45% 08-Sep-13
50% 20-Sep-13
55% 02-Oct-13
60% 16-Oct-13
65% 29-Oct-13
70% 14-Nov-13
75% 30-Nov-13
80% 16-Dec-13
85% 06-Jan-14
90% 03-Feb-14
95% 23-Mar-14
100% 02-Dec-14
Cu
mu
lati
ve F
req
uen
cy
AACEI Integrated Cost-Schedule RiskEntire Plan : Finish Date
$600,000 $800,000 $1,000,000
Distribution (start of interval)
0
200
400
600
800
Hit
s
0% $537,199
5% $619,334
10% $636,168
15% $648,572
20% $658,705
25% $667,247
30% $675,521
35% $683,271
40% $692,139
45% $699,319
50% $706,146
55% $713,313
60% $721,955
65% $730,838
70% $740,066
75% $749,866
80% $760,750
85% $775,498
90% $792,533
95% $819,295
100% $1,008,966
Cu
mu
lati
ve F
req
uen
cy
AACEI Integrated Cost-Schedule RiskEntire Plan : Cost
Answers we get
1. Which risks are most important to the achievement of the project schedule and cost estimate?
2. How likely are the project plan’s cost and schedule targets to be met - taking into account the risk that may affect that plan?
3. How much contingency of time and cost needs to be provided to meet the risk threshold of the project management or other stakeholders?
Tell us what you think…
• http://feedback.insync10.com.au
• Questions to : [email protected] [email protected]