pd - contract and risk conference - integrated schedule cost risk analysis for major projects 31 mar...

Schedule Cost Risk IntegrationSchedule Cost Risk Integration

for

Major Infrastructure Projects

Presented by:

Pedram DaneshmandPedram Daneshmand

Senior Associate Director

4th Annual Contract Selection and Risk4 Annual Contract Selection and Risk

for Major Projects, March 2011

Agenda

• Brief Introduction• Project Delivery – Myths• Project Delivery – Facts • Top 5 Causes of Failurep• PTM, PCM and Project Risk Management (PRM)• Schedule Cost Risk Integrationg• S/C/R Integration Process• S/C/R Integration Outcomesg• Case Study

Schedule Cost Risk Integration for Major Infrastructure Projects | 2

At the end of today you will …

• Know more about Quantitative Risk Analysis (QRA) for project schedule/cost/risk management

• See a technical approach to analyse risks and opportunities

• A better understanding of Schedule Cost Risk Integration

Think about how to use these toolsThink about how to use these tools for YOUR PROJECT.


blueVisions Introduction

• International consultancy with offices Australia-wide, Dubai, Abu Dhabi and Singapore

• Project Management Services focused on increasing certainty• Project Management Services focused on increasing certainty and reducing risk including; Governance, Planning & Controls, Contract Services & Training Our experience with construction:p

• Rail• Road

Telecommunications• Telecommunications• Commercial• Water• Engineering• Health• Federal State & Local gov


Federal, State & Local gov

Project Delivery: Myths

• We have a good PM system in place, don’t worry.• Trust our very experienced team. Everything’s fine.• No problem, everything is under control.• No worries, we have been there, done that.• Please, we don’t need anything new.• Another new technology, another tool, again!gy, , g

So they know what they areSo, they know what they are talking about. Right?


Project Delivery: Facts

• Of the 20,821 projects that were closed in the past 12 months in h fi dthe firms surveyed (by pmsolutions,

2011), 37% were at risk and either recovered or failed!either recovered or failed!

• Average $ at risk per firm:• Average $ at risk per firm: $74 million



• Australian oil project, Kipper Development including the Tuna

d Tand Turrum ventures:

• 1 year delay • $US1.7B over budget

estimate of $US2.7

Th A t li 20/J /2011


The Australian, 20/Jan/2011


• Woodside – Pluto LNG Project, WA

Th fi t LNG hi t h• The first LNG shipment has been delayed 6 months (from a Mar 11 target to Sep 11)a Mar 11 target to Sep 11),

• $2B cost blowout on the original forecast of $12B.g $

Th A t li 01/D /2010


The Australian, 01/Dec/2010


• Australia’s resources sector has been hit by more than $8B in

j bl imega-project cost blowouts in the past 6 years

N 10/J /2011


News.com.au, 10/Jan/2011


Railway Stations79% behind schedule

High-rise Buildings67% behind schedule79% behind schedule 67% behind schedule

R f M i th Ri k f D l d C l ti i th 21st C t S b Ch t d I tit t f B ildi (CIOB) 2007Ref: Managing the Risk of Delayed Completion in the 21st Century, Survey by Chartered Institute of Building (CIOB), 2007



Engineering Projects42% behind schedule

Oil and Gas Projects81% behind schedule42% behind schedule 81% behind schedule




Planning & Controls ToolsTools

• A bar-chart 54%• Partially/Fully linked 22%• Minutes of meetings 11%• Correspondence 8%p• Flow Chart 3%• Time Chainage 1%g• Line of Balance 1%



Myths vs Facts

I want to be confident in my project delivery.

What can I do????What can I do????


Top 5 Causes of Failure

• REQUIREMENTS: Unclear, lack of agreement, lack of priority, contradictory, ambiguous, imprecise

• RESOURCES: Lack of resources, resource conflicts, turnover of key resources, poor planning

• SCHEDULES: Too tight, unrealistic, overly optimistic• PLANNING: Based on insufficient data, missing items,

i ffi i t d t il ti tinsufficient details, poor estimate• RISKS & OPPORTUNITIES: Unidentified or assumed,

not managed*not managed** Ref: Strategies for Project Recovery

A PM Solutions Research Reportpmsolutions survey 2011pmsolutions survey, 2011


Schedule, Cost, Risks

COST

SCHEDULE

RISK

Schedule Cost Risk Integration


Project Time Management (PTM)

SCHEDULESCHEDULE


PTM – Process

• Activity Definition• Activity Sequencing (logic)y q g ( g )• Activity Resource Estimating• Activity Duration Estimatingy g• Schedule Development• Schedule Control

PMBOK 2004


PMBOK, 2004

PTM – Schedule Development

• The Schedule Development process includes selecting a Scheduling Method, Scheduling Tool, incorporating

j ifi d i hi h h d li lproject specific data within that scheduling tool to develop project specific Schedule Model, and generating Project Schedulegenerating Project Schedule.

PMI Th P ti St d d f S h d li 2007


PMI – The Practice Standard for Scheduling, 2007

PTM – Schedule Development

PMI Th P ti St d d f S h d li 2007


PMI – The Practice Standard for Scheduling, 2007

PTM – Schedule Dev. Methods

• Logic-based Scheduling Methods (LSM)• Deterministic Techniques

• E.g. Critical Path Method (CPM), Resource Optimisation, Critical Chain Method (CCM), etc.

St h ti T h i• Stochastic Techniques• E.g. Probabilistic Evaluation and Review Technique (PERT),

PNET, Monte Carlo Simulation (MCS), etc., ( ),

• Repetitive Scheduling Methods (RSM)• Line of Balance (LOB)Line of Balance (LOB)• Flowline Method


PTM – Schedule Dev. Inputs

• Planners develop the project schedule by using:• Available templates• Available quantities, resources and productivity rates• Available work/scope statementsp• Available construction logic, and• Other assumptions e.g. calendars, PMP, etc.p g , ,

With all those uncertainties in the inputs and theWith all those uncertainties in the inputs and the possible risks and opportunities in the schedule, the question is, how confident we are in this schedule?


PTM – Schedule Dev. Outputs

• The outputs of Schedule Development process are:• (Deterministic) Project Schedule• (Deterministic) Schedule Model Data• (Deterministic) Schedule Baseline( )• (Deterministic) Resource Requirements

How confident we are in this schedule?


PTM – Major Challenges

• Uncertainties due to assumptions• Logic, constraints, resources, calendars and activity

durations are not always clear and agreed• What-If Scenarios, and• Risks and Opportunities

To have a realistic schedule, the Schedule Development h ld b i d b i S h d l i kprocess should be improved by using Schedule Risk

Analysis. In other words Project Time Management and Project Risk Management need to be integrated!


Project Cost Management (PCM)

COSTCOST


PCM – Process

• Cost Estimating – developing an approximation of the costs of the resources needed to complete project

i i iactivities.• Cost Budgeting – aggregating the estimated costs of

i di id l ti iti k k t t bli hindividual activities or work packages to establish a cost baseline.

• Cost Control influencing the factors that create cost• Cost Control – influencing the factors that create cost variances and controlling changes to the project budget. g

PMBOK 2004


PMBOK, 2004

PCM – Tools & Techniques

• Analogous Estimating• Determine Resource Cost Rates• Bottom-up Estimating• Parametric Estimatingg• Project Management Software• Vendor Bid Analysisy• Reserve Analysis• Cost of QualityQ y


PCM – Inputs

• Estimators develop the project estimate by using:• Available organisational process assets• Available quantities, resources and productivity rates• Available work/scope statementsp• Work Breakdown Structure (WBS), and• Other assumptions/documents e.g. PMP, etc.p g ,

All these add uncertainties to the estimate and reduceAll these add uncertainties to the estimate and reduce the confidence level. What about risks and opportunitiesin the total project cost?


PCM – Outputs

• The outputs of the Cost Estimating process are:• (Deterministic) Activity Cost Estimate• (Deterministic) Total Project Cost• (Deterministic) Cost Model Data( )• (Deterministic) Cost Baseline• (Deterministic) Resource Requirements( ) q

With all these uncertainties in the inputs and the possibleWith all these uncertainties in the inputs and the possible risks and opportunities in the estimate, the question is, how confident we are in this estimate?


PCM – Software

• Software, like cost estimating software applications, computerised spreadsheets, and simulations and

i i l l id l d i i hstatistical tools are widely used to assist with cost estimating.

To have a realistic estimate, the Cost Estimating process h ld b i d b i C i k l i (C )should be improved by using Cost Risk Analysis (CRA). In other words Project Cost Management (PCM) and Project Risk Management (PRM) need to be integrated!


Project Risk Management (PRM)

RISKRISK


PRM – Process

SULT

W

Establish ContextN

D C

ON

S

D R

EVIE

W

Identify Risks

SMEN

T

NIC

ATE

A

ITO

R A

ND

Analyse Risks

SK A

SSES

S

CO

MM

UN

MO

NI

Evaluate Risks RIS

C

Treat Risks

AS/NZS ISO 31000 2009 Ri k M t P i i l d id li


AS/NZS ISO 31000:2009, Risk Management – Principles and guidelines

PCM – Risk Assessment

• Risk Assessment includes:• Risk Identification (both Uncertainties and Events)• Risk Analysis

• Qualitative

• Semi‐Quantitative Risk Analysis

• Quantitative

Ri k E l ti• Risk Evaluation

The goal is to have a better understanding of risks / g g /opportunities and their overall impact on project schedule and cost to see the plan in ONE integrated picture.


PTM, PCM and PRM

• Every Schedule has uncertainties and assumptions• Every Cost Estimate has uncertainties and assumptions,

and• Every Project has risks and opportunities

To have a confident plan, Project Time Management (PTM), p , j g ( ),Project Cost Management (PCM) and Project Risk Management (PRM) need to be integrated!


PTM, PCM and PRM

COST

SCHEDULE

RISK

Schedule Cost Risk Integration


S/C/R Integration – Overview

• Available data gathering and validation• Schedule and Cost Estimate Development• Risks & Opportunities Workshop/s (team approach) • S/C/R Integrationg

• R&O Register incl. both Uncertainties and Events• Schedule Cost Risk Model• Simulation

• Results and Discussions• Re-Modelling• Monitoring & ControlsMonitoring & Controls


S/C/R Integration – Data

• Required information for a SCR Integration:• Well-developed project scope• Quality estimate excl. contingency and escalation• Good Schedule reflecting the estimateg• Risk Mgmt policy/processes in your organisation• Risk checklist incl. typical risks and opportunitiesyp pp• Risk & Opportunities Template• Schedule/Cost Risk Templates/Models, andp ,• Sample available reports


S/C/R Integration – Review

• How to review the deterministic Schedule & Cost?• Validation of

• Quantities (most likely)• Productivity Rates (most likely)y ( y)• Durations (most likely)• Resource Cost Rates (most likely)( y)

• Constraints (Contractual or Management)• Logic network and Work Statements, andg ,• Reasonable Critical Path


S/C/R Integration – R&O Register

• The elements of the R&O Register:• The identified risks & opportunities• Likelihood of the identified risks and opportunities• Impacted activitiesp• Schedule and/or Cost Impact/s• Schedule and/or Cost Variations• Correlation of risks and opportunities to one another• Notes, etc.,


S/C/R Integration – Model

• Major risks and opportunities been identified• Uncertainties and Events• The likelihood and impacts been assessed• Risk Matrix aligned with the company’s risk management g p y g

policy• Impacts checked against the allocated calendars• Correlations between risks been identified• Stage the opportunities if required, and• Duplications are minimised and addressed


S/C/R Integration – Special Conditions

• Special conditions that require extra attention:• Probabilistic Branching – which considers the

situation where the outcome of an event can cause two or multiple possible courses of activities

• Correlation between risks• Positive Correlation: occurs when one risk goes higher, so must

the otherthe other.

• Negative or Adverse Correlation: occurs when one risk increases, the other must decrease.

• Inclement Weather or other external influences


S/C/R Integration – Simulation

• The S/C/R Model should be simulated with multiple scenarios of the project using random samplings of h l i k d i i id i h ithe relevant risks and opportunities considering their probability and impact.T l th d• Two popular methods:

• Monte Carlo Simulation (MCS) – faster method but has a larger possibility of sampling errorg p y p g

• Latin Hypercube Sampling (LHS) – slower method but less sampling errors


S/C/R Integration – Treatment Plan

• The accuracy of the S/C/R Integration outcomes should be improved through a number of iterations of this process.

• Based on the initial results, the team should:h & d k d f h d• Review the R&O Register and make modifications where required

• Make changes to the Model accordingly

• Run the simulation again and repeat the process to achieve theRun the simulation again and repeat the process to achieve the most cost‐effective risk mitigation plan

• Finalise the Risk Treatment Plan as well as the Contingency Plan

• Management Approval, and

• Communicate this plan with the team and then monitor it


Case Study

• Project: Electricity Transmission Cable Tunnel• Part of $1B Program• Tier 1 Contractor• Scope:p

• Tunnel Construction• Net Connections• Cable Installation• Tunnel Entrance• Ventilation Intake


Case Study – Schedule Review

Confidential


Case Study – R&O Register


Case Study – S/C/R Model


Case Study – S/C/R Modelor

(LD

F)t D

ay F

acto

Lost


Case Study – MCS Simulation

ConfidentialConfidential

Confidential


Case Study – Simulation Results

Confidential Deterministic PC DateDeterministic PC Date99% ---17/Dec/14

50% --- 04/Nov/14

Contingency Plan


Case Study – PC Dates

Deterministic PC DateConfidential Deterministic PC Date99% ---17/Dec/14

50% --- 04/Nov/14


Case Study – Criticality Index

ConfidentialConfidentialConfidential

AL

CR

ITIC

Aw

ays

CA

l


Case Study – Criticality Path

Confidential

The Criticality Path Report highlights the path through the project containing the tasks withproject containing the tasks with the highest Criticality Index values.

Percent Criticality is the probability that an activity will be on the critical path; this indicates the relative importance of the activity to p yother activities in the programme.


Case Study – Criticality Distribution

ConfidentialConfidentialConfidentialCriticality Distribution Profile plots the spread of the Criticality Index in a project toCriticality Index in a project to give an indication of the number and threat of near to critical path

% of Tasks Critical25.9 %

critical path.

A high percentage (more than 40%) i di l i l40%) indicates a relatively tight programme.


S/C/R Integration – Benefits to bottom line

• Increase certainty in achieving project outcomesy g p j– P&C System: Scope, Time, Cost, & Risk– Learn from lessons

C i l i l d bili– Consistency across multiple ventures and repeatability– Demonstrate capability and excellence to clients

• Reduce risks and maximise Opportunities• Reduce risks and maximise Opportunities• Drive proactively• Increase efficiency and optimise Time Cost & Risk• Increase efficiency and optimise Time, Cost, & Risk• End to end transparency• Control change• Control change


Question, Comment?


pd - contract and risk conference - integrated schedule cost risk analysis for major projects 31 mar...

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