risk assessment and allocation for effective project...
TRANSCRIPT
June 27, 2012
Risk Assessment and
Allocation for Effective
Project Delivery and
Management
Dr. Khalid Bekka
HDR Decision Economics
Informing and Supporting the Decision Making Process
2
Agenda
Accounting for Uncertainty and the Use of Risk
Management
HDR‘s Risk Management Process
Impediments and Procurement Traps
Risk Allocation and Project Delivery Method
Case Studies:
Texas DOT- North Tarrant Expressway
Washington State DOT – SR 520 Bridge Program
Utah DOT- Mountain View Corridor
Alaska DOT – Northern Rail Extension
NYC MTA – Signals Replacement Program
Open Discussion
3
My Background in Risk Management and P3
Over 20 years of experience in infrastructure
economic, financial, and risk assessment;
Led financial risk assessment for more than 30 toll
road projects for USDOT and bond insurers,
including development of Public Sector
Comparator Framework for agencies in Arizona
and Florida
Conducted risk analysis for over 200 infrastructure
investment in the US and Canada, including
bridges, highways, rail, ports, airports, tunnels,
water treatment facilities, and convention centers
Prepared reports for US FTA, FHWA, FRA, FAA,
DOJ, and DHS that have been submitted to
congressional committees, GAO and OMB
Developed and Conducted Risk Management for
Mega Programs including Ground Zero in New
York City, and Katrina Rebuild Program in New
Orleans.
4
• Over 40% of all infrastructure projects, and over 80% of major infrastructure, exceed their budget or schedule;*
• With the financial turmoil, funding constraints, volatile commodity prices, and policy/regulation changes, conventional planning methods are no longer sufficient;
• Credible, transparent, and comprehensive processes become critical for effective infrastructure planning; and
• Credibility means that decision-makers must know the nature and magnitude of risks to determine their risk tolerance so that they make effective decisions.
New Realities and the Need for Risk
Assessment
-45%
-30%
-15%
0%
15%
30%
45%
60%
75%
$0 $20 $40 $60 $80
$100 $120 $140 $160 $180 $200 $220 $240 $260 $280 $300
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Hot rolled bars, plates, and structural shapes
12M Change
* Flyvbjerg et al. (2005)
5
An Integral Part of Project Management
Project Management
Plan
Project Communi-
cations
Project Schedule
Cost Control
Project Procurement
Risk Management
Project Staffing (HR)
Project QA-QC
Project Scope
HDR‘s Risk
Management
Process
6
7
Integrating Risk Analysis, Value
Engineering, and Risk Response Principles
Investigate
Functional analysis
Speculate
Evaluate
Develop
Improve
Performance
Learn About Project
Identify Risks
Strategize
Qualify and Quantify
Develop Response
Anticipate Risk
VE / Risk Response Cost Risk Assessment
Both use a consensus-based team approach
8
HDR‘s Risk Management Process
* Project/Program Risk
Assessment
* Quantification of Cost and
Schedule Risks
Step 2:
Risk Response
Prioritization /
Financial Planning
Risk Allocation/ Project
Delivery Method
Alternatives
Step 3:
Risk Analysis on
Response Strategies
Step 1:
Baseline Risk
Assessment
Development of Alternative
Solutions and Risk Response
Strategies
Assessment of Threats and
Opportunities Related to
Response Strategies
Step 4:
Tracking, Monitoring,
and ControlContinuous Risk Tracking,
Monitoring, and Reporting
Decision Support
9
Comprehensive Identification of Risks
Construction schedule risks;
Third-Part Agreements;
Environmental Risks;
Utilities Risks;
Drainage Risks;
Traffic Management;
Market Conditions Risks,
Procurement Risks;
Project Management Risks,
Right of Way Risks;
Performance Standards; and
Financial Risks.
10
Risk-Adjusted Cost Estimates
BID PRICE 02/07 ($219 M)
Baseline
Non-Escalated
Baseline
Escalated
$150.3 $172.8
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
$135 $155 $175 $195 $215 $235 $255 $275 $295 $315
Total Project Cost ($Millions)
Pro
bab
ility
of
No
t Ex
cee
din
g
$170.9
$186.9
$192.3
$195.9
$199.6
$202.7
$209.3
$206.2
$212.0
$214.9
$217.5
$220.5
$223.3
$226.1
$228.9
$232.7
$236.9
$242.0
$247.7
$255.1
$281.5
11
Risk-Adjusted Schedule Projection
Feb-2018
Jan-2019
Mar-2020
Bas
elin
e En
d D
ate
Jun
- 2
01
8
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2017 2018 2019 2020 2021 2022 2023 2024
Pro
bab
ility
of
No
t Ex
cee
din
g
Project Timeline
Project Completion Date
12
Risks Prioritization
$0,2
$0,3
$0,3
$0,3
$0,6
$0,9
$0,6
$0,2
$0,9
$1,2
$3,2
$0,2
$0,2
$0,3
$0,3
$0,3
$0,6
$0,9
$0,9
$1,8
$3,2
$0,0 $0,5 $1,0 $1,5 $2,0 $2,5 $3,0 $3,5
Co7b: Interference from other projects (28)
Rw4: Objections to Right of Way appraisal (1)
Tr1b: False work placement and removal (28)
Tr2b: Conflicting lane closures (28)
Rw7: Delays in ROW acquisition (1)
Rw1b: ROW unable to certify before advertising (1)
Ma2b: Other construction projects in region limit supply of labor (28)
Rw12: Other Delays in ROW Acquisition (1)
Co6: Discovery of unknown utilities during construction (28)
Rw17: Utility relocation may not happen in time (22)
Expected Increase in Cost
Millones
Top Cost Impacts on Cost - Event Costs and Schedule Delay Costs
Schedule Cost (Delay & Escalation) Event Cost
13
Risk Response Categories
• Avoidance is a change to the project scope to
eliminate the impact of a risk.
• Transference of a risk to another party who is more
capable at handling the risk (such as the contractor
or insurance company).
• Mitigation is seeking to lessen the impact of a specific
risk items, which may involve the consumption of
additional time and/or money.
• Acceptance is recognition by the project team of a
specific risk and decision to not take action to deal
with the risk.
14
Risk Analysis on Response Strategies
Mitigation Value
15
Adequate and Continuous Reporting
16
Financial Planning Support
• The framework integrates risk-
adjusted cost estimation with
cash flow modeling
• The process allows for the
assessment of various project
prioritization on cash flow and
risk exposure
• Risk-Based budgeting
thresholds determined on
project by project basis, which
depends on project size and
level of risk
• The projections can then be
shown for the program as a
whole or for individual or a set
of projects
Impediments and
Procurement Traps
18
Address/Resolve Regulatory Impediments
• Interoperability
• Conversion of Existing Roads/
Highways
• Violation Processing
• Eminent Domain/Condemnation
• Negotiation after Selection
19
Selection Process is Critical
• Specify Minimum Submission Requirements – Financial and Technical Qualifications – Financial Component – Demonstrate Technical Feasibility
• Specify Evaluation Process
• Balance Need for Confidentiality and Public Disclosure
• Process for Ensuring Price Reasonableness in Negotiated Transaction if price is not ―locked in‖ at selection
• Ensure Involvement of Local Stakeholders
20
Procurement “Traps”
• Pre-quality Teams
• Low Bid versus Best Value Evaluations
• Design-Bid versus Design-Build and Design-Build-Operate-Maintain
• Warranties, Maintenance, Long-Term Operational Arrangement
• How Much Design should DOT Provide?
• Land Acquisition: Advance, Donated, Shared with Private Partners
• Utility Relocation
21
Competition is Critical
• Alternate Technical Concepts
• Innovative Design
• Compensation for Ideas
• Present Value Proposal Cost
• One-on-One Meetings to Discuss Details Prior to Proposals
• Realistic Time — Value of Money
• Confidentiality
Risk Pricing and Allocation
23
Establishing Risk Allocation Policy
Objective
• Allocate individual risk
factors to the party
best suited to manage
them
• Develop contract
language to effectively
manage risks through
allocation
Benefit
• Understand which
parties will manage each
risk
• Improved understanding
of potential change
orders
• Minimize cost premiums
for risks from contractors
for risk factors best
handled by owner
24
Risk Allocation Methodology
• Identify risks associated with project in baseline risk
assessment
• Identify mitigation strategies during risk response
step
• Assist in determining the ―ownership‖ of risks based
on characteristics of the risk
Goal: Optimal Risk
Transfer that
Maximizes
Value for Money
25
Criteria For Risk Allocation
Individual Risks should be
allocated to:
- The party best able to manage
it: The party that is most capable
to predict and prevent the risk.
- The least risk-bearing cost
partner: The risk bearer must be
the party that can promptly deal
with the risk via existing system
and resources
- The party with the most
efficient and effective
mechanism: The risk bearer
must be the party that can deal
with the risk with most
economical and effective method
Design
ROW
Geotechnical
Environmental
Utilities
Schedule
Construction
RISK ALLOCATION
ITEM Owner Contractor
26
Assigning the Risk Bearer
Key Risk Risk
Register
Handling Ability
Controlling Ability
Influence Ability
Risk Liability
Owner Agent
?
Procurement Cost
27
Procurement Cost
Risk Allocation
Productivity Costs
Transactional Costs
Risk –Bearing Costs
Incentives and
Allowances
Contractual Organization, Institutional Guaranties
Risk Premium for
Supporting Risks
Transferring too many risks or not transferring the right risks leads to higher procurement costs.
28
Handling
Cost ($)
Risk Exposure
Costs ($) Liability Cost($)
Transactional
Cost ($ and
Time)
Costs under Financing Options
• Risk Expected Value
• Number of Bidders/ Competitive
Premium
• Risk-Bearing Risk
• Insurance and Bonding
Cost Avoidance/Benefits
Comprehensive Assessment for
Optimum Strategy
Public
Net Present
Value ($)
Discounting
(%)
Total Cost
Avoidance/
Benefits and Risks
($)
Total
Costs ($)
Private
Net Present
Value ($)
NPV Optimal
Risk Transfer
Level
29
Risk Allocation – Design & Site Risks
Type of Risk Risk
Grantor Concessionaire Shared
Detailed Design approvals and consents
Working (Construction) Drawings Delay in final approval of detailed design
Feasibility Approvals and consents with State responsibility Changes in
design and construction standards during the Construction Period
Land acquisition within right-of-way
Obtaining consent to use additional land (permanent additional right-of-way)
that is Identified prior to commercial close
Environmental
Water/air/soil pollution – unknown pre-existing
Land acquisition within right-of-way
Obtaining consent to use additional land Identified after commercial close
Obtaining Ministerial or owner consent to use additional land (temporary
use of land for construction purposes)
Procuring fill sites and other offsite land required
Access risks
Site Security
Cultural/archaeological/ heritage
Geotechnical and ground/soil conditions
Past mine workings
Undisclosed Latent defects (Existing infrastructure)
Allocation
Design Risks
Site Risks
30
Risk Allocation – Construction Risks Type of Risk Risk
Grantor Concessionaire Shared
Quality assurance and quality control
Achieving Construction Standards and Specifications
Fit for purpose manuals, approvals and statutory certificates
Cost overrun and delay not caused by a relief or compensation event
Delays due to Concessionaire changes
Injunctions against construction: due to Concessionaire failure
Workplace Health and Safety
Construction security (bonding by subcontractors)
Sub-contractor insolvency
Latent defects (disclosed defects with existing infrastructure)
Water/air/soil pollution – known pre-existing or arising from work
Defective materials
Delays caused by agencies other than State (e.g. utilities)
Delays caused by State
Delays due to State‘s changes
Labour disputes
Labour and material availability
Project management / integration / delay
Time and costs to satisfy commissioning
Damage to works, however caused except as excluded
Damage/injury to third parties
Damage/loss to utilities identified by Grantor
Damage/loss to utilities not identified by State
Adequacy of insurance
Patent infringement
Cost associated with works for Railways, Canals etc.
Patent infringement
Cost associated with works for Railways, Canals etc.
Injunctions against construction: due to alignment
Allocation
Construction Risks
31
Risk Allocation –Performance Risks Type of Risk Risk
Grantor Concessionaire Shared
Labour and material availability
Future interchanges or additional lanes
Damage to works, however caused, except as excluded
Overloaded Vehicles
Obtaining and maintaining licenses to comply with regulatory requirements
Interface with sub-contractors
Change in scope of service specifications by public sector
Off road incidents
Meeting handback standards
Workplace Health and Safety
Labour disputes
Vandalism
Water/air/soil pollution
Third party claims and accidents
Expansion for traffic accommodation at ramps and interchanges due to
traffic growth, or signalization
Development Around Project Site Requiring Further Over Bridges or Under
Passes or other Demographic Changes
Traffic accidents
Damage caused by unauthorised tyres e.g. spikes
Damage/injury to third parties
Increased legal load limits
Traffic Management
Allocation
Performance Risks
32
Risk Allocation – Other Risks
Workmen‘s liens
Disputes between designer/contractor/professional team
Weather
Force Majeure during operations
Natural disaster, terrorism, war
Intensive or extended event leading to termination
Uninsurable risks (throughout the concession)
Political Force Majeure
Revenue Risks
Incorrect estimates and cost overruns
Increased maintenance due to traffic volume
Equipment used becomes prematurely obsolescent
Actual operating and maintenance costs higher than anticipated
External Risks Changes in standards
Base interest rates to Financial Close
Interest spread risk to Financial Close
Costs of finance on change of requirements
Currency fluctuations
Inflation on Construction Costs
Inflation on Operation, Maintenance, Rehabilitation
Refinancing (if no 2 stage financing)
Political Risks Public sector budgeting cycles, changes in law and taxation
Default Risks Termination
Change in Ownership of Concessionaire
Conflict of Interest Among Shareholders of Concessionaire
Force Majeure Risks
O&M Risks
Strategic Risks
Other Market Risks
33
Case Study 1: TXDOT Determining Risk Allocation
34 34
NTE Project Overview
• The North Tarrant Express (NTE) Project runs along IH-820, north of Dallas, TX
• The existing highway includes two general purpose (GP) lanes each direction.
• Through the Base Build and 9 build options, the proposed improvements include three GP lanes in each direction with two managed lanes in each direction
• The NTE is being constructed as part of a concession project.
35
Risk Allocation Approach
• TXDOT used risk management
to identify project risks and
allocate between contractor
and DOT
• Evaluated various risk
allocation approaches to
understand differences in costs
and risk between parties
• Analysis recommended that
TXDOT manages
environmental and right-of-way
risks and concessionaire to
manage design, construction
and utility risks
TXDOT North Tarrant Expressway
36
Base C
osts
w/
Co
nti
ng
en
cie
s:
$457
Escala
ted
Base C
osts
w/
Co
nti
ng
en
cie
s:
$502
$462
$494
$526
$537
$597
$654
$544
$604
$662
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$400 $500 $600 $700 $800 $900
Lik
elih
oo
d o
f N
ot
Ex
ce
ed
ing
Cost
Millions
Escalated Base Costs With Budget Uncertainty (Using Base Schedule)
Plus Developer Risk
Risk Allocation Scenarios
• Evaluated two risk allocation scenarios: – Design-Build Contract (DB) – Comprehensive Development
Agreement (CDA)
• Differences in Risk Allocation: – DB: developer assumed risks of
litigation, schedule delays, design changes
– CDA: developer assumed risks to utilities, right of way, unplanned work
– Allocation of other risks did not change between scenarios, with Owner retaining environmental and stakeholder risks and developer owning many of the risks to construction
• DB allocation put more risk on TXDOT
TXDOT North Tarrant Expressway
Base C
osts
w/
Co
nti
ng
en
cie
s:
$457
Escala
ted
Base C
osts
w/
Co
nti
ng
en
cie
s:
$502
$463
$494
$527
$526
$584
$641
$544
$604
$662
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$400 $450 $500 $550 $600 $650 $700 $750 $800
Lik
elih
oo
d o
f N
ot
Ex
ce
ed
ing
Cost
Millions
Escalated Base Costs With Budget Uncertainty (Using Base Schedule)
Plus Developer Risk
DB Allocation
CDA Allocation
37
Case Study 2: SR 520 Bridge Replacement and HOV Program
38
SR 520 Bridge Replacement and HOV
Program
• The 12.8-mile program area begins at I-5 in Seattle and extends to SR 202 in Redmond
• The SR 520 Bridge Replacement and HOV Program will enhance safety by replacing the aging floating bridge and keep the region moving with vital transit and roadway improvements throughout the corridor
• Consists of multiple projects, including: – Bridge Replacement and HOV Project
– Floating Bridge and Landings Project
– Eastside Transit and HOV Project
– Pontoon Construction Project
39
Risk Tracking and Allocation Methodology
1. Conduct individual risk assessments on project-by-project basis
2. Establish Risk Management Plan
3. Establish Risk Management Program
4. Track risks within risk tracking tool
5. Evaluate risk allocation scenarios through risk assessment modeling
6. Roll up project risk information to program level
7. Provide real time project information for decision makers, including forecasted budgets, forecasted schedule, key areas of risk, and contingency requirements
40
Risk Tracking Tool Facilitates Risk Allocation
• Used by WSDOT as a tool to proactively manage risk in the delivery of this megaproject
• Integration into project team meetings creates a culture of risk management
• Visual displays of risk impact versus risk likelihood demonstrate the risks relative impact to budget and schedule
• Aggregates and reports risk information for individual Projects and for entire Programs
• The tool allows for the capture and storage of risk data including risk allocation between owner and contractor
WSDOT SR 520 Program
41
Case Study 3: UDOT Mountain View Corridor
42
Mountain View Corridor
• Located in Salt Lake County, Utah
• Initial construction builds two lanes in each direction with signalized intersections where MVC crosses local roads
• In the future, as improvements are made in subsequent construction phases, MVC intersections will be reconfigured as grade-separated interchanges
• At the ultimate build-out, MVC will be a freeway similar to I-15, extending 35 miles north and south from 1-80 in Salt Lake County to Lehi in Utah County
• Delivered using CMGC delivery method
43
Mountain View Corridor
Risk Allocation Approach
• Bid Items: Risks best managed by the contractor are allocated as the contractor's responsibility:
– Included 'yield' in the sense of converting tons of gravel/soil into an area coverage for building the road.
– Once the owner and contractor agreed on a yield ratio, it determined total volumes / tons required and then it was up to the contractor to manage
• Price Escalation: risks to price growth uncertainty is shared: – Clauses in the contract for fuel and asphalt kept the owner from paying a premium on
the price. – The contractor would pay the owner if the prices dropped a certain level. The owner
paid out when prices exceeded a certain level.
• Provisional Sums: the owner retained risks for identifiable and quantifiable materials that could be managed as provisional sums.
– These 'sums' are similar to an allowance. – ‗Sums‘ are paid out of the contract amount and thus handled differently than a
change order - because they were a known risk.
• Program Contingency: remaining risks are handled through program contingency – Change order requests that come through are handled from this contingency pool. – This is held in the owner‘s control.
44
Risk Allocation for
Mountain View Corridor
• Process results in an efficient risk allocation and an optimal risk transfer that maximizes value for money.
• The analysis resulted in a mechanism to track risks and manage contingencies.
• The savings led to an extension of 5 additional miles of roadway
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
$0
$10
$20
$30
$40
$50
$60
May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14
Mo
nth
ly C
on
tin
gen
cy R
ele
ase
d (
$M
)
Tota
l Co
nti
nge
ncy
($
M)
Project Timeline
C1 Released Prov Sums
C1 Released Contract Funds
C2 Released Prov Sums
C2 Released Contract Funds
Total Contingency
Total Prov Sums Contingency
Total Contract Contingency
45
Case Study 4: Alaska Railroad Northern Rail Extension
46
Northern Rail Extension Overview
• The Alaska Railroad Corporation (ARRC) is constructing a crossing over the Tanana River in Salcha
• Include the construction of 3,300 ft bridge across Tanana River and related access roads
• Construct 10,700 ft levee and protection system for upstream flood protection
• Delivered using CMGC
47
Northern Rail Extension Risk Allocation Approach
• Risk management facilitated
discussions between owner
and contractor on risk pricing
• Utilized Independent Cost
Estimator (ICE) along with
Owner and Contractor
estimators to understand how
risks are priced
• Specified risk allocation and
contingent items within
Guaranteed Maximum Price
(GMP) to determine best
allocation of risk
$164.9
$170.1
Ba
se C
ost
: 15
6.4
M
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$120.0 $140.0 $160.0 $180.0 $200.0 $220.0 $240.0 $260.0NRE1 30% Design NRE1 60% Design NRE1 60% Interim-Design
NRE1 90% Design NRE1A 90% Design - Adjusted NRE1A - GMP-1 Design (Base Scenario)
NRE1A - GMP-1 Design (Final) NRE1A - GMP-1 Design (Final)
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
1
2 3
4
5
1
2 3
Risk Assessment Changes over Different Design StagesBase (30%) - high degree of uncertainty in design, quantities and prices. Base = $180.8M.Change #1 (60%): Realize design efficiencies from alternative analysis: upland levee alignment, modification of revetment size and amount of stone; 165 ft, 4 girder simple span TRB configuration. Base = $168.0M.Change #2 (60% - interim): Include additional construction execution risks from CMGC register. Base = $168.0M.Change #3 (90%): New estimate includes: firm pricing for PMs and subs; effects of levee -TRB sequencing ;addtional $6.9m in contingent items; higher escalationfrom potentialdelays with CLOMR. Base = 186.8M.Change #4 (90% - Adjusted): Re-scoped project to NRE1A that reduced quantities of materials and project components to bring base cost down to $157.8M. Additional opportunities to reduce pricing on steel and riprap. Base = 157.8MChange #5 (GMP-1 ): Re-priced and scheduled project to account for changes in contracting and delays. Additional risk of delay is included. Higher cost outlook on escalation is anticipated. Base = 146.6M.Change #6 (GMP-1 ): Based on GMP with re-analyzed and allocated risks. Includes additional contractor risks
6
48
Case Study 5: MTA NYC Transit: Queens Boulevard Line Interlocking Modernization
49
MTA NYC Transit: Queens Boulevard Line
Interlocking Modernization
• Initially evaluated
projects as two individual
contracts
• Considered risk
mitigation strategy of
combining into single
contract
• Evaluated both options
through risk assessment
to understand impacts
on overall cost
Contract Description Initial
(Separate) Mitigated
(Packaged)
S-32769 Designing And Furnishing Signal Equipment For 71St-Continental Avenue And Union Turnpike Interlockings Queens Line, IND, Borough Of Queens
$99.5
$327.7 S-32754 Installation Of Signal
Equipments For 71St-Continental Avenue And Union Turnpike Interlockings Queens Line, IND, Borough Of Queens
$257.3
Total $356.9 $327.7
50
Risk Analysis Results of Standalone
Contracts
• Project Cost at 80th Percentile: – S-32769: $106.0 M – S-32754: $282.3 M – Total: $386.2 M
• Key Risks: – Delays in Award – Contractor coordination – Delays in Design,
Manufacturing, Testing & Delivery of Equipment
– Additional TA Labor services costs (GOs and work trains)
$102.4 M, 50%
$106.0 M, 80%
Tota
l Pro
ject
Co
st B
ase
Esti
mat
e -
Init
ial:
$9
9.6
M
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
$89.7 $92.2 $94.6 $97.0 $99.5 $101.9 $104.3 $106.8 $109.2 $111.6 $114.0
Prob
abili
ty o
f N
OT
Exce
edi
ng
Pro
bab
ility
of O
ccu
rre
nce
Cost ($M)
S-32769 - Total Project Cost Density Function - Initial S-32769 - Total Project Cost - Initial
Total Project Cost Base Estimate - Initial
$272.3 M, 50%
$282.3 M, 80%
To
tal P
roje
ct C
ost
Ba
se E
stim
ate
-In
itia
l:$
25
7.3
M
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
$235.0 $242.3 $249.6 $256.9 $264.2 $271.5 $278.8 $286.2 $293.5 $300.8 $308.1
Prob
abili
ty o
f N
OT
Exce
edi
ng
Pro
bab
ility
of O
ccu
rre
nce
Cost ($M)
S-32754 - Total Project Cost Density Function - Initial S-32754 - Total Project Cost - Initial
Total Project Cost Base Estimate - Initial
51
Risk Analysis Results of Combined Contract
• Reduction in total project cost at 80th percentile: – $386.2 M to $356.9 M
– Savings of $29.3 M
• Combining contracts resulted in base cost reductions as well as reduction in coordination and other risks
$374.8 M, 50%
$386.2 M, 80%
$346.9 M, 50%
$356.9 M, 80%
To
tal P
roje
ct
Co
st
Ba
se
Esti
ma
te -
Init
ial:
$3
56
.9 M
To
tal P
roje
ct
Co
st
Ba
se
Esti
ma
te -
Mit
iga
ted
, $
32
7.7
M
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
$308.3 $319.1 $329.9 $340.7 $351.5 $362.3 $373.1 $383.9 $394.7 $405.5 $416.3
Pro
ba
bilit
y o
f N
OT
Exce
ed
ing
Pro
ba
bili
ty o
f O
ccu
rre
nce
Cost ($M)
S-32769C - Total Project Cost Density Function - Initial S-32769C - Total Project Cost Density Function - Mitigated
S-32769C - Total Project Cost - Initial S-32769C - Total Project Cost - Mitigated
Total Project Cost Base Estimate - Initial Total Project Cost Base Estimate - Mitigated
June 27, 2012
Risk Assessment and
Allocation for Effective
Project Delivery and
Management
Open Discussion
Informing and Supporting the Decision Making Process