Risk Management in Value Engineering

AASHTO 2009 VE Conference, San DiegoSeptember 1, 2009

Rich FoleyCalifornia Department of Transportation

Rein LembergCALTROP Corporation

A bit of background about Caltrans policies and our largest project

to date.

Caltrans Policies

Structured processDesign-orientedProject development

Since 2004Project developmentProjects over $25M

Our Risk Management Program evolved on the San Francisco - Oakland Bay Bridge Program

Comprehensive Risk ManagementQuantitative risk analysisCost and schedule risksQuarterly updates to Legislature

Value engineering: During design and constructionInclude cost and schedule risksNot always the formal process

The SFOBB is a complex program with multiple construction sequences…

Multiple Interdependent Contracts

SSD West Tie-in Phase 1

(Tunnel Viaduct

Replacement)

Submarine Cable

Skyway

SAS Phase 1Erect Tower

E2/T1E2

Foundation

YBI Hinge K WB

YBI Construction

WB

SSD West Tie-in Phase

2

SSD East Tie-in

SSD Viaduct

SAS Phase 3Complete

EB

OTD 2Complete WB

SAS Phase 2 Complete

WB

OTD 1

SAS Phase 1Load

Transfer

YBI Hinge K EB

OTD 2 EB

SSD Demolition of

Existing Bridge

YBI Construction

EB

YBI Complete WB

Frame 2

YBI Complete EB

Frame 2

SAS Phase1Deck

Erection

SAS Phase1E2 Capbeam

SAS Phase1W2 Capbeam

OTD 2 EB Detour

SSD Traffic Switch

Bridge Closure

(Complete SSD WTI Phase 1)

SAS Phase 1Cable

InstallationE2/T1

T1Foundation

WB Traffic Switch

EB Traffic Switch

2

4

1

35

6

7

8

How we apply quantitative risk analysis…

Quantitative Cost Risk Analysis

Schedule Risk Analysis

Application to value

engineering and decision

support

Our quantitative cost risk analysis is kept simple for our teams

Inputs

Model

Output

Inputs can appear daunting…we simplify the process

BetaGammaNormal

α1,α2 α,βμ,σ

Uniform

min max

Triangular

min peak max

How we determine the input distribution…

Optimistic Pessimistic

Most Likely

$

Somewhere in between,if discernable.

Triangular distribution

Uniform distribution(if no Most Likely value)

We assess probability distributions for all of our input variables…

Estimate

Risks

100 150$20 $35 $50

Line item = Quantity x Unit Price

10% 30% $1M $3M

Risk item = Probability x Impact

Input Distributions

…that we run through a Monte Carlo model to get the output probability distribution.

Monte Carlo Simulation

We turn it into a “readable” probability curve

50% Probable Cost

10% Chance of Overrun90% Chance of Underrun

We innovated in quantitative analysis of

schedule risks

Understanding Cost and Schedule Risk Analysis

1d

1d

1d

1d

1d

1d

1d

1d

$1

$1

$1

$1

$1

$1

$1

$1

3d4d

5d

1d

1d

1d

1d

1d

1d

1d

1d

$8 8dX

20

40

20

20

20

25

25

20

100

9080

Schedule risk analysis is handled differently...

20

40

20

20

20

25

25

20

?

? ??

?

?

Longest Path

How do schedule risks affect the schedule?

• Can change the critical (longest) path

• Determine the lengthof the critical path

1. Probability of occurrencee.g 20%

2. Delay range0d 60d

20

40

20

20

20

25

25

20

Simulation: construct a schedule for each trial...

Determine if a risk occurs:e.g Probability = 20%

Pick its duration randomly

0d 60d

IF it occurs…

20

40

20

20

20

25

25

20

The schedule for a trial may look like...

20

40

20

20

20

25

25

20

20

100

110

80

20

40

20

20

20

25

25

20

10

30

100

100110

20

40

20

20

20

25

25

20

20

30

20

120

110110

Run 1000 trials and keep track of...

Length of the longest path

Whether a schedule risk is on a critical path

Duration of the longest path

Criticality of each schedule risk...

Criticality = Probability of being on a critical path.

Risk CriticalityRisk 10 100%Risk 3 97%Risk 14 92%Risk 12 83%Risk 4 78%

... ...

Priority

Top

…and determine the “Criticality Path”

83%

92%

63%

72%

83%

80%

There may bemore than one critical path to monitor

An example schedule…

Erect Temporary Works

Install Cable System

Transfer Load to Cable

…we add duration uncertainties…

Erect Temporary Works

Install Cable System

Transfer Load to Cable

…and place the risks into the schedule.

Erect Temporary Works

Install Cable System

Transfer Load to CableRisk Risk Risk

Has two properties: 1. probability that it may occur 2. three-point estimate of its duration IF it happens to occur

Risk activity appears as zero-duration activity

Schedule Risks Are Visible!

We run schedule risk analysis software to get…

Probability DistributionFor Completion Milestone

Criticality Chart

50 55 60 65 70 75 80 85 90 95 100

002371  ‐ Install Suspenders000341  ‐ PWS System Installation

000351  ‐ Load Transfer Cable to Deck Sect.000841  ‐ Compact PWS/Cable Bands

000831  ‐ Erect Cable System Temporary Works001521  ‐ EB Completion Activities

000641  ‐ Stage 1 Demolition (Bent 39 to Bent 33)000691  ‐ Construct Abutment 23R

000751  ‐ Excavate & Light Weight Concrete Roadway000761  ‐ Construct Roadway & Complete Eastbound

002361  ‐ OBG Complete for Cable Erection002071  ‐ Erect Deck Lift 14W

002341  ‐ Align/Bolt /Weld Lifts 13W/14W002041  ‐ Erect Deck Lift 13W002051  ‐ Erect Deck Lift 13E

002191  ‐ Align/Bolt /Weld Lifts 12E/13E

Criticality (%)

Criticality

Criticality Paths

We apply our quantitative techniques to value engineering and decision support.

Examples:

1.Evaluate retrofit or replace

2.Accelerate construction

3.Interaction of 2 contracts

?

Example: Retrofit or Replace

75-year old structureUnknown conditionAs-builts?Connection to Detour?

The viaduct retrofit issue…

Decided to replace the 75-year old viaduct

1.Eliminates risks of unknowns of an old structure2.Fewer risks in connecting to detour structure3.Eliminates additional bridge closures for retrofit4.Early completion reduces risk to corridor schedule

The new viaduct … 3-day bridge closure

1. 6500 tons - 300 feet long, 5 lanes wide2. 20 concrete saws cut up the deck in 2 hours3. Cut out 48 girders and hauled off site 4. 8 skid tracks – 2 jacks per track5. Bridge opened to traffic about 11 hours early

33

Example: Contract acceleration options

Westbound

Eastbound OTD EB Contract

WB Open

EB Open

OTD EB Contract

Objective: shorten time between WB and EB open

Evaluated schedule risks of acceleration option…

No change

Accelerated

In the bigger picture, it is not just the OTD contract

SSD West Tie-in Phase 1

(Tunnel Viaduct

Replacement)

Submarine Cable

Skyway

SAS Phase 1Erect Tower

E2/T1E2

Foundation

YBI Hinge K WB

YBI Construction

WB

SSD West Tie-in Phase

2

SSD East Tie-in

SSD Viaduct

SAS Phase 3Complete

EB

OTD 2Complete WB

SAS Phase 2 Complete

WB

OTD 1

SAS Phase 1Load

Transfer

YBI Hinge K EB

OTD 2 EB

SSD Demolition of

Existing Bridge

YBI Construction

EB

YBI Complete WB

Frame 2

YBI Complete EB

Frame 2

SAS Phase1Deck

Erection

SAS Phase1E2 Capbeam

SAS Phase1W2 Capbeam

OTD 2 EB Detour

SSD Traffic Switch

Bridge Closure

(Complete SSD WTI Phase 1)

SAS Phase 1Cable

InstallationE2/T1

T1Foundation

WB Traffic Switch

EB Traffic Switch

WB to EB opening is a three-horse race –SAS, YBITS and OTD

Westbound

Eastbound OTD EB Contract

SASYBITS

Two contracts complete the west end.

Slowest horse wins

The 3-horse race has a different outcome

OTD - No change

YBITS Contract SAS Contract

Example: Interaction of 2 contracts

Foundations Contract

Bridge Contract

Foundations Required

Bridge Contract

Question:

Pay $$ to accelerate Foundations contract

schedule?

Potential Delay ofBridge Contract

Foundations

Bridge

Timescale →

Foun

datio

nReq

uired

Used schedule risk analysis to evaluate delay…

Decision:

Don’t accelerate

< 5% chance of Foundations delaying Bridge

Foundations Contract

Bridge Contract

Foundations Required

Summary

Value Engineering can benefit from considering risk and uncertainty.

Also consider schedule risks, not just cost risks.

Update cost and schedule risks and opportunities regularly during design and construction.

Discussion?

Project Risk Management

Contact Information:

Rich Foleyrich_foley@dot.ca.gov(510) 385-7189

Rein Lembergrlemberg@caltrop.com(510) 410-4344