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1 CDOT Risk Training May 9, 2016 Lessons Learned: Implementing risk based estimating David Smelser Rail Division Capital Program Manager Evaluating Change 2 Is there a significant problem that must be addressed? Am I the right one to address it? Is this the right solution? What will it cost me to implement?
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Lessons Learned: Implementing risk based … Learned: Implementing risk based estimating ... Risk Assessment --Lessons learned. 10 ... Moderate Pile drive Seismic Upgrade Scope

Apr 23, 2018

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  • 1

    CDOT Risk TrainingMay 9, 2016

    Lessons Learned:

    Implementing risk based estimating

    David SmelserRail DivisionCapital Program Manager

    Evaluating Change

    2

    Is there a significant problem that must

    be addressed?

    Am I the right one to address it?

    Is this the right solution?

    What will it cost me to implement?

  • 2

    What is the Problem?

    3

    Is there uncertainty?

    Labor

    Materials

    Outside influences

    ROW / landowners

    Geotech / unsuitable site

    Other

    Why Me?

    4

    Baseline

    Reporting

    Project Completion

    Accountability

  • 3

    Typical Solutions

    5

    Use policy or practice to add contingency

    Risk register Risk identification

    Inflate estimate to make up difference

    Take your lumps

    New Idea - RBE

    6

    How much time will it take?

    Will it work?

    What support will I have?

  • 4

    Process & Results

    7

    Labor and materials

    Outside influences

    ROW / land owners

    Geotech / unsuitable site

    Other

    Identify

    & Risks

    Quantify

    Allows for:

    Focused attention

    Resource allocation

    Expectation setting

    Proactive management

    Fewer surprises

    Proactive Management

    8

    Snapshot immediate actions

    Update capture new risks

    Identify issues early trend over time

  • 5

    Limitations of RBE

    9

    Does not solve problems

    Does not provide certainty

    Requires expertise and

    learning

    Is only one tool

    Requires commitment to

    get full benefit

    Implementation Strategies

    10

    Find champions

    Develop in-house expertise

    Right time / right situation

    Adjust policy / procedures

    Executive support

    Quick wins

    Consistent application

    Transparency

    Partner participation

  • 6

    Evaluating Change

    11

    Is there a significant problem that must be addressed?

    Am I the right one to address it?

    Is this the right solution?

    What will it cost me to implement?

    12

    David Smelser

    WSDOT Rail Capital Program Manager

    (360) 705 6916

    smelsed@wsdot.wa.gov

    Questions?

  • 1

    WSDOTs Cost and Schedule Risk

    Assessment Innovative Solutions

    WSDOT Project Management (PM)

    Short history of the WSDOT process of

    Risk Assessment (RA)

    RA process overview

    Definition

    Scalability

    Resources required

    Benefits

    Lessons learned

    Develop in-house expertise

    Resources

    Tools

    Risk reserve

    Risk Treatment Planning

    WSDOTs Cost and Schedule Risk

    Assessment Innovative Solutions

  • 2

    Innovations at WSDOT Risk Assessment

    Combine Value Engineering with Risk

    Assessment (VERA)

    Number of risks

    Market conditions

    Risks conditionality

    Dependency

    Correlation

    Risks severity

    WSDOTs Cost and Schedule Risk

    Assessment Innovative Solutions

    WSDOT Project Management

    Risk

    Treatment

    Planning

    Risk

    Assessment

    Monitoring

    & Control

  • 3

    Organizations PoliciesE 1031; E 1053; E 1042; IL 4071;

    Establishing the Establishing the Establishing the Establishing the

    projects contextprojects contextprojects contextprojects contextProject objectives, assumptions, base cost & duration

    Risk Risk Risk Risk AssessmentAssessmentAssessmentAssessment

    Risk Risk Risk Risk Treatment PlanningTreatment PlanningTreatment PlanningTreatment Planning(Fight or Flight)

    Risk TreatmentRisk TreatmentRisk TreatmentRisk Treatment

    Communication Communication Communication Communication & & & &

    consultationconsultationconsultationconsultation

    Communication Communication Communication Communication & & & &

    consultationconsultationconsultationconsultation

    Implementation Response

    Inv

    est

    iga

    tio

    n

    Execution

    Risk identification

    Risk analysis

    Risk evaluation

    Avoidance

    Acceptance

    Changing the

    likelihood

    Changing the

    consequences

    Sharing

    Monitoring and ControlMonitoring and ControlMonitoring and ControlMonitoring and ControlNext look

    Multi-layers

    Thirteen Years of Risk Assessment

  • 4

    Methods of delivery of project risk assessment:

    Started with Cost Estimating Validation Process (CEVP) in 2002

    Projects above $100 million

    Requires External Subject Matter Experts

    Thirteen Years of Risk Assessment

    Methods of delivery of project risk assessment:

    Started with Cost Estimating Validation Process (CEVP) in 2002

    Projects above $100 million

    Requires External Subject Matter Experts

    Added the Cost Risk Assessment (CRA) in 2003Projects between $25 and $100 million

    May be done with only WSDOT participants

    Thirteen Years of Risk Assessment

  • 5

    Methods of delivery of project risk assessment:

    Started with Cost Estimating Validation Process (CEVP) in 2002

    Projects above $100 million

    Requires External Subject Matter Experts

    Added the Cost Risk Assessment (CRA) in 2003

    Projects between $25 and $100 million

    May be done with only WSDOT participants

    Combined Value Engineering and Risk Assessment (VERA) in 2005

    Projects over $25 million and bridges over $20

    million

    Any other projects that may benefit from VERA

    Requires External Subject Matter Experts

    Thirteen Years of Risk Assessment

    0

    10

    20

    30

    40

    50

    60

    2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

    Nu

    nm

    er

    of

    Wo

    rksh

    op

    s

    VE VERA CRA CEVP

    Thirteen Years of Risk Assessment

  • 6

    Risk Assessment -- Process overview

    Definition is a systematic cost and

    schedule review that incorporates the

    effect of uncertainties upon projects

    objectives.

    The risk assessment must provide

    actionable data that may optimize

    the project objectives.

    Definition is a systematic cost and

    schedule review that incorporates the

    effect of uncertainties upon projects

    objectives. It must provide actionable

    data that may optimize the project

    objectives.

    Scalability the level of effort varies

    depending on projects magnitude and

    complexity.

    Risk Assessment -- Process overview

  • 7

    Resource required is represented by a

    wide range (minimal when the

    workshop is produced in-house and

    tens of thousands of dollars when

    consultants are involved)

    Risk Assessment -- Process overview

    Resource required is represented by a

    wide range (minimal when is produced

    in-house and tens of thousands of

    dollars when consultants are involved)

    Benefits: Better understanding of projects

    objectives

    Minimizes surprises

    Provides data for optimizing the projects

    objectives

    Risk Assessment -- Process overview

  • 8

    Risk Assessment -- Lessons learned

    Executives Support!!

    Risk Assessment -- Lessons learned

    Develop in-house expertise

    Human resource dedicated team that

    should have a passion toward understanding

    and enhancing the process of risk

    management

  • 9

    Develop in-house expertise

    Human resource dedicated team that

    should have a passion toward understanding

    and enhancing the process of risk

    management

    Tools develop tools that are applicable

    towards department needs.

    Simulation model,

    Communication tools

    Risk Assessment -- Lessons learned

    Develop in-house expertise

    Human resource dedicated team that

    should have a passion toward understanding

    and enhancing the process of risk

    management

    Tools develop tools that are applicable

    towards department needs.

    Simulation model,

    Communication tools

    Collaborate with consultants

    Risk Assessment -- Lessons learned

  • 10

    100%

    60%

    30%

    0%

    $80M $120M$100M$95M

    Legislative BudgetOperational Budget

    Risk Reserve = Legislative Budget - Operational Budget

    Lessons learned Risk Reserve

    $5M Risk Reserve

    100%

    60%

    30%

    0%

    $80M $120M$100M$95M

    Legislative BudgetOperational Budget

    Risk Reserve = Legislative Budget - Operational Budget

    80%

    60%

    Without Active RM

    With Active RM

    $5M Risk Reserve

    Lessons learned Risk Reserve

  • 11

    Enhanced Risk Based Estimate

    21

    Risk Assessment -- Lessons learned

    Risk Treatment Planning

    It allows the project team to digest the

    information obtain from the risk workshop

    and to decide on risk treatment strategies.

  • 12

    Risk Treatment Planning

    It allows the project team to digest the

    information obtain from the risk workshop

    and to decide on risk treatment strategies.

    It provides better raw data (cost, schedule

    and risks) for risk analysis.

    Risk Assessment -- Lessons learned

    Risk Treatment Planning

    It allows the project team to digest the

    information obtain from the risk workshop

    and to decide on risk treatment strategies.

    It provides better raw data (cost, schedule

    and risks) for risk analysis.

    The cost risk profile is more accurate

    Risk Assessment -- Lessons learned

  • 13

    Risk Treatment Planning

    It allows the project team to digest the

    information obtain from the risk workshop

    and to decide on risk treatment strategies.

    It provides better raw data (cost, schedule

    and risks) for risk analysis.

    The cost risk profile is more accurate

    It initiates the implementation of risk

    treatment strategies.

    Risk Assessment -- Lessons learned

    Risk Assessment -- Innovations

    Combined Value Engineering with Risk

    Assessment (VERA) represents the most

    efficient process of risk assessment. It was

    used for projects ranging from less than

    $10 million to over $1 billion.

  • 14

    Number of risks we recommend the

    assessment of only significant risks. When a

    significant risk occurs it will require

    supplemental intervention.

    Risk Assessment -- Innovations

  • 15

    Number of risks we recommend the

    assessment of only significant risks. When a

    significant risk occurs it will require

    supplemental intervention.

    Market Conditions we found the MC may

    be the most important driver of the

    construction cost. MC is driven by the

    expected number of bidders on the project.

    Risk Assessment -- Innovations

    Market Conditions

    30

    -50%

    -40%

    -30%

    -20%

    -10%

    0%

    10%

    20%

    30%

    0 2 4 6 8 10 12 14 16 18 20 22

    Comparison of the Low Bid vs. the Engineer's Estimate based on Number of Bidders (All Projects )Comparison of the Low Bid vs. the Estimate

    Based on Number of Bidders

    Number of Bidders

    Worse Than Planned

    Better Than Planned

    As Planned

    Caltrans

    WSDOT

  • 16

    Risk Assessment -- Innovations Risks conditionality

    Dependency every risk must be evaluated

    in relationship with other risks.

    Correlation must be justified and

    documented. Correlation is a powerful way of

    increasing the cost distribution range and

    sometimes is abused.

    Risks conditionality

    Dependency every risk must be evaluated

    in relationship with other risks.

    Correlation must be justified and

    documented. Correlation is a powerful way of

    increasing the cost distribution range and

    sometimes is abused.

    Project risks map comprehensive visual

    representation of the project risks

    Risk Assessment -- Innovations

  • 17

    Traditional Tornado Diagram

    Risks MapVL Low Moderate High VH VH High Moderate Low VL

    VL Discovery

    Hazard.

    Mat.

    NEPA

    ChallengeGeotech V

    L

    Lo

    w

    Agreement

    Concrete

    piles

    Sailing

    Schedule Lo

    w

    Mo

    de

    rate

    Pile driveSeismic

    Upgrade

    Scope

    changes

    GC/CM

    delivery

    Mo

    de

    rate

    Hig

    h

    Hig

    h

    VH Pile

    removal Seawall

    Vendor

    Building VH

    VH Holding

    capacitySlip 3 Seawall

    Vendor

    Building VH

    Hig

    h Marine

    Const. Hig

    h

    Mo

    de

    rate

    Pile driveScope

    changes

    Seismic

    Upgrade

    Storm-

    water

    GC/CM

    delivery

    Mo

    de

    rate

    Lo

    w

    Agreement

    GC/CM

    delivery

    Concrete

    piles

    Sailing

    Schedule Lo

    w

    VL Hazard.

    Mat.Discovery Geotech V

    L

    VL Low Moderate High VH VH High Moderate Low VL

    `Threat's impact Opportunity's impact

    Threat's impact Opportunity's impact

    Sc

    he

    du

    leC

    os

    t

  • 18

    WSDOTs Risk Assessment Conclusions

    WSDOT has over 13 years experience in the

    field of project risk assessment

    WSDOT has over 13 years experience in the

    field of project risk assessment

    WSDOT uses a scalable approach of risk

    management

    WSDOTs Risk Assessment Conclusions

  • 19

    WSDOT has over 13 years experience in the

    field of project risk assessment

    WSDOT uses a scalable approach of risk

    management

    WSDOT has developed the VERA process

    WSDOTs Risk Assessment Conclusions

    WSDOT has over 13 years experience in the

    field of project risk assessment

    WSDOT uses a scalable approach of risk

    management

    WSDOT has developed the VERA process

    WSDOT has improved the risk assessment

    process based on its research and lesson

    learned.

    WSDOTs Risk Assessment Conclusions

  • 20

    WSDOT has over 13 years experience in the

    field of project risk assessment

    WSDOT uses a scalable approach of risk

    management

    WSDOT has developed the VERA process

    WSDOT has improved the risk assessment

    process based on its research and lesson

    learned.

    WSDOTs Risk Assessment Conclusions

    ?