Risk Assessment for Capital Construction Projects

Risk Assessment For Capital Construction Projects

RAJPUT

2

OverviewDefinition of Risk

FTA Mandate

Elements of a Construction Project

Risk Assessment What does it mean for the grantee/owner Looking at the “Big Picture”

Types of Risk

Criteria for Evaluating Risk

Risk Assessment “Methods and Strategies”

Risk Assessment “Tools”

3

Overview cont…

Mitigating Risk…using Quality Management Techniques

Two Case Studies – Tren Urbano/WMATA Comparison of QA/QC Programs How Can Quality Affect Risk

Modern Day Risk Challenges SEPTA MTA-MD

Effective Risk Management Keys to Success

Recommendations

4

Project Management Oversight Program Operating Guidance No.22

Full Funding Grant Agreements (FFGA)

Fixed Guideway Modernization Projects

FTA Mandate / Guidance

5

Dear Colleague Letter

FTA Administrator, Jennifer L.Dorn – Dated – March 9, 2005

“As part of its ongoing effort to make the New Starts evaluation and

rating process as transparent as possible, FTA has revamped the format and content of the project profiles to more clearly indicate the reasons for each rating. In addition, we have included more specific information about the New Starts evaluation criteria and FTA’s rating system in the body of the report.”

Annual Report on New Starts/FY 2006 – Article (Dorn Announces Possible Changes to New Starts Process) Passenger Transport-Volume 63 No.13-Monday, March 28, 2005

6

Design Plans• Required to identify costs• Drives implementation of project

Clearly define the project and associated costs• The definition of the project is important to controlling risk• The conceptual plan must be clear (relative to potential costs and

schedule risks)

Risk Management and Mitigation Plans• Evaluate and re-evaluate risk throughout various stages of the

project• Establish key management team• Assign contingencies• Monitor and Control

Elements of a Construction Project

7

Definition:The process used to qualify the significance of a project by identifying and analyzing uncertainties and constraints in terms of the likelihood that an occurrence will happen and the probable consequences.

Risk Assessment

A Smart & Prudent Practice

PRIVATE & PUBLIC PROJECTS

NEW STARTS

DESIGN/BUILD

DESIGN - BID – BUILD

DESIGN – BUILD – OPERATE – MAINTAIN (DBOM)

TURNKEY

8

What Does Risk Assessment Mean To A Grantee/Owner?

Rejection or Approval of FFGA

Mandatory prior to executing FFGA

Provides basis for communicating level of confidence that the project can be carried out successfully, on time and within budget

What does it mean to the internal/external community?• Secretary of Transportation

• Local/State Government

• Board Members

• Funding Agency

• Community

Risk Assessment

9

Looking At The “BIG” Picture

What is the purpose of the project?

Is there a clear, consistent description of what is to be accomplished?

Is there a clear, consistent understanding of the project execution plan?

What can go wrong?

How likely is it that something will go wrong?

If something does happen, what are the consequences?

What are risks to plan for and manage?

Can we better plan and deliver a quality project?

Risk Assessment

10

Types of Risks

Real Estate Property acquisition Relocation Condemn Eminent Domain

Public Utilities Analysis & coordination Agreements Relocation

Shared Right- of-Way (ROW) Track Memorandum of Understanding

(MOU) Insurance costs/requirements

Financial

Politics Internal/external

Environmental Environmental impact studies

Historical Significance Protected Lands Archaeological Structures

Contract phasing and packaging Scope of work Bid process / Labor Integrating Construction Packages

Community impacts and public perception

Public hearing Marketing/Communication Safety & security

Material, Equipment and Construction Techniques

11

Funding• Capital cost• Operating and Maintenance (Life Cycle) costs• Financing costs• Contingencies

Schedule (the greater the number of years, the higher the risk)• Limitations• Compatible with method of construction

Ridership• Operations

Safety/Security• Project (safety and security certification)• Contractors• Laborers / Employees

Criteria for Evaluating Risk

12

Risk assessment analyses are mainly based upon:

Cost estimates (budget limitations, ‘not-to-exceed’ dollar amounts)

Design Plans

Construction and scheduling

Methods of construction available

Client/owner/grantee requirements

Examples of analytical Methods

Deterministic

Probabilistic

Risk Assessment Methods and Strategies

13

RISK ASSESSMENT TOOLS

Commercial Software Programs used in risk analysis:

@Risk

PERTMaster

Crystal Ball

Monte Carlo Project Risk Analysis Software for Primavera Project Planner (P3)

Project-specific in-house models

14

Mitigating Risk…using Quality Management Techniques…

Quality Assurance and Quality Control in transit is essential to the success of a project. There are various techniques and tools that can be used to reduce risk throughout the life cycle of a project. Establishing methodologies, plans and resources that integrate systems and processes into the risk assessment that measure, control, and balance the project needs based on the defined risk.

Let us take a look…

15

CASE STUDIES

TWO LARGE URBAN TRANSIT PROJECTS

Tren Urbano - San Juan, Puerto Rico

Washington Metropolitan Area Transit Authority (WMATA)

Comparison Of QA/QC Programs

How Can Quality Affect Risk?

16

Case Study #1

Tren UrbanoSan Juan, Puerto Rico

Rapid Rail Project: A high-capacity third rail system, with a mixture of at-grade, above grade and underground sections spanning 10-miles (17.2 km) and 16-stations with a construction value of $2.5 billion.

Project Delivery Method: Design-Build-Operate-Maintain (DBOM)

Challenge: Dealing with the complexity of managing multiple contracts and contractors tasked with the design, construction and operation of a new transit system

17

Tren Urbano

Lessons Learned:

Develop a uniform nonconformance system with identical forms, logs, tracking procedures between all contractors involved.

Reducing the number of QC firms involved would have reduced the overall complexity of the quality program and perhaps saved time or costs.

Consistent contract language would have resulted in a more integrated and consistent program that would have reduced the contract administration burden. (Each of the seven contracts included different quality specifications.)

18

Case Study #2Washington Metropolitan Area Transit Authority(WMATA), Washington, DC

Regional Metrorail System: A $9.4 billion project (first and second phase cost) completed in January 2001, after a 32-year construction effort.

Challenges: Motivate contractors to use, follow and have confidence in QA/QC plan and QA/QC staff

Project delivery method: Design-bid-build

19

Washington Metro (WMATA)

Lessons Learned:

• A QAP can be an effective tool to ensure that quality work is performed, but the key to having a successful quality control program is its integration into the work plan

• The Quality Manager should be properly trained and have experience in the industry

• The Contractor must accept the Quality Manager as an integral part of his team and implement the quality control program as part of his regime

• The Owner, Quality Manager and Contractor must work together as a team and effectively communicate so that project goals will be achieved and project risk will be minimized or eliminated.

20

A Modern Day Risk Challenge

Southeastern Pennsylvania Transportation Authority (SEPTA)Philadelphia, PA

Market Street Elevated Reconstruction Project (MSE)$567 million multi-year project to reconstruct the nearly 100 year old elevated train system located within a highly urbanized area from 46th Street Station in West Philadelphia to the Millbourne Station in Eastern Delaware County. The El is a two track, heavy rail guideway structure supported by approximately 11,000 feet of recurring structural steel bents.

Construction Plan Design Elements: A Single Column “T” Bent vs. Double Column Structure (Basic Layout); State-of-the-Art Passenger Stations; Utility Work; Operations and Maintenance. (The completed utility work will create a modern infra-structure for redeveloping the West Philadelphia corridor)

Challenge: Construction never done by SEPTA before, consisting of a system of weekend and 9-day outages (a high risk plan), managing, coordinating/integrating schedules for five construction packages.

21

SEPTA - MSEProject Risks

Construction never done by SEPTA before

Unique construction

Utility construction

Acquiring permits

Coordination of multiple contractor schedules

Environmental issues

Real estate acquisitions/relocations

Public issues

Bid protests

22

SEPTA – MSE

Additional Risks - Lessons Learned

Pre-qualification for contractors

Scheduling delays and capital budget

Contingency and schedule costs

No economic redevelopment plan for local businesses

Additional 9-day outages

23

Management Approach:

Effective Communications, early and often

Establish Action Teams for critical subjects

Ensure comprehensive stakeholder identification

Accountability - define actions and firm deadlines

Commit to a work plan that includes an integrated schedule at the start and maintain throughout

and design to it

Develop understanding that Planning Approach:

Develop staging plan in advance multiple priorities must be met and project must strike a balance

Develop understanding that construction under operation requires a different mind-set and rules

Start small with achievable goals

Build Budget Contingency into approach for risk

Provide flexibility in shutdown durations and milestones dates to give some breathing room

Steve Silva ,P.E., Director of Engineering

Middle Branch Bridge

A Modern Day Risk Challenge Maryland Transit Administration, MTA/Light Rail ,Double Track Project

24

A “Systems” approach is the key to success…

Strong and focused leadership with authority

Properly trained staff members

Skill Mix

Clearly defined tasks

Accountability

Integration of systems

Effective Risk Management

25

RECOMMENDATIONS

Establish, execute and monitor QA/QC Programs during design and construction phases

Implement FTA guidelines

Establish and maintain effective communication (across all levels)

Adhere to scope of work

Effective and continual staff training

Use forward-looking budget planning (analysis)

Summary

Capital Construction Projects can be successful when,

a comprehensive risk assessment is completed and a

risk management and mitigation plan are established.

Quality is integrated into the process throughout the

project lifecycle, thus allowing the reduction of risk

associated with cost overruns.

THANK YOU….

QUESTIONS ????

COMMENTS????