Capital ProjectsRisk Development and ManagementChristiane KampschulteParsons Brinckerhoff16th August 2010	2:30-3:15pm<br /...
Introduction<br />The presentation addresses Risk management in terms of quantitative Risk Management not qualitative scor...
Introduction<br />There are a number of uncertainties in every project that have a potential to affect the outcome. <br />...
Introduction<br />The paper compares 2 similar projects and:<br />Highlights the importance of calculating and documenting...
CASE STUDY A :<br />Mining Infrastructure Project <br />in Western Australia<br />
Rail Construction TD-Graph <br />Capping<br />Tracklaying<br />Bridges<br />Commissioning Activities<br />Target Track<br ...
Cost and time estimates were based on information given by Engineering Design Team.<br />The project started with a single...
Execution phase risk management workshops were conducted  at regular intervals but inputs were taken from a Safety perspec...
Variations were approved while the cost value did not surpass the project single point estimate.<br />No other number than...
The project was being built in a Cyclone prone area and was under a high cyclone danger zone. A cyclone hit the area and o...
This incident triggered the intensive review of the project’s time estimate and cost estimate with focus on the assumption...
CASE STUDY B :<br />Coal Terminal Project <br />in New South Wales<br />
A Range Analysis Workshop (RAW) was held to identify and quantify all risks and uncertainties that could cause a deviation...
Examples for risk sources considered in the RAW were:<br />Availability of area or facility, staff availability and major ...
For awarded contracts, capital cost sources that were considered were <br />uncertainty associated with variations that ha...
	Capital cost inputs that were considered for un-awarded contracts typically included <br />variations in project scope th...
The schedule risk profile was developed through a summary risk schedule developed from the project schedule that captured ...
Case B – Schedule range analysis<br />Key Drivers of the Project completion milestone <br />
Awarded contracts – models cost uncertainty due to variations.<br />Un-awarded contracts – modeled uncertainty associated ...
Case B - CAPEX Range analysis<br />Schedule range analysis<br />Cost range analysis<br />
Case B - Risk model<br />Mean<br />P95<br />P5<br />Capital Cost<br />Key Capital risk drivers<br />
Differences<br />
One definition of an estimate is that it is the expected value of a complex equation of probabilistic elements, each subje...
Integrated cost-schedule risk analysis<br />The purpose of this is to estimate the appropriate level of cost contingency r...
Start with a “good” logic driven schedule (summary schedule)<br />Assign cost loaded resources to the activities in the sc...
Risks are identified during a qualitative risk analysis of the project. This leads to a list of prioritized risks which ar...
From the inputs, a risk model would be created in a readily available software like “Primavera Risk Analysis V8” (Pertmast...
Outputs<br />
Answers we get <br />Which risks are most important to the achievement of the project schedule and cost estimate? <br />Ho...
Tell us what you think…<br />http://feedback.insync10.com.au<br />Questions to : adatta_project@yahoo.comc.kampschulte@gmx...
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C:\documents and settings\ckampschulte\desktop\in sync risk range analysis

  1. 1. Capital ProjectsRisk Development and ManagementChristiane KampschulteParsons Brinckerhoff16th August 2010 2:30-3:15pm<br />The most comprehensive Oracle applications & technology content under one roof<br />
  2. 2. Introduction<br />The presentation addresses Risk management in terms of quantitative Risk Management not qualitative scoring methods.<br />The presentation compares two projects.<br />To validate the effectiveness of Risk Management statistically we require more examples and case studies.<br />None of the Project are as per “Best Practice” which is dealt with at the end.<br />
  3. 3. Introduction<br />There are a number of uncertainties in every project that have a potential to affect the outcome. <br />Commonly, the provision for these uncertainties is taken care of by adding a percentage of costs as contingency to the cost estimate and adding a time contingency at the end of the longest path.<br />
  4. 4. Introduction<br />The paper compares 2 similar projects and:<br />Highlights the importance of calculating and documenting a meaningful cost and schedule contingency. <br />Illustrates the benefits of project cost and time estimate range reviews.<br />
  5. 5. CASE STUDY A :<br />Mining Infrastructure Project <br />in Western Australia<br />
  6. 6. Rail Construction TD-Graph <br />Capping<br />Tracklaying<br />Bridges<br />Commissioning Activities<br />Target Track<br />Actual Track Layed<br />Hand Lay2<br />Hand layed Cloud Break<br />PORT <br />250<br />COMMISSIONING & <br />Stockpiling<br />Target<br />No Later then <br />date<br />220<br />190<br />Bridge 8<br />Chainage (km)<br />160<br />Bridge 7<br />Bridge 6<br />Bridge 5<br />130<br />100<br />Bridge 4<br />Bridge 3<br />70<br />Bridge 2<br />40<br />Bridge 1<br />Actual Track <br />10<br />Layed<br />Hand layed Loop<br />16-Nov-07<br />21-Sep-07<br />11-Jan-08<br />27-Jun-08<br />2-May-08<br />27-Jul-07<br />7-Mar-08<br />1-Jun-07<br />6-Apr-07<br />-20<br />CASE STUDIES<br />
  7. 7. Cost and time estimates were based on information given by Engineering Design Team.<br />The project started with a single point cost and time estimate.<br />The single point estimate resulted in a contingency linked to the time and cost estimate. This was a fixed percentage added to the cost estimate and a fixed number of days added to the project programme.<br />Case A<br />
  8. 8. Execution phase risk management workshops were conducted at regular intervals but inputs were taken from a Safety perspective and risk were not quantified.<br />The contractors were required to submit a time scaled detailed network program, hours spent and forecasts.<br />No alliance partner's forecast showed schedule or cost overrun. Schedule updates always showed a date within the required dates. <br />Case A<br />
  9. 9. Variations were approved while the cost value did not surpass the project single point estimate.<br />No other number than the original estimate was ever communicated for time and cost.<br />Case A<br />
  10. 10. The project was being built in a Cyclone prone area and was under a high cyclone danger zone. A cyclone hit the area and one of the 3 worker accommodation camps a was damaged. <br />Case A<br />
  11. 11. This incident triggered the intensive review of the project’s time estimate and cost estimate with focus on the assumptions made for calculating the contingency. <br />The finding were that the scope hat deviated from the initial estimate. <br />The assumptions made for the calculation of time and cost contingency were not treaceableso couldn’t not be evaluated for their adequateness.<br />Case A<br />
  12. 12. CASE STUDY B :<br />Coal Terminal Project <br />in New South Wales<br />
  13. 13.
  14. 14. A Range Analysis Workshop (RAW) was held to identify and quantify all risks and uncertainties that could cause a deviation to the estimate. <br />Particular attention was paid to the facilitation of this workshop where project participants were encouraged to come up with extreme outcomes of the uncertainties. <br />Case B<br />
  15. 15. Examples for risk sources considered in the RAW were:<br />Availability of area or facility, staff availability and major equipment.<br />Uncertainty over productivity level on the project.<br />Adverse environmental conditions<br />Specific risks identified for the project that have the potential to impact the project like geotechnical conditions, Industrial Relations, Quality.<br />Case B – Risk sources<br />
  16. 16. For awarded contracts, capital cost sources that were considered were <br />uncertainty associated with variations that have been submitted, <br />uncertainty with forecast variation and <br />uncertainty associated with emerging trends.<br />Case B - Risk sources<br />
  17. 17. Capital cost inputs that were considered for un-awarded contracts typically included <br />variations in project scope that were being developed at that stage, <br />variations in unit rates considering the time lag between feasibility study and project execution, <br />variations in quantities-both materials and work hours which are impacted by the stage of the design process and <br />risk events specific to the project. <br />Case B - Risk sources<br />
  18. 18. The schedule risk profile was developed through a summary risk schedule developed from the project schedule that captured the key milestones and the associated near critical activities.<br />Duration ranges were developed for these activities in a facilitated workshop. These ranges were defined by the minimum case, maximum case, P10, P90 scenarios and probability of achieving or improving the task duration. <br />The ranges were then used to develop a probability distribution for the activity. Correlations between the ranged schedule activities were also included.<br />Case B – Schedule range analysis<br />
  19. 19. Case B – Schedule range analysis<br />Key Drivers of the Project completion milestone <br />
  20. 20. Awarded contracts – models cost uncertainty due to variations.<br />Un-awarded contracts – modeled uncertainty associated with the estimate of these contracts.<br />Owners – models uncertainty associated with owner’s costs.<br />Project Risks – models the risks that have been identified.<br />Project Scope – models potential scope changes for the project.<br />Schedule – models the time variable uncertainty associated with schedule duration risk. <br /> <br />Case B – CAPEX range analysis<br />
  21. 21. Case B - CAPEX Range analysis<br />Schedule range analysis<br />Cost range analysis<br />
  22. 22. Case B - Risk model<br />Mean<br />P95<br />P5<br />Capital Cost<br />Key Capital risk drivers<br />
  23. 23. Differences<br />
  24. 24. One definition of an estimate is that it is the expected value of a complex equation of probabilistic elements, each subject to random variation within defined ranges. Ref: Larry R.Dysert, CCE. Skills and Knowledge of Cost Engineering. 5th Edition Revised p 9.21, AACE International, 2007<br /><ul><li>The outputs are only as good as their inputs</li></ul>What do the cases illustrate?<br />
  25. 25. Integrated cost-schedule risk analysis<br />The purpose of this is to estimate the appropriate level of cost contingency reserve on projects and also to include the impact of schedule risk on cost risk. <br />Best Practice (as per AACE recommendation)<br />
  26. 26. Start with a “good” logic driven schedule (summary schedule)<br />Assign cost loaded resources to the activities in the schedule<br />Take a risk driven approach. Use the “Risk Register”.<br />Collect good risk data from facilitated workshop or one to one interview with stakeholders or project participants. <br />Derive contingency reserve of time and cost, prioritize the risks and mitigating them in steps.<br />Best Practice<br />
  27. 27. Risks are identified during a qualitative risk analysis of the project. This leads to a list of prioritized risks which are characterized by their probability and impact ranges.<br />A best practice project schedule which is resource loaded.<br />The “Neat Estimate” (an estimate without contingency) assigned to the activities in the schedule.<br />Best Practice - Inputs<br />
  28. 28. From the inputs, a risk model would be created in a readily available software like “Primavera Risk Analysis V8” (Pertmaster) ready to run a number of iterations simulating the project<br />Risk # 01 – P50% Factors 0.95,1.05,1.15<br />Activity A<br />Activity B<br />Best Practice - Model<br />
  29. 29.
  30. 30. Outputs<br />
  31. 31. Answers we get <br />Which risks are most important to the achievement of the project schedule and cost estimate? <br />How likely are the project plan’s cost and schedule targets to be met - taking into account the risk that may affect that plan? <br />How much contingency of time and cost needs to be provided to meet the risk threshold of the project management or other stakeholders? <br />
  32. 32. Tell us what you think…<br />http://feedback.insync10.com.au<br />Questions to : adatta_project@yahoo.comc.kampschulte@gmx.de<br />
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