Managing Risks on Construction Projects - Victor Allen, DTE Energy

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Victor Allen, DTE Energy - Speaker at the marcus evans Generation Summit 2012, held in San Antonio, TX, delivered his presentation entitled Managing Risks on Construction Projects

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Managing Risks on Construction Projects - Victor Allen, DTE Energy

  1. 1. Generation Summit 2012Managing Risks on Construction ProjectsVictor AllenFebruary 8, 2012
  2. 2. DTE Energy Overview gy Headquartered Detroit, Detroit MI Number of Employees ~ 10,000 Geographical Area 26 States Customer Base ~ 3.3M Electric Gas Coal Services Biomass Energy Trading 2
  3. 3. Major Enterprise Projects (MEP) –Our Staff and Projects Number of Employees ~ 200 Number of Concurrent Projects ~ 15 ($100M - $600M) ~ 160 ($50K - $100M) Average Annual Capital Budget ~ 800M+ Environmental Renewable Nuclear Smart Grid Facilities 3
  4. 4. Major Enterprise Projects (MEP) –Project Execution Organization Centers of Excellence Project Management Program & Office Engineering (50) (138) Quality Management (12) 4
  5. 5. What are risks?Project Management Institute definition of risk: j g“an uncertain event or condition that, if it occurs, has a positive or negative effect on at least one project objective (i.e. scope, time, cost, quality, safety, etc…) objective“ (i e scope time cost quality safety etc )My Definition of risk:“A risk event is something that has not yet happened on your project, but if it did happen it would negatively impact your project t the extent that it would be i t j t to th t t th t ld b worthwhile to reduce the likelihood that it will occur or reduce the impact if it occurred” p 5
  6. 6. Risk/Issue/Action? (Issue) An undesirable (Risk) event that has (Action)An undesirable happened and h d d Work thatevent that has needs attention needs to be not yet done happened 6
  7. 7. Why do we manage risks?“The first step in the risk management process is to acknowledge the reality of yrisk. Denial is a common tactic that substitutes deliberate ignorance forthoughtful planning” ~ Charles TremperTo iT improve our chance of project success h f j t Meeting your objectives Meeting your budget Meeting your schedule Working Safely Delivering with quality Satisfying your customers and stakeholders Avoid surprises“If you don t manage the risks, the risks will manage you” ~ Victor Allen If don’t risks you 7
  8. 8. Why do we manage risks? Try explaining this to your boss! 8
  9. 9. Why do we manage risks? What s What’s wrong with this picture! 9
  10. 10. Why do we manage risks? The stairway to nowhere! 10
  11. 11. Why do we manage risks? Who ordered replacement windows? 11
  12. 12. Why do we manage risks? Good News - no door-to-door salesman! door to door 12
  13. 13. Why do we manage risks? Your new addition is ready! 13
  14. 14. Why do we manage risks? Views are overrated! 14
  15. 15. Why do we manage risks? I can’t put my finger on it, but something isn’t right! 15
  16. 16. Why do we manage risks? Engineers – got to lo e them! love 16
  17. 17. Why do we manage risks? Works well if you under 2 feet tall! 17
  18. 18. Why do we manage risks? Denmark B id D k Bridge Collapses During Construction Deaths = 0 Injury =0 18
  19. 19. Why do we manage risks? 19
  20. 20. Why do we manage risks? Toledo Skyway T l d Sk Bridge Crane Collapse (2004) Deaths = 4 Injury =4 Toledo Skyway Bridge Platform Collapse (2007) Deaths = 1 Injury =0 20
  21. 21. Why do we manage risks? Can Tho Bridge C Th B id Vietnam Accident During Construction Deaths = 60 Injury = Hundreds 21
  22. 22. Why do we manage risks? Apartment A t t Building Fell Over During Construction Deaths = 0 Injury =0 22
  23. 23. Why do we manage risks? Denver I t D International ti l Airport Deaths = 0 Injury =0 16 Months Late $2B Over Budget Many Case Studies HBS Premier Collection 23
  24. 24. Risk Management Framework Program Risk Manager Risk Management Database • Risk Register • Risk Assessment Reports • Risk Scorecard Processes and MethodsProject Risk Manager(s) Reviews• Project 1• Project 2 External Internal • Audit • Corporate Risk• Project 3 • DOE • General Audit Risk Response Planning • Expert • Compliance • Mitigation Planning • Contingency Planning 24
  25. 25. Risk Management Process Quarterly Monthly Monthly Senior Program Team Reviews Management Leadership Review ReviewUpdated Risk Plans created Combined Risk Plan review Top 10 Risks reviewed for individual projects Share with Corporate DOE Report issued Risk Group • High Company Exposure • Non-Project Risks 25
  26. 26. Monthly Program Leadership ReviewLeadership Review XYZ ProgramObjective:To understand overall program risk • Review top 10 risksexposure and ensure that program top • Review program level risk exposurerisks are being responded to • Review common risksappropriately. • Review and agree on risks to be sent to DOE •R i Review recommended risks f closure d d i k for lTeam Reviews*Objective:To effectively identify andmanage risks for the project(s).• Identify new risks• Review existing risks• Discuss risk response Project 1 Project 2 Project 3 P j strategy and progress• Link risks to schedule and budget when appropriate• Recommend risks for closure ITS* * Note: IT risks are integrated in each area and IT actively participates in all monthly risk meetings. 26
  27. 27. The Risk RegisterProject X: Risk Plan Impacts Category Total Score hood Risk Event Drivers dule Response/ Mitigation Strategy lity ety Scope Sub-project, st Risk Event Description What are the conditions, actions, or events , , Sched Cos Likelih Safe S Qual What action(s) will be taken to limit the Project Phase, that are likely to trigger the risk event to What is the event? occur or is a leading indicator to the risk likelihood of these event occurring or limiting # Location etc. the impacts? event occurring? (Optional) 1 Contracted vendor under Contract H H M M M L 75 Drivers to monitor: Planned Actions: performs resulting in schedule - Schedule slippages and missed - Conduct weekly monitoring of schedule delays, delays rework and cost milestones. milestones adherence. adherence overruns Drivers that have occurred: - Implement change review process to - Re-work occurring. manage scope, time, cost changes - Change orders issued. effectively. - Develop and implement quality management plan for vendor work. Completed Actions: - Negotiate cost plus incentive fee contract based upon milestone completion 27
  28. 28. Risk Register – Impacts Defined Risk impact level Matrix Likelihood Low Medium High Unlikely Likely Almost Certain Impacts Low Medium High No Impact to Critical Path or Field Potential to Affect Critical Path or Field Schedule Certain to Affect Critical Path or Field Work Work Work Cost Less Than $ 250,000 $ 250,000 to $1,000,000 Greater Than $ 1,000,000 Minor impact to product Quality Moderate impact to product deliverables Major impact to product deliverables deliverables Safety No Impact to worker safety Minor impact to worker safety Major impact to worker safety Scope < 1% 2% to 5% > 5% 28
  29. 29. The Risk Register onal or Cross- Projec Impacts Risk Risk Event Description Contingency Plan Owner Timeframe Comments What action(s) will be taken if this ( ) Critical date(s) Organizatio ct What is the e ent? event? event occurs? or period of# exposure1 Contracted vendor under performs resulting in schedule delays, rework - Negotiate contract with alternate Jane Doe On-going No (01/12) Vendor has and cost overruns vendor to perform services. repeatedly failed weld - Complete work with internal inspections on structural resources. steel. 29
  30. 30. The Risk Register Financial Analysis view Required? Risk Event Description $ Impact Source Probability Source EMV Comments What is the event?# FA Rev Contracted vendor under performs1 resulting in schedule delays, rework and Y $ 500,000 PM input 0.9 Default $ 450,000 cost overruns 30
  31. 31. The Risk Register Schedule Analysis y Risk Closure eduler Review Required? Comments Risk Event Description Critical Path ? Scheduler (Activity #, Quantified Closure Statement Notes / Lessons Learned What is the event? Response R impact etc.) Sche# Steel Erection Work Contracted vendor under performs Package delays will impact Built into1 resulting in schedule delays, rework Y Critical Path Siding and Roof Schedule and cost overruns Construction Work Packages. 31
  32. 32. Monthly Program Leadership Review Active and Closed Risks Active and Closed Risks by Project Total 150 160 70 Total 60 140 60 120 50 Number of RisksNumber of Risks 100 40 Total 32 Total 33 80 Total 25 30 60 NN 20 40 10 20 0 0 All Risks Project 1 Project 2 Project 3 Project 4 Closed 30 Closed 13 9 3 5 New  10 New  5 3 2 0 Existing 110 Existing 42 21 20 27 Total 150 Total 60 33 25 32 32
  33. 33. Monthly Program Leadership Review Active Risks Active Risks by Group 140 Total  50 120 45 120 40 Total 47 100 35 3 Number of RisksNumber of Risks 30 Total 22 Total 27 80 Total 24 25 60 20 40 15 10 20 5 0 0 All Risks Project 1 Project 2 Project 3 Project 4 75+ 16 75+ 7 2 4 3 50‐74 50 74 32 50‐74 50 74 13 5 9 5 0‐49 72 0‐49 27 17 7 21 Total 120 Total 47 24 22 27 33
  34. 34. Quarterly Senior Management Review Active Risks Average  Active Risks Average Score by Project Score 120 110 120 100 110 100 90 verage Risk Score 90 80 rage Risk Score 80 70 70 60 60 50 50 40 AvAver 40 30 30 20 20 10 10 0 0 Program Level Project 1 Project 2 Project 3 Project 4 October 60 October b 18 60 65 37 November 52 November 22 50 58 37 December 40 December 43 37 52 37 34
  35. 35. Quarterly Senior Management Review Cumulative Net Changes in Risk  Cumulative Net Changes in Risk Net Changes in Risk Score Net Changes in Risk Score Scores October ‐ December 4 Program Project 1 Project 2 Project 3 Project 4 2 4 0 0 Program Change  Project 1 ‐3 ‐2 Net C Project 2 Project 2 ‐6 Project 3 ‐7 Total ‐4 Project 4 ‐6 6 ‐8 October November December 35
  36. 36. Quarterly Senior Management Review Average Risk Score Top 10 Risks g p 120 110 100 90 80 Risk Score 70 60 50 40 30 20 10 0 Top 10 Risks Average Score October 90 November 86 December 78 36
  37. 37. Tips for Successful Risk Management1. Executive Champion who understands Risk Management p g2. Risk Manager who owns process, coaches and mentors3. Good set of processes, tools, and templates4. Risk Training for the team (concept and processes)5. Make Risk Management a priority6. Benchmark your process and effectiveness regularly ff7. Establish Historical Risk Database and leverage the past8.8 Work the Risk Plan9. Develop Contingency Plans for high risk items10. Don’t sweat the small risks Don t 37

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