Effective Contingency Management • Good practice of project contingency assessment • Risk driven methodology vs. traditional methodology • Integrated Project Controls • Joint Confidence Level (JCL) • Good practice of project contingency management

1. Contractor Management Forum
22 & 23 July 2013, Melbourne, Australia
P E D R A M D A N E S H - M A N D
R E G I O N A L M A N A G E R – P R O J E C T C O N T R O L S

2. Effective Contingency Management
• Good practice of project contingency assessment
• Risk driven methodology vs. traditional methodology
• Integrated Project Controls
R E Q U I R E D T I M E / C O S T C O N T I N G E N C Y
2
• Joint Confidence Level (JCL)
• Good practice of project contingency management

3. Effective Risk Management
H O W M U C H I S E N O U G H ?
3

4. Agenda
• Introduction
• Industry performance worldwide
• Project Based Business Model
4
• Joint Confidence Level (JCL)
• Bid Estimating, Scheduling, Risk Assessment
• Case Study

5. Aquenta Consulting
A S PA RT O F A M E C G R O U P
5

6. Aquenta Consulting
S E RV I C E S
6
BUILDING &
FITOUT
TRANSPORT UTILITIES INFRA-
STRUCTURE
OIL & GAS
Estimating, Cost Management, Planning & Controls, Facilities Management,
Contracts & Dispute Services, Risk Management

7. Project Delivery
• We have a good project controls in place, don’t worry!
• Trust our very experienced planning team. Everything’s fine!
• No problem, everything is under control!
T Y P I C A L M Y T H S
7
• All performance indicators are green, don’t worry!
• Please, we don’t need anything new!
• Another new manager, new system, new process, again!

8. Project Delivery
S O M E FA C T S
Engineering Projects
42% behind schedule
Oil and Gas Projects
81% behind schedule
8
Ref: Managing the Risk of Delayed Completion in the 21st Century, Survey by Chartered Institute of Building (CIOB), 2007

9. Project Delivery
S O M E FA C T S
Power Generation Projects
66% behind schedule
High-rise Buildings
67% behind schedule
9
Ref: Managing the Risk of Delayed Completion in the 21st Century, Survey by Chartered Institute of Building (CIOB), 2007

10. Project Delivery
• REQUIREMENTS: Unclear, lack of agreement, lack of priority,
contradictory, ambiguous, imprecise
• RESOURCES: Lack of resources, resource conflicts, turnover of key
resources, poor planning
T O P 5 C A U S E S O F FA I L U R E
10
resources, poor planning
• SCHEDULES: Too tight, unrealistic, overly optimistic
• PLANNING: Based on insufficient data, missing items, insufficient
details, poor estimate
• RISKS & OPPORTUNITIES: Unidentified or assumed, not managed
Ref: Strategies for Project Recovery,
A PM Solutions Research Report, pmsolutions survey, 2011

11. Project Based Business Model
B I D – E X E C U T I O N – C O R P O R AT E O B J E C T I V E S
Bid
Estimating
11
Corporate
Objectives
Project
Execution

12. Joint Confidence Level (JCL) – Bid Phase
JCL is:
- The probability that cost will
be equal or less than the
targeted cost AND schedule
will be equal or less than the
12
targeted schedule date
- A process and product that
helps inform management the
likelihood of a project’s
programmatic success
- A process that combines a
project’s cost, schedule, and
risk into a complete picture.
NASA HQ – Office of Program Analysis and Evaluation (PA&E)
Cost Analysis Division

13. Joint Confidence Level (JCL) – Execution Phase
JCL is:
- The probability that cost will
be equal or less than the
targeted cost AND schedule
will be equal or less than the
13
targeted schedule date
- A process and product that
helps inform management the
likelihood of a project’s
programmatic success
- A process that combines a
project’s cost, schedule, and
risk into a complete picture.
NASA HQ – Office of Program Analysis and Evaluation (PA&E)
Cost Analysis Division

14. Effective Contingency Management
• How to assess optimum contingency allowance (time and cost) for
desired JCL during Bid Phase?
• How to monitor and maintain the desired JCL during Execution Phase
i.e. Contingency Management?
C H A L L E N G E S
14
i.e. Contingency Management?

15. Bid Phase – Traditional Approach
E P C C O N T R A C T
Estimating Scheduling R&O’s
15
PROJECT INFORM AT ION % o f Cos t % o f Sell V AL UE RECOV ERY
TENDER NO: TC-3218 T otal m an Hou rs Man Hours
PROJECT TITLE: We dd ell Un it 3 Civil 3,364
CONSULTA NT/CLIENT: Po w e r & Wate r Co rpo ratio n, NT Mec h 11,854
POST TENDER NEGOTIA TION DA TE: 16- Jan -12 Elec t 6,164
CONSTRUCTION PROGRA MME DURATION (Weeks ) 34 8 Months M an ning A ver age Peak
CONSTRUCTION SITE DURATION (Weeks ) 34 8 Months Civil 10 16
DEFECTS LIABILITY PERIOD ( Weeks ) 104 24 Months Mec h 28 45
REVISION A ND ISSUE REVA0-1 Elec t 17 28
V alue Re co ver y
(1-4) T OT AL DIRECT JOB COST S (ite m s 1-4) TOTAL COST DJC ( ite ms 1- 5) 51.17% 44.85% $6,338,802.81
( 1) PROJECT EL EM ENTS, DIRECT COSTS T otal f or se ctio n (1) 40.79% 35.75% $5,053,352.81
1.1 Civil Works Input from File 07- Jun-11 9.13% 8.00% $1,131,041.30
1.2 Mec hanic al Input from File 30-May -11 18.16% 15.92% $2,249,906.72
1.3 Elec tric al Input from File 01- Jun-11 12.79% 11.21% $1,584,404.79
1.4 Rec ruitment
1.4 Final Negotiation figur e generally for w et w eather incr eas e 0.71% 0.62% $88,000.00
1.5 File
( 2) ENGINEERING ( Re fer SHT- 2) T otal f or se ctio n (2) 8.12% 7.12% $1,005,350.00
2.1 UGL Engineering Engineering 09-May -11 7.62% 6.68% $943,522.00
2.2 Geotec hnical Report & O&M Manuals 09-May -11 0.50% 0.44% $61,828.00
( 3) Gen er al Sp ecification Re qu ire me nt s (Re fe r SHT -3) T otal f or se ctio n (3) 0.81% 0.71% $100,100.00
3.1 Preliminar y Cos ts UGLi Prelims File 0.81% 0.71% $100,100.00
3.2 Preliminar y Cos ts other File
( 4) COMM ISSIONING (Refe r SHT -4) T otal f or se ctio n (4) 1.45% 1.27% $180,000.00
4.1 Commissioning cos ts UGLi Admin Included in A dmin below
4.2 Commissioning Materials Comis sioning File 1.45% 1.27% $180,000.00
4.3 Commissioning cos ts other File
(5-9) T OT AL INDIRECT JOB COST S ( item s 5- 9) TOTAL COST INDIRECT S (ite m s 5-9) 42.79% 37.49% $5,302,192.18
( 5) ADM INISTRAT ION ( Re fer SHT- 5) T otal f or se ctio n (6) 28.90% 25.33% $3,580,535.30
5.1 Site Admin and Site Superv ision Cos ts Admin 10.92% 9.57% $1,352,868.94
5.2 Site Engineering and Site Support Staff Admin 7.44% 6.52% $921,581.16
5.3 Site Commiss ioning labour Cos ts Admin 7.71% 6.76% $955,220.13
5.4 Head Office Support Admin 2.44% 2.14% $302,654.86
5.5 Other admin costs Rec rui tment Cos ts 0.39% 0.34% $48,210.20
( 6) M OBIL ISAT ION Plan t & Buildin gs (Refe r SHT -6) T otal f or se ctio n (7) 12.75% 11.16% $1,579,350.00
6.1 ( 7a) MOBILISA TION & DEMOBILSATION Mob & Demob 8.04% 7.05% $996,060.00
6.2 ( 7bi) SITE BUILDINGS 0.69% 0.60% $85,010.00
6.3 ( 7bii) SITE CONNECTIONS 1.00% 0.87% $123,550.00
6.4 ( 7biii) PLA NT A ND TOOLS 2.09% 1.83% $258,880.00
6.5 ( 7biv) VEHICLES 0.23% 0.20% $28,900.00
6.6 ( 7bv) SITE RUNNING COSTS 0.44% 0.38% $54,150.00
6.6 Other - Pr inc ipal's Site Offic e + Utility Pow er & Water Connec tions (PWC Mtg Darw in Addition) 0.26% 0.23% $32,800.00
( 7) COMM UNIT Y & ENV IRONM ENT (Re fe r SHT -7) Comm & Env T otal f or se ctio n (8) 0.09% 0.08% $11,700.00
( 8) HEALT H & SAFET Y EQUIPMENT (Refe r SHT -8) Health & Saf ety T otal f or se ctio n (9) 1.05% 0.92% $130,606.88
( 9) HEDGING (re fe r t o SHT -9) BG & Hedge T otal f or se ctio n (10)
Hedg in g No t
Con sid er ed
(10-13) T OT AL ALL OWANCES (ite m s 10- 13) TOTAL COST AL LOWANCES (item s 10-13) 4.33% 3.79% $535,918.23
(10) ESCAL AT ION ( re fer to SHT- 10) Esc alation T otal f or se ctio n (11) 0.76% 0.66% $93,861.25
10.1 Esc allation for Project Management and Supervis ion 0.57% 0.50% $70,900.00
10.2 Esc allation for Engineering 0.19% 0.16% $22,961.25
10.3 Esc allation for Labour (Not req'd - Mid Point calc)
10.4 Esc allation for Materials (Not req'd)
(11) Con tin ge ncy R&O T otal f or se ctio n (12) 3.07% 2.69% $379,643.29
(12) We t Weathe r Allo w an ce (Re fe r t o SHT -12) Wet Weather T otal f or se ctio n (13) 0.50% 0.44% $62,413.69
12.1 CIV IL WET WEA THER ALLOWA NCE 0.20% 0.18% $25,358.59
12.2 ELECTRICAL WET WEATHER A LLOWA NCE 0.08% 0.07% $10,323.82
12.3 MECHA NICA L WET WEA THER ALLOWA NCE 0.15% 0.13% $18,006.91
12.4 SUPERVISION WET WEA THER ALLOWA NCE 0.07% 0.06% $8,724.38
12.5 OTHER WET WEATHER A LLOWA NCE
(13) PROV ISIONAL SUMS T otal f or se ctio n (14)
(14) M ISC COST S ( LSL, BONDS, INSURANCES ETC) TOTAL COST MISC ITEM (14) 1.69% 1.49% $209,427.60
14.1 A 0.57% 0.50% $70,160.00
14.2
14.3 Long Serv ice Levy (LSL) .35 % on contr act value (inc GST) 0.50% 0.62% 0.55% $77,176.00
14.4 Sec urities Bonds Ins ert Final Total Selling Pric e $14,032,000 0.22% 0.19% $27,011.60
14.5 Warranty Provis ion .25 % on contr act value (inc GST) 0.25% 0.28% 0.25% $35,080.00
14.6
14.7 Other cos ts
T OT AL COST (ite m s 1-14) PROJECT T OT AL COST IT EM S 1 T O 14 100% 87.62% $12,386,340.82
(15) OV ER- HEADS & M ar gin (it em 15) 12.00% TOTAL O-H an d M argin ITEM ( 15) 12.35% $1,745,046.48
15.1 UGLi Overheads 54.17% 6.50% of Se llin g Mark up 7.39% 6.47% $914,900.17 $914,900.17
15.2 UGLi Prof it 45.83% 5.50% of Se llin g Mark up 6.25% 5.48% $774,146.30 $774,146.30
15.3 A dditional Recover y FX Rate 0.45% 0.40% $56,000.00 $56,000.00
15.4 Mark up
15.5 Par tner 3 Profit & O/H Mark up
(16) T OT AL SEL LING (ite m s 1-15) (16) T OT AL SELL ING PRICE EXCL UDING GST 100% $14,131,387.30 $1,745,046.48
GST V alu e $1,413,138.73
PRICE APPROV ED BY : DA TE : 16-Jan-12 RECOVERY TO COST : 14.09%
Tender No : TC-3218 Estimator :GRG / RS RECOVERY TO SELLING : 12.35%
Insurances exc luding construc tion risk / cons truction w orks "A" .45% of CV, Inc luding cons truction r isk /
c onstr uction w orks "B" .9% of CV ( Worn by Busines s)
Mo nd ay, 16 Janu ar y 2012
Liability Char ges "U" unc apped Liability (1%), "A" Contract s um Liability (.5%) "B".5 of
c ontract s um liability ( .25%)

16. Risk Driven Approach
QUALITY
16
QUALITY
TIME
SCOPE
COST

17. COST

18. Cost Management
• Cost Estimating – developing an approximation of the costs of the
resources needed to complete project activities.
• Cost Budgeting – aggregating the estimated costs of individual activities
or work packages to establish a cost baseline.
P R O C E S S
18
or work packages to establish a cost baseline.
• Cost Control – influencing the factors that create cost variances and
controlling changes to the project budget.

19. Cost Management
• Available organisational process
assets
• Available quantities, resources
and productivity rates
I N P U T S
All these
assumptions add
UNCERTAINTIES
which reduce the
cost confidence
19
and productivity rates
• Available work/scope statements
• Work Breakdown Structure
(WBS), and
• Other assumptions/documents
e.g. PMP, etc.
cost confidence
level.
What about other
R&O’s and
events?

20. Cost Management
• (Deterministic) Activity Cost
Estimate
• (Deterministic) Total Project Cost
O U T P U T S
What is your
CONFIDENCE
LEVEL in such a
deterministic cost
estimate?
20
• (Deterministic) Cost Model Data
• (Deterministic) Cost Baseline
• (Deterministic) Resource
Requirements
estimate?

21. TIME

22. Time Management
S C H E D U L I N G
22

23. Time Management
• Logic-based Scheduling Methods
(LSM)
• Deterministic Techniques e.g.
CPM, Critical Chain, etc.
S C H E D U L E D E V E L O P M E N T M E T H O D S
Which method
and tool will suit
your project
requirements the
most
23
• Stochastic Techniques e.g. PERT,
PNET, Monte Carlo Simulation,
etc.
• Repetitive Scheduling Methods (RSM)
• Line of Balance (LOB)
• Flowline Method
most

24. Scheduling
• Available templates
• Available quantities, resources
and productivity rates
I N P U T S
All these
assumptions add
UNCERTAINTIES
which reduce the
schedule
24
• Available work/scope statements
• Available construction logic, and
• Other assumptions e.g.
calendars, PMP, etc.
schedule
confidence level.
What about other
R&O’s and
events?

25. Scheduling
• (Deterministic) Project Schedule
• (Deterministic) Schedule Model
Data
O U T P U T S
What is your
CONFIDENCE
LEVEL in such a
deterministic
schedule?
25
• (Deterministic) Schedule
Baseline
• (Deterministic) Resource
Requirements
schedule?

26. Integrated Time/Cost Risk Management
JCL is:
- The probability that cost will
be equal or less than the
targeted cost AND schedule
will be equal or less than the
TIME
COST
26
targeted schedule date
- A process and product that
helps inform management the
likelihood of a project’s
programmatic success
- A process that combines a
project’s cost, schedule, and
risk into a complete picture.
NASA HQ – Office of Program Analysis and Evaluation (PA&E)
Cost Analysis Division
Joint Confidence Level (JCL)
RISK

27. Joint Confidence Level (JCL)
• Step 1 – Identify goals of JCL for specific project
• Step 2 – Review built schedule (i.e. Schedule Health Check)
• Step 3 – Cost loaded schedule (both Time Dependent / Independent)
P R O C E S S
27
• Step 3 – Cost loaded schedule (both Time Dependent / Independent)
• Step 4 – Implement Risk Register (through R&O’s Workshop)
• Step 5 – Conduct uncertainty analysis
• Step 6 – View results
• Step 7 – Analyse results

28. Validation and Health Check
• Validation of
• Quantities (most likely)
• Productivity Rates (most likely)
C O S T A N D S C H E D U L E
28
• Durations (most likely)
• Resource Cost Rates (most likely)
• Constraints (Contractual or Management)
• Logic network and Work Statements, and
• Reasonable Critical Path

29. Risk Register
• The identified risks & opportunities
• Likelihood of the identified risks and opportunities
• Impacted activities and/or cost elements
K E Y E L E M E N T S
29
• Uncertainties
• Existing controls and residual risks
• Schedule and/or Cost Consequences and required Contingency
• Correlation of risks and opportunities to one another

30. Case Study 1 – Bid Phase
Scope:
• Project Management
• Engineering & Design
• Procurement & Delivery
$ 1 0 0 M P O W E R P L A N T E P C C O N T R A C T
30
• Procurement & Delivery
• Installation
• Earthwork & Civil
• Mech, Elec, & Control Systems
• Two Gas Turbine Generator Units
• Balance of Plant (BOP)
• Testing & Commissioning

31. Effective Contingency Management
• How to assess optimum contingency allowance (time and cost) for
desired JCL during Bid Phase?
• How to monitor and maintain the desired JCL during Execution Phase
i.e. Contingency Management?
C H A L L E N G E S
31
i.e. Contingency Management?

32. Case Study 1 – Bid Phase
S C H E D U L E H E A LT H C H E C K
Confidential
32

33. Case Study 1 – Bid Phase
R I S K C R I T E R I A & R I S K M AT R I X
33
Consequence Table
Likelihood Table
Escalation Table
Risk Matrix

34. Case Study 1 – Bid Phase
R I S K R E G I S T E R
34
Risk
Identification Controls
Assess
w/Controls Treatment
Assess
w/Treatment
Cost Impact
Schedule Impact

35. Case Study 1 – Bid Phase
S C H E D U L E C O S T R I S K A N A LY S I S
Confidential
35
Confidential

36. Case Study 1 – Bid Phase
S C H E D U L E C O S T R I S K A N A LY S I S
36

37. Case Study 1 – Bid Phase
C O N T I N G E N C Y A S S E S S M E N T
37

38. Case Study 1 – Bid Phase
Scope:
• Project Management
• Engineering & Design
• Procurement & Delivery
$ 1 0 0 M P O W E R P L A N T E P C C O N T R A C T
38
• Procurement & Delivery
• Installation
• Earthwork & Civil
• Mech, Elec, & Control Systems
• Two Gas Turbine Generator Units
• Balance of Plant (BOP)
• Testing & Commissioning

39. Effective Contingency Management
• How to assess optimum contingency allowance (time and cost) for
desired JCL during Bid Phase?
• How to monitor and maintain the desired JCL during Execution Phase
i.e. Contingency Management?
C H A L L E N G E S
39
i.e. Contingency Management?

40. Case Study 2 – Execution Phase
C O N T I N G E N C Y M A N A G E M E N T
40
CONFIDENTIAL

41. Case Study 2 – Execution Phase
• Updated “Project Execution Plan”
• Effective Change Management
• Consistent WBS between cost control & scheduling
K E Y L E S S O N S L E A R N E D
41
• Independent Schedule Health Check
• R&O Workshop every month for both Events and Uncertainties
• Desired time/cost Contingency vs. Available time/cost Contingency
• Early warning (early bad news is actually a good news!)

42. Proactive Risk Management
What about your projects? Don’t they need a proactive risk management
platform in place? THINK again.
W H AT I S N E X T F O R Y O U ?
42
Good luck and enjoy your risk management challenges.

43. Pedram.DaneshMand@aquenta.com.au
+61 432 041 560