The presentation will discuss the fundamentals of the schedule cost risk integration concept and its applications for major projects. It will also review the implementation in a tunnel case study.

1. Schedule Cost Risk Integration
for
Major Infrastructure Projects
Presented by:
Pedram Daneshmand
Senior Associate Director
4th Annual Contract Selection and Risk
for Major Projects, March 2011

2. Agenda
• Brief Introduction
• Project Delivery – Myths
• Project Delivery – Facts
• Top 5 Causes of Failure
p
• PTM, PCM and Project Risk Management (PRM)
• Schedule Cost Risk Integration
g
• S/C/R Integration Process
• S/C/R Integration Outcomes
g
• Case Study
Schedule Cost Risk Integration
for Major Infrastructure Projects | 2

3. At the end of today you will …
• Know more about Quantitative Risk Analysis (QRA) for
project schedule/cost/risk management
• See a technical approach to analyse risks and
opportunities
• A better understanding of Schedule Cost Risk Integration
Think about how to use these tools
for YOUR PROJECT.
Schedule Cost Risk Integration
for Major Infrastructure Projects | 3

4. blueVisions Introduction
• International consultancy with offices Australia-wide, Dubai,
Abu Dhabi and Singapore
• Project Management Services focused on increasing certainty
and reducing risk including; Governance, Planning & Controls,
Contract Services & Training
Our experience with construction:
p
• Rail
• Road
• Telecommunications
• Commercial
• Water
• Engineering
• Health
• Federal,
Federal State & Local gov
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for Major Infrastructure Projects | 4

5. Project Delivery: Myths
• We have a good PM system in place, don’t worry.
• Trust our very experienced team. Everything’s fine.
• No problem, everything is under control.
• No worries, we have been there, done that.
• Please, we don’t need anything new.
• Another new technology, another tool, again!
gy, , g
So,
So they know what they are
talking about. Right?
Schedule Cost Risk Integration
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6. Project Delivery: Facts
• Of the 20,821 projects that were
closed in the past 12 months in
the fi
h firms surveyed (by pmsolutions,
d
2011), 37% were at risk and
either recovered or failed!
• Average $ at risk per firm:
$74 million
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7. Project Delivery: Facts
• Australian oil project, Kipper
Development including the Tuna
and T
d Turrum ventures:
• 1 year delay
• $US1.7B over budget
estimate of $US2.7
The Australian, 20/J /2011
Th A t li 20/Jan/2011
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8. Project Delivery: Facts
• Woodside – Pluto LNG Project,
WA
• The first
Th fi t LNG shipment h
hi t has
been delayed 6 months (from
a Mar 11 target to Sep 11),
• $2B cost blowout on the
original forecast of $
g $12B.
The Australian, 01/D /2010
Th A t li 01/Dec/2010
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9. Project Delivery: Facts
• Australia’s resources sector has
been hit by more than $8B in
mega-project cost bl
j blowouts iin
the past 6 years
News.com.au, 10/J /2011
N 10/Jan/2011
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10. Project Delivery: Facts
Railway Stations High-rise Buildings
79% behind schedule 67% behind schedule
Ref: M
R f Managing th Ri k of D l d Completion i th 21st C t
i the Risk f Delayed C l ti in the Century, Survey by Ch t d I tit t of Building (CIOB) 2007
S b Chartered Institute f B ildi (CIOB),
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11. Project Delivery: Facts
Engineering Projects Oil and Gas Projects
42% behind schedule 81% behind schedule
Ref: M
R f Managing th Ri k of D l d Completion i th 21st C t
i the Risk f Delayed C l ti in the Century, Survey by Ch t d I tit t of Building (CIOB) 2007
S b Chartered Institute f B ildi (CIOB),
Schedule Cost Risk Integration
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12. Project Delivery: Facts
Planning & Controls
Tools
• A bar-chart 54%
• Partially/Fully linked 22%
• Minutes of meetings 11%
• Correspondence
p 8%
• Flow Chart 3%
• Time Chainage g 1%
• Line of Balance 1%
Ref: M
R f Managing th Ri k of D l d Completion i th 21st C t
i the Risk f Delayed C l ti in the Century, Survey by Ch t d I tit t of Building (CIOB) 2007
S b Chartered Institute f B ildi (CIOB),
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13. Myths vs Facts
I want to be confident
in my project delivery.
What can I do????
Schedule Cost Risk Integration
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14. Top 5 Causes of Failure
• REQUIREMENTS: Unclear, lack of agreement, lack of
priority, contradictory, ambiguous, imprecise
• RESOURCES: Lack of resources, resource conflicts,
turnover of key resources, poor planning
• SCHEDULES: Too tight, unrealistic, overly optimistic
• PLANNING: Based on insufficient data, missing items,
insufficient details, poor estimate
i ffi i t d t il ti t
• RISKS & OPPORTUNITIES: Unidentified or assumed,
not managed*
* Ref: Strategies for Project Recovery
A PM Solutions Research Report
pmsolutions survey 2011
survey,
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15. Schedule, Cost, Risks
COST
SCHEDULE
RISK
Schedule Cost Risk Integration
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16. Project Time Management (PTM)
SCHEDULE
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17. PTM – Process
• Activity Definition
• Activity Sequencing ( g )
y q g (logic)
• Activity Resource Estimating
• Activity Duration Estimating
y g
• Schedule Development
• Schedule Control
PMBOK,
PMBOK 2004
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18. PTM – Schedule Development
• The Schedule Development process includes selecting
a Scheduling Method, Scheduling Tool, incorporating
project specific d
j ifi data within that scheduling tool to
i hi h h d li l
develop project specific Schedule Model, and
generating Project Schedule
Schedule.
PMI – Th P ti St d d f S h d li
The Practice Standard for Scheduling, 2007
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19. PTM – Schedule Development
PMI – Th P ti St d d f S h d li
The Practice Standard for Scheduling, 2007
Schedule Cost Risk Integration
for Major Infrastructure Projects | 19

20. PTM – Schedule Dev. Methods
• Logic-based Scheduling Methods (LSM)
• Deterministic Techniques
• E.g. Critical Path Method (CPM), Resource Optimisation,
Critical Chain Method (CCM), etc.
• Stochastic T h i
St h ti Techniques
• E.g. Probabilistic Evaluation and Review Technique (PERT),
PNET, Monte Carlo Simulation (MCS), etc.
, ( ),
• Repetitive Scheduling Methods (RSM)
• Line of Balance (LOB)
• Flowline Method
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21. PTM – Schedule Dev. Inputs
• Planners develop the project schedule by using:
• Available templates
• Available quantities, resources and productivity rates
• Available work/scope statements
p
• Available construction logic, and
• Other assumptions e.g. calendars, PMP, etc.
p g , ,
With all those uncertainties in the inputs and the
With all those uncertainties in the inputs and the
possible risks and opportunities in the schedule, the
question is, how confident we are in this schedule?
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22. PTM – Schedule Dev. Outputs
• The outputs of Schedule Development process are:
• (Deterministic) Project Schedule
• (Deterministic) Schedule Model Data
• (
(Deterministic) Schedule Baseline
)
• (Deterministic) Resource Requirements
How confident we are in this schedule?
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23. PTM – Major Challenges
• Uncertainties due to assumptions
• Logic, constraints, resources, calendars and activity
durations are not always clear and agreed
• What-If Scenarios, and
• Risks and Opportunities
To have a realistic schedule, the Schedule Development
process should be improved by using Schedule Risk
h ld b i db i S h d l ik
Analysis. In other words Project Time Management and
Project Risk Management need to be integrated!
Schedule Cost Risk Integration
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24. Project Cost Management (PCM)
COST
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25. PCM – Process
• Cost Estimating – developing an approximation of the
costs of the resources needed to complete project
activities.
i ii
• Cost Budgeting – aggregating the estimated costs of
individual ti iti
i di id l activities or work packages t establish a
k k to t bli h
cost baseline.
• Cost Control – influencing the factors that create cost
variances and controlling changes to the project
g
budget.
PMBOK,
PMBOK 2004
Schedule Cost Risk Integration
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26. PCM – Tools & Techniques
• Analogous Estimating
• Determine Resource Cost Rates
• Bottom-up Estimating
• Parametric Estimating
g
• Project Management Software
• Vendor Bid Analysis
y
• Reserve Analysis
• Cost of Quality
Q y
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27. PCM – Inputs
• Estimators develop the project estimate by using:
• Available organisational process assets
• Available quantities, resources and productivity rates
• Available work/scope statements
p
• Work Breakdown Structure (WBS), and
• Other assumptions/documents e.g. PMP, etc.
p g ,
All these add uncertainties to the estimate and reduce
All these add uncertainties to the estimate and reduce
the confidence level. What about risks and opportunities
in the total project cost?
Schedule Cost Risk Integration
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28. PCM – Outputs
• The outputs of the Cost Estimating process are:
• (Deterministic) Activity Cost Estimate
• (Deterministic) Total Project Cost
• (
(Deterministic) Cost Model Data
)
• (Deterministic) Cost Baseline
• (
(Deterministic) Resource Requirements
) q
With all these uncertainties in the inputs and the possible
With all these uncertainties in the inputs and the possible
risks and opportunities in the estimate, the question is,
how confident we are in this estimate?
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29. PCM – Software
• Software, like cost estimating software applications,
computerised spreadsheets, and simulations and
statistical tools are widely used to assist with cost
i i l l id l d i ih
estimating.
To have a realistic estimate, the Cost Estimating process
should be improved by using Cost Risk Analysis (CRA).
h ld b i db i C ik l i (C )
In other words Project Cost Management (PCM) and
Project Risk Management (PRM) need to be integrated!
Schedule Cost Risk Integration
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30. Project Risk Management (PRM)
RISK
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31. PRM – Process
Establish Context
SULT
ITOR AND REVIEW
W
NICATE AND CONS
Identify Risks
SMENT
D
RIS ASSESS
Analyse Risks
SK
COMMUN
MONI
Evaluate Risks
C
Treat Risks
AS/NZS ISO 31000 2009 Ri k M
31000:2009, Risk Management – P i i l and guidelines
t Principles d id li
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32. PCM – Risk Assessment
• Risk Assessment includes:
• Risk Identification (both Uncertainties and Events)
• Risk Analysis
• Qualitative
• Semi‐Quantitative Risk Analysis
• Quantitative
• Risk Evaluation
Ri k E l ti
The goal is to have a better understanding of risks /
g g /
opportunities and their overall impact on project schedule
and cost to see the plan in ONE integrated picture.
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33. PTM, PCM and PRM
• Every Schedule has uncertainties and assumptions
• Every Cost Estimate has uncertainties and assumptions,
and
• Every Project has risks and opportunities
To have a confident plan, Project Time Management (PTM),
p , j g ( ),
Project Cost Management (PCM) and
Project Risk Management (PRM) need to be integrated!
Schedule Cost Risk Integration
for Major Infrastructure Projects | 33

34. PTM, PCM and PRM
COST
SCHEDULE
RISK
Schedule Cost Risk Integration
Schedule Cost Risk Integration
for Major Infrastructure Projects | 34

35. S/C/R Integration – Overview
• Available data gathering and validation
• Schedule and Cost Estimate Development
• Risks & Opportunities Workshop/s (team approach)
• S/C/R Integration
g
• R&O Register incl. both Uncertainties and Events
• Schedule Cost Risk Model
• Simulation
• Results and Discussions
• Re-Modelling
• Monitoring & Controls
Schedule Cost Risk Integration
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36. S/C/R Integration – Data
• Required information for a SCR Integration:
• Well-developed project scope
• Quality estimate excl. contingency and escalation
• Good Schedule reflecting the estimate
g
• Risk Mgmt policy/processes in your organisation
• Risk checklist incl. typical risks and opportunities
yp pp
• Risk & Opportunities Template
• Schedule/Cost Risk Templates/Models, and
p ,
• Sample available reports
Schedule Cost Risk Integration
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37. S/C/R Integration – Review
• How to review the deterministic Schedule & Cost?
• Validation of
• Quantities (most likely)
• Productivity Rates (most likely)
y ( y)
• Durations (most likely)
• Resource Cost Rates (most likely)
( y)
• Constraints (Contractual or Management)
• Logic network and Work Statements, and
g ,
• Reasonable Critical Path
Schedule Cost Risk Integration
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38. S/C/R Integration – R&O Register
• The elements of the R&O Register:
• The identified risks & opportunities
• Likelihood of the identified risks and opportunities
• Impacted activities
p
• Schedule and/or Cost Impact/s
• Schedule and/or Cost Variations
• Correlation of risks and opportunities to one another
• Notes, etc.
,
Schedule Cost Risk Integration
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39. S/C/R Integration – Model
• Major risks and opportunities been identified
• Uncertainties and Events
• The likelihood and impacts been assessed
• Risk Matrix aligned with the company’s risk management
g p y g
policy
• Impacts checked against the allocated calendars
• Correlations between risks been identified
• Stage the opportunities if required, and
• Duplications are minimised and addressed
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40. S/C/R Integration – Special Conditions
• Special conditions that require extra attention:
• Probabilistic Branching – which considers the
situation where the outcome of an event can cause
two or multiple possible courses of activities
• Correlation between risks
• Positive Correlation: occurs when one risk goes higher, so must
the other.
the other
• Negative or Adverse Correlation: occurs when one risk increases,
the other must decrease.
• Inclement Weather or other external influences
Schedule Cost Risk Integration
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41. S/C/R Integration – Simulation
• The S/C/R Model should be simulated with multiple
scenarios of the project using random samplings of
the relevant risks and opportunities considering their
h l i k d ii id i h i
probability and impact.
• Two
T popular methods:
l th d
• Monte Carlo Simulation (MCS) – faster method but has a
larger possibility of sampling error
g p y p g
• Latin Hypercube Sampling (LHS) – slower method but less
sampling errors
Schedule Cost Risk Integration
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42. S/C/R Integration – Treatment Plan
• The accuracy of the S/C/R Integration outcomes should
be improved through a number of iterations of this
process.
• Based on the initial results, the team should:
• Review the R&O Register and make modifications where required
h & d k df h d
• Make changes to the Model accordingly
• Run the simulation again and repeat the process to achieve the
Run the simulation again and repeat the process to achieve the
most cost‐effective risk mitigation plan
• Finalise the Risk Treatment Plan as well as the Contingency Plan
• Management Approval, and
• Communicate this plan with the team and then monitor it
Schedule Cost Risk Integration
for Major Infrastructure Projects | 42

43. Case Study
• Project: Electricity Transmission Cable Tunnel
• Part of $1B Program
• Tier 1 Contractor
• Scope:
p
• Tunnel Construction
• Net Connections
• Cable Installation
• Tunnel Entrance
• Ventilation Intake
Schedule Cost Risk Integration
for Major Infrastructure Projects | 43

44. Case Study – Schedule Review
Confidential
Schedule Cost Risk Integration
for Major Infrastructure Projects | 44

45. Case Study – R&O Register
Schedule Cost Risk Integration
for Major Infrastructure Projects | 45

46. Case Study – S/C/R Model
Schedule Cost Risk Integration
for Major Infrastructure Projects | 46

47. Case Study – S/C/R Model
Lost Day Facto (LDF)
t or
Schedule Cost Risk Integration
for Major Infrastructure Projects | 47

48. Case Study – MCS Simulation
Confidential
Confidential
Schedule Cost Risk Integration
for Major Infrastructure Projects | 48

49. Case Study – Simulation Results
Confidential
Deterministic PC Date
99% ---17/Dec/14
50% --- 04/Nov/14
Contingency Plan
Schedule Cost Risk Integration
for Major Infrastructure Projects | 49

50. Case Study – PC Dates
Confidential
Deterministic PC Date
99% ---17/Dec/14
50% --- 04/Nov/14
Schedule Cost Risk Integration
for Major Infrastructure Projects | 50

51. Case Study – Criticality Index
Confidential
Confidential
AL
Always CRITICA
C
Schedule Cost Risk Integration
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52. Case Study – Criticality Path
Confidential
The Criticality Path Report
highlights the path through the
project containing the tasks with
project containing the tasks with
the highest Criticality Index
values.
Percent Criticality is the
probability that an activity will
be on the critical path; this
indicates the relative
importance of the activity to
p y
other activities in the
programme.
Schedule Cost Risk Integration
for Major Infrastructure Projects | 52

53. Case Study – Criticality Distribution
Confidential
Confidential
Criticality Distribution Profile
plots the spread of the
Criticality Index in a project to
Criticality Index in a project to
give an indication of the
% of Tasks Critical
number and threat of near to
25.9 %
critical path.
critical path
A high percentage (more than
40%) indicates a relatively
40%) i di l i l
tight programme.
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for Major Infrastructure Projects | 53

54. S/C/R Integration – Benefits to bottom line
• Increase certainty in achieving p j
y g project outcomes
– P&C System: Scope, Time, Cost, & Risk
– Learn from lessons
– Consistency across multiple ventures and repeatability
C i li l d bili
– Demonstrate capability and excellence to clients
• Reduce risks and maximise Opportunities
• Drive proactively
• Increase efficiency and optimise Time Cost & Risk
Time, Cost,
• End to end transparency
• Control change
Schedule Cost Risk Integration
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55. Question, Comment?
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