This document discusses an integrated risk assessment system for contract risk management using integrated systems. It begins with an introduction and agenda, then discusses industry performance trends, success factors in major projects, and the traditional risk assessment approach versus a "risk driver" method. It proposes an integrated risk assessment system that links estimate, work breakdown structure, time, cost, and risk. It provides examples of project information sheets and discusses validation of scope, cost, schedule, and risk registers. The document emphasizes an integrated approach linking scope, risk, cost, and time for more effective contract risk assessment.

1. Contract Risk Assessment by using integrated systems
Pedram Danesh-Mand, Planning & Risk Manager – Major Projects
3rd Annual Project Scheduling – Feb 2012 QMTRA-01 Rev 3.0

2. Agenda
Brief Introduction
Planning & Risk Manager – Major Projects, UGL Infrastructure
Power Generation, Water & Wastewater, Transport and Telecommunication
Industry performance worldwide
Current Industry Trends
Success Factors in Major Projects
“Risk Driver” Method vs Traditional Approach
Integrated Risk Assessment System
Estimate
Work Breakdown Structure (WBS)
Time
Cost
Risk
2

3. 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 system, another tool, again!
O.K.
Let’s have a look in the performance of
some major projects worldwide, shall we?
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4. Performance of Major Projects
Engineering Projects Oil and Gas Projects
42% behind schedule 81% behind schedule
Ref: Managing the Risk of Delayed Completion in the 21st Century, Survey by Chartered Institute of Building (CIOB), 2007 4

5. Performance of Major Projects
Power Generation Projects
66% behind schedule
Ref: Managing the Risk of Delayed Completion in the 21st Century, Survey by Chartered Institute of Building (CIOB), 2007 5

6. Current Industry Trends
Increasing demand for efficient and technologically complex solutions in shorter timescales and within
tighter financial constraints;
High demand for an accurate completion date, as required by many commercial and public benefit
projects;
A growing trend for employers to require the contractor to take more of the risk that is traditionally taken
by the employer;
A growth in the use of Design & Build (D&B), Guaranteed Maximum Price (GMP) and Engineer Procure
and Construct Contracts (EPC); and
Potentially devastating consequences of the failure to manage time in construction projects.
O.K.
To identify the success factors, we need to
understand why projects fail!
Ref: Managing the Risk of Delayed Completion in the 21st Century, Survey by Chartered Institute of Building (CIOB), 2007 6

7. 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
RISKS & OPPORTUNITIES: Unidentified or assumed, not managed
Ref: Strategies for Project Recovery,
A PM Solutions Research Report,
pmsolutions survey, 2011
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8. Successful EPC Contractor
R&O
Quality
T&C
Scope
8

9. Traditional Approach
EPC Contract
Estimate Scheduling R&O
9

10. Traditional Approach
PROJECT INFORM ATION M onday, 16 January 2012 % of Cost % of Sell VALUE RECOVERY
TENDER NO: TC-3218 Total m an Hours Man Hours
PROJECT TITLE: Weddell Unit 3 Civil 3,364
CONSULTANT/CLIENT: Pow er & Water Corporation, NT Mech 11,854
POST TENDER NEGOTIATION DATE: 16-Jan-12 Elect 6,164
CONSTRUCTION PROGRAMME DURATION (Weeks) 34 8 Months M anning Average Peak
CONSTRUCTION SITE DURATION (Weeks) 34 8 Months Civil 10 16
DEFECTS LIABILITY PERIOD (Weeks) 104 24 Months Mech 28 45
REVISION AND ISSUE REVA0-1 Elect 17 28
Value Recovery
(1-4) TOTAL DIRECT JOB COSTS (items 1-4) TOTAL COST DJC (items 1-5) 51.17% 44.85% $6,338,802.81
(1) PROJECT ELEMENTS, DIRECT COSTS Total for section (1) 40.79% 35.75% $5,053,352.81
1.1 Civil Works Input f rom File 07-Jun-11 9.13% 8.00% $1,131,041.30
1.2 Mechanical Input f rom File 30-May-11 18.16% 15.92% $2,249,906.72
1.3 Electrical Input f rom File 01-Jun-11 12.79% 11.21% $1,584,404.79
1.4 Recruitment
1.4 Final Negotiation f igure generally f or w et w eather increase 0.71% 0.62% $88,000.00
1.5 File
(2) ENGINEERING (Refer SHT-2) Total for section (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 Geotechnical Report & O&M Manuals 09-May-11 0.50% 0.44% $61,828.00
(3) General Specification Requirements (Refer SHT-3) Total for section (3) 0.81% 0.71% $100,100.00
3.1 Preliminary Costs UGLi Prelims File 0.81% 0.71% $100,100.00
3.2 Preliminary Costs other File
(4) COMM ISSIONING (Refer SHT-4) Total for section (4) 1.45% 1.27% $180,000.00
4.1 Commissioning costs UGLi Admin Included in Admin below
4.2 Commissioning Materials Comissioning File 1.45% 1.27% $180,000.00
4.3 Commissioning costs other File
(5-9) TOTAL INDIRECT JOB COSTS (item s 5-9) TOTAL COST INDIRECTS (item s 5-9) 42.79% 37.49% $5,302,192.18
(5) ADMINISTRATION (Refer SHT-5) Total for section (6) 28.90% 25.33% $3,580,535.30
5.1 Site Admin and Site Supervision Costs Admin 10.92% 9.57% $1,352,868.94
5.2 Site Engineering and Site Support Staf f Admin 7.44% 6.52% $921,581.16
5.3 Site Commissioning labour Costs Admin 7.71% 6.76% $955,220.13
5.4 Head Off ice Support Admin 2.44% 2.14% $302,654.86
5.5 Other admin costs Recruitment Costs 0.39% 0.34% $48,210.20
(6) MOBILISATION Plant & Buildings (Refer SHT-6) Total for section (7) 12.75% 11.16% $1,579,350.00
6.1 ( 7a) MOBILISATION & DEMOBILSA TION 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) PLANT AND 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 - Principal's Site Of fice + Utility Pow er & Water Connections (PWC Mtg Darw in Addition) 0.26% 0.23% $32,800.00
(7) COMM UNITY & ENVIRONMENT (Refer SHT-7) Comm & Env Total for section (8) 0.09% 0.08% $11,700.00
(8) HEALTH & SAFETY EQUIPM ENT (Refer SHT-8) Health & Saf ety Total for section (9) 1.05% 0.92% $130,606.88
Hedging Not
(9) HEDGING (refer to SHT-9) BG & Hedge Total for section (10)
Consi dered
(10-13) TOTAL ALLOWANCES (item s 10-13) TOTAL COST ALLOWANCES (item s 10-13) 4.33% 3.79% $535,918.23
(10) ESCALATION (refer to SHT-10) Escalation Total for section (11) $93,861.25
0.76% 0.66%
10.1 Escallation f or Project Management and Supervision 0.57% 0.50% $70,900.00
10.2 Escallation f or Engineering 0.19% 0.16% $22,961.25
10.3 Escallation f or Labour (Not req'd - Mid Point calc)
10.4 Escallation f or Materials (Not req'd)
(11) Contingency R&O Total for section (12) 3.07% 2.69% $379,643.29
(12) Wet Weather Allow ance (Refer to SHT-12) Wet Weather Total for section (13) 0.50% 0.44% $62,413.69
12.1 CIVIL WET WEA THER ALLOWANCE 0.20% 0.18% $25,358.59
12.2 ELECTRICA L WET WEATHER ALLOWANCE 0.08% 0.07% $10,323.82
12.3 MECHANICAL WET WEATHER A LLOWANCE 0.15% 0.13% $18,006.91
12.4 SUPERV ISION WET WEA THER ALLOWANCE 0.07% 0.06% $8,724.38
12.5 OTHER WET WEATHER ALLOWANCE
(13) PROVISIONAL SUM S Total for section (14)
(14) MISC COSTS (LSL, BONDS, INSURANCES ETC) TOTAL COST MISC ITEM (14) 1.69% 1.49% $209,427.60
Liability Charges "U" uncapped Liability (1%), "A" Contract sum Liability (.5%) "B".5 of
14.1 contract sum liability (.25%) A 0.57% 0.50% $70,160.00
14.2
14.3 Long Service Levy (LSL) .35 % on contract value (inc GST) 0.50% 0.62% 0.55% $77,176.00
14.4 Securities Bonds Insert Final Total Selling Price $14,032,000 0.22% 0.19% $27,011.60
14.5 Warranty Provision .25 % on contract value (inc GST) 0.25% 0.28% 0.25% $35,080.00
Insurances excluding construction risk / construction w orks "A" .45% of CV, Including construction risk /
14.6 construction w orks "B" .9% of CV (Worn by Business)
14.7 Other costs
TOTAL COST (items 1-14) PROJECT TOTAL COST ITEM S 1 TO 14 100% 87.62% $12,386,340.82
(15) OVER-HEADS & M argin (item 15) 12.00% TOTAL O-H and M argin ITEM (15) 12.35% $1,745,046.48
15.1 UGLi Overheads 54.17% 6.50% of Selling Mark up 7.39% 6.47% $914,900.17 $914,900.17
15.2 UGLi Profit 45.83% 5.50% of Selling Mark up 6.25% 5.48% $774,146.30 $774,146.30
15.3 Additional Recovery FX Rate 0.45% 0.40% $56,000.00 $56,000.00
15.4 Mark up
15.5 Partner 3 Profit & O/H Mark up
(16) TOTAL SELLING (items 1-15) (16) TOTAL SELLING PRICE EXCLUDING GST 100% $14,131,387.30 $1,745,046.48
GST Value $1,413,138.73
PRICE APPROVED BY : DATE : 16-Jan-12 RECOVERY TO COST : 14.09%
Tender No : TC-3218 Estimator :GRG / RS RECOVERY TO SELLING : 12.35%
Estimate Risk (mainly $) Scheduling
10

11. Risk Driver Approach
EPC Contract
R&O
Estimate
Scheduling
R&O
T&C
Impact
Mitigation
11

12. Risk Driver Approach
EPC SCOPE – WBS
R & O – RBS / WBS
Estimate – CBS / WBS
Schedule WBS
Integration of SCOPE, RISK, COST and TIME
12

13. Scope/Cost/Schedule/Risk
Available data gathering and validation
WBS Development of full Scope
Risks & Opportunities Workshop/s (team approach)
S/C/R Integration
R&O Register incl. both Uncertainties and Events
Schedule Cost Risk Model
Simulation
Results and Discussions
Re-Modelling
Monitoring & Controls
13

14. Scope Validation
The 100% Rule (PMI Standard)
Validation of the WBS includes 100% of the work defined by the project scope and captures ALL
deliverables – internal, external, and interim – in terms of work to be completed, including project
management.
14

15. Cost / Schedule Validation
How to review the deterministic Schedule & Cost?
Validation of
Quantities (most likely)
Productivity Rates (most likely)
Durations (most likely)
Resource Cost Rates (most likely)
Constraints (Contractual or Management)
Logic network and Work Statements, and
Reasonable Critical Path
15

16. Risk Register Validation
How to review the Risk Register?
Validation of
The identified risks & opportunities
Likelihood of the identified risks and opportunities
Impacted WBS element/s
Schedule and/or Cost Impact/s
Schedule and/or Cost Variations
Correlation of risks and opportunities to one another
Notes, etc.
16

17. 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.
Negative or Adverse Correlation: occurs when one risk increases, the other must decrease.
Inclement Weather or other external influences
O.K.
Let’s simulate the model, shall we?
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18. Case Study
Project: EPC Power Station Contract
$100m Project excluding two Gas Turbines
Scope:
2 GT’s and auxiliary equipment;
Required Balanced of Plant (BOP);
Power Station sewage system; and
Roads & drainage.
18

19. Schedule Review
Confidential
19

20. Risk Driver Approach
EPC SCOPE – WBS
R & O – RBS / WBS
Estimate – CBS / WBS
Schedule WBS
WBS
WBS
RBS
CBS
20

21. R&O Register
For the confidentiality reasons, this image does not present the project’s actual R&O Register. 21

22. S/C/S/R Model*
For the confidentiality reasons, this image does not present the project’s actual S/C/S/R Model. 22

23. MCS Modelling*
Confidential
Confidential
For the confidentiality reasons, this image does not present the project’s actual S/C/S/R Model. 23

24. Results*
Confidential
For the confidentiality reasons, this image does not present the project’s actual results. 24

25. Results*
Confidential
Always CRITICAL
For the confidentiality reasons, this image does not present the project’s actual results. 25

26. Results*
For the confidentiality reasons, this image does not present the project’s actual results. 26

27. Benefits to bottom line
Increase certainty in achieving project outcomes
Proper planning of Scope, Time, Cost, & Risk
Learn from lessons
Mitigate risks and maximise Opportunities
Drive proactively
Increase efficiency and optimise Scope, Time, Cost, & Risk Management
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28. Any question, comment?
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