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

1. Generation Summit 2012
Managing Risks on Construction Projects
Victor Allen
February 8, 2012

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. 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. Major Enterprise Projects (MEP) –
Project Execution Organization
Centers of
Excellence
Project
Management Program
& Office
Engineering (50)
(138)
Quality
Management
(12)
4

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. Risk/Issue/Action?
(Issue)
An undesirable
(Risk) event that has (Action)
An undesirable happened and
h d d Work that
event that has needs attention needs to be
not yet done
happened
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7. Why do we manage risks?
“The first step in the risk management process is to acknowledge the reality of
y
risk. Denial is a common tactic that substitutes deliberate ignorance for
thoughtful planning” ~ Charles Tremper
To i
T 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
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8. Why do we manage risks?
Try explaining this to your boss!
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9. Why do we manage risks?
What s
What’s wrong with this picture!
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10. Why do we manage risks?
The stairway to nowhere!
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11. Why do we manage risks?
Who ordered replacement windows?
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12. Why do we manage risks?
Good News - no door-to-door salesman!
door to door
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13. Why do we manage risks?
Your new addition is ready!
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14. Why do we manage risks?
Views are overrated!
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15. Why do we manage risks?
I can’t put my finger on it, but something isn’t right!
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16. Why do we manage risks?
Engineers – got to lo e them!
love
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17. Why do we manage risks?
Works well if you under 2 feet tall!
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18. Why do we manage risks?
Denmark B id
D k Bridge
Collapses During
Construction
Deaths = 0
Injury =0
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19. Why do we manage risks?
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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
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21. Why do we manage risks?
Can Tho Bridge
C Th B id
Vietnam Accident
During
Construction
Deaths = 60
Injury =
Hundreds
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22. Why do we manage risks?
Apartment
A t t
Building Fell Over
During
Construction
Deaths = 0
Injury =0
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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
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24. Risk Management Framework
Program Risk Manager Risk Management Database
• Risk Register
• Risk Assessment Reports
• Risk Scorecard
Processes and Methods
Project 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
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25. Risk Management Process
Quarterly
Monthly
Monthly Senior
Program
Team Reviews Management
Leadership Review
Review
Updated 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
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26. Monthly Program Leadership Review
Leadership Review XYZ Program
Objective:
To understand overall program risk • Review top 10 risks
exposure and ensure that program top • Review program level risk exposure
risks are being responded to • Review common risks
appropriately. • Review and agree on risks to be sent to DOE
•R i
Review recommended risks f closure
d d i k for l
Team Reviews*
Objective:
To effectively identify and
manage 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.
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27. The Risk Register
Project 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
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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%
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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
# exposure
1 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.
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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 performs
1 resulting in schedule delays, rework and Y $ 500,000 PM input 0.9 Default $ 450,000
cost overruns
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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 into
1 resulting in schedule delays, rework Y Critical Path Siding and Roof
Schedule
and cost overruns Construction Work
Packages.
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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 Risks
Number of Risks
100
40 Total 32
Total 33
80 Total 25
30
60 N
N
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
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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 Risks
Number 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
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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
Av
Aver
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
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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
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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
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37. Tips for Successful Risk Management
1. Executive Champion who understands Risk Management
p g
2. Risk Manager who owns process, coaches and mentors
3. Good set of processes, tools, and templates
4. Risk Training for the team (concept and processes)
5. Make Risk Management a priority
6. Benchmark your process and effectiveness regularly
ff
7. Establish Historical Risk Database and leverage the past
8.
8 Work the Risk Plan
9. Develop Contingency Plans for high risk items
10. Don’t sweat the small risks
Don t
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