Managing Risks in the Project Pipeline

Report
Managing Risks in the Project Pipeline
Minimizing the Impacts
of Highway Funding Uncertainties
Larry Redd, P.E.
Tim McDowell, WYDOT, P.E.
Larry Redd LLC
Uncertainties Can Ruin Your Asset Management Plans
Best Laid Plans
• Optimized project selection
• Intended performance benefits
• Assumed revenue by year
Unplanned Outcomes
• Actual Revenue?
• Missed deliveries
• Holding Costs
• Obsolete projects
• “Hurry-up” projects
• Low performance
STIP—
”Project Pipeline”
Project
Deliveries
Project
Programming
2017+
Larry Redd, P.E.
970-219-4732
[email protected]
Larry Redd LLC
2017
2016
2015
2014
2013
2012
Pipeline Uncertainties
• Scope growth and project cost
• Labor and Materials price volatility
• Environmental or ROW issues
• Unplanned political priorities
• Construction cost inflation
• Uncertain or variable revenue
Non-Optimum Project Pipeline Costs
Costs
Costs of “Being
Too Lean”--Loss of Stimulus
Funds, Block
Grants, Special
Legislative Funds
-”Hurry-up” design
and devel. costs
-Non-optimum
advanced const.
“Optimum”
Range
Holding Costs –
-“PE 10 yr Limit List”
$Millions at risk, and
$Billions in projects
may not get done
-Lost permit costs
-ROW and EA costs
-Development costs
-Obsolete projects
-Redesign costs
Amount of Projects “On-the-Shelf” Ready to Go
Objectives
• Identify cost elements (holding and hurry-up costs) and
uncertainty factors to reduce or trade off or mitigate.
• Identify controllable factors to optimize (examples) –
– How to operate the pipeline (loading, project mix, draining, etc.)
– Cost factors to reduce (holding, hurry up)
– Reduce time delays in getting projects onto the shelf
• Bottom line – Determine how to deliver intended projects,
with expected performance, on time; in the midst of uncertain
and/or variable funding
• Not “Business as usual…” – Instead, using low impact
solutions/methods to manage risks and uncertainties
Uncertainty Factors
•
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Scope growth
Political priorities
Material price volatility
Labor costs
Other construction cost escalation
Legal issues
Environmental or regulatory issues
Right-of-way issues
Funding issues
Simulation Cartoon
Higher Risk
if delayed.
3R4R Project
Loading Rate
Lower Risk
if delayed.
1R2R Project
Loading Rate
3Rs and 4Rs
in Design
3Rs and 4Rs
“On-the-Shelf”
3R4R Design
Completion Rate
1Rs and 2Rs
in Design
3R4Rs
Paved
3R4R
Paving Rate
1Rs and 2Rs
“On-the-Shelf”
1R2R Design
Completion Rate
1R2Rs
Paved
1R2R
Paving Rate
Available Funding – WYDOT Scenario
Available Funding
dollars/yr
300,000,000
250,000,000
200,000,000
150,000,000
Jan 01, 2012
Jan 01, 2022
Sensitivity of Losses to Key
Parameters
Parameter
Initial Value
Sensitivity Value
Reduction in
Losses
Design Time for
3R4Rs
5 yrs
3 yrs
Up to 22% or
more
Pipeline (Shelf)
Draining Logic
Proportional based “Keep the Critical
on intended Mix
Projects Moving”
Up to 16 % or
more
Holding Cost
factor (per year)
5% for 3R4Rs and
2% for 1R2Rs
2.5% for 3R4Rs
and 1% for 1R2Rs
20 to 30%
Hurry Up
Inefficiency
40% inefficiency
20% inefficiency
25% or more
Use of Projected
Revenue
No Projections
used
Projected two
years out
Up to 30 % or
much more
“Smoothness” of
Funding
“Bumpy” or
“Blocky” funding
Smoothed or
flattened funding
Ideally this would
eliminate losses
Observations and Conclusions
• Latest results verify that total Project Pipeline losses can be
about 3% per year or more (off-nominal cost assumptions).
–
A 3 percent savings is representative based on the findings of the analysis. This would
amount to a total savings of $90 million,for example, for a budget of 3 billion dollars
over a 10-year period.
• Multiple methods have been shown to be effective in cutting
these losses:
– Using (accurate) forward projections of available revenue, or reducing
design times in the pipeline (especially for 3R4R projects)
– Reducing the values of the factors of Hurry Up and Holding Costs
– The “Critical Project Method” of stabilizing the flow of major projects
has proven effective. Don’t delay the largest and more complex
projects.
• Questions?????

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