Risk Based Contingency Estimating Jay Drye, WSDOT November 2005 Contingencies • Set up to cover Unforeseen Conditions – – – – Additional Work Quantity Overruns Risks that materialize Dispute Resolution.

Report
Slide 1

Risk Based
Contingency Estimating

Jay Drye, WSDOT
November 2005


Slide 2

Contingencies
• Set up to cover Unforeseen Conditions





Additional Work
Quantity Overruns
Risks that materialize
Dispute Resolution


Slide 3

Contingency Estimating
• WSDOT Historically
– Previously 5%
– Currently 4% based on audit

• Programmatic
– Large Projects utilizing CEVP®


Slide 4

Problem
• Large Projects
– Percentage may not be adequate
– No way to balance a program

• Unique Projects
• How does % relate to risk


Slide 5

Risk Management
– Risk Management is a systematic
approach for making informed
decisions while minimizing adverse
impacts to project scope, cost, and
schedule.
– Risk Management Focuses on
identifying risks and managing their
outcomes.


Slide 6

What do we do with RM info?
• The design risk management process
identifies, analyzes, assigns and reduces
risk where appropriate.
• Includes minimizing the consequences of
adverse events.
• What about the remaining risk and
consequences carried into Construction?


Slide 7

Quantitative Risk Analysis
• Aims to analyze numerically the
probability of each risk and consequences
on project objectives.

• Inputs: CEVP or CRA results
Alternatively Simplified Register

• Output: Qualitative Risk Based
Contingency


Slide 8

Evaluate Uncertainty
11 12 1
10
2
9
3
8
4
7 6 5

Uncertainty in
Total Project Cost
and Duration

_
Event
X

Activity A

Activity B

$

End

Start

Activity C
T

11 12 1
10
2
9
3
8
4
7 6 5

Uncertainty in Activity “Base” Costs
_
Event
Y
Uncertainty in Activity “Base” Durations
Risk Events (likelihood of occurrence, and likelihood for cost and duration
changes if the event occurs)


Slide 9

Limitations of Simplified Register
• Lower Accuracy for:
– Low number of Risks
– High Probability Risks

• Relies on Probabilistic Data
• Not Statistically Correct
• Not Recommended for Opportunities


Slide 10

Risk Register
Risk
Probability

Max.
Cost
Impact

Risk
Value

Unsuitable
Excavation

25%

$300k

$75k

Utility DelaysImpacts

30%

$100k

$30k

Quantity Overruns

20%

$150K

$30k

Risk Event

Risk Contingency

$135k


Slide 11

Risk Based Contingencies






Quantify the risk
Better documentation
Better programming = meeting commitments
Reduce crisis management
Higher confidence priorities in construction
administration
• Better Monitoring


Slide 12

Risk Monitoring and Control
• Update as project develops
• Use in Change Order Process
• Manage Risks to reduce financial
impacts


Slide 13

Tips for Success!
• Consider all team input in the
development of Risk Management
and Risk Register.
• Be realistic about values and risks
• Monitor efforts to reduce risks


similar documents