Effective Contingency Management - Contractor Management Forum - PD July 2013

Contractor Management Forum22 & 23 July 2013, Melbourne, Australia

P E D R A M D A N E S H - M A N D

R E G I O N A L M A N A G E R – P R O J E C T C O N T R O L S

Effective Contingency Management

• Good practice of project contingency assessment

• Risk driven methodology vs. traditional methodology

• Integrated Project Controls

R E Q U I R E D T I M E / C O S T C O N T I N G E N C Y

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• Joint Confidence Level (JCL)

• Good practice of project contingency management

Effective Risk Management

H O W M U C H I S E N O U G H ?

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Agenda

• Introduction

• Industry performance worldwide

• Project Based Business Model

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• Joint Confidence Level (JCL)

• Bid Estimating, Scheduling, Risk Assessment

• Case Study

Aquenta Consulting

A S PA R T O F A M E C G R O U P

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Aquenta Consulting

S E R V I C E S

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BUILDING & F ITOUT

TRANSPORT UTIL IT IES INFRA-STRUCTURE

OIL & GAS

Est imat ing, Cost Management , P lann ing & Contro ls , Fac i l i t ies Management , Contracts & D ispute Services, R isk Management

Project Delivery

• We have a good project controls in place, don’t worry!

• Trust our very experienced planning team. Everything’s fine!

• No problem, everything is under control!

T Y P I C A L M Y T H S

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• All performance indicators are green, don’t worry!

• Please, we don’t need anything new!

• Another new manager, new system, new process, again!

Project Delivery

S O M E FA C T S

Engineering Projects42% behind schedule

Oil and Gas Projects81% behind schedule

8Ref: Managing the Risk of Delayed Completion in the 21st Century, Survey by Chartered Institute of Building (CIOB), 2007

Project Delivery

S O M E FA C T S

Power Generation Projects66% behind schedule

High-rise Buildings67% behind schedule

9Ref: Managing the Risk of Delayed Completion in the 21st Century, Survey by Chartered Institute of Building (CIOB), 2007

Project Delivery

• REQUIREMENTS: Unclear, lack of agreement, lack of priority,

contradictory, ambiguous, imprecise

• RESOURCES: Lack of resources, resource conflicts, turnover of key

resources, poor planning

T O P 5 C A U S E S O F FA I L U R E

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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

Project Based Business Model

B I D – E X E C U T I O N – C O R P O R AT E O B J E C T I V E S

Bid Estimating

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Corporate Objectives

Project Execution

Joint Confidence Level (JCL) – Bid Phase

JCL is:- The probability that cost will

be equal or less than the targeted cost AND schedulewill be equal or less than the

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targeted schedule date- A process and product that

helps inform management the likelihood of a project’s programmatic success

- A process that combines a project’s cost, schedule, and risk into a complete picture.

NASA HQ – Office of Program Analysis and Evaluation (PA&E) Cost Analysis Division

Joint Confidence Level (JCL) – Execution Phase



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• How to assess optimum contingency allowance (time and cost) for

desired JCL during Bid Phase?

• How to monitor and maintain the desired JCL during Execution Phase

i.e. Contingency Management?

C H A L L E N G E S

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Bid Phase – Traditional Approach

E P C C O N T R A C T

Estimating Scheduling R&O’s

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PROJECT INFORMATION % of Cost % of Sell VALUE RECOVERY

TENDER NO: TC-3218 Total man Hours Man Hours

PROJECT TITLE: Weddell Unit 3 Civil 3,364

CONSULTANT/CLIENT: Power & Water Corporation, NT Mech 11,854

POST TENDER NEGOTIATION DATE: 16-Jan-12 Elect 6,164

CONSTRUCTION PROGRAMME DURATION (Weeks) 34 8 Months Manning 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 from File 07-Jun-11 9.13% 8.00% $1,131,041.30

1.2 Mechanical Input from File 30-May-11 18.16% 15.92% $2,249,906.72

1.3 Electrical Input from File 01-Jun-11 12.79% 11.21% $1,584,404.79

1.4 Recruitment

1.4 Final Negotiation figure generally for wet 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) COMMISSIONING (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 (items 5-9) TOTAL COST INDIRECTS (items 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 Staff 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 Office Support Admin 2.44% 2.14% $302,654.865.5 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 & DEMOBILSATION 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 Office + Utility Power & Water Connections (PWC Mtg Darw in Addition) 0.26% 0.23% $32,800.00

(7) COMMUNITY & ENVIRONMENT (Refer SHT-7) Comm & Env Total for section (8)0.09% 0.08%

$11,700.00

(8) HEALTH & SAFETY EQUIPMENT (Refer SHT-8) Health & Saf ety Total for section (9)1.05% 0.92%

$130,606.88

(9) HEDGING (re fer to SHT-9) BG & Hedge Total for section (10)Hedging Not

Considered

(10-13) TOTAL ALLOWANCES (items 10-13) TOTAL COST ALLOWANCES (items 10-13) 4.33% 3.79% $535,918.23

(10) ESCALATION (re fer to SHT-10) Escalation Total for section (11)0.76% 0.66%

$93,861.25

10.1 Escallation for Project Management and Supervision 0.57% 0.50% $70,900.00

10.2 Escallation for Engineering 0.19% 0.16% $22,961.25

10.3 Escallation for Labour (Not req'd - Mid Point calc)

10.4 Escallation for 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 WEATHER ALLOWANCE 0.20% 0.18% $25,358.59

12.2 ELECTRICAL WET WEATHER ALLOWANCE 0.08% 0.07% $10,323.82

12.3 MECHANICAL WET WEATHER ALLOWANCE 0.15% 0.13% $18,006.91

12.4 SUPERVISION WET WEATHER ALLOWANCE 0.07% 0.06% $8,724.38

12.5 OTHER WET WEATHER ALLOWANCE

(13) PROVISIONAL SUMS Total for section (14)

(14) MISC COSTS (LSL, BONDS, INSURANCES ETC) TOTAL COST MISC ITEM (14) 1.69% 1.49% $209,427.60

14.1 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

14.6

14.7 Other costs

TOTAL COST (items 1-14) PROJECT TOTAL COST ITEMS 1 TO 14 100% 87.62% $12,386,340.82

(15) OVER-HEADS & Margin (item 15) 12.00% TOTAL O-H and Margin 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 Prof it 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%

Insurances excluding construction risk / construction w orks "A" .45% of CV, Including construction r isk /

construction w orks "B" .9% of CV (Worn by Business)

Monday, 16 January 2012

Liability Charges "U" uncapped Liability (1%), "A" Contract sum Liability (.5%) "B".5 of

contract sum liability ( .25%)

Risk Driven Approach

QUALITY

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QUALITY

TIME

SCOPE

COST

Cost Management

• Cost Estimating – developing an approximation of the costs of the

resources needed to complete project activities.

• Cost Budgeting – aggregating the estimated costs of individual activities

or work packages to establish a cost baseline.

P R O C E S S

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or work packages to establish a cost baseline.

• Cost Control – influencing the factors that create cost variances and

controlling changes to the project budget.

Cost Management

• Available organisational process

assets

• Available quantities, resources

and productivity rates

I N P U T S

All these assumptions add UNCERTAINTIESwhich reduce the cost confidence

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• Available work/scope statements

• Work Breakdown Structure

(WBS), and

• Other assumptions/documents

e.g. PMP, etc.

cost confidence level. What about other R&O’s and events?

Cost Management

• (Deterministic) Activity Cost

Estimate

• (Deterministic) Total Project Cost

O U T P U T S

What is your CONFIDENCE LEVEL in such a deterministic cost estimate?

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• (Deterministic) Cost Model Data

• (Deterministic) Cost Baseline

• (Deterministic) Resource

Requirements

estimate?

Time Management

S C H E D U L I N G

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Time Management

• Logic-based Scheduling Methods

(LSM)

• Deterministic Techniques e.g.

CPM, Critical Chain, etc.

S C H E D U L E D E V E L O P M E N T M E T H O D S

Which method and tool will suit

your project requirements the

most

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• Stochastic Techniques e.g. PERT,

PNET, Monte Carlo Simulation,

etc.

• Repetitive Scheduling Methods (RSM)

• Line of Balance (LOB)

• Flowline Method

most

Scheduling

• Available templates

• Available quantities, resources


I N P U T S

All these assumptions add UNCERTAINTIESwhich reduce the

schedule

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• Available work/scope statements

• Available construction logic, and

• Other assumptions e.g.

calendars, PMP, etc.

schedule confidence level. What about other

R&O’s and events?

Scheduling

• (Deterministic) Project Schedule

• (Deterministic) Schedule Model

Data

O U T P U T S

What is your CONFIDENCE

LEVEL in such a deterministic schedule?

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• (Deterministic) Schedule

Baseline

• (Deterministic) Resource

Requirements

schedule?

Integrated Time/Cost Risk Management



TIMECOST

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Joint Confidence Level (JCL)

RISK

Joint Confidence Level (JCL)

• Step 1 – Identify goals of JCL for specific project

• Step 2 – Review built schedule (i.e. Schedule Health Check)

• Step 3 – Cost loaded schedule (both Time Dependent / Independent)

P R O C E S S

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• Step 3 – Cost loaded schedule (both Time Dependent / Independent)

• Step 4 – Implement Risk Register (through R&O’s Workshop)

• Step 5 – Conduct uncertainty analysis

• Step 6 – View results

• Step 7 – Analyse results

Validation and Health Check

• Validation of

• Quantities (most likely)

• Productivity Rates (most likely)

C O S T A N D S C H E D U L E

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• Durations (most likely)

• Resource Cost Rates (most likely)

• Constraints (Contractual or Management)

• Logic network and Work Statements, and

• Reasonable Critical Path

Risk Register

• The identified risks & opportunities

• Likelihood of the identified risks and opportunities

• Impacted activities and/or cost elements

K E Y E L E M E N T S

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• Uncertainties

• Existing controls and residual risks

• Schedule and/or Cost Consequences and required Contingency

• Correlation of risks and opportunities to one another

Case Study 1 – Bid Phase

Scope:

• Project Management

• Engineering & Design

• Procurement & Delivery

$ 1 0 0 M P O W E R P L A N T E P C C O N T R A C T

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• Installation

• Earthwork & Civil

• Mech, Elec, & Control Systems

• Two Gas Turbine Generator Units

• Balance of Plant (BOP)

• Testing & Commissioning






C H A L L E N G E S

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S C H E D U L E H E A LT H C H E C K

Confidential

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R I S K C R I T E R I A & R I S K M AT R I X

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Consequence Table

Likelihood Table

Escalation Table

Risk Matrix


R I S K R E G I S T E R

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RiskIdentification Controls

Assessw/Controls Treatment

Assessw/Treatment

Cost ImpactSchedule Impact


S C H E D U L E C O S T R I S K A N A LY S I S

Confidential

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Confidential


S C H E D U L E C O S T R I S K A N A LY S I S

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C O N T I N G E N C Y A S S E S S M E N T

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Scope:

• Project Management

• Engineering & Design


$ 1 0 0 M P O W E R P L A N T E P C C O N T R A C T

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• Installation

• Earthwork & Civil

• Mech, Elec, & Control Systems

• Two Gas Turbine Generator Units

• Balance of Plant (BOP)

• Testing & Commissioning






C H A L L E N G E S

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Case Study 2 – Execution Phase

C O N T I N G E N C Y M A N A G E M E N T

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CONFIDENTIAL

Case Study 2 – Execution Phase

• Updated “Project Execution Plan”

• Effective Change Management

• Consistent WBS between cost control & scheduling

K E Y L E S S O N S L E A R N E D

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• Independent Schedule Health Check

• R&O Workshop every month for both Events and Uncertainties

• Desired time/cost Contingency vs. Available time/cost Contingency

• Early warning (early bad news is actually a good news!)

Proactive Risk Management

What about your projects? Don’t they need a proactive risk management

platform in place? THINK again.

W H AT I S N E X T F O R Y O U ?

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Good luck and enjoy your risk management challenges.

[email protected]

+61 432 041 560

Effective Contingency Management - Contractor Management Forum - PD July 2013

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