Risk Management in Value Engineering -...
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Risk Management in Value Engineering AASHTO 2009 VE Conference, San Diego September 1, 2009 Rich Foley California Department of Transportation Rein Lemberg CALTROP Corporation
Transcript of Risk Management in Value Engineering -...
Risk Management in Value Engineering
AASHTO 2009 VE Conference, San DiegoSeptember 1, 2009
Rich FoleyCalifornia Department of Transportation
Rein LembergCALTROP Corporation
A bit of background about Caltrans policies and our largest project
to date.
Caltrans Policies
Our Risk Management Program evolved on the San Francisco - Oakland Bay Bridge Program
The SFOBB is a complex program with multiple construction sequences…
Multiple Interdependent Contracts
SSD West Tie-in Phase 1
(Tunnel Viaduct
Replacement)
Submarine Cable
Skyway
SAS Phase 1Erect Tower
E2/T1E2
Foundation
YBI Hinge K WB
YBI Construction
WB
SSD West Tie-in Phase
2
SSD East Tie-in
SSD Viaduct
SAS Phase 3Complete
EB
OTD 2Complete WB
SAS Phase 2 Complete
WB
OTD 1
SAS Phase 1Load
Transfer
YBI Hinge K EB
OTD 2 EB
SSD Demolition of
Existing Bridge
YBI Construction
EB
YBI Complete WB
Frame 2
YBI Complete EB
Frame 2
SAS Phase1Deck
Erection
SAS Phase1E2 Capbeam
SAS Phase1W2 Capbeam
OTD 2 EB Detour
SSD Traffic Switch
Bridge Closure
(Complete SSD WTI Phase 1)
SAS Phase 1Cable
InstallationE2/T1
T1Foundation
WB Traffic Switch
EB Traffic Switch
How we apply quantitative risk analysis…
Quantitative Risk Analysis
Schedule Risk Analysis
Application to budgets and
decisions
Our quantitative risk analysis is simple
Output
Inputs
Model
The inputs appear daunting but can be simplified.
BetaGammaNormal
α1
,α2 α,βμ,σ
Uniform
min max
Triangular
min peak max
How we determine the input distribution…
Optimistic PessimisticMost Likely
$
Somewhere in between,if discernable.
Triangular distribution
Uniform distribution(if no Most Likely value)
So that we have probability distributions for all of our input variables…
100 150$20 $35 $50
Risk item = Probability x Impact
Estimate
Line item = Quantity x Unit Price
Risks10% 30% $1M $3M
Input Distributions
…that we run through a Monte Carlo model to get the output probability distribution.
Monte Carlo Simulation
We turn it into a “readable” probability curve
50% Probable Cost
10% Chance of Overrun90% Chance of Underrun
We innovated in quantitative analysis of
schedule risks
Understanding Cost and Schedule Risk Analysis
1d
1d
1d
1d
1d
1d
1d
1d
$1
$1
$1
$1
$1
$1
$1
$1
3d4d
5d
1d
1d
1d
1d
1d
1d
1d
1d
$8 8d
20
40
20
20
20
25
25
20
100
9080
20
40
20
20
20
25
25
20
Schedule risk analysis is handled differently...
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Longest Path
How do schedule risks affect the schedule?
•
Can change the critical (longest) path
•
Determine the length of the critical path
1. Probability of occurrencee.g 20%
2. Delay range0d 60d
20
40
20
20
20
25
25
20
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An example schedule…
Erect Temporary Works
Install Cable System
Transfer Load to Cable
…we add duration uncertainties…
Erect Temporary Works
Install Cable System
Transfer Load to Cable
…and introduce risks into the schedule.
Erect Temporary Works
Install Cable System
Transfer Load to CableRisk Risk Risk
•
Risk activity appears as zero-duration activity•
Has two properties: 1. probability that it may occur 2. three-point estimate of its duration IF it happens to occur
We run schedule risk analysis software to get…
Probability DistributionFor Completion Milestone
Criticality Chart
50 55 60 65 70 75 80 85 90 95 100
002371 ‐ Install Suspenders000341 ‐ PWS System Installation
000351 ‐ Load Transfer Cable to Deck Sect.000841 ‐ Compact PWS/Cable Bands
000831 ‐ Erect Cable System Temporary Works001521 ‐ EB Completion Activities
000641 ‐ Stage 1 Demolition (Bent 39 to Bent 33)000691 ‐ Construct Abutment 23R
000751 ‐ Excavate & Light Weight Concrete Roadway000761 ‐ Construct Roadway & Complete Eastbound
002361 ‐ OBG Complete for Cable Erection002071 ‐ Erect Deck Lift 14W
002341 ‐ Align/Bolt /Weld Lifts 13W/14W002041 ‐ Erect Deck Lift 13W002051 ‐ Erect Deck Lift 13E
002191 ‐ Align/Bolt /Weld Lifts 12E/13E
Criticality (%)
Criticality
…and determine the “Criticality Path”
100%
83%
92%
63%
72%
83%
75%
Criticality = percent of simulation trials that the activity is on a
critical path
We apply our quantitative techniques
to decision support.Examples:
1.Evaluate VA study alternatives
2.Accelerate construction
3.Interaction of 2 contracts
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Example: YBITS VA study
EstimateEstimate
RisksRisks
Original Alternative
VA study produced 3 options…
EstimateEstimate
RisksRisks
EstimateEstimate
RisksRisks
Option 1 Option 2 Option 3
P50 = 90 P50 = 98 P50 = 103
P90 = 115 P90 = 115 P90 = 115
Considering risk, which option is best?
0%
20%
40%
60%
80%
100%
40 65 90 115 140
Prob
abili
ty o
f Gre
ater
Cos
t
Cost
Option 1 Option 2 Option 3
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Example: Contract acceleration options
Westbound
Eastbound OTD EB Contract
WB Open
EB Open
OTD EB Contract
Objective: shorten time between WB and EB open
Evaluated schedule risks of 3 options…
0 50 100 150 200 250
Days from WB Open
Option 1 Option 2 No change
But, in the bigger picture, it is not just the OTD contract
SSD West Tie-in Phase 1
(Tunnel Viaduct
Replacement)
Submarine Cable
Skyway
SAS Phase 1Erect Tower
E2/T1E2
Foundation
YBI Hinge K WB
YBI Construction
WB
SSD West Tie-in Phase
2
SSD East Tie-in
SSD Viaduct
SAS Phase 3Complete
EB
OTD 2Complete WB
SAS Phase 2 Complete
WB
OTD 1
SAS Phase 1Load
Transfer
YBI Hinge K EB
OTD 2 EB
SSD Demolition of
Existing Bridge
YBI Construction
EB
YBI Complete WB
Frame 2
YBI Complete EB
Frame 2
SAS Phase1Deck
Erection
SAS Phase1E2 Capbeam
SAS Phase1W2 Capbeam
OTD 2 EB Detour
SSD Traffic Switch
Bridge Closure
(Complete SSD WTI Phase 1)
SAS Phase 1Cable
InstallationE2/T1
T1Foundation
WB Traffic Switch
EB Traffic Switch
WB to EB opening is a three-horse race – SAS, YBITS and OTD
Westbound
Eastbound OTD EB Contract
SASYBITS
Two contracts complete the west end.
Slowest horse wins
The 3-horse race has a different outcome
0 50 100 150 200 250 300
Days from WB Open
SAS YBITS OTD EB
Example: Interaction of 2 contracts
Foundations Contract
Bridge Contract
Foundations Required
Bridge Contract
Question:
Pay $$ to accelerate Foundations contract
schedule?
Delay of Bridge ContractTimescale
Used schedule risk analysis to evaluate delay…
Decision: Don’t pay
< 5% chance of Foundations delaying Bridge
Summary
Quantitative risk analysis is not rocket science.
Schedule risks are analyzed in the schedule logic.
Cost and schedule risk analysis provides an important perspective to decision-makers.
Discussion?
Project Risk Management
Contact Information:
Rich [email protected](510) 385-7189
Rein [email protected](510) 410-4344
