Audience Focus: Advanced
Application Type: Experience-Based
Time/Location: MON 11:15-12:15/Salon A
Abstract: This paper reviews over 50 years of empirical cost estimate accuracy research and compares this reality to common but unrealistic management expectations. The empirically-based accuracy research of John Hackney, Edward Merrow, Bent Flyvbjerg and others on large projects in the process industries is summarized. The paper then highlights risk analysis methods documented in recent AACE Recommended Practices that yield outputs based upon and comparable to empirical reality. Tragically, many cost engineers are facilitating management’s collective and sometimes willful biases regarding accuracy by using flawed, unreliable risk analysis methods; those who use empirically valid practices face the fate of Cassandra. The paper is intended as a fundamental reference on the topic of accuracy as well as a call for our profession to use reliable practices and speak the truth to management. Attendees will gain an understanding of estimate accuracy reality, the risks that drive it, management’s biases about it, and methods that analyze risks and address the biases in a way that results in more realistic accuracy forecasts, better contingency estimates and more profitable investments.
Audience Focus: Intermediate
Application Type: Experience-Based
Time/Location: TUE 8:00-9:00/Salon A
Abstract: This paper is based on the Recommended Practice (No. 57R-09) of AACE International that defines the integrated analysis of schedule and cost risk to estimate the appropriate level of cost and schedule contingency reserve on projects.
The main contribution of this RP is to include the impact of schedule risk on cost risk and hence on the need to hold cost contingency reserves. Additional benefits include the application of the risk drivers method of using risks to drive the Monte Carlo simulation of a resource-loaded CPM schedule. By using the risks we can prioritize the risks to cost, some of which are commonly thought of as risks to schedule, so that risk mitigation may be conducted in an effective way.
The methods presented in the RP are based on integrating the cost estimate with the project schedule by resource-loading and costing the schedule’s activities. Using Monte Carlo techniques one can simulate both time and cost simultaneously, permitting the impacts of schedule risk on cost risk to be calculated.
Audience Focus: Intermediate
Application Type: Experience-Based
Time/Location: SUN 4:30-5:30/Salon C
Abstract: This paper addresses the benefits of augmenting a project’s management program with specific goal orientated risk management tasks during the pre-construction and construction phases. These tasks are applicable to owners, designers and contractors. This paper presents how to identify and manage the goal orientated, contract-based risks inherent in contract requirements, cost estimates and schedules; risks that are not addressed through insurance. The techniques and tasks learned here can assist in the equitable and timely resolution of issues that would otherwise adversely impact the success of a project.
This paper explores:
The criteria for a successful project from each party’s perspective
Project success goals and why a comprehensive understanding of them by the entire management team is critical
The advantages of reviewing project procedures and practices early
Key requirements for estimates and preliminary scheduling that allow for later evaluation and preclude disputes
The difference between allowances and contingencies, why both should be re-evaluated over time and when these evaluations should take place
What elements are evaluated in a review of contractor schedules
The importance of “real time” resolution of potential disputes
Audience Focus: Basic
Application Type: Experience-Based
Time/Location: WED 8:00-9:00/Salon A
Abstract: This paper proposes an integrative approach to risk management, combining qualitative and quantitative risk analysis with statistical quality control concepts to define special cause variation risk (SCVR) and common cause variation risk (CCVR).
The proposed methodology shows a unique risk management approach using both qualitative and quantitative tools and techniques to effectively plan and control project risk. It describes what processes, tools and techniques are applied to manage special cause variation risk and which to manage common cause variation risk.
The proposed approach ties and integrates all risk elements: special and common cause variation risk, risks responses, contingency, cost estimates, baseline cost, etc., in a pragmatic and effective risk management model.
Audience Focus: Intermediate
Application Type: Experience-Based
Time/Location: MON 10:00-11:00/Salon A
Abstract: This paper quantifies industry metrics for estimate accuracy based on a sample of 462 capital projects executed by the process industries over the last 20 years, comparing estimated costs at the various stages of project definition to actual costs, normalized for a number of factors. We then contrasted the results from the industry survey with industry expectations, as presented in the AACE International Recommended Practice 18R-97. The results of our survey indicate there is a much greater level of variability in estimate accuracy as compared to industry expectations. Further analysis demonstrates that projects which have completed a definitive project scope at authorization benefit from a reduction in estimate variability as compared to industry.
Audience Focus: Advanced
Application Type: Theoretical
Time/Location: MON 3:45-4:45/Salon A
Abstract: In a commercially focused project oriented business, project identification, selection and execution determine profitability. A business must measure, rank and prioritize its commercial projects to ensure resources are allocated to the high priority components, and to make adjustments in the portfolio as business environmental factors change. When considering potential projects, there is a need for quantification of project strategic value, risks and potential financial benefit to ensure decision makers have adequate information from which to base their decisions. The ability to align selected commercial projects with the organizations strategic goals and objectives, to group them based on some important distinguishable features, and then to measure, rank and prioritize them, based on the projects total utility , will allow focused application of resources, improve risk management effectiveness, improve portfolio management processes and result in improved profitability. The research results in a detailed framework of tools and techniques for the identification, evaluation and selection of commercial project portfolio’s, with a focus on total utility and risks to project planning and execution.
Audience Focus: Basic
Application Type: Experience-Based
Time/Location: WED 11:00-12:00/Salon A
Abstract: ‘Mega’ projects are characterized by their scale, complexity, and their inherent risks, combined with a limited number of resources who are truly skilled in ‘mega’ projects. As a result, the opportunity exists for the limited completion of detailed project planning and scope definition which often leads to cost and schedule overruns. During the planning stages of the project, teams are always challenged to quantify risks related to the execution of the project work. This paper presents a case study where the project team was faced with the question on how to best execute a program with multiple major projects. The case study quantitatively assessed the advantages/disadvantages of two scenarios: 1) Execute the projects concurrently or 2) Phase the execution. Even when the economic analysis – net present value (NPV) - supports the “concurrent” execution, could the project team demonstrate quantitative disadvantages of this approach? The cost analysis model presented in this paper evaluated detailed engineering, procurement and construction costs in the above two scenarios and the potential impact on the program selection criteria.
Audience Focus: Intermediate
Application Type: Experience-Based
Time/Location: TUE 9:45-10:45/Salon A
Abstract: At a time of economic uncertainty, the most successful and effective organizations offer the market predictability. In order to achieve predictability in project outturn, risk management is given equal importance alongside cost and schedule control. In turn, improved risk control and growing levels of risk intelligence are best facilitated by ongoing measurement.
In this paper, the measurement of risk will be discussed (in a project or construction and engineering context) to help reinforce process integrity. Methods for the effective capture and sharing of risk data will be reviewed in conjunction with critical success factors, common key risk indicators (KRIs) and other widely held risk metrics and benchmarks. In addition, the benefit of periodic risk-based project audits will be explored.
After establishing a link between risk and knowledge, the merits of a central risk management library or knowledge base for professional risk management practitioners will be considered with the goal of improving risk management implementation effectiveness at the organizational and industry level.
Note: This paper assumes that the reader has an understanding of basic risk management terms and principles. If the reader does not already possess that insight, please first read TCM Chapter 7.6.
Audience Focus: Basic
Application Type: Experience-Based
Time/Location: MON 2:00-3:00/Salon A
Abstract: The value of developing a project plan early in the genesis of a project is not a new concept in the construction industry. As the average project continues to become more complicated and requires higher levels of multi-national coordination during both design and construction, the potential cost of unplanned occurrences can dramatically impact the project’s bottom line This potential requires a heightened focus on managing the balance among cost, schedule, and scope—the project triangle. Early identification and management of these unplanned occurrences, or the risk thereof, could allow for mitigation strategies to be put in place, thereby providing potential bottom-line savings in both time and costs.
This paper provides a brief overview of the concept of risk and the risk management plan as it relates to improving balance in the project triangle. A more detailed discussion is included on the implementation of schedule risk management, including the use of probabilistic risk-based schedules, and how and when these tools can be used most effectively to develop and adjust the project plan in an attempt to identify and mitigate potential risks to the project.
Abstract: The Decision and Risk Management Professional (DRMP) certification task force has been working since June 2008 to develop an AACE Risk Management certification program that includes:
Additional Recommended Practices (RPs) on risk management topics
A suitable Body of Knowledge (BoK)
Skills and Knowledge (S&K) on risk management
Revised TCM 3.3 and 7.6
Revised 10S-90 Terminology
Exam questions
This certification will cover:
The skills and knowledge of DRM Professional working within the processes defined by AACEs Total Cost Management Framework (TCM)
Process centers on making effective business investment decisions
Managing and controlling the assets and projects that result
Encompass the entire life cycle of an enterprises assets and projects
This presentation will discuss the value of this certification to professionals who are interested in advancing their careers in the decision analysis and risk management disciplines. The new materials that have been produced, or that are near completion, will be introduced with brief discussions of each. The presentation will conclude by addressing next steps that are required by individuals who are interested in pursuing certification.
Audience Focus: Intermediate
Application Type: Experience-Based
Time/Location: TUE 3:45-4:45/Salon A
Abstract: The use of quantitative schedule risk analysis is becoming more common as owner and contractor organizations appreciate its potential as a fundamental tool in project management. Projects implementing effective schedule risk analysis are more likely to achieve schedule objectives. To realize maximum value, the process has to be pragmatic and promote active participation by the project stakeholders. This paper will provide both to schedule risk analysis practitioners and project management professionals an overview of a practical systematic process for performing schedule risk analysis for large construction projects. A step by step explanation of the process is provided and clarifies the essential elements that elicit the most value. Emphasis is placed on the planning and preparation requirements, including the achievement of genuine and active engagement and ownership of project stakeholders.
Audience Focus: Basic
Application Type: Experience-Based
Time/Location: WED 9:45-10:45/Salon A
Abstract: The biopharmaceutical industry has many challenges including technical, organizational and societal. This fast paced industry is continuously buffeted by new product developments, technological changes, as well as evolving patient requirements and aggressive industry competition.
To help address these many challenges an approach was developed using off-the-shelf tools (Excel, Primavera & Pertmaster) to achieve a standard and straightforward methodology to insure consistent, reliable risk management and establish a basis for continuous management of risks throughout the project life. Benefits include a clear and easy to use risk register with responsible risk owners and risk ranking for focus and mitigation; simulation of project cost & schedule impact via project risk models to facilitate decision-making; promotion of active participation from a diverse user group, and the opportunity to focus the combined knowledge and experience of the team to enhance project performance.
This approach ultimately transformed risk management from a negative paradigm into a positive, synergistic, team building, group educating, and solution-generating experience.
Audience Focus: Intermediate
Application Type: Experience-Based
Time/Location: SUN 2:45-3:45/Salon B
Abstract: Recommended Practice 64R-11 "CPM Schedule Risk Modeling and Analysis: Special Considerations" discusses a number of issues that need to be addressed as part of preparing a schedule model, attributing risks to activities, and interpreting the risk results. As the use of schedule risk analysis for projects grows, the use of a CPM model as the basis for the risk analysis is the most common approach. This RP was developed to guide a user in the preparation of the schedule model with risk assignments and interpreting the results to ensure a quality analysis is performed. It discusses the use of a detailed schedule model versus a summary schedule model, specifics about how the schedule model needs to be prepared, how to assign the identified project risks to the activities in the schedule model, and considerations in interpreting the results of the Monte Carlo type simulation. The intent of the RP is to ensure a realistic analysis of the schedule risk on a project.
Audience Focus: Basic
Application Type: Experience-Based
Time/Location: TUE 2:00-3:00/Salon A
Abstract: Perhaps the most significant source of cost and schedule risk within an environmental remediation project is uncertainty around scope. More specifically, variance in cost and schedule are typically driven by variance in the quantity of impacted material driving a project, not by the efficiency or productivity of field crews. The subsurface is often difficult to characterize in a cost effective manner, so the full extent of contamination is frequently uncertain prior to implementation of the remedial solution. In order to plan, control, and learn from remediation projects, an analytical approach to scope variance is needed.
This paper discusses quantitative methods for decomposing traditional variance measures, such as cost and schedule performance indices, into measures of efficiency, productivity, and scope variance. It then shows how these historical measurements are benchmarked to improve project planning through estimating and risk management. The paper will illustrate a hypothetical application in remedial excavation, but the fundamental theories apply to any scope of work in which the quantity of impacted media is a factor in understanding cost, schedule, and the associated risk.
Audience Focus: Basic
Application Type: Experience-Based
Time/Location: TUE 11:00-12:00/Salon A
Abstract: Unfortunately, many people using risk management do not fully understand basic risk concepts and therefore utilize incorrect techniques in preparing and implementing risk management plans. The author has reviewed and critiqued client risk management process and procedures, along with risk management plans for projects, and the same mistakes reoccur on a regular basis.
Based on these reviews, this paper will present the top ten errors people make in dealing with project risks and how these mistakes greatly reduce the value of risk management. The author has also done numerous projects where risk management was successfully used, and this paper will also discuss effective risk techniques that should be used on all projects. If you think you know how to deal with project risks, read this paper to see if you are making any of these common errors. You may be surprised!
Audience Focus: Basic
Application Type: Experience-Based
Time/Location: MON 5:00-6:00/Salon A
Abstract: Despite the ideology that projects should be well planned to achieve the most efficient execution, many projects are started with underdeveloped scope requirements, design documents or execution. These conditions can create the potential for significant schedule and budget impacts. When the forecasted impact is great enough, there may be a discussion about placing a portion or the entire project on a short hold to resolve the potential issues with inadequate scope or design documents. This idea is often avoided as there is a common perception that the costs outweigh the benefits.
This paper will address some of the early indicators that a project may be in jeopardy of not meeting its goals and when it may be beneficial to consider putting a project on hold to solve scope, design or execution issues. An approach to evaluate the costs of putting the project on hold with examples to illustrate the process will be identified. Finally, the paper will address some of the other factors and impacts that could influence this type of decision.
Audience Focus: Intermediate
Application Type: Experience-Based
Time/Location: SUN 1:30-2:30/Salon C
Abstract: This paper introduces the use of enterprise architectural models as tools for project performance improvement. Enterprise architecture (EA) provides detailed descriptions of enterprise structures (such as: organizations, business units, or complex projects). EA practitioners identify system risks and opportunities by documenting system financial, social and technical aspects. Closely associated with information technology, enterprise architecture is commonly utilized to enhance maturity in heavy manufacturing projects, government programs, and aerospace projects. It also has applications in business optimization and performance management.
Much research has been done on project success and performance. Although metrics and checklists have merit, each project is unique and thus distinct approaches are needed to optimize complex projects’ performance. Enterprise architecture strives to mature the organization’s ability to complete projects on schedule and budget, by optimizing performance. The focus of EA, in this context, is on locating and addressing root organizational causes for performance failures.
This paper advocates an enterprise architecture approach in the world of complex capital projects. Conclusions will focus on implications for practitioners, and project-specific applications of the methodology.
Primary Author: Ms Jean G Hansen CFCC PSP Marsh Risk Consulting
