Risk-Based Models for Project Planning
Edited per 1/15/08 Meeting
Las Vegas Executives Association
Presentation
Risk Planning and
Management for the Panama
Canal Expansion Program
Keith Molenaar
Luis F. Alarcón, David B. Ashley,
Angelique Sucre de Hanily and Ricardo Ungo
September 30, 2010
Construction Engineering Conference:
Opportunity and Vision for Education, Practice, and Research
Presentation Outline
1. Motivation for risk analysis on Canal
Expansion
2. The project risk management approach
3 Lessons learned
3.
Expansion Background
• ACP formally proposed project
with public referendum in 2006
• What was the construction
market like in 2000-2006?
January 30, 2008
David B. Ashley
President
University of Nevada, Las Vegas
Risk-Based Models for Project Planning
Edited per 1/15/08 Meeting
Las Vegas Executives Association
Presentation
History of Mega Projects
• Tren Urbano Rail, Puerto Rico1
– 1996 Estimated $1.25 billion
– 2002 Estimated $2.25 billion
• The Big Dig, Boston2
– 1985 E
Estimated
ti t d $2
$2.55 billi
billion
– 2002 Estimated $14.6 billion
• Flyvbjerg Study (2002)
– 256 public project over 70 years
– 8 of 10 project had cost overruns
1
Federal Transit Administration Inspector General 2004
of Sciences 2003
2 National Academy
History of Mega Projects
• New cost estimating and cost
management methods research
New Cost Estimating Methods
• 18 primary cost escalation factors
• 8 strategies to address cost
escalation factors
• 30 implementation methods
• 90 tool applications
January 30, 2008
David B. Ashley
President
University of Nevada, Las Vegas
Risk-Based Models for Project Planning
Edited per 1/15/08 Meeting
Las Vegas Executives Association
Presentation
New Cost Estimating Methods
• Risk Strategy
Identify risks, quantify
their impact on cost,
cost
and take actions to
mitigate the impact of
risks as the project
scope is developed.
Canal Expansion – A risky project?
New Locks: Water-Saving Basins and Rolling Gates
Bottom- or side-filling?
January 30, 2008
David B. Ashley
President
University of Nevada, Las Vegas
Risk-Based Models for Project Planning
Edited per 1/15/08 Meeting
January 30, 2008
Las Vegas Executives Association
Presentation
David B. Ashley
President
University of Nevada, Las Vegas
Risk-Based Models for Project Planning
Edited per 1/15/08 Meeting
Las Vegas Executives Association
Presentation
Project Baseline Cost
Baseline
Unrecognized Costs
(Unknown/Unknowns)
Project Cost
Contingency
Known but not
Quantifiable Costs
(Known/Unknowns)
Conservative Estimate
with allowance at any
point
Known and
Quantifiable Costs
(Known/Knowns)
Project Plan
and Concept
30%
Design
100%
Design
Construction
Completion
Project Development Process
Financial Risk Model
Risk Model Approach Multidisciplinary Team Approach
Input from Other Units
Consultants Guidance
Finance
- Risk variables
- Others
January 30, 2008
Program Development Office
- Risk identification
- Coordination
Engineering
- Design
- Cost Estimate
David B. Ashley
President
University of Nevada, Las Vegas
Risk-Based Models for Project Planning
Edited per 1/15/08 Meeting
Las Vegas Executives Association
Presentation
Risk Model Approach
Redefine Risks to be Modeled
More Detailed Analysis - 350 Risks
Risks identification AON,
Value Management & ACP
More Detailed Analysis - 185 Risks
Workshop
p with ACP
Personnel
More Detailed Analysis - 40 Risks
Risks identification AON,
Value Management & ACP
14 Key Risks for
Risk Model
Major Risk Factors for Risk Modeling
Organization
Risks
Factors
f Risk
for
Ri k
Modeling
Lack of
Controls
Inefficient
Planning
Inefficient
Contracting
Process
General
Inflation
Referendum
Delays
Inadequate
Claims
Administration
Extreme Owner Driven Insufficient
Bad Weather Changes
Revenues
Local Labor
Strikes
Changes in
Design and
Quantities
Lack of
Skilled and
Local Labor
Material,
Equipment and
Labor Cost Increases
Risk Factor Categorization
Insufficient revenues
Material, equip. & labor cost increases
Poor claims administration
Inflation
MARKET
Organizational risks
OVERRUNS
Inefficient planning
Lack of controls
Local labor strikes
Extreme bad weather
Referendum delays
Inefficient contracting
January 30, 2008
DELAYS
Lack of skilled and local labor
Changes in design & quantities
Owner driven changes
David B. Ashley
President
University of Nevada, Las Vegas
Risk-Based Models for Project Planning
Edited per 1/15/08 Meeting
Risk Model Results
Las Vegas Executives Association
Presentation
Total
Example Total Cost
Distribution for Investment + Delay & Overrun
Mean
0.18
0.16
Total cost
w / contingency
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
Risk Model Results
Total
Example Total Cost
Distribution for Commissioning Year
0.16
Mean
0.14
0.12
Total cost
g y
w / contingency
0.10
0.08
0.06
0.04
0.02
0.00
Risk Model Results
Tornado Diagram
Material X - Atlantic Locks
Event X
Material Y - Atlantic Locks
Productivity X - Access Channel
Delay Activity X
Material X - Pacific Locks
Event Y
Material Z - Atlantic Locks
Event Y - Pacific Locks
Productivity x - Pacific Locks
Locks Delay Activity Y
Productivity Y - Pacific Locks
Locks Event Z
Material Z - Pacific Locks
January 30, 2008
Factors with
the greatest
impact on
total cost
variation
David B. Ashley
President
University of Nevada, Las Vegas
Risk-Based Models for Project Planning
Edited per 1/15/08 Meeting
Las Vegas Executives Association
Presentation
Risk Mitigation Options
Risk Resolution
Total
Contingency
Contingency
Management
Contingency
Lessons Learned
• Impact of project on country
– Referendum
– Communications
• Benefits of bottom-up contingency
• Use of risk analysis and management
• ACP’s willingness to innovate
January 30, 2008
David B. Ashley
President
University of Nevada, Las Vegas
Risk-Based Models for Project Planning
Edited per 1/15/08 Meeting
Las Vegas Executives Association
Presentation
Thank you!
January 30, 2008
David B. Ashley
President
University of Nevada, Las Vegas