COST RISK ESTIMATING ANAGEMENT - Transportation

COST RISK ESTIMATING MANAGEMENT

COGNITIVE BIAS&

RISK ALLOCATION FOR DESIGN BUILDIMPROVING ODDS OF PROJECT SUCCESS

Mark GabelMSCE, PE, CVS

Committee on Construction Contract Administration Section

Wednesday August 12, 2020

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uh oh!aaaahhhh!!!!

3

great manager of

risk…

or luck…?

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Risk Management…

flexible & scalable

complements other processes

great for design-build

we do not guarantee certainty… we provide probability5

The human condition

6Cynthia Vinney, ThoughtCo., October 31, 2018

cognitive bias

…error in thinking

…numerous types

…influences perceptions

…distort decision-making.

Cynthia Vinney, ThoughtCo., October 31, 2018 7

We are only conscious of 5%of our cognitive activity

awareness

decision makingeconomic decisions

probability estimatesbelief formation and persistence

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anchoring bias

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Authority Bias example

“There is no danger that Titanic will sink. The boat is unsinkable and nothing but inconvenience will be suffered by the passengers.“ —Phillip Franklin, White Star Line

vice-president, 1912 10

Confirmation Bias

I knew it,Bigfoot!

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https://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.washingtonpost.com%2Fnews%2Fanimalia%2Fwp%2F2016%2F07%2F05%2Fis-bigfoot-just-an-upright-walking-bear-we-asked-the-experts%2F&psig=AOvVaw3B8MVbSXfBwG745eNrhgOP&ust=1589383312733000&source=images&cd=vfe&ved=0CAIQjRxqFwoTCPDFyIDRrukCFQAAAAAdAAAAABAG

Availability Heuristic

SIGN

IFIC

ANCE

high

low

The Mind’s Eye

Credit: David Hillson, Understanding and Managing Risk Attitude, Second Edition 12

Representativeness HeuristicBBBBBBBBBBBBBBBB BBB BBB BBB B

GAMBLER’S FALLACY

Black 26 times in a row

Reality quote

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15

Project Cost Components

policy, inflation, & market forces

risk register

design evolution

• well documented• objective • neutral and unbiased

to be revealed

SOURCE

PE + RW + COC (4%)

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Risk

Identification

RiskManagement

Planning

Implement Risk Response

PlanTAKE ACTION!

Risk Monitoring and Control

Risk AnalysisQualitative

orQuantitativepre-response

analysis

Risk Responsequalitative

orquantitative

post-responseanalysis

UpdateProject Management Plan

Current StatusProject Management

PlanScope, Schedule, Estimate




Results of response actions

Risk Management Steps





RiskManagement

Planning

RiskManagement

Planning

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Risk Management Planning: E 1053

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Risk

Identification

RiskManagement

Planning


PlanTAKE ACTION!




analysis


orquantitative












RiskManagement

Planning

Risk

Identification

Risk

Identification



analysis

Risk

Bre

akdo

wn

Stru

ctur

e

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Risk ID / Level 4 Example Title

Level 1 Project Risk

Level 2

ENV 10NEPA/SEPA

– documentation completion, Section 4f/6f,

challenges

Level 3

ENV

ENV 10

ENV 10.10 MMPA Concurrence1st

ENV 10.20 Section 4(f) Issues2nd

ENV 10.30 NEPA/SEPA Delay3rd

decimal (order not critical)

EnvironmentalR

isk B

reak

dow

n St

ruct

ure

CTR 10ProjectDeliveryMethod

-changes or issues

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Qualitative Analysis• Very High (VH)• High (H)• Medium (M) • Low (L) • Very Low (VL)

Pro

bab

ilit

y

I m p a c t

VH

H

M

L

VL

VL L M H VH

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Probability

Impact3 Point Estimate

Minimum Most Likely Maximum

Quantitative Analysis: BEFORE risk response

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Monte Carlo Method

Probabilistic Risk Modeler

Risk Modelling: BEFORE risk responseMax > 100 $M

90% 92.2 $M

80% 87.3 $M

70% 83.8 $M

60% 80.6 $M

50% 77.8 $M

40% 74.9 $M

30% 71.8 $M

20% 68.2 $M

10% 63.3 $M

Min < 50% M

Base 77.7 $M

0%

1%

2%

3%

4%

5%

6%

7%

8%

39.3

45.8

52.3

58.8

65.3

71.8

78.3

84.8

91.4

97.9

104.4

110.9

117.4

Million Dollars ($M)

Histo

gram

of S

imul

atio

n Ou

tcom

es CumulativeDistributionFunction

Model Output: BEFORE risk response

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Risk 1

Risk 2

Risk 3

Risk 4

Risk 5

Base with uncertainty

Model Output

0

Of 10,000

Cost months or dollars

Trial 1

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Trial nRisk 1

Risk 2

Risk 3

Risk 4

Risk 5

Base with uncertainty

Model Output

0 Cost months or dollars

Of 10,000

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Reading the OutputMax > 100 $M

90% 92.2 $M

80% 87.3 $M

70% 83.8 $M

60% 80.6 $M

50% 77.8 $M

40% 74.9 $M

30% 71.8 $M

20% 68.2 $M

10% 63.3 $M

Min < 50% M

Base 77.7 $M

0%

20%

40%

60%

80%

100%

120%

39.3

45.8

52.3

58.8

65.3

71.8

78.3

84.8

91.4

97.9

104.4

110.9

117.4


Histo

gram

of S

imul

atio

n Ou

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es

Max > 100 $M

90% 92.2 $M

80% 87.3 $M

70% 83.8 $M

60% 80.6 $M

50% 77.8 $M

40% 74.9 $M

30% 71.8 $M

20% 68.2 $M

10% 63.3 $M

Min < 50% M

Base 77.7 $M

0%

1%

2%

3%

4%

5%

6%

7%

8%

39.3

45.8

52.3

58.8

65.3

71.8

78.3

84.8

91.4

97.9

104.4

110.9

117.4


Histo

gram

of S

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atio

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tcom

es

Max > 100 $M

90% 92.2 $M

80% 87.3 $M

70% 83.8 $M

60% 80.6 $M

50% 77.8 $M

40% 74.9 $M

30% 71.8 $M

20% 68.2 $M

10% 63.3 $M

Min < 50% M

Base 77.7 $M

0%

1%

2%

3%

4%

5%

6%

7%

8%

39.3

45.8

52.3

58.8

65.3

71.8

78.3

84.8

91.4

97.9

104.4

110.9

117.4


Histo

gram

of S

imul

atio

n Ou

tcom


80% confident that project will cost between $63.3 and $92.2 million

90% confident that project will cost less than $92.2 millionMax > 100 $M

90% 92.2 $M

80% 87.3 $M

70% 83.8 $M

60% 80.6 $M

50% 77.8 $M

40% 74.9 $M

30% 71.8 $M

20% 68.2 $M

10% 63.3 $M

Min < 50% M

Base 77.7 $M

0%

20%

40%

60%

80%

100%

120%

39.3

45.8

52.3

58.8

65.3

71.8

78.3

84.8

91.4

97.9

104.4

110.9

117.4


Histo

gram

of S

imul

atio

n Ou

tcom

es

Max > 100 $M

90% 92.2 $M

80% 87.3 $M

70% 83.8 $M

60% 80.6 $M

50% 77.8 $M

40% 74.9 $M

30% 71.8 $M

20% 68.2 $M

10% 63.3 $M

Min < 50% M

Base 77.7 $M

0%

1%

2%

3%

4%

5%

6%

7%

8%

39.3

45.8

52.3

58.8

65.3

71.8

78.3

84.8

91.4

97.9

104.4

110.9

117.4


Histo

gram

of S

imul

atio

n Ou

tcom

es

Max > 100 $M

90% 92.2 $M

80% 87.3 $M

70% 83.8 $M

60% 80.6 $M

50% 77.8 $M

40% 74.9 $M

30% 71.8 $M

20% 68.2 $M

10% 63.3 $M

Min < 50% M

Base 77.7 $M

0%

1%

2%

3%

4%

5%

6%

7%

8%

39.3

45.8

52.3

58.8

65.3

71.8

78.3

84.8

91.4

97.9

104.4

110.9

117.4


Histo

gram

of S

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tcom


90% confident that project will cost less than $92.2 million

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Risk

Identification

RiskManagement

Planning


PlanTAKE ACTION!




analysis


orquantitative










orquantitative





analysis


orquantitative


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Many Insignificant RisksSignificant Risk

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Gas line conflict

Risk Culvert Sections Result in Added Cost

Stormwater

High groundwater

Main fish barrier culvert damage and condition

Bridge Design Axle Load Criteria

Level of environmental document and projects covered

Utilities conflicts

Soil reuse

FHWA IRR implications

Special ITS Considerations

Timing of ROW acquisition for open channel at Killian development

Killian to build east channel

Material price adjustments

Bridge costs

Liquefaction mitigation

Design Build delivery (time)

Design Build delivery

-1.5$M -1.0$M -0.5$M 0.0$M 0.5$M 1.0$M 1.5$M

Expected Value Tornado Diagram: Pre-mitigated Risks: Cost Impacts

Pro

babi

lity

Impac t

VH

H

M

L

VL

VL L M H VH

Qualitative

QuantitativeResponse Prioritization

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Monte Carlo Method

Probabilistic Risk Modeler

Risk Modelling: AFTER risk responseModel Output: Before & After ResponseTotal Cost: Year of Expenditure Risk Status→

Results suggest the probability (P) that the realized cost will not exceed that shown P↓

Max 124.0 $M 112.6 $M

90% 98.4 $M 87.7 $M

80% 93.1 $M 83.0 $M

70% 88.8 $M 79.4 $M

60% 85.3 $M 76.3 $M

50% 81.7 $M 73.6 $M

40% 78.4 $M 70.8 $M

30% 74.5 $M 67.9 $M

20% 69.9 $M 64.3 $M

10% 63.5 $M 59.8 $M

Min 30.5 $M 40.3 $M

Base 79.6 $M 79.6 $M

Pre-mitigated

Post-mitigated

0%

2%

4%

6%

8%

10%

12%

30.5

38.3

46.1

53.9

61.7

69.5

77.3

85.1

92.8

100.6

108.4

116.2

124.0


Histo

gram

of S

imul

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n Ou

tcom

esCumulativeDistributionFunction

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Risk

Identification

RiskManagement

Planning


PlanTAKE ACTION!




analysis


orquantitative










orquantitative



PlanTAKE ACTION!


PlanTAKE ACTION!




…two iterative cycles of CEVP and risk response

World Tunneling Conference 2011 “The Use of Probabilistic Cost Estimate, CEVP, in the Management of Complex projects to Define Budgets” Reilly, Laird, Sangrey, and Gabel.

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risk management

EXAMPLE

Move tunnel’s south end alignment to avoid impacts to sensitive buildings

historicPioneer Square

neighborhood 32

reduces properties needed

avoid conflicts in construction zone

as design advanced… additional changes, and risk sharing strategies were implemented…

move north end alignment 33

OwnerConceptDesign

Risk Assessment Timing

Design • Bid • Build

Minimal Contractor Input

PrelimDesign

DesignDevelopment

WorkingDrawings

ContractorBids

SelectEngineer

Construction

Design • BuildSelect

Design/ Builder Construction

Extensive Contractor Input

PrelimDesign

DesignDevelopment

WorkingDrawings

enhanced risk management

pre-construction

DBB: early to mid designDB: owner conceptual designDB: design-builder during design

enhanced risk management - construction34

Risk Allocation owner

design-builder

shared

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example only RISK

AssigneeDesign-Build

Allocation

Ow

ner

Shar

ed

DB notes

Local Agency, Utility, Railroad IssuesIdentification of initial local agency impacts X owner provides, db inherits

Obtaining Initial local agency permits X owner provides, db inheritsEstablishing initial local agency requirements XEstablishing final/actual local agency impacts XModifications to existing local agency permits XIdentify initial utility impacts from preliminary des X owner discloses, db inherits

Establish initial Utility Locations / Conditions X relocate in advance or handoff

Define required utility relocations from preliminary des X owner provides, db inheritsRelocation of utilities prior to contract XRelocation of utilities under agreement during contract XModified agreement w/utility based on final design XDamage to Utilities under Construction XVerification of Utility Locations/Conditions XCoordination with Utility Relocation during contract XUtility Owner/Third Party caused/related delays X owner, except if db brought it on Identification of RR impacts based on preliminary design XInitial RR agreement based on preliminary design XCoordinating with RR under agreement XOther work/Coordination XThird Party Agreements (Fed, Local, Private, etc.) XCoordinating with Third Parties under agreement X owner disclose, db inheritsCoordination/collection for third party betterments XCoordination with Other Projects X owner disclose, db inheritsCoordination with Adjacent Property Owners X

example only - unofficial

Table 2 Typical Risk Allocation – Local agencies, Utilities and Railroads

example onlyRISK


Allocation

Ow

ner

Shar

ed

DB notes

Design IssuesDefinition of Scope/Design Criteria XProject Definition X VE refines scope

Establishing Performance Requirement X risk refines expectations

survey/base map / geotech investigations X X geotech uncertainties commonEstablish/Define initial subsurface conditions XInitial project Geotechnical Analysis/Report XProposal specific Geotechnical Analysis/Report XPlan conformance regs/guidelines/RFP XPlan accuracy / conformance to design criteria XDesign Review Process/review time X owner defined, jointly decideDesign QC / QA XChanges in Scope XDesign constructability/contaminated mtls X goes back to designer-owner or db

Right of Way Issues; Design Builder Establishing R/W Limits XAccess Hearings/Findings and order XR/W Plan Approval / appraisal / review X owner assists Establish Just Compensation XAcquire Right of Way / complete relocation X owner assistsConstruction/Permanent Easements XCondemnation / acquisition of parcel XTake Possession / certification X

EnvironmentalInitial Project env impacts and parameters XEnvironmental Investigation XEnvironmental Permits X owner starts, db inheritsEnvironmental Mitigation and Compliance XKnown Hazardous Waste – mitigation XUnknown hazardous waste - mitigation X may be negotiatedObtain Environmental Approvals - CN related X

Table 1 Typical Risk Allocation – Design, R/W – DB, Environmental

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example onlyRISK


Allocation

Ow

ner

Shar

edD

esig

nBu

ilder

notes

ConstructionConstruction IA testing/inspection XSafety X safety is everyone’sDBE compliance and Materials documentation XConstruction Quality/Workmanship / Schedule XFinal Construction/Mtls QC/QA Plan & oversight XConst. Staking/Erosion Control/Spill Prevention XAccidents/Damage in work zone / Third Party XOperations & Maintenance During Construction XMaintenance of Traffic XWSP Callbacks - on site traffic control assistance XDamage to Utilities under Construction XFalsework / Shop Drawings XEquipment failure/breakdown / Work Methods XEarly Construction / At Risk Construction XCommunity Relations XPerformance of defined mitigation measures / Warranty X

Force Majeure / Acts of GodStrikes/Labor Disputes XTornado/Earthquake XEpidemic, terrorism, rebellion, war, riot, sabotage XArchaeological, paleontological discovery XSuspension of any environmental approval XChanges in Law XLawsuit against project XStorm/Flooding XFire or other physical damage X

Differing Site Conditions/Changed ConditionsChanged / Differing Site Conditions X

Completion and WarrantyEstablishment/definition of any risk pool XLong term ownership / Final Responsibility XInsurance X

Table 3 Typical Risk Allocation – Construction, Force Majeure, other

example only - unofficial

Allocation

Ow

ner

Shar

edD

esig

nBu

ilder

Differing Site Conditions/Changed Conditions X

Allocation

Ow

ner

Shar

edD

esig

nBu

ilder

Differing Site Conditions/Changed Conditions X

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major points – risk managementDB projects enjoy additional & particular benefits:

• owner savviness for procurement.

•Forum for community engagement.

•Team building.

•Fosters a spirit of innovation.

•Builds trust with taxpayers.

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Great manager of risk… or luck?

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COST RISK ESTIMATING ANAGEMENT - Transportation

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