The FTA Approach to Risk Management

The Role it Plays in Grant Funding

Matthew W. Nawn, P.E., PMP

Chief, Technical Services Division

FTA Office of Program Management

November 2016

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Overview

• The FTA Project Process (under FAST Act)

• FTA Approach to Risk Management

• Risk & Contingency Management

• FTA Lessons Learned Process

• Q&A

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FTA Project Process (Under FAST)

Risk Assessment

performed within

30 days of Entry

into Engineering

(2 Year Limit)

A Risk Assessment Must Be Performed Before Entry into a Full

Funding Grant Agreement or a Small Starts Grant Agreement

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FTA Approach to Risk Management

• FTA Oversight, defined:• “A continuous review and evaluation of grantee and FTA processes to

ensure compliance with statutory, administrative, and regulatory requirement”

• Risk Assessment is part of FTA Project Management Oversight, defined in 49 CFR 633

• FTA roles includes ensuring successful implementation of federally-funded projects.

• The Risk Assessment Process is defined by FTA Oversight Procedures (OPs) 40b and 40c

• OP40b: Abbreviated Review• OP40c: Full Review• There is no OP40a at present (rescinded 2013)

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FTA Risk Assessment – Value Added

• The process of conducting periodic and regular risk reviews of capital projects can be an instrumental tool in allowing a Project Sponsor (grant recipient), their funding sources, and their extended stakeholders to maintain a proactive and informed process for managing the scope, cost, and schedule parameters associated with a project.

• Many public capital projects have received negative public and media attention for having prolonged periods of completion, significant cost increases, or reduced quality as a result of the inability to maintain the predetermined cost or schedule parameters.

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Risk Assessment Objectives

• Evaluation of the reliability of the Sponsor’s:• Project scope

• Cost estimate

• Schedule

• Special focus on elements of uncertainty associated with:

• Project implementation

• Project conditions.

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Risk Assessment vs. Risk Refresh

• In accordance with Federal requirements, a full FTA/PMOC-led Risk Review (Risk Assessment), including a full characterization of core project documents is typically only performed during the Engineering phase of the project, prior to the execution of an FFGA.

• A Risk Refresh consists of a less robust evaluation of core project documents, followed by a “refresh” of previous risk results and can be conducted at any time during the project life, but typically only after the FTA and PMOC have previously conducted a full characterization of core project documents and an associated Risk Assessment.

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Timeframes

Initial Risk Assessment:• After Entry into Engineering, prior to execution of a

grant agreement.

Risk Refresh:• Can be conducted at any time during the project life,

but typically only after the FTA and PMOC have previously conducted a full characterization of core project documents and an associated Risk Assessment.

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Process Steps (Full Risk Assessment – OP40c)

Kickoff meeting: • Introduce PMOC team and Sponsor team• Sponsor presents the project to PMOC team

• Agency organization, including project team and plan for staffing

• Description of work and reviews over the previous year

• Review of the project by discipline

• Review of schedule, cost estimate, Sponsor’s RCMP and risk register

• PMOC presents the risk review process to Sponsor

• Tour of alignment, station and support facility locations.

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Process Steps (continued)

Workshop 1 (May be broken into two sessions)• Should occur after PMOC team has reviewed Sponsor’s

documents, written and exchanged issue papers for each discipline, and has developed its RCMP, including its cost and schedule risk assessment products.

• Introduce PMOC team and Sponsor team

• Characterize PMOC’s understanding of Sponsor Technical Capacity and Capability, Scope, Cost and Schedule (all reviewed under separate OPs)

• Discuss summary schedule (if schedule risk assessment is undertaken)

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Process Steps (continued)

Workshop 1 (continued)• Discuss risks, categorized by SCC structure and/or summary schedule

activity, identified by the PMOC, review the status of Sponsor’s risks listed on its Risk Register, and discuss and record any additional risks discovered during the workshop, including qualitative characterization of likelihood and magnitude of cost and/or schedule impact for the identified risks

• Where possible, confirm or establish draft mitigation actions for the identified risk events

• Summarize findings, conclusions, recommendations, questions, and enter into joint discussions to resolve open questions

• Discuss actions required to facilitate the next stage of risk review

• Discuss next steps in the risk review process.

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Process Steps (final)Workshop 2 (may be combined with Workshop 1 in the case of a risk refresh):

• Should occur after PMOC team has reviewed the risk listing, has developed its cost and schedule risk assessments (as appropriate), and has developed recommendations regarding Sponsor’s target budget, contingency and risk mitigation.

• Introduce PMOC team and Sponsor team

• Describe the process used to review and establish quantitative risk recommendations

• Summarize the key findings of the review and recommendations

• Provide recommendations regarding risk mitigation options and alternatives including possible changes to scope, budget, schedule, project delivery method, construction methodology, and/or use of cost and schedule contingencies

• Review detail of individual risks, as appropriate, regarding the method of quantification of risk and which risks strongly influence overall project risk

• Review specific recommended mitigation measures and solicit completion dates

• Discuss action items and next steps in the risk management and FTA review process

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Cost Contingency

• Sponsor’s cost contingencies are identified, described, and analyzed for adequacy.

• This analysis shall be developed in consideration of four models:

1) The generalized contingency level recommendations

2) A Cost Contingency Draw-down curve

3) A Sponsor-provided risk assessment model (if undertaken)

4) A PMOC-developed risk assessment model

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Generalized Contingency Level Recommendations*

(*for traditional Design-Bid-Build projects)

Generalized Contingency Levels:

The FTA has determined, from historic project

information, that the following minimum levels

of contingency (the aggregate of allocated and

unallocated cost contingency) are prudent:

• At Entry into Engineering: 25%

• At Readiness to Bid Construction: 15%.

• At Start of Construction: 10%.

• At 50% physically complete for

construction: 5%.

Design

ProjectPhase

Bid Construc on

50%GeneralizedCon

ngencyValues 25%

20%

15%

10%

5%

30%

Engineering Execu onProjectDesign

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Cost Contingency (continued)

Cost Contingency Draw-down Curve• The PMOC recommends minimum contingency amounts for

the Cost Contingency Draw-down Curve by phase that reflects the specific project conditions. These minimum levels should be noted for each of the FTA milestones, including additional milestones identified by the Sponsor and PMOC. These milestones and minimum contingency amounts define a cost contingency drawdown curve, indicating a minimum level of contingency that must remain in the project budget at any given point in time.

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Cost Contingency (final)Forward Pass Cost Contingency Analysis• The Cost Contingency Draw-down Curve is evaluated as a

“forward pass” set of minimum recommended cost contingency values for each of the Project Milestones beyond the current review and for points of significant changes of project risk.

Backward Pass Cost Contingency Analysis• The Backward Pass method considers estimates of minimum total

cost contingencies based on an assessment of the project status and project risk at the milestone under consideration. Items of high risk, especially those identified with the Mitigation Type of “Risk Acceptance”, shall be specifically reviewed when performing the backward pass analysis.

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Schedule ContingencySchedule Contingency Analysis and Recommendation• The PMOC evaluates the schedule contingency available within

the Sponsor’s schedule and provides recommendations in consideration of the following:

• Sufficient schedule contingency is available at any major review milestone to absorb a project schedule delay equivalent to 25% of the remaining duration through the Revenue Service Date proposed for the project

• Any available schedule risk assessment histogram indicates a confidence level of at least 65% of reaching the proposed Revenue Service Date (RSD)

• The general assessment of risk is not in conflict with the risk contingency requirements established in development of the Schedule Contingency Draw-down Curve.

• Based on inflation factors, professional opinion and other factors, the PMOC ensures that the cost estimate is appropriately increased to account for any additional schedule contingencies.

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Benefits

• The FTA Risk Management Process has led to the following benefits: Provides objective and current evaluation of

project Informs FTA on project status supporting its

fiduciary role as a funding partner Promotes proactive management strategies

(mitigations and actions) for helping to minimize scope, cost, and schedule increases

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Risk and Contingency Management

Risk & Contingency Management Plan

oA critical piece (subplan) of the larger Project Management Plan (PMP)

oNeeds to be regularly reviewed and updated by a designated representative or Risk Manager from the Project Team

oSuccessful implementation depends upon a fully updated and active PMP

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Risk & Contingency Management Plan

(continued)

Purpose:

o To highlight specific areas of management focus as identified through the risk evaluation process

o Should be implemented along with Sponsor’s normal project operations as described elsewhere within the PMP

o Provides a means for monitoring Sponsor’s progress as it moves the project forward to its next phase

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RCMP Goals and Objectives

• Establishment of measures to complete the project within budget and on schedule

• Implementation of project cost and time contingency procedures

• Risk mitigation

• Development of available risk mitigation capacity

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Typical RCMP Topics

• Primary Mitigation

o Management Capacity and Capability

o Project Scoping and Design

o Delivery Methods and Contracting

o Construction Process

• Project Tracking

o Cost Estimating, Financing and Financial Management

o Project Schedule Management

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RCMP Topics (continued)

• Secondary Mitigation

o Actions and cost targets which may trigger the implementation of Secondary Mitigation

• Risk Management

o Risk management and mitigation monitoring, change identification, and management controls

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FTA Lessons Learned Program

• A key principal of FTA’s overall approach to Risk Management is collection, review, and dissemination of Lessons Learned.

• FTA collects Lessons Learned during project execution and drafts a final report of the most important lessons for each project prior to grant closeout.

• FTA also solicits, collects, and shares Lessons Learned from grantees directly.

• Lessons Learned are added to FTA’s Lessons Learned repository.

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FTA Lessons Learned Program (continued)

FTA’s Lessons Learned repository is available on FTA’s Public Website (www.transit.dot.gov):

o Overview and Categories:

• https://www.transit.dot.gov/regulations-and-guidance/project-management-oversight-pmo-lessons-learned-program

o Complete list of Lessons Learned:

• https://www.transit.dot.gov/regulations-and-guidance/list-project-management-oversight-pmo-lessons-learned

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FTA’s Lessons Learned Program (final)

• FTA Repository is regularly updated with new lessons

o New lessons and suggestions always welcome and encouraged

• Updates announced via email distribution list

• Join the distribution list!

o Send an email to Matt Nawn (matthew.nawn@dot.gov) with “Request to Join FTA Lessons Learned List” in the subject line.

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A reason risk management is important…

Despite rumors to the contrary, FTA does not operate a money train!

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Looking Forward

• Demand for FTA funding likely to remain strong

– Recent successful ballot measures likely to further increase demand and competition for funding

• Risk Management to remain a key component of grant process and project execution

• Further updates to FTA risk process likely to be subtle and in the details

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Questions?

Matt Nawn

FTA Office of Capital Project Management

202-366-0893/matthew.nawn@dot.gov