Risk Management in Project Delivery - ERM Strategies

1 How UDOT Is Incorporating Enterprise Risk Management Into It s Project Delivery Process By Fred Doehring and Kristina Narvaez ERM improves an organization s strategic decision making by addressing threats and opportunities in a way that integrates risk Management with the strategic planning process ERM is a systematic approach to managing all of an organization s uncertainty in order to maximize shareholder value by optimizing risk taking Develop ERM goals ( SWOT Analysis ) Identify risk ( Risk assessment ) Analyze, evaluate, and prioritize critical risks Treat critical risks , considering priority ( risk treatment ) Monitor critical risks ( monitor and review ) Hazard Operational Financial Strategic Human Capital Legal Environmental Reputation Technology Enhance decision making Increase profitability Reduce volatility Improve ability to meet strategic goals Increase Management accountability Breaking silos-seeing risk from holistic approach Develop business continuity Utah Department of Transportation NOT UTA!

2 Responsible for all State and Federal Highways Average annual budget of about $500 M This summer we have $ B active Approx. 1600 employees 4 Regions plus Headquarters UDOT s Final Four Take care of what we have Make it work better Increase safety Increase capacity How do we accomplish our goals? Four functional areas Administration Maintenance Operations Project Delivery Planning Environmental Design Construction Usually 150 to 200 projects in Environmental and Design at any time Project Management We use a Strong PM organization PM s are dedicated full time to Project Management Functional Managers Use lots of Consultants. PM and Design are de-centralized Each Region has PM and Design staff Some functions are Centralized PM s are responsible to assemble a Project Team Recent initiative to formally address risk on a Project level basis. Past efforts have been ad-hoc Proved the value of risk Management Eating the Risk Elephant Traditional Risk OSHA Work place safety Claims Etc.

3 Programmatic risks Funding Levels Legislative actions Reputation Linda Toy-Hull Nile Easton Project Level risks Scope Schedule Budget Quality Currently using tools developed in Washington State CEVP (Cost Estimate Validation Process) Scalable look at Project risk from a cost and schedule perspective CRAVE (Cost Risk Analysis with Value Engineering) Combines CEVP with Value Engineering Both tools require a baseline estimate and schedule Both tools require the development of a Risk Registry Both tools use Monte Carlo type calculations to produce output risks are identified by a multi-disciplinary team during a (usually) multi-day workshop Project team members Outside Subject Matter Experts Delphi Method Each Risk is assigned a probability of occurring and cost and schedule impacts risks can be Negative (Threats) or Positive (Opportunities) Best for Large to Mega sized projects Generally more in-depth Unlimited number of risk items Sophisticated Probability and Impact curves Detailed schedule modeling Requires detailed knowledge of software Requires consultant 1/1/05 Assumptions:1) Lawsuit Mitigation Plan/Team in place2)Mitigation offer to Plaintiff by 4/053)Activities 8 (Negotiation with special interest groups) and 9 (post-ROD negotiation) are cost activities without hard schedule linksfor the base.

4 Uncertainties associated with each are addressedin the risk register. Milestone 11 (Injunction lifted) may have additional impacts to other activities if the base outcome (injunction lifted) is not )Milestone 10 (Injunction Lifted) has no base duration, but is shown to highlight the risk of a new suit not related to the appeal. Impacts of this item are captured in the risk )Construction activities (20 and 21) include design, constructionpermits, utility relocation, and other activities that are the responsibility of the DB )Environmental permits (primarily Corps (404)) have been )ROW for the Legacy Nature Preserve is essentially all )Construction work can continue all year (no traditional winter shutdowns, no fish windows, etc.).9)No utility relocation work is required for the base plan (activities are shown to accommodate risk related to new preferred alternative).Prior ROW Prior DesignFabricated MaterialsPrior Utility Plans, Agreements & WorkPrior FEIS & RODS upplemental EIS 4 FHWA, Corps & other Reviews 5 Additional Litigation 10 Injunction Review (Dist.

5 Court) 7 Revise ROW Plan 13 New Utility Agreements 17 Complete Pre-const. Utility work 18 Review Utility Plans 16 ROD6 Construction NTP #1 20 RFP Development 1 Final ROW 14DB Pre-Select 23/1/05DB A/B/A 3 Construction NTP #2 21 OpenPrior CNLegacy Nature Preserve 19 Legacy Nature PreserveNegotiation w/ Special Interest Groups (Pre-ROD) 38 AAAAL egacy ParkwayDraft Risk Assessment Flow ChartDecember 21, 20044 months remainPrevious Costs0 Post-ROD Negotiation 39 End of Add lLitigation 11 Funding Decision 157/31/057 months2 months4 months8 months10 months0 months6 months0 months0 months0 months60 months12 months30 monthsDecisionTo Start22 Not on base critical path1/1/05 Assumptions:1) Lawsuit Mitigation Plan/Team in place2)Mitigation offer to Plaintiff by 4/053)Activities 8 (Negotiation with special interest groups) and 9 (post-ROD negotiation) are cost activities without hard schedule linksfor the base.

6 Uncertainties associated with each are addressedin the risk register. Milestone 11 (Injunction lifted) may have additional impacts to other activities if the base outcome (injunction lifted) is not )Milestone 10 (Injunction Lifted) has no base duration, but is shown to highlight the risk of a new suit not related to the appeal. Impacts of this item are captured in the risk )Construction activities (20 and 21) include design, constructionpermits, utility relocation, and other activities that are the responsibility of the DB )Environmental permits (primarily Corps (404)) have been )ROW for the Legacy Nature Preserve is essentially all )Construction work can continue all year (no traditional winter shutdowns, no fish windows, etc.).9)No utility relocation work is required for the base plan (activities are shown to accommodate risk related to new preferred alternative).Prior ROW Prior DesignFabricated MaterialsPrior Utility Plans, Agreements & WorkPrior FEIS & RODS upplemental EIS 4 FHWA, Corps & other Reviews 5 Additional Litigation 10 Injunction Review (Dist.

7 Court) 7 Revise ROW Plan 13 New Utility Agreements 17 Complete Pre-const. Utility work 18 Review Utility Plans 16 ROD6 Construction NTP #1 20 RFP Development 1 Final ROW 14DB Pre-Select 23/1/05DB A/B/A 3 Construction NTP #2 21 OpenPrior CNLegacy Nature Preserve 19 Legacy Nature PreserveNegotiation w/ Special Interest Groups (Pre-ROD) 38 AAAAL egacy ParkwayDraft Risk Assessment Flow ChartDecember 21, 20044 months remainPrevious Costs0 Post-ROD Negotiation 39 End of Add lLitigation 11 Funding Decision 157/31/057 months2 months4 months8 months10 months0 months6 months0 months0 months0 months60 months12 months30 monthsDecisionTo Start22 Not on base critical pathExample Best for Medium to Large projects Not as detailed 24 risk items max Simple Probability and Impact curves Simple schedule modeling Simple to run Can be done in-house Inputs Current plans Current estimate with all contingencies removed Current schedule, both design and construction Participants Project team, including PM Outside experts as required Facilitator Outputs List of risks w/ estimated impacts Tornado Diagram Top Cost Risk Factors Rank Risk ID and Name Expected Value Cost Impact ($ millions) Pre-Response 1 #N/A #N/A 2 ROW_6.

8 Firestone tire opportunity -$ 3 ROW_13. UIC demo -$ 4 DES_3. UTAH THRU U-TURNS (PUBLIC; LEGALITY) $ 5 CON_2. ADVERTISE W/LIMITATIONS $ 6 ROW_8. taquaria opportunity -$ 7 CON_1. DEMOLITION becomes contract item $ 8 DES_7. FENCES/NOISE WALLS $ 9 ROW_10. Gines opportunity -$ 10 ROW_15. Parcel 32 - Church $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ FULL TAKESDES_4. FULL RECONSTRUCTROW_5. DEMOLITION NOT INCLUDED INSHOTGUNDES_1. "HIGH TEE" [PROBABILITY THAT HIGHTEE WILL FIT => BUILD WIDENING &..CON_2. ADVERTISE W/LIMITATIONSDES_3. UTAH THRU U-TURNS (PUBLIC;LEGALITY)DES_6. BIKE LANESUTL_2. SEWER LATERALSCON_1. DEMOLITION becomes contract itemDES_9. Outfall at 4015 not adequateExpected Cost Impact ($ millions) Top Cost Risk Factors Pre-Response#N/A -$ -$ $ $ -$ $ $ -$ $ ($ )($ )($ )($ )($ )$ $ $ $ $ #N/AROW_6. Firestone tire opportunityROW_13. UIC demoDES_3. UTAH THRU U-TURNS (PUBLIC; LEGALITY)CON_2. ADVERTISE W/LIMITATIONSROW_8.]

9 Taquaria opportunityCON_1. DEMOLITION becomes contract itemDES_7. FENCES/NOISE WALLSROW_10. Gines opportunityROW_15. Parcel 32 - ChurchExpected Cost Impact ($ millions) Top Cost Risk Factors Pre-Response Outputs Probability curves S-Curves $ $ $ , 10% $ , 50% $ , 65% $ , 70% $ , 85% $ , 90% 0%10%20%30%40%50%60%70%80%90%100%$ $ $ $ $ $ $ of Not Exceeding Risk Based Total Project Cost Non-Escalated Base Total Project CostEscalated Base Total Project CostTotal Project Cost ($million) - Pre-Response Benefits Identifies the greatest risks to the Project Allows team to focus efforts on highest risk items Provides a graphic representation of the Project risks Good communication tool Used to determine the adequacy of funding for individual projects Used as a tool for selecting a Design/Build team Using on individual projects to focus the Project Team s efforts Using as a tool to manage contingency funds during Project life-cycle As risks are retired, contingency can be re-allocated Integrating the efforts between Design and Construction Develop Dashboards How much risk is the Department carrying ?

10 Where is that risk ? Fred Doehring-Deputy Director of Pre-Construction at UDOT and his mobile is (801) 633-6215 Kristina Narvaez-President of ERM Strategies , LLC and office number is (801) 492-3933