dammam - module 5
TRANSCRIPT
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Construction Cost Management &Construction Cost Management &
The Impact of the Project Schedule on CostThe Impact of the Project Schedule on Cost
Part 5: Cost Risk ManagementPart 5: Cost Risk Management
By Ted Garrison
Garrison Associates
www.TedGarrison.com
www.StrategicPlanningforContractors.com
www.NewConstructionStrategies.com
http://www.tedgarrison.com/http://www.strategicplanningforcontractors.com/http://www.newconstructionstrategies.com/http://www.newconstructionstrategies.com/http://www.strategicplanningforcontractors.com/http://www.tedgarrison.com/ -
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2(c) 2008 Garrison Associates
Module 1: Fundamentals ofModule 1: Fundamentals of
Cost Risk ManagementCost Risk Management
Murphys Law: If anything can go wrong itwill.
OTooles Commentary on Murphys Law:
Murphy was an optimist.
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How Do You Minimize Risk?How Do You Minimize Risk?
Assign risk to the person/organization bestqualified to manage that risk.
If a person cant manage the risk, then therisk shouldnt be delegated to them becauseit places everyone at greater risk.
Minimizing decisions minimizes risk.
Minimize risk is essential to helping client& the contractor.
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Where Are We At Risk?Where Are We At Risk?
What can go wrong?
How can we prevent the
problem?
Focus on Triple Constraints
Costs
Schedule
Performance (Quality)
What risks due we have that
cant control?
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Managing Projects Is Not
About Being Perfect! By definition a project is something that has
never been done before in other words its aprototype.
It is about getting the job done.
It is about letting people make mistakes.
But one of the most important skills is creative
problem solving.
Its minimizing decisions.
Therefore, keep asking questions.
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How to Manage Risk
Identify the biggest risks to key projectelements.
Then develop a plan to minimize or eliminate
the potential risk. This includes identifying the risks the
contractor cant control, but how it willminimize them
Focus on the most important issues.
80-20 rule 20% of issues will create 80% ofproblems.
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Manage Risk Using DMAICManage Risk Using DMAIC
DEFINE
MEASURE
ANALYZEIMPROVE
CONTROL
Client/Expectations Quality issues Core Business Process
Current Performance Develop a process tocollect data
Implement process
Data collected/process map Determine causes of defects Identify gap between current
and goal performance Identify sources of variation
Target process Design solutions to fix/prevent problems Create innovate solutions Use technology and discipline Develop and deploy implementation plan
Continue improvement process Prevent reverting back tothe "old way"
Require development,documentation andimplementation of anongoing monitoring plan
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Decision Tree:Decision Tree: Managers CodeManagers CodeThe movement of risk.....The movement of risk.....
Dont Mess With It!
YES NO
YES
YOU IDIOT!NO
Will it Blow UpIn Your Hands?
NO
Look The Other Way
Anyone ElseKnows?
Youre SCREWED!YES
YES
NO
Hide It
Can You BlameSomeone Else?
NO
NO PROBLEM!
Yes
Is It Working?
Did You MessWith It?
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Model 2: Risk AssessmentModel 2: Risk Assessment
(RA) Plan(RA) Plan
High performing contractors use the RA Plan to identifyand minimize potential risk before the project/task hasstarted.
High performing contractors used the RA Plan todifferentiate themselves from their competitors (to provethey are not a commodity).
The use of RA Plans quickly identify high performingcontractors.
ExperiencedVendor
Time
InexperiencedVendor
Time
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RA Plan ContentsRA Plan Contents
List major risks unique to Project Prioritize the list (biggest risks first)
You must address how the risk impacts the project to not be completedon time, not finished within budget, or may be a source ofdissatisfaction for the client
Must be a unique risk to the current project
Must explain why the risk is a risk
Explain how to avoid or minimize the risk. Non-technical explanation
Must explain how risk is avoided
Propose options to increase the value (expectation orquality) on the project.
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RA Plan FormatRA Plan Format
The RA Plan must NOT exceed 2 pages.
Should not include brochures, marketinginformation, or product names!
It shouldnt include technical data.
Its not about shifting risk back to client.
However, must identify risks the contractor cantcontrol.
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Module 3: Why You Must Plan
for a Contingency
By definition projects are unique, which meansthere will be problems.
Projects require risk taking. Our job is tomanage the risk because it cant be eliminated.
Projects that seek perfection are usually
disasters because people are afraid to takeaction.
Need to be able to educate the buyer in otherwords manage expectations.
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How to Plan for a Contingency
Keep records.
Dont be afraid of the truth in otherwords manage expectations.
Accept the fact that you must have a
contingency or you are planning to fail.
If they wont give you a contingency
then you must build one in.
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Contingency Methods
2 Common Contingency Approaches:
Percentage of entire project.
Percentage of individual items or tasks.
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Module 4: Weekly ReportsModule 4: Weekly ReportsWhat is it / Why is it importantWhat is it / Why is it important
What is it?
Spreadsheet that tracks unforeseen risks on a project
Why is it important? Allows contractors to track unresolved client issues
Allows contractors minimize risk
Allows contractor a means to document all client
decisions
How much effort?
Minimal (less than 5 minutes), unless vendor did notpreplan, or client making decisions
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Weekly Reporting SystemWeekly Reporting System
Spreadsheet tracks only project unforeseen risks
Tracking the project should begin with notice to
proceed
Contractor should prepare report every week
The accuracy of the report will impact the results
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Self Regulating LoopSelf Regulating Loop(Six Sigma DMAIC Generated(Six Sigma DMAIC Generated)
Actions Minimize data flow
Minimize analysis
Minimize control
Risk Assessment
Preplanning,Quality ControlPlan
Measureagain
50%
Identify value (PPI, RA,Interview, $$$$$)V
50%
Interview Key PersonnelPast PerformanceInformation
M
Requirements(DBB, DB, CMAR, DBO)
M R
MM
R
R
R
= Minimize Risk
= Self Measurement
= Identify Value
M
R
VEfficient
Construction
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Action Steps
Please turn to the inside of the front cover
of the resource guide. Write down 1 to 3
action steps that you want to immediatelyimplement from Part 5 of this program.