risk, value and cost management

8/13/2019 Risk, Value and Cost Management

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Construction Project M anagement

Risk managementValue management and engineering

Cost managementManaging the design development

within the risk, quality and costconstraints


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Risk Management

What is risk managementWhy is it essential

When it should be conductedWho is accountable and who are the contributors


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Risk Management role

More comprehensive identification of risks Generation of coherent management strategies Formulation of realistic plans and programmes Contingencies which reflect identified risks Faster response to risks when they occur Provides an audit trail for decisions taken Greater team awareness of risk management Increased team understanding of the project


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Risk Management Overview

Life is uncertain Many things go wrong Take Control Risk management plan in order to

control the risk: Why the risk is significant What is to be done to reduce it When the risk will have its impact

upon the project Who is responsible for resolving the

risk How the reduction will be achieved

Control

Mitigate

AssessIdentify

Risk Management Steps


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Risk identification informationsources

Prompt List Table Provides adequate scope Starting point of identifiable types of risk

Product description The performance requirements of the building Less detailed at the early stages of the project, more detailed as

the design develops The drivers for the project (client needs and requirements)

Other PM outputs Cost estimates, programme constraints, resource constraints,

planning constraints, procurement options, etc. Historical information

Lesson learnt from previous projects


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7/54Construction Project M anagement

Prompt List Contents

Project definition Concept and Design Plans Financing arrangements Project organisation Procurement contracts

Execution Construction Client risks



Risk identification tools Checklists

Lists prepared from past experience showing potential risks(Prompt List)

Organised by source of risk such as internal sources, projectcontext and other process outputs

Flowcharting Such as Ishikawa diagram (Fishbone diagram) to show the cause

and possible consequences. Interviewing

Risk-oriented interviews with various stakeholders Brainstorming

To fill in any gaps Distinguish a number of risk drivers in a particularly complex aspect

of a project.



Identified risks information

Sources of risk e.g. stakeholder actions, unreliable estimates etc. that may affect

the project for better or worse. Potential risk events

Discrete occurrences such as natural disasters. Risk symptoms

e.g. poor morale may be an early warning signal of an impendingschedule delay or cost overruns on early activities may beindicative of poor estimating.

Inputs to other processes The risk identification process may indicate the need for further

work in other processes in the project


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Risk Register ExampleRisk Register

11-Nov-11Title of Risk Dependancie

s (Ref to)Effect

Time,CostAllowance Comments

Ave ra ge M aximu m

1. DDevelopment of Authority Requirements/ Option Study propos als

T,C 107,000 426,000Allowance for PM team to develop detailed design solution for factors which only

become apparent from detailed design dev elopment.

2. CIChange in scope of Works ( extensionetc) - Pre & Post Tender

T,C 71,100 355,300Allowance fro the Authority to modify requirements within general scope of worksidentified in Project Brief, but beyond Option Study allowances.

3. S Asbestos removal T,C 18,000 180,000Minimal cost allowance as a result of the Authority identifying minimal asbestosconte nt in existing buildings and on ly partial removal may be anticipated. As bes tos

4. SStructural Upgrade/Repairs o f existing

buildingsT,C 90,000 450,000

Minimal cost allowance made as the structure is believed to be well maintained andsound, but investigations may reveal additional requirements

5. TAmendments required to obtain planningapprovals

T,C 500 5,000Authority considers planning to be minor issue therefore cost allowance low.Discussion with Planners will identify areas of concern.

6. CIDelays in o btaining inte rnal (MoD/DEOetc) approvals

T,C 30,400 121,500Delay in appointment of cons ultants and contractor may impact on costs . Shoulddelay occur after appointment costs increase significantly. Ens ure approvalsavailable prior to award.

7. S Upgrade existing drainage/services T,C 3,600 36,000Existing drainage should be adequate as it already caters for similar levels ofuse/numbers of occupants. Minor alterations o nly anticipated.

8. CI Delay in relocating existing facilities T,C 45,600 121,500Relocation of current occupants may be delayed due to many factors including lackof alternative accommodation . Any s uch delay will resu lt in delay to the project,with res ultant ad ditional cost s. Prompt relocation will minimise delays .

9. TDelay to progress through ag entsoutwith th e contract (StatutoryAuthorities etc)

T,C 30,400 121,500Possibility that outs ide agents, ie stats and planners may cause delay to the projectduring some stage, which may impact on contractor's preliminary costs.

10. CI

Restrictions imposed on Contractors

general working p ractice (e.g. Hours ofwork / means o f access / secu rity alertsetc.)

T,C 12,200 121,500

Security alerts and prevention of activities to reduce disturbance of remaining and

adjacent occupiers is likely to result in disruption to contractor's working practices.Wherever poss ible restrictions to b e identified prior to entering into contract.

11. CI Force Majeure T,C 2,000 100,000"Act's of God" and the like unforseen activities which would incur additional costfor the Authority.

12. OIncrease in RICS BCIS TPI for CurrentQuarter

C 1,311,100 1,482,100

Increase Costs = Increase from current costs to projection of Base Estimate plusother Risk Allowances x start TPI / Base TPI + half increas e in TPI between start o fconstruction and programmed completion, ie projection to mid point of contract

13. CO Receivership of Contractor T,C 7,100 71,100

Additional cost to the Authority to procure an alternative contractor to complete theworks following receivership of the main contractor appointed under the contract.Tender lists to be drawn up taking into account financial status of Contractors.



10 21, 35,

53, 65,69, 75,82, 73

11, 12,

13, 14,16, 25,29, 42,45, 46,48, 55,59, 67

8, 28, 36 9, 10, 15,

47, 58,68, 76, 77

2, 52, 78 39, 61 72

9

8 94 80 24

7 66 30

6 5, 6

5 20 74 31 60

4 7, 70, 85

3 33, 41,54, 63

2 18, 26,38, 43,50, 56

81

1 19, 32,51, 62,71, 82b,83

22, 23,40, 44

27, 34,57, 64

17, 49, 84 79

1 2 3 4 5 6 7 8 9 10

Risk Matrix Start

I m p a c t

Likelihood



Response & Mitigation

Avoid Where risks have serious consequence: eliminate, withdraw

from or not become involved Reduce

Reduce to acceptable level: e.g. redesign, more details (siteinvestigations), different materials or methods.

Transfer When accepting wouldnt give best value for money: sharing,

outsource or insure Accept

Retain and budget (contingency)



Risk Matrix Finish

I m p a c

t

Likelihood

10 69, 75,82a 14, 25,46, 559

8 42 80

7

6

5 20 74

4 85

3 9, 16b,41, 48b

2 18, 26,43, 50,56

81

1 1 16a, 22,23, 44,48a

27, 57 84 79

1 2 3 4 5 6 7 8 9 10



Planning risk control

Risk Management Plan The procedure to be used to manage risk throughout the project. Identifying the result of the risk identification and risk

quantification processes

Actions: who covers what risk, how to maintain outputs, how toimplement contingency plans, how reserves will be allocated. Actual risk events

The project management team must recognise that they haveoccurred and implement the required response.

Additional risk identification: As project develops, potential risk events not previously

identified may surface.



Risk Management Plan e.g.isk Area

mpacted

Source IdentifiedRisk

Mitigation Strategy /Particular Issues

Actions Response/Progress Action Owner Status,TargetDate

RM(P) ConsultantsITT

Integration oftheConstructionProgrammewith the BTSIT migrationProgrammes/strategy.

1.2 Production ofintegrated activityprogrammes.

1.2 Contact BTS ITMigration staff

1.2 Initial meeting with Barclays BTS, Radbroke Hall.Barclays update layout plan of equipment in GloucesterComputer Centre every week this will be copied toCapita. A communication link with the staff on the BTSMigration project has been established.

More information is required e.g. streaming of IT kitand position of PDUs. This information is requiredbefore the appointment of the Principal Contractor(target date of 24 Jan 00 for appointment of PC)Target Date for Appointment of Principal Contractornow revised to 28 Jan 00.

A meeting has been organised with BTS for 1 Mar 00to resolve the streaming issue.The meeting on 1 Mar 00 defined an approach tostreaming. The proposed sequence of works definedby Capita is based on assumptions derived from theagreed approach to streaming. Changes may impactthe project programme. A monthly forum will continue.

A meeting, planned for 27 Apr 00, will bring togetherGPS, How ES and BTS. Hows detailed constructionprogramme will be presented to BTS and over-layedon their programmes to determine if any of the tasksclash with planned BTS operations. IT IS EXPECTEDTHAT CLASHES WILL BE INEVITABLE THESEWILL HAVE TO BE CAREFULLY MANAGED! How ES Draft contract programme issued 5 May 00 How ES Final contract programme issued 26 May 00 further copies awaited for distribution Paul Craven (BTS) has issued definitive informationdefining the computer hall layout and powerarrangements. This information has been distributedto the project in letter from Intec dated 25 May 00.

1.2 BuroFourBarclays GPS(Actiontransferred 8Dec 99)

1.2Ongoing,Monthly.



Risk control process

Take corrective action of identified risks as planned Workaround unplanned risk events and take corrective

actions Develop response to additional risks:

If the risk event was not anticipated, or the effect is greater thananticipated, the planned response may be inadequate.

In these circumstances, it will be necessary to repeat the riskresponse process or even the risk identification process.

Updates risk management plan Risk events occur or fail to occur Actual risk event effects are evaluated, estimates of probabilities

and value Other aspects of the risk management plan should be updated.



QuantifyRankHML matrix

Input Process Output

BrainstormHazards

RemoveTransfer ReduceAccept

ReviewOptions

Control MeasuresImplementation

RiskIdentification

ClientInput

ProjectTeam

Input

Risk Register & Plan

Risk Register

Is Riskacceptable

Monitor

Update RiskRegister

RiskAssessment

Control MeasuresIdentification

Risk Register & Plan

Risk Register & Plan Yes

No

RiskMitigation

ReviewMitigation

Risk Management ProcessCycles:

The first cycle is at theproject initiation and conceptdesign stage.

Ongoing maintenance up to

feasibility stage. During feasibility stage,

ongoing development duringinitial stages of schemedesign.

Ongoing Risk Managementactivities during detaileddesign stages.



Qualitative/Quantitative Analysis

Risk Analysis can be split into 2 separate phases: Qualitative Identification Initial Risk Assessment Quantitative Estimates of uncertainty for cost & time Probabilistic combination

Qualitative risk analysis tools e.g. Checklists Questionnaires Brainstorming

Quantitative risk analysis tools e.g. Probabilistic Monte Carlo Sensitivity analysis Decision Trees

Qualitative risk analysis is sufficient for most projects


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Risk management strategiesfor the control of time

Pre-engineer the project work out sequences, methods and timing agree with the designer the most effective methods and

details

innovate to gain an improved product or process decide work packages and design the interface boundaries develop the logistics plan

Involve the trade contractors early Fast build not Fast Track Interface management Set realistic, understandable and achievable dates


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Good practice

Get the constructor involved as early as possible designers and constructors use their complimentary skills to

provide solutions that can be built efficiently and economically. Chose the procurement route carefully

Risk versus flexibility. Build an effective team

Common understanding of the objectives to achieve the goals eventhough there may be unexpected events.

Undertake risk analysis Identify the risks that would delay the project. Rate the likelihood of each occurring & rank their importance. Proactively manage the most important risks & update each month.


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Value Management

Value planning

Value engineering

Value reviewing


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Value Management

Value management is defined as: a structuredapproach to defining what value means to a client inmeeting a perceived need by establishing a clearconsensus about the project objectives and how theycan be achieved

Conn augh ton and Green, 1996


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Value Management aims

To help the Client to revalidate what they want Look for flexibility / headroom for future expansion Team building and understand each stakeholders

major issues To enable the voice of the client to carry through the

project


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Value issues

Definition

value (judgement of worth; hence positive and negative)

values (criteria for judging value, subjective)

Determine:

key functional requirements

Identifying:

alternative solutions (speculation)

Examine for each alternative:

CostValue

Enable best value selection


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Value Management stages

addresses the value process duringconcept

definition

implementation

operation

enhances project value throughout life of facility

embraces the whole value process including

value planningvalue engineering

value reviewing


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Value Management stages

Value PlanningVP (VM1 & VM2)

Value EngineeringVE (VE1 & VE2)

Value ReviewingVR

Feedback

Feedback

Feedback

Confirmation ofclients objectives

Detailed functionalanalysis

Confirmation offunctionalrequirements

Ranking andprioritizing

Preferred systems

Review of every systemsolution

Preferred elements Buildability issues VE proposal & final report Implementation & follow up

Monitoring the valueprocess

Correction of defects Feedback intosubsequent areas ofwork


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Value Planning VM1(Concept)

Approach OutputInput

Clients objectives

Frameworkfor debate

Analysedobjectives Calculation

Informationneeds

Functionalrequirement

VM1Workshop

l l


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Value Planning VM2(Scheme)


Functionalrequirements

Frameworkfor debate

Analysedrequirements Calculation

Informationneeds

PreferredSystems

VM2Workshop

l


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Value Engineering VE1(Detailed design)


Preferredsystems

Frameworkfor debate

AnalysedSystems Calculation

Informationneeds

PreferredElements

VE1Workshop

V l E i i VE2


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Value Engineering VE2(Construction)


Preferredelements

Frameworkfor debate

Analysedelements Calculation

Informationneeds

Buildabilit yrequirements

VE2Workshop


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Concept Definition Implementation Operation

Time

D e c i s

i o n s

With VM

Without VM

VM workshop benefits

More efficient designdevelopment

Reduction in costs Reduction in development

time Increase in productivity Improved product quality and

reliability

Greater client satisfaction


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Notes for VM workshop

Everybody should contribute Off the wall discussions The focus by end of workshop will probably be on the

10 most important issues in terms of value for money


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Cost Management

Early Cost Advice / Preliminary Estimate

Cost planning / Cost control

Change management and control


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Advantages & Disadvantages

Advantages: Tender sum equates estimate No abortive redesign at the tender stage Balanced design leads to cost effectiveness Cost considerations are integral part of the process A smoother running of the project Benchmarking

Disadvantages: Restricts designers thought development process Time consuming Additional fees


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Cost Management process inrelation to project stages

Early cost advice

Preliminary estimate

Preliminary cost plan

The cost plan

Cost controlof alternative design solutions

Tender reconciliation

Post-contract cost control

Inception

Feasibility Studies

Concept Design

Scheme Design

Detailed Design

Procurement(Bills of Quantities)

STCs Detailed Design(Production information)

Construction

Outline Design

ProjectStages

CostManagementProcess

Cost planning

Cost control


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Estimating techniques

The choice of method depends on the availabilityof:

Information Time

Unit method Floor area method Storey enclosure method Elemental cost (designing to cost) Comparative cost (costing a design)


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The Cost Plan

Towards the end of the outline design stage or earlyscheme design stage Develops as the design develops The individual elements targets = Total target cost Or range of probable elements targets = average

agreed total cost Required information:

Drawings Specifications Contractual arrangement Cost analysis from other projects


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Cost plan considerations

Pricing conditions Inflation Changes in market conditions

Quantity considerations Approximate quantities Proportion Inspection

Quality considerations For particular important elements of the project


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Design risks management(level of customization)

Concept Design

Scheme Design

Detailed Design

Contingency

Contingency

Contingency

Estimate

Estimate

Estimate

Cost planning

Cost control


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Cost control and designdevelopment

+ / -

Design proposal

Change proposal

Revised design

Change Order

Agreed costplan

Revised costplan

Variations


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Response to design change

Redesign the element Approve change and amend cost plan Approve change and reduce other elements costs

Never assume that you might get an element of designcheaper than what is expected


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Design Change initiation

Change can be initiated by: client, designers, contractors: Request for Instructions/Information (RFI) Request for Change (RFC) Non Conformance Report (NCR) fix by contractor Concessions approval by client Variations

Modifications Extras


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Change Management

REVIEW IMPACTOF CHANGE

DESIGN

CONSTRUCTION

CHANGEREQUEST

RAISE CHANGEORDER

Approval

REJECTE CHANGE

No

Yes


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Financial assurance requirements

The client is well funded and the project is properlyfunded

All STCs are well founded and financially stable The STCs only submit well documented claims for

payment Valuations include the full amount of the work done Variations are valued in full and are included in the

valuations Payments are made in accordance with the contract

terms


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Final accounts

Financial control process is kept up to date All variations agreed before implementation Final payment claim from STCs is received on time Final account and payment is made immediately No need for STCs to cover the outstanding income by

borrowing

A one month target from end of the work to payment ofthe final account should be the norm

risk, value and cost management

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