Risk, Value and Cost Management

Risk management Value management and engineering Cost management
Managing the design development within the risk, quality and cost constraints
Construction Project Management
Risk Management
What is risk management Why is it essential When it should be conducted Who is accountable and who are the contributors
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 Construction Project Management
Risk Management Overview

Life is uncertain
Many things go wrong
Take Control Identify

Assess Mitigate Risk management plan in order to control the risk:
Why the risk is significant
Control
What is to be done to reduce it

When the risk will have its impact upon the project
Risk Management Steps
Who is responsible for resolving the risk How the reduction will be achieved
Risk identification information sources

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
Risk sources
Sources of Risk Client, gov, agencies Funding Definition of project Project organisation Design Local conditions Permanent plant supply Construction contractors Construction materials Construction labour Construction plant Logistics Estimating data Inflation Exchange Rates Force majeure Examples Bureaucratic delays, changes in local regulations Changes in Government funding policy, liaison between several funders Change in project scope Authority of project manager, involvement of outside bodies Adequacy to meet need, realism of design programme Local customs, weather windows Degree of novelty, damage or loss during transportation Experience, financial stability Excessive wastage, quality, delivery Industrial relations, multi-racial labour force Resale value, spares availability Remoteness, access to site Relevancy to specific project, availability Change in rate impact on loans, prices, wages Change in rate impact on prices Change of government, natural disaster
Prompt List Contents

Project definition
Concept and Design
Plans Financing arrangements

Project organisation Procurement contracts
Execution
Construction Client risks Construction Project Management
Risk identification tools

Checklists
Lists prepared from past experience showing potential risks (Prompt List)
Organised by source of risk such as internal sources, project context 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 impending schedule delay or cost overruns on early activities may be indicative of poor estimating.
Inputs to other processes

The risk identification process may indicate the need for further work in other processes in the project
Risk assessment tools

Risk Register Typical Headings:
Risk code (1) Summar y of risk (2) Timing Outline managem ent plan (4) Responsib le person (5) Probability of occurrence (6) Averag e impact (7) Minimu m impact (8) Most likely impact (9) Maximu m impact (10)
(3)
HML matrix:
L Impact H M L
Likelihood M
Risk Register Example

Risk Register Title of Risk Dependancie s (Ref to) Effect Time,Cost T,C T,C T,C T,C T,C T,C T,C T,C Allowance Average Development of Authority Requirements 1. D / Option Study proposals Change in scope of Works ( extension 2. CI etc) - Pre & Post Tender 3. 4. 5. S S T Asbestos removal Structural Upgrade/Repairs of existing buildings Amendments required to obtain planning approvals Delays in obtaining internal (MoD/DEO etc) approvals Upgrade existing drainage/services 107,000 71,100 18,000 90,000 500 30,400 3,600 45,600 Maximum 426,000 355,300 180,000 450,000 5,000 121,500 36,000 121,500 Allowance for PM team to develop detailed design solution for factors which only become apparent from detailed design development. Allowance fro the Authority to modify requirements within general scope of works identified in Project Brief, but beyond Option Study allowances. Minimal cost allowance as a result of the Authority identifying minimal asbestos content in existing buildings and only partial removal may be anticipated. Asbestos Minimal cost allowance made as the structure is believed to be well maintained and sound, but investigations may reveal additional requirements Authority considers planning to be minor issue therefore cost allowance low. Discussion with Planners will identify areas of concern. Delay in appointment of consultants and contractor may impact on costs. Should delay occur after appointment costs increase significantly. Ensure approvals available prior to award. Existing drainage should be adequate as it already caters for similar levels of use/numbers of occupants. Minor alterations only anticipated. Relocation of current occupants may be delayed due to many factors including lack of alternative accommodation. Any such delay will result in delay to the project, with resultant additional costs. Prompt relocation will minimise delays. Possibility that outside agents, ie stats and planners may cause delay to the project during some stage, which may impact on contractor's preliminary costs. 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 possible restrictions to be identified prior to entering into contract. "Act's of God" and the like unforseen activities which would incur additional cost for the Authority. Increase Costs = Increase from current costs to projection of Base Estimate plus other Risk Allowances x start TPI / Base TPI + half increase in TPI between start of construction and programmed completion, ie projection to mid point of contract Additional cost to the Authority to procure an alternative contractor to complete the works following receivership of the main contractor appointed under the contract. Tender lists to be drawn up taking into account financial status of Contractors. 11-Nov-11 Comments
6. CI 7. S
8. CI Delay in relocating existing facilities Delay to progress through agents outwith the contract (Statutory Authorities etc) Restrictions imposed on Contractors general working practice (e.g. Hours of 10. CI work / means of access / security alerts etc.) 9. T 11. CI Force Majeure Increase in RICS BCIS TPI for Current Quarter
T,C
30,400
121,500
T,C
12,200
121,500
T,C
2,000
100,000
12.
1,311,100
1,482,100
13. CO Receivership of Contractor
T,C
7,100
71,100
Risk Matrix Start

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, 2, 52, 78 47, 58, 68, 76, 77 39, 61 72
Impact
8 7 66
94
80
24 30
6 5
4 3 2 33, 41, 54, 63 18, 26, 38, 43, 50, 56 22, 23, 40, 44
5, 6 20 74
7, 70, 85
31
60
81
19, 32, 51, 62, 71, 82b, 83 1
27, 34, 57, 64
17, 49, 84
79
Likelihood
2 3 4 5 6 7 8 9 10
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 (site investigations), 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

10 69, 75, 14, 25, 82a 46, 55 9
8 7
42
80
Impact
6
5 4 3 2 20 74 85 9, 16b, 41, 48b 18, 26, 81 43, 50, 56 1 16a, 22, 27, 57 23, 44, 48a 2 3
84
79
10
Likelihood
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 to implement contingency plans, how reserves will be allocated.
Actual risk events

The project management team must recognise that they have occurred and implement the required response.
Additional risk identification:

As project develops, potential risk events not previously identified may surface.
Risk Management Plan e.g.

Risk Area Impacted PRM(P) Source Identified Risk Mitigation Strategy / Particular Issues Actions Response/Progress Action Owner Status, Target Date 1.2 Ongoing, Monthly. Consultants Integration of 1.2 Production of ITT the integrated activity Construction programmes. Programme with the BTS IT migration Programmes/ strategy. 1.2 Contact BTS IT 1.2 Initial meeting with Barclays BTS, Radbroke Hall. Migration staff Barclays update layout plan of equipment in Gloucester Computer Centre every week this will be copied to Capita. A communication link with the staff on the BTS Migration project has been established. More information is required e.g. streaming of IT kit and position of PDUs. This information is required before the appointment of the Principal Contractor (target date of 24 Jan 00 for appointment of PC) Target Date for Appointment of Principal Contractor now revised to 28 Jan 00. A meeting has been organised with BTS for 1 Mar 00 to resolve the streaming issue. The meeting on 1 Mar 00 defined an approach to streaming. The proposed sequence of works defined by Capita is based on assumptions derived from the agreed approach to streaming. Changes may impact the project programme. A monthly forum will continue. A meeting, planned for 27 Apr 00, will bring together GPS, How ES and BTS. Hows detailed construction programme will be presented to BTS and over-layed on their programmes to determine if any of the tasks clash with planned BTS operations. IT IS EXPECTED THAT CLASHES WILL BE INEVITABLE THESE WILL 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 information defining the computer hall layout and power arrangements. This information has been distributed to the project in letter from Intec dated 25 May 00. 1.2 BuroFour Barclays GPS (Action transferred 8 Dec 99)
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 than anticipated, the planned response may be inadequate. In these circumstances, it will be necessary to repeat the risk response 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.
Input
Process
Output
Client Input
Brainstorm Hazards
Risk Management Process Cycles: The first cycle is at the project initiation and concept design stage.
Risk Identification Project Team Input Risk Assessment Quantify Rank HML matrix Risk Register & Plan Risk Register
Ongoing maintenance up to feasibility stage. During feasibility stage, ongoing development during initial stages of scheme design. Ongoing Risk Management activities during detailed design stages.
Control Measures Identification
Risk Mitigation
Remove Transfer Reduce Accept
Review Mitigation
Is Risk acceptable No
Yes
Risk Register & Plan
Control Measures Implementation
Review Options
Monitor
Update Risk Register
Risk Register & Plan
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
Risk management strategies

STRATEGY
Modify objectives Avoid Prevent Mitigate
METHOD OF HANDLING UNCERTAINTY

Reduce or raise performance targets, change trade-offs between multiple objectives Plan to avoid specified sources of uncertainty Change the probability of occurrence Modify the impact of a source of uncertainty
Develop Contingency Set aside resources to provide a reactive ability to cope with plans events Keep options open Delay choices and commitment, choose versatile options Monitor Accept Collect and update data about probabilities of occurrence, anticipated impacts, and additional risks Accept risk exposure, but do nothing about it
Remain unaware
Ignore the possibility of risk exposure, take no action to identify or manage risk
Risk management strategies for 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 Construction Project Management
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 even though 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.
Summary
Risk Management Process to enable the analysis and response to risks associated with a project Why is it used Identification Assessment Mitigation Response/Management
Increased understanding of project and risk to increase probability of achieving time, cost, performance objectives Throughout project cycle Qualitative Analysis Quantitative Analysis
When is it carried out How is it done
Value Management
Value planning
Value engineering Value reviewing
Value Management
Value management is defined as: a structured approach to defining what value means to a client in meeting a perceived need by establishing a clear consensus about the project objectives and how they can be achieved Connaughton and Green, 1996
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
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:

Cost Value
Enable best value selection
Value Management stages

addresses the value process during
concept
definition
implementation operation
enhances project value throughout life of facility embraces the whole value process including
value planning value engineering value reviewing
Value Management stages

Feedback
Value Planning VP (VM1 & VM2) Confirmation of clients objectives
Feedback
Value Engineering VE (VE1 & VE2)
Feedback
Value Reviewing VR
Monitoring the value process Correction of defects Feedback into subsequent areas of work
Detailed functional analysis Confirmation of functional requirements

Ranking and prioritizing Preferred systems
Review of every system solution Preferred elements Buildability issues VE proposal & final report Implementation & follow up
Value Planning VM1 (Concept)

Input
Clients objectives
Approach
VM1 Workshop
Output
Framework for debate
Analysed objectives
Calculation
Information needs
Functional requirement
Value Planning VM2 (Scheme)

Input
Functional requirements
Approach
VM2 Workshop
Output
Analysed requirements
Calculation
Information needs
Preferred Systems
Value Engineering VE1 (Detailed design)

Input
Preferred systems
Approach
VE1 Workshop
Output
Analysed Systems
Calculation
Information needs
Preferred Elements
Value Engineering VE2 (Construction)

Input
Preferred elements
Approach
VE2 Workshop
Output
Analysed elements
Calculation
Information needs
Buildability
requirements
VM workshop goals
Identify and prioritise project needs and objectives
Establish and evaluate alternatives
Optimise programme Search for unnecessary cost in implementation phase Search for unnecessary cost to business in operation phase
Restate the business risks to the client, the operation risks and the project risks.
VM workshop benefits
With VM
Without VM
More efficient design development

Reduction in costs Reduction in development time Increase in productivity
Decisions
Improved product quality and reliability

Concept Definition Implementation Operation
Greater client satisfaction
Time
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
Cost Management
Early Cost Advice / Preliminary Estimate
Cost planning / Cost control Change management and control
Cost management objectives

Achieving value for money
Sensible distribution of cost
Keeping expenditure within budget Checking costs as design develops

Managing design risks and contingencies Presenting costs in a logical and orderly way to the client as the design develops Audit trail of decision making process
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
Cost Management process in relation to project stages

Inception Early cost advice Feasibility Studies Preliminary estimate
Concept Design
Preliminary cost plan
Cost planning
Outline Design
The cost plan
Project Stages
Scheme Design Cost control of alternative design solutions Detailed Design
Cost Management Process

Cost control
Procurement (Bills of Quantities) STCs Detailed Design (Production information)
Tender reconciliation
Post-contract cost control Construction
Early cost advice

Value Management
Design risks identification
POTENTIAL VARIATIONS
COST FORECAST
Why early cost advice?

buildings cost a lot of MONEY
building client must know his likely financial commitment before extensive design work is undertaken.
QS gives advice on the probable cost of the project Construction Project Management
Cost estimate
Based on:
Site preliminary investigations
Important design decisions such as height and shape

Alternatives considered
Outline proposals
Determine the cost targets for different building main systems
Approved cost target

Cost target can be also:
Fixed restricted design solutions Based on similar projects update considering inflation, regional costs of labour materials etc.
Estimating techniques
The choice of method depends on the availability of:
Information
Time
Unit method Floor area method

Storey enclosure method Elemental cost (designing to cost)
Comparative cost (costing a design)
The Cost Plan

Towards the end of the outline design stage or early scheme 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
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
Design risks management (level of customization)

Cost planning
Concept Design Estimate
Contingency
Scheme Design
Cost control
Estimate
Contingency
Detailed Design
Estimate
Contingency
Cost control and design development

Design proposal
Agreed cost plan
Change proposal
+/Variations Change Order
Revised design
Revised cost plan
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 design cheaper than what is expected
Tender reconciliation
Target cost of tender
+/=
Final cost of tender
Tender
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
Change Management
CHANGE REQUEST
REVIEW IMPACT OF CHANGE DESIGN Yes

Approval
RAISE CHANGE ORDER
CONSTRUCTION
No
REJECTE CHANGE
Cost of change
Cost reduction potential Owner
Cost to change
Designers Constructors Users

Concept
Time
Definition
Implementation
Operation
Financial assurance requirements

The client is well funded and the project is properly funded 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
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 of the final account should be the norm

Risk, Value and Cost Management

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Risk, Value and Cost Management

Caricato da

Copyright:

Formati disponibili

Risk management Value management and engineering Cost management

Construction Project Management

Construction Project Management

Risk Management role

Risk Management Overview

Take Control Identify

What is to be done to reduce it

Risk Management Steps

Construction Project Management

Risk identification information sources

Construction Project Management

Construction Project Management

Prompt List Contents

Plans Financing arrangements

Risk identification tools

Construction Project Management

Identified risks information

Potential risk events

Inputs to other processes

Construction Project Management

Risk assessment tools

Construction Project Management

Risk Register Example

13. CO Receivership of Contractor

Construction Project Management

Risk Matrix Start

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

27, 34, 57, 64

Construction Project Management

Response & Mitigation

Construction Project Management

Risk Matrix Finish

Construction Project Management

Planning risk control

Actual risk events

Additional risk identification:

Construction Project Management

Risk Management Plan e.g.

Construction Project Management

Risk control process

Develop response to additional risks:

Updates risk management plan

Construction Project Management

Control Measures Identification

Remove Transfer Reduce Accept

Risk Register & Plan

Control Measures Implementation

Construction Project Management

Update Risk Register

Risk Register & Plan

Qualitative risk analysis tools e.g.

Quantitative risk analysis tools e.g.

Qualitative risk analysis is sufficient for most projects

Construction Project Management

Risk management strategies

METHOD OF HANDLING UNCERTAINTY

Construction Project Management

Risk management strategies for the control of time

develop the logistics plan

Chose the procurement route carefully

Build an effective team

Undertake risk analysis

Rate the likelihood of each occurring & rank their importance.

Construction Project Management