T H E J O U R N A L O F A A C E I N T E R N AT I O N A L | T H E A U T H O R I T Y F O R T O TA L C O S T M A N A G E M E N T

M AY / J U NE 2024

A Risk-Based
Approach to
Construction
Management

ALSO:

Forensic Delay Analysis of Disrupted Projects:

An Alternative ApproachUsing System Dynamics

The Project Life Cycle: Preventing

Change and Project Failure
 ABOUT US
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CONTENTS
MAY / JUNE 2024

TECHNICAL ARTICLES

10 A Risk-Based Approach to
Construction Management
CHLOE E. EDWARDS AND YASAMAN SHAHTAHERI

22 Forensic Delay Analysis of

Disrupted Projects: An Alternative
10 Approach Using System Dynamics
ALEXANDER VOIGT; MONEER S. KHALAF; AND DR. SAM G. MATTAR

34 The Project Life Cycle: Preventing

Change and Project Failure
H. LANCE STEPHENSON, CCP FAACE

ALSO IN THIS ISSUE

22 3 AACE International Board of Directors

3 Cost Engineering Journal Information
4 Letter from the Editor
21 AACE 2024 Election Results Announced
55 New Recommended Practice 127R-23: Choosing
Among Strategic Alternatives Using Branching Concepts
in Decision Modeling

34 For additional industry news and updates,

you can always visit us at web.aacei.org.

MAY/J U N E 2 02 4 1
The Top 10 Reasons
To Join AACE International
Ready to advance your career and begin enjoying the advantages
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2 M AY/J U N E 2024
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MAY/J U N E 2 02 4 3
LETTER FROM THE

EDITOR
BY MANAGING EDITOR MARVIN GELHAUSEN

Building a Technical
Article (May/June)
This issue of the Cost Engineering journal features three themed technical In this issue:
papers: a Risk paper, a Claims and Dispute Resolution paper, and a Total Cost
Management paper. TECHNICAL ARTICLE 1
As this is the May/June issue, the annual Conference & Expo is A Risk-Based Approach to Construction Management by Chloe E. Edwards
coming up June 16-18. Our annual “Call for Papers” will follow the and Yasaman Shahtaheri, was first presented at the 2023 ConEx as
June conference, and technical paper abstracts will be accepted through RISK.4144.
August. Each article published in the journal must first pass a formal peer
review process, and each must be presented to attendees at recent AACE TECHNICAL ARTICLE 2
Conference & Expo events. Top scoring papers are then considered for Forensic Delay Analysis of Disrupted Projects: An Alternative Approach
publication in the CE journal. Using System Dynamics, by Alexander Voigt, Moneer S. Khalaf, and Dr.
Sam G. Mattar, was first presented at the 2023 ConEx as CDR.4037.

A NEW FEATURE: YOU CAN NOW WATCH THE RECORDED TECHNICAL ARTICLE 3
PRESENTATION OF EACH ARTICLE The Project Life Cycle: Preventing Change and Project Failure, by H. Lance
Readers will note a box at the end of each technical article alerting them Stephenson, CCP FAACE, was first presented at the 2022 ConEx as
that they can now “Click to view the article presentation online.” We TCM.3933.
hope AACE members will take advantage of this new feature, giving
them additional insight into each author’s presentation at the AACE We asked each author to elaborate on how they selected their topic
International Conference & Expo. You can see what you have missed if and what they want you, the reader, to get as takeaways from reading their
you were not at the ConEx. This year’s ConEx is June 16-18 in Atlanta. articles. We also asked them how they learned of AACE, why they became
For additional information, visit https://web.aacei.org/conferences- members, what AACE member resources have benefited them personally,
events/events/conference-expo-information/2024ConEx. and how AACE has impacted their careers. These additional background
insights will help you better understand each article.

4 M AY/J U N E 2024
TA 1. A Risk-Based Approach to ARTICLE AUDIENCES
The authors note that their article caters to three primary audiences:
Construction Management
• Risk Management Professionals and Analysts: Those seeking to
BY CHLOE E. EDWARDS AND YASAMAN SHAHTAHERI enhance their understanding of risk management.
• Stakeholders and Decision Makers: Individuals interested in
A COMPREHENSIVE RISK MODEL comprehending the impact of a risk-based decision support system
Author Yasaman Shahtaheri explains how they selected their technical on their choices.
paper topic: “Our topic stems from our extensive project experience, • Program and Project Managers: Those keen on exploring the
centering on developing a comprehensive risk model. This model advantages of an integrated risk management plan.
seamlessly integrates cost and schedule risks, allowing for simultaneous
simulation in response to potential risk events. Our analysis encompasses COMPONENTS OF A RISK MANAGEMENT PLAN
various facets, including cost and schedule uncertainties, soft costs, Yasaman elaborates, noting that, “Understanding the elements of a risk
indirect costs, risk identification, opportunities, risk correlations, and management plan is crucial for risk management professionals. A well-
considerations related to escalation and interfaces.” structured plan ensures effective risk identification, assessment, and
mitigation strategies, ultimately contributing to successful project and
ACCURACY AND RELIABILITY OF THE INPUT DATA program execution. To ensure the precision of the data, my team begins
Yasaman continues, “In practical terms, an analysis's quality hinges on the assessment by conducting interviews with a range of subject matter
the input data's accuracy and reliability. To validate and comprehend the experts, from engineers and estimators to operational specialists. In my
limitations of our risk model, we adhere to the globally recognized ISO professional practice, I’ve observed that relying exclusively on subject
31000:2018 Risk Management Process. This process encompasses three matter experts for data can sometimes result in inaccuracies. Therefore,
fundamental elements: establishing context, risk assessment, and risk treatment.” we also delve into pertinent literature, manuals, and standards to gather
She further explains, “Once we identify the project’s context, goals, comprehensive insights for data collection. This dual approach ensures
objectives, and subject matter experts, we proceed with a thorough risk the robustness of the input data. We prioritize designing controlled
assessment. This involves a systematic process of risk identification, experiments for data collection and analysis to minimize errors—be they
analysis, and evaluation. Effective communication, collaboration with random, systematic, or human. For instance, we conduct comparative risk
the project team members, and ongoing risk monitoring and review are and reliability analyses for projects and programs that share similarities in
essential pillars of our risk management approach. As we complete the scope, objectives, size, and stakeholders. While each project and program
design, synthesis, and analysis phases, collaboration and reviews become is inherently unique, this comparison aids in evaluating identified risks,
crucial for testing the model results and gaining insights into its limitations proposed designs, cost and schedule contingencies, reliability margins,
and reliability within the specific project context.” and the most significant risks for each project or program. This methodical
strategy enhances the precision and reliability of our risk assessments.”
ARTICLE TAKEAWAYS
The takeaways the authors want you to get from their article is that “A RESEARCH SOURCES LISTED
comprehensive risk assessment serves several critical purposes: In conducting research for their article, Chloe and Yasaman say they used
ResearchGate, ISO 31000 standard, Project Management Body of Knowledge;
• Identification of Key Risks: It enables the identification of Project Management Institute; published books; engineering journals such
significant project and program risks throughout their life cycle. as the Journal of Construction Engineering and Management and Journal of
• Quantification of Risk Exposure: Risk exposures are quantified by Advanced Engineering Informatics; conference proceedings; government risk
assessing uncertainties. management guides; and Palisade publications. These resources served as
• Setting Acceptable Risk Levels: It helps define acceptable risk thresholds. the key references for this article.
• Integration with Value Engineering: Risk assessment seamlessly
integrates with the Value Engineering methodology. ADVANTAGES OF A RISK-BASED COST ESTIMATE
• Strategic Risk Mitigation: It facilitates the development of Further explaining their article, Yasaman says, “Traditionally, cost
actionable strategies to reduce and tolerate risks effectively. engineering does not incorporate a probabilistic assessment of project or
• Accurate Forecasts: Ultimately, it ensures accurate forecasts, program risks, specifically related to cost estimate uncertainty. Instead,
enabling proactive decision-making. most cost engineers apply a fixed percentage to their estimated costs
based on the level of uncertainty and project or program unknowns. This
Lead author Chloe Edwards adds, “Another key takeaway is that risk approach aligns with the project’s stage-gate scope development and
management should take an iterative and collaborative approach. This decision-making processes.”
will allow for proactive risk management by maintaining up-to-date She continues, “However, a risk-based cost estimate offers distinct
information on the status of risks and the implementation of response advantages. It enables early identification of project and program risks and
plans. A collaborative approach can ensure the project team is engaged in facilitates a risk-informed approach to management, design, operation, cost
the risk assessment throughout the project lifecycle. As mentioned above, estimation, and scheduling. By considering uncertainties, this approach
the quality of an analysis depends on the reliability of the input data; provides a more realistic representation of the real-world environment,
therefore, using a collaborative approach that encourages engagement bridging the gap between deterministic and probabilistic perspectives.
from the project team can improve the quality of the risk assessment.” Risk-based cost engineering is an emerging practice that demands agility

MAY/J U N E 2 02 4 5
in modeling, expert insights, sensitivity analysis, and comparisons with cherish my incredible 6-month-old niece and 2.5-year-old nephew. Last but
projects and programs sharing similar risk profiles. These comparisons certainly not least, my husband and I are eagerly awaiting the arrival of our
help establish reliable tolerance thresholds.” first child, and we couldn’t be more excited to expand our family!”
Yasaman says, “In my experience, incorporating reliability functions— Chloe says, “Outside of work, I enjoy spending my free time painting.
enabling sensitivity assessments, comparisons, and expert reviews— I particularly enjoy painting landscapes and often use photos from my
alongside probabilistic assessments, project design, cost, and schedule travels as reference for my paintings. I'm also an avid runner and currently
inputs, and considering the project and program environment results training for my third half-marathon. I found an interest in running a few
in more realistic models. Nevertheless, it remains crucial to state the years ago and find it is a great way to clear my mind and boost my energy
assumptions and limitations inherent in such models transparently.” after a long day.”

FIVE STEPS FOR ARTICLE CREATION

Yasaman’s advice for inexperienced or potential authors who have never
submitted to an AACE Conference & Expo is simple, as she presents
useful steps to follow. She says, “It’s never too late to embark on this TA 2. Forensic Delay Analysis
journey, and your experience holds immense value. Here’s a step-by-step
approach to get started: of Disrupted Projects: An
• Develop Abstract: Write an abstract related to a topic that interests Alternative Approach Using
you or draws from your past project experience. This will serve as a
concise overview of what you intend to explore. System Dynamics
• Conduct Literature Review: Dive into the literature! Explore existing
research and understand the state-of-the-art accomplishments in your BY ALEXANDER VOIGT, MONEER S. KHALAF, AND
chosen field. Identify key insights, methodologies, and gaps that your DR. SAM G. MATTAR
work can address.
• Summarize Findings: Summarize your literature review and A RECURRING ISSUE: SIGNIFICANT PROJECT DELAYS CAUSED
findings. This exercise will help you pinpoint where your work adds BY DISRUPTION OFTEN REMAINED UNACKNOWLEDGED IN
value and how it fits into the broader landscape. TRADITIONAL FORENSIC DELAY ANALYSES
• Write About Your Experience: With insights, start documenting Lead author Alexander Voigt provides background on the authors
your specific experiences. Share anecdotes, challenges, and solutions. developing this article. He says, “A few years ago, our firm was engaged
Your unique perspective matters! to conduct a disruption assessment for a substantial commercial
• Connect with Experts: The AACE Conference and Expo is an development project in the Middle East. Concurrently, a prominent
excellent platform. Attend sessions, engage with fellow industry forensic analyst applied Windows analysis on the same project to file a
experts, and learn about cutting-edge Cost Engineering tools and
resources. Networking can open doors and provide valuable insights.

She adds, “Remember, every step counts, and your journey is a valuable “...our involvement in
contribution to the field. Best of luck!”
several interim disruption
BENEFITS FROM AACE
Yasaman says presenting a paper at the ConEx is something she benefited claims underscored this
from. She notes, “I thoroughly enjoyed my experience at the AACE
Conference and Expo. It provides an excellent platform to showcase your recurring issue: significant
work and receive valuable feedback from fellow cost engineering experts.
Additionally, it’s an ideal environment for expanding your professional project delays caused by
network.” Author Chloe adds, “Being an AACE member has provided great
networking opportunities and expanded my knowledge base. During disruption often remained
the presentation at the AACE Conference & Expo, I was encouraged by
the attendees' engagement and detailed questions and feedback. The unacknowledged in
discussions I had with attendees following the presentation highlighted
areas of risk management that could use improvement and further traditional forensic delay
consideration. I've also enjoyed participating in AACE Section events for
continuous learning and staying connected with peers in the industry.” analyses, especially on
YOU MAY NOT KNOW THIS massively disrupted
Something you may not know about Yasaman is, "Having lived in 7
different cities, I have developed a deep love for exploring diverse cultures complex projects.”
and traveling. During my free time, I find joy in reading. Additionally, I stay
active by practicing Pilates and yoga and going on long walks. As an aunt, I ALEXANDER VOIGT

6 M AY/J U N E 2024
delay claim asserting the contractor’s entitlement to an extension of DISRUPTION CAN CAUSE DELAY
time, and this EOT fell six months short of the actual completion date. Alexander notes, “The fact that disruption and delay are interrelated has
Importantly, the delay analyst acknowledged that he had not been able been known for a while, and the Society of Construction Law recognizes
to account for the impact of rework, nor for that of some events and this in its Delay and Disruption Protocol. However, in our experience,
conditions, which he described as a "death by a thousand cuts." this interplay is rarely reflected in forensic schedule analyses. Our article
Alexander continues, “Thankfully, our disruption assessment based on hopes to raise awareness of the connection between disruption and
system dynamics had already incorporated these factors, and it was relatively delay among industry professionals (arbitrators, lawyers, managers, and
straightforward to expand it to cover delay as well. This approach was experts), familiarize them with how disruption can cause delay, and help
eventually tested in arbitration, and the tribunal fully endorsed its conclusions.” them identify situations where this connection becomes relevant. This
raised awareness on heavily disrupted projects will eventually contribute
RECURRING ISSUE PROMPTS ARTICLE to producing more robust delay claims.”
The author notes, “More recently, our involvement in several interim
disruption claims underscored this recurring issue: significant project READER BENEFITS OF THIS ARTICLE
delays caused by disruption often remained unacknowledged in Here's how different readers can benefit:
traditional forensic delay analyses, especially on massively disrupted
complex projects. This persistent disconnect prompted us to write this Universal Appeal:
article highlighting the need to incorporate comprehensive disruption • Anyone Dealing with Delays: Whether you're a project manager,
assessments to evaluate project delays accurately.” lawyer, or delay expert, system dynamics can be a valuable tool. It
helps you analyze complex project delays, leading to more realistic
ARTICLE TAKEAWAYS and fair outcomes, especially when disruptions are a major factor.
Following are the takeaways the authors hope readers will get from their
article. Specific Applications:
• Dispute Resolution Professionals: System dynamics provides a robust
A. Delay and disruption are interrelated and transparent methodology in construction claims. It helps analyze
Alexander says, “It is well understood in the construction industry project delays, productivity losses, and rework, with visual cause-and-
that delays usually disrupt because of the need to implement effect relationships aiding argument presentation and settlement.
acceleration measures. What is not so well understood is that • Forensic Delay Analysts: Our article provides a framework for
disruption, in turn, also causes delay: disruption causes productivity incorporating system dynamics into your delay analysis toolbox,
losses and rework, and these two phenomena (by definition) slow particularly for intricate projects.
down the progress of the work. So, when disruption is severe and • Cost Engineers: Understanding how system dynamics enhance
pervasive, it will inevitably affect the critical path (and thus delay delay analysis is valuable for cost engineers involved in project claims
the project’s completion date)”. He adds, “While this is recognized or risk assessments.
by AACE and by the Society of Construction Law, forensic schedule • Project Managers: If you manage complex projects, system
analyses of disrupted projects all too often still ignore disruptive dynamics can help you model project dynamics, identify bottlenecks,
events and impacts. Because of this, these analyses either fail to and assess the impact of disruptions.
recognize the full impact of the delay caused by the employer
or blame the delays caused by disruption on other events, thus SCHOLARLY SOURCES USED IN DRAFTING THIS ARTICLE
weakening the claim.” Alexander says, “Our research ventured beyond AACE publications to
B. System Dynamics simultaneously assesses disruption and delay encompass a broader range of scholarly sources.” Here's a breakdown of
Another takeaway is that “The causal framework used by System additional platforms that proved valuable:
Dynamics simulation models accounts for the delaying impact
of disruption. Also, the framework is rich and flexible enough to • ResearchGate: This online platform was a valuable portal for
consider all types of disruptive and delaying events and conditions. discovering recent academic articles and examining the current
As a result, System Dynamics can simultaneously assess both knowledge base regarding system dynamics (SD) applications in
disruption and delay. This capability delivers delay and disruption construction engineering.
assessments that are not just fully consistent with project data but • Academic databases: Resources like Academia.edu, ScienceDirect,
also with each other – thus significantly increasing the strength and and Scopus offered access to a wealth of peer-reviewed research
reliability of both claims.” papers and scholarly articles on SD, particularly its use in project
C. System Dynamics complements CPM, it does not replace it management and forensic claims analysis.
Finally, “While it is true that System Dynamics has capabilities • Industry publications: We also explored journals and reports
that CPM lacks, the opposite is also true: Because SD works at a from project management and construction associations. These
higher level of aggregation (simulating larger groups of activities, publications often included insightful industry perspectives and case
not individual ones), it will never be able to replace CPM as the studies showcasing innovative delay and disruption analysis methods.
indispensable tool to manage and control projects. And, even on
those projects where it may make sense to use SD for a forensic “By strategically incorporating these external resources alongside AACE
delay assessment, our simulation models will still need critical publications, we were able to gain a well-rounded understanding of the
inputs that can only be provided by CPM-based data systems,” subject matters and to identify the latest advancements in the field of
explains Alexander. forensic delay and disruption analysis,” explains Alexander.

MAY/J U N E 2 02 4 7
 CONTRIBUTING TO ADVANCING KNOWLEDGE sharing, and career development. The process compels you to
Alexander says, “Having our article published in Cost Engineering is a truly critically examine every aspect of your research, leading to sharing
rewarding experience that transcends personal satisfaction. It represents your work and significantly improving it.”
a culmination of our efforts and a research validation by a highly
respected journal within the cost engineering community. This publication AACE GIVES CONNECTIONS
grants us the privilege of contributing to the field's knowledge base and “For us, the most valuable resource AACE offers is the connection to a
potentially positively influencing industry practices. vast network of experienced professionals. AACE fosters a collaborative
environment through local sections, online communities, and conferences.
• Recognition and Expertise: Publication in Cost Engineering signifies This network has been instrumental in our professional journeys,”
that our peers deem our work valuable and relevant. This recognition explains Alexander, adding:
is deeply motivating and serves as a springboard for further
exploration of the topic we addressed. • Networking Powerhouse: The most significant benefit is AACE's
• Knowledge Sharing and Impact: This platform allows us extensive network. Local sections, online communities, and conferences
to disseminate our findings to a broader audience, thereby foster a collaborative environment, connecting us with experienced
contributing to advancing knowledge in forensic delay and disruption professionals. These connections have provided crucial guidance
analysis. The potential to improve practices within cost engineering and mentorship, especially from seasoned AACE members who have
through our research is incredibly rewarding. shared their insights on navigating project assessment complexities.
• Credibility and Career Advancement: Publication in this • Collaboration and Shared Learning: AACE membership has
prestigious journal is a testament to our professional credibility. facilitated collaboration opportunities with colleagues on various
This recognition can significantly benefit future research projects. This enhances the quality of our work and fosters a sense of
collaborations and pave the way for further career development. community where we can learn from each other's experiences.
• Aligning with a Trusted Source: We have immense respect for • Staying Ahead of the Curve: AACE offers a wealth of resources,
Cost Engineering, considering it a reliable source of cutting-edge including the Cost Engineering journal, Recommended Practices
information regarding new developments in the field. Having documents, and online seminars. These keep us updated on industry
our work published alongside such valuable content is a source of trends and best practices, allowing us to deliver exceptional work for
immense pride. clients and colleagues. Additionally, AACE's continuing education
programs and webinars, in which we've participated actively, provide
Overall, publishing in Cost Engineering represents a significant milestone access to current knowledge and best practices, ensuring we stay at
in our professional journeys. It is an honor to be associated with such a well- the forefront of the field.
respected publication and a privilege to contribute to the field's advancement.” • Industry Recognition and Opportunity: Being AACE members
demonstrates our commitment to the profession. This recognition
OFFERING A SUPPORTIVE ENVIRONMENT has opened doors to new project prospects, collaborations, and
“For those considering submitting to AACE publications or conferences, opportunities we might not have encountered otherwise.
we strongly encourage you to participate! The AACE community offers
a supportive environment that facilitates professional growth,” notes Alexander says, “Overall, AACE membership has been a game-changer. It
Alexander. He adds, has equipped us with the knowledge, connections, and support necessary
to excel in the project forensic assessment field. At the same time, the
Preparation is Key: Start by thoroughly reviewing the conference theme AACE recommended practices database serves as a constant source of
and submission guidelines well in advance. This allows ample time to valuable information. The sense of community within AACE has also been
refine your topic, conduct thorough research, and polish your writing. instrumental, connecting us with like-minded colleagues who have helped
AACE also offers valuable resources to strengthen your submission, us reach and achieve goals we once thought out of reach.”
including mentorship programs, informative webinars, and online guides
on technical writing and presentation skills. A LOOK AT THE AUTHORS
Let us tell you about our well-kept secret: “our team meetings are anything
Reap the Rewards: Participating in an AACE Conference & Expo unlocks but dull! We're a living example of AACE's global reach, even if our
many benefits. You gain the opportunity to: hobbies lean towards slightly different ends of the spectrum.” Meet:
• Showcase Your Expertise: Present your research and ideas to a
broad audience, potentially establishing yourself as a thought leader. Moneer: The meticulous maestro behind a world-spanning currency
• Gain Valuable Feedback: Engage with attendees during collection. A true notaphilist (think Indiana Jones, but with a penchant for
presentations and poster sessions to receive constructive criticism on paper!), Moneer sees the romance in every crinkled bill. His discerning eye
your work and connect with potential collaborators. not only identifies rare specimens but also possesses an uncanny ability
• Network and Advance: By exposing yourself to the latest to assess the quantum – the tiniest crease, the subtlest shift in color, all
advancements and best practices, you can build valuable whisper tales of their journeys. These bills aren't just currency; they're
relationships with other professionals, learn from their experiences, testaments to history, each a tangible link to the economic pulse of a nation.
and stay current on industry trends. AACE events can also enhance
your professional profile and open new career opportunities. Alex: Our resident number cruncher by day, Alex transforms into a
• The Power of the Process: Ultimately, submitting to AACE is a weekend tennis warrior. His serve might be a bit more "spreadsheet
rewarding experience that fosters professional growth, knowledge error" than a "champion's ace," but his competitive drive is an undeniable

8 M AY/J U N E 2024
formula for fun. Alex extends the boundaries of possibility on the court What does it mean to you personally to have your article(s) published
just as adeptly as he stretches a complex spreadsheet! in Cost Engineering?” He adds, “It’s an honor to have my article published
in AACE’s Cost Engineering journal. It substantiates my efforts and
Sam: Traveling across the globe ignites Sam's passion for culinary alchemy. encourages me to continue contributing to this great organization and its
Thankfully for our palates, his creations are a delicious reflection of his membership.”
adventures—a tapestry of Italian escapades, vibrant, luscious curries,
smoky baba ghanoush, and vibrant Jollof rice, all in tribute to professional BENEFITS OF AUTHORING PAPERS
journeys undertaken in his career... and all blissfully devoid of cost His advice to inexperienced potential new authors is: “Write that paper
engineering jargon, of course! and participate if you can; it will enrich your professional and personal
life beyond measure. Without AACE, I wouldn’t be where I am or know
“Despite our varied interests, we all share a passion for untangling project what I know.” The AACE resource Lance has come to value most is “the
complexities. It's like they say... variety is the spice of life – and apparently, opportunity to meet new people and reconnect with existing colleagues.
a key ingredient for a well-rounded team!” concludes Alexander. AACE has provided me with many colleagues I have learned from,
collaborated with, debated with, and socialized with.”

ABOUT THE AUTHOR

You may not know that Lance has been married to his wife, Christine,
TA 3. The Project Life Cycle: for over 32 years. They have an 18-year-old son, Jacob, and a 16-year-old
daughter, Madison.
Preventing Change and
Project Failure
BY H. LANCE STEPHENSON, CCP FAACE

EXPLORING PROJECT FAILURE FROM THE VIEWPOINT OF THE

PROJECT LIFE CYCLE
Author H. Lance Stephenson says, “Throughout my career, I have not only
read numerous articles on project failure but also experienced it firsthand.
I have been in the trenches, parachuted in to triage bad projects, and
completed numerous post-mortems. These experiences, I believe, are the
best teachers in the face of adversity and failure. I decided to delve deeper
into these experiences and compare them with the articles I had read. I
discovered significant differences, which led me to explore project failure
from the viewpoint of the project life cycle.”

A ROADMAP FOR IMPLEMENTING IMPROVEMENT STRATEGIES

Lance notes, “The key message I want to convey to the readers is a deeper
understanding of the contributing factors to project failure and how to
introduce preventative measures. I've provided a case study highlighting
the changes that can lead to failure within the project lifecycle. But
the most important part is the roadmap I've laid out for implementing
improvement strategies. It's a clear, straightforward guide that can steer
you away from project failure and towards success.”

THE ARTICLE HAS A WIDE RANGE OF USEFULNESS

Lance says, “I aim to write papers that transcend industries, geographical
areas, and levels of skills and effort. I want every reader, regardless of their
position on the project value chain, to be able to apply the information I
provide. While specifically tailored for owner companies, today's paper can be
used by many project practitioners and the phase of the project they work in.”

RESEARCH TIED TO AACE CONTENT

As with his prior articles, Lance says he focused his research “using the TCM
Framework and supporting RPs offered by AACE, complemented by AACE’s
virtual library and the abundance of articles written by other authors.”

MAY/J U N E 2 02 4 9
 A Risk-Based Approach to
Construction Management
BY CHLOE E. EDWARDS AND YASAMAN SHAHTAHERI

ABSTRACT
Risk management plays a fundamental role in project controls and delivery. Incorporating
risk management into project management practices aims to identify and address
uncertainties related to key project-related activities. The uncertainties, known as risk
events, can relate to quantifiable project deliverables and are often measured by impact on
project schedule, cost, or environmental impact. Risk management should be incorporated
as an iterative practice throughout the planning, execution, and commissioning phases
of a project. This article examines explicitly how risk management contributes to effective
project controls and delivery through a case study of a transportation project. The case
study covers a 12-kilometer heavy rail design and construction project through multiple
municipalities and the natural environment. A risk-based approach was implemented to
evaluate the risk-based contingency for construction and design costs, evaluate project
duration, and prepare and implement mitigation strategies to increase the likelihood of
project success. This article was first presented as RISK-4144 at the 2023 AACE International
Conference & Expo.

10 M AY/J U N E 2024
Introduction improve the decision-making process to limit cost overruns and schedule
delays. Integrated risk management has been increasingly researched and
Incorporating risk management into the planning objectives of implemented for construction management and is frequently described
construction projects can improve project execution by identifying as containing the following attributes: identification, analysis, treatment,
sources of cost overruns or delays. A risk-based approach to construction and monitoring [2]. The government of Canada has recommended various
management involves developing proactive and strategic plans to address tools and techniques that can be used to implement integrated risk
risks related to multi-disciplinary activities and project execution. A risk management or private and public practices [3]. These include:
is defined as an uncertain event that, if it should occur, would have either
a positive or negative impact on one or more of the project objectives • Risk registers and risk heat maps
[1]. Risk management may be applied to any project objective and is • Risk modelling
commonly implemented to approximate schedule delay, cost estimate • Mitigation and action frameworks
uncertainty, and other contingencies. By identifying sources of risk and • Qualitative techniques
uncertainty, a project team can develop mitigation plans to limit the impact • Internal and external information sharing and awareness
on project deliverables.
This article examines how a risk-based approach to construction A risk register is commonly used to organize the identified project
management improves the efficiency of project planning by providing an risks by presenting information such as the risk summary, probability,
understanding of the project uncertainties and their corresponding impact impact values, risk owners, and qualitative rankings. The format of a risk
on the project schedule. The case study presented is a quantitative risk register and the information included typically varies depending on the
assessment (QRA), which aims to identify project risks and mitigations organization. Risk registers are commonly a qualitative tool to identify
specific to schedule milestones and project costs to estimate potential risks and apply probabilities, impacts, and mitigation strategies. An
project delays and recommend a risk-based contingency. This article will effective approach to building a risk register is done through collaboration
first cover the risk management methodology, including an overview of with experts in the project scope field. This is known as the conceptual
the ISO 31000:2018 Risk Management Process. The key factors outlined or fuzzy method, as it is largely based on the judgment and experience
by these guidelines include understanding the scope and context of the of experts [3]. The probabilities and impact values are estimated by
project, conducting a risk assessment including identification, analysis, discussing project factors with the experts to determine an educated
and evaluation, and lastly, risk treatment through mitigation measures. approximation for the risk. To evaluate the risk on a measurable scale, the
This process requires regular consultation with subject matter experts risk may be calculated by computing the product of probability and impact
and continuous monitoring to iteratively update the risks accordingly. (Equation 1). [4]
The risk identification process led to over 50 active risks related to social
impact, permitting and regulatory approval, technical and design, site Risk = Probability × Impact
preparation, procurement, and construction. The analysis involved EQUATION 1
running 1,000 Monte Carlo simulations through @RISK 8.0 Industrial
software to determine the cost impact of the risks, cost of schedule delay, In the context of construction management, the probability is the
and cost estimate uncertainty. These results are presented as the best likelihood that the risk may occur without the provision of mitigation
case, most likely case, and worst case to provide a range of recommended actions. The impact may refer to the effect on schedule, project cost,
risk-adjusted contingency. Evaluation of these results provided insight into or environment, depending on the project scope. Based on the risk
which risks were the highest contributors to the projected contingency. calculation, the risks included in the risk register may be qualitatively
Based on the results of the analysis, the risk management team was able to ranked to identify the most significant risks. This is commonly done
provide recommendations for mitigation measures to reduce the likelihood through risk heat maps, also called risk rating matrices. A risk matrix
of risks occurring. The risk management team also offered suggestions applies a numerical rank to the probability and impact ranges such that a
for managing the identified risks and project activities moving forward to rank can be calculated for the risk. By applying a rank to each risk register,
remain within the range of risk-adjusted contingency. there is a clear understanding of the top qualitative risks for effective
The contribution of this article is to demonstrate the application and project management. When identifying and qualitatively assessing the risk-
benefits of risk management for construction projects through a relevant based schedule delays and cost overruns, it is also important to consider
case study. The methodology explained is intended to apply to a wide the four types of risk classification, which include the following [5]:
range of projects to address the common issue of cost overruns and
schedule delays exhibited in the construction industry. • Known knowns: events based on knowledge
• Unknown knowns: events that will occur, but the impact is unknown
• Known unknowns: risk events
• Unknown unknowns: uncertainties with unknown impacts
Background
While the risk events can be predicted and approximated by subject
The construction industry is susceptible to uncertainty, cost overruns, matter experts and through risk discussions, ‘Unknown unknowns’ are
and schedule delays because of the various stakeholders, deliverables, unanticipated events that may positively or negatively impact the project
disciplines, and activities that are commonly involved. This volatile objectives [5]. Although unknown unknowns such as natural disasters
nature of the industry has led to a need for improvements in construction or cultural interferences are nearly impossible to quantify and thus
management, including the consideration of risks and uncertainties. challenging to identify, they may contribute significantly to the risk model.
A risk-based approach to construction management can significantly

MAY/J U N E 2 02 4 11
 Following identification and qualitative assessment of the risks, risk
modeling is used to simulate the results of the project risks. Risk modeling
provides a quantitative analysis of the impacts should the identified
risks occur. In conjunction with construction schedule logic or cost
estimate, Monte Carlo simulation can be incorporated into a risk model
to appropriately model the impact of risks on project schedule and costs
[6]. Various sources of risk analysis software are available to implement
risk modeling for quantifying a risk-based approach. This article uses @
RISK 8.0 Industrial by Palisade [7], a Microsoft Excel add-in allowing
risk analysis, including sensitivity assessment, and reporting features.
The Monte Carlo simulation is a recommended approach to quantitative
risk analysis because the output includes a range of possible schedule or
cost outcomes against probability to gather an approximate prediction
of schedule delay or cost overrun [8]. The use of sensitivity assessment
allows for insight into the top contributing factors. It is essential to know
these factors to improve the decision-making process and develop strategic
plans for managing or treating risks. The combination of risk analysis FIGURE 1 ISO 31000:2018 Risk Management Process
using judgment from subject matter experts and Monte Carlo simulation
continues to gain recognition as an effective project control strategy [9]. interviews with subject matter experts, data from past projects with similar
The importance of risk management is demonstrated in [10] where scope, and case studies. Risk identification is followed by risk analysis to
a case study implements a cost-based risk assessment to evaluate quantify the identified risks by estimating likelihood and consequence
potential sources of cost overruns. The case study involved a basic design values. The likelihood is the probability of the risk event occurring without
engineering project with a baseline cost of USD 4.45M. A risk assessment mitigation measures. The consequence values are a range of resulting
was conducted to identify and quantify project risks. A risk model was impacts such as estimated cost overrun, schedule delay, or environmental
developed using Monte Carlo simulation to evaluate the cost implications remediation costs. Using a risk rating matrix that defines the severity of
of the identified risks. At an 80% confidence level, the unmitigated total likelihood and consequences, the risk analysis qualitatively ranks the
project cost was estimated at USD 6.00M, which is approximately a 96% identified risks to provide insight into their impact on project objectives.
cost overrun from the baseline cost. By considering mitigation strategies, The risk rating matrix is project-dependent since the probability and
the Monte Carlo simulation produced a mitigated project cost of USD consequence ranges are based on the project scope and size (timeline and
5.80M at an 80% confidence level. Following the completion of the project, project cost). After the risk analysis, the risk events are quantified through
the actual project cost was USD 5.78M, falling within the project’s 80% further analysis in the risk evaluation step. Based on the values defined
confidence level modeled through risk assessment. [10] in the risk analysis step, expected impact values are computed through
the product of probability and consequence. The risk evaluation step also
includes the Monte Carlo simulation to evaluate project objectives at various
confidence levels. The model output illustrates project objectives using
Methodology cumulative distribution curves and tornado graphs for sensitivity analysis.
Risk management’s iterative and collaborative qualities are
Risk management is commonly an iterative and collaborative process to characterized by the risk treatment, monitoring and review, and
identify, analyze, and evaluate project risks with key project stakeholders. communication and collaboration components of the risk management
The approach taken and described in this article was adapted from the process (Figure 1). Risk treatment includes the development and
ISO (International Organization for Standardization) 31000:2018 Risk application of mitigation strategies that either reduce the probability of a
Management Guideline [11]. The framework is built on commitment risk event occurring or act to limit the anticipated impact.
to effective project management and performance with the primary This requires an iterative approach because risk treatment involves
components of integrating, designing, implementing, evaluating, and frequent progress updates on the status of the risk event and how the
improving risk management. These components are achieved by mitigation strategy is applied until the activity that may exhibit the risk
establishing the project context, conducting the risk assessment, and event has been completed. The progress updates related to risk treatment
providing risk treatment, as shown in Figure 1. are also an opportunity to determine additional measures that can be
Following this process for construction management allows applied to reduce the risk event impact further or retire the risk if it no
for developing a proactive and strategic plan to address risks and longer applies. Monitoring and review are also completed during progress
uncertainties that may have a positive or negative impact on project updates and reinforce the context of the project. This component involves
objectives (e.g., safety, time, cost, quality, functionality, or reputation). reviewing the risk events and project progress and may lead to revisiting
Establishing the project context is an important start to the risk the risk assessment by identifying new risk events.
management process because it provides insight into the project objectives, Monitoring and review are often completed in risk management
location, disciplines involved, and other external factors that might impact through hosting risk workshops with subject matter experts and
project delivery. Once the project context has been established, the risk stakeholders to gather current and relevant feedback on the state of
assessment may commence with risk identification. This step aims to the project. Risk workshops are also a source of communication and
brainstorm potential risks and locate sources of risk exposure before they consultation which is necessary for each step of the risk management
occur. Risk events may be identified through several forums, including process. In addition to risk workshops or progress meetings, an essential
brainstorming sessions with the project team, weekly meetings, one-on-one role of communication and consultation is the preparation of documents

12 M AY/J U N E 2024
such as risk Very Low Low Medium High Very High
registers and QUALITATIVE VALUES
1 2 3 4 5
progress reports
Probability of Occurrence (P) 0 – 20% 20 – 40% 40 – 60% 60 – 80% 80 – 100%
that explain and
Schedule Impact (S) < 7 days 7 – 14 days 14 – 30 days 30 – 60 days > 60 days
summarize each
component of the Cost Impact (C) < $0.5M $0.5M - $5M $5M - $25M $25M - $50M > $50M
risk management Rank (R)
process with a focus <3 3–6 6–9 9 – 12 > 12
on the results of
the risk assessment TABLE 1 Case Study Risk Rating Matrix
and state of the risk
treatment. These
documents can be used as a reference for further project planning and • Project controls
minimizing impact on project objectives. • Project management

When conducting risk interviews for risk identification, it is important

to meet with subject matter experts from multiple disciplines to ensure the
Case Study risk assessment covers the entire scope of the project. Based on the project
context, background information, and input from subject matter experts,
The process and outcome of a risk-based approach is demonstrated a risk breakdown structure (RBS) and risk rating matrix were established.
through a case study of an on-going rail project. This QRA was carried The RBS included the following categories:
out by a risk management team in conjunction with the project team.
Following the ISO 31000:2018 Risk Management Process the first step • Social context and stakeholders
was to establish the context of the project. The rail project includes over • Permits and regulatory authority approval
12km of rail through municipalities and the natural environment. The • Technical/design
project involves various stakeholders and has emphasized community • Site preparation
commitment, including limiting construction impact and disruption • Procurement
to the natural environment. The primary objectives of this project were • Construction
to optimize project delivery by limiting cost overruns and committed
completion dates, mitigate the impact on affected communities, and The risk rating matrix is shown in Table 1.
employ efficient risk management. A thorough review of available This risk rating matrix was established based on the project
background documents was completed to gain an understanding of these parameters and is used to qualitatively rank the identified risks. Each
milestones, project location, the project schedule and cost estimate, and risk is assigned a probability of occurrence between 0 and 100% and
the disciplines involved. anticipated minimum and maximum schedule and cost impacts. The
A QRA was integrated into the project planning as an iterative process values assigned are approximate, and when initially assigned, they are
to evaluate the anticipated finish dates for the following milestones: largely based on experience from projects with similar scope and size. As
the QRA is updated regularly, the values are revised to capture the status
• Completion of design deliverables of the project’s progress. The assigned values correspond to a rating of
• Completion of construction and installation 1 through 5 for the probability of occurrence (P), schedule impact (S),
and cost impact (C) based on the ranges shown in Table 1. A rank is
Additionally, the QRA involved analyzing a risk-based contingency then determined based on the product of the probability rating and the
including the following cost components: average of the schedule and cost impact ratings to qualitatively rank the
risk from very low to very high. The ranking provides insight into the
• Cost of construction risks risk’s anticipated effect on the selected objective: the two milestones and
• Cost of design risks risk-based contingency. Although the risk rating matrix remains consistent
• Cost of schedule delay (design and construction) throughout the QRA, the assigned values may change as the risk
• Cost estimate uncertainty assessment is updated with mitigation strategies and progress updates.
Over 50 risks were identified and tracked for this project. Examples
RISK IDENTIFICATION AND ANALYSIS of risks identified for this project according to their RBS category and
The risk identification step began by conducting a first round of risk respective rankings are shown in Table 2. Also shown in Table 2 are the
interviews with subject matter experts to compile a list of potential project probability of occurrence (P), expected value for cost impact (E[C]), and
risks. The disciplines involved in risk identification included: expected value for schedule impact (E[S]). The expected values shown
reflect the unmitigated case for the risks.
• Roadway engineering
• Structural engineering
• Geotechnical engineering
• Railway engineering
• Civil engineering
• Constructability

MAY/J U N E 2 02 4 13
 EXPECTED VALUES &
ID RISK DESCRIPTION
QUALITATIVE RANKING
Social Context and Stakeholders
S-1 Conflict in Stakeholder Objectives and/or Requirements:
P = 75%
Multiple stakeholders (municipalities, third party utility owners, landowners, etc.) with different
E[C] = $4.5M VH
objectives and/or requirements could lead to changes in scope which may result in schedule delays
E[S] = 79 days
and added costs.
S-2 Social Acceptance:
Reactions and acceptance from the community could impact the project design (with schedule and P = 85%
budget consequences) and/or delay the permitting and approvals process. Landowners who object E(C) = $0.3M VH
to the railroad crossing on their land pose a risk by denying access to the land, may lead to overall E(S) = 168 days
project delays.
S-4 Project Completion Impact - Noise and Vibration:
Disapproval of massive sound barrier walls by the community, required to mitigate the noise impact, P = 30%
will result in reviewing other alternatives (e.g., green, and transparent walls). Other residents E[C] = $0.3M L
unaffected by the noise may ask to acquire such barrier walls. Further negotiations may lead to E[S] = 6 days
additional costs and schedule delays.
Permits and Regulatory Authority Approval
R-2 Permitting: P = 40%
Work within and adjacent to natural bodies of water requires permitting and approval. Delays in the E[C] = $0.3M M
approval process can lead to project delays and additional costs. E[S] = 42 days
R-3 Coordination with Ministry of Transportation:
P = 50%
Design changes resulting from the approval process may incur additional design costs and schedule
E[C] = $0.4M H
delays. If permits and approvals are delayed, the contractor may be required to change the methods/
E[S] = 53 days
strategies for work which can lead to delays.
R-7 Hydrology/Hydrogeology Measures:
P = 50%
If the hydrology/hydrogeology measures to mitigate potential impacts to natural bodies of water are
E[C] = $2.53M H
not accepted by the public or require design modifications, there may be added cost or schedule
E[S] = 26 days
delay.
Technical / Design
T-6 Standards, Drawings, Operation Conditions, and Signaling:
P = 50%
Delayed receipt or provision of revised standards for drawings, operations, signaling, and other
E[C] = $0.1M M
design elements can impact the schedule. If constraints are not finalized prior to design, there may
E[S] = 30 days
be modifications that may lead to delay and added costs.
T-12 Design Time Constraint: P = 50%
Due to the limited time for design, many activities are carried out in parallel and using preliminary E[C] = $15M VH
assumptions, which may require revision at a future date. E[S] = 136 days
T-18 Engineer Review:
P = 80%
If the engineer review for the design and design criteria requires a lengthy or repetitive process,
E[C] = 0 H
there may be changes needed in late stages of the design. This may result in delay to design
E[S] = 48 days
completion.
Site Preparation
SP-1 Site Preparation:
The property will need to be cleared of the existing forested and wooded areas and wetlands P = 75%
drained. Trees can only be felled during a certain time of the year; missing the season may cause E[C] = $0.6M VH
significant schedule delays. The risk of cutting the trees down during the nesting season may lead E[S] = 56 days
to added costs and schedule delays.
SP-3 Land Acquisition - Additional Lands:
P = 50%
Additional lands, permanent and temporary easements, may be required if a section of the lands
E[C] = $0.88M H
does not meet site expectations (e.g., soil conditions do not meet requirements). This may result in
E[S] = 99 days
added costs or schedule delay.
SP-4 Land Acquisition - Delayed Access:
P = 85%
Delayed access to necessary lands, permanent and temporary easements, may result in significant
E[C] = $2.34M VH
delays to the Project. Prolonged coordination with private landowners on access to private roads
E[S] = 289 days
and access limitations can lead to delay in construction.

TABLE 2 Examples of Risks, Probabilities, Expected Values, and Rankings (continued on next page)

14 M AY/J U N E 2024
 Procurement
P-1 Material Costs and Availability:
P = 70%
Uncertainties regarding the increase in certain raw materials necessary for the project (e.g., steel,
E[C] = $3.85M VH
concrete, track, and rail materials) could risk cost overruns. Low availability of materials can lead to
E[S] = 42 days
schedule delays.
P-4 Market Availability:
The ongoing development of all types of infrastructure and the busy state of the market could limit P = 80%
market availability (less availability of firms with capacity). The contractor may not be available or E[C] = $12M H
may not be able to mobilize resources right away. Low competition may lead to higher costs and E[S] = 63 days
delays in project award/schedule.
P-6 Funding Agreement for Procurement: P = 90%
The delay in receipt of a funding agreement for procurement (i.e., steel procurement) could lead to E[C] = $30M H
schedule delay. E[S] = 0
Procurement
C-1 Seasonal Work:
P = 60%
Any delay in the start of construction activities can create a risk for seasonal work. Certain
E[C] = $3.3M VH
construction activities (e.g., steel work, excavation, embankment) can only be carried out during
E[S] = 63 days
specific seasons.
C-13 Contaminated Soils - Unknown Contamination:
Potential for contaminated soil within the area of site work. Cut and fill will be required for the track, P = 50%
and a plan will be necessary to ensure the level of contamination is maintained where the material E[C] = $18.75M VH
is moved. Unknown contaminated soil conditions may lead to increased construction costs and E[S] = 45 days
schedule delays.
C-18 Utility Relocation by Third Party:
P = 90%
If the utility relocation on site by a third party (i.e., design and work of Municipal Services) is not
E[C] = $0.7M VH
completed within the schedule timeframe, there may be delays to the start of other construction
E[S] = 245 days
activities leading to additional expenses and schedule delays.

TABLE 2 Examples of Risks, Probabilities, Expected Values, and Rankings (continued from previous page)

Quantifying these risks by assigning probability and consequence

values and determining their ranking concluded the qualitative risk
analysis. The process of assigning probability and consequence values
was repeated for the mitigated case based on evaluating the effectiveness
of proposed mitigation strategies. The goal of the mitigated case is to lower
the risk severity by limiting the probability of occurrence or managing the
consequence to cost and schedule.

RISK EVALUATION
Risk evaluation primarily models the impact of the identified risks on the
selected milestones by applying them to the input material (i.e., the project
schedule and cost estimate). The project team developed and provided
the project schedule and cost estimate, then used it for risk application
and development of the quantitative risk assessment (QRA). The project
schedule is carefully reviewed to ascertain which work breakdown
structure (WBS) and activities correspond to the milestones of interest
for the QRA. A risk schedule is then established by refining the overall
schedule by WBS items and risk-related activities to simplify the process of
risk application. Using this risk schedule, the identified risks are grouped
based on similarities and then applied to project activities that may exhibit
or be directly impacted by the risk. The risk application is reported and
shared with the project team to allow for continuous consultation on the
QRA. The activities applied to each risk are shown in Table 3.
(see the following page)

MAY/J U N E 2 02 4 15
 NO. RISK GROUP ACTIVITIES The identified risks’ cost impact is evaluated by identifying the cost
1 Community Outreach • Enabling Works components contributing to contingency and escalation. The key elements
• Grade Crossings of this risk analysis include the following:
2 Coordination with • Project Management and Project
Stakeholders Controls • Construction Cost of Risk: costs based on the construction risks
• Owner Feedback and Review that may occur due to delays in construction, site preparation, and
• Sub-Contractor Coordination other construction-related activities. Input is from the risk register.
3 Permitting and • Concept Approval • Design Cost of Risk: costs based on design risk events that may
Regulatory Approvals • Submission to Funding Entity or Review impact the project before construction. Input is from the risk register.
• Additional Coordination with Public • Cost of Schedule Delay: the cost of schedule delay assumes a value
Utilities of indirect costs that may be accrued due to schedule delays (i.e.,
4 Environmental Risk • Survey after Clearing temporary services, engineering support, management fees). Input is
• Detailed Design Completion from the schedule results of the QRA.
• Project Site Preparation & Enabling • Cost Estimate Uncertainty (CEU): the CEU includes variance
Works amounts as a percentage for each line item in the cost estimate. The
• Pile Driving CEU is based on assumptions of labor, material, equipment, and
5 Design Assumptions • Track Design 90% Specifications indirect costs. Input for the CEU is from the project controls team.
• Grading & Drainage Package Drawings
Submission Following risk application, the model is set up to run @RISK 8.0
6 Utilities – • Utilities and Electricity (Propane) Industrial software through Excel. This software runs 1,000 iterations of a
Construction • Utilities and Electricity (Private Electrical Monte Carlo simulation to evaluate the key milestones selected based on
Line) the probability, schedule impact, and risk application established.
• Additional Coordination with Public
Utilities
SCHEDULE RISK MODEL RESULTS
• Utilities Relocation, Protection &
The output of the risk model includes projected milestone end dates at
Installation
confidence levels of 1%, 80%, and 99%. The 1% confidence level end
7 Geotechnical and • Geotechnical Report Submission
dates reflect the best-case scenario, whereas the 99% end dates reflect the
Hydrogeological • Owner Review on Geotechnical Report
worst-case scenario. It is recommended that the project team considers the
Design Information • Survey after Clearing
80% confidence level end dates as the most likely end dates. The use of
8 Noise and Vibration • Pile Driving
these confidence levels is project-specific; however, based on experience,
• Road Reconstruction
it has been found that a confidence level between 50% and 80% is
9 Construction • Construction & Installation Stage
conservative for a risk-based construction management approach. The
10 Construction • Constructability, Phasing, and schedule end dates for each milestone were used for the targets in this
Management Scheduling risk model. The anticipated end date delay is calculated by the difference
• Enabling Works
between the schedule target and the 80% confidence level end date. The
• Long Lead Items (Shop Drawings,
risk model results are summarized in Table 4.
Fabrication, Delivery)
• Submittals
• Site Preparation & Enabling Works COMPLETION OF
COMPLETION OF
END DATE CONSTRUCTION &
11 Market Availability • Procurement DESIGN DELIVERABLES
INSTALLATION
• Railway Bridge Procurement
• Electrical Utilities Procurement Schedule Target 24-Oct-2022 15-Oct-2025
• Track & Switches Procurement P1% 09-Oct-2023 18-Dec-2025
• Long Lead Items (Shop Drawings, P80% 17-Dec-2025 30-Sep-2027
Fabrication, Delivery)
Delay (P80%) +38 months +24 months
12 Funding • Constructability, Phasing, and
P99% 08-Oct-2027 29-Dec-2028
Scheduling
• Final Cost Estimate Preparation
• Owner Review TABLE 4 Summary of Pre-mitigated Schedule Risk Model Results
13 Access and Land • Constructability, Phasing, and
Acquisition Scheduling As shown in the results summary, there is a 100% probability of
• Enabling Works exceeding the schedule target for both milestones. At the recommended
• Site Preparation & Enabling Works confidence level of 80%, the project team may encounter over two years
14 Unforeseeable • Construction & Installation Stage of delay. Figure 2 illustrates the anticipated end dates with respect to the
Conditions during target dates.
Construction

TABLE 3 Risk Application

16 M AY/J U N E 2024
 Q1 Q2 Q3 Q4 Q1 Q2
Completion of Design
Deliverables
Completion of Construction &
Installation

2022 2023 2024 2025 2026 2027 2028 Legend

Milestone
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Schedule Target
Completion of Design P1% End Date
Deliverables
P80% End Date
Completion of Construction &
P99% End Date
Installation

FIGURE 2Legend
Illustration of Risk Model Results compared to Schedule Targets
Schedule Target
Completion of Design Deliverables
P1% End Date
10/9/2023 12/17/2025

12%
1.1% 78.3% 20.6%
The risk model also outputs distributions
P80% End Date
for each milestone to understand the
P99% End Date
10% anticipated end dates further. Figures 3
(a) Distribution for Completion of (a) and (b) show the distributions with an
8%
Design Deliverables showing the interval based on the P1% and P80% end
interval between P1% and P80% dates for the completion of design deliverables
and construction and installation, respectively.
Relative Frequency

6%

The distribution curves for the milestones

4%
of interest demonstrate the potential outcomes
based on the identified risks. In addition
2%
to the distributions and understanding of
potential outcomes of the milestone end dates,
the risk model output also includes sensitivity
0%

analysis in the form of tornado diagrams.

2023

2024

2024

2025

2027

2028

2028

2030
End Date
The sensitivity analysis considers how risks
Completion of Construction & Installation are applied to schedule activities and their
12/18/2025 9/30/2027

12%
1.1% 79.3% 19.6%
probabilities and impact values to determine
the contribution to the projected end dates.
10% The tornado diagrams for both milestones are
(b) Distribution for Completion shown in Figure 4.
8% of Construction & Installation In conjunction with the tornado diagrams,
showing the interval between P1% the qualitative rankings from the risk analysis
Relative Frequency

6% and P80% were used to establish a list of top risks. The

top risks for this case study consisted of the
4%
following:

2%
• Funding agreement
• Land acquisition – Delayed access
0%
• Land acquisition – Additional lands
8/1/2027

9/4/2028
12/9/2025

1/13/2027

10/9/2029
5/23/2025

2/17/2028

3/23/2029
6/27/2026

4/27/2030

• Social acceptance
11/13/2030

End Date
• Seasonal work
FIGURE 3 Distributions for Milestone End Dates based on Risk Model
These top risks show high sensitivity in
the tornado diagrams compared to other risks
and rank with higher risk severity based on
the risk rating matrix previously described.
The importance of assigning top risks relates
to risk treatment and how to mitigate the
effect of risks on the target schedule.

COST RISK MODEL RESULTS

The cost QRA results contribute to a
recommended contingency by comparing the
cost of risk (design and construction), cost of
schedule delay, and cost estimate uncertainty
to the cost estimate prepared for the project.
The cost results are presented at the 1%, 80%,
and 99% confidence levels and represent the
potential cost variances due to key risks and
uncertainty. The results are presented in Table 5.

FIGURE 4 Tornado Diagrams for Milestone End Dates

MAY/J U N E 2 02 4 17
 Construction Cost of Risk
1% 80% 99% 0.5%
$23.91
80.7%
$127.00
18.8%
Cost Component 10%

C.L. C.L. C.L.

9%
Construction Cost (a) Distribution for
$24M $127M $177M
of Risk 8%

Construction Cost of Risk

Design Cost of Risk $(10M) $70M $130M 7%
showing the interval between
Cost of Schedule 6%
P1% and P80%
$2M $23M $38M
Delay

Relative Frequency
5%

CEU $(11M) $27M $45M 4%

Recommended
$5M $247M $390M 3%

Contingency
2%

Recommended
1%
Contingency 1% 55% 86%
as a Percent 0%

$0

$50

$100

$150

$200

$250
-$50
Cost of Risk

Design Cost of Risk

TABLE 5 Summary of Pre-mitigated Cost Risk -$10.00 $70.00
1.6% 82.6% 15.8%
12%
Model Results

10%

The model outputs distributions for each cost (b) Distribution for Design
component to further understand the recommended
8% Cost of Risk showing the
contingency. Figure 5 (a) and (b) show the interval between P1% and
Relative Frequency

distributions with an interval based on the P1%

6% P80%
and P80% contingency for construction cost of risk,
4%
design cost of risk, cost of schedule delay, and CEU,
respectively.
2%

0%
$0

$50

$100

$150

$200
-$50
-$100

Cost of Risk

Cost of Schedule Delay

$2.00 $23.00
0.9% 77.9% 21.2%
12%

10%

(c) Distribution for Cost of

8% Schedule Delay showing the
interval between P1% and
Relative Frequency

6% P80%

4%

2%

0%
$0

$10

$30

$50
$20

$60
$40
-$10

Cost of Schedule Delay

CEU
-$11.00 $27.00
1.3% 79.4% 19.3%
9%

8%

7%
(d) Distribution for CEU
showing the interval between
6%
P1% and P80%
5%
Relative Frequency

4%

3%

2%

FIGURE 5 Distribution for Contingency Cost

1%
Components based on Risk Model
0%
$0

$10

$30

$50
$20

$60
$40
-$20

-$10

Cost of CEU

18 M AY/J U N E 2024
 The sensitivity assessment was
run on the construction cost of risk
and design cost of risk to evaluate
the top contributing risks to the
recommended contingency. Figure
6 presents the tornado diagrams for
these costs.
Based on the tornado diagrams
and qualitative rankings, the
key risks for the recommended
contingency include the following:

• Escalation cost increases

• Contaminated soils –
Unknown contamination
• Funding agreement
• Design time constraint
• Market availability

RISK TREATMENT
Risk treatment has an essential FIGURE 6 Tornado Diagrams for Cost of Risk (Construction and Design)
role in the successful and effective
delivery of risk-based construction
management. Risk treatment involves determining applicable mitigation testing is carried out before the contractor’s involvement to capture
strategies for the risk events that aim to reduce the probability of the site conditions and avoid future risks that may lead to additional
occurrence or minimize the impact on the project schedule. Assigning costs.
mitigation strategies is completed through consultation with the project • Design Time Constraint: Monitor and track assumptions used and
team and subject matter experts in a similar format used for risk related risks for each deliverable. When a schedule slip arises due to
identification. The following are examples of risk mitigations for the top outside parties, reevaluate the design schedule to take advantage of
schedule risks. the available time when required.
• Market Availability: Submit tender documents as early as possible
• Funding Agreement: Modify the procurement agreement to receive a and work with contractors to coordinate sequence work according to
guaranteed cost estimate for a full year. Coordinate with the funding availability. Regular communication with the contractor to identify
entity to ensure funding is in place before the award of the general any anticipated design changes.
contract.
• Land Acquisition – Delayed Access: Coordinate and negotiate Effective mitigation aims to reduce the impact of risks to the project
with landowners in a timely manner to expedite the expropriation schedule and increase the likelihood of successful project delivery. The
process. Realign the construction schedule to correspond with the risk analysis results, including the output presented, were shared with
expropriation schedule. Early coordination with private landowners. the stakeholders to provide a detailed explanation of the projected
• Land Acquisition – Additional Lands: Incorporate design milestone dates and recommended contingency at various confidence
modifications to comply with the provided land and site constraints. levels, including identification of the most significant risks. After reviewing
Structures shall be designed to account for site constraints, and the results, a risk workshop is held with subject matter experts and the
temporary easements will be used for storage. project team to discuss the risk model results and gather progress updates
• Social Acceptance: Engagement with neighboring community and related to the identified risks. The risk workshops provide an opportunity
business owners before work begins to provide an overview of the to review the current state of the QRA, provide updates on the status of
scope and impacts of mitigation. Conduct close follow-ups with risk-related activities, and consult with each discipline for implementing
affected groups. the proposed mitigation strategies.
• Seasonal Work: Coordinate the availability of equipment and In addition to defining the risk mitigation strategies, these workshops
resources with contractor to ensure work can be completed during are used to assign risk owners to identify who is responsible for
the appropriate season. ensuring mitigation strategies are executed to the satisfaction of the
project’s stakeholders and the project manager. The risk owner is also
Mitigation strategies are also recommended to reduce the overall cost responsible for providing regular progress updates related to the status
overrun and mitigate the recommended contingency. The following are of the mitigation strategy implementation and corresponding changes
examples of risk mitigations for the top cost risks. to the probability and impact values. Therefore, the risk treatment
leads to monitoring and reviewing the risk status, which updates the
• Escalation Cost Increases: Revisit the cost estimate regularly to risk assessment as changes are made. The iterative process allows for
revise and adjust the escalated costs. Monitor the market rates and continuous revisions throughout the project to address significant risks
adjust as needed. and ultimately limit schedule delays and cost overruns. For an effective
• Contaminated Soils – Unknown Contamination: Ensure soil risk-based approach to construction management, it is recommended that

MAY/J U N E 2 02 4 19
the project team performs periodic self-assessments of the project progress adjusted for any construction or engineering project. When implementing
and mitigation strategies, schedules activities, and continues to engage a a risk-based approach for project planning it is recommended to consider
risk team to repeat the risk assessment process. these key factors:

CASE STUDY DISCUSSION • Investigate the project to gather relevant and accurate context. The
The case study presented demonstrates how a risk-based approach to project context is important for understanding external factors,
construction management can identify sources of schedule delay and stakeholders, and project scope that may contribute to identifying key
added costs for the purpose of effective and strategic planning. This risks.
case study examined a multi-disciplinary rail transit project with an • Take an iterative and continuous approach such that the risk
emphasis on project cost and schedule. The QRA was conducted on the assessment is reviewed and revised as the project progresses. An
pre-mitigated case to demonstrate the impact of risk on project delivery up-to-date risk assessment is necessary to capture the true state
and the importance of developing and implementing effective mitigation of risks and mitigation measures. The model output depends on
strategies. For the schedule risk model results, at the 80% confidence accurate input data such as schedule, cost, likelihood, and predicted
level, the pre-mitigated case showed up to 38 months of delay for design consequences.
and up to 24 months of delay for construction. The primary sources • Maintain collaboration with the project team to acquire input from
of delay for design included funding, land acquisition, constructability, subject matter experts who are familiar with the scope and status
utilities, and design changes. The primary construction delay sources of the project. The project team is often responsible for integrating
included social acceptance, seasonal work, geotechnical work, and or enforcing the mitigation measures to treat the risks. Therefore,
unknown contamination. For the cost risk results, at the 80% confidence periodic meetings with the project team to gather feedback on the
level, the pre-mitigated case had a recommended contingency of $247M, mitigation strategies will promote effective project planning and
approximately 55% of the total project cost. The primary sources of risk successful project delivery.
costs included escalation cost increases, unknown contamination, design • Prioritize key project risks to minimize project impacts. By defining
time constraints, and market availability. the key project risks using a qualitative risk rating matrix and
Understanding the sources of delay and added costs allows the project the sensitivity analysis, the project team may choose to use more
team to develop plans for mitigating risk that will increase the likelihood resources to mitigate significant risks.
of meeting the scheduled timelines and managing cost. The case study
presented examined risk during the project development stages. As such,
the risk management process continues to evolve as progress is made
and the planned mitigation strategies are implemented. Following the References
recommendations of the risk management team, the QRA shall be repeated
according to progress updates from the project team and run on the 1. Project Management Institute, A guide to the project management
mitigated case. This will demonstrate how mitigation strategies can further body of knowledge (PMBOK® guide), 2017.
reduce the risk model results and assist with effective planning. This case 2. Zhao, Z.-Y. and L.-L. Duan, “An Integrated Risk Managment Model
study aims to continue following the ISO 31000:2018 Risk Management for Construction Projects,” in PICMET 2008 Proceedings, Cape Town,
Process by keeping the project team engaged through consultation and South Africa, 2008.
continuously monitoring and reviewing the state of the identified risks. 3. Budnisky, C, and W. Darou, A. Goudreau, E. Graves, P. Labbe,
A. Loubani, W. Matheson, C. Nicholson, L. Sauer, R. Sisk, and
M. Vendittoli, “Guide to Integrated Risk Management,” 12 05 2016.
[Online]. Available: https://www.canada.ca/en/treasury-board-
Conclusions and secretariat/corporate/risk-management/guide-integrated-risk-
management.html#toc3.
Recommendations 4. Islam, M.S. and M. P. Nepal, M. Skitmore and M. Attarzadeh,
“Current research trends and application areas of fuzzy and hybrid
A risk-based approach to construction management involves strategic methods to the risk assessment of construction projects,” Advanced
planning for uncertain events that may positively or negatively impact the Engineering Informatics, pp. 112-131, 2017.
project objectives. The case study presented demonstrated a QRA for a rail 5. Kim, S.D. “Characterizing unknown unknowns,” in PMI Global
transit project to compare the target schedule with a risk-based schedule Congress 2012 - North America, Vancouver, British Columbia, 2012.
and recommended contingency at various confidence levels. The case 6. Tokdemir, B.O. and H. Erol and I. Dikmen, “Delay Risk Assessment
study followed the ISO 31000:2018 Risk Management Process, which is an of Repetitive Construction Projects using Line-of-Balance Scheduling
iterative and collaborative approach to project management. The focal and Monte Carlo Simulation,” Journal of Construction Engineering and
point of this paper was to detail the need for a risk-based approach, how Management, p. Volume 145 Issue 2, 2019.
it can lead to effective decision-making, and how to maintain involvement 7. Palisade Company, LLC (“Palisade”), @Risk for Risk Analysis, Ithaca,
and collaboration with the project team. Although the case study NY, USA: Palisade.
specifically focused on examining the delay and cost at confidence levels 8. Hillson, D. “Managing overall project risk,” in PMI Global Congress
of 1%, 80%, and 99%, the goal of a risk assessment may vary depending 2014 0 ENEA, Dubai, United Arab Emirates, 2014.
on project objectives. Other risk assessment objectives may include 9. Gupta, V.T.J. “A quantitative risk assessment methodology for
environmental, safety, functionality, or a combination of these elements. construction projects,” Sādhanā, vol. 43, no. 116, 2018.
Despite differences in the focus of a risk assessment, the risk management 10. Ou-Yang, C. and W.-L. Chen, “Applying a risk assessment approach
process explained and demonstrated in this article can be followed and for cost analysis and decision-making: a case study for a basic desing

20 M AY/J U N E 2024
 engineering project,” Jounal of the Chinese Institute of Engineers, vol. Yasaman Shahtaheri is with AECOM Canada
40, no. 5, pp. 378-390, 2017. Ltd. and can be contacted by sending an email to:
11. International Organization for Standardization, ISO 31000:2018 [email protected]
Risk Management - Guidelines, 2018.

ABOUT THE AUTHORS

Chloe E. Edwards, is with AECOM Canada Ltd.
and can be contacted by sending an email to: chloe.
[email protected]

CLICK HERE TO

View this article

presentation online!

AACE 2024 Election

Results Announced
TREASURER
Cindy L. Hands, P.Eng., CCP
Results from this year’s annual AACE International Cindy is a project controls manager
Board of Directors election for President-Elect, with 30 years of experience in the
Treasurer, and Director-At-Large are announced. infrastructure, oil and gas, mining,
Voting ended on March 31. The winners are: energy, and construction industries.
She supports mega projects worldwide
and works with world-class international
PRESIDENT-ELECT construction contractors.
Michael J. Bennink, PE CCP PSP Cindy has also been project controls manager for major EPCM
Michael was elected President-Elect. firms, overseeing project controls teams across North America.
This is a three-year commitment, Cindy has a Civil Engineering degree from Memorial University,
serving 2024-2025 as President-Elect, a master’s degree in leadership, is a Certified Cost Professional
2025-2026 as President, and 2026- (AACE CCP), a Professional Engineer and a Responsible
2027 as Past President. Member of APEGGA (Association of Professional Engineers and
Outside of AACE, Michael Geoscientists of Alberta). She is currently an associate with Hatch
graduated from Rensselaer Ltd. (18 years) and is a mom of two active teenage boys.
Polytechnic Institute (NY) in mechanical engineering and has an
MBA from Monmouth University (NJ). He started his career as DIRECTOR-AT-LARGE
a gas utility engineer and has been a consultant in construction Omoniyi (Niyi) Ladipo, CCP EVP
claims and disputes for the past 20 years. He is a managing Niyi graduated from the University of
director for J.S. Held in New York City. He is also a licensed Maryland, College Park, with a Bachelor
Professional Engineer and certified PMP, a past board member of Science in Civil Engineering in 1984.
of the NJ Society of Professional Engineers, serving a term as Later, she earned a Master of Science
president, and a long-time coach and chief umpire of his local in Construction Management and
Little League baseball organization. Economics in 1994 from the University
of Greenwich, United Kingdom. She
has over 35 years of US and overseas experience in construction
and construction management. Over the last 19 years, she has
been employed with MBP. She serves as vice president and
service executive within the Consulting Practice Line.

MAY/J U N E 2 02 4 21
 Forensic Delay Analysis
of Disrupted Projects:
An Alternative Approach
Using System Dynamics
BY ALEXANDER VOIGT; MONEER S. KHALAF; AND DR. SAM G. MATTAR

ABSTRACT
Generally accepted guidelines for executing forensic schedule analyses recommend using
critical path delay analysis methods. However, when projects are heavily disrupted, these
methods (in all their variants) become less reliable because they fail to properly quantify
(and often cannot even consider) the full delaying impact of disruptive events. This article
reviews the close relationship between delay and disruption, highlighting the limitations
of CPM when dealing with schedule impacts caused by disruptive factors like productivity
losses, rework, workarounds, changes in resources, design and procurement issues, and
the cumulative impact of multiple smaller events. This article proposes the use of system
dynamics as the only forensic schedule analysis method able to effectively and accurately
account for all the delaying impacts of disruption, and it addresses a series of practical
considerations that may be slowing down the method’s adoption. This article was first
presented as CDR-4037 at the 2023 AACE International Conference & Expo.

22 M AY/J U N E 2024
Introduction Since this article focuses on forensic analyses to be used in delay claims,
a method’s suitability should clearly be evaluated based on its ability to
In Blake Construction v. Coakley, Judge Kern aptly captured the challenges prove entitlement to delay with a credible presentation before a court or
that large engineering and construction projects are up against: “Except in arbitral tribunal.
the middle of a battlefield, nowhere must men coordinate the movement The actual requirements to prove entitlement to delay (or disruption,
of other men and all materials in the midst of such chaos and with such for that matter) vary from one jurisdiction to another. Still, they are
limited certainty of present facts and future occurrences as in a huge generally variations on the triad of proof: claims need to determine that (i)
construction project.” [1] the other party was contractually responsible for the events on which the
It should come as no surprise that in complex engineering and claim is based, (ii) these events delayed the project’s completion, and (iii)
construction projects, late completion is the norm rather than the this delay caused the damages being claimed. [4, p. 7] [5] [6, p. 120]
exception and that delays are significant [2, p. 7]. As an example, a recent Determining liability for an event is clearly a legal or contractual matter,
McKinsey study showed that 34 out of the 35 infrastructure and oil & and as such, it is beyond the scope of this article. Therefore, hereafter, a
gas projects were delivered past their contractual completion dates [3, p. method’s suitability will be evaluated based on causation and quantum,
4], and that the average delay was approximately 34 months. The authors i.e., on the method’s ability to reliably determine that a certain event
also found similar levels of delay in a sample of their four most recent caused a certain amount of delay to the project in a manner consistent
retrospective delay assessments of large, disrupted projects – the average with evidentiary requirements for expert evidence.
delay was 46 months.
Today, complex projects can cost hundreds (sometimes thousands) of CASE STUDY: THE DELAY CLAIM FOR THE TUXEDO
millions of dollars, and damages associated with project delays can easily be PARK PROJECT
nearly as high. It is the role of forensic schedule analysis (FSA) to show how The delay claim for the Tuxedo Park project (an assumed name for a real
responsibility for these damages should be allocated between the contractor case) perfectly exemplifies how CPM may struggle to capture all the delays
and the owner, and there is one area in which FSA is really struggling: actually caused in a heavily disrupted project.
complex projects that are not just delayed but also significantly disrupted. The Tuxedo Park project consisted of a $500 million re-measured
This article aims to demonstrate how disruption fundamentally design-bid-build commercial development built 20 years ago in North
impacts the construction schedule and thus needs to be considered Africa. The project had a three-year planned duration, but construction
in forensic schedule analysis. The article starts by briefly examining took almost six years, and the contractor also incurred significant cost
the critical path method (CPM) as the basis for FSA. It then reviews overruns. The contractor claimed delay and disruption in international
the close relationship between delay and disruption, highlighting the arbitration to recover some of these losses.
limitations of CPM when dealing with the schedule impacts of disruptive Initially, the contractor focused its attention on the project’s delay and
events, and proposes using system dynamics (SD) as the only method claimed for an extension of time, mainly to avoid any liability for liquidated
to overcome these limitations. The article concludes by reviewing some damages. [7] [8] To support their claim, they commissioned a renowned
practical considerations that may be slowing down the adoption of system delay expert who produced an assessment based on the time impact
dynamics as a forensic schedule analysis method. analysis method (TIA, a critical path type of method), as recommended by
This article is based on the authors’ decades-long professional the Society of Construction Law at the time [9, p. 47]. This forensic analysis
experience using system dynamics to assess delay and disruption on focused on some 60 critical delay events (mostly caused by design and
complex engineering and construction projects, particularly in supporting scope changes), and it supported an extension of time that covered all but
15 major disputes. Regarding the latter, confidentiality restrictions did not eight months of the project’s total delay (Figure 1).
allow the use of the actual names of the projects involved, owners and/ The initial findings of the TIA assessment were worrying to the project
or contractors, and the project data shown herein had to be disguised team, since it still left the contractor liable for the maximum amount in
for the same reason. However,
every effort was made to faithfully
preserve the validity of the insights
and conclusions drawn from the
original assessments.

A PRELIMINARY
CONSIDERATION:
DETERMINING METHOD
SUITABILITY
Given the various delay assessment
methods available, defining the
yardstick by which their suitability
should be measured is important.

1
Table 1 in page 10 provides more
information about the projects
included in this sample.
FIGURE 1 TIA Assessment Results (Tuxedo Park)

MAY/J U N E 2 02 4 23
liquidated damages stipulated in the contract (a full 15% of the contract Since the contractor and the owner held completely different views as
sum). Furthermore, project managers and company executives were to what had caused the cost and schedule overruns on the Tuxedo Park
convinced that the analysis had not captured the totality of the delays project, the delay and disruption claim was referred to arbitration. The
caused by the owner and their consultants; in particular, they were tribunal, composed of three renowned international arbitrators, agreed that
concerned that the analysis had not considered the cumulative delays the logic emanating from the system dynamics assessment best explained
that (in their opinion) had to have been caused by the constant stream of what had happened on the project, that the analysis was reasoned and
smaller owner-responsible changes that had plagued the project. supported by evidence, and consequently, the contractor was entitled to an
Meanwhile, in parallel with the time impact analysis the contractor had extension of time covering the entire period of project delay, awarding the
also decided to prepare a disruption claim, seeking to recover significant contractor entitlement to full relief from liquidated damages.
overruns in direct costs. With the initial findings of the disruption
assessment, it became evident to the contractor that the severe disruption
suffered on the project had probably caused delays beyond those captured
by the TIA analysis. The disruption assessment was based on the system The Critical Path Method:
dynamics method.
The system dynamics assessment also revealed a series of disruptive The Bedrock of Forensic
events that had not been included in the TIA but which (in the contractor’s
opinion) should have contributed to the delays suffered by the project. Delay Analysis
Adopting what, in fact, was an as-planned vs. as-built perspective, the
contractor’s schedule experts then attempted to use some of these Toward the end of the 20th Century, the advent of the personal computer
additional events to justify the eight months of project delay that the popularized the use of the critical path method to plan and control
TIA had not been able to attribute to the owner. However, This endeavor engineering and construction projects. This popularity naturally spilled
was unsuccessful: the experts found no reliable and defensible way to over into its use in forensic schedule assessments (to help prevent and/or
incorporate disruptive events into the CPM analysis. settle disputes); after decades of use in the field, the critical path method
The SD assessment accounted for the delay caused by all the owner- has become the norm in FSA (see RP 29R-03 Forensic Schedule Analysis
responsible events that occurred on the project, and it also captured the delays by AACE International, the Delay and Disruption Protocol by the Society
caused by the disruption that they generated – more specifically, it found that, of Construction Law, and ASCE Standard ANSI/ASCE/CI 67-17 Schedule
in the absence of owner-responsible events, the Tuxedo Park project would Delay Analysis). [10] [11] [12].
have been completed as planned, in little over three years (Figure 2). The use of CPM in complex delay assessments has become entrenched
Thus, the contractor decided to base the project’s extension of time because of its conceptual simplicity and because it leaves the arduous
claim on the system dynamics assessment. Using a non-CPM method was task of dealing with the complexities of intricate project schedules to the
quite risky, but the contractor realized that this was the only option that computer. Yet, CPM (like any other complex analysis method) is imperfect
would allow it to capture the impact of all the owner-responsible delays on and has limitations.
the project.
THE QUEST TO PROVE ACTUAL DELAY
While CPM is conceptually simple, its application is anything
but: just a quick perusal of AACE RP 29R-03 Forensic Schedule
Analysis (for example) will show that there are a multitude of
variants of the methodology, each suited to a different set of
project data and analytical conditions (Figure 3).
Initially, CPM simply took the contractual (baseline)
schedule, and assessed how the insertion of any number of
delay events would shift the project’s completion date (the
impacted-as-planned version of CPM). Then, as advances in
computing technology made it more practical, CPM started
to require the use of regularly updated schedules, and by the
FIGURE 2 Dynamic Disruption and Delay Assessment (Tuxedo Park)

FIGURE 3 Taxonomy of CPM Variants, AACE [7, p. 12]

24 M AY/J U N E 2024
turn of the century a consensus emerged that considered the time impact Limitations of CPM in
analysis variant of CPM (TIA)2 as the “gold standard” in forensic schedule
analysis. [6, p. 40] [13, p. 11] [14, p. 1] [9, p. 49] [15, p. 11.54] Heavily Disrupted Projects
Yet, it remains a fact that there are multiple CPM variants, and the
outcome of a schedule analysis often depends on the variant employed. ABOUT DISRUPTION
[16, p. 10]. This has fueled growing skepticism about the method, Disruption can be defined as “a disturbance, hindrance or interruption
contributing to many schedule assessments failing to convince courts to a contractor’s normal working methods, resulting in lower efficiency”
and tribunals about the appropriateness of their findings. For a thorough [11, p. 42], and it is the main cause for direct cost overruns in complex
analysis and discussion of this topic, see Dale and D’Onofrio’s Construction engineering and construction projects. [3, p. 4] [23, p. 9]
Schedule Delays, Part II. [6] As a consequence of disruption, work is performed at lower efficiency
In part, the relatively high failure rate in FSA can be explained by a levels, because of productivity losses (people working more slowly), or
general lack of sufficient project data (compared to what would ideally because of rework (people having to redo tasks previously executed). Both
be required), and at times by an incorrect application of the principles of of these factors produce cost overruns, and they may also delay the project.
CPM. However, there have also been two other fundamental reasons for Disruption can also have a third delaying impact: it can constrain the size
the failure rate of recent schedule analyses: of the workforce that can be put to work efficiently on the project.

1. A core principle of most legal systems is that actual loss or damage THE DELAYING IMPACTS OF DISRUPTIVE FACTORS
is the basis for entitlement. For FSA, this requires an assessment Productivity Losses
to ascertain the causes of actual project delays. [17] [13, p. 6] Yet, Productivity losses are the best-known consequence of disruption, so
TIA’s findings can be interpreted as being “theoretical” ones, in the much so that disruption and productivity losses are often used as synonyms.
sense that TIA extrapolates the project delay caused by an event by [7, p. 762] However, productivity losses do not only cause cost overruns,
assessing how it would impact the schedule – a schedule that may they also cause project delays: productivity is the speed at which each
not be accurate, and which the project most probably did not follow person executes the works, and when people are less productive it takes
in its entirety. [18] [19, pp. 386,393] [15, p. 11.77] them longer to complete their assigned tasks.
2. Also, judges and tribunal members expect the analyses’ findings In recent years the engineering and construction industries have
to be “sound from a common sense perspective” [11, p. 32] – in begun to take notice of the role that productivity losses can play in project
other words, assessed delays should be reasonable when taking delay. The Society of Construction Law now recommends to account for
into consideration the nature of the project, not the result of a the delaying impact of productivity losses by supplementing conventional
technicality (e.g., analyses should not ascribe large delays to the late delay analyses with the findings of disruption assessments when projects
completion of menial, incidental tasks). are disrupted. [11, p. 10] AACE is even more specific, suggesting that delay
impacts caused by productivity losses should be estimated by translating the
Accordingly, in recent years the TIA approach has lost its preeminent latter into additional durations on affected activities. [10, p. 33] Also, several
position, and the as-planned vs. as-built variant of CPM (APAB) has become practical suggestions have been made as to how the merging of productivity
the approach preferred by courts and tribunals. [20] [21, pp. 1,10] [11, impacts into a CPM-based schedule analysis might be accomplished: for
p. 33] [22] This method, as its name implies, is an effect-cause type of example, Lee [24] describes one case using a windows analysis, whereas
CPM variant, which first looks at how the project was actually executed, Yang [25] showcases another using the collapsed-as-built approach.
compares this to how it was planned, and then uses expert judgment and In disrupted projects, productivity losses can be substantial: in Tuxedo
other supporting analyses to allocate the delays to the different events that Park, for example, at times they exceeded 50%. Since productivity and project
occurred on the project. duration are inversely correlated, this means that the delays caused by large
The adoption of the APAB variant can be seen as a symptom of the productivity losses are equally large. Clearly, forensic schedule assessments
struggle to adapt CPM to fully capture the complexity surrounding actual of heavily disrupted projects cannot ignore the impact of productivity losses,
delays on current projects. However, this variant is not the perfect solution, because doing so would either (a) underestimate project delay, or (even
either: while it may capture the actual delays occurring on a project, worse) (b) ascribe the delay actually caused by productivity losses to other
analysts using it on heavily disrupted projects still find it extremely causes (primarily, wrongfully attributing the delay to the contractor).
difficult (if not impossible) to accurately assess what delays were caused However, in practice delays caused by productivity losses are not
by which events. yet usually factored into conventional delay analyses. In spite of its
frequent and substantial impact on project performance, disruption is
still a relatively unfamiliar concept in the engineering and construction
industries: for example, Keating on Construction Contracts mentions
the term delay over ten times more often than the term disruption [8], the
FIDIC Red Book contract form is even more unbalanced (148 vs. 6 times)
[26], and the Institution of Civil Engineers’ NEC4 contract does not even
mention the term disruption at all. [27] At Tuxedo Park, the assessment of
productivity losses was initially not even considered, and, more generally,
2
The term time impact analysis will be used herein to encompass also windows even in the few projects where disruption claims are commissioned,
and/or time slice analysis. There are actually no universally accepted terms that the methods used rarely include an explicit assessment of the actual
apply to the different CPM variants which require the use of project schedules
productivity losses suffered by the project [6, pp. 1109-1112] (and thus are
that are approximately up-to-date at the time a delay event occurs. For the
purposes of this paper, they can all be treated as being one and the same. of limited use as a complement to a CPM-based schedule assessment).

MAY/J U N E 2 02 4 25
Rework the schedule will properly capture the lengthened duration of the project.
Disruption does not only cause productivity losses, it also causes rework: The problem though will lie in establishing causation for the gaps: the
when a project is disrupted, more of the work is completed incorrectly delay in the discovery of rework may make it extremely difficult to find
(or containing omissions), and therefore this work will eventually need sufficient evidence to show what gaps were caused by rework – and then
to be corrected – i.e., it will need to be reworked. Rework is a fact of life what event caused the need for rework in the first place.
in engineering and construction, and while the actual amount can vary When attempting to determine the delays caused by rework,
greatly from project to project, studies have found that it can account for conventional disruption assessment methods may also introduce double-
up to 20% of project cost – or more. [28, p. 479] [29] counting: conventional disruption assessment methods like the measured
Many contractors are loath to acknowledge that rework happened on mile are unable to distinguish between additional effort spent on rework
their projects, often assuming that its mere existence would be construed from that spent because of productivity losses. Thus, when using a
as evidence of incompetence on their part (rework is often accompanied by disruption assessment to support a CPM-based delay claim, rework will be
non-compliance reports that simply list the problem, without any analysis factored into the calculation of the increased duration of activities affected
of what caused it). This factor, coupled with cost concerns, explains by productivity losses, while at the same time the gaps in the schedule will
why records explicitly documenting rework are mostly nonexistent in already have captured the delaying impact of rework.
engineering and construction projects. [30, p. 10] However, the default
assumption that rework stems from contractor incompetence is generally Changes in Resource Levels
unwarranted: while some baseline level of rework is unavoidable (nobody When projects are severely delayed, acceleration measures are usually
is perfect), disruption will cause it to grow exponentially. [31, p. 234] [32, taken to make up for the delay – and these often involve the use
p. 196] [33, pp. 15-16] [34] of additional resources. For example, when facing delays, project
There are few instances where the literature discusses the delaying management often responds by adding more work crews in critical (or
impact of rework. [30, p. 9] [31, p. 244] Yet, rework does obviously cause near-critical) areas, so that more activities can be performed in parallel.
delay: rework will slow down the completion of an activity, since part of In principle these kinds of decisions should shorten the duration of
the work will have to be repeated; if the activity is on (or near enough) the the critical path, but they also end up flouting the projects’ planned
critical path, then rework will slow down the entire project. On heavily sequencing of activities – i.e., they often cause some of the work to be
disrupted projects, rework is usually so widespread that impacts on the effectively performed out-of-sequence (before preceding activities are
critical path are a near certainty. complete enough to allow them to proceed unimpeded), and therefore
The delaying impact of rework is reinforced by its insidious nature: cause additional productivity losses and rework.
errors and omissions on completed work are generally unintentional, Unplanned reductions in work crews can also occur on disrupted
and it can take a long time to find them – so much so that on really large projects – for example, as a reaction to multiple and protracted design
projects, rework discovery can take years. [35] Because of this delay, changes. When a project’s owner (or their representatives) start to
a large fraction of rework is often not found until the later stages of introduce many design changes and does so in a piecemeal fashion, this
construction, or even after mechanical completion (e.g., during testing and generates uncertainty about what activities are ready for construction.
commissioning). When this uncertainty becomes large enough, contractor managers may
Rework was a significant cause of delay on Tuxedo Park. As is struggle to assign all crews to available work fronts, and therefore decide
common in the industry, the project kept no actual records about it, so to reduce the size of the workforce present on site.
a retrospective disruption assessment was necessary to estimate its It should be noted that the kinds of workaround as the one described
incidence (Figure 4). This assessment (based on the system dynamics above are usually the cumulative result of a series of small decisions.
method), determined that 23% of the direct construction worker-hours Schedule analysts usually lack the data, resources and/or time to assess
had been spent on rework, and that most of it had been concentrated in the delaying impact of each individual decision, and thus construction
the later stages of construction (so much so that almost 90% of the work schedules do not reflect them.
crews spent in the last 9 months of the project was dedicated to it). On Tuxedo Park, even though the contractor was under intense
CPM schedules cannot easily handle rework. Most often, rework is not pressure to add more work crews because of accumulating delays,
explicitly captured but shows up as gaps opening up between sequential managers still kept the project’s average workforce approximately 20%
activities. Thus, when rework is executed on critical activities, the gaps in smaller than planned. This was done unwittingly, to accommodate
a constant lack of sufficient
shop drawings caused by the
steady stream of design changes
introduced by the owner. Even
though the contractor had every
intention to mitigate project
delays as much as possible,
managers quickly realized that
it would be pointless to use the
level of resources demanded by
the project’s schedule: any gains
obtained from the additional
work crews would have been
outweighed by the productivity
FIGURE 4 Estimated Work Crews Spent on Rework (Tuxedo Park) losses and rework generated by

26 M AY/J U N E 2024
additional people being idle or working out-of-sequence. [36, p. 20] [37, p. As a final disclaimer, it should be repeated that the objective of this
292] [15, pp. 5.16-5.17] exercise was not to produce accurate estimates of delays caused in the
four projects in the sample, but rather to show that the delays caused by
By Way of Illustration: How Much Can Disruption Impact Delay? the three disruptive factors could be highly significant, and that therefore
Common sense dictates that the disruptive factors just analyzed can have ignoring them in forensic schedule analyses of heavily disrupted projects
significant impacts on project delay. To quantify this impact, the authors would shortchange the contractors’ entitlement to extensions of time.
analyzed a sample of their last four delay and disruption claims.
The key characteristics of the projects in the sample are shown in Table DELAYS CAUSED BY AN ACCUMULATION OF SMALL EVENTS:
1 (shaded cells): the projects ranged in size from about $300 million to DEATH BY A THOUSAND CUTS
$7.5bn, and all were complex and tightly scheduled (all four were planned Complex projects are often subjected to streams of multiple small
to be completed in three years or less). The non-shaded cells in Table 1 events: each one may have an apparently insignificant impact on project
show the magnitudes of the key disruptive factors in these four projects performance, but their cumulative impact can still cause severe levels of
(productivity losses, rework and change in average manpower levels). The disruption – and therefore also delay. However, CPM generally does not
values for these factors were extracted from the disruption assessments of account for these events.
the projects, which were based on the system dynamics method.3 This limitation of CPM arises from the most basic of CPM’s
The impact that the three disruptive factors shown had on the characteristics: its ability to describe the order in which individual
delays suffered on these projects was estimated based on the following construction activities need to be executed. While this is what allows
simplifying assumptions: construction duration was considered to be these methods to identify a project’s critical path, it also requires precise
inversely proportional to both productivity and average manpower levels, information about how delaying events impact specific sections of the
and rework was assumed to behave as just another type productivity schedule (often even individual activities). When dealing with streams
loss. Table 2 shows the estimated delays caused by the different disruptive of hundreds (often even thousands) of small and unplanned events,
factors in each project. capturing their delaying consequences at this extreme level of detail
Two key insights can be gleaned from the results of the rough estimates becomes impossible, for cost and time reasons.
shown in Table 2: Take inspection delays, for example: owner representatives are
often required to inspect the works at certain points before progress
• The magnitudes of the delays estimated in Table 2 are significant, and can continue. In a complex project there can be tens, even hundreds of
added together they vastly exceed the contractor-responsible delay at thousands of hold-points, so when inspectors are late this can have severe
which project owners would be entitled to the maximum liquidated disruptive consequences. When the inspection delays become especially
damages stipulated in the contract. severe, contractor supervisors will be forced to find workarounds: to
• There is great variability in the strengths of the delaying impacts of prevent most crews from being left idle – they may decide to ignore some
the three factors across the four projects. This shows that, even when hold-points and continue to work at their own risk (generating some
projects may look similar on paper, disruption (and therefore also the amount of rework later), or they may decide to wait and assign idle crews
delay caused by it) is hugely dependent on the type, magnitude and to other work fronts (even out-of-sequence ones), under the presumption
number of disruptive events suffered. that having them work at lower efficiency will still be better than not have
them working at all.
Project A Project B Project C Project D Average However, the
inspection hold-points
Project Type Infrastr. Mixed Use Oil & Gas Infrastr. -
are generally not
Project Value (USD) $7.5bn $295m $475m $430m -
directly connected
Planned Duration of Construction (Months) 36.3 28.6 31.0 18.7 28.6 to the schedule,
Construction Completion Delay (Months) 82.6 59.3 29.1 13.2 46.0 and the individual
Average Productivity Loss (%) 36% 49% 43% 18% 31% workaround decisions
Effort Spent on Rework (%) 4
17% 12% 19% 12% 13% are invariably not
Average Manpower Reduction (%) 53% 30% -8% -5% 15% recorded, either.
Thus, under these
TABLE 1 Project Characteristics and Disruptive Impacts conditions, analysts
using CPM-based
Project A Project B Project C Project D Average
forensic schedule
Actual Construction Completion Delay 82.6 59.3 29.1 13.2 46.0 analysis methods
Delay Caused by Productivity Losses 20.2 27.3 23.6 4.1 18.8 generally find it
Delay Caused by Rework 7.4 3.8 7.2 2.6 5.2 impossible to establish
Delay Caused by Change in Avg. Manpower 41.1 12.2 -2.3 -0.9 12.5 causal links between
each change and the
TABLE 2 Estimated Construction Delay Caused by Disruptive Impacts (Months) delay it caused, as well
as determining what
3
The assessments in the sample were produced by system dynamics simulation models, all based on the same underlying causal framework workarounds were
and calibrated to reflect the particular characteristics of each project. A description of how system dynamics is used to assess delay and used on each activity
disruption in complex projects can be found on page 28.
in the schedule.
4
Effort on rework is expressed as the ratio of construction man-hours spent on rework divided by total construction man-hours.

MAY/J U N E 2 02 4 27
 These streams of small events
can impact construction directly
(like the inspection delays
discussed earlier), but very often
their main impact is in the design
and engineering phases of the
project. Given how often these
events occur and the magnitude of
their impact on project performance,
they deserve special scrutiny.

Engineering and
Procurement Impacts FIGURE 5 Change-Related Documents (Tuxedo Park)
Complex engineering and
construction projects are typically
subjected to a multitude of design
changes; yet detailed project
schedules usually only cover
construction activities. Major scope
and design changes are generally
sufficiently analyzed to allow
them to be contemporaneously
incorporated into a revision of the
construction schedule (and thus
may be captured by CPM-based
schedule analyses), but the same
does not happen when the project
is subjected to other types of FIGURE 6 Engineering and Construction Progress (Tuxedo Park Project)
design and engineering events.
For example: additional work to particular activities in the schedule, nor did they include
estimates for how long the additional effort would take.
• Contract design documents provided by the owner may be deficient, It should be noted that, in terms of the prevalence of design issues
containing hundreds (or even thousands) of errors and omissions; in construction projects, Tuxedo Park was the norm rather than the
• The owner’s consultants may instruct additional scope and design exception: changes, design by comments, deficient design requirements
changes via comments included in reviewed shop drawings, or and approval delays are frequent occurrences on complex engineering and
through other informal, non-contractual channels; construction projects. [15, pp. 3.13-3.26] For example, the consultancy
• Contractors with no design responsibility may be asked to resolve HKA analyzed 700 recent delay and disruption disputes in which they
coordination conflicts or rectify design errors; were involved, and determined that 39% of the primary “causation factors”
• The owner’s consultants may take too long to review and approve the leading to these disputes were design-related. [38, p. 7]
contractor’s drawings. Tuxedo Park also shows how an accumulation of small design
impacts matters. Figure 6 indicates how Tuxedo Park’s construction
On Tuxedo Park, many design changes were introduced by the owner S-curve (showing construction progress) was planned to follow that
in ways that hid their true nature, disguising them as non-conformance of engineering (production of shop drawings), with a lag close to six
issues that had to be fixed, or introducing them in responses to RFIs. months. However, the multitude of small design impacts described
Figure 5 shows the incidence of a variety of mechanisms that were used above delayed the actual completion of shop drawings to almost two
to make changes to the design throughout the project’s duration; among years after the planned completion of construction. Obviously, this delay
these, only Change Variation Orders (CVOs) were changes formally in engineering had to have a delaying impact on construction… but
instructed as required by the contract, so that CVOs were the only changes CPM could not estimate it: the engineering and construction schedules
whose construction impacts were documented well enough to allow for were not linked, and thus there was no way to determine how the
their consideration in the project’s TIA assessment. delayed production of what engineering drawings had impacted what
Yet, all of the change documents shown in Figure 5 caused disruption construction activities.
and delay. Consider for example Design Field Changes (DFCs): these Last but not least, it is important to remember that changes in design
describe changes requested by the contractor, in order to fix design errors usually also impact the procurement process, with some parts (or even
that were usually discovered during construction. DFCs had a direct impact whole systems) being re-specified, re-ordered, re-manufactured, and/
on construction work, requiring that certain activities be re-sequenced, or re-delivered. It can easily take months for the whole procurement
delayed, reworked, or a combination thereof. Yet, it proved to be impossible process to play out (from estimating quantities and defining the quality of
to include these changes into a CPM-based schedule analysis: because materials, to issuing purchase orders and receiving materials on site), and
of the tight budget and schedule (and their sheer number), DFCs only design changes often require the partial (or even complete) re-start of the
recorded the scope of work affected by the changes, they did not link the procurement process for the affected materials.

28 M AY/J U N E 2024
 events and conditions that impacted it (irrespective of whoever was
Successfully Proving Delay in responsible for them). During calibration (which follows the scientific
process [41, p. 81]), project data and events, model parameters, and analyst
Disrupted Projects: An Integral assumptions are constantly reviewed and improved to gradually reduce
any differences between the simulation and the actual data. Once the
Approach Using System model is well calibrated, it produces the as-built simulation.
This first simulation is then compared to another produced by the
Dynamics same model, except that, now, owner-responsible events are removed:
the but-for simulation. Owner-responsible delay and disruption are then
SYSTEM DYNAMICS: SIMULTANEOUSLY ASSESSING calculated based on the differences in resources and project durations
DISRUPTION AND DELAY simulated in the two scenarios.
System dynamics is a computer simulation method based on a complex The process of creating but-for scenarios can also be sequential, i.e.,
causal framework that reproduces the ways in which key project variables owner-responsible events can be removed one by one (or in groups) to
(performance factors, external conditions, disruptive and delaying events, separately calculate their distinct disruptive impacts. This allows system
etc.) influence each other. SD simulation models reflect how productivity dynamics to explain in great detail precisely when, how and why a project
losses and rework are generated, how projects react to delays and overruns, is disrupted and delayed, further enhancing the credibility of its findings.
how external events impact project performance dynamics, and how all This ability to reliably establish causation is SD’s key advantage against
these conditions lead to delay and disruption (Figure 7). other disruption assessment methods, since even the widely accepted
In particular, the causal framework underlying SD simulation models measured mile method struggles to establish causation when it is forced
captures how delay and disruption impact each other. [11, p. 10] The to deal with hundreds (sometimes thousands) of disruptive events with
delaying consequences of disruption have already been amply discussed highly overlapping impacts. [42, p. 234] [43] [44]
in previous sections, but the disruptive consequences of delays are equally System dynamics was first used to assess delay and disruption by
important: when projects are delayed and owners do not timeously grant Cooper in 1976, to support a shipbuilder’s claim against the US Navy.
extensions of time, contractors generally do their utmost to make up for [45] The success of this first assessment led to the development of (a) a
these delays, often setting in motion strongly disruptive mechanisms (by, universally applicable causation framework and (b) a robust analytical
e.g., applying schedule pressure, working out-of-sequence, or overstaffing approach. [35] [36] Based on these two pillars, system dynamics has
the project. [15, pp. 4.9-4.11, 5.20-5.21] [35] [39, p. 17]) These disruptive already been used to support over fifty delay and disruption claims, worth
consequences can then cause further delays, and thus delay and many billions of dollars. [46, p. 96] [47] [48, p. 27] System dynamics
disruption will continue to ripple through the project. System dynamics is has also been recognized as a disruption assessment method by the
the only method that explicitly accounts for the interrelationship between Society of Construction Law [11, pp. 46-48], and most major professional
delay and disruption, and thus is able to simultaneously assess both. organizations, journals and publishers associated with the field of project
SD is applied as a collapsed as-built method of analysis. To use SD to management have accepted articles about the methodology [35] [49] [50] –
assess disruption and delay in a project, a simulation model is first set up sometimes even bestowing on them prestigious awards. [51] [52]
and calibrated to faithfully reproduce the project’s as-built performance The effectiveness of system dynamics in assessing delay has been
[40], capturing all its key performance characteristics and including the further reinforced by its proactive use in managing projects. SD has helped

FIGURE 7 High-Level Causal Structure of a Typical System Dynamics Project Simulation Model

MAY/J U N E 2 02 4 29
project managers to mitigate delay and disruption on hundreds of projects Considering this tendency of disruption to ripple through the whole
worldwide [53, pp. 169-170], the best example of this probably being the project, spending the additional time and effort to describe the project
Change Impact Analysis system used by the Fluor Corporation (the system in minute detail (at the activity level) would unnecessarily increase the
helped Fluor and its clients earn savings of over $800 million over a five- complexity and cost of the analysis, without improving its accuracy.
year period). [34, pp. 17,31]
Just How Critical is the Critical Path in Disrupted Projects?
SYSTEM DYNAMICS CAN ACCOUNT FOR ALL DISRUPTIVE AND While the simplicity and general acceptance of the concept of the critical
DELAYING EVENTS, AND FOR ALL THEIR CONSEQUENCES path is very alluring, it should be remembered that complex projects are
In complex engineering and construction projects, the causal links actually never planned solely on the basis of their critical paths. Instead,
connecting unplanned events and their cost and schedule impacts are not their planned schedules usually involve tactical trade-offs between the
linear chains; instead, they rather form an integrated net, simultaneously sensible use of resources (to keep costs at bearable levels) and the critical
connecting many causes to many different consequences. In other words: path (to achieve the earliest possible delivery date). Thus, technically, these
they form a causal network. [54, pp. 368-369] schedules are referred to as being resource-constrained, or resource-leveled.
System dynamics simulation models are based on just such a [10, p. 117] [11, p. 19] [56]
comprehensive causal framework, describes, among other factors: It is also well-known in engineering and construction that the
critical path of complex projects tend to shift [16, p. 6]: these projects
• The different mechanisms that cause productivity losses and errors usually consist of several large systems and/or structures, containing
and omissions (which lead to rework). There is a long list of such multiple work fronts that will often be critical or near-critical because of
mechanisms, long recognized by industry professionals: fatigue resulting resource-leveling; if these projects are then heavily disrupted, widespread
from sustained overtime levels, work performed out-of-sequence, the lack productivity losses, rework, and design and procurement availability
of sufficient design or shop drawings to support efficient construction issues will lead to a constant re-adjustment of resources, often causing
progress, schedule pressure, low morale, etc. Many studies have already frequent (mostly unplanned) shifts of the project’s critical path. [37, p.
estimated how much these mechanisms can impact project performance 295] [57, p. 21] [58] As a result, in heavily disrupted complex projects,
[55], although as discussed when evaluating the results in Table 2, schedulers (and managers) cannot really know exactly where the critical
the impacts can vary greatly from project to project depending on the path of their project is at any given point in time.
type, number and magnitude of unplanned events present. Of course, the above does not mean that experienced project managers
• How these same mechanisms can lead project managers to reduce are completely in the dark. While they may not know the precise activities
manpower levels, to prevent additional efficiency losses. that are critical at any given point in time, they are still able to keep track
• How all of the above slows down the execution of the works, thus of progress being made in all the different work packages, and understand
causing delays. how these packages need to be sequenced. System dynamics models
• The time it takes to find hidden errors and omissions, and how reproduce this process of decision-making under uncertainty, and instead
executing rework involves diverting manpower from other tasks and of attempting to describe project impacts at the activity level, they use a
thus causing further delays. higher level of aggregation.
System dynamics simulation models break projects down into major
The system dynamics causal framework is detailed and complete work packages, not into individual activities. To capture key staffing and
enough to also capture all the ways in which unplanned events can directly scheduling constraints, SD models use aggregate planning data and
impact project performance: scope changes, forced rework, approval and other sources of project information to define key resource constraints
inspection delays, site access restrictions, work being put on hold, etc. within each work package (identifying major bottlenecks and determining
This completeness allows system dynamics models to include all types of maximum efficient staffing levels), and also to describe key dependency
disruption and/or delaying event, since they can always be properly fitted relationships among packages. [59, pp. 45-50]
into the simulation model. The resource and schedule constraints thus captured in SD simulation
The reason why system dynamics can use such a rich causal models may be less precise than those used in CPM analyses (because
framework is because it operates at a higher level of aggregation than CPM: of looking at groups of activities instead of at individual ones), but in
whereas the latter represents every single activity in the schedule, system complex and heavily disrupted projects additional precision does not lead
dynamics breaks down the project into major work packages (typical to more accurate results: in these kinds of projects, disruptive impacts
ranging from two to 20). This is necessary because disruptive impacts on the schedule are so significant that SD’s ability to capture them far
cannot be assigned to specific activities: disruption may be caused by outweighs a relative lack of precision in the method’s depiction of the
specific events, but their impacts then spread over the project, all the way projects’ critical paths.
through completion. An example will illustrate this point:
USING SYSTEM DYNAMICS IN FORENSIC DELAY ANALYSIS:
Following a design change, additional manpower may be hired to FURTHER CONSIDERATIONS
mitigate the impact of the additional scope of work on the completion of Admissibility and Acceptance of System Dynamics
the works. The new workers may be less highly skilled than the original As a disruption assessment method, system dynamics has achieved
workforce, causing them to work at lower efficiency; however, the new the recognition of the Society of Construction Law [11, pp. 46-48], and
workers may be put to work in new areas (not on the scope affected by evidence produced using this method has been deemed admissible in
the original design change), and the workers’ lower efficiency may now many jurisdictions, even overcoming a Daubert challenge in the US. [60]
cause delays there. These delays may lead managers to apply schedule (Note that the US federal guidelines for admissibility of scientific and
pressure, which may drive workers to work faster, but also will cause technical expert evidence are arguably among the toughest and most
them to commit more errors and omissions… and so on. explicit in the world). [61]

30 M AY/J U N E 2024
 As a forensic schedule analysis method, system dynamics has also been projects, CPM would remain an indispensable project planning and
successfully used since 1976 [45, p. 23], and this has been acknowledged monitoring tool, and it would also continue to be needed to inform SD
in the literature. [57] [49, p. 65] However, confidentiality restrictions simulation models, providing them with critical data inputs regarding
associated with legal work have so far limited the dissemination of this project bottlenecks and the feasibility of operating multiple simultaneous
information to a wider audience. work fronts. [70, pp. 206-208]
It is true that the industry’s professional guideline and standard-setting
bodies still heavily favor the use of CPM-based forensic schedule analysis
methods. [10] [11] [12] However, it should be noted that most jurisdictions
will allow claimants to use any method they may deem necessary to prove Conclusions
their case, subject only to admissibility standards. While, historically, the
standard of proof for establishing causation for delays has generally been In 1974, an early assessment of CPM as a forensic schedule analysis tool
deemed to require the use of some sort of CPM analysis [62, p. 57] [63, already concluded that courts, boards and tribunals were being confronted
p. 3], there are generally no explicit legal requirements that may prevent a with some questions that CPM could not address, specifically some
claimant from using a different type of method. [64, pp. 22-23] [65, p. 20] including the delaying impact of disruption (“hindrances”). [71, p. 39]
This was recently reinforced by the widely commented decision in White Almost half a century later, CPM’s answer to disruption is still nearly as
Constructions v PBS Holdings, which specifically set common sense and limited – and yet, disruption is omnipresent in complex engineering and
project facts above the general recommendations of standards, guidelines, construction projects.
and protocols in regard to selecting an appropriate analysis method. [66] Disruption manifests itself through productivity losses, additional
rework, and changes in resources employed (generally manpower). In
Is a System Dynamics Model a Black Box? heavily disrupted projects, all three factors can cause significant delays
An objection frequently leveled against the use of system dynamics to – and CPM is ill suited to consider these in forensic schedule analysis.
support delay and disruption claims is that its models constitute black In contrast, system dynamics simultaneously assesses both delay and
boxes. In other words, it is argued that SD models are complex algorithms disruption, and thus it is able to deliver more realistic (and therefore more
that are incomprehensible to most people, and that the robustness of their accurate and defensible) delay assessments when projects are heavily
conclusions depends on “the reasonableness of the analyst’s judgment.” disrupted. Also, the completeness and multidimensionality of system
[11, p. 18] dynamics’ causal framework allows the method to consider any and all
In response to this criticism, it should first be noted that the same unplanned events that affected the project, irrespective of their nature or
objection could be levelled against any other complex assessment method, of where in the project their impacts were felt (design, procurement or
and that, it certainly also applies to CPM: most industry experts will construction).
readily agree that the in-depth understanding of a CPM-based schedule System dynamics is already widely recognized as a powerful disruption
requires highly-skilled planners [67, p. 12], and it is also widely accepted assessment method (its inclusion in the SCL’s Delay and Disruption
that (CPM-based) forensic schedule analysis is “both a science and an art” Protocol is only one recent example). However, even though system
[10, p. 9] [15, p. 10.5], which implies that the assumptions made by CPM dynamics has also been successfully used to support delay claims since
analysts also involve a degree of subjectivity. 1976, SD’s recognition as a forensic schedule analysis method is not yet as
Still, these objections express a genuine concern about the widespread in engineering and construction. The success of the Tuxedo
trustworthiness of the results of complex assessment methods and, Park claim is therefore especially significant: here, experts using system
therefore, they need to be addressed. System dynamics experts do so in dynamics established that 100% of the project’s delay had been caused
their assessments by carefully explaining the logic of their analyses in by the owner (something that CPM-based methods had been unable to
terms easily understood by lawyers, judges, and arbitrators, and making prove), and an international arbitration tribunal found the SD experts
sure that the logic implied in them is “sound from a commonsense credible and the evidence (the simulation model plus its data inputs)
perspective.” [11, p. 32] Also, SD reports show how the analyses are based reliable, and consequently awarded the contractor the full extension of
on a wide range of project data sources, and that the analyses’ results are time being claimed.
consistent with all of them. Given system dynamics’ proven ability to simultaneously assess
Finally, confidence in the outcome of a system dynamics assessment delay and disruption, it is to be hoped that its recognition as a forensic
is normally bolstered by subjecting the simulation model to a range schedule analysis method will occur sooner rather than later. In the
of validation tests [68] [49, pp. 845-891] – including (among others) meantime, though, managers of severely disrupted and delayed projects
checking the model’s ability to replicate the actual performance of the can take comfort in the fact that there are generally no laws (nor are there
project, checking its sensible reaction to extreme project conditions, and any contractual clauses) that may prevent them from using any reliable
determining the statistical confidence interval surrounding its results (by method chosen by them to prove their entitlement to extensions of time
using the fit-constrained Monte Carlo analysis technique. [69] [49, pp. 885- and/or prolongation costs, be it in negotiations, arbitration, or litigation –
886]) All these tests reinforce the scientific nature of the system dynamics and this (of course) includes system dynamics.
analysis process [46, pp. 103-114], helping to reassure lawyers, judges, and
arbitrators about the credibility of the results obtained.

ON THE COMPLEMENTARITY OF SYSTEM DYNAMICS AND CPM References

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MAY/J U N E 2 02 4 33
 The Project Life Cycle:
Preventing Change
and Project Failure
BY H. LANCE STEPHENSON, CCP FAACE

ABSTRACT
Understanding the project life cycle and the concept of change management provides many benefits that
can promote improved project success. However, to minimize downstream impacts from earlier consequential
decisions and actions, project teams need to go beyond the traditional aspect of the treatment and control of
change management and provide opportunities to prevent or eliminate change. As applied in asset ownership and
management engaged in capital project delivery, this article introduces preventive measures that can influence the
decisions and actions made early in the project's development phase. These efforts will ultimately improve cost and
schedule predictability. As part of this understanding, this article will provide readers with the following:

• a case study that emphasizes the types of changes within the life of a project
• defined preventive measures and concepts with the project life cycle
• a road map for implementing improvements

This article is one of two by author Lance Stephenson presented at the 2023 AACE International Conference and
Expo. It is a precursor to the second article, TCM-3934, The Project Life Cycle: Treatment and Control of Change,
which was first presented as TCM-3933 at the 2023 AACE International Conference and Expo.

34 M AY/J U N E 2024
Introduction THE PROJECT LIFE CYCLE (PLC) FRAMEWORK
Organizations must first understand what a project life cycle is to prevent
Desmond Tutu stated that there comes a point where we need to stop just pulling change within the project life cycle. A project’s life cycle doesn’t begin
people out of the river; we need to go upstream and find out why they’re falling with executing detailed engineering or construction activities. While
in. Only once this is figured out can this be prevented. Consider the person some engineering firms or constructors may consider these activities as
who fell into the river as an event or a change. Mitigating this change requires the boundaries of a project life cycle, owner organizations also include
resources and effort. There is a cost to mitigate this change. Regardless of the idea generation and front-end planning and development. Figure 2
efforts expended, recovery may not be successful in some circumstances, and illustrates all the parts of the project life cycle, consisting of four sequential
the consequences could be catastrophic. For projects to prevent any changes, phases: ideation, planning, execution, and closure. These “phases are
organizations need to go upstream first and understand why these changes recursive, where each phase may be a project in and of itself that produces
occur and how measures can be introduced early to prevent the change from a deliverable but not the final asset. Each phase yields one or more
happening in the first place. Change will continue if not prevented, and cost deliverables or outputs that become resources or inputs for the following
and schedule predictability will continue to erode. phase”. [2, p. 39]
The introduction of preventive measures can positively affect the ability
to influence the project’s final costs, as illustrated in Figure 1. Consider
the cost influence (blue line) in Figure 1 as the stream. By introducing
measures at the start of the project (i.e., the beginning of the stream), the
opportunity and ability to influence the outcome is greater (i.e., prevent
people from falling in). Now consider the cost expenditure1 (orange line)
in Figure 1 as the number of people pulling the individual out of the
stream. It would take considerably more time and effort (expenditure
of resources) to pull a person out of the stream once they have fallen in.
Compound these efforts against a strong, fast current with high banks
(complexity); the ability to achieve success is significantly compromised.
Therefore, early adoption of preventive measures provides the organization
with the best opportunity to prevent change, influence the final costs, and
reduce cost expenditures over the project’s life. FIGURE 2 Project Life Cycle

Compartmentalizing work efforts into phases provides a focused

approach that matures the project as it progresses through the project
life cycle. It is within these phases that change can be prevented or
minimized. Maturing the development and refinement of the project
deliverables assists in preventing change and improving cost and schedule
predictability.

CHANGE AND COST AND SCHEDULE PREDICTABILITY

Change is a broad topic and can be found everywhere. Individuals and
organizations experience and react to change all the time. In industry,
changing consumer behaviors or environmental conditions change market
conditions. Changing market conditions changes product development.
Changing product development changes asset development. Capital
projects are then used to change or add to these assets. Within capital
projects, change also occurs. These types of changes are considered
FIGURE 1 Influence Curve [1, p. 226] “an alteration or variation to a scope of work and/or the schedule for
completing the work.” [3, p. 23] It is within this space that organizations
Before embarking on this journey of preventing change to improve should implement measures that prevent change. For an owner
cost and schedule predictability for the project life cycle, it is highly organization, three specific changes should be eliminated, which include:
recommended that the audience read the case study provided in the
appendix. This case study provides the audience with numerous examples • Scope changes where there is a change in design intent, resulting in a
of changes that occur during a project’s execution. All of these changes difference in asset capability and utility.
identified in the case study could have been prevented. This article will
present recommended practices that support the prevention of change.
1
The cost expenditure profile in the influence curve (fig. 1) can also be considered
Note: In some circumstances, similar approaches, methodologies, the cost of change.
and techniques identified within this article can be used in different 2
For this article, the owner is considered the entity, public body, or authority that
industries of the project delivery world (as warranted). However, this owns the physical asset. This may include operating the asset and managing the
asset life cycle and, subsequently, the project life cycles within the capital projects
article’s discussion points and examples focus on projects the owner
program. The owner is considered the end user of the product or service created by
executes2 in the process industry. the project. In some circumstances, the owner may also be called the “client.”

MAY/J U N E 2 02 4 35
• Late design changes where the change
was made after the authorization of capital
funds, where the original objectives were
unchanged.
• Major change(s) where the price of the
change surpasses the industry or company
recommended threshold (i.e., the price of 2
percent or more of the project value and/or
one month of the scheduled timeline). For
example, a $50.00 MM project cannot have
a single change greater than $1.00 MM.

Preventing change would also positively

improve cost and schedule predictability.
Improved predictability, which can be expressed
as accuracy, would reduce uncertainty, and
ultimately influence the project’s outcome. A FIGURE 3 The Compound Effects of Preventive Measures
compound effect will also occur by introducing
multiple preventive measures, where the results
of one preventive measure build off a preceding preventive measure. If them on budget. Also, the survey stated that 44% of the participants who
all suggested measures identified in this article are implemented, the delivered projects met their original goal and business intent. In summary,
organization significantly increases its chances of project success. On only 19% of the organizations surveyed had delivered a successful project
the other hand, by not implementing any preventive measures, the that met all three metrics.
organization will continue to go down the path of failure. Figure 3 Organizations must understand the factors that inhibit success in
demonstrates the opportunity for success based on implementing increasing these numbers beyond 19%, improving project delivery, and
preventive measures. preventing change. Depending on the position of the project participants,
By introducing preventive measures, an organization increases its defining a failed project may be different. For instance, engineering firms
opportunities for success. However, the path to success or failure depends or constructors may deem the project successful because they have met
on the organization’s effort and results. their safety, quality, cost, and time metrics. On the other hand, owner
organizations would judge the project’s success based on additional
THE BENEFITS OF PREVENTING CHANGE AND IMPROVING metrics, including meeting the desired design intent (utility) and operating
COST AND SCHEDULE PREDICTABILITY cost parameters. Without alignment of the definition of project failure,
A clearer understanding of the project life cycle, the concept of preventing project participants may have opposing views, which could ultimately
change, and improving predictability can lead to several benefits. While negatively affect the owner organization. For example, an engineering
all these benefits will be discussed in greater detail in this article, the firm may cut equipment costs by introducing cheaper pumps and motors.
following three key benefits are identified. While this choice may not impact the design intent, it would affect the
Preventing change: working capital and cash flow over time as asset reliability decreases while
maintenance costs increase.
• Promotes effective project life cycle management that supports In determining project failure, organizations need to identify the
attaining the desired achievements, results, and outcomes. This factors that contributed to overspending, schedule delays, or failure to
allows the owner’s project team3 (OPT) to achieve business objectives, meet the design intent. Figure 4 illustrates many of these factors.
maximize the ROI of project initiatives, and provide a continuous way In some circumstances, organizations may identify other contributing
to realize the value of its projects. factors that inhibit success. Once the factors are identified, the
• Builds better operability, performance, quality, and safety into organization can classify them based on characteristics and similarities,
the project and operational environment. This can improve asset as illustrated in Table 1. These categories, identified as themes5, classified
reliability and energy performance, etc. while improving the utility of the factors by enterprise, scope, risk, and delivery definition. Supporting
the facility (i.e., production). improvement interventions (prevention strategies) are also assigned to
• Enhances capital planning, working capital, and cash flow each theme. For example, the improvement interventions identified to
utilization. This allows the organization to improve cash flow support enterprise definition include organizational capabilities and
utilization as less money would be required to execute the projects. TCM maturity.
This would also improve the best-fit/best-value perspective that would
minimize operational expenses. 3
The owner project team (OPT) is considered a team member that is employed by
the owner organization or is a consultant hired to manage the project (who acts
as an agent on behalf of the owner). The owners project team does not include the
design consultants nor the constructors.

Prevention of Change 4
https://project-management.com/top-10-main-causes-of-project-failure/#stats
Feb 12th, 2022
According to a 2019 KPMG, AIPM, and IPMA global survey4, 30% of the 5
The classification of these themes represents the results of investigations completed
organizations surveyed delivered their projects on time, and 36% delivered by the author. Others may determine different themes based on their experiences.

36 M AY/J U N E 2024
 FACTOR PREVENTION STRATEGIES
Ineffective enterprise management and oversight Organizational Capabilities
Ineffective decision-making/approval policies Organizational Capabilities
ENTERPRISE
DEFINITION

Inadequate communications Organizational Capabilities

No governance (QA) or auditing processes, etc. Organizational Capabilities
Inadequate TCM Maturity (SAM & Project Controls) TCM Maturity
Inexperienced management teams; lack of skilled professionals TCM Maturity
Poor stage-gating & FEL planning Stage Gating
Lacks essential characteristics, which include feedstock, products, yield Stage Gating
SCOPE DEFINITION

Mis-use of checkpoints and misalignment of deliverables Stage Gating

Poor or insufficient scope definition Stage Gating
Insufficient/late design Stage Gating
Inadequate site definition, unanticipated soil conditions/terrain Stage Gating
Addition of major scope/late changes Stage Gating
Inadequate VIP policy/program VIPs
Mis-use/misunderstanding of VIPs VIPs
Lack of planning and baseline development Estimate/Schedule Methodologies
Lack of engineering maturity (for estimating/scheduling accuracy) Estimate/Schedule Methodologies
RISK DEFINITION

Insufficient/inaccurate/over-optimistic estimating and scheduling Estimate/Schedule Methodologies

Poor contingency/escalation modeling Estimate/Schedule Methodologies
Inadequate risk management policy Risk Management
Poor risk identification, management, and response strategy Risk Management
Poor estimate/schedule validation Benchmarking/Lessons Learned
Lack of benchmarking capabilities & lessons learned Benchmarking/Lessons Learned
Inadequate decision-making for determining project delivery Project Delivery Models
Ambiguous project delivery; wrong project delivery type Project Delivery Models
Absence of a project delivery strategy Project Delivery Models
Inadequate 3rd Party Risk Mgmt./Lack of qualified contractors Contracting Strategies
Overcomplex contracts/ambiguous contract terms Contracting Strategies
Wrong contract type/inexperienced contract team Contracting Strategies
DELIVERY DEFINITION

Inadequate funding strategy Funding & Finance Strategy

Inadequate FOREX planning Funding & Finance Strategy
Imposed cash constraints and delayed payments Funding & Finance Strategy
Unclear project roles/authority/accountability Project Team Development & Oversight
Absence of business and operations engagement Project Team Development & Oversight
Lack of qualified resources; wrong people, and wrong roles Project Team Development & Oversight
Ineffective project management and oversight Project Team Development & Oversight
Ineffective project decision-making process Project Team Development & Oversight
Lack of project control planning Project Team Development & Oversight
Weak/poor project controls (cost and schedule) Project Controls Planning & Oversight
Poor/infrequent reporting Project Controls Planning & Oversight

TABLE 1 Prevention Strategies by Classification

MAY/J U N E 2 02 4 37
 success, they set the tone for
administering the project(s) within
the organization. By ignoring
these practices, organizations
can introduce systemic risks,
considered “uncertainties that are
an artifact of an industry, company
or project systems, culture, strategy,
complexity, technology, or similar
over-arching characteristics.” [3, p.
108] These enabling practices are
introduced to define the cultural,
leadership, and accountability
qualities that promote the positive
behaviors required for project
success. For the other prevention
strategies, the primary prevention
strategy aims to prevent change
before it ever occurs, while the
secondary prevention strategy aims
to reduce the impact of change
that may occur. Finally, the tertiary
prevention strategy aims to soften
FIGURE 4 Factors of Project Failures the impact of ongoing execution
issues that may have lasting effects. These prevention
strategies can be considered barriers that minimize or
eliminate the factors that cause project failure. A decision tree
analysis (Appendix 2: Project Failure Fishbone Diagram) was
completed to assess and organize the factors and prevention
strategies.
Everyone within the organization can assist in preventing
change and, subsequently, project failure. Project failure is
eliminated by learning and identifying the warning signs and
being resilient in applying the appropriate measures. This
also includes a commitment by both the executive and project
teams that preventing change is a priority. The prevention
strategies and improvement interventions are discussed in
greater detail in the following sections of this paper.

THE ENTERPRISE AND ENABLING PRACTICES

FIGURE 5 Themes and Prevention Strategies and Improvement Interventions Most owner organizations are very good at managing their
respective businesses. They deeply understand the market(s)
Table 1 shows the results of assigning prevention strategies and they are involved in, from competitors to products to R&D, to name a
improvement interventions to project failure factors, as identified in Figure 4. few. These owner organizations’ primary goal is to manage day-to-day
The prevention strategies6 identified in the table include a wide range operations, not projects.
of interventions and approaches that can be prioritized based on how Therefore, it is suggested that before introducing any strategies to
each one influences the project in preventing change to reduce threats improve the project life cycle, organizations must look from within and
to the health of the project life cycle. For instance, scope definition is assess their capabilities to execute projects. The first capabilities required
considered a primary prevention strategy. Scope definition is the “division to be evaluated by the organization are the enabling practices, including
of the major deliverables into smaller, more manageable components to organizational capabilities and total cost management (TCM) maturity. As
1) improve the accuracy of cost, time, and resource estimates; 2) define discussed earlier, enabling practices are vital for ensuring project success.
a baseline for performance measurement and control; and 3) facilitate The statement that an organization should self-reflect is not made to
clear responsibility assignments.” [3, p. 91] Without the required maturity offend, discredit, or discount organizations and their leadership but to
of scope definition, a residual impact on the secondary strategy and its
interventions will occur. Similarly, if the secondary prevention strategy,
risk definition, lacks maturity, a residual effect on the tertiary strategy 6
The strategies as listed table 1 are based on numerous studies and improvements
would occur. initiatives conducted with both external consultants and in-house subject matter
experts. It is recommended outside consultants be engaged to provide the necessary
Enabling practices are identified as the first contributor to preventing
direction if an organization decides to implement corrective actions to improve
change. While these practices do not directly influence project project delivery.

38 M AY/J U N E 2024
ensure that the basis for implementing improvement strategies is established. encourage it. The leadership, through their actions and behaviors,
Many organizations execute projects effectively and efficiently. One thing determines which path the project team takes.
is for sure: This didn’t happen overnight, and one can assume that these • Expertise is another capability where the appropriate level of
organizations took a similar journey that will be discussed in this article. executive proficiency is required to implement and manage project
delivery. While it is not expected that the executive will have the
Organizational Capabilities expertise to execute projects firsthand, they should have the expertise
The organizational capabilities identified in Figure 6 enable organizations to understand the type of people and the best methodologies
to maximize their performance in project delivery. Organizational required to execute the project. Specifically, executives must
capabilities are the intangible, strategic capabilities an organization draws demonstrate proficiency and understanding of project probability,
from to execute projects efficiently to support its business objectives. uncertainty, and risk.
For an organization to improve its project delivery system, it must first • Governance provides the organization with the foundation to
demonstrate that it has the required leadership, culture, expertise, and ensure compliance with its policies, procedures, and processes.
governance to administer and manage the execution of a project or a suite The governance capability also identifies the assigned spending
of projects. The strength and alignment of these capabilities potentially authorities, accountabilities, and responsibilities to ensure that the
define an organization’s ability to differentiate itself from its competitors. delivery of its project(s) is being realized.

If an organization lacks maturity in any of the capabilities listed above,

it is recommended to improve these capabilities before improving its
project delivery system. If the organization does not desire to enhance its
internal capabilities, it should secure a consultant to provide the expertise
where shortcomings are identified.

Total Cost Management (TCM) Maturity

To ensure the organization has the required domain knowledge in cost
management, it must assess its capability in TCM. This assessment would
provide the organization with an understanding of its TCM maturity and
identify any gaps and deficiencies. The assessment would then outline
where necessary improvements are required. The TCM maturity assessment
should be considered an objective assessment that allows organizations to
compare their efforts against industry standards, best practices, and cultural
norms. The basis used by the author for assessing an organization’s total
cost management maturity was AACE’s TCM Framework.
AACE developed the TCM Framework as a guideline for the “systematic
FIGURE 6 Project Delivery Capabilities Required by the Leadership [4, p. 289] approach to managing cost throughout any enterprise, program, facility,
project, product, or service life cycle. This is accomplished by applying
While the organization is expected to demonstrate these capabilities at cost engineering and cost management principles, proven methodologies,
the enterprise level, it must also be able to demonstrate these capabilities and the latest technology to support the management process.” [2, p. 27]
specific to project delivery. As stated, the focus of all owner organizations The TCM Framework is built around the development of strategic asset
is on operations; therefore, project delivery and the support required to management (SAM) (i.e., the development of capital assets). The TCM
execute these projects are usually less mature or neglected. The following Framework also describes cost engineering and project control principles
points further explain the elements of the enterprise capabilities required nested within the SAM process.
to execute projects within the organization. The sub-processes and associated elements provided in the TCM
Framework create the foundation for assessing the maturity of the
• Leadership should be considered the driving force allowing organization’s capabilities around total cost management. Table 2
subsequent principles to evolve and mature. Leadership drives represents an example of a TCM maturity assessment previously
culture, expertise, and governance. This allows the organization developed and used by the author. “The TCM maturity assessment
to maximize the full benefits of implementing the project life cycle substantiates the technical adherence to AACE’s Total Cost Management
requirements, which provides the necessary awareness and alignment and provides the organization with an effective tool for developing
between the executive and the project teams. To provide the or enhancing cost engineering and project controls systems (people,
appropriate leadership, organizations need to understand the project processes, and tools).” [5, p. 1]
life cycle, total cost management, and how to deliver the project. When introduced, organizational capabilities and total cost
• Culture is required to complement and support the business management maturity provide effective governance, management, and
objectives and strategy to ensure the success of developing and oversight of the project life cycle. It also enhances an effective enterprise
executing projects. Culture drives adherence to the objectives decision-making process and communication approach with appropriate
required to support teamwork, accountability, and compliance. An levels of governance and auditing processes. Finally, it provides a
organization that allows project teams (or members of its executive) consistent methodology for asset planning and executing projects. Once
to cheat or game the system will only survive for so long. Projects the organizational capabilities and TCM practices are in place, the
are too complex and dynamic to take a brazen or relaxed approach. organization can introduce improvement strategies to support the project
The culture of an organization can either eliminate this approach or life cycle.

MAY/J U N E 2 02 4 39
TABLE 2 CEMM Scorecard [5, p. 34]

PRIMARY PREVENTION: SCOPE DEFINITION After completing each stage, the project life cycle (PLC) estimate, the
Primary prevention aims to prevent a change’s impact before it occurs. business case, the risk assessment, technical deliverables, project viability,
This prevention is done by eliminating exposures to hazards (factors) that etc., are assessed. When verifying project viability, part of this assessment
cause disruption or damage to the project, altering unhealthy or risky is to ensure that the project meets the business intent, also known as
behaviors, and increasing due diligence and governance to minimize utility. Two main circumstances within the stage-gate process assist the
exposure if it occurs. Primary preventive measures include the stage-gate organization in determining the utility of a facility: the final product(s)
process and value-improving practices (VIPs). and the feedstock required to accomplish this. The stage-gate process also
assures that technical quality and expectations are being met. If approved,
The Stage-Gate the stage is closed, and a hand-off of all the deliverables and achievements
The project life cycle, as described earlier, identifies a methodology that of the project is passed on as the starting point for the next stage to begin.
advances the development and execution of a project in a systematic One final measure that a stage-gating process can achieve is eliminating
approach. This methodology can be further refined by introducing a stage- projects that do not meet the business intent. This ensures that capital
gate process. The stage-gate process introduces a greater level of maturity, funds are being spent on the right projects that offer the most opportunity
which assists the project team in planning and defining the scope of work and to enhance the organization’s revenues, working capital, and cash flow.
refining project information. The stage-gate process also supports a go/no-go Preventing change is as much about preventing a bad project from being
decision-making process as the project moves from one stage to another. executed as it is about preventing change within a project. Figure 7
The conceptual design phase of the stage-gating process is segregated illustrates a typical stage-gate arrow for the process industry.
by front-end loading (FEL) stages (i.e., FEL 1 = stage 1, FEL 2 = stage 2, Over the last 25 years, organizations have completed studies
FEL 3 = stage 3). The front-end loading stages are considered the ideation that support the need to introduce a stage-gating process for project
and planning aspects of the project life cycle, where FEL practices can execution. One such study, completed by IPA (Independent Project
mitigate cost and schedule impacts/failures. Ultimately, inadequate FEL Analysis), recognized that companies introducing a mature FEL of the
planning and development can negatively impact the project. Stage 4 is stage-gating process would decrease the project’s overall cost and cycle
identified as the execution stage of the stage-gating process, where detailed time. The following graphs, Figure 8, illustrate their findings in relation
engineering, procurement, and construction activities are performed. to FEL maturity.
Commissioning and start-up activities are performed in stage 5.

40 M AY/J U N E 2024
 the process industry, it is recommended that optioneering
efforts be completed in FEL 2. For example (in reference
to the case study), the OPT finalized the primary and
secondary treatment designs of a wastewater treatment
plant (WWTP) project, where all FEL engineering
deliverables were completed, and the AFE (authorization
for expenditure) was approved. However, as the project
team completed the detailed design of the facilities, it
was determined that it would be beneficial to introduce
tertiary treatment processes and methods. Introducing
this option during the detailed engineering phase would
be highly disruptive and costly. This option, while
beneficial in terms of product throughput, would be
disastrous as it would inhibit the team from completing
the project on time and on budget.

FIGURE 7 Example of a Stage-Gating Arrow [6, p. 24] Value Improving Practices (VIPs)
Another key attribute to preventing change is introducing
value-improving practices
(VIPs) into the project’s
development. VIPs improve the
overall effectiveness of the use
of capital dollars. This approach
also includes activities and
techniques that improve the
design by introducing strategies
that reduce cost and improve the
project’s quality, constructability,
and operability. The following
list is one example of VIPs
recommended for projects
executed in the process industry.
FIGURE 8 FEL [6, p. 24]

• Technology Selection – A formal, systematic process to search

As the project moves through the FEL stages within the stage-gate for process technology outside the existing business that might be
process, the state of the project is continually improved. As a result, the superior to that currently anticipated for the site.
project moves from its original state to a new state, as exemplified in the • Classes of Facility Quality—Establishing the characteristics of
case study. This progression may lead to sporadic changes to the project’s the plant or facility needed to meet business goals. Setting criteria
design and outcome. While these changes are warranted during the for facility capacity, reliability, process flexibility, expandability,
conceptual stage to maximize operational efficiency while minimizing automation, expected stream factor, production rate changes over
operational expense (without diminishing the design intent), change time, product quality, and facility life.
should be minimized during the execution phase as these changes are • Design to Capacity – An assessment of the operating capacity,
more disruptive and costly to the project. accumulated safety factors, and the subsequent optimization of the
However, the project team also needs to be prudent in its approach production process.
when using the stage-gate process during the conceptual design stage. For • Process Reliability Modeling – Computer simulation to determine
example, a project team may identify multiple options to be explored to the optimum relationships between maximum production rates and
achieve the desired results of a project. Optioneering is a term used to design and operational factors. Assists in achieving design capacity.
identify engineered alternatives and determine the best option to move the • Process Simplification – Analysis of process streams to eliminate or
project forward. This approach is dependent on the priorities identified combine chemical or physical process steps.
by stakeholders participating in the execution of the asset. “It is often • Waste Minimization – A process stream-by-stream analysis is made
necessary to make decisions between equally good alternatives as well as to eliminate or reduce each non-useful stream. This analysis is made
needing to satisfy various competing objectives. If none of the alternatives before the project scope is firm. The hierarchy of eliminating or
satisfies all the objectives and specifications, the decision-maker has to reducing waste is prevention, recycle/reuse, reduction, and treatment.
select the best way forward based upon compromise and selection.” [7, p. • Customized Standards and Specifications – A structured
168] By completing an options assessment, the OPT can solidify the scope evaluation of the project’s needs and a selection of standards and
definition and design of the project, minimizing any changes. specifications that optimally meet those needs.
While this option assessment is crucial in determining the appropriate • Predictive Maintenance – An approach to maintaining facilities
design, when this option is identified and finalized, it is also important. In where equipment is monitored and repairs made before failure.

MAY/J U N E 2 02 4 41
 Predictive maintenance uses sensor and instrumentation technology story and focused on the reductions. A change order was submitted and
advances to monitor characteristics, such as heat, lubrication, approved. Unfortunately, the project team focused on the cost savings
vibration, cracking, noise, and the presence of corrosion products. that the value engineering exercise provided while never understanding
• Energy Optimization Modeling – The evaluation and determination the total impact of this exercise. It was later identified that the changes in
of the most efficient and economical use of energy to produce the envelope design of the elevated platform would reduce the ambient
required products. temperatures. To offset the reduction of the temperature change, the
• 3D CAD—The use of three-dimensional computer-aided design (3D engineering team was required to thicken the floor slab. This requirement
CAD) during Front-End Loading and detailed design. increased the size of pedestals, the piers, caps, and the associated grade
• Value Engineering – An assessment of the preliminary design to beams and piling. Ultimately, the value-engineered savings added $1.5 MM
eliminate process and equipment redundancies and streamline the in costs for each platform, for a total cost increase of $22.5 MM.
previously defined scope of work. Value engineering is a critical process that plays a vital role in the
• Constructability – The optimal use of construction knowledge and development and execution of the project. However, as the reader can see,
expertise in planning, designing, procuring, and installing the facility if not used properly, the process can have a negative effect on the outcome
to achieve overall project objectives. of the project. Value engineering is one example where this VIP should not
be confused with the change management process.
Organizations introducing new technologies need to be extremely VIPs complement the FEL process. However, without good front-end
diligent, as this can inhibit the design and execution as there can be many development, VIPs cannot add to the value of improving costs, schedule,
unknowns. One final consideration is the completion of constructability and asset utility. The other aspect is that the stage-gate process and VIPs
reviews. While other VIPs affect the design, constructability adds “early improve the asset life cycle and its operability. What the project team
detailed construction planning to support optimization of construction delivers and hands over to operations will determine if the project can be
sequencing and the development of the schedule. The goal is also to deemed a success or not. Figure 10 illustrates the impact that can occur
consider field operations and construction means and methods in the on the operations of an asset if the design is inadequate. The inadequate
engineering and design process.” [3, p. 28] design will only increase the costs, performance, and reliability of the asset.
Figure 9 illustrates the timing of the VIPs during the project phases. Therefore, the stage-gate and supporting VIPs must introduce measures
By completing these activities when required, the OPT can influence the that improve the project and the asset life cycle.
project’s design, construction, and operability while reducing rework and The introduction of stage-gating and VIPs provides the crucial elements
minimizing change. necessary for project success. These elements introduce appropriate
checkpoints and align the development of the deliverables. It also provides
the basic project characteristics, site definition, soil conditions, the
standardization and specifications for design, and a focus on technical
detail. Finally, these elements promote proper planning and scope
definition, eliminating inferior technology selection/optimization and
minimizing insufficient design.
To ensure project success, project teams must maintain the required
rigor in implementing and using these elements. For example, the
author has seen that some organizations have fast-tracked their projects
by bypassing (or overlapping) stages within the stage-gate process.
Unfortunately, by doing so, this introduced change and eroded cost and
schedule performance and predictability.

SECONDARY PREVENTION: RISK DEFINITION

Secondary prevention, identified as risk definition, aims to reduce any
disruption or damage to the project by introducing appropriate risk
FIGURE 9 Timing for the Application of Value Improving Practice [8, p. 15]

While Figure 9 illustrates the timing and

sequencing of when to complete the VIPs, the
project team needs to be careful not to confuse
the use and application of some of the VIPs
identified. For instance, the author has seen
some organizations improperly use value
engineering. In one occurrence, a contractor
was completing the building envelope for an
elevated platform for the new construction of
an LRT line. The contractor completed a value
engineering exercise where they could reduce
the costs of the envelop materials by $200,000
per station for a total savings of $3 MM.
The project team applauded the good-news FIGURE 10 Impact of Undefined Requirements

42 M AY/J U N E 2024
 classification matrix identifies
each classification’s primary and
secondary characteristics. As the
project definition deliverables
mature, the estimates move
from qualitative to quantitative.
Investing in attaining the
appropriate level of maturity
within each stage minimizes the
amount of change and promotes
cost certainty.
AACE’s RP 18R-97 also
provides a maturity matrix
of “estimate input information
(deliverables) against the five
estimate classification levels. This
is a checklist of basic deliverables
found in common practice in the
TABLE 3 Cost Estimate Classification Matrix for Process Industries7 [9, p. 3] process indicator.” [9, p. 12] The
matrix also defines the required
measures based on the project estimate and schedule. Once complete, level of completion for each deliverable within each estimate class.
the risk assessment, estimate, and schedule can be validated using past To increase the maturity of the estimate class, the quality and sequence
benchmarking (and historical) data and lessons learned. of the key engineering deliverables are required, as “each stage yields one
or more deliverables or outputs that become resources or inputs for the
Estimating following stage.” [1, p. 39] The following diagram, Figure 11, illustrates when
The stage-gate process also identifies when the necessary estimates and the key engineering deliverables must be completed. These deliverables are
budgets are required to be developed. At the completion of each stage (and aligned with the stage-gating process. The timing and sequence of these key
before starting the next stage), an estimate and budget are required for the engineering deliverables assist the project team in progressively developing
next stage’s work activities as well as the perceived total costs of the project. the engineered products to mature the design, minimizing rework and
For example, as provided in the WWTP case study, the approved budget the need for change. Conversely, without ensuring the correctness and
for developing the deliverables for FEL 1 was $307,250. At the end of FEL completeness of these deliverables at the appropriate time, the project would
1, the project team provided the business case to develop the 7,600,000 be in jeopardy of introducing change (and cost and schedule impacts). For
M3PD facility with a budget cost estimate (Class 5) of $1.088 BN. example, if a key engineering deliverable is altered after completion, a ripple
To enhance the estimating approach within the stage-gate process, effect of changes can occur to any downstream deliverables.
organizations, and project teams should introduce AACE International’s
estimate classification system. “The cost estimate classification system
provides a guideline for applying the general principles of the estimate
classification to project cost estimates. The cost estimate classification
system maps the phases and stages of project cost estimating together
with a generic project scope definition maturity and quality matrix.” [9,
p. 1] This matrix supports an understanding of estimate accuracy (and
confidence) as the deliverables mature from one stage to another. These
values are “typical” and accuracy is best based on the uncertainty (risk)
in the specific project. Figure 7 (page 12) illustrates AACE’s estimating
classes (in red font) that are assigned for each stage. Table 3 provides
further understanding of the estimate classes as defined in RP 18R-
97, Cost Estimate Classification System – As Applied in Engineering,
Procurement, and Construction for the Process Industry. The cost estimate

7
AACE International provides a similar classification matrix for the schedule
development: RP 27R-03: Schedule Classification System. The schedule FIGURE 11 Influence of Key Deliverables per Asset Stage [8, p. 15]
classifications define the required engineering definition and “degree of
completeness” needed for schedule development, rather than schedule levels, which
establish the breakdown and amount of detail (levels) required for communication To further ensure that the desired maturity of the estimate is
and reporting. The discussion points in 2.2.1. Estimating can be applied to achieved, the OPT can assess each engineering deliverable using a
scheduling as well. maturity assessment process. “The Maturity Assessment for Engineering
8
For further understanding of engineering deliverable completeness and Deliverables8 is a quantitative assessment that identifies deficiencies,
maturity, please read “Maturity Assessment for Engineering Deliverables” by H. perceived errors, and omissions in the design due to the lack of
Lance Stephenson, CCP FAACE and Peter R. Bredehoeft, Jr. CEP FAACE, AACE
engineering information. The maturity assessment process provides a
Transactions, 2018 EST.2833.
MAY/J U N E 2 02 4 43
grading system, reporting system,
and dashboard for conveying
the maturity of the engineering
documents.” [8, p. 3] The following
illustration, Figure 12, is an example
of the dashboard report. Each
deliverable score is summarized
based on category, where the value
is reflected against the available
points (based on estimate class).
Once the estimate is complete,
the OPT can complete an estimate
review and validation. This estimate
review and validation is a “quality
assurance process, typically
quantitative in nature, to test or
assure that the estimate of cost
meets the project objectives and FIGURE 12 Dashboard Report: Key Project Drivers [8, p. 21]
estimate cost strategy regarding
its appropriateness and purpose
(which may include competitiveness or other organizational strategies be validated to ensure correctness and completeness. The US Government
identified for the estimate. It is also considered a form of benchmarking Accountability Office (GAO) and the US Defense Contract Management
that compares relevant estimate cost, time and/or resource measure to Agency (DCMA) provide literature that supports schedule validation.
those of a selected basis of comparison.” [3, p. 53] By introducing the appropriate measures, the OPT can eliminate the
The progression and advancement of the project through the stage- development of overly optimistic execution schedules. These unrealistic
gating process, complemented with the appropriate estimate (and its schedules introduce inconsistencies in their use, which include projecting
accuracy), assist the project team in determining its required funding. This insufficient (and, in some cases, flawed) resources and level of effort
further supports the organization in assessing the project’s feasibility and requirements, identifying incorrect procurement dates, and misdirection
approving the authorization for expenditure (AFE). Once complete, funds due to inferior critical paths, to name a few. These flaws in the schedule
can be released accordingly for the remaining portion of the project, i.e., can introduce changes to the project.
the execution stage (detailed design, procurement, and construction).
For projects executed within the process industry, AFEs are usually Risk Management
appropriated once the Class 3 estimate is completed, which usually “The goal of risk management10 is to increase the probability that a project
occurs at the end of FEL 39. The Class 3 estimate will also provide the achieves its objectives. In total cost management (TCM), potential
contingency value, which becomes the payment mechanism for approved deviations from plans are all considered potentially adverse to overall
project changes that occur during the execution phase. performance. However, if properly managed, the project team may be able
to capitalize on opportune uncertainties.” [2, p. 197] To properly manage
Scheduling potential deviations and minimize changes, a risk management process
AACE International provides a similar classification matrix for schedule should be applied. The risk management process is iterative, centering on
development, RP 27R-03: Schedule Classification System, which defines steps to identify, analyze, and respond to potential deviations (aka, risk
the required engineering definition and degree of completeness needed events). This process provides four primary outputs, which include 1) risk
for schedule development. This classification matrix also explains the planning, 2) risk assessment, 3) risk treatment, and 4) risk control. To
required maturity level for each class, which increases the confidence be effective, this process should also be applied in conjunction with the
in achieving the interim milestones and desired end date. The following other project control planning processes, such as scope development, cost
schedule classes and their methodologies include the following: estimating, scheduling, and resource planning.
The key in the risk management process that complements change
• Class 5: Top-down planning using high-level milestones and key management is the identification and treatment of risk events. A risk
project events.
• Class 4: Top-down planning using high-level milestones and key
project events, semi-detailed. 9
Depending on an organization’s business model, there may be some circumstances
• Class 3: Package top-down planning using key events, semi-detailed. where an AFE of a project may be appropriated once the FEL 2 or a Class 4
estimate has been completed. This would include projects that are simple, where
• Class 2: Bottom-up planning, detailed.
criticality, sensitivity, and risks are minimal, and where the project team is familiar
• Class 1: Bottom-up planning, detailed. with the technology and is experienced in delivering these types of projects. It
must be noted that it is recommended that the project team completes the FEL
To support the approval of the AFE, the owner should submit a Class 3 deliverables and the maturing of the scope of work to minimize changes to the
project. In other circumstances, organizations may require that a Class 2 estimate
3 schedule. This schedule should be cost-loaded and logic-driven, using
be completed to authorize the project. Usually, a Class 2 estimate can be completed
relationships that support the overall accurate representation of the project’s once IFB (Issued for Bid) drawings have been released to the constructor.
execution. The amount of detail should define, at minimum, the work 10
For further understanding of risk management, please read the recommended
package level to determine the execution path. The schedule should also practices developed by AACE International.

44 M AY/J U N E 2024
register is populated with all the risks identified, regardless of disposition. • Pursue the facts by determining what happened, regardless of the
Once these risk events are identified, the project team can determine outcome (positive or negative) that has occurred.
the required treatment. Depending on the approach cited in the risk • Reflect on the experience. This reflection includes validating the facts
management plan, risk treatment may include the assignment of and providing supporting information, including what went well and
contingency funds. what didn’t go well.
“Contingency is an amount added to an estimate (of cost, time, or other • Conduct an analysis. Identify the variance from the plan and
planned resource) to allow for items, conditions, or events for which the determine the learning point.
state, occurrence, and/or effect is uncertain and that experience shows will • Recommend solutions to avoid repeating a similar event or situation.
likely result, in the aggregate, in additional cost.” [2, p. 206] Contingency • Document and communicate the lesson learned, including the
funds are included as part of the project life cycle costs, which support any finding(s) and the proposed solution(s).
changes for known unknown events (known as these risks are identified • Review any appropriate lessons learned before asset selection and
on the risk register but unknown if the risk will come to fruition). Simply project development. Then, introduce applicable measures that
put, if a risk management process is incorrectly implemented and optimize maintainability, reliability, and operability.
managed, the project will not have the required contingency funds to
support the project. TERTIARY PREVENTION: DELIVERY DEFINITION
Tertiary prevention continues to reduce any disruption or damage to the
Benchmarking and Lessons Learned project by introducing appropriate project delivery models and contract
“Project investigations and lessons learned through collaborative types. This prevention also includes awareness of specific attributes
organizations such as Independent Project Analysis, Inc. (IPA), and within the project management domain. Tertiary prevention techniques
Construction Industry Institute (CII) have shown that there are will assist the OPT in managing short-term, often-complex project issues
numerous causes of project failure.” [10, p. 3] To minimize these failures, (e.g., chronic project issues and delivery impairments). These prevention
organizations must manage their operations and capital project delivery techniques will also improve the OPT’s ability to meet the required
systems to drive improved cost and schedule effectiveness. This effort functionality, quality, and delivery expectations.
requires companies to improve their understanding of cost, schedule,
risk drivers, and behaviors through historical data collection, analysis, Project Delivery Models
and benchmarking.11 Subsequently, benchmarking will result in a more Project delivery models are structured execution approaches (based
competitive project system. As defined by Bain & Company, a leading on the general sequence and timing of activities) that define the parties’
consulting company, companies that introduced and used benchmarking relationships, roles, and responsibilities required to deliver the project.
techniques have realized the following key benefits. [11] Numerous models have been developed to support the execution of
capital projects, which include design-bid-build (DBB), design-build (DB),
• Improved performance. Benchmarking identifies methods of construction management-at-risk (CMAR), public-private partnership (PPP
improving operational efficiency and project design. or P3), and integrated project delivery (IPD). Each type of project delivery
• Understanding of relative cost position. Benchmarking reveals model has its place and time, as its use depends on risk, schedule, cost,
a company’s relative cost position and identifies opportunities for and owner competency. Other considerations include market conditions
improvement. and geography.
• Gain a strategic advantage. Benchmarking helps companies focus Based on these contributing factors, project teams and contractors
on capabilities that are critical to building strategic advantage. are required to have the necessary experience to successfully execute
• Increase the rate of organizational learning. Benchmarking brings the specific project delivery model. This includes understanding the
new ideas into the company and facilitates experience sharing. key features that each project delivery model provides, which consist
of attributes, reasons for use, and disadvantages. For example, Table
Organizations can also use a lessons learned database of past projects 4 identifies the key features of the design-bid-build (DBB) and design-
to identify potential changes and impacts. “A lesson learned is simply build (DB) project delivery models. These key features identify some of
a specific piece of information gained through experience that may the qualities attributed to each model, which can be used to determine
offer an advantage to the future design of a facility and operations of an the appropriate model. For instance, if the project is not constrained on
asset, either by reducing cost and risks or by improving performance time and can be built in a linear fashion, the owner may choose to use
and efficiency. Since the primary goal of the lessons-learned process is the design-bid-build model. On the other hand, if a time constraint is
to establish ongoing improvement, only factual information should be recognized, the owner may choose the design-build model, where work
considered. For instance, a project team that does not comply with a can be completed in parallel.
procedure or process is not considered a lesson learned. When generating Assigning the project delivery model is also dependent on whether the
a lesson learned, the following approach should be considered.” [12, p. 18] project is cost or schedule-driven. Cost-driven projects control cost growth,
ensure the lowest reasonable cost, and manage within the project cash
• Identify and create lessons learned through discovery, innovation, or flow requirements (when constrained)—schedule-driven projects control
opportunity to improve efficiency, costs, quality, and safety of a task, schedule delays and slippage, where the completion of the project is
piece of equipment, or system. highly critical. Schedule-driven projects actively pursue meeting aggressive
targets and early completion dates as warranted. This approach is usually
completed by promoting early design and purchasing long-lead equipment
11
For further understanding of benchmarking, please read “Benchmarking for and materials. In some circumstances, activities are completed in parallel
Competitive Advantage” by H. Lance Stephenson, CCP FAACE and Peter R. to reduce the overall schedule duration.
Bredehoeft, Jr. CEP FAACE, AACE Transactions, 2020 TCMA.3502.

MAY/J U N E 2 02 4 45
 DESIGN-BID-BUILD DESIGN-BUILD
Attributes
Generally, two or more contracts (Architects, Engineers, and Usually, a single point of contact/responsibility is required.
Contractors). Improved scope definition.
Work is completed in a non-concurrent fashion (linear sequence of work). Work is completed in parallel (with overlap from one phase to another).
Improved timeliness of decisions.
Most project risks can be transferred to the design-build team.

Reason to Use
Allows the customer to maintain decision-making and retain total control Construction to provide input during the design process, where
of the project, specifically design. duplication and gaps in scope are identified before construction.
Design specifications and procurement requirements are well-defined. Improved purchasing power.
Potentially a lower cost to bidding. Minimized changes and re-engineering.
The customer has the flexibility to price the project according to their Improved schedule due to early resolution of project issues.
respective requirements. Pre-packaging/portioning of work can allow specific construction
Competitive bidding may lower the cost of the project. activities to start early.
Project focuses on total project delivery allowing for a tighter control to
adhere to scope, budget, and schedule.
Insurance and bonding can be ascertained for the entire scope of the
work.
Disadvantages
High potential of increased cost of the project due to change orders, The customer may lack the proper project oversight and expose the
which the customer is responsible for. organization to risk.
This methodology is the most prone to claims and litigation, which will Subcontractors may be brought into the project late in the process.
affect the final cost. The customer will be required to manage decisions on specifications on
Builders may be brought into the project later in the process. design and quality effectively and efficiently.
Builders may have little or no input into the design or execution of the project.
Design and Builders will only focus on their portion of the scope of work.
This methodology is the longest in delivery.
Additional customer administration costs to manage the design-build
process properly.
The customer’s procurement process must be mature to manage many
contracts.

TABLE 4 Project Delivery Model Attributes [13, p. 10]

Failure to provide a project delivery strategy will affect how the

OPT introduces appropriate planning efforts, such as direct hire versus
third-party contractors. This strategy would also determine whether
these contractors will be union or non-union labor forces. Other efforts
would include modularization and off-site fabrication strategies, affecting
logistics and shipping requirements. Finally, the lack of this effort will
affect the type of contract(s) to be used in conjunction with the project
delivery model.

Contracting Strategies
Another opportunity to prevent change depends on the defined contract
strategy required between the owner and its contractors. AACE defines a
contract as “a legal agreement between two or more parties.” [3, p. 20] It
serves as legal protection for the parties involved in a potential business
deal. Based on the required strategy, there are different types of contracts. FIGURE 13 Contract Risk Allocation [14, p. 320]
Each type of contract determines the rights and duties of both sides, which
also regulates the risks and expenses for the contractor. The graphic further identifies the required percentage of scope
Figure 13 illustrates the contract types and their respective risk (project) definition in relation to the type of contract. Based on the level
allocations. These contract types are considered sub-categories of different of scope definition, the owner and contractor will absorb different levels
contract groups, which include cost-reimbursement, time and material, of risk. It can be expected that an increase in the maturity level of scope
and fixed-price contracts. Different types of contracts may be used definition increases the accuracy range of the estimate and, therefore,
separately or in combination. minimizes risk. For instance, the scope definition of a fixed-price contract
will potentially be greater than 85%. Based on this scope definition, it is
acceptable to use this type of contract, where the contractor will potentially

46 M AY/J U N E 2024
 FIXED PRICE — LUMP SUM CONTRACTS COST REIMBURSABLE CONTRACTS
Attributes
High level of scope definition completed and mature execution plans. Lower level of scope definition completed. Execution plans are still in
Defined breakdown and definition that support payment terms and development.
completion of work. The owner provides governance and direction.
Market conditions favor an FFP approach (i.e., buyer’s market). Timely arrival of owner-supplied drawings and materials.
Assumes vendors will carry 100% of the risk. Market conditions favor a CR approach (i.e., seller’s market).
Assumed customers will potentially carry 100% of the risk.
Reason to Use
Lower risk to the customer. Allows the customer to maintain decision-making and retain total control of
Cost and schedule predictability are known. the project.
Minimal customer supervision is required. Oversight will be limited to The customer has the flexibility to price the project according to their
quality assurance, schedule monitoring, and progress payments. respective requirements.
Improved contractor performance due to assigned expertise (based on Flexibility in dealing with scope issues and subsequent changes.
financial risk, the most experienced personnel are usually assigned to Pre-packaging / portioning of work can allow specific parts of engineering/
the work). construction to start early.
Financial motivation for the contractor to improve profits and reduce
risk by achieving early completion.
Minimum scope changes and cost fluctuations.
Disadvantages
Due to the requirement to award to the lowest responsive and Customers carry most of the risks—increased volume of change orders to
responsible bidder, the selected contractor may try to submit more manage undefined scope.
change extras. Customers will be required to provide more oversight, administration,
Early starts are not possible due to the design and bidding process. expertise, and processes/systems to manage the contractor’s work.
Increased quality issues as the contractor will choose the most cost- Large amounts of contingency could be applied without proper basis or
effective (and quickest solutions). understanding.
Increased technical monitoring and quality assurance and control by Difficulties in evaluating proposals due to estimates being based on rate
the customer. charts. Comparators may not be available.
Expensive bidding process for the contractor, which may introduce Final cost (cost certainty) is unknown based on the undefined scope of work.
difficulties in receiving bids from contractors. There is little to no incentive for the contractor to complete the work early.
The customer will be required to complete a technical and commercial Contractors will be required to add indirect site staff to measure, control,
bid appraisal, which could be an exhaustive effort. and report the work status.
Bidding and appraisal time could take several months to complete. Performance may suffer as a contractor may assign a less experienced team
to complete the work.
There may be excessive use of personnel; the contractor may use the job to
train less experienced personnel.
Potential for biased bidding may not be detected.
TABLE 5 Contract Types [13, p. 11]

carry 100% of the risk. In comparison, the owner will potentially have Finally, this assessment should prevent the contractor from failing to
0% of the risk. Based on this approach and choice of contract, cost understand and comply with its obligations. Therefore, third-party risk
predictability also increased. management techniques and prequalification are critical in understanding
One of the purposes of ensuring that the proper contract type is a contractor’s capabilities and capacities.
allocated is to minimize impacts, disruptions, or claims12 that could Like project delivery models, the owner should understand the key
jeopardize the project’s success. This effort should also eliminate errors features of each contract type to properly assess the capacity and capability
and omissions, ultimately reducing any effects on the project(s). Therefore, of a contractor. Table 5 provides an example of the attributes, reasons for
before entering into a contract, the owner should assess each participant’s use, and the disadvantages of fixed price and cost-plus contracts.
total capabilities and capacities (i.e., 3rd Party Risk Assessment and pre- Assigning contract types is also dependent on the experience of the project
qualification) to ensure that the contractor can manage their work efforts teams, from the owner, project sponsor, and the OPT to the contractors and
and risks. Capacity is the amount of product a contractor or supplier can subcontractors. For instance, an OPT (including a sponsor) with intermediate
produce or execute (can they manage the volume of work). Capability has to low project experience (i.e., capabilities) may only have the ability to
the correct attributes to execute the entire scope of work effectively and manage firm price contracts, as the risks would be too significant to assign
efficiently within its envelope. In addition, the contractors and suppliers personnel with minimal capability to manage cost-reimbursable contracts.
must demonstrate their ability to provide the necessary project experience, This capability of the owner’s team would also be based on the nature of
governance, execution, and control based on their respective skill sets. the project (i.e., level of uncertainty, complexity, and market conditions).
When the OPT determines the project delivery models or contracting
types, many factors must be considered. These factors include whether the
12
A claim is a demand or assertion of rights by one party against another for owner wants a high level of control or influence over the project, using a
damages sustained under the terms of a legally binding contract. Damages might substantial number of their resources to execute the project and whether it
include money, time, or other compensation to make the claimant whole. [3, p. 24]
is considered complex, innovative, or non-standard.
Claims are usually disputed change notices.
MAY/J U N E 2 02 4 47
 Funding Strategy and Cash Flow
“A key aspect of executing a portfolio of projects is determining how it efficiencies, the organization should introduce measures that enhance
will be funded and by who. Some organizations will utilize some portion enterprise and OPT capabilities, cost engineering maturity, and project
of cash on hand, and almost all projects within a portfolio will require controls planning.
supplemental funding from a third party. Therefore, considerations in how Another issue evident in the industry is when organizations change
funding is attained and distributed are necessary. These considerations key personnel within the project team. Studies conducted by IPA,
include the needs of different customers, geographical areas, and project CII, and other consultants have found that project managers and key
priorities, as each aspect may require a blend of different funding types.” personnel turnover introduce change and degrade project performance
[15, p. 27] Securing funding is vital for executing the project. If there are and predictability. Based on these studies, there was an 8~% increase
delays in either receiving the total amount or partial funds, the project (deviation) in costs and a 5~% increase in schedule duration when
could be in jeopardy of being delayed. This delay may force the project personnel changes occurred. Key personnel turnover also minimized
team to partition the work efforts, leading to the mismanagement of the continuity and, in some circumstances, accountability, which led to the
stage-gate process, increased work package deliverables, and promoting addition of major and late changes. Also, the changeout of key personnel
the execution of out-of-sequence activities. The project team deserves to had a more significant effect on the outcome when the project transitioned
build the project with continuity and control. from front-end loading to execution.
Another consideration when determining cash flow is also Owner organizations should ensure that they have the appropriate
understanding the expended cost requirements, such as invoice payments. representation in project controls. Whether this effort is assigned to internal
The terms and conditions around payments are crucial for contractors, who staff or provided by consultants, project control professionals increase the
need to know when they get paid to maximize their respective cash flow chances of maintaining or reducing costs and improving delivery times.
while minimizing debt. Therefore, it is vital to define payment terms and
recognize how they affect cash flow. Some organizations have complex OPT Capabilities
invoicing requirements, which delay payment. “Delaying payment only Other areas of consideration should include the OPT’s capability to execute
adds additional financier costs to the project, whether directly or indirectly. the work, which includes the desired skills and knowledge of project
If a contractor recognizes that the payment terms create a monetary burden, management.14 Within the skills and knowledge domain, the OPT should
they will adjust their bids appropriately and incorporate the extra costs demonstrate competency and reliability to meet the needs of the project and
into the final number. The risk is that this approach would inflate the bid the desired outcomes for success. This competency includes understanding
prices, making the contractor less competitive. Or worse yet, the contractor business and financial maturity and project delivery requirements to
would decide not to bid at all. The lack of bidders will affect the owner overcome any unforeseen or restrictive impacts that could cripple their
organization as there will be a reduced competitive outcome.” [15, p. 22] ability to execute their respective projects. These project teams will also
One final factor to consider is foreign exchange rates. The project need to demonstrate their resolve and fortitude to examine, intercept, and
team would need to introduce a process that supports the reconciliation recover project(s) as they move through the project life cycle. These desired
of exchange rates between the countries involved. This process would skills and knowledge enhance the OPT’s practical problem-solving and
“contractually entail an agreement of specific foreign exchange rates of the decision-making ability. The OPT should be well-versed in the following:
currencies between the buyers and sellers. The system would also identify
whether these rates are floating or pegged exchange rates, cross rates, and • The business intent and strategic value of the project are
direct or indirect quotes.13 All currencies should be converted to the base fundamental. Regardless of what is built, the scope of work and
currency, as identified in the contract.” [15, p. 16] how the project is designed are critical for success. This includes the
project team’s understanding of the objectives and requirements.
Project Team Development & Oversight • Technology and design systems - project management is about
First and foremost, the organization must ensure that the OPT has cross-functional management. Most inefficiencies in project delivery
the necessary support to execute their respective projects. Too many occur within cross-functional interfaces with other disciplines and
times, the author has worked with owner organizations that instituted departments, e.g., engineering and procurement, procurement
restrictions that inhibit project success. For instance, executives from an and construction, engineering and construction, operations to
owner organization expected the project teams to challenge themselves engineering, etc. Project management must understand these
by accepting unrealistic budgets and schedules (i.e., stretch targets). The boundaries and work together to address issues and introduce
executive pressured the project team to reduce the AFE value and then corrective actions.
reprimanded the team for asking for an AFE revision to increase funds • Domain knowledge – the OPT must clearly understand the project
or extend time. What is unfortunate is that these organizations state management techniques and principles and have deep knowledge of
they have a p50 approach, where they expect 50% of the projects to be the project environment, from industry best practices to execution
overrun and 50% to be underrun. Through investigations, it was found strategies. This domain knowledge would also include problem-
that these firms operated within a p90 to p95 tolerance threshold. The solving and recovery planning techniques.
OPT implemented this conscious threshold as they were conditioned to • Team design—The organization must ensure that all areas within
naturally inflate project budgets so that the request for revised AFEs was the business support the execution of the project in a capacity that
eliminated. Unfortunately, this behavior of overestimating the project
resulted in reduced funding for other projects. This approach also
introduced additional financing costs to their existing projects when not 13
Peg exchange rate indicates a specific fixed exchange rate from one country to
warranted. Also, there were findings of money being released back to the another where cross rates refer to currency pairs that does not involve U.S. dollars.
organization at the end of the project when it was realized that the funds 14
On numerous circumstances, the author has witnessed organizations assign
were not needed. To minimize these destructive behaviors and improve personnel to the project who are not qualified in terms of skill and expertise in
project management.
48 M AY/J U N E 2024
 meets the business intent. This
includes assigning essential
functions representing business,
operations, maintenance,
engineering, construction, and
vendors/suppliers. Engagement
and timing are crucial for
effective decision-making
and advancement. Roles
and responsibilities should
be defined, communicated,
understood, and agreed to.

The following list is an example of

functional groups15 that would make
up the OPT. Depending on project
complexity, risk, and size (dollars),
more (or less) project personnel may
be required.

• Project management and

coordination FIGURE 14 The Project Control Process Map [2, p. 53]
• Cost engineers and project
controls a positive outcome for this particular stage. This approach would be
• Supply chain (procurement and contract admins) followed for each subsequent FEL stage within the project life cycle. For
• Engineering (oversight, standardization, process) the execution stage, where exposure to risk and financial impacts is more
• Operations/maintenance significant, the project team should introduce more robust project control
• Business and finance, such as sponsor and financial advisors measures and increase the level of PC effort to ensure success. These
• Professional services, such as legal, HR, labor relations, government project control measures include introducing a project control plan.
relations/liaison “The project controls plan describes specific processes, procedures,
• Health, safety, and environment tools, and systems that guide and support effective project controls. The
plan is a narrative or qualitative representation of the project control
RACI (Responsibility, Accountability, Consult, Inform) charts should process, while the estimate, schedule, and so on represent the quantitative
be developed, communicated, understood, endorsed, and executed as aspects.” [16, p. 1] This plan hinges on the project control process map
written for more complex projects. Success is dependent on trust, and the from AACE’s TCM Framework, as illustrated in Figure 14. AACE has
expectation is that the project team members can be trusted to execute their developed a recommended practice, 60R-10 Developing the Project
respective job roles. When appropriately assigned, the project deliverables Controls Plan, that can be used as a guideline.
reduce project failure. It is reasonable to assume that successful OPTs The project controls plan should also address how project information
demonstrate a higher level of efficiency. This efficiency is demonstrated in will be collected and processed. A systems map that identifies interface
two specific areas, which include the people that the organization employs requirements should also be defined. By introducing a project controls
and the methodologies (processes & tools) that are applied. plan, with proper measurement and assessment, the OPT can ensure
disciplined reporting, improve cost performance, and decrease execution
Project Controls Planning time. A project controls plan also provides more reliable and relevant
“Project control is the management process for controlling the investment information, enhancing decision-making. The project controls plan can
of resources in an asset where the investments are made through the also be used as a checklist to determine project readiness so that the
execution of a project. Project control includes the general steps of 1) organization can proceed with the project’s execution.
Project planning, including establishing project cost and schedule
control baselines; 2) Measuring project performance; 3) Comparing
measurements against the project plans; and 4) Taking corrective,
mitigating, or improvement action as may be determined through Upgrading the Organization:
forecasting and further planning activity.” [3, p. 97]
Project controls can take place within each stage of the stage-gate Roadmap to Implementing
process. For instance, to execute FEL 1 Business Planning (stage 1), a
budget and schedule will be required to be developed, where early design, Improvements
procurement planning, VA/VE, and risk management activities will
occur. These stage deliverables would assist the project team in achieving This article demonstrates the requirements to effectively prevent change
and minimize project failure, subsequently leading to improved cost
and schedule predictability. This article can assist the organization in
15
The list is partially comprised of the work completed by Ed Merrow, Industrial establishing appropriate prevention strategies. Based on this information,
Mega Projects [6, p. 166]
MAY/J U N E 2 02 4 49
the organization ACTIVITIES
can now introduce • Spend analysis (project type, risk • Data quality review • Detailed process design
a project life cycle categorization, etc.) • Process Variation Workshops​ • Finalize target operating model​
improvement strategy. • Diagnostic activities • Draft target operating model​ • Governance, policy and
This improvement ◦ Enabling practices • ​Functional business requirements​ performance management
strategy will allow ◦ Scope definition activities • Change impact assessment​ • ​Technology enablement​
the organization and ◦ Risk definition activities • Determine communication strategy • Change management plan
OPT to improve their ◦ Delivery definition activities • Training plan
understanding and • Interviews/questionnaires
expertise in their • Maturity/activity surveys
• Technology analysis
enterprise and project
• Leadership/visioning session
capabilities.
In addition, this DELIVERABLES
strategy would • Prioritized opportunities​ • Define service(s) delivery model • Global standard process maps
provide the necessary • Preliminary business case recommendations (L4+ process maps, procedures,
technical adherence • Process design (L1) • Process design (L2/L3) work instructions, etc.)
• Implementation plan​ • Transformation roadmap • Technology roadmap
to project life cycle
• Raid Log (Risks, Actions, Issues, • Business case • Defined roles/responsibilities, RACI
practices and provide
Decisions) • Preliminary communications plan & org structure
the organization • RAID Log • Implementation plan (go-live)
with practical tools • Training workshops​
for developing or
enhancing project TABLE 6 Improvement Strategy
delivery systems
(people, processes, and tools) and, subsequently, the
management of the asset. Ultimately, the improvement
strategy aims to prevent change and minimize project failure.
To determine the appropriate approach, the organization will
need to complete the following:

• identify the current project life cycle landscape and

define the future (desired) state
• identify potential opportunities (gap analysis to
introduce continuous improvement or step-change)
• assess the organization’s executive and project team
capacities and capabilities

As a suggestion, the organization may want to break the

efforts into three major phases, as illustrated in Figure 15. FIGURE 16 Best Practice Assessment

FIGURE 15 Improvement Roadmap

For the improvement strategy to be effective, the organization

should define the activities and deliverables that are required to
be executed. These activities and subsequent deliverables should
support a deliberate tactic for achieving the best results. Table FIGURE 17 Influence Potential vs. Ease of Implementation
6 provides examples of some activities and deliverables that
could be used in executing an improvement strategy. prioritizing work efforts. Figure 16 represents an assessment that was
Another consideration is that the organization may want to segregate completed for a previous client.
the improvement efforts by workstream. This segregation further allows The best practice assessment identified which areas would require the
for the work efforts to be focused and optimized. For example, suggested most involvement. It also allowed the improvement team to identify the
workstreams may include the categories identified in Figure 5, which ease of implementation based on the maturity of each area and which
include enterprise, scope, risk, and delivery definition activities. area would have the most significant impact on the organization. Figure 17
Based on previous improvement strategies conducted by the author, illustrates these findings.
a best practice assessment was completed to assist in identifying and While all the areas identified can contribute to preventing change and

50 M AY/J U N E 2024
minimizing project failure, there are specific areas that provide a greater The barriers described in this article provide organizations with
chance of success, hence the categorization of prevention strategies as opportunities to improve organizational issues (leadership, culture,
discussed earlier (i.e., scope definition = primary prevention strategy, etc.). politics), expand oversight and governance, reduce flaws in the processes,
Based on the findings identified in Figure 17, it has been recognized that systems, and tools used, and finally, minimize mistakes and errors. The
stage-gating (light-green dot) would have the greatest impact on preventing prevention of changes and subsequent project failure depends on the
change. However, it is the most complex to introduce into the organization. series of barriers, or defenses, that keep these factors under control.
Another example is project team development and oversight (the red dot). This article has demonstrated a clearer understanding of the project life
While the ease of implementation is less complex, the influence potential is cycle and preventing change. The elements discussed should also assist an
marginally high. The influence potential within this area is considered high organization in improving cost and schedule predictability based on the
as it would promote good judgment and the understanding of cognitive appropriate methods and techniques as defined. This article also presented
biases and improve the OPT’s ability to predict the project outcome(s) better. corrective actions, instituting a tactical approach for improved results. By
Organizations that embark on a similar journey may not experience introducing the recommendations as presented in this article, organizations
the same ease (levels) of implementation. Their maturity levels for each can have a structurally sound approach to preventing change to improve
of the best practice areas may differ from what is illustrated in the graph. cost and schedule predictability within the project life cycle.
However, the influence potential should be very similar. When assessing
the ease of implementation, the improvement team should consider the
following points:
References
• Scope and reach of each area of the improvement strategy (against all
functional processes) 1. K. K. Humphreys, Editor, Jelen’s Cost and Optimization Engineering,
• Level of change required within the organization (continuous 3rd Edition, New York: McGraw-Hill, Inc., 1991.
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improvement strategy) 2nd ed., Morgantown, WV: AACE International, Latest revision.
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the opportunity to introduce effective barriers that would eliminate the (CEMM),” in OWN.802 AACE International Transactions, Annual
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project failure. Figure 18, which is identified as the Swiss cheese model16, 7. D. Holzer, “Optioneering in Collaborative Design Practice,”
represents this approach of using barriers. For our purposes, barriers are International Journal of Architectural Computing, vol. 08, no. 02, pp.
the prevention strategies discussed throughout this article. This approach 165-182, 2009.
is an advantageous way to think about change, project failure, and the 8. H.L. Stephenson CCP FAACE and P. Bredehoeft CEP FAACE,
causes that contribute to this outcome. As illustrated in the diagram, the “Maturity Assessment for Engineering Deliverables,” in AACE
idea of the Swiss cheese model is to investigate and identify the causation Conference and Expo, San Diego, CA, 2018.
of failure or loss. Through improvement strategies, the placement of the 9. AACE International, Recommended Practice No. 18R-97, Cost Estimate
barriers, the position of any weaknesses (holes), and the size of the holes Classification System - As Applied in the Engineering, Procurement,
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10. H.L. Stephenson CCP FAACE and P. Bredehoeft CEP FAACE,
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and Expo, Virtual, 2020.

16
“The Swiss cheese model is used in risk analysis and risk management as the
principle behind layered security, as used in computer security and defense in
depth. It likens human systems to multiple slices of Swiss cheese, stacked side by
side, in which the risk of a threat becoming a reality is mitigated by the differing
layers and types of defenses that are "layered" behind each other. In theory, lapses
and weaknesses in one defense do not allow a risk to materialize since other
defenses also exist to prevent a single point of failure. The model was originally
formally propounded by James T. Reason in 1990. It is sometimes called the
FIGURE 18 Swiss Cheese Model
cumulative act effect.” [20]
MAY/J U N E 2 02 4 51
 11. B. Company, “Benchmarking Management Tools,” [Online]. $889.00 MM budget estimate was validated against historical and bench-
Available: https://www.bain.com/insights/management-tools- marked data of similar projects, including appropriate contingency and
benchmarking/.. [Accessed 2 April 2018]. escalation. In addition, the municipality introduced a stage-gating process
12. H.L. Stephenson CCP FAACE, “Strategic Portfolio Management: Asset as part of its project life cycle management approach.
Management Model,” in AACE Conference and Expo, Virtual, 2021. The project team met its first roadblock during front-end loading (FEL)
13. H.L. Stephenson CCP FAACE, “Pre-qualifying Contractor’s for stage 1, the business planning stage. Of the five proposed sites selected for
Today’s Project Delivery Needs,” in AACE Conference and Expo, New the facility, four were rejected. The city council rejected one site location
Orleans, LA, 2019. as environmentalist groups, and residents attacked the idea of having a
14. D.M. Hastak, PE CCP (Editor), Skills and Knowledge of Cost wastewater treatment plant in their backyard. Another site was rejected
Engineering, 6th Edition, Morgantown, WV: AACE International, 2015. due to an earlier agreement that set strict limits on the plant’s size (no
15. H.L. Stephenson CCP FAACE and R. Gerber, “Strategic Portfolio greater than 3,500,000 M3PD) in that respective area. Two other sites were
Management: Funding & Finance Methodologies,” in AACE rejected due to increased construction and maintenance costs (wetlands
Conference & Expo, Virtual, 2020. in one case and a higher elevation in the other case). To minimize further
16. AACE International, Recommended Practice No. 60R-10, Developing scrutiny, it was then decided to build the new facility on a 300-acre site
the Project Controls Plan, Morgantown: AACE International, Latest beside an existing power plant owned and operated by the same company.
Revision. This decision would allow the power facility to provide electricity to
17. AACE International, Recommended Practice No. RP 100R-19, operate the wastewater plant and eliminate the need for a substation
Contract Change Management – As Applied in Engineering, ($16.50 MM in savings). However, eight miles of intake & discharge
Procurement, and Construction, Morgantown: AACE International, pipelines and pumping stations, at the cost of $215.00 MM, were required.
Latest Revision. At the end of FEL 1, the project team provided the business case to
18. H.L. Stephenson CCP FAACE, “Cost Engineering Maturity Model develop the 7,600,000 M3PD facility with a budget cost estimate (Class 5)
(CEMM),” in AACE Conference and Expo, Anaheim, CA, 2011. of $1.088 BN (a base cost of $725.00 MM with a contingency estimate of
19. Xenon Laboratories Incorporated, “Currency Exchange,” Xenon $362.50 MM). The Class 5 estimate was over the earlier proposed budget
Laboratories Incorporated, [Online]. Available: https://www.xe.com/ estimate by $198.50 MM (18%). The approved budget for developing the
currencycharts/?from=USD&to=CAD&view=1M. [Accessed 17 deliverables for FEL 1 was $307,250 (original budget of $272,250 plus
March 2020]. approved changes of $35,000). The EAC/Actual costs for FEL 1 were
20. Wikipedia, “Swiss Cheese Model,” [Online]. Available: https:// $315,000 (a negative variance of $7,750). The block flow diagrams (BFDs),
en.wikipedia.org/wiki/Swiss_cheese_model. [Accessed 15 February the key engineering deliverable for stage 1, were approved. Subsequently,
2022]. the project met all financial requirements and was approved to move into
the facility planning and scope development stage, FEL 2.
ABOUT THE AUTHOR During FEL 2, the project team stayed true to the design intent
H. Lance Stephenson, CCP FAACE, is with AECOM of 7,600,000 M3PD; however, due to new regulatory and redundancy
and can be contacted by sending an email to: lance. requirements, the physical scope of the wastewater treatment plant went
[email protected] from 2 primary and secondary clarifiers to 4, including the addition of
other key equipment requirements. (the block flow diagrams (BFDs)
were updated and assessed for impact). Soil investigations were also
conducted at the new site location, where evidence of contaminated soil
was found. Finally, due to the addition of the pipeline system, the routing
study identified that boring a tunnel 1.0 mile long, up to 80 feet deep,
would be required. This requirement was due to roadway constraints and
underground obstructions. However, even after recognizing that tunneling
CLICK HERE TO
carried significant risks, it was considered the best feasible option.
View this article At the end of FEL 2, a Class 4 estimate was completed, which indicated
presentation online! that the facility’s price increased to $1.375 BN (a base cost of $1.100 BN
with a contingency estimate of $275.00 MM). The Class 4 estimate was
over the previous Class 5 estimate by $287.50 MM (21%). While the total
installed costs increased significantly from the Class 5 estimate to the
Class 4, the contingency amount decreased. This decrease was because
Appendix the scope of work was further refined, and the engineering deliverables
matured. The project team maintained the original design intent, even
1. CASE STUDY: WASTEWATER TREATMENT PLANT as the physical design changed. The approved budget for developing the
A municipality within a major city approved the request to allocate funds deliverables for FEL 2 was $1.36 MM (Original budget of $1.09 MM plus
to develop a new wastewater treatment plant (WWTP). A preliminary approved changes of $275,000). The EAC/Actual costs were $1.42 MM (a
study was conducted, and it concluded that the municipality should build negative variance of $51,400). The process flow diagrams (PFDs), a key
a new plant for $889 MM (7,600,000 M3PD – meters-cubed per day, wet- engineering deliverable for stage 2, were approved. Again, the project was
weather capacity) rather than expand two existing facilities at the cost of authorized to advance into the project planning and detailed definition
$765.00 MM. The new facility allowed for expansion as demand increased. stage, FEL 3.
A list of 97 locations was identified and scrutinized, of which five (5) During FEL 3, the project team continued with the design intent and
potential sites were short-listed and submitted as part of the study. The physical requirements identified in the previous stages. All optioneering

52 M AY/J U N E 2024
activities were completed during the last stage, so changes to the BFDs part of the facilities during FEL 3, specifically the piping systems, it was
and PFDs were not expected. However, some changes did occur as it was identified in detailed design that more piling would be required for the
identified that the equipment arrangement/layouts within the facility pump foundations. It was found through soil/bore sampling that the
would change from the preliminary design. The changes to the equipment soil conditions were sub-standard for the design. Also, because of the
arrangements increased the piping and electrical requirements (quantities), relocation of the pumps, the static and dynamic head pressure needed to
which increased the material requirements, as well as moved some of the be increased. This relocation subsequently increased the pump capacity,
work below ground (underground work such as piping and electrical duct increasing the foundation sizes.
banks) rather than being built above ground, as first assumed. Also, due It was also identified that the design team would need to work with
to the increase in investigations and studies, FEL 3 required an additional the pump vendor to determine any impact on the fabrication of the
2 ½ months to complete the engineering deliverables. From an execution pumps. Their review indicated that the motor, and subsequently, the shaft
strategy standpoint, the project team elected to use the competitive and bearings, would need to be increased in size. Due to the increase
bid process once the detailed drawings were completed. Construction in motor size, the electrical demand required to operate the pump (i.e.,
companies would provide a firm price bid for all construction activities, increased motor size to accommodate static and dynamic head pressure
including the purchasing of bulks and off-site fabrication. requirements) also increased. The pump vendor also changed the impeller
Once the design and execution strategies were finalized for this stage, pitch to optimize pump efficiencies and minimize electrical demand.
a Class 3 estimate for FEL 3 was completed. The estimate indicated that The electrical engineers validated whether the electrical load could meet
the price of the facility increased by $177.50 MM (11%) from the Class the new requirements and determined that the electrical design would
4 estimate to $1.542 BN (a base cost of $1.340 BN with a contingency be satisfactory. Changes to the MCCs, VFDs, and switchgear were not
estimate of $202.50 MM). The approved budget for developing the required. However, the instrumentation design for the pumps was required
deliverables for FEL 3 was $8.19 MM (original budget of $7.77 MM plus to change due to the new pressure calculations; the new type of special
the approved changes of $425,000). The EAC/actual costs were $8.29 instruments was ordered with negligible cost impact to the project (only
MM (a negative variance of $92,500). The total FEL costs incurred for one vendor manufactured these instruments). The design team was also
front-end development came in at $10.02 MM. While the city was hesitant met with their own performance issues as there were delays in receiving
to proceed with developing the new facility, it was determined that the vendor drawings, etc. These vendor delays were caused by the delay in
urgency to build the new plant became more apparent as it was identified reviewing the technical and commercial requirements of the vendor’s bid
that the sludge digesters at the existing facilities were beginning to fail. A package. Other performance issues were caused by conflicting priorities
total failure would create a catastrophic event. This hesitation also created and the lack of coordination and planning.
another schedule delay of over three months. It was also suggested that Once the design was completed, the project team issued construction
the new WWTP carry the budget for new sludge digesters for the existing drawings (IFC) to a select group of pre-qualified contractors to secure
facility at the cost of $30.00 MM to expedite the purchase; however, this competitive pricing. It was realized that the contractor’s price(s) to
request was rejected. An authorization for expenditure (AFE) was finally construct the facility were much higher than what was estimated during
approved, with an increase of $653.50 MM (42%) from the budget FEL 3. Strategies were discussed as to whether the contract type should
estimate of $889.00 MM. Included in the AFE value was the conceptual change (from firm price to time and material) or the scope of work be
design (FEL 1, 2, & 3) expenses for planning, designing (preliminary), partitioned into multiple contracts, where a project management office
assessing, and validating the need to commit and expend capital funds to would oversee the work. An additional $32.00 MM for introducing a larger
advance its business operations. PMO to manage the contractors would be required. Multiple contractors
With the AFE now approved, the organization was committed to would also increase the coordination of work efforts. It was determined
managing the capital funds of the project, where most of the capital costs, that the original strategy of using one contractor stood; however, the
and subsequently, risks, were applied. Also, with this approval, contingency contract was changed to time & material with a cap, eliminating the
funds were activated for use to manage the commitment of the AFE. contractor’s risks of executing the project (which was thought to be the
After the announcement from city council that the project was driving issue for the increase in pricing). A large, non-union contractor was
approved, business developers and neighboring residents within the area awarded the work.
began to complain about the chosen location of the wastewater treatment During execution, three major events occurred. One, the owner
plant, even though public hearings and communication sessions had decided to overturn its past decision and re-instate the design and
been conducted earlier. To win or at least receive grudging acceptance of construction of the substation to support future electrical demands (this
the new facility, the project team was required to install the nation’s most substation would be erected between the existing power plant facility and
advanced odor-control system ($65.00 MM). The project team also agreed the new wastewater treatment facility). The engineering team scrambled
to pay for parks, trails, ballparks, and other goodies ($80.00 MM) for the to complete the design, and vendors were brought in to expedite the
neighboring jurisdictions near the plant and pipeline system. It was also procured items to minimize delivery impacts. The constructor brought
determined that the sewer bills would pay $15 million for artwork and on additional staff and crews to ensure that the substation would be
$100 million for a new education center. The payment of the additional completed at the same time as the wastewater treatment facility. The price
$115.00 MM would affect the facility’s revenue and, subsequently, the ROI, for designing, procuring, and constructing the substation was $17.40
IRR, and NPV calculations. MM. In the second event, it was also identified that the fabricated steel
During the detailed design of the execution phase, the design team of the scraper blades for the primary and secondary clarifiers was made
completed the engineering activities, and in some cases, identified using inferior material. The stainless steel used was incorrect and would
numerous additions or deletions of design elements to ensure operability, not meet the life expectancy requirements of the equipment. The project
quality, and safety. For example, while the project team decided to relocate team decided to install the fabricated scrapper blades as is. It was decided

MAY/J U N E 2 02 4 53
that the company would ask for the replacement of the scrapper blades,
which would be installed during a scheduled outage (at the vendor’s
expense). This request became contentious as the vendor disagreed with Registration
the additional charges. A claim was filed.
Finally, the third event identified an abandoned pipeline that ran Now Open!
parallel to where the new piping systems and electrical underground
works were required to be installed. The pipeline was part of an old June 16-18, 2024
water system decommissioned 20 years prior but was not identified on Signia by Hilton Atlanta
the construction drawings. As a result, the project team directed the
constructor to remove approximately 300 yards of the existing pipeline to Discounted Early
complete the required scope of work. Unfortunately, this additional scope Registration until
of work also created a schedule delay of 2 months in constructing the new May 14th!
pipeline system.
Other issues came into play. For instance, it was decided that a
berm should be installed between the two facilities as a precautionary
measure to contain any spills and mitigate direct drainage issues. In
other circumstances, the contractor installed the wrong flanges on the
pipe connected to the 12 diameter-inch filtration system. The pipe was
fabricated off-site with raise-faced flanges, but when installing the piping
spools, it was identified that the filter equipment had flat-face flanges. This
issue created rework and additional expenses. Another issue that was LEARN MORE!
identified was the delay in receiving the pipe valves (including control
valves). To complete the piping fit-up and installation, pipefitters fabricated
temporary piping spacers. Unfortunately, instrumentation techs had to
wait to terminate the control valves. On top of this, some scaffolding could
not be dismantled as it was still required to install and terminate the Once the facility was commissioned and turned over to operations,
valves once they arrived. This created inefficiencies for the construction it was also realized after several months of reconfiguring and
teams (stops and starts). debottlenecking that the intended capacity of 7,600,000 M3PD would not
Other delays included the late shipment of the required be met. It was identified that the primary clarifiers could not manage the
instrumentation for the pumps. An earthquake in the Pacific Ocean amount of sedimentation. While the circular primary clarifiers installed
occurred, creating a tsunami that destroyed the instrumentation factory. provided a shorter detention time for settling the sludge, there was a
This event delayed the manufacturing of the specialized instrumentation higher flow distribution head-loss. This additional sedimentation was due
for six months. This delay, however, did not affect the critical path of the to the design and location of the intake station. At the six-month mark of
project but did increase the costs by $200,000. Another issue that came operations, additional screening systems were engineered and installed,
into play was the loss and theft of materials, specifically pipe supports. allowing the facility to reach 7,600,000 M3PD. This additional work was
It was identified that the operations team, who were union employees, completed for a cost of $50.00 MM. Operations requested that these costs
would drive over to the construction laydown site at night, take the pipe be paid for out of the existing AFE and not the operating expense budget.
supports, load them up, and then drive them to the banks of the river and However, the AFE was closed. With the cumulative effect of all the changes
throw them in. The operations team would also puncture thousands of and other project issues, the project’s final costs came in at $2.170 BN.
feet of welding hose. This sabotage led to delays, performance issues, and Today, the facility is running at full capacity; however, it was plagued
increased costs of $25.00 MM as additional craft was required to fabricate with reliability issues, where unwanted shutdowns for replacement and
the supports on sight due to time constraints. In addition, the disgruntled refurbishment of equipment and systems were required. Also, additional
union employees would regularly picket the construction job site, creating water basins and holding tanks were installed to provide enough storage
more delays, inefficiencies, and disruption. Buses were brought in to to maintain supply and demand (due to the unscheduled outages). These
transport craft on and off-site in a safe and secure manner. Even though reliability issues further affected both the ROI and IRR calculations of the
the site was secure, this disruption created craft shortages as some of the project and its operations. Ultimately, retiring the project debt burden will
personnel chose not to work at a site due to the unrest (for example, some take approximately 30 to 35 years of principal and interest payments. It
of the craft’s personal vehicles were vandalized where they were staying). must be noted that the average expected useful life of a new municipal-
As the project neared completion, landscaping activities were being owned wastewater asset is approximately 35 years.
conducted. The operations manager from the adjacent power plant (same Based on this case study, the audience can see that numerous changes
owner) asked the contractor if 150 yards of 1-inch rock could be brought were identified throughout the project’s life, even after it was completed
in to beautify the existing facility and match the new facility since over and turned over to operations. Some of the above changes may not be
1000 yards were already being purchased and put in place for the new considered in-scope changes but rather new, out-of-scope changes. In other
facility. The operations manager also asked if the constructor could install circumstances, some of these changes may be regarded as performance
new concrete housekeeping pads, bollards, and lamp posts at the exiting trends, while others may be considered rework and scope creep. This case
security shack (shared by both facilities) as well as fix the power plant’s study provides numerous examples of how the lack of scope development,
existing fence. project preparedness, and mismanagement can contribute to the influx of
changes incurred on a project.

54 M AY/J U N E 2024
Appendix 2
PROJECT FAILURE FISHBONE DIAGRAM

New Recommended Practice the key risks and feasible alternative configurations, to select
the best alternative. RPs are considered by most practitioners
127R-23: Choosing Among Strategic Alternatives to be good processes that can be relied on and that they would
Using Branching Concepts in Decision Modeling recommend be considered for use where applicable. The RP will
be useful to organizational leaders and decision-makers, project
The purpose of this recommended practice (RP) is to describe risk management, and risk team leaders.
analysis concepts that can be used when important alternative
selection strategies are being developed by senior leaders. These
selections are made well before there is a detailed project plan,
FIND THE NEW RP
schedule, and cost estimate. The RP describes the development
of simplified models to assess alternatives under consideration. CONTRIBUTORS
These models highlight key systemic and project-specific risk
characteristics. They provide clarity, transparency, traceability, and • Keith D. Hornbacher • John K. Hollmann, PE CCP CEP
repeatability consistent with recommended project risk analysis (Primary Contributor) DRMP FAACE Hon. Life
practices. Models are presented here to illustrate two of these • Dr. David T. Hulett, FAACE • Sagar B. Khadka, CCP DRMP
methods, probabilistic branching and conditional branching. (Primary Contributor) PSP FAACE
During the “Select” phase 1 for any significant project, • James E. Arrow, DRMP • Dr. Luis Henrique Martinez
strategic alternatives are being evaluated, and one of the
• Jessica M. Colbert, PRMP PSP • Dr. Dan Melamed, CCP EVP FAACE
main considerations will include the balance of risk driving any
alternative. This recommended practice (RP) addresses decision • Francisco Cruz, PE CCP • Abbas Shakourifar, PSP
modeling using quantified risk analysis methods to conduct an • Larry R. Dysert, CCP CEP DRMP • H. Lance Stephenson, CCP
analysis of alternatives (AoA). The model is simplified to highlight FAACE Hon. Life FAACE Hon. Life

MAY/J U N E 2 02 4 55
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