Risk Assessment
Agenda
Definitions of Risk Assessment
Outline Risk Analysis Process
Outline Risk Mitigation Process
Risk Assessment Status
Risk...
Dictionary defines risk as . . .
possibility of loss or injury;
a dangerous element or factor.
Project risk is defined here as
an unexpected event or
circumstance that has a chance
of occurring and that may
prevent a project from meeting
Project Cost and Uncertainty Over
Time
Most Likely
Cost
Actual
Cost
Most Likely
Cost
Most Likely
Cost
Cost range
Conceptual
Planning
Alternatives
Analysis
Preliminary
Engineering
Final
Design
Bid
Construction
Definition of Project Risk
Types of Risk
Budget Risks:
Event Risks:
Risk that budget elements will deviate from the estimate.
Examples: deviations in unit prices, deviations in quantities.
Risk of internal or external events that force the project team
to work beyond the estimate just to meet the Project Scope.
Examples: Extreme weather, contractor non-performance.
Scope Risks:
Risk of significant changes to project scope due to external
pressures.
Examples: community pressures for changes in alignment or
station location.
Risk Prioritization
Steps in Risk Analysis
Process
1. Validation of Base
Conditions
2. Risk Identification &
Quantification
3. Assessment (Modeling)
6. Implementation/
Monitoring
5. Risk Mitigation
Planning (RMP)
4. Discussion/
Review
Risk Assessment Steps
Risk & Base = Total Project
Costs
Base Costs
LIKELIHOOD
(PROBABILITY)
Total Costs
(Risk + Base)
Risk Costs
PROJECT COST RANGE
Example of Risk
Register
Each cost estimate line item and each risk item is assigned a
probability curve.
Probability curves are chosen by evaluating the behavior of each risk
item.
Probability curves whose parameters can easily be understood and
estimated by project participants are preferred.
Commonly-used distributions are shown here. Clockwise, from top left:
Cumulative, Triangular, Exponential, Discrete, and Pert probability
distributions.
Different Technical
Methods for Quantifying
Risks
Simulation or Modeling Methods (Monte
Carlo) Appropriate for:
- Evaluating Complex Projects and Risks
- Integrated Cost and Schedule Assessments
- Dynamic Critical Path Schedule
Different Technical
Methods
for Quantifying Risks
Non-Simulation Methods (Expected
Value and Variance, PERT) Appropriate
for:
- Risks are Not Complex; Events are
Independent
- Cost or Schedule Assessment
- Stable Critical Path Schedule
- Current Year or YOE Cost Estimates, but not
Dynamic Escalation Effects
Findings: Cost Assessment
Forecasted Probability of Underrun
for the Total Project Cost
FTA Core Accountability Ceiling = 405.2 m illion
100
There is a 90% chance that
the cost w ill be less than 392.6 m illion
90
CATS Base Cost
Budget = 357.9 m illion
Probability of Underrun (% )
80
70
60
There is a 50% chance
that the cost w ill be les s
than 382.9 m illion
50
Total CATS Budget
= 385.9 m illion
40
30
20
There is a 10% chance
that the cost w ill be less
than 373.3 m illion
10
0
$420,000,000
$410,000,000
$400,000,000
$390,000,000
$380,000,000
$370,000,000
$360,000,000
$350,000,000
$340,000,000
Project Cost ($)
Revenue Service Date
7/6/09
5/17/09
3/28/09
2/6/09
12/18/08
10/29/08
9/9/08
7/21/08
6/1/08
4/12/08
Cumulative Probability
Findings: Schedule
Assessment
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Risk Mitigation and
Management
PROJECT
RISK
RISK
MITIGATION
The goal is to maintain a balance
between project risk and risk mitigation
Management Action
Contracts
Insurance
Contingency
Risk Mitigation
Strategies
Management Action:
Contracts:
Contract language may share/transfer risks to other project execution team
members (subcontractors, consultants, etc.)
Example: Contractor non-performance risk may be mitigated by including
liquidated damages in contracts.
Insurance:
Actions taken by project management.
Example: Fraud, waste, and abuse may be mitigated by developing and
implementing strict financial controls with multiple checks and balances in
the approval chain.
Purchase of insurance to mitigate project risk.
Example: Risk of construction accidents may be mitigated by purchasing
builders risk insurance.
Contingency:
Unallocated project cost and schedule (schedule float).
Example: In many cases, the risk of scope changes ultimately mitigated in
this manner.
Sample Mitigation Strategy
Report
Lower Manhattan Recovery Office
Mitigation Strategy Report
ID #
Risk
Mitigation
Action
Strategy
Reestimate project cost during preliminary engineering.
Type
Management Action
By
Grantee
Hold peer review s 60% of engineering progress.
Management Action
Grantee
Perform independent estimate review at the end of preliminary
engineering.
Develop offers using multiple assessments.
Management Action
FTA
Management Action
Grantee
Schedule impacts due to delays in the delivery of
Transfer risk to prime contractor by including incentives and liquidated
Contracts
3 materials/equipment to the construction site due to interference damages in the contract.
w ith other Low er Manhattan projects in the vicinity.
PMOC to develop spot report to evaluate adequacy of incentives and Management Action
liquidated damages in contract w ith prime contractor.
Develop LMRO program construction schedule and hold w eekly
Management Action
construction management meetings w ith representatives of each
project.
Schedule impacts due to finding of items of archeological or
Develop comprehensive alternate construction staging plan for the
Management Action
eventuality that archeological items are found under Avenue X during
4 cultural interest in the site.
final design.
Grantee
Detail
Cost impacts due to deviations from estimate quantities,
1
productivities, and unit prices.
Schedule impacts caused by unexpected condemnations, and
2 delays in the property and right of w ay acquisition process.
Mitigation
FTA
FTA
Grantee
Effect of Mitigation on
Total Cost Variances
Project Cost, Mitigated and
Opportunities Realized
PROBABILITY
Project Cost, Mitigated
Project Cost,
Unmitigated
PROJECT COST RANGE
Risk Assessment Status
Completed:
In Progress:
Sample Management Tool:
Top 5 Risks-Schedule
