Smart Effort = Less Risk

Taking Action

The power of risk management is fully realized when a Project Manager takes action to respond to identified risks based on the risk analysis, with effort being directed toward those risks that rank the highest in terms of significant impact to project objectives.

Inputs

The project scope, schedule, and estimate package should include the most current versions of the following items:

· Project Summary

· Detailed Scope of Work (commensurate with the level of development)

· Project Cost Estimate (with Basis of Estimate completed)

a) PE cost estimate

b) ROW cost estimate

c) Construction cost estimate

· Previous Risk Analyses (if applicable)

· Project Management Plan

· Project Schedule

a) Overall project schedule

b) Detailed construction schedule (commensurate to level of development)

· QA/QC Status

· Additional Information (as necessary)

Techniques and Tools

WSDOT provides a number of techniques and tools to assist in project risk management. These tools and techniques provide scalability and flexibility so that project teams can match the tool with the specific needs of their projects. Often, the appropriate tool is determined by the size and complexity of the project. These tools include:

· Project Management Online Guide (PMOG)

a) Project Management Plan (fundamental for all projects) o

b) The PMOG provides a risk matrix for smaller, simpler projects

c) Risk planning, risk assessment, and risk management are integral elements of project management

· Risk Management Plan spreadsheet template (found on SAEO website)

· Self-modeling tool for quantitative risk analysis

· CRA workshops for all projects between $25M and $100M

· CEVP® workshops for all projects over $100M

Output

Capital Program Management System (CPMS) data requirements per Instructional Letter (IL) 4071 – Project teams must provide specific data to the region program management office for inclusion in CPMS and the Transportation Executive Information System (TEIS). The required data is:

1. Project scheduling data for the following milestone dates:

· Project definition completion date

· Date for the beginning of preliminary engineering

· Completion date for the environmental document

· Start date for the acquisition of right of way

· Date of right of way certification

· Project advertisement date

· Date project is operationally complete (substantially complete)

2. Estimated project cost data (in Current Year Dollars, CY$):

· Date of estimate basis (e.g., “2014 $”)

· Design cost estimate

· Right of way cost estimate

· Construction cost estimate

3. Midpoint for construction phases using the project award date and the operationally complete date.

Statement of Policy

Project Risk Management and Risk-Based Estimating

It is WSDOT’s policy to conduct risk-based estimating workshops for all projects over $10 million (PE, R/W, and Const). These workshops provide information to Project Managers that can help them control scope, cost, and schedule, and manage risks for all projects (Exhibit 1-3). This policy reaffirms the requirement that a Risk Management Plan is a component of every Project Management Plan

Project Risk Management Planning

Great project risk management requires good planning. Begin with proven project management practices: review organizational policies and guidance; initiate and align the project team; and follow the steps provided in the Project Management Online Guide. Risk management must commence early in project development and proceed as the project evolves and project information increases in quantity and quality. Plan to:

· Identify, assess/analyze, and respond to major risks.

· Continually monitor project risks and response actions.

· Conduct an appropriate number and level of risk assessments to update the Risk Management Plan and evolving risk profile for the project.

Consider the resources needed for project risk management and build them into the project development budget and schedule. Risk management activities, including events such as Cost Risk Assessment (CRA), Cost Estimate Validation Process (CEVP®), Value Engineering – Risk Assessment (VERA), or other meetings, need to be part of the project work plan and built into the project schedule and budget (Exhibit 1-4).

Exhibit 1-5 illustrates how project information develops and evolves over time. With rising project knowledge comes an understanding that contending with some elements of the project will require significant additional resources. These elements could involve: scope; environmental mitigation and permitting; rising cost of right of way as corridors develop in advance of the project; utilities; seismic issues; and other elements.

In the past, traditional estimating practices tended to produce “the number” for a project; but the single number masks the critical uncertainty inherent in a particular project. It implies a sense of precision beyond what can be achieved during planning, scoping, or early design phases.

We recognize that an estimate is more accurately expressed as a range, not as a single number. To determine an accurate estimate range for both cost and schedule, risk must be measured. Formerly, WSDOT measured risk based on the estimator’s experience and best judgment, without explicitly identifying the project’s uncertainties and risks. That has changed. Estimates are now composed of two components: the base cost component and the risk (or uncertainty) component. The base cost represents the cost that can reasonably be expected if the project materializes as planned. The base cost does not include contingencies. Once the base cost is established, a list of risks is created of opportunities and threats, called a “risk register.” The risk assessment replaces general and vaguely defined contingency with explicitly defined risk events. Risk events are characterized in terms of probability of occurrence and the consequences of each potential risk event.

Executive Order (EO) E 1053 instructs employees to actively manage their projects. EO E 1038 establishes, as policy, that WSDOT is to proactively assess and respond to any risks that may affect the achievement of the department’s strategic performancebased objectives and their intended outcomes. It further goes on to direct employees to support the department’s efforts to identify, share, and manage risk across all organizations and functions. Risk reviews are an integral part of budget development, with the intent that the department makes informed decisions about risk tolerance. It can be inferred that determined Enterprise Risk Management includes comprehensive project risk management Project risk management is a major element in the Project Management Plan, which is required for all WSDOT projects (EO E 1032). We, as stewards of the public trust, must endeavor to inform decision makers of the uncertainty and risk associated with the projects we develop. We must understand risk tolerance and we must weigh the value of project decisions against project risks.

We can think of risk management as two pillars (depicted above). They are: “IDENTIFY and ANALYZE” the risks, then, “RESPOND, MONITOR, and CONTROL” project risk. Unless we incorporate the second pillar, we are not realizing the full value of risk management. When preparing the Project Management Plan and work activities for our project, we must include both pillars of risk management.