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Risk Management in Value Engineering
AASHTO 2009 VE Conference, San Diego
September 1, 2009
Rich FoleyCalifornia Department of Transportation
Rein Lemberg
CALTROP Corporation
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A bit of backgroundabout Caltrans policies
and our largest projectto date.
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Caltrans Policies
Structured processDesign-orientedProject development
Since 2004Project developmentProjects over $25M
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Our Risk Management Program evolved on the San
Francisco - Oakland Bay Bridge Program
Comprehensive Risk Management Quantitative risk analysis
Cost and schedule risks Quarterly updates to Legislature
Value engineering: During design and construction Include cost and schedule risks Not always the formal process
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The SFOBB is a complex program with multiple
construction sequences
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Multiple Interdependent Contracts
SSD West Tie-
in Phase 1(TunnelViaduct
Replacement)
SubmarineCable
Skyway
SAS Phase 1Erect Tower
E2/T1E2
Foundation
YBI Hinge KWB
YBIConstruction
WB
SSD WestTie-in Phase2
SSDEast Tie-in
SSD Viaduct
SAS Phase 3Complete
EB
OTD 2Complete WB
SAS Phase 2Complete
WB
OTD 1
SAS Phase 1Load
Transfer
YBI Hinge KEB
OTD 2 EB
SSD
Demolition ofExistingBridge
YBIConstruction
EB
YBIComplete WB
Frame 2
YBIComplete EB
Frame 2
SAS Phase1Deck
Erection
SAS Phase1E2 Capbeam
SAS Phase1W2 Capbeam
OTD 2EB Detour
SSDTrafficSwitch
Bridge
Closure(CompleteSSD WTIPhase 1)
SAS Phase 1Cable
Installation
E2/T1T1
Foundation
WBTraffic
Switch
EBTraffic
Switch
2
4
1
3
5
6
7
8
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How we apply quantitative risk analysis
QuantitativeCost RiskAnalysis
Schedule RiskAnalysis
Application to
valueengineeringand decision
support
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Our quantitative costrisk analysis is keptsimple for our teams
Inputs
Model
Output
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Inputs can appear dauntingwe simplify the process
BetaGammaNormal
1,2 ,,
Uniform
min max
Triangular
min peak max
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How we determine the input distribution
Optimistic Pessimistic
MostLikely
$
Somewhere in between,if discernable.
Triangular distribution
Uniform distribution(if no Most Likely value)
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We assess probability distributions for all of our input
variables
Estimate
Risks
100 150$20 $35 $50
Line item = Quantity x Unit Price
10% 30% $1M $3M
Risk item = Probability x Impact
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Input Distributions
that we run through a Monte Carlo model to get the
output probability distribution.
Monte Carlo Simulation
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We turn it into a readable probability curve
50% ProbableCost
10% Chance of Overrun
90% Chance of Underrun
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We innovated inquantitative analysis of
schedule risks
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Understanding Cost and Schedule Risk Analysis
1d
1d
1d
1d
1d
1d
1d
1d
$1
$1
$1
$1
$1
$1
$1
$1
3d4d
5d
1d
1d
1d
1d
1d
1d
1d
1d
$8 8dX
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20
40
20
20
20
25
25
20
100
9080
Schedule risk analysis is handled differently...
20
40
20
20
20
25
25
20
?? ?
??
?
Longest Path
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How do schedule risks affect the schedule?
Can change the
critical (longest) path
Determine the lengthof the critical path
1. Probability of occurrencee.g 20%
2. Delay range
0d 60d
20
40
20
20
20
25
25
20
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Simulation: construct a schedule for each trial...
Determine if a risk occurs:
e.g Probability = 20%
Pick its duration randomly
0d 60d
IF it occurs
20
40
20
20
20
25
25
20
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The schedule for a trial may look like...
20
40
20
20
20
25
25
20
20
100
110
80
20
40
20
20
20
25
25
20
10
30
100
100110
20
40
20
20
20
25
25
20
20
30
20
120
110110
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Run 1000 trials and keep track of...
Length of the longest path
Whether a schedule risk is on a critical
path
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Duration of the longest path
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Criticality of each schedule risk...
Criticality = Probability of being on a critical path.
Risk Criticality
Risk 10 100%Risk 3 97%
Risk 14 92%
Risk 12 83%Risk 4 78%
... ...
Priority
Top
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and determine the Criticality Path
83%
92%
63%
72%
83%
80%
There may be
more than onecritical path to monitor
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An example schedule
Erect TemporaryWorks
Install CableSystem
Transfer Load toCable
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we add duration uncertainties
Erect TemporaryWorks
Install CableSystem
Transfer Load toCable
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and place the risks into the schedule.
Erect TemporaryWorks
Install CableSystem
TransferLoad to Cable
Risk Risk Risk
Has two properties:
1. probability that it may occur
2. three-point estimate of its duration IF it happens to occur
Risk activity appears as zero-duration activity
Schedule Risks Are Visible!
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We run schedule risk analysis software to get
Probability DistributionFor Completion Milestone
Criticality Chart
50 55 60 65 70 75 80 85 90 95 100
002371 InstallSuspenders
000341 PWSSystemInstallation
000351 LoadTransferCabletoDeckSect.
000841 CompactPWS/CableBands
000831 ErectCableSystemTemporaryWorks
001521 EBCompletionActivities
000641 Stage
1Demolition
(Bent
39
to
Bent
33)
000691 ConstructAbutment23R
000751 Excavate&LightWeightConcreteRoadway
000761 ConstructRoadway&CompleteEastbound
002361 OBGCompleteforCableErection
002071 ErectDeckLift14W
002341 Align/Bolt/WeldLifts13W/14W
002041 ErectDeckLift13W
002051 ErectDeckLift13E
002191 Align/Bolt/WeldLifts12E/13E
Criticality(%)
Criticality
Criticality Paths
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We apply ourquantitative techniques
to value engineeringand decision support.
Examples:
1.Evaluate retrofit or replace
2.Accelerate construction
3.Interaction of 2 contracts
?
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Example: Retrofit or Replace
75-year old structureUnknown condition
As-builts?Connection to Detour?
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The viaduct retrofit issue
Decided to replace the 75-year old viaduct
1.Eliminates risks of unknowns of an old structure2.Fewer risks in connecting to detour structure
3.Eliminates additional bridge closures for retrofit4.Early completion reduces risk to corridor schedule
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The new viaduct 3-day bridge closure
1. 6500 tons - 300 feet long, 5 lanes wide2. 20 concrete saws cut up the deck in 2 hours3. Cut out 48 girders and hauled off site4. 8 skid tracks 2 jacks per track
5. Bridge opened to traffic about 11 hours early
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33
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Example: Contract acceleration options
Westbound
EastboundOTD EBContract
WBOpen
EBOpen
OTD EBContract
Objective: shorten time between WB and EB open
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Evaluated schedule risks of acceleration option
No change
Accelerated
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In the bigger picture, it is not just the OTD contract
SSD West Tie-
in Phase 1(TunnelViaduct
Replacement)
SubmarineCable
Skyway
SAS Phase 1
Erect Tower
E2/T1E2
Foundation
YBI Hinge KWB
YBIConstruction
WB
SSD WestTie-in Phase2
SSDEast Tie-in
SSD Viaduct
SAS Phase 3Complete
EB
OTD 2Complete WB
SAS Phase 2Complete
WB
OTD 1
SAS Phase 1Load
Transfer
YBI Hinge KEB
OTD 2 EB
SSD
Demolition ofExistingBridge
YBIConstruction
EB
YBIComplete WB
Frame 2
YBIComplete EB
Frame 2
SAS Phase1Deck
Erection
SAS Phase1E2 Capbeam
SAS Phase1W2 Capbeam
OTD 2EB Detour
SSDTrafficSwitch
Bridge
Closure(CompleteSSD WTIPhase 1)
SAS Phase 1Cable
Installation
E2/T1T1
Foundation
WBTrafficSwitch
EBTrafficSwitch
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WB to EB opening is a three-horse race
SAS, YBITS and OTD
Westbound
EastboundOTD EBContract
SAS
YBITS
Two contracts completethe west end.
Slowest horse wins
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The 3-horse race has a different outcome
OTD - No change
YBITS Contract SAS Contract
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Example: Interaction of 2 contracts
FoundationsContract
BridgeContract
FoundationsRequired BridgeContract
Question:
Pay $$ to accelerateFoundations contract
schedule?
Potential Delay ofBridge Contract
Foundations
Bridge
Timescale
Foundatio
n
Required
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Used schedule risk analysis to evaluate delay
Decision:
Dont accelerate
< 5% chance ofFoundationsdelaying Bridge
FoundationsContract
BridgeContract
FoundationsRequired
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Summary
Value Engineering canbenefit from considering
risk and uncertainty.
Also consider schedulerisks, not just cost risks.
Update cost and schedulerisks and opportunities
regularly during design andconstruction.
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Discussion?
Project Risk Management
Contact Information:
Rich Foley
(510) 385-7189
Rein Lemberg
(510) 410-4344