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