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Risk Based Contingency Estimating

Risk Based Contingency Estimating. Jay Drye, WSDOT November 2005. Contingencies. Set up to cover Unforeseen Conditions Additional Work Quantity Overruns Risks that materialize Dispute Resolution. Contingency Estimating. WSDOT Historically Previously 5% Currently 4% based on audit

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Risk Based Contingency Estimating

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  1. Risk Based Contingency Estimating Jay Drye, WSDOT November 2005

  2. Contingencies • Set up to cover Unforeseen Conditions • Additional Work • Quantity Overruns • Risks that materialize • Dispute Resolution

  3. Contingency Estimating • WSDOT Historically • Previously 5% • Currently 4% based on audit • Programmatic • Large Projects utilizing CEVP®

  4. Problem • Large Projects • Percentage may not be adequate • No way to balance a program • Unique Projects • How does % relate to risk

  5. Risk Management • Risk Management is a systematic approach for making informed decisions while minimizing adverse impacts to project scope, cost, and schedule. • Risk Management Focuses on identifying risks and managing their outcomes.

  6. What do we do with RM info? • The design risk management process identifies, analyzes, assigns and reduces risk where appropriate. • Includes minimizing the consequences of adverse events. • What about the remaining risk and consequences carried into Construction?

  7. Quantitative Risk Analysis • Aims to analyze numerically the probability of each risk and consequences on project objectives. • Inputs: CEVP or CRA results Alternatively Simplified Register • Output: Qualitative Risk Based Contingency

  8. Uncertainty in Total Project Cost andDuration Event X Activity B Activity A End $ Start Activity C T Uncertainty in Activity “Base” Costs Event Y Uncertainty in Activity “Base” Durations Risk Events (likelihood of occurrence, and likelihood for cost and duration changes if the event occurs) Evaluate Uncertainty

  9. Limitations of Simplified Register • Lower Accuracy for: • Low number of Risks • High Probability Risks • Relies on Probabilistic Data • Not Statistically Correct • Not Recommended for Opportunities

  10. Risk Register

  11. Risk Based Contingencies • Quantify the risk • Better documentation • Better programming = meeting commitments • Reduce crisis management • Higher confidence priorities in construction administration • Better Monitoring

  12. Risk Monitoring and Control • Update as project develops • Use in Change Order Process • Manage Risks to reduce financial impacts

  13. Tips for Success! • Consider all team input in the development of Risk Management and Risk Register. • Be realistic about values and risks • Monitor efforts to reduce risks

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