On Time & Within Budget: Using Risk Assessments to Deliver Complex Infrastructure
History tells us that complex infrastructure projects have many unknowns that create surprises, delays, disappointments, and the need for more time and money, usually after we’re already deeply committed in construction. Well-meaning communities sometimes take on complex projects only to be disappointed. However, some organizations have a solid track record of successfully delivering complex infrastructure projects to their community, in part because they take the time to understand and manage risk. Project controls (cost and schedule tracking) have existed since the very first project, and have evolved over time into a refined science. A project controls team can make predictions about the likely cost and schedule impacts by reviewing the project conditions – the what, when, where, why, and how of a project. The more proactive project controls teams are, the better they can predict project results.
One of the most important, proactive steps a project controls team can perform is a Risk Assessment early in the project life cycle. A Risk Assessment focuses on identifying specific risks using elements found within the cost estimate, schedule, and scope of work, and outlines the best way to manage each risk so the project stays on schedule and within budget. Risks are best identified during a comprehensive “risk workshop”, attended by participants (stakeholders, owners, and consultants) who are deeply familiar with the project. Risk workshops provide a collaborative platform to openly discuss and address any possible uncertainties, and allow stakeholders to look ahead to “what-ifs”. Risks and uncertainties discovered in the risk workshop are tabulated and noted for potential mitigation.
Risks and opportunities are compiled in a document called a risk register (list of potential risks). There are two types of risks found in a risk register:
- Known Knowns – risks such as lack of work space, real estate acquisition issues
- Known Unknowns –risks such as the suitability of soils, material prices at time of bid
A third type of risk, the Unknown Unknowns, such as extreme weather events and other impossible-to-predict events, cannot be discretely identified.
The complete risk register includes descriptive information about an event, a characterization of how likely it is the event will change, and a range of cost/schedule impact if the event occurs. The likelihood and impact are commonly scored using a simple scale (e.g. Impact score – 1 being negligible, 5 being severe). Scored are calculated to determine a “low”, “moderate”, or “high” risk rating based on a matrix like the one below.
Data and scoring from the risk register is used to build a Risk Model. The Risk Model simulates multiple combinations of events using Monte Carlo techniques. The model illustrates scenarios and determines the likely impact of risks on project cost and schedule.
Once modeled, the benefit of a Risk Assessment is to make the team aware of potential risks, and to begin to develop a strategy to manage the risks appropriately. For each significant risk identified, a mitigation strategy is developed. These mitigations can be as simple as determining a way to avoid a risk, or as complex as developing a contract document between two parties to transfer a risk. Common risk mitigation methods are normally divided into four categories:
- Risk Transfer or Sharing: Risks that can be shared with or transferred to a third party in the form of contract requirements, warranties, or insurance policies.
- Risk Avoidance: Risks that can be avoided or eliminated, such as scheduling work during summer months to avoid inclement weather events.
- Risk Reduction/Mitigation: Risks who’s root causes can be eliminated or reduced.
- Risk Acceptance: Risks that cannot be easily mitigated and are accepted as inherent to the project. The only way to reduce these risks would come at the expense of scope reduction or cost increase.
A risk plan summarizes the team’s recommendations and identifies who is responsible for mitigating the risks. An effective management team uses the risk plan to ensure risks are addressed in a timely manner, and that the best possible mitigation methods are being used.
Risk assessments give project owners, team members, funding partners, regulatory agencies, and other stakeholders a thorough understanding of the risks that need to be planned for and managed so complex infrastructure projects come in on schedule and within budget. Burns has participated in risk mitigation strategies for some of the most challenging infrastructure projects across the country. For example, a Risk Assessment was performed for the $1.8 billion Sound Transit University Link Light Rail Extension (Seattle) project that included new stations at Capitol Hill and the University of Washington. This line is entirely underground, bringing with it many risks inherent in tunneling, which impact many project elements including construction means and methods, design unknowns, and the requirement for third party utility agreements. With the collaboration of all stakeholders, the Burns-led Risk Assessment brought the U-Link project in $150 million under budget and six months ahead of schedule. Similarly, the Portland – Milwaukie Light Rail Extension (Oregon) project opened for revenue service on September 12, 2015, more than 7 months ahead of schedule and $45 million under budget due in part to the client’s utilization of a collaborative Risk Assessment approach.