Risk Management in Value Engineering

AASHTO 2009 VE Conference, San Diego

September 1, 2009
Rich Foley
California Department of Transportation
Rein Lemberg
CALTROP Corporation
A bit of background
about Caltrans policies
and our largest project
to date.
Caltrans Policies
Structured process
Design-oriented
Project development
Since 2004
Project development
Projects over $25M
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
The SFOBB is a complex program with multiple
construction sequences
Multiple Interdependent Contracts
SSD West Tie-
in Phase 1
(Tunnel
Viaduct
Replacement)
Submarine
Cable
Skyway
SAS Phase 1
Erect Tower
E2/T1
E2
Foundation
YBI Hinge K
WB
YBI
Construction
WB
SSD West
Tie-in Phase
2
SSD
East Tie-in
SSD Viaduct
SAS Phase 3
Complete
EB
OTD 2
Complete WB
SAS Phase 2
Complete
WB
OTD 1
SAS Phase 1
Load
Transfer
YBI Hinge K
EB
OTD 2 EB
SSD
Demolition of
Existing
Bridge
YBI
Construction
EB
YBI
Complete WB
Frame 2
YBI
Complete EB
Frame 2
SAS Phase1
Deck
Erection
SAS Phase1
E2 Capbeam
SAS Phase1
W2 Capbeam
OTD 2
EB Detour
SSD
Traffic
Switch
Bridge
Closure
(Complete
SSD WTI
Phase 1)
SAS Phase 1
Cable
Installation
E2/T1
T1
Foundation
WB
Traffic
Switch
EB
Traffic
Switch
2
4
1
3
5
6
7
8
How we apply quantitative risk analysis
Quantitative
Cost Risk
Analysis
Schedule Risk
Analysis
Application to
value
engineering
and decision
support
Our quantitative cost
risk analysis is kept
simple for our teams
Inputs
Model
Output
Inputs can appear dauntingwe simplify the process
Beta
Gamma Normal

1
,
2
, ,
Uniform
min max
Triangular
min peak max
How we determine the input distribution
Optimistic
Pessimisti
c
Most
Likely
$
Somewhere in between,
if discernable.
Triangular distribution
Uniform distribution
(if no Most Likely value)
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
Input Distributions
that we run through a Monte Carlo model to get the
output probability distribution.
Monte Carlo Simulation
We turn it into a readable probability curve
50% Probable
Cost
10% Chance of Overrun
90% Chance of Underrun
We innovated in
quantitative analysis of
schedule risks
Understanding Cost and Schedule Risk Analysis
1d
1d
1d
1d
1d
1d
1d
1d
$1
$1
$1
$1
$1
$1
$1
$1
3d
4d
5d
1d
1d
1d
1d
1d
1d
1d
1d
$8 8d
X
20
40
20
20
20
25
25
20
100
90
80
Schedule risk analysis is handled differently...
20
40
20
20
20
25
25
20
?
?
?
?
?
?
Longest Path
How do schedule risks affect the schedule?
Can change the
critical (longest) path
Determine the length
of the critical path
1. Probability of occurrence
e.g 20%
2. Delay range
0d 60d
20
40
20
20
20
25
25
20
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
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
100
110
20
40
20
20
20
25
25
20
20
30
20
120
110
110
Run 1000 trials and keep track of...
Length of the longest path
Whether a schedule risk is on a critical
path
Duration of the longest path
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
and determine the Criticality Path
83%
92%
63%
72%
83%
80%
There may be
more than one
critical path to monitor
An example schedule
Erect Temporary
Works
Install Cable
System
Transfer Load to
Cable
we add duration uncertainties
Erect Temporary
Works
Install Cable
System
Transfer Load to
Cable
and place the risks into the schedule.
Erect Temporary
Works
Install Cable
System
Transfer
Load 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!
We run schedule risk analysis software to get
Probability Distribution
For 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 Stage1Demolition(Bent39toBent33)
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
We apply our
quantitative techniques
to value engineering
and decision support.
Examples:
1.Evaluate retrofit or replace
2.Accelerate construction
3.Interaction of 2 contracts
?
Example: Retrofit or Replace
75-year old structure
Unknown condition
As-builts?
Connection to Detour?
The viaduct retrofit issue
Decided to replace the 75-year old viaduct
1.Eliminates risks of unknowns of an old structure
2.Fewer risks in connecting to detour structure
3.Eliminates additional bridge closures for retrofit
4.Early completion reduces risk to corridor schedule
The new viaduct 3-day bridge closure
1. 6500 tons - 300 feet long, 5 lanes wide
2. 20 concrete saws cut up the deck in 2 hours
3. Cut out 48 girders and hauled off site
4. 8 skid tracks 2 jacks per track
5. Bridge opened to traffic about 11 hours early
33
Example: Contract acceleration options
Westbound
Eastbound
OTD EB
Contract
WB
Open
EB
Open
OTD EB
Contract
Objective: shorten time between WB and EB open
Evaluated schedule risks of acceleration option
No change
Accelerated
In the bigger picture, it is not just the OTD contract
SSD West Tie-
in Phase 1
(Tunnel
Viaduct
Replacement)
Submarine
Cable
Skyway
SAS Phase 1
Erect Tower
E2/T1
E2
Foundation
YBI Hinge K
WB
YBI
Construction
WB
SSD West
Tie-in Phase
2
SSD
East Tie-in
SSD Viaduct
SAS Phase 3
Complete
EB
OTD 2
Complete WB
SAS Phase 2
Complete
WB
OTD 1
SAS Phase 1
Load
Transfer
YBI Hinge K
EB
OTD 2 EB
SSD
Demolition of
Existing
Bridge
YBI
Construction
EB
YBI
Complete WB
Frame 2
YBI
Complete EB
Frame 2
SAS Phase1
Deck
Erection
SAS Phase1
E2 Capbeam
SAS Phase1
W2 Capbeam
OTD 2
EB Detour
SSD
Traffic
Switch
Bridge
Closure
(Complete
SSD WTI
Phase 1)
SAS Phase 1
Cable
Installation
E2/T1
T1
Foundation
WB
Traffic
Switch
EB
Traffic
Switch
WB to EB opening is a three-horse race
SAS, YBITS and OTD
Westbound
Eastbound
OTD EB
Contract
SAS
YBITS
Two contracts complete
the west end.
Slowest horse wins
The 3-horse race has a different outcome
OTD - No change
YBITS Contract
SAS Contract
Example: Interaction of 2 contracts
Foundations
Contract
Bridge
Contract
Foundations
Required
Bridge
Contract
Question:
Pay $$ to accelerate
Foundations contract
schedule?
Potential Delay of
Bridge Contract
Foundations
Bridge
Timescale
F
o
u
n
d
a
t
i
o
n
R
e
q
u
i
r
e
d
Used schedule risk analysis to evaluate delay
Decision:
Dont accelerate
< 5% chance of
Foundations
delaying Bridge
Foundations
Contract
Bridge
Contract
Foundations
Required
Summary
Value Engineering can
benefit from considering
risk and uncertainty.
Also consider schedule
risks, not just cost risks.
Update cost and schedule
risks and opportunities
regularly during design and
construction.
Discussion?
Project Risk Management
Contact Information:
Rich Foley
rich_foley@dot.ca.gov
(510) 385-7189
Rein Lemberg
rlemberg@caltrop.com
(510) 410-4344