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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

    [email protected]

    (510) 385-7189

    Rein Lemberg

    [email protected]

    (510) 410-4344